TELF AG 2023 Market Roundup 2023 Week 19
Macro
• As FT reports, China’s gross domestic product expanded 4.5 percent year on year in the first quarter, as strong growth in exports and infrastructure investment, as well as a rebound in retail consumption and property prices, drove a recovery in the world’s second-largest economy. The official figure, which exceeded analyst expectations of a 4 percent rise, followed efforts by Chinese leader Xi Jinping’s government to restore business confidence damaged by pandemic controls last year and abrupt policy changes. The January-March growth rate was still short of the government’s full-year target of 5 percent, held back by a nationwide Covid-19 outbreak at the start of this year, but economists expect it to pick up pace as the year progresses. China’s rebound is crucial to global economic growth this year as developed nations grapple with persistently high inflation, rising interest rates, and sluggish expansion in the wake of the pandemic and Russia’s full-scale invasion of Ukraine. “The national economy showed a steady recovery and made a good start,” China’s National Bureau of Statistics said. But the agency cautioned that the situation was “complex and volatile, inadequate domestic demand remains prominent, and the foundation for economic recovery is not solid yet.”
• U.S. and Eurozone business activity gathered pace in April, according to surveys released on Friday, despite central bankers signaling they are nearing the peak of their interest rate hiking cycles designed to cool demand enough among consumers to bring high inflation down. S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 53.5 this month. That was the highest level since last May and followed a final reading of 52.3 in March. It is at odds with growing signs that the economy is in danger of slipping into recession as higher interest rates begin to bite. It was the third straight month that the PMI remained above 50, indicating growth in the private sector. The survey data was collected April 12-20. The survey’s flash services sector PMI rose to 53.7, the highest reading in a year, from 52.6 in March. Economists polled by Reuters had forecast the services PMI falling to 51.5. The survey’s flash manufacturing PMI increased to 50.4, a six-month high, from 49.2 in March. Economists had forecast the index at 49. New orders increased, ending six straight months of contraction.
• Oil. Oil prices slid by about $2 a barrel to their lowest level since late March on Thursday, dragged lower by fears a possible recession could dent fuel demand after a rise in U.S. gasoline inventories. Brent crude futures settled at $81.10 a barrel, shedding $2.02, or 2.4%. West Texas Intermediate crude (WTI) futures settled at $77.29 a barrel, losing $1.87, or 2.4%. Both benchmarks fell 2% on Wednesday and are at their lowest since just before a surprise OPEC+ production cut announcement. On the supply side, oil loading from Russia’s western ports in April is likely to rise to the highest since 2019, trading and shipping sources said. The country’s petroleum minister said Pakistan had placed its first order for discounted Russian crude under a new deal that could cover 100,000 barrels daily. Also weighing on crude prices, equity markets, which often move in tandem with oil prices, were down after disappointing results from Tesla (TSLA.O) and other companies.
Ferro-alloys
• Chrome ore. Chinese port UG2 ore price increased further this week as traders continued to lift offers on limited market availability. The strengthening FeCr market also supported the ore market and encouraged traders’ market confidence. South African chrome ore prices edged down this week as demand from the stainless-steel industry in China has yet to pick up. After announcing the UG2 benchmark price for Q2, the South African chrome ore markets have remained quiet for some weeks as producers resisted lowering their offer prices. Turkish 44% Cr ore prices decreased this week amid slow demand and softening production costs. Prices for Turkish Cr ore have moved down twice this month, driven by sluggish demand from China and relatively lower production costs.
• China’s FeSi 75% price has recently increased as producers lifted offers after seeing downstream magnesium product prices rise. Magnesium prices in China have reportedly jumped by more than 20% recently after news suggested that magnesium producers at the major production base of Fugu, Shaanxi province, would shut down by the end of April in line with the rectification work from the local semi-coke furnaces.
• US SiMn prices rose on Tuesday, following a price decline last week. The price moves reflect a wide range of prices available in the market from regular sellers motivated to keep prices elevated and traders with lower-priced material. The rise in SiMn prices contrasts the general downtrend in manganese alloys, evidenced by the drop in US LC FeMn prices on Tuesday.
• Prices for US HC FeCr fell slightly on Thursday, marking the first change to the index since late February. Spot demand has been slow for the past few weeks, and any deals reported to CRU were within range. Contract offtakes have been steady, causing sellers to hold firm on offer prices for the spot market. In the past week, prices have begun to shift closer to the low end of the range. Therefore, CRU assessed US HC FeCr at 290-300 c/lb, EXW, down from 290-305 c/lb, EXW previously. Sources reported that offers for Indian materials have become more aggressive, which could pressure prices for all origins. The lack of buying interest from China also contributes to the bearish sentiment. Prices are expected to fall further unless there is a spot-demand turnaround.
