TELF AG Market Roundup 2023 Week 41

Gas futures

Gas: European natural gas futures edged up to around €37.5 per megawatt-hour after falling nearly 12% early in the week as mild weather forecasts for October, low demand, and high storage levels more than offset supply risks. Gas storage sites are more than 95% full, and ongoing injection of gas, coupled with reduced industrial demand despite tight supplies, is helping to maintain stable prices. On top of that, northwest Europe is expected to experience temperatures significantly higher than the typical seasonal norms in October. Meanwhile, Norway’s gas supply is below capacity due to maintenance, and Algerian gas flows to Italy are lower than usual. Also, extractions from the Groningen gas field in the Netherlands stopped on October 1 as planned due to earthquake damage. On Wednesday, Germany approved putting on-reserve lignite-fired power plants back online from October until the end of March 2024 as a step to replace scarce natural gas this winter and avoid shortages. After the conflict erupted, Berlin reactivated coal-fired power plants and extended their lifespans, with a total output of 1.9 gigawatt-hours generated last winter. Despite gas bottlenecks easing since last winter with new liquefied natural gas (LNG) terminal deliveries, coal-fired power plants will be reactivated, and the government will make proposals by summer 2024 on how to offset the increased carbon dioxide these plants will generate this winter.

Chrome ore: In September, chrome ore prices across the range strengthened notably. This comes after prices dipped in August as smelters pushed back on sellers. Yet, greater downstream demand alongside further port issues, this time at South Africa’s Richards Bay, allowed prices to rise through September. South African concentrate prices saw the largest price rises month-on-month (m/m). Lumpy 38-40% concentrate rose by 14% m/m to average $289.5 /t in September, whilst 44% concentrate rose by 5.3% to average 336.0 /t and UG2 rose by 3.1% to average $299.0 /t. Issues with a loader crane at Richards Bay have led to long delays at a time when demand in China is high due to surging stainless steel production. Once the delays ease, which may not be for a few weeks given the backlog, prices are expected to ease back, but low port stocks in China will remain a crutch for concentrate prices. Looking ahead, weaker demand from China because of stainless production cutbacks leading to lower smelter outputs will allow concentrate prices to soften. Yet, as per CRU, the falls in price are expected to be limited due to the low level of port stocks in China. Logistical issues in South Africa have rumbled on for much of the year and do not look likely to rectify before the end of 2023. Chinese ports stocks ended September around 1.9 Mt, almost flat on how they started the month. Yet, when measured in weeks of consumption, increased smelter production in China during the month caused stocks to fall briefly. In the coming quarter, lower stainless production will result in less demand for concentrate from smelters, placing less pressure on port stocks. This will enable the stock build if issues around shipping in South Africa improve adequately.

FeCr:  European ferrochrome benchmark up 1.32% at $1.53 per lb. The settlement comes amid slightly higher ferrochrome prices in recent weeks compared with the European summer due to stronger spot liquidity and higher offer prices amid rising production costs. US FeCr prices fall under import pressure. Although replacement costs have decreased since earlier this year, market contacts said that downward price pressure is primarily coming from cheap, unsolicited offers for Indian material. Prices for EU LC, 0.10% C, increased this week as the market found some direction. Increasing ore and production costs globally have led low-carbon ferrochrome producers to request higher prices for materials. Additionally, the announcement of the benchmark price for ferrochrome on Monday has improved sentiment in the market.

Chinese output of HC FeCr increased by 3.8% m/m in September to reach 664.9 kt, a multi-year high. The figure also represents a huge y/y increase of 53%. This surge in ferrochrome production is a result of added capacity across the country that has serviced the growing demand from the stainless industry. However, stainless production is expected to cool through Q4; this lower demand for ferrochrome, alongside ongoing cost pressures on smelters, will lead to a cutback in smelter production in the fourth quarter.

Mn: Prices for seaborne Mn ore edged up this week on increasing freight rates, destocking, and a marginal pick-up in the downstream sector in China. Supply chain disruptions are also impacting availability as South African miners are still struggling with the new Manganese Export Capacity Allocation (MECA) arrangements, while the Port Elizabeth region was hit by very heavy storms in the middle of September, stopping movement for several days.

