Raw Material Prices

CRU: Raw materials prices have peaked as demand slows down

Written by Richard Lu

CRU forecasts that global demand for steelmaking raw materials will fall month over month (m/m) between mid-January and mid-February.

In Europe, restocking demand for steel is expected to accelerate as we enter 2024. This will support steel margins, which are expected to rise from the current 6% to 8% in April. As this continues to support steel production in the region, raw materials purchases are unlikely to rise further because shipments heading to Europe were already strong over December–January.

The JKT market will resemble Europe with little additional upside on bulk raw materials demand. In India, modeled steel margins turned negative, but domestic demand and exports are expected to improve toward the end of February. Given this, steelmakers will keep hot metal production elevated, supporting demand for raw materials in the country.

The major downward pressure on raw materials demand will come from China, where steel end-use demand will fall toward the Chinese New Year (CNY) holiday (Feb. 10–17). The pre-CNY restocking by traders will partly offset weak end-use demand for steel and sustain mill operations. While this supports raw materials consumption, raw materials restocking will slow down. In combination with generally slower business activities during this period, spot demand for bulk raw materials will fall.

Iron ore

The key story in the iron ore market is rising iron ore inventories in China. Lower demand coupled with high inflows of material to the ports is resulting in supply chain stocks ending up at nearly the same level as one year ago. The vessel queue along the Chinese coast is long. That means there will be a high level of offshore inventory that will be offloaded in the coming weeks.

Based on this, we see very little upside to iron ore prices from here. On the supply side, we are in an uncertain period now with more intense weather conditions in Australia and increasing rainfall in Brazil. This will prevent prices from falling too much in the coming months. We expect a steady price development leading up to the CNY holiday.

Metallurgical coke and coal

Weak supply continues to be the key factor holding up metallurgical coal prices. We expect this to change in the coming weeks. Australian shipments have recovered over the past six weeks, while Russian exports are expected to rebound following the removal of the export duty. But an important upside risk to prices has developed because of a potential strike action BHP Mitsubishi Alliance (BMA) and the stoppage at Saraji, a big coking coal mine in Australia, due to a fatal accident.

China’s coke and coking coal prices have already fallen this month. This will continue as hot metal production slows in the lead up to the CNY holidays. India’s import pull on metallurgical coal imports will also remain constrained by weak steel margins, high seaborne prices, and strong coke imports – which are undercutting domestic coke. While we do observe an uptick in imports into Europe and Southeast Asia, the real recovery and stronger restocking demand in the ex-China market lies beyond Q1’24.

We expect the Chinese coke export price to remain stable over the coming month as lower demand and inventory build will be balanced by the exit of high-cost merchant coke producers given that modeled margins are extremely poor.

SMU Community Chat – Jan. 24 at 11 am ET

If you want to learn more about iron ore, register for the next SMU Community Chat on Wednesday, Jan. 24, at 11 a.m. ET. CRU principal analyst Erik Hedborg, an expert in iron ore and pellets, will be the guest speaker.

He will first talk about the structure of the global iron ore market. It should be a helpful explainer for those in the EAF-dominated US market who might be more well-versed in scrap. He’ll also discuss recent market trends in both ore and in pellets – as well as provide an outlook for 2024. He’ll take your questions too.

Hedborg previously worked as an analyst in the iron ore industry with special focus on the pellet market and China. He speaks fluent Chinese and holds a MSc from the Lulea University of Technology in Sweden and an MA from the Berlin School of Economics and Law.

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