TELF AG Market Roundup 2024 Week 8
Macro & Energy
EU cuts growth and inflation forecasts
The EU and eurozone will grow less than previously expected this year after both areas narrowly avoided a technical recession in 2023, the European Commission said on Thursday. It also forecasts a sharp decline in inflation. The commission expects the eurozone to grow by 0.8 percent this year and the EU by 0.9 percent, down from 1.2 percent and 1.3 percent, respectively, in its previous forecast. The European Commission expects subdued growth in 2024. Annual eurozone inflation is expected to halve to 2.7 percent this year from 5.4 percent in 2023. The previous forecast was 3.2 percent. Growth in 2025 is expected to pick up to 1.5 percent in the eurozone and 1.7 percent in the EU.
Japan lost its spot as the world’s third-largest economy
Japan’s economy unexpectedly slipped into recession after shrinking for a second quarter due to anemic domestic demand. GDP contracted at an annualized pace of 0.4% in the final three months of last year, following a revised 3.3% retreat in the previous quarter.
Chrome ore
Chromium ore prices edged up in January due to increased buying interest from ferrochrome smelters ahead of the Chinese New Year, while stocks at Chinese ports remained low. This provided an upward push to prices towards the end of the month. Meanwhile, the Red Sea crisis has led Turkish lumpy ore prices to increase as sea freight costs have not only increased substantially but are now also very volatile. We forecast this will lead the 40-42% Turkish lumpy ore price to increase in Q1 2024 to an average of US$332/t CIF China from US$323/t in Q4 2023. While the South African 42-44% LG-MG ore price has also increased in January, it is expected to soften in the coming weeks to an average of US$312/t (CIF China) for Q1 2024. Beyond Q1, we believe the downside will temporarily abate as market conditions tighten through the remainder of 2024. This will see the South African 42-44% LG-MG ore price rebound slightly to reach a quarterly average of US$316/t (CIF China) by Q4 2024. Into 2025, we forecast that prices will decline as the market enters a period of surplus. We currently anticipate that the South African 42-44% LG-MG ore price will average US$279/t (CIF China) for 2025.
FeCr
In China, spot prices for charged chrome have slightly rebounded since December, mostly reflecting cost support. Despite this, stainless mills rolled over prices for January and February deliveries, reflecting weak demand prospects. We retain our view that cost support will negate any significant further downside to high-carbon ferrochrome prices in China. We indeed forecast that the tender price will move up in the coming months, averaging US$1.07/lb Cr in 2024. At the same time, the ramp-up of new production capacity in northern China will result in a steady increase in supply, while demand growth is expected to remain slow. This will keep the market in oversupply through H1 2024, with the China tender price consequently rising only modestly.
In Europe, the slow recovery of demand in 2024 is expected to keep prices in check for the remainder of the year, though the Red Sea crisis and higher chrome ore costs will provide support to the prices for the short term. Oversupply weighed on prices in Q4 2023. This was reflected in the Q1 2024 European benchmark price, which was reduced to US$1.44/lb Cr, down by 6% from the previous quarter.
However, in Q2 2024, we expect the benchmark to increase to US$1.50/lb Cr, reflecting the ongoing supply disruptions due to the Red Sea crisis. For 2025, we forecast that the European benchmark price will average US$1.60/lb Cr DDP Europe.
Prices for EU LC FeCr 0.10% C edged up slightly this week due to the limited availability of material. Despite sluggish demand, sellers and traders marginally increased their sell prices, claiming that the tight supply will lead to higher prices in the near future. Additionally, sellers revealed that they had seen an increase in inquiries from traders as they prepared to restock.
Mn
Domestic Indian HC 70% Mn and SiMn 60% Mn prices rose on Thursday as sellers pushed offers further amid tighter supply due to continued production cuts. Market participants also reported increased buying appetite from consumers in recent weeks.
