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Demand shift sends China iron ore lump premiums soaring

  • Market: Metals
  • 04/12/20

Seaborne iron ore lump premiums have surged by 86pc in the last week, supported by strong demand as Chinese steel output stays high heading into winter and the dwindling supply of low-cost pellet alternatives.

The Argus 62pc iron ore lump premium jumped by 3¢/dry metric tonne unit (dmtu) to 13¢/dmt unit cfr Qingdao yesterday and has almost doubled from 7¢/dmtu a week earlier. The premium is the extra cost for every 1pc Fe in lump over the underlying ICX 62pc fines index. Lump was priced at $146.55/dmt on an outright basis yesterday, while the ICX was at $137/dmt cfr Qingdao.

A Newman Blend Lump (NBL) cargo traded at 14.2¢/dmtu fob basis over a January 62pc fines index on the Corex platform yesterday, accelerating the uptrend.

Chinese port inventories of Indian pellet fell to minimal levels in late November, eliminating a low-cost alternative to Brazilian pellet that makes up the bulk of China's port stocks.

Total lump stocks at six northern China ports have fallen by a third to 11mn-12mn t this week from around 18mn t in mid-November, market participants said. Chinese lump demand rises in winter when pollution restrictions limit fines sintering.

Direct-charge supply tightness is part of an overall shortage in seaborne markets caused by lower Brazilian output and tight supply of steel that is drawing more global capacity back on line.

Brazilian mining firm Vale has cut its 2020 production guidance to 300mn-305mn t. Vale's production had been on pace to exceed 400mn t before it was hit by a January 2019 fatal dam accident, heavy rains and Covid-19 delays.

Blast furnace restarts in Europe and US are diverting iron ore concentrate and pellet supply from China.

"Iron ore lump demand at portside markets has improved as it is more cost-effective now compared with pellet, pushing up lump prices since mid-November," a north China-based mill manager said. Pilbara Blend Lump (PBL) traded at Yn975/wet metric tonne (wmt) yesterday, up by about 7-8pc from Yn900-910/wmt on 16 November, he said.

Soaring flat steel prices are giving iron ore prices margin room to move higher.

But portside lump premiums have lagged seaborne prices. Portside lump premiums on a Yn/wmt basis have followed seaborne trends, but on a Yn/dmt basis have only turned positive this week.

"Traders' speculative demand pushed up seaborne lump premiums along with limited liquidity of lump cargoes in the seaborne market," a Shanghai-based trader said. Mills hold long-term contracts for PBL, limiting supply for spot sales, he said.

"There is at least a Yn100/t loss for landing an iron ore lump cargo at port now, while there is about a Yn20-30/t profit for portside lump sales using earlier import costs," a Tangshan-based mill analyst said. Portside traders usually hedge in derivatives markets to ensure margins, he added.

But some participants are not that optimistic about the outlook for lump premiums.

"Seaborne lump premiums remain much higher than portside lump premiums. I do not think it will go sky high, as the high metallurgical coke price will cap the rise, and there are relatively high stocks at China ports," an east China trader said.

