Raw Material Prices

CRU: Slow unfurling for raw material demand expected

Written by Richard Lu

Steelmaking raw materials demand

In the period between mid-February and mid-March, CRU forecasts global demand for steelmaking raw materials to change little from the previous month, but buying activity will improve towards the end of next month. In Europe, more blast-furnace (BF) restarts are unlikely to occur, but low inventories of raw materials and recent BF restarts will increase purchases moderately. In the JKT region in East Asia, domestic steel demand will remain weak – particularly from the construction sector – where a bubble burst and labor shortages are expected to further drag on performance. Steelmakers in the region will also face fierce competition with China in the export market. In order to pass the cost increases onto steel buyers, they are strategically lowering production.

We have heard that Korean steelmaker POSCO would hot idle and maintain its BFs. This will lead to weaker raw materials demand in the region. In China, steel demand is ramping up after the Chinese New Year, but the demand outlook is bearish for the coming peak season. Without support from demand, steel margins are unlikely to improve, limiting the increase in steel production and consequently demand for raw materials.

In India, the market condition will be no better than others, with slow progress of infrastructure projects under tight budgets and high steel inventories continuing to restrict steelmakers’ operations. Altogether, this will keep raw materials demand low, but buying activity will gradually improve in most regions in tandem with steel demand recovery towards Q2. Importantly, the ‘Two Sessions’ meetings will be held in China in early March, so do watch out for any policy changes in the country.

Iron ore

Following the Chinese New Year holiday, the iron ore price has continued to decline despite persistent supply disruptions. The price fall was driven by pessimism in the market, which has overridden the fundamentals. Higher inventories have made the market less sensitive to supply disruptions, which has enabled the bearish steel demand outlook to weigh on iron ore prices. Supply will continue to face downside risks such as those from weather and maintenance, which will add a risk premium. Brazil will likely maintain strong shipments but rainy weather in the southern part of the country poses a downside risk. 

Australian outflow is expected to remain lower year over year (y/y), as the risk of tropical lows/cyclones and further maintenance-based disruptions could further impact outflow. Elsewhere, Ukraine and South Africa will have the same supply constraints as before, though the former has high potential for adding more volumes to the market. Meanwhile, Swedish miner LKAB will slowly ramp up outflow back to full utilization. The supply risks and disruptions will push the price to a more sustainable level of ~$130/dmt (dry metric ton) over the coming month. The bearish steel outlook and lack of restocking are the main downside risks to this.

Metallurgical coke and coal

Supply of metallurgical coal from top exporters including Australia, the US, and Canada has improved dramatically over the past month, rising to the top of the 2017-23 range. The continuation of this trend will put downward pressure on prices. This will be reinforced by weak restocking demand in India, Southeast Asia and Europe, which is expected to begin recovering in Q2’24 followed by an acceleration in H2’24. Combined with lower hot metal production in China, we expect the market equilibrium price to fall below $300/metric ton (t) in the coming month, and towards ~$250/t by mid-2024. However, further supply disruptions, especially from Australia, will keep seaborne prices near current levels. Meanwhile, another upside risk is the stricter prohibition of overproduction at coal mines in China.

With the third price cut realized in the Chinese coke market recently, we expect the Chinese coke export price to drop by another $10−15/t in the coming weeks and then remain stable. This is because coke margins are currently low and unsustainable. We forecast the price pressure from the ailing steel sector will be ultimately balanced by limited coking coal supply as well as the exit of high-cost merchant coke producers later in the year.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

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