TELF AG 2023 Market Roundup 2023 Week 20
Macro
• Q1 market results among major miners. The start of 2023 has seen M&A activity awaken among major mining companies. The acquisitions of Turquoise Hill and OZ Minerals were completed smoothly, and many smaller deals in pre-production copper and nickel assets were announced. Glencore’s merger attempt for Teck marked the first major bid of this cycle. In addition, more companies indicate they are looking at larger transactions.
• The operational performance of the major mining companies has been mixed. BHP and South32 lowered guidance going into the final quarter of their reporting year. At the same time, copper production issues for Rio Tinto forced the company to drop guidance after just one quarter. Remember, Anglo-American, Glencore, and Vale revised down guidance going into 2023 – while sticking to guidance so far, all these companies are expecting little-to-no growth this year. In the last three years, abnormal rainfall associated with the La Niña weather phenomenon has, alongside Covid, driven higher disruptions. An El Niño event looks increasingly likely to develop in H2, bringing the opposite conditions. As a result, mining companies are cautious about the potential for drought in Australia and abnormally high rainfall in South America.
• Metals prices have been relatively stable in Q1, particularly in contrast to coal. But the precipitous drop is unlikely to continue – metallurgical coal prices may have already bottomed out while thermal coal is close to support. So while metals demand fails to materialize at anticipated levels, the big risk is priced, losing the support of positive sentiment around China reopening.
• Oil. Brent went from $87.33 on April 12 to $73 on May 4 as U.S. economic data continued, spreading fears of a weakening economy. Also weighing on oil prices was the Fed’s Wednesday meeting in which it raised interest rates another 25 basis points but also indicated a pause in rate hikes should inflation continue to ease. There are ongoing concerns that rate hikes are slowing economic growth and negatively impacting oil prices, while U.S. bank failures add to the unease. China’s recovery, which will be a significant determining factor for oil prices, remains uncertain after April declines in manufacturing activity, after three months of increase.
• Freight. The Baltic Exchange’s main sea freight index, which measures the cost of shipping goods worldwide, fell about 0.8% to its lowest in more than a week at 1,545 points on Thursday, pressured by smaller vessel segments. The panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, decreased 1.7% to hit its lowest in more than two months at 1,514 points; and the supramax index shed 18 points to 1,105 points. Meanwhile, The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, remained unchanged at its highest level since December 22 at 2,325 points.
Ferro-alloys
• Chrome ore. In Q1 2023, buying sentiment for ore in China was robust as ferrochrome output performed well. Along with logistics constraints in South Africa, this provided highly elevated ore prices. However, chromium ore prices began to soften by late March as production cuts among struggling ferrochrome producers in China’s southern provinces weakened buying sentiment. This saw the South African 42-44% LG-MG ore price inch down to US$315/t (CIF China) by the end of April. As high-carbon ferrochrome prices in China have recently been on a downturn, the current ore price level has become prohibitive for even more Chinese ferrochrome producers.
• Further Chinese ferrochrome production cutbacks are inevitable. This will lend further downside to ore prices, with the average South African 42-44% LG-MG ore price forecast at US$300/t (CIF China) for Q2 2023 as per Woodmac consensus. This price will continue to soften through the short-term outlook to 2024 – though it won’t fall below a quarterly average of US$260/t (CIF China) due to a structurally tighter market.
• FeCr. In April 2023, the monthly China tender price for high-carbon ferrochrome dropped to US$1.05/lb Cr, representing its first monthly decline since September 2023. This came as the Chinese market drifted into oversupply with weak end-use demand prompting production cutbacks among Chinese stainless steel mills at a time when ferrochrome output was robust. However, we expect the Chinese ferrochrome market to begin rebalancing as supply dwindles due to output curbs in southern China. The resurgence will further aid market rebalancing in demand from Chinese stainless steel beyond Q1 2023. In March, the Q2 2023 high-carbon ferrochrome European Benchmark price was settled at US$1.72/lb Cr. This represents a high premium of 64% relative to the April 2023 average China tender price. Along with surplus market conditions in Europe, the Q3 2023 European Benchmark price will fall to US$1.5/lb Cr levels.
• Mn ore. The sharp recovery of manganese ore prices in Q1-2023 has now gone into reverse. From a peak of nearly US$6/dmtu (CIF China) in March, the 44% manganese ore price has now fallen to around US$5.30/dmtu. The softening of prices reflects falling production costs, the resumption of normal production in Gabon, and perhaps a realization that market expectations for Chinese demand after the end of pandemic restrictions were unrealistically positive.
