TELF AG 2023 Market Roundup 2023 Week 21
Macro
• US debt ceiling. President Joe Biden and House Speaker Kevin McCarthy could not reach an agreement Monday on how to raise the U.S. government’s $31.4 trillion debt ceiling with just ten days before a possible default that could sink the U.S. economy but vowed to keep talking. The Democratic president and the top congressional Republican have struggled to make a deal. McCarthy pressures the White House to agree to spending cuts in the federal budget that Biden considers “extreme,” and the president pushes new taxes that Republicans have rejected. Democrats and Republicans have until June 1 to increase the government’s self-borrowing limit or trigger an unprecedented debt default that economists warn could bring on a recession. Treasury Secretary Janet Yellen on Monday offered a sobering reminder of how little time is left, saying the earliest estimated default date remains June 1 and that it is “highly likely” that Treasury will no longer be able to pay all government obligations by early June if the debt ceiling is not raised, Reuters reported.
• Oil. Brent is set to end the week higher. Brent crude futures steadied around $76 per barrel on Friday and were set to finish the week higher, underpinned by a solid demand outlook and various supply-side disruptions. Global oil demand is expected to exceed supply by 2 million barrels per day in the second part of 2023, with China accounting for a substantial part of it, an IEA projection showed. In addition, the US government announced earlier this week that it would purchase up to 3 million barrels of crude oil to replenish its depleted Strategic Petroleum Reserve, with deliveries planned for August. On the supply side, wildfires in major oil-producing regions in Canada and Iran’s seizure of oil tankers threatened to disrupt flows.
• Freight. Baltic Exchange Dry Index falls for 7th day, books weekly loss. BDI was down for a seventh day on Friday, falling about 1.3% to a one-month low of 1,384 points, amid weaker demand for larger vessel segments. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, decreased by 1.7% to an over three-week low of 2,105 points. The Panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, posted its 18th consecutive daily drop, dropping about 1.1% to its lowest since late February at 1,222 points. Among smaller vessels, the supramax index shed 8 points to 1,077 points. The benchmark index was down 11.2% in the third week of May, its worst since the week ending January 27.
Ferro-alloys
• Chrome ore. UG2/MG chrome ore prices continued to rise during the week to Tuesday, albeit less sharply than in the previous week, supported by still-low inventories of chrome ore at Chinese main ports. According to Fastmarkets’ calculations, combined chrome ore inventories at the main ports of Tianjin, Qinzhou, Lian- yungang, and Shanghai were 1.55 million-1.65 mln MT on Monday, May 15, which was reportedly only enough for about one month’s production of ferrochrome. The latest rise puts the UG2/MG chrome ore price at a new high for 2023, surpassing the previous high of $302 per MT, set on February 14, and has led to buy-side reticence, with input costs remaining extremely high. There were also reports that inventories may be climbing in the second half of the month, with suggestions that up to 1.5 miln MT of chrome ore could arrive at Chinese ports, leading to greater push-back from buyers regarding prices, according to one trader. Ferro-chrome prices in the Chinese spot market also rose during the week, but the rise was not enough to offset the production cost increase, sources told Fastmarkets. Imported charge chrome prices remained unchanged on a CIF China basis, with limited liquidity reported. Turkish lumpy chrome ore prices also saw some support from bullish sentiment, with little material available in China, leading to higher indications on both the buy and sell side.
• FeCr. The sentiment was depressed in high-carbon ferrochrome markets, with sources on both the buy and sell sides reporting falling prices. Sellers especially have said they have begun decreasing their offer levels to maintain liquidity since consumers can reportedly no longer afford to continue to pay higher prices. Prices for higher grade (65-70% Cr) material was particularly affected, with levels moving closer to those last seen at the beginning of 2023. Meanwhile, lower grade (60-64.9% Cr) material prices remained unchanged, with little spot activity reported. The US high-carbon ferrochrome market widened slightly lower during the week of May 11, with persisting soft demand weighing down on spot pricing. Steel mills and foundries continued to sit outside the spot market, with no need to add material over contracted volumes. As a result, market participants suspect the spot market will remain sluggish soon, with the potential for further declines ahead. Chinese HC FeCr output fell back in April as tender prices and high chrome ore costs squeezed smelter margins. The May tender price remains flat in April, but June is estimated to be RMB300-500 higher, which should encourage some higher production during the two months.
