TELF AG Market Roundup 2024 Week 3

Macro & Energy

Gas: European Natural Gas Futures Edge Up, set for 8% Weekly Drop. European natural gas futures rose above €31 per megawatt-hour on Friday but are set for a weekly decline of over 8%. The drop is linked to abundant gas supplies due to prolonged mild weather despite the ongoing cold snap. Reduced heating consumption and lower production by energy-intensive companies in mild conditions led to decreased overall demand. As a result, regional gas storage levels are high, surpassing typical levels for this time of year. With current stockpiles at 82%, Europe is expected to enter spring with over half of its underground gas storage capacity available, exceeding the 10-year average of 35%

Oil: Brent crude futures surged over 2% to surpass $79 per barrel on Friday, building on gains from the previous session due to a deepening geopolitical crisis in the Middle East, adding a risk premium to oil prices. A report on Thursday revealed that Iran seized an oil tanker off the Oman coast in response to a sanctions-related dispute with the US. Simultaneously, a US-led coalition conducted multiple attacks on Houthi targets in Yemen, responding to disruptions caused by the rebel group in the Red Sea. Despite a hotter-than-expected US consumer inflation report, which tempered expectations of an imminent interest rate cut by the Federal Reserve, Brent futures are poised to end the week relatively stable. Earlier in the week, they experienced a sharp drop following Saudi Arabia’s price cuts but rebounded as tensions escalated in the Middle East.

Chrome ore

The first week of 2024 saw chrome concentrate prices remain flat compared to how they ended 2023. We expect prices to remain rangebound for some time as smelters in China keep ferrochrome production low in order to drive up ferrochrome prices. Once we see ferrochrome prices recover, chrome concentrate prices should see some price support.
Chinese port stocks built steadily through December to reach 2.6 Mt, up 36% from the start of November. The increase in port stocks is a result of weaker demand from Chinese smelters as market conditions have led them to cut back production. Looking ahead, we expect smelter production to remain moderate but not enough for port stocks to increase meaningfully to levels of 3 Mt or more.
Exports of chrome ore from South Africa fell by 6% in total m/m in November to 1.65 Mt despite a 2% m/m increase in exports to mainland China. However, exports to countries that tend to operate as intermediaries between South Africa and China, Mozambique, Indonesia, and Hong Kong fell by 13% m/m. This was driven by decreased smelter production in China, which led to less demand for concentrate. This reduction in chrome ore exports was in line with our expectations as lower stainless production in China ripples back through the entire supply chain.

FeCr
Chinese output of HC FeCr fell by 5% m/m in December to 641 kt. Again, this decrease is in line with expectations as Chinese smelters chase profitability at a time when HC FeCr prices are weak; tender prices fell by RMB200 /t in December and have remained flat in January 2024. This has led many smelters to prioritize destocking over the production of new material. Yet, due to record high production in October, production in 2023 Q4 was the highest of any quarter in 2023, and Chinese smelter output in 2023 was 14% higher than that of 2022. Such strong y/y growth in output was made possible by capacity additions at smelters and strong demand from the domestic stainless sector.
Despite a recent pickup in spot prices and a fall in chrome ore prices, smelters across China are likely to remain below the profitability line. Our expectations are for smelters to continue to cut back production and try to force up spot prices, which is unlikely to happen until after CNY, given the historical trend of stainless production softening during this period.
Average European and US spot HC FeCr 62-70% Cr prices moved in unison through December, decreasing on average by 3% and 2%, respectively, in line with our expectations. This slide keeps prices close to alignment, although the US 62-70% Cr price remains at a premium, averaging 198.5 c/lb in December compared with the EU 65-70% Cr DDP price, averaging 185 c/lb.
As we move through the first month of 2024, we expect prices to remain under pressure, with a good likelihood they will fall further as demand in Europe and the US is weak. This has been highlighted by Outokumpu idling one of its three furnaces, reducing capacity by 20%. Stainless recovery is expected to happen before the end of 2024 H1, which will help push prices higher, but we forecast average annual prices in 2024 to be below that of 2023

Mn
Prices in China’s port Mn ore market are edging up on higher offers from traders. Traders started to lift offers when they saw continuous declines in port stocks. The rising prices encouraged smelters to increase their ore purchases ahead of the Chinese New Year holiday.

Hesteel Group’s SiMn tender price was settled this week after long negotiations between the mills and smelters. The tender result was unchanged from its initial bid level but settled lower than its purchase price in December. The tender price was below most market players’ expectations and dented sentiment. “Trade in the spot market has been slow recently due to the long negotiation of Hesteel’s tender as well price falls in the futures market; smelters are cutting offers to boost sales,” one major trader in Beijing said.

FeSi.
Malaysian Si alloy producer OMH stops offering. Malaysia’s OMH has stopped offering ferrosilicon and manganese alloys, according to European buyers. The producer pointed out logistics problems at the port and freight costs to Europe, which now account for $210 per mt.

