Metal Movers: Ferro-alloy market update and key price drivers

Author Argus

How the macro-economic events are affecting the ferro-alloy market and driving prices volatility and demand in the short term.

In this episode of Metal Movers, Cristina Belda, Deputy Editor, Argus Metals International discusses with Samuel Wood and Sian Morris, Market reporters, the latest updates in the ferro-alloy market and what could be the key price drivers in the upcoming months.

Cristina: Hello, and welcome to the latest episode of "Metals [SP] Movers." I'm Cristina Belda, Deputy Editor of Argus Metals International. And today I'm joined by two of our reporters, Sian Morris, and Samuel Good to discuss what's been going on in the ferroalloys markets lately. And what could be some of the key price drivers over the coming months. Sian, Sam, welcome to the podcast. Hello.

Sian: Thank you very much.

Sam: Thanks, Cristina.

Cristina: Thank you for being here today. Maybe you guys can introduce yourselves and tell us which market specifically you cover weekly.

Sam: Hi, yeah, I'm Sam. I cover the bulk ferroalloy markets in Europe, as well as manganese flake, and chromium metal.

Sian: And my name is Sian. I covered the noble alloys in Europe, FeMo, ferrovanadium, all that good stuff. And then I also cover tantalite and columbite as well.

Cristina: Thank you very much. So now, I wonder if you would like to set the stage and wanna tell us what kind of movements you have seen, what's been happening in the market. There's has been a lot of volatility. And maybe that can bring us to what's happening today. And I'm looking forward.

Sian: Yeah. So I think kind of looking at where we are now, I think it's pretty important to consider kind of how exceptional the last couple of years have been, you know. In 2020, everything was obviously completely shuttered for the year. Then last year, industry was sort of beginning to recover but the supply chains weren't really in a position where they could support the surge in demand that we were seeing on a lot of metals. And so, at least on the noble alloys, there were some prices that really jumped, especially ferromolybdenum [SP]. And now, we're halfway through 2022. I think we've got this conflict in Ukraine to contend with, global economies teetering on the edge of recession, really high energy prices. And I think all of these sort of headwinds are starting to bring some of the metal markets back down to reality. So we're seeing some prices starting to fall and kind of settle at a lower level. So, it's been pretty interesting couple of years.

Sam: Yeah, I'd echo what Sian said, in that it's been an exceptional couple of years. And this year has been no less exceptional. And this year, we're heading into a summer slowdown, marred by several other factors such as the ongoing conflict. And we've got global macroeconomic conditions deteriorating under the surface. And it's not really coming through in any major way yet. We're seeing reports of banks putting in monetary funds and ways to counter this, but we're not seeing a massive impact on market prices yet, but we're certainly seeing downside. We're certainly seeing some stabilizing at lower levels we're heading into summer months, so I think a lot of people are just kind of shutting down and seeing where we are in a few months' time.

Cristina: And in terms of demand, what are we seeing? How are steelmakers reacting to the high energy prices, and are they, like, reducing demand for ferroalloys and noble alloys, both in Europe and in Asia? What's the situation?

Sam: Yeah, I mean, steel demand is really incredibly weak at the moment. Steel prices have been in decline for a couple of months now. HRC prices in Europe are now down by around 40% to 50% from late March. We're around 815 Euros at the moment. It's down. And as a result, steel producers are using less ferroalloys, and, therefore, the spot market is getting thinner and thinner. That being said, that's quite a sort of a near to medium-term view in the longer term in the years to come. It's more optimistic. At the end of the day, steel is gonna be one of these key transition materials. And economic slowdowns aren't necessarily gonna change to that. It might just kind of stunt that. And so, it's probably more optimistic in the longer term. But in the short term, it's certainly looking quite gloomy for demand from steel producers.

Sian: Yeah, I would agree. I think in the near term, especially going into the summer, steel demand is gonna be lower. Although the noble alloy side, especially I'm hearing a lot about automotive and the automotive sector being weakened. You know, we're seeing the shortage of semiconductors this has been around for, well, since 2020. There's not enough semiconductor parts for car companies to be able to finish producing the cars that they're making. And now, there's also shortages of other parts because of the conflict in Ukraine. So, the automotive sector is quite weak. And that's really kind of weighing on demand for some of the noble alloys, FeMo especially.