• Mn ore. Both bi-weekly seaborne and port prices for manganese ore were unchanged this week – although concerns remain about future demand, given market participants’ views of the direction of downstream demand for steel. Weekly prices did move lower, reflecting price reductions in the early part of last week. As a result, the high-grade seaborne ore price fell 4.5% w/w to $4.80 /dmtu, CIF China. The average weekly port prices for high-grade and semi-carbonate ore fell 1.6% w/w.Port trade continued to be quite busy this week following the conclusion of the Ferroalloy tenders. Recent falls in both ore and coke prices led to improved margins for some producers, encouraging increased output and demand for ore. Port stocks for the w/e 12 May rose from 6.7 Mt to 6.9 Mt, reflecting weak trading in the week when ferroalloy tenders were under discussion.
• FeSi. Spot prices for European FeSi slipped lower on thin trade and a very slow spot market. Participants anticipated that with the news of several steel mills restarting operations, there would be some support for prices, but that has not yet translated into the physical market, and weakness prevails. In addition, although OFZ did restart a furnace, reports suggest it may stop again shortly.
• Chinese stainless output for 2023 Q1 was recorded at 7.87 Mt, up 1.6% from the same period a year earlier. Following this, April production was surprised by the upside, too, coming in 1% higher than the March production at 2.77 Mt. Markets expected production cutbacks due to weak demand that had led to a large build in inventory. However, sentiment around stainless in China improved through the end of April and into May, as some stainless prices made gains following agents replenishing their stocks, drawing down warehouse stock levels. Looking ahead, the market expects Chinese stainless production to be 4.8% higher in 2023 than in 2022, driven by back-ended production increases in H2.
• European stainless output is estimated to have been 1.68 Mt in 2023 Q1, 17.6% lower than in 2022 Q1. The weak economic sentiment in the region contrasts with that of the first quarter of 2022 and explains the decline in y/y production. In addition, many mills have been forced to cut production as weak downstream demand has weighed on prices, while high alloying costs have further eaten into margins.
• US stainless production is estimated to have been 513 kt in 2023 Q1, up 1.3% in 2022 Q1. The US stainless market has been insulated much better than that across the Atlantic, which has caused a tighter market for material in the US. Yet, bearish sentiment around a recession is becoming louder and apparent demand seems weak. One positive for the US market is favoring US-made material for Government-funded projects and public construction spending, up 15% y/y.
Base Metals & battery materials
• Cobalt. A refiner of cobalt metal and sulphate in China reported to the media that metal prices show stability as no fundamental shifts have been observed. Yet, sulphate prices picked up this week with more purchasing activity observed. Market players reported that the auto market’s recovery remains sluggish, especially compared with the improved demand for consumer electronics.
• Cobalt supply.
o CMOC and Gécamines reached an agreement on royalties. April saw the resolution of the longstanding dispute between CMOC and state-owned Gecamines over Tenke Fungurume in the DRC. Both parties reportedly agreed on the royalty and interest payments (Gecamines claimed it was owed US$7.6 Bn). Although production at the mine had continued, a ban on exports had resulted in as much as 200 kt of copper cathode and over 15 kt of cobalt building up on site since July last year. Given the issues and delays associated with transport logistics in central Africa, we believe releasing the material quickly into the market will be difficult.
o Jervois suspends final construction at ICO. Jervois Global admitted that the company would suspend final construction and full concentrator commissioning at its Idaho Cobalt Operations in the USA. Jervois cited continuing low cobalt prices and inflationary impacts on construction costs as the main reasons for suspending construction. In addition, ICO was the largest and highest-grade cobalt orebody in the USA, representing the country’s only primary cobalt mine supply once commissioned. Jervois expects work at ICO to recommence once cobalt prices rise over the medium term, supported by increased raw material requirements for energy transition and growing interest in cobalt sources with Western ESG credentials.
• Nickel. The nickel sulphate spot market stayed largely illiquid this week, and prices did not fluctuate. “Although the lithium market is showing rapid price increases while actual spot demand remains limited, prices of nickel sulphate are not showing similar patterns,” said a refiner. A downstream buyer of nickel sulphate said deals remain restricted to long-term contracts, with the market not seeing the same speculative activity as in lithium.
• Leaders of the G7 group of wealthy nations say they will “continue efforts to reduce Russia’s revenue from metals.” The one-sentence pledge formed part of a statement at their summit in Hiroshima, Japan, which they said would carry on restricting Russia’s income and ability to finance its war against Ukraine. In addition, individual Group of Seven members announced their measures, including the UK, which said it would ban imports of Russian metals, including aluminium, nickel, and copper. Among the individuals added to the British sanctions list was Igor Altushkin, owner of the Russian Copper Company (RCC). Eight companies connected to metals production in Russia have also been sanctioned. “Together, these actions increase pressure on Russia’s metal industry, which remains an important revenue stream funding the Kremlin’s war machine, and they have a wider impact on the operation of other sectors such as transport and energy,” the UK government said.