Manganese alloy prices edged up in India as alloy production cutbacks combined with good export inquiry levels and reasonable local market demand. As of 2024 Q1, Indian smelters have been reluctant to restart all the furnaces stopped in 2023 Q4 or earlier, preferring to maintain current margins after incurring losses for parts of last year. One producer with captive power is reported to have switched a furnace from silicomanganese to ferrosilicon to secure better returns. Producers also have their eyes on ore prices, which have inched up in recent weeks, as well as container rates and power costs. The six-month discounted electricity rates given to producers in Vizag are not expected to be extended beyond April. All of these factors mean smelters are keen not to see prices falling back. With the Q4 stock overhang largely cleared, the spot market has tightened, and prices for HC ferromanganese, 70% Mn, EXW, increased by 0.8% w/w to IRN66,500 /t. Silicomanganese, 60% Mn, also increased by 0.8% w/w, rising to INR67,000 /t. Strong export inquiry levels led silicomanganese, 65% Mn, FOB India, to increase to $935 /t. Demand in Europe remains subdued, whereas contract business in the USA is reported to be healthy. Despite this, prices in the European market have moved up. A number of ferroalloy furnaces have been restarted, but supply chains continue to be affected by the longer shipping routes required to avoid the disruption to vessel movements through both the Suez and Panama Canals. There were no changes to bi-weekly ore prices this week, although the weekly 36-38% Mn ore price edged up 0.7% w/w to $3.73 /dmtu, CIF China, as prices from the second half of last week feed into the average. We have adjusted the calculation of the estimated South Africa to China freight rate reported in the Dashboard to reflect the use of the larger Supramax vessels. The data has been backdated to show the twelve-month high-low figures and in the chart to the start of 2023.
FeSi.
Spot prices for European FeSi increased further as producers and traders raised offers and concluded deals at higher levels. Rising energy costs, supply route disruptions, and tighter European supply are providing cost-side support for prices. Most buyers, however, are still well covered under contracts, which may keep spot demand limited in the near term.
US Si metal prices increased as tightening supply motivated buyers to make additional spot purchases. Rising freight costs, lengthening lead times, and recent production cuts in the USA and Europe have led to a reduced supply of prompt material. Sellers have begun raising offers in response to the shifting supply and demand balance.
Stainless steel
Thyssenkrupp expects subdued steel demand to continue:
CFO Kleisberg says Lower steel spot prices and weak demand weigh on TK’s profits, while JV talks to spin off the steel business unit are ongoing, CFO Keysberg said. Keysberg painted a cautious short-term steel demand picture on the company’s first-quarter earnings (October to December 2023) of its financial year 2023-2024. “Looking at the months ahead, we don’t see many dynamics for demand uptck,” he said. The company expects further volatile price levels in sales and procurement markets, such as raw materials and energy. Due to volume reductions at TKSE and TKMAT, TK now expects sales for the 2023/2024 fiscal year to be at the prior-year level. It had previously assumed a slight increase. Keysberg offered no update on the ongoing joint venture talks with TK’s steel business unit and Czech energy provider EPH, saying the talks currently surround creating a new business plan for the unit with no deadline for the talks. Crude steel production at TK’s Duisburg plant remained largely stable on the year at 2.5 million mt in Q1 of the company’s financial calendar, while crude steel production at TK’s co-owned semis producer HKM stood at 493,000 mt, up 3.6% YoY. Shipments of cold-rolled material at the steel unit were up 5.4% year on year at 1.3 million mt, whereas hot-rolled products dropped 8% to 630,000 mt. According to the company, steel order volumes decreased mainly due to lower demand from automotive customers. At TKMAT, shipments fell 17.9% in the year to 1.7 million mt, while the materials stockholding and processing were stable at 1 million mt in Q1. Cost improvements at the steel unit were made due to lower energy costs but were overall offset by a significant reduction in spot market price development. Lower spot market price levels were experienced across all customer groups. “The weak economy, renewed increases in raw material costs, high energy costs, and strong competition from non-European market participants are affecting Europe’s steel producers,” the company said in its earnings report. The construction of the directly reduced iron plant and other changes for lower carbon emission steelmaking also weighed on earnings and contributed to higher capital expenditures but were offset by funding from the German government for the green transition. Thyssenkrupp expects the EVs sector to drive up demand for flat steel in the long term. Despite some elimination of the demand for clutches and exhaust systems, traction machines, battery cases, and casing/chassis of EVs are expected to increase demand for electrical steel strips and high-strength steels.
Lower STS output hits scrap availability in Europe, Asia, and the US:
Lower production in recent months in response to slow demand has hit stainless scrap availability throughout Europe, the US, and in parts of Asia. Demand for both stainless steel and scrap remains high in India and the Middle East, driven by domestic market growth. European demand for STS scrap remains robust, although availability is constrained, increasing import demand. STS scrap imports rose 27% in H2 last year. European production of crude stainless steel declined 8% on year in January-September 2023, according to World Stainless data, amid a two-digit demand decline for stainless steel flat products in Europe and the Eurozone’s overall annual decline in industrial output, van Kleef noted. European stainless mills expect to increase production and shipments in 2024, he said. US stainless steel melt shop production fell 12.9% on year in January-September 2023 to 1.38 million mt, amid a broader manufacturing output slump. Falling nickel prices since the start of 2023, high-interest rates, and rising transport costs continue to pose challenges for recyclers. Asian STS scrap demand is generally stable, except for Taiwan, where STS end-product demand remains low. Therefore, factory activity also remains low, leading to less scrap generation. In South Korea, POSCO continues to recover from the flood-related disruption a year ago; the country’s STS scrap demand remains stable. Scrap demand from Japan’s STS mills should be stable in Q1 2024, remaining at Q4 2023 levels, although relatively low STS activity may continue to give rise to an ”overflow” into other Asian countries. Middle East demand for STS is expected to surge this year as regional construction and automotive sectors grow. “Significant efforts are being made to boost the region’s green credentials, including the opening of a new $ 11 million STS and non-ferrous materials recycling plant in the UAE, operated by Ni Met Recycling,” said Omar Al-Sharif of Sharif Metals Group.
