Viewpoint: EU FeMo gains to continue in 2022

European ferro-molybdenum prices are likely to continue increasing throughout 2022, with no end in sight to the global shipping delays and supply tightness that lifted prices to a 13-year high in 2021. But low-priced Chinese material bought during a price dip in November 2021 could add some downward pressure in the near term.

European ferro-molybdenum prices averaged $44.25-45.15/kg du Rotterdam in the second half of 2021, up sharply from around $30.45-31.10/kg in January-June as severe shipping delays hampered deliveries from South America and the Asia-Pacific region.

Those delays have not abated and market participants expect them to continue in 2022, with most now operating on the assumption that material will take between six and eight weeks minimum to arrive in Europe after being bought in Asia-Pacific. These long and often unreliable shipping times have made it difficult for sellers to secure replacement material and increased the risks associated with selling material back to back before it has arrived in Europe.

Market participants expect these conditions to continue in 2022 as Covid-19 lockdowns and travel restrictions continue to cause disruptions and some ports work through a severe backlog of vessels.

Some market participants have opted to purchase more material through long-term contracts in an attempt to guarantee timely delivery of material, which could dampen some spot demand. But supply of prompt material is likely to remain tight as replacement alloy is slow to trickle in, potentially leaving buyers vulnerable to a supply crunch and price spikes should there be a sudden uptick in spot demand.

Lower-priced material could weigh on prices

But despite this expected tightness, an uptick in supply of lower-priced Chinese material could put some downward pressure on European prices through January and February.

A sizeable dip in demand from Chinese steelmakers in early November, stemming from cuts to energy consumption and steel production, caused domestic Chinese prices to fall by 30,000 yuan/t ($4.70/kg) in less than 20 days. Export prices soon followed suit, falling to $34-35/kg fob by 19 November, more than $10/kg below the duty paid price of material in Europe. This opened up an arbitrage window between the Chinese and European markets, whereby Chinese sellers could offer material into Europe at higher prices.

The arbitrage added some pressure to European prices at the time, but the market was mostly sheltered from a strong price decline by long shipping times, as any material sold to buyers in Europe would take at least six to eight weeks to arrive. Nevertheless, sentiment in Europe worsened as market participants believed an influx of low-priced material could enter the market in January-February.

One large Chinese exporter sold 200t of ferro-molybdenum to Europe in November but did not plan to start shipments until December or January, Chinese market participants told Argus. To put this volume in context, in January-October 2021, Chinese ferro-molybdenum exports to Europe totalled 800t.

But some market participants hope that the off-spec Chinese material could be less attractive to European steelmakers, which typically use material with 65-70pc molybdenum content — potentially lessening the impact of some lower offers. One producer voiced optimism that strong demand for standard grade material from European steelmakers could even support prices in the first quarter if they are unable to quickly source standard material. "It is all about demand," the producer said.

But regardless of the short-term impact that Chinese imports could have on prices in January-March, 2022 is likely to be a strong year for ferro-molybdenum prices overall, as the support factors that pushed prices up throughout 2021 are expected to continue.

By Sian Morris