TELF AG 2023 Market Roundup 2023 Week 39
Gas:
European natural gas futures have risen above €39 per megawatt-hour, marking a more than 9% increase for the week due to supply concerns. Strikes in Australian export plants, which have now been resolved, disrupted the market for over a month. Additionally, Norway is gradually increasing production after outages, but certain maintenance activities are expected to persist well into October. Despite healthy winter inventories in Europe, the market remains sensitive to various risks, including US outages, extreme weather, and potential disruptions in Russian gas exports. Traders are closely monitoring LNG shipments from the US following a recent drop in gas flows to the country’s largest liquefaction terminal and the impact of Russia’s fuel export ban on energy markets.
Chrome ore:
UG2/MG Cr ore prices rose slightly this week on the back of improved market sentiment amid restocking ahead of the “Golden Week” public holiday in China from September 29 to October 6. FeCr producers in China were reportedly buying in raw materials before the holiday, especially those whose seaborne Cr ore cargoes are only expected to arrive at Chinese ports at the end of September, according to sources. Shipment delays from South Africa have worsened in recent days, which may lead to supply tightness. The Turkish lumpy Cr ore market remained quiet during the week, with prices holding steady at existing levels amid supplier resistance to lower prices and despite buy-side concerns about the weak stainless market.
FeCr:
Fe Chinese output of HC FeCr increased by 3.5% m/m in August to reach 641 kt, the second-highest monthly total this year. More striking is the y/y figure, which shows production has increased by over 40%, driven by demand from the stainless steel sector. The YTD figure has also increased to 4.5% after a period of negative growth in Q2. Despite this rise in demand, however, Chinese smelters continue to have profitability squeezed by high production costs, driven by elevated chrome concentrate prices.
Spot prices of HC FeCr on the Chinese market did rise m/m in August by 4%, but input costs, including coke, chrome ore, and electricity, remain well elevated, with some increases in cost through the month also. It will continue to be a difficult cost environment for the higher-cost smelters, typically the smaller furnace operations located in South Provinces, for the remainder of 2023 and into 2024.
Average European and US spot HC FeCr 62-70% Cr prices fell again through August by 2% and 5%, respectively. This is in line with typically weaker demand during the summer months due to stainless mills tying maintenance periods with staff holiday periods. However, EU prices are likely to rise soon, given the increase in demand due to a restocking period and mills returning to operations. US prices tend to trail that of EU prices, so it would likely take a little longer for US prices to pick up. Yet, given the expectation of greater stainless production in H2 from both Europe and the US, ferrochrome prices are forecast to increase from the current pricing levels.
Mn:
Manganese market activity slowed down in China ahead of the week-long holiday starting on 29 September. An increase in port stocks, particularly of high-grade ore, and the arrival of new cargos meant traders reduced offers for 44% lump to secure deals ahead of the holidays. The FOT Tianjin price of 44% Mn grade was down 0.5% w/w to RMB38.575 /dmtu, while the 36-38% Mn ore price rose 0.6% w/w to RMB31.75 /dmtu. Smelters have purchased earlier to restock ahead of the holidays, but this week, the market was inactive as concerns over demand for Q4 continue to loom. There is considerable uncertainty over Q4 demand as the steel industry will start production cuts, and there is little clarity as to what extent or how much production will be cut for the last quarter. Port stocks of manganese ore have increased w/w for the week ending 15 September. Stocks at Tianjin are now at the highest levels since May, and much of the increase was seen in the inventory of high-grade ore.
FeSi.:
Chinese FeSi prices moved up this week as producers increased offers based on strong futures prices and increased production costs. The most traded November FeSi [72%] contract on the Zhengzhou Commodity Exchange reached its highest level since April, at RMB7,776 /t, on Tuesday and closed on Wednesday at RMB7,628 /t.
China is expected to have produced 3.2 Mt of stainless steel in August and is forecast to hit a 5-year high of 3.25 Mt in September. During August, production was driven by increasing prices, which came off the back of bullish sentiment. Yet, in September, we expect demand to return to a sluggish period and lead to inventories of stainless building, which will ripple back to impact FeCr demand. Recent government stimulus that targeted the real estate sector was welcomed by the market, but our view is that it will have a one-off effect, not enough to galvanize the ailing sector, which is a large driver for stainless demand in China. As a result, we think September will be the peak for stainless production in China in 2023.
European stainless output is estimated to have been 3.2 Mt in 2023 H1, down 12% on the same period a year earlier. It has been a similar story in the US, where stainless production in the first half of 2023 is forecast to have been 973 kt, down 5% from the previous year. Stainless mills in both regions have reduced production due to very weak downstream demand, driven by high inflation and reduced consumer spending on goods during the first of 2023. We do expect production to improve in 2023 H2 and have already seen a re-stocking start as speculations are that prices have hit the floor, leading distributors to increase buying activity.