According to estimates by the American Iron and Steel Institute, crude steel production in the US was 1.710 Mt in the week ending 10 February 2024, up 0.5% compared to the week prior and down 5.0% y/y. Based on this production level, the AISI estimates capacity utilization to be 77.0%, compared with 80.5% for the same period last year.
Market in crisis, says Aperam. Though the stainless steel market improved slightly during Q4, it remains deeply depressed, according to Aperam’s CEO, Timoteo Di Maulo. “Extreme margin pressure persists, and volumes reflect an industrial recession in Europe. This crisis reveals how important the successful integration into raw materials has been for Aperam,” he added. Back in 2021, the Luxembourg-headquartered company acquired ELG of Germany, which collects, trades, processes, and recycles stainless steel scrap and high-performance alloys. It delivers around 1.2 Mt/y of materials. During 2023, recycling and renewables achieved an operating income of €84 M ($90.4 M), the first time the division brought in the highest earnings among the group’s four divisions. The others cover electrical steel, alloys, services, and specialties. Aperam, whose main operations are in Europe and Brazil, last year suffered a 19.2% drop in turnover year-on-year to €6.59 bn because of reduced shipments, down 4.8% to 2.20 Mt, and lower realized prices. Net income of €203 M was around a third of the previous year’s €625 M.
Base Metals
Premiums for US nickel briquettes edged lower in a sluggish spot market. Sources told CRU that there is little to no spot demand for nickel briquettes due to a weak stainless-steel market. Sellers are cutting prices amid oversupply and a negative market outlook.
Battery materials
CATL has restructured the shareholding of two of its top executives. The official purpose is to better adapt to changes in the internal and external environments, further improve the company’s decision-making, and promote the sustainable development of the company. The restructure is interpreted to be an effort to avoid CATL being designated as a ‘Foreign Entity of Concern’ (FEOC) under the US Inflation Reduction Act (IRA). A previous agreement combined the shares of Robin Zeng Yuqun, the founder, chairman, and general manager of CATL, and Li Peng, the company’s vice chairman. Together, they held 27.9% of the company. Given Zeng’s position as a member of the Chinese People’s Political Consultative Conference (CPPCC), an advisory body to the Chinese government, and the greater than 25% shareholding in the business, CATL was in danger of being designated as a FEOC by the US IRA, under the current interpretation of the rule. As such, cells made by CATL’s overseas subsidiaries, with more than 50% ownership, were ineligible for IRA tax credits. The subsidiaries were also required to share details on complete rights to purchase, sell, and manage information and give access to production details, including the use of any relevant intellectual property or data that influenced production. With the dissolution of the agreement, CATL subsidiaries will no longer be designated as FEOC, given that Zeng’s shareholding in CATL will decrease to 23.5%, which is below the 25% threshold. CATL is currently providing technical and manufacturing advisory for Ford, which is building an LFP battery plant in Michigan, using CATL’s technology. Another CATL joint-venture facility is being explored in Mexico. The company also exports battery cells from China for the US-built Tesla Model 3 and Mercedes’ US-built EQS and Sprinter models. CATL is attempting to establish a production presence in the region. The company’s strong history of cell production, being the largest battery producer globally, combined with tax credit eligibility, will put its cells in high demand.
In mid-January, Northvolt signed a $5 bn financing deal to expand its Northvolt Ett plant in Skellefteå, Sweden. The deal includes refinancing a $1.6 bn debt package agreed in 2020, as well as new funding from 23 commercial banks, the European Investment Bank, and the Nordic Investment Bank. The funding is the largest European green package ever awarded and will be put towards expanding cell and cathode production at Northvolt Ett. The battery manufacturer also plans to use the funding to expand Revolt Ett, a battery recycling plant adjacent to the cathode and cell plants. Although Northvolt’s prospects are not weak, it faces the same challenges as other startup battery companies in scaling up production, improving factory yields, securing large enough supply contracts to justify the capital expenditure, and achieving cost-competitiveness compared to incumbent Asian manufacturers.
