Low 4Q demand undercuts brief rally on EU FeMo

European ferro-molybdenum (FeMo) prices surged last week in response to fresh demand from trading companies, but this momentum appears to have been short-lived as low demand weighs and market participants brace for a challenging winter.

FeMo prices recently gained 9.5pc in about a week, rising to a peak of $37.25-37.75/kg duty paid Rotterdam on 15 August from a 16-month low of $34.00-34.50/kg, as increased demand from trading firms reversed a downwards summer price trend. But the market is stabilising somewhat, with prices today assessed down slightly to $37.00-37.40/kg as a dip in demand caused offers to converge closer to $37/kg.

Higher prices in the Asia-Pacific region — particularly China — nudged trading firms to buy up material in Europe to cover their short positions in case of supply tightness and higher prices in Europe. Many trading companies had expected prices to continue moving lower throughout August because of low spot demand from steel mills over the summer and higher energy prices restricting output. But stronger-than-expected consumption in China instead pushed prices higher.

Chinese steel mills bought about 6,500t of FeMo alloy in the first half of August, compared with 10,000t bought in all of July. And this increased buying interest triggered domestic Chinese prices for the alloy to jump by almost 10pc in less than a week. Meanwhile, prices for 57pc molybdenum oxide in Busan, South Korea, also climbed, to $15.10-15.50/lb in warehouse on 11 August, from a low of $13.90-14.10/lb three days earlier. Prices were last assessed in Busan at $15.00-15.20/lb.

Many European trading companies took these higher Asian prices as a sign that the molybdenum complex was strengthening and began buying material to cover their short positions while prices were still relatively low. "A few months ago, almost everyone sold a little more than they had. Now they're buying to cover themselves," a trading firm told Argus. This rush to buy was further compounded by some producers stepping back from the market and not offering material, prompting sellers with spare units to raise their offers, market participants said.

But this price surge may have been short-lived, with the Chinese market beginning to move lower again as steelmakers resist higher prices. Argus last assessed domestic Chinese prices at 159,000-164,000 yuan/t ex-works, down by 2.4pc from a peak of Yn163,000-166,000/t on 11 August. Likewise, buying interest from European trading firms also slowed significantly following the sudden price hike, with offers converging closer to $37/kg as offers exceeding $37.50/kg were met with little interest.

Regional demand under pressure

Despite the recent upswing, regional FeMo prices are under strong downwards pressure caused by the mounting economic headwinds faced by European industry.

Among the most pressing of these challenges is energy. Energy prices are expected to be prohibitively expensive for many industrial consumers throughout the winter as EU countries aim to cut gas consumption by 15pc by March but have few alternative power sources. Germany is expected to be one of the worst affected as a result of its reliance on imported gas, with the fourth-quarter base-load power contract having last traded at about €564.25/MWh ($571.70/MWh) on 17 August, up from €382/MWh at the start of July. And Italy's energy prices are also looking troublesome for steelmakers, with the fourth-quarter base-load contract having last traded at €584/MWh.

Market participants expect that many steelmakers will have to reduce output over the winter to avoid these higher energy prices, which will mean lower demand for FeMo and other alloys.

But others are more optimistic, suggesting steel mills may push to produce more through the autumn before energy prices spike in the winter, so that they can meet as much demand as possible before having to shutter over winter. If this is the case, European sellers may receive more buying interest from consumers in the second half of August for September deliveries.

But steel mills in Germany may not have this option. Low water levels on the Rhine river are restricting barge movements through Germany's industrial hub, limiting deliveries of coal to power stations and of other raw material to steel mills. Noble alloys such as FeMo are not normally barged on the Rhine but there could be some knock-on effects for demand if steelmakers are unable to operate.

"Noble alloys could be affected indirectly. The main issue is the iron ore, coal and coke deliveries. There was a similar situation in 2018, but this time it's very early in the year. I would say this is a bigger threat for the industry than the gas situation," a German alloy trading firm told Argus.

By Sian Morris