Base Metals:
The copper cathode contractual supply premium is expected to fall in 2024. The 2024 contractual supply premium for copper cathodes is widely expected to drop, according to Fastmarkets sources, at a copper industry meeting in Kunming city, Yunnan province, on September 19-21, 2023. Chinese copper market participants have gradually begun their annual copper cathode supply negotiations in the run-up to the final quarter of the year. The outlook for the 2024 contractual supply premium is turning gloomy, they said, due to a lack of interest in signing long-term contracts after big losses, higher copper production in China, and high financing costs, among other factors. In 2023, the premium for copper cathodes offered by Chilean copper producer Codelco to Chinese clients was at $140 per ton, up by 33% from $105 per ton for 2022, while the number trading in the spot market has been much below this level. Copper grade A cathode premium, CIF Shanghai, at $45-63 per ton on September 20, with the year-to-date average at $31.37-48.85 per ton. Domestic copper output is growing rapidly, and China will not need to import lots of refined copper; hence, copper trading is now more related to real demand, not financing demand, as per Fastmarkets. China produced 7.32 million tons during January-July, up by 12.6% year on year. (China’s National Bureau of Statistics)
Three-month base metals prices on the London Metal Exchange were all down at the 5 p.m. close on Monday, September 25, with a strengthening dollar and negative economic indicators from Europe and Asia putting downward pressure on the base metals complex. Copper was at $8,145.50 per tonne, down by 0.9%, while nickel was down by 1.5% at $19,120 per tonne. The US dollar index has continued to strengthen, closing at 105.94 on Monday, up from 105.44 at Friday’s close. The dollar often has an inverse relationship with LME base metals, which are priced in dollars because it means they become relatively more expensive in other markets, such as China and the European Union. There was also fresh negative macroeconomic data from Germany released on Monday. The Ifo business climate indicator for September was 85.7, down from 85.8 in August, one of the weakest Ifo index readings in the last five years. The Ifo index measures entrepreneurs’ sentiment about the current business situation, as well as their expectations for the next six months; it is one of Germany’s most prominent economic indicators. The largest economy in the European Union has been struggling, particularly in the manufacturing sector. Germany’s manufacturing purchasing managers’ index (PMI) was at 39.1 in August, the second-lowest reading since May 2020.
The three-month copper and zinc prices both recorded losses at the close of trade on Monday. Downward price pressure has been driven by the news that China’s Evergrande has canceled key creditor meetings that were due early this week. Moreover, a member of the Peoples Bank of China committee said China has limited room for further monetary policy support and should not count on macroeconomic policies to revive growth. The Chinese property sector is a key consumer of base metals such as zinc and copper because those metals are used in construction. Three-month nickel prices also declined due to weak global demand and a supply surplus. According to the International Nickel Study Group (INSG), the monthly nickel oversupply totaled 28,600 tonnes in July, bringing the year-to-date surplus to 128,600 tonnes in the first seven months of the year.
Battery materials:
Commodity producer Glencore and technology partner Li-Cycle of Canada have conditionally agreed to speed up the development of a battery recycling center at Portovesme in Sardinia, Italy. The companies now plan to start processing up to 11,000 t/y of black mass H1 next year to produce up to 1,500 t/y of lithium carbonate, up to 3,000 t/y of contained nickel, and up to 500 t/y of contained cobalt. That first-phase development is subject to receipt of all final regulatory approvals and definitive agreements. A definitive feasibility study for phase two is scheduled to be completed by mid-2024. Provided a final investment decision is made, and all necessary regulatory approvals are received, commissioning is earmarked for late 2026 or early 2027. That phase will expand processing capacity to between 50,000 t/y and 70,000 t/y of black mass, yielding up to 16,500 t/y of lithium carbonate, up to 18,000 t/y of contained nickel, and up to 2,250 t/y of contained cobalt. The second stage of development matches the initial plan announced in May and is expected to be the final, long-term capacity for the recycling center. “This multi-phase approach to the development of the hub allows us to start to close the loop for battery materials in Europe as early as the first half of 2024 while we work towards designing and building phase two,” Glencore’s recycling head Kunal Sinha. The processing will be based on Li-Cycle’s hydrometallurgical technology in a plant built at Glencore’s lead-zinc smelter at Portovesme. The black mass is expected to be supplied from Li-Cycle’s European recycling operation and Glencore’s own commercial network. The companies anticipate forming a 50:50 joint venture (JV) for the Portovesme hub.
Cobalt metal prices retreat while sulfate shows signs of positivity. During the assessment period 8-14 September, cobalt metal prices were recorded within the range of RMB 235,000-270,000 /t, down from RMB 242,000-270,000 /t. Cobalt sulfate prices were assessed between RMB 37,000-38,000 /t, increasing from RMB 36,000-37,000 /t. Cobalt metal prices were weakened by negative sentiment as market participants anticipated an uptick in metal supply from refiners. Traders reported cobalt metal prices between RMB235,000-238,000 /t, while Jinchuan’s offers remained around RMB270,000 /t. Downstream demand for both metal and sulfate remained limited and failed to support spot market prices. Refiners reported cobalt sulfate prices between RMB37,000-38,000 /t, with only small volumes traded during the assessment window. Market participants commented that, although demand weakness persisted, the limited supply of raw materials has caused some concern in the cobalt sulfate market. Logistics issues between the DRC and Durban port and fewer shipments to China have reduced feedstock availability, pushing sulfate refiners to hold firm on higher offers. Meanwhile, CAM producers are only purchasing on a hand-to-mouth basis while they wait for more favorable pricing.