Cristina: So we are seeing like reduced demand but at the same time, there are like problems with supply, changes in trade flows in the conflict started as well. Are you seeing like fear of sanctions, people like reluctant to buy material from Russia? Is that supporting markets in a way of thinking about ferrovanadium or ferrochrome?

Sian: Yes. So, on ferrovanadium, I think we've seen some interesting shifts in the market there. Obviously, Russia is quite a big supplier of ferrovanadium in Europe and the U.S. Russia hasn't really been sanctioned in terms of ferroalloys yet. The UK has sanctioned EVRAZ, which is a ferrovanadium producer in Russia. But the EU hasn't followed suit. And the UK isn't really a big ferrovanadium consumer. So, that hasn't really had too much of an impact on the market. I think there are some companies who will choose not to buy Russian material. That's especially an issue in the U.S. I think there's a lot of steel mills that aren't quite as interested in buying Russian ferrovanadium now.

And that's created quite an interesting dynamic, a bit of a shift in the trade flows, I suppose, where Russia was previously supplying a lot of ferrovanadium to the U.S., and now they're not willing to buy that material. So, American ferrovanadium prices have really shot up, and prices in Europe much lower in comparison. So you've got this quite significant premium in the U.S., where you can take European and Brazilian material and sell that at a significant premium to U.S. buyers. I think, in Europe at the moment, the ferrovanadium price is somewhere around $37, and in the U.S., you're talking $54, $55 per kilogram or more.

So, I think anyone who has material they want to sell is gonna try and find an American buyer for that. Not everyone is able to sell into the U.S. Obviously, there's quite significant import taxes on Chinese and South African material. And there's these container shortages, shipping issues. It takes quite a long time to be able to get yourself set up in the U.S. and shipping material there frequently. But that's been an interesting shift to follow over the last few months, for sure.

Sam: Yeah, I mean, on my side or on my markets, it's the case if it was an initial reaction to supply fears, and it was kind of a superficial price jump. No less real, it very much had an impact on market sentiment. But at the end of the day, the material remains unsanctioned. But as a result of compliance measures, companies sell sanctioning, problems with insurance, and financing lines from banks, a lot of buyers have looked at China. And I think this is where we're seeing big trade flow changes on my markets. Ferrochrome, for instance, we're seeing huge kind of interest in Chinese ferrochrome, which is trading at the biggest adverse spread to European markets, on ferrochrome that is.

And there's a lot of downside, particularly on the higher grade low carbon material, which is one of the ones that's holding the most sort of high price in Europe, even though it is on the downside now. Likewise, with ferrosilicon, China's exports were up 69.3% on the year in May. Chromium metal exports up sixfold in May. So we're seeing a real look towards China. And weaker domestic steel demand in China has increased the amount of surplus supply. And Chinese suppliers are looking to the export market to fill that gap.

Cristina: So we are seeing that countries like China or India are able to fill this Russian gap. Do you think this is gonna last in the medium term? Because we are also seeing a lot of shipping delays. And that's also something I wanted to ask you. How are we seeing also the freight situation? Has it improved? Or it's something that people [inaudible 00:09:19] used to live with?

Sam: Yeah, I mean, it's certainly a new normal for many markets. I think something that's very prevalent right now is inland costs with the tracking issues. I mean, we had tracking issues in Spain a few months ago that led to quite substantial strike action. We're now seeing record high gasoline costs on the continent, which is really kind of stacking on top of these costs, which already massive for so many of these alloys. For ferromanganese, you're adding 100 Euros now for inland shipping costs. So it's really kind of inflating the costs. In terms of spreads and kind of how they're affected by the shipping issues. I think things are to some extent normalizing. Certainly, for things like manganese flake ferrosilicon, the spreads are relatively wide compared to historical levels but they're narrowing and somewhat normalizing at the current spreads. I say that's sort of a contradictory statement. They are slightly coming down, but at a much less volatile rate than the last six months, which has just been unprecedented. Sian, what's your sort of take on that?

