TELF AG 2023 Market Roundup 2023 Week 29
Macro
• Oil. Brent heads for a third weekly gain. Brent crude futures held above $81 per barrel on Friday and were on track to advance for the third straight week, underpinned by supply disruptions and a tightening global market. Libya’s second-largest oil field is in the process of shutting down due to protests, while there’s also a production halt in Nigeria, Bloomberg reported. That follows signs that Russian flows are finally starting to decline, with the global market expected to tighten in the second half due to supply cuts from Saudi Arabia and Russia. Moreover, OPEC maintained a positive outlook on world oil demand, raising its growth forecast for 2023 and predicting a slight slowdown in 2024, driven by strong fuel consumption in China and India. Cooler-than-expected US inflation numbers also raised hopes that the Federal Reserve may be nearing the end of its rate-hiking cycle, boosting market sentiment.
• Gas. Natural gas prices in Europe fell to a 1-month low, with TFF futures down to €28 per megawatt-hour due to higher-than-usual inventory levels and increased supplies from Norway. Norway’s Troll gas field, which serves as the largest gas export source to Britain and continental Europe, is scheduled to resume full capacity on Thursday following an extended period of seasonal maintenance. While the demand for cooling is rising due to hot weather conditions, Europe’s gas storage is currently at 80% capacity, surpassing the 10-year average fill rate of 60%. On the other hand, Europe is witnessing reduced gas shipments from the US as the supply is redirected to Asia, where prices are more competitive during the summer months due to stronger cooling demand.
• Freight. The BDI was up for a fifth straight session on Thursday, rising about 1.4% to a two-week high of 1,103 points, amid a slight increase in activity across all vessel segments. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, advanced about 1.6% to a nearly two-week high of 1,691 points; and the Panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, increased for the sixth day, rising 1.4% to its highest since June 26 at 1,101 points. Among smaller vessels, the supramax index added 9 points, or 1.2%, to 743 points, its biggest daily rise since mid-June.
Ferro-alloys
• Chrome ore. Seaborne chrome ore prices inched upward in China in the week to Tuesday, July 11, boosted by strong domestic ferrochrome production. High ferrochrome production rates and low port inventories of chrome ore have been supporting market sentiment in China. Combined Cr ore inventories at the main ports of Tianjin, Qinzhou, Lianyungang, and Shanghai were 1.95-2.25 million tonnes on July 10. This was up slightly compared with 1.80-1.99 million tonnes one week earlier, but still at a low level historically. Most of the additions to port inventories belong to smelters instead of being tradeable.
FeCr.
• Production decreases in China due to heat wave – Sichuan cuts FeCr output on expected hydropower shortfall. Three ferrochrome producers in China’s Sichuan province have been asked to reduce output over July 3-21 amid a drop in hydropower generation (Sichuan is rich in hydropower generation – it accounts for over 80% of total power generation in the province). The province could face extremely high temperatures and a small amount of precipitation this summer. The average amount of precipitation in Sichuan this spring is already down by 8% on the year, which reduced hydropower generation. In contrast, power demand in the province is forecast to experience high growth rates this summer, which could result in power shortages of around 75 million kWh. As such, the local government has requested energy-intensive enterprises in the province to cut production. The 3 FeCr producers, namely Mingda Industrial Co, Yunxing Dianye Co, and Jiaqing Metallurgy Co, are to only operate one furnace each from July 3-21. This would reduce FeCr output by around 4,000-5,000 tonnes, a negligible amount.
• HC FeCr prices continue to fall. European and US spot HC FeCr 62-70% Cr prices both declined by 25% and 11%, respectively, in June 2023. Subdued demand due to the “summer slowdown” and maintenance programs run by ST’s mills dragged prices down further. CRU expects prices to that prices to go lower during the summer months as during Q3, HC FeCr supply is reduced, particularly from South Africa, as they lower utilization rates whilst power tariffs are higher. However, once STS mills come back to full operations, demand for HC feCr will rise. The Chinese HC FeCr domestic price was down 1.2% to RMB 8 500/t according to Argus Metals, in line with an expected slowdown in demand from the stainless steel segment in the coming months, given abnormally higher summer temperatures in many regions in China
• CRU has released their FeCr forecast, where they expect that the tighter market in 2023 Q3 should help to bring a price increase for HC FeCr, particularly in Europe and the US, where prices are close to bottoming out. Demand there remains strong from the STS sector, but there have been substantial HC FeCr imports into the country as buyers take advantage of weak demand in other countries and stronger Chinese HC FeCr production in 2023 Q3 is expected too. However, production cutbacks may occur if tender and spot prices fall too low, which would help to support HC FeCr spot prices supporting CRU’s current view that prices in China will remain relatively flat in 2023 Q3 vs. 2023 Q2
• Merafe’s attributable FeCr production was down 9% y-o-y in H1 (Merafe). According to a press release by Merafe Resources, their attributable HC FeCr production was down 9% y-o-y in H1 2023. The reduction is due to a planned pullback in production. Only the Lion smelter is scheduled to operate over the 3-month high electricity demand winter season, a period of elevated power prices. Attributable FeCr production in H1 2023 was 185 Kt, down from 203 Kt in H1 2022.
Mn ore.
• China’s port Mn ore prices were mostly unchanged despite July alloy tenders from major local mills moving lower. “Mn ore prices change is small, as you know that few traders are willing to cut offers due to persistently high costs,” one major trader said in Shanghai. Traders also reported increased inquiries they received on Thursday and Friday after July SiMn tender prices from Hesteel were finally fixed.