• FeSi. US ferrosilicon prices resumed falling in the past two months. However, the divergence between US and European prices has significantly narrowed since February. Chinese FOB prices remained flat in April after dropping by 4% month-on-month in March, averaging US$1,631/t as of the final week of April. After a slight uptick in March, European ferrosilicon prices dipped by 2% month-on-month to US$2,058/t in April.
• As per Woodmac, the forecast of global growth in stainless melt output at 6.6% in 2023, to 60.5 Mt, is driven mainly by the 8% rebound in China to 35.8 Mt. However, with China stalling in April, there is mounting downside risk to the forecast of a recovery in H2. In addition, one of the major players in Indonesia – Jiangsu Delong – has run into financial difficulties in recent months. As a result, forecast production was cut in both countries by 250 kt in 2023. Together with other adjustments in Europe and SE Asia based on the latest data, the net change in outlook for 2023 is a cut of 630 kt in global stainless melt production compared with last month. Chinese mills began cutting production in March due to falling prices, weak demand, and high inventories.
• Consequently, the original guidance of a 9% increase in production compared with February finally came in at only 1%, around 210 kt lower than advertised. Not surprisingly, the guidance for April was a cut of 3.5% on this lower March result, or around 100 kt lower, month-on-month. This leaves Chinese stainless production in Q1 up by 3% year-on-year but in Q2 down by 2%. However, the signs from the expected Chinese rebound are that the improvement in H2 could be slower than expected. Demand recovery in consumer and industrial goods is slow, while inventories of finished goods remain high. In addition, con preference for services over goods may extend through May. Producers prioritize destocking over production ramp-ups, which could take three to six months to unwind fully.
Base Metals
• Copper. At $8,500 /t, the copper price has been trading ~$1,000 t/ below mid-January highs. The price decline is due to a combination of factors:
o A steady but not spectacular Chinese economic recovery, with
o copper semi-fabricator utilisation rates plateauing
o The apparent slowdown in European and US economies and
o ongoing recession fears
o Banking failures complicating central bank interest rate policy
o against a backdrop of still elevated levels of core inflation
• CITI Research has released its updated forecast for base metals in 2023:
o The zinc price forecast lowered to $2,882/mt from $2,958/mt.
o The bank revised down its 2023 aluminum price forecast from $2,561/mt to $2,475/mt, its 2024 aluminum price forecast from $2,900/mt to $2,800/mt and its 2025 aluminum price forecast from $3,000/mt to $2,900/mt.
o The bank revised its 2023 nickel price forecast to $23,258/mt from $23,443/mt and lowered its 2024 nickel price forecast to $20,000/mt from $22,000/mt.
o However, its 2023 copper price forecast was raised from $8,607/mt to $8,733/mt; the 2024 copper price forecast was raised from $9,000/mt to $10,000/mt; the 2025 copper price forecast was raised from $9,000/mt to $10,000/mt.
Battery materials
• Cobalt. The Cobalt Institute’s Market Report, published on 10th May, confirms the long-term role of cobalt as part of the solution to a green energy transition. Indonesia became a key growth market for cobalt, while cobalt-containing batteries maintained a strong share in the EV market. Caroline Braibant, Interim Director General at the Cobalt Institute, said: “The cobalt industry is optimistic the cobalt market will continue to grow in the coming years, driven by the success of cobalt’s use in superalloys and hard metals, and particularly in EVs. In addition, cobalt-containing batteries are key for EVs safety, performance, and stability – a factor that will continue to define consumer preferences in Europe and North America.” Indonesia became the second largest cobalt producer, overtaking established producers, including Australia and the Philippines. With 5% of the 2022 supply, Indonesia has the potential to increase cobalt production by ten times by 2030, with new projects being announced regularly. The Democratic Republic of Congo maintained a steady share of 73% of production.
• Despite 2022 being a turbulent year for cobalt demand, it maintained an annual growth of 13%, reaching 187 kt. The cobalt market prospects remain robust as cobalt demand is set to double by 2030, growing at a 10% annual rate.
• In 2022, the EV sector was the strongest performer, now accounting for 40% of the total cobalt market. Because of its exceptional properties, cobalt is expected to remain a key raw material for the entire battery supply chain, despite discussions on substitution. Cobalt-containing chemistries represented 63% of cathode demand in 2022. As a result, they will remain a critical part of the EV sector and are expected to prevail in Europe and North America.
