TELF AG Market Roundup 2023 Week 46

Macro & Energy

Gas: EU natural gas futures fall as flows to Egypt resume. On Friday, European natural gas futures dropped 3% to €47 per megawatt-hour due to resumed gas shipments from Israel to Egypt. The Leviathan field restarted exports after the Karish field came back online following an outage, allowing Israel to meet domestic demand and supply Egypt. Egypt’s gas imports are currently at 250 million cubic feet per day, significantly lower than the usual 800 million. Israel’s temporary halt of the Tamar gas field during the Gaza conflict also impacted gas deliveries to Egypt. Throughout the week, natural gas prices in Europe saw a 6.5% decline, marking the third consecutive week of decreases due to warm weather and nearly full storage sites.

Oil: Brent Crude falls below $80/bbl. Brent crude futures dropped by about 2% to below $80 on Friday, putting them on course for a weekly loss of approximately 5%. This would mark the third consecutive week of declines. These price levels are now similar to those before the Hamas attack on Israel, which occurred on October 7th. Concerns about potential disruptions to the Middle East supply have eased. Concurrently, the demand outlook remains pessimistic, with the ISM Services PMI in the US falling more than expected. In China, the largest importer of oil, manufacturing returned to contraction, and the services sector saw only slight growth. Additionally, US crude stockpiles increased for a second consecutive week. Meanwhile, Saudi Arabia is expected to reaffirm the extension of its voluntary oil output cut of 1 million barrels per day through December.

Chrome ore

– Chrome ore price moves through October were largely rangebound, with no month-on-month (m/m) moves greater than 2%. More indicative of the current market sentiment is that the majority of chrome ore prices weakened in the last week, which is in line with our expectations, as Chinese smelters reduce demand as they prepare to cut back production in Q4.

– 44% concentrate and UG2 prices remained flat m/m, averaging $336 /t and $298.3 /t, respectively, whilst 38-40% Lumpy saw m/m prices rise by 2% to average $294 /t in October. Yet, all three saw prices soften from peaks in September, and week-over-week moves have all been negative through the end of October. Logistic issues in South Africa are reportedly much better, and there are no reported backlogs aside from the typical border congestion as trucks move through to Mozambique.

– Turkish concentrate prices have not changed since the first week of October. 48% averaged $397.5 /t in October, and 42% Lumpy averaged $335 /t. This lack of liquidity comes as demand upstream weakens due to many companies looking to end the year with lower inventories. We would expect a pick-up in liquidity closer to the end of the year.

Looking ahead, most analysts expect concentrate prices to continue to move down near the end of the year. Weaker demand in China as smelters react to less stainless production is the biggest driver of this view, but low port stocks will continue to provide a solid floor for prices. Beyond the end of 2023, prices should strengthen in Q1 2024 as restocking begins.

FeCr

– The Chinese output of HC FeCr increased by 5.3% m/m in October to reach 700 kt. This is the highest monthly total since we started collecting data. Demand for ferrochrome from the red-hot stainless industry has encouraged smelters to raise output and has also allowed a number of capacity expansions to come online. Chinese HC ferrochrome production now leads the same period of the previous years’ production by over 12%.

– The spot price of HC FeCr softened m/m in October as the tender price remained flat. Some input costs did soften, such as chrome ore, but this was not enough to offset the falls in spot prices for smelter margins. As a result, we think the majority of all Chinese smelters would be operating at or very close to a loss through the month of October.

– Chinese smelters are agile in their approach to production. Given the lower prices and expectations of weaker stainless production through Q4 2023, we expect some heavy smelter cutbacks to force spot and tender prices higher in the coming months.

– Average European and US spot HC FeCr 62-70% Cr price movements diverged in October, but this has led to an almost perfect alignment of prices in both regions. EU 65-70% spot prices gained 2% m/m in October to average 192.5 c/lb, whereas US 62-70% spot prices fell by 5% m/m to average 202.5 c/lb. The move closer to parity is particularly noteworthy given that US spot prices have shown a premium over EU prices since Q3 2021.

– In recent times, the US and EU spot prices have moved in similar veins, with the EU price moving first, followed by the US price a matter of weeks later. Given this, the US price is expected to bottom out and start to rise before the end of the year, even if only by a small margin.

Mn

– Chinese domestic FeMn prices fell this week on lower offers from smelters. Overall, transactions in the market were limited as tenders from major mills had yet to settle. Hesteel Group planned to buy a total of 5,200 t of HC FeMn, 1,800 t of MC FeMn, and 1,365 t of LC FeMn in November, compared to 7,700 t, 2,900 t, and 2,600 t, respectively, in October, according to local sources. The large reduction in purchase volumes dampened market sentiment and pushed buyers to the sidelines.

– China’s spot SiMn market was inactive as the negative outlook turned gloomier on lower tenders from major mills. Hesteel Group finally started its November tender and cut its bid price and purchase volume from October levels, according to sources in the country.

– Spot prices for exported Indian SiMn decreased this week on low demand and thin trading. Weak buying appetite continues to weigh down prices as inventory levels remain high.

– US SiMn prices declined as deals trended lower amid muted spot demand. The spot market has been quiet as participants focus on 2024 contract negotiations. However, a few deals were concluded this week, each below previous index levels.