FeSi: European Si metal prices increased on higher-priced transactions amid a slight pick-up in spot activity after months of low liquidity. The summer lull has ended as market participants have returned from holidays, but the near-term outlook remains uncertain as end-user demand is still muted.

Stainless Steel: European mills hold firm on lifting prices despite limited real demand. In September, European stainless producers hiked their offers again as improved order intake enabled them to pass on higher costs. Import purchases almost halted with the ongoing anti-circumvention investigation initiated in mid-August by the European Commission. Lead times for austenitic grades from domestic mills stretched to November and December for orders closed in September. On the demand side, there has been an increase in orders from distributors and traders, while spot buying from end-users stays limited. Many distributors have curbed their stocks to low levels over the past few months as they faced sluggish demand and high-interest rates, leading to more restocking needs after the summer holidays. Tightening supply is another major contributing factor, especially with the anti-circumvention investigation on CR stainless from Taiwan (China), Turkey, and Vietnam. Distributors have stopped placing import orders from these regions due to a high risk of retroactive application of duties. Hence, EU domestic mills have received more orders and taken up a larger market share as the investigation continues. In addition, there has been a delay in delivery from a major European producer, which has tightened supply further.

China is expected to have produced around 9.5 Mt of stainless in the third quarter of 2023, a record high. This has been driven by the strong performances of several stainless end-users, including white goods and motor vehicles. Yet, demand elsewhere has remained weak, and we expect some of this stainless to boost inventories, which are already high. This is adding weight to our view that stainless production in China will soften in Q4. This will ripple back and drag on HC FeCr production.

Base Metals: Premiums for nickel briquettes, cut cathode, and full-plate cathode in the USA and Europe have fallen in a sluggish spot market. Spot demand for 99.8% Ni metal has been subdued all year, but activity has picked up in the past two weeks as buyers look to secure units for Q4. Sellers have lowered premiums in order to turn inventory as the market is oversupplied, interest rates are high, and LME prices have been falling steadily.

Despite power supply problems, the Kamoa-Kakula mining complex in the Democratic Republic of Congo turned out 103,947 t of copper-in-concentrate in Q3, a quarterly all-time high. The two concentrators operated at a steady-state capacity of 9.2 Mt/y, following ahead-of-schedule completion of a debottlenecking program in Q1, said co-owner Ivanhoe Mines. They milled about 2.24 Mt of ore during Q3, primarily run-of-mine (ROM) ore from Kakula, supplemented with ore from surface stockpiles. The average feed grade was 5.55% copper, with copper recoveries averaging 87.2%, the Canadian company added. The mine’s year-to-date output is 301,336 t of copper-in-concentrate, which includes a ramp-up of debottlenecking initiatives since February. Production guidance for this year remains 390,000 t to 430,000 t. Last year’s total was 333,497 t.

Canadian miner Barrick Gold plans to increase production capacity at its Lumwana copper mine in Zambia to an estimated 240,000 t/y by processing 50 Mt/y of ore. Mine life will be 36 years. The almost $2 bn (€1.9 bn) of investment will elevate the once-unprofitable operation into the front rank of copper producers, the Toronto-headquartered company said. An accelerated work program envisages completion of a full feasibility study by the end of 2024, bringing expected expanded process plant production forward to 2028.

Battery materials:

Prices for European cobalt edged higher on Thursday, driven by increased demand for alloy grades. Prices and demand for standard-grade material remain low in a bearish market. Prices for US cobalt fell as spot demand remains sluggish. Sources told CRU that buyers are either well-covered under contracts or are trying to keep inventories slim in the fourth quarter. Last month’s price decreases in China and Europe have also contributed to the price adjustment in the USA.

Battery demand continues to decelerate. Battery demand is failing to meet expectations, with softer demand forecast due to emerging Mn-rich chemistries and LFP uptake. Superalloys, however, continue to surprise the upside, although they only comprise a small portion of the market (~8%).

Low prices will not deter copper and nickel miners. Delayed commissioning of several large projects, as well as a reduction in output from ASM sources, are symptomatic of the prevailing weak market conditions. However, cobalt is almost solely sourced as a by-product, with less than 5% coming from primary mines. When coupled with strong margins for copper and nickel miners, supply growth is unlikely to slow in the medium term.