• China’s EMM market continued its weak performance, with traders and exporters cutting offers to boost sales and relieve stock pressure. Domestic mills have started their July purchasing and have continued to cut tender prices, adding more pressure to the spot market. Although the market is still talking about production cuts, it is unable to boost the market sentiment. China’s EMM export market was also weak on lower demand as well as an overall bearish outlook.
FeSi.
• US FeSi prices fell this week on lower concluded business, revealing that there are cheaper units available. The move has been anticipated, as the US market has been slow to follow the downtrends seen in other markets. Spot requirements have already been limited by lackluster demand and sufficient contract coverage, but also, some sellers have opted to fulfill spot requirements with formula pricing instead of fixed pricing.
• In Q1 2023, world stainless crude steel output decreased by 0.3% q-o-q to 13.66 Mt while falling by 5 % y-o-y, according to the preliminary report released by World Stainless. According to the World Stainless data, in Q1 2023, stainless crude steel production increased by 4.1% in China and moved down by 16.6% in the Asia region excluding China and South Korea, while decreasing by 16.0% in the US and down by 12.0% in Europe, all compared to Q1 2022
• Global stainless-steel prices have declined or moved sideways in all global markets in June, reflecting macro headwinds of Q2. Demand in China was negatively impacted by the underperformance of the real estate sector while supply stayed ample, weighing on prices. The lead time from European and American mills is at historically low levels as most distributors don’t risk to re-stock while prices are falling. The supply will resort to extended shutdowns and maintenance during the summer as the market shifted its focus to the end of August.
• Falling stainless steel prices and a relatively stable alloy surcharge in June led to the situation when the alloy surcharge for CR 304 on the European market was higher than the all-in price, implying a negative base price. Extensive usage of stainless-steel scrap, already containing alloys, and usage of affordable nickel materials (NPI, ferronickel) leads to the situation when alloy surcharge doesn’t accurately represent the true cost of stainless steel operations.
Base Metals & battery materials
• Base metal prices on the London Metal Exchange were all down at the close of trading on Monday, July 17, with poor macroeconomic data from China weighing heavily on the base metals complex. The three-month prices faced selling pressure following the release of China’s gross domestic product (GDP) data for the second quarter of 2023. China’s GDP grew by a little more than 0.8%, missing market expectations and creating negative sentiment in the market, which has remained slow throughout 2023 so far. The GDP data was the latest in a series of negative indicators from the world’s second-largest economy. For example, in June, youth unemployment (for people aged 16-24) in China rose by 21.3%. This was the third consecutive month in which the youth unemployment rate was more than 20%.
• Copper. Three-month copper prices have fallen by 2.1%, despite stocks falling in July. Global copper stocks in LME-registered warehouses were 59,175 tonnes on July 17, down from 69,700 tonnes on July 3, a decline of 15%. According to the June 2023 Copper Bulletin from the International Copper Study Group (ICSG), the global refined copper market showed a surplus of 384,000 tonnes in the first four months of 2023, compared with a deficit of 43,000 tonnes in the corresponding period of last year. This pointed to poor demand in the physical market for refined copper.
• Nickel. The price of nickel showed the biggest percentage drop among the base metals on Monday, with the three-month price going down by 2.7%. Nickel was suffering from weak demand, particularly from China, despite news that the country’s government intended to create new purchasing incentives for new energy vehicles (NEVs).
Battery materials.
• Cobalt metal prices in China edged higher this week on spot market tightness. “Jinchuan metal is very tight currently, and many traders do not have stocks available,” a source told CRU. Market players anticipated that current price increases are driven by speculation brought by stockpiling as well as rising payables for raw materials.
• In their July monthly review, CRU reports that cobalt prices are set to stall as major mines ramp up.
o Improving demand will support a short-term rally in prices in the second half of 2023, but the stage is set. New supply expansions will leave the value chain well-stocked while the battery industry turns to new cathode technologies. Prices will remain even lower for longer.
o The price slump will persist. The sulfate price has found support after hitting seven-year lows in May, spurred by recovering demand. A shortlived rally, however, will precede a slump in prices until at least the middle of the decade.
o Growth from EVs resists economic headwinds. Despite the concern of a slowdown in early 2023, sales have proven resilient in all markets. Strengthening policy support is also improving expectations for later in the decade. China extended tax breaks for EV sales, and investment in the US is accelerating due to support from the IRA.
o Cobalt demand is threatened by a continued trend to high-nickel/low-cobalt and cobalt-free cathode chemistries, but this is not enough to outweigh the sheer size of the BEV market in the long term.
o On the supply side, new industrial expansions in the DRC, despite Indonesian investments, will drive supply growth, assuming power issues are resolved. A well-stocked value chain will support Chinese refined production growth, which is set to grow by 17% y/y this year.
• EU strengthens battery recycling targets after govt heads approve battery regulation. More stringent targets for the recycling of batteries are about to enter into force in the European Union (EU) after heads of government who met at the Council of the EU moved to rubber-stamp the bloc’s battery regulation this week. The Council approved the regulation on Monday, July 13, following the adoption of the revamping of the EU battery directive by members of the European Parliament last month. Among the key changes introduced by the updated rules are formal targets for the recycling of batteries. The regulation sets targets for producers to collect waste portable batteries by 63% by the end of 2027 and 73% by the end of 2030. It also introduces a bespoke collection objective for waste batteries for light means of transport, defined as wheeled vehicles that have an electric motor of less than 750 watts. Those targets are 51% by the end of 2028 and 61% by the end of 2031. For lithium recovery from waste batteries, the target is set at 50% by the end of 2027 and 80% by the end of 2031. Mandatory minimum levels of recycled content have also been introduced for industrial, rechargeable lead acid SLI batteries and electric vehicle (EV) batteries. These are initially set at 16% for cobalt, 85% for lead, 6% for lithium, and 6% for nickel.