FeSi.

– Chinese Si metal prices fell on lower offers from smelters in a pessimistic market. “Production from Sichuan and Yunnan has started to fall, but it seems to have failed to give much support to the current market. Many are maintaining a cautious sentiment now,” one smelter source in Sichuan said. China’s Si metal export market is still quiet, with limited inquiries from overseas buyers.

– European FeSi prices edged higher as sellers are reportedly unwilling to lower offers amid production cuts and rising energy costs. However, demand from the steel sector remains muted, which has kept spot volumes constrained and will maintain pressure on prices.
Stainless steel

– China is expected to have produced 3.0 Mt of stainless steel in October, 4% lower than the 5-year high produced in the previous month. Production sentiment has been hit by inventory pressures as demand in export markets remains weak. Softer stainless prices also saw many mills operating in negative marginality during October, which was another reason for the cuts.

– Stainless prices have been dragged lower by weak domestic demand and strong supply throughout Q3 2023. The Chinese construction sector continues to disappoint, with strong performances in both automotive and domestic appliances unable to make up for it.

– European stainless output is estimated to have been 487 kt in September, up 11% m/m. The largest driver has been mills looking to take advantage of higher prices and gain market share, given some producers struggled with ramp-ups.

– US stainless output fell back in October by 3.2% to 149 kt. Much of this is a result of soft domestic demand and falling base prices. This has also led to service centers and distributors operating on a hand-to-mouth basis to reduce inventories before the year ends.

Base Metals

– Diversified miner Lundin has upped output expectations for this year from the Eagle nickel mine in Michigan. Eagle’s nickel output is now predicted to be between 15,000 t and 17,000 t, up from 13,000 t and 16,000 t, with cash costs falling to the $2.00 /lb to $2.20 /lb range from $2.30 /lb to $2.45 /lb

– Chile’s state-owned copper miner Codelco and global miner Rio Tinto have created Nuevo Copper to explore copper at the Agua de la Falda deposit in the Atacama region of northern Chile. The joint venture was created after Rio Tinto completed its acquisition of a 57.74% stake in the prospect from Pan American Silver of Canada. The other 42.26% is owned by Codelco. Exploration began at Agua de la Falda in 1996, and the focus to date has been on searching for precious metals, especially gold. Copper has not featured. However, analysis by Codelco and Rio Tinto, which owns 30% of the Escondida copper mine in Chile, indicates there is potential to discover copper deposits at Agua de la Falda. That will be the main focus of their work. After referring to the country’s vast copper resources, Codelco president Maximo Pacheco said: “What we need to do is accelerate our exploration work to contribute the copper that the world needs for its energy transition. The JV comes at a time when Codelco’s production has fallen, and it faces delays and cost overruns in its development projects.

– Much like in September, copper prices struggled for direction through much of October, weighed down by rising LME stocks, a deterioration in sentiment, and the stronger dollar. More recently, concerns have been focussed on the rising geopolitical risk across the Middle East and the possibility that oil prices will remain elevated or trend higher. Meanwhile, signs of economic improvement in China helped to underpin prices over the final trading days of the month. Geopolitical and macroeconomic uncertainties remain a key concern to our copper demand outlook. Although there has been a pause in interest rate hikes in the US and EU with inflation cooling, climbing geopolitical risks in the Middle East are emerging risks. Manufacturing activity for the EU remains in contractionary territory, while the US economy surprised on the upside again in Q3 2023 on the back of robust consumer spending. However, it remains to be seen if this strength will be sustained through Q4 2023. Meanwhile, the demand for Chinese copper is still being supported by the transportation, electrical network, and appliance sectors.

– Activity in the copper concentrate spot market was muted in October as the Chinese paused for Golden Week at the beginning of the month, followed by the gathering in London for LME week. This saw the first round of negotiations between miners and smelters for annual TCRCs. In addition, smelter buying remained subdued ahead of the annual benchmark negotiations. Overall, US$86/t & 8.6c/lb are taken as being representative of average headline TCRCs for ‘standalone’ smelter spot purchases of clean concentrate made by Chinese smelters during October. Overall, spot TCRCs of US$75/t & 7.5c/lb are taken as being representative of typical mine-to-trader deals for clean concentrate for prompt delivery during October.
Battery materials

– Chinese cobalt metal prices edged lower as hand-to-mouth buying patterns persisted in a pessimistic market. A refiner told CRU that their co-metal production is at full capacity, but downstream demand from industrial sectors remains stable, and there are no additional purchasing interests. Market players said consumption in the economy overall remains slow.

– Cobalt metal demand remained limited, with small volumes transacting in traditional metal-consuming markets. Procurers continued to avoid building inventories due to expectations that prices would decrease further in the near future. Spot market activity for cobalt sulfate was particularly muted, even more so than the metal market. Spot demand from NMC cathode refiners was almost non-existent, given demand for their product continues to decline. Furthermore, these refiners reported having sizeable sulfate inventories, allowing them to consume from existing stocks rather than procure additional material. The large raw material inventories, compounded by buyer cautiousness, are expected to facilitate excess cobalt sulfate availability in the coming weeks, creating additional downward pressure on prices.