Stainless steel
Chinese stainless production in 2023 Q4 was recorded at 9.1 Mt, in line with our expectations, but down 4% on the previous quarter. Yet, due to very strong stainless production in 2023, H2 as a whole output reached 35.2 Mt in 2023, up 8% y/y. Looking ahead, we expect the seasonal dip in production around the CNY holidays to be present, but our expectation is for stainless production to remain robust. In fact, we forecast 2024 Q1 stainless production to be 2% up y/y.

Both European and US stainless steel producers experienced a difficult year in 2023 as weak downstream demand and stubbornly high production costs caused many to lower utilization rates in order to chase profitability. We expect 2024 to be a much better year for producers and expect a strong recovery, although it will be weighted heavily into 2024 H2.
Producers in Europe were incentivized to increase production in 2023 Q4 due to rising prices during the early stage of the quarter as distributors looked to fill inventories. However, as is typical, prices have softened recently due to inactivity in the market during the winter festive period. Downstream demand is expected to remain weak for some time, so a large uptick in European stainless production in 2024 Q1 is unlikely, although given the low base in 2023 Q3, an increase is forecasted.

In the US, stainless prices flatlined in December, having decreased through October and November. Demand remains bearish in the short term as the US economic outlook remains gloomy. As a result, we also expect US stainless production growth q/q in 2024 Q1 to remain subdued as markets await a more positive outlook.
Acerinox plans to invest €67 million ($73.3 million) in its high-performance alloys division, VDM Metals, to enhance and diversify its product range. The investment will also facilitate the processing of high-performance alloys at Acerinox’s stainless steel mill in Campo de Gibraltar, southern Spain. The capital expenditure program includes expanding three remelting furnaces, upgrading an annealing and pickling line, and adding a defect-detection line for bars. Additionally, a second powder atomizer for additive manufacturing will be installed, doubling VDM’s production capacity for 3D printing materials. Acerinox aims to capitalize on the growing demand for sophisticated materials and expects the overall investment to boost the division’s sales by 15%. Acerinox acquired VDM Metals in 2020 for €532 million. The projects include the expansion of three remelting furnaces, the upgrade of an annealing and pickling line, and a defect detection line for bars, to name a few.

Base Metals
Canada-based Lundin Mining reported production within or slightly above guidance for all products from its worldwide operations in 2023, topped by an all-time high of 314,798 t for copper. That metal’s guidance was 305,000 t to 325,000 t. “The 51% acquisition of Caserones led to a record in annual copper production,” said president and CEO Jack Lundin. Looking ahead, he added: “We have initiated comprehensive, value-optimization efforts across our Latin American sites. We are beginning to execute some of these initiatives at Chapada and Candelaria, and the kick-off of optimization work at Caserones will begin this quarter.” Company-wide, zinc production last year was 185,161 t, within guidance of 181,000 t to 192,000 t; nickel 16,429 t, within the 15,000 t to 18,000 t forecast; and molybdenum 2,024 t, slightly surpassing the 1,500 t to 2,000 t prediction. Vancouver-headquartered Lundin issued updated guidance along with its Q3 results release.

Battery materials
China’s cobalt metal price range widened this week as Jinchuan metal premiums increased, reflecting some market tightness. However, the majority of the market’s purchasing interest was similar to previous weeks. “Given the continued lack of demand from CAM producers, there’s not enough support for cobalt sulfate prices,” a refiner commented. The intermediate price of cobalt also remained unchanged this week, with spot market illiquidity persisting throughout the supply chain.
The Ramu mine in Papua New Guinea last year turned out 33,604 t of nickel and 3,072 t of cobalt contained in mixed hydroxide precipitate (MHP), exceeding design capacity for a seventh consecutive year, according to preliminary figures released by minority shareholder Nickel 28 of Canada. The respective numbers for 2022 were 34,902 t and 2,987 t. “In 2024, Ramu will undertake significant capital upgrades to improve longer-term production and reliability levels after 11 years of production,” they added. The US$33 M (€30.2 M) project will require a 30-day plant shutdown throughout September to enhance equipment performance and stability, phase out outdated equipment, and, in time, have a positive impact on production volumes.

First examples of Na-ion and LMFP batteries in EVs on the road. The battery market continues to make significant technological progress, and 2024 will be a year in which some of this new technology will be rolled out on a commercial scale. CRU anticipates sodium-ion, and LMFP cells will power vehicles on the road. While these technologies will initially be constrained to the Chinese market, it will be a sign of bigger things to come for the global battery industry. JAC’s Yiwei vehicles, powered by HiNa batteries, have already rolled off the production line in January, while BYD recently broke ground on its first 30 GWh sodium-ion cell plant in Xuzhou, China. The use of sodium-ion cells in stationary energy storage (the forecasted primary market for the technology) is also expected to grow rapidly. Similarly, LMFP cells will be used towards year-end as major battery manufacturers, including CATL and Gotion, work to resolve some of the technical challenges with the chemistry.