• Chinese stainless output for March is estimated to have been 3.0 Mt, up from the 2.8 Mt produced in February. This rounds off a strong 2023 Q1 for Chinese production, up around 5% on the same period in 2022. This has driven up both chrome ore and ferrochrome prices in 2023 Q1. However, this increase in production has come before the downstream demand for stainless has rebounded and has led to inventory levels way above long-run averages, hitting stainless prices. As a result, CRU analytics expect production cutbacks through April, highlighted by the RMB650 /t reduction in the tender price. This ripple is already starting to affect chrome ore prices in South Africa. Looking ahead, Chinese stainless production is expected to be 7.1% higher in 2023 than in 2022. This would be driven by stronger production growth in 2023 H2, so we expect the downturn in production to be a lull rather than a new trend.
Base Metals
• Copper: Stockout risk is increasing. As per Goldman, copper remains the highest conviction among most long across the industrial metals, with projections of up to a 25% upside in price as a rally peak. This constructive price view remains underpinned by our projection for a 278kt refined metal deficit this year, which marks the beginning of a sequence of sharply expanding deficit balances after that. In this context, there are three key observations on the copper market at this current juncture.
o First, the inventory trends over Q1 reinforce our expectation for a full-year deficit market. Historically just over 90% of the visible stock builds on a full-year basis occur during Q1 in the copper market. Over Q1-23, global visible copper stocks rose just 157kt, compared to the 10-year average Q1 build close to 280kt. Over that time frame, only once has the copper market not ended up in a clear full-year deficit when the Q1 stock build has been less than 200kt. Moreover, the pace of stock draw from CNY peak in mid-February to early April has been the highest in the past 20 years, meaning on the current run rate, global visible stocks would deplete by start-Q4 versus our base case for end-Q4.
o Second, China remains in early Q2 in a destocking mode focused on local inventory to meet demand rather than the import channel. With apparent onshore refined demand back into y/y growth from February, GS expects this destocking phase to shift toward greater import support over the next few months. Third, as we highlighted earlier in the note, it would take a severe ‘GFC-like’ OECD recession from the current starting point to generate an apparent copper surplus (339kt), while a modest recession would only balance the market (42kt deficit).
• Aluminum: China imports driving tightening inflection. Unlike copper, the aluminum market has seen some sluggishness in fundamental trends so far this year, with a larger-than-expected Q1 600kt surplus. This reflected marginally higher China production and weaker ex-China demand than expected. However, from early March, the market has inflected into a deficit led by onshore trends, with sharp stock draws like copper. Moreover, as per GSm, a 1.4Mt full-year deficit is forecasted, implying a near 2Mt deficit between now and year-end, above total global visible stocks.
Battery materials
• Lithium. Goldman Sachs reports that the past four months have marked a 67% decline in onshore Chinese lithium prices from all-time highs, completing a trip to the levels last seen in ’21Q3. The drivers of this price decline are clear – a fall in onshore EV sales in January, lukewarm recovery in Feb-March this year, and continued supply growth globally. This weakness in spot demand has traveled through the EV supply chain, leading to an increase in the finished stock of lithium salts and falling restocking demand. GS reiterated their view on supply – China and ex-China supply are set to grow strongly in 2023, with Australia and Chile adding 173kt LCE of supply and China 75kt LCE. Furthermore, the China supply estimates reflect integrated production corresponding to a marginal cash cost of around $12,000/t LCE, leaving substantial room for prices to fall in a surplus environment.
• Cobalt. Swedish battery manufacturer Northvolt and Swedish commercial vehicles manufacturer Scania have jointly developed a nickel cobalt manganese (NCM) battery cell with the capacity to power heavy electric vehicles for 1.5 million km, they announced on Wednesday, April 19. This reinforces demand for NCM in Western markets even as lithium iron phosphate (LFP) continues to grow its global market share.” We are seeing a trend to use more LFP in heavy trucks, mainly in Asia. However, Europe has been focused on NCM battery manufacturing, and only a few manufacturers produce LFP cells in Europe,” Phoebe O’Hara, Fastmarkets’ battery raw materials analyst, said. O’Hara also said that the shift to LFP is mainly due to price. For trucks, the batteries must be so large – in terms of kWh – that creating them as NCM ones are expensive. In the current spot market for cobalt, weak demands from electric vehicles (EVs) and the chemical market, as well as an oversupply of cobalt hydroxide, continue to depress the price. Northvolt told Fastmarkets that the battery capacity, which will go into trucks, will range from 350-450 kWh. The average battery capacity for EVs globally is now at 60 kWh.The companies unveiled that the capacity is equivalent to the truck’s life in a market where range anxiety that heavy EVs will not have sufficient charge to last remains. NCM batteries are more energy-dense than the cheaper alternative, LFP batteries. NCM’s energy density enables vehicles to travel longer distances – a property that suits heavy vehicles. The battery maker added that the balance of the raw material components will be customized to meet each customer’s needs.