PBL portside vs seaborne index lump premiums

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20/09/24

Northvolt's future unclear as Sweden rejects stake

Northvolt's future unclear as Sweden rejects stake

London, 20 September (Argus) — The future of Swedish battery and cathode active material (CAM) producer Northvolt is unclear after the country's Prime Minister Ulf Kristersson confirmed this week that the government will not invest in the company. Northvolt has had to cut back its expansion plans because of challenging macroeconomic and market conditions. Northvolt's difficulties were thrown into the spotlight last week when chief executive and co-founder Peter Carlsson said the company will scale back its expansion plans for a second CAM factory in Borlange, Sweden – a facility that is intended to help ease regional dependence on imports from China which currently accounts for over 70pc of global CAM production, according to the IEA. The adjustment at Borlange is one of several setbacks at Northvolt, whose Skellefteå factory in the far north of Sweden delivered less than 1GWh of battery production last year – enough to power around 20,000 cars and far below the plant's nameplate capacity of 16GWh. Back in June, German carmaker BMW pulled out of a €2bn ($2.2bn) order, albeit just 4pc of Northvolt's order book of $55bn, according to its 2022 annual report – underscoring the [slowdown in European demand for electric vehicles]https://direct.argusmedia.com/newsandanalysis/article/2603432) (EVs) and therefore battery materials. Carlsson maintains that the "long term outlook for cell manufacturers — including Northvolt — is strong", despite the "challenging macroeconomic environment." And while the Swedish government has declined to invest, Northvolt did receive a €5bn ($5.58bn) loan in January — the largest loan raised by a climate tech firm in Europe to date, along with €942mn from the European Investment Bank (EIB). Overall, the company has received around €15bn ($16bn) of investments to date — in debt and equity — since its founding in 2017 by two former Tesla executives, comfortably making it Europe's best-funded start-up, ahead of fintech firm Klarna at $4.6bn. However the road ahead is challenging and costly, and additional support will be needed. "Northvolt haven't gone under but are not going to produce any CAM material until 2026 at the earliest, so difficult times, the EU needs to step up and support," a market participant commented. The scale of growth and support being given to China's battery and electric vehicle (EV) sectors is also compounding the difficulties raising investment for European projects. China accounted for 83pc of global battery production last year, according to the IEA, and subsidy-funded EV manufacturers CATL and BYD have continued to expand capacity this year (see graph). China has subsidised its EV industry to the tune of around $230bn between 2007 and 2023, including $45bn last year, according to a study by the Centre for Strategic and International Studies (CSIS). "This scares off the capital from the [European] battery market. It takes a full reassessment of the industry, which takes a long time. Capital is not cheap and rate cuts are only coming in now, so it will be a while," another market participant said. China's battery dominance continues to hamper Europe "This narrative is bigger than Northvolt – Asian manufacturers generally and Chinese manufacturers specifically are in the lead, very clearly", said Jeffrey Chamberlain, chief executive of US-based venture fund Volta Energy Technologies. "The idea that a start-up can catch up and manufacture cells, of equal or better quality at volume, might have been viable 10-15 years ago, but it is increasingly becoming incredibly challenging," Chamberlain said, arguing that western firms at all stages of the supply chain should sign joint ventures with China instead of engaging in direct competition, offering access to their markets with local manufacturing as well as "innovation for next-generation products". Despite recent setbacks, Northvolt has not revised its goal of building four large factories before the end of the decade in Sweden, Germany and Canada – remaining committed to a scale of ambition that is drawing concern from some industry participants. "The only way for success now is through strategic alliances, just look at InoBat and Gotion," said Ben Kilbey, former director at Britishvolt. "[It] feels like recent history repeating [itself]. Britishvolt was advised that it could make a battery factory in two global locations (UK and Canada) before it had made a single cell […] Now Northvolt is in a pickle and having to scale back its global, vertical integration, ambitions. And it's had around €15bn thrown at it," Kilbey added. Chinese companies have outlined lithium-ion battery manufacturing capacity for next year that far exceeds expected demand (see graph), which may further weigh on prices for component materials, squeezing the margins of any manufacturers of these materials outside China such as Northvolt. By Chris Welch Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Overprotectionism harmful for EU stainless: Marcegaglia


20/09/24
News
20/09/24

Overprotectionism harmful for EU stainless: Marcegaglia

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UK's RJH ceases trading, merges with Amalgamet


19/09/24
News
19/09/24

UK's RJH ceases trading, merges with Amalgamet

London, 19 September (Argus) — London-based minor metals firm RJH Trading (RJH) will cease its trading operations and all business will be transferred to Amalgamet Limited, Argus learnt today. Starting from 1 October, Amalgamet — the physical trading arm of non-ferrous metals at UK-based AMC Group — will take over the management of all RJH operations. Amalgamet is hiring the team from RJH, including Charles Swindon, the founder and managing director of RJH and former chairman of the Minor Metals Trade Association (MMTA), who will work as a consultant. Senior RJH traders in Scandinavia and India will trade for Amalgamet. Amalgamet, also headquartered in London, aims to expand further into more high-growth metals and take advantage of trading a greater diversity of metals and concentrates, both parties told Argus . Amalgamet mainly supplies base and minor metals, and through the merger will add new products that RJH has been trading for years including ferro-alloys such as ferro-chrome, ferro-silicon and other minor metals such as magnesium. For several metals including antimony there will be a crossover, as both trading firms have positions in the market. Charles Swindon told Argus the mix of the two portfolios is a good match and added that it is important to spread risk at a moment of geopolitical fragmentation. "This [partnership] brings over 100 years of invaluable trading experience in all metals as well as new opportunities in all parts of the world," he said. The financial details of the transaction have not been disclosed. By Cristina Belda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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EU HRC market gears up for mill consolidation


