TELF AG, STANISLAV KONDRASHOV

TELF AG 2023 Market Roundup 2023 Week 16

Macro

  • The market expects Chinese growth to accelerate to above 5% this year. Stronger growth will fuel a turnaround in import demand from China. This should particularly benefit economies in East and Southeast Asia with strong trade and tourism linkages. Stronger Chinese growth could also push energy and other commodity prices higher. This will come at a cost to Europe, East Asia and other net importers of energy.
  • Crude oil and natural gas inventories are piling up due to sluggish demand in Europe and the US. Meanwhile, Asian buyers are taking advantage of lower prices, but their demand growth has been lacklustre too.
  • As per CRU the oil market is expected to remain in surplus, with increased production in the US and Canada offsetting a decrease in Russian output. Although in January, Saudi Arabia produced 0.7 Mbbl/d lower than its October quota level, we believe a steady flow of around 29 Mbbl/d of OPEC production throughout this year will be sustained. Chinese demand in H1 is predicted to be around 0.5 Mbbl/d higher relative to 2022 H1. The major rebound is in the second half of the year – around 0.87 Mbbl/d relative to 2022 H2, driven by an uptick in jet fuel demand due to increased travel.

Ferro-alloys

  • High carbon FeCr prices held steady in Europe backed by support from supply, demand
    • High carbon ferro-chrome prices in Europe remained stable for a further week as of Tuesday March 7, propped up by ongoing support from overall supply tightness and reasonably strong demand. The price is now close to levels last seen in August 2022, at which point the continuous declines from the peak for that year were well underway.
    • Market participants expect a further strengthening of the demand on ferro-chrome, especially in Europe following an increase in defence budgets and a pick up in stainless and specialty steel demand
  • Chinese ferro-chrome sellers cut prices to attract bookings from STS mills
    • Ferro-chrome participants are not confident about the STS market right now. According to a Chinese FeCr trader, they know that end demand for STS remains sluggish, and they are worried about production cuts; the Chinese FeCr trader source added that most FeCr sellers have reduced their prices, hoping to secure bookings.
    • In order to relieve capital pressure, (Chinese) stainless mills are only holding 10-15 days of ferro-chrome inventories in their warehouses, compared to their usual one-month stockpile of raw materials.
  • Chrome ore prices remain unchanged
    • Weak sentiment in the ferro-chrome market has not affected chrome ore prices, which have remained buoyed because of low port inventories and uncertainties in logistics in South Africa.
    • The weekly price of South Africa UG2/MG concentrates index, cif China was $292 per tonne on Tuesday, unchanged from the previous Tuesday. Similarly, the price for chrome ore Turkish lumpy 40-42%, cfr main Chinese ports was at $318-350 per tonne on Tuesday. The price has stayed constant since its February 14 assessment.
  • Even though high-carbon ferrochrome prices in China have been on a steady uptick, Chinese smelters have continued to face margin pressure as input costs have also been rising. Along with improved sentiment in end-use sectors and tighter supply availability from South Africa, this saw the China tender price rise to a monthly average of US$1.09/lb Cr in February.

 Stainless steel and bulk alloys

  • In Europe, steel production increased in January and there have been further announcements of impending blast furnace restarts. However, steel plants’ ferroalloy needs have been well covered by contracts leaving spot ferroalloy markets subdued. There are mixed views on the extent of a demand recovery, but prices remain under pressure so far.
  • China’s domestic and export stainless steel prices fell further. The decrease over the week ended on Wednesday March 8 due to an expectation of more supply in the coming week.
  • Lower nickel prices on the London Metal Exchange added to the downward pressure on China’s domestic STS prices.
  • China’s exporters reduced their offer prices for stainless steel because their purchase cost decreased by $50 per ton. Their lower prices, however, still failed to attract buyers. The competition from suppliers in other regions was a second factor contributing to sparse export trading in China.
  • CRU’s domestic Indian SiMn prices edged lower this week on the back of thinning trade and slow end-user demand. While sentiment has improved in recent months following the removal of export taxes on finished steel products, domestic steel output growth and real ferroalloy consumption growth, remains rather slow. Several Indian producers have stopped or reduced production of SiMn due to high input costs and subdued demand; Near-term outlook remains weak until any real recovery can be seen in the steel sector.

Copper

  • The copper price has weakened to below $9,000 /t over the last month. While there has been no let up in the flow of negative mine supply news, the lack of a fully formed Chinese demand recovery narrative means investors are wary of placing strong upward directional bets on the copper price. In addition, above-consensus prints for US inflation and an associated tilt back to a more hawkish outlook for interest rates has seen a commodity price negative strengthening of the US dollar. Visible copper stocks have risen by ~100,000 t over the month – all in China – but remain low in absolute terms.
  • In China, utilisation rates at some wirerod manufacturers have exceeded 90% recently. New orders remain slow, but producers have been taking advantage of any dips in the copper price to buy cathode and build finished product inventories, ahead of an expected improvement in demand from the middle of March onwards. The dollar cathode market remains close to recent lows in the $20s /t, while there are some nascent signs of improvement in the private residential property market.
  • Economic data and market feedback point to resilience in the industrial sector of the Atlantic markets. This elasticity is generally soft but not getting markedly worse due to levels of construction activity and a positive outlook for copper use in the green energy transition (energy infrastructure and electric vehicles).
  • Copper is key to the energy transition due to its use in various ‘green’ technologies such as EVs, renewables, and grid electrification. Such demand has increased the need for investment in new copper supply. CRU forecasts that copper prices will remain firm through the mid- to long-term, helping to drive mine investment.

Battery materials

  • The start of 2023 was similar to 2022 Q4 in the cobalt market. Metal and chemicals prices continued to slide and sentiment was weak. Prices are close to marginal production costs but should not stay there for too long. Most market players expect some price recovery in 2023 H2, supported by continued growth in demand from the EV sector. Fundamentals are slightly weaker for the cobalt market despite significant demand growth projected for the medium term, as all recent demand revisions have been to the downside.
  • Battery chemistry changes clearly and shifting towards lower cobalt usage in batteries. However, as per several industry analysts the LFP (no cobalt EV battery) market is reaching a point of temporary saturation. This should in turn support cobalt demand growth, as the cobalt containing EV market grows faster than the price of reduction in cobalt use.
  • Supply growth is expected to be strong over the next five years. CRU believes that a large proportion of new cobalt supply will come to the market irrespective of the cobalt price, due to the by-product nature of this commodity. However, since most new supply will come from greenfield projects, there are risks to the projected growth path.
  • Prospects for the auto sector will improve in 2023, with global sales growing by 6% y/y as economic conditions recover, particularly in N. America and Europe.