Sian: I mean, in terms of the shipping containers and shipping disruption, I think, like you said, it's a new normal. Everyone's sort of used to there being some level of disruption now. I think it's been going on for long enough. It's actually quite a pleasant surprise if material arrives on time. At the same time, it comes in kind of peaks and troughs sometimes. There's absolutely no containers available. Shipping times are getting longer. And then other times it looks like they may be getting a bit better. You can actually find a container in time. There's always this underlying disruption that people have got used to, it's just managing kind of how it changes on a day-to-day basis.

Cristina: So shipping continues to be a headache, and you guys are like in touch with market participants daily. So what are also the main concerns that people have, like recession? Energy costs, we already discussed. What are the main challenges at the moment and going forward in the second half of the year?

Sam: I think although there's kind of these big macroeconomic problems going on, I really don't think the energy problems can be understated. Only a couple of weeks ago, it seemed as though really high price levels had plateaued off, albeit at incredibly high levels. But now, a lot of countries, they're on the rally again. Only yesterday, electricity costs hit 412 Euros per megawatt-hour in Italy. Gas TCF [SP] is up at 162 Euros per megawatt-hour. So it's really getting quite high again. But, of course, you've got these kind of recession risks underlying everything, and it's on the horizon. I think the material impact at this point is primarily coming from downstream consumers, you and I less disposable capital, therefore, we're not purchasing as many new steel-based goods and so on. It filters up the supply chain. But, of course, it's on everyone's minds. I think people are kind of just burrowing down for summer and seeing where we emerge in a few months' time.

Sian: Yeah, I would agree that recession is definitely on everyone's minds at the minute and everything that comes with that. The other thing is the potential for more lockdowns, it's still kind of hanging around. It's still in the air. China's shutdown, earlier this year, I think went on longer than people were expecting. And it had a very big impact on prices. And I think everyone is still kind of a little bit nervous that if COVID rears its head again, China shuts down, shipping issues get worse again, just sort of battling the everyday problems that have been around for the last two years.

Cristina: And just to wrap up this very interesting conversation, do you think that markets have like a lot of room to go down farther with all these challenges because some of the prices are already at production costs or even below. So what do you think is the bottom for these markets?

Sian: I'd say. I mean, it really depends on the market. Something like ferrovanadium, a very temperamental market goes up very fast and can come down again quite fast. It's not really found a bottom yet, I would say. At least in Europe, we're around 37 now, but hearing lower offers today below 37. And then, if you look at something like ferromolybdenum, last year, it absolutely shot up because of the problems with supply chains. It was really difficult to get material into Europe. And there was actually very good demand. And that brought prices up to, well, well above 40. And they haven't come back down below 40 since. We're kind of around 42 at the moment. And there's still some of that kind of seasonal pressure on prices. But there isn't a lot of room for prices to move down below 40, I would say. I think that seems like the bottom that everyone is expecting. I don't think anyone really sees there being much room for prices to move below 40 on ferromolybdenum. So, yeah, I think it really depends on the market and who's asking for material that day.

Sam: Yeah, I do too. I think we're hitting production costs in a number of markets that I'm covering for our manganese, silicon manganese. We're touching kind of 1,200, 1,300, 1,400 Euros. But the problem is with that, if producers aren't actually putting fresh material into the market, the question of production costs becomes sort of secondary. The real question is how low traders will go to liquidate their stocks. If they're willing to go below production costs to generate some cash before the summer months, then it's gonna add more pressure. But yeah, of course, you've got these energy costs for steel producers. So both sides of the coin.

Cristina: Indeed, interesting times, we need to keep an eye on the markets to see what's happening in September when the consumers, like, restock again. I'm afraid we're out of time. So, we need to wrap up things here. But thank you both for joining us today, and to all of our listeners tuning in around the world, and we hope to see you again in the next edition of "Metal Movers."


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