19/09/24
News
19/09/24

EU HRC market gears up for mill consolidation

London, 19 September (Argus) — The European hot-rolled coil (HRC) market is gearing up for potential consolidation over the coming year, as mills grapple with tough market conditions. The share prices of key European producers have rallied in recent days, despite continued weakness in HRC prices. Global steelmaker ArcelorMittal's shares traded above €22/share ($24/share) on the Luxembourg Stock Exchange at 12:30 GMT today, up from €19.70/share on 10 September. This strength is partly attributable to the expected release of economic stimulus measures in China, and the US Federal Reserve's recent interest rate cut, sources suggest. But market strength could also be because of growing talk that a new wave of consolidation is on its way, fuelled by decarbonisation efforts and the strained positions' of some mills. There has long been talk that steel coil producer Tata Steel Netherlands could be sold, after the Dutch state agreed to contribute to its decarbonisation spend. Recent difficulties at Germany's ThyssenKrupp have also sparked suggestions it could be an acquisition target. Czech Republic energy company EP Corporate Group (EPCG) recently completed its purchase of a 20pc stake in ThyssenKrupp's Steel Europe division, and could increase this to 50pc in the near future. EPCG owner Daniel Kretinsky may be seeking a strategic partner to help run the business, sparking talks that other mills could bid for a stake in the company. ThyssenKrupp shares were trading at €3.20/share on Deutsche Borse Xetra at 12:30 GMT today, up from €2.78/share on 10 September. Concerns over strong positions in niche markets, particularly tin plate, saw Tata Steel and Thyssekrupp call off their proposed joint venture in May 2019. But the market is in a different position now. Some mills have reduced capacity but new entrants are trying to join the market as green producers. And the global market is oversupplied, putting European producers in a difficult financial predicament, especially given their capital-intensive efforts to decarbonise. In the case of ThyssenKrupp, expectations that the mill will reduce its production footprint could partially alleviate potential competition concerns in the event of a takeover. By Colin Richardson Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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US Fed cuts rate by half point, signals more: Update


18/09/24
News
18/09/24

US Fed cuts rate by half point, signals more: Update

Adds chairman Powell comments, economic projections. Houston, 18 September (Argus) — The US Federal Reserve cut its target interest rate by 50 basis points today, the first rate cut since 2020, with policymakers signaling they expect to make another half-point worth of cuts by the end of 2024. The Fed's Federal Open Market Committee (FOMC) lowered the federal funds rate to 4.75-5pc from the prior range of 5.25-5.5pc, which was a 23-year high. The Fed had kept the target rate unchanged since July 2023 after hiking it for more than a year in the most intense rate-tightening campaign in four decades to quash inflation, which peaked at 9.1pc in mid-2022. "The committee has gained greater confidence that inflation is moving sustainably toward 2pc, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said in its statement after the two-day meeting. "Job gains have slowed, and the unemployment rate has moved up but remains low." In their latest economic projections, the Fed board and policymakers expect the target rate range will end 2024 near a midpoint of 4.4pc compared with an end of year midpoint of 5.1pc projected in June, which implies further cuts amounting to 50 basis points by the end of 2024. Policymakers also penciled in another 100 basis points of cuts over the course of 2025. "We're recalibrating policy down over time to a more neutral level and we're moving at the pace that we think is appropriate given developments in the economy," Fed chair Jerome Powell told a press conference after the meeting. "The economy can develop in a way that will cause us to go faster or slower. The US economy is in a good place and our decision today is designed to keep it there." The Fed's economic projections see core Personal Consumption Expenditures inflation — the Fed's favorite measure of inflation — ending 2024 at a median rate of 2.6pc, down from a prior forecast of 2.8pc. Policymakers see core PCE inflation falling to a median of 2.2pc by the end of next year. The outlook for the unemployment rate for the end of 2024 climbed to 4.4pc from 4pc penciled in at the June meeting. Policymakers expect gross domestic product (GDP) growth to end 2024 at an annual 2pc, slightly down from a prior 2.1pc projection. The latest policy meeting comes as the Consumer Price Index (CPI) eased to an annual 2.5pc in August , down from 2.9pc in July, the Labor Department reported on 11 September. Inflation had ticked up to 3.5pc in March from 3.1pc in January, prompting the Fed to turn more cautious about beginning its rate cuts. US job growth has recently slowed sharply, falling to an average 116,000 in the three months through August from 211,000 for the prior three months. The jobless rate rose to 4.3pc in July, the highest in three years, before edging down to 4.2pc in August. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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