- In previous reports, we noted that upside risks to our forecasts existed. These were based on Chinese steel production, and in turn alloy consumption, outperforming our expectations.
Chinese crude steel production is rising each month in a year-on-year comparison, prompting our revised view that Chinese alloy consumption will surprise to the upside in 2020. This is particularly true for alloys used in the rebar sector, with stimulus spending by the Chinese government being concentrated on investment in infrastructure.
- Chinese steel output rose year-on-year in May, with much of the gain coming from increased rebar production. In our analysis of Chinese infrastructure spending plans, and their effect on rebar consumption, we have upwardly revised our forecasts for consumption of both vanadium and silico-manganese within China for 2020.
- Given the sharp contrast between demand from steelmakers in China versus demand for alloys from steelmakers in Europe and the United States, Chinese alloy prices will generally outperform markets elsewhere in the near term.
- Average US steel capacity utilization rates have been around 54% in June, while the steel sector in Europe was operating at anywhere between 30% and 60%. Steelmakers in Germany, Spain, Italy, France and the UK intend to shut for two or three weeks in July and August because demand for steel products is so weak.
With more impending shutdowns, feedstock deals for the second quarter were being stretched into July-September, with any shortfall to be supplemented from the spot market. Suppliers were expected to compete aggressively for any spot market demand, with further price declines likely as a result.
- The improvement in chrome ore and ferro-chrome prices seen during the past couple of months appears to be temporary, with a downward correction now likely. Both South African and Turkish ore prices have retreated from their early June peaks, with ferro-chrome prices largely stable.
Ferro-chrome smelters are unable to pass on higher costs due to market weakness in the downstream stainless steel sector and an abundance of stocks, leading to compressed margins. Our outlook is for stable to lower chrome pricing in the near term.
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