In the closing session of this year’s International Ferroalloys, which was held virtually November 9-11, Fleur Ritzema, global minors, ores and alloys editor at Fastmarkets, and Fastmarkets' analysts Amy Bennett and Robert Cartman summed up the key market drivers for the rest of 2020 and beyond.
Financial stimulus from China could provide an enormous boost to its domestic consumption - especially demand for steel products - resulting from its ambitious infrastructure investments.
Fastmarkets’ research team has raised its expectations for rebar and finished steel consumption growth year on year in 2020, Ritzema said. But the traditional infrastructure investment seen in the third quarter has slowed due to insufficient funds and shortage of good projects.
Traditional infrastructure spending - rather than on new infrastructure - will still be the main force to boost steel demand in the short term, IFA delegates learnt on November 9.
“The amount of government stimulus going into countries around the world - obviously we are most familiar with what is going on in China and from my personal perspective I’ve mostly been involved in the US - but to see these unified efforts globally to stimulate economies has really been impressive,” Amy Bennett, principal consultant at Fastmarkets, said. “And I think this will certainly affect the steel industry and in turn ferro-alloys as we go into 2021 and possible even 2022.”
“The stimulus issue is really key to growth next year,” she said.
Bennett anticipates rebar demand in China to grow by 5-10% on a year-on-year basis in 2020, despite expectations that lower consumption of rebar from the construction sector in the winter would slow the recovery in steel production.
“Although there are often these environmental announcements, usually output does not fall as much as projected [in China in the winter]. So while we see reduced rebar consumption that does not mean we will see reduced production. We may see falling rebar prices as demand falls and production continues to rise but ultimately in terms of demand for ferro-alloys, including manganese alloys, vanadium etc, we definitely see demand will continue into the fourth quarter,” Bennett said.
Bennett agreed with Paolo Misk of Largo Resources, who spoke on November 9, that Chinese steel production has been sufficient to cushion at least the global vanadium market from weaker demand in Europe and the United States in the fall-out from the pandemic.
“That’s a theme we’ve seen not just with vanadium but across the markets this year. Thanks to China these markets have remained remarkably stable in these unprecedented times,” she said. “Thus far this year, Chinese steel production is up around 5% and this has offset the decline in rest of world steel of about 14%.”
For 2020 as a whole, Fastmarkets forecasts Chinese steel production to rise by about 5% against last year, whereas global steel output will be down around 3%, she said.
Fastmarkets analysts expect Chinese steel production to grow by 3 or 4% next year, while there will be strong steel production in the US and to some extent in Europe as well. This indicates the steel market will not be so reliant on China to prop up demand.
Protectionism and chrome
There was considerable talk at the conference about protectionism in respect of the South African chrome ore market and its impact on ferro-chrome, including during a chrome session on November 9.
A poll earlier in the conference showed slightly more than half of respondents agreed that a potential chrome ore export tax could enhance the competitiveness of South African ferro-chrome.
However, a poll at the final session found little support for the proposed tax from respondents.
“The government does seem quite keen to impose this export tax but there hasn’t been an indication about the level,” Robert Cartman, senior analyst at Fastmarkets, said.
Discussions at the conference had focused on expectations the export tax would be set at around 30-40% of sales price. The tax is an incentive for South Africa not to export its chrome ore and to make its ferro-chrome more business more competitive, Cartman said. China has been the biggest ferro-chrome producer in the world since 2012-2013 and it has continued to grow each year.
“The big constraint for South Africa ferro-chrome smelting is the availability of electricity and the increasing cost of that electricity,” he said.
Cartman compared the plan for South Africa with developments in the nickel sector. Nickel is more important to the steel industry than chrome and export bans on nickel ores from Indonesia saw its exports diminished drastically, he said. China has found other suppliers, such as the Philippines.
“South Africa does dominate the seaborne market for chrome ore to a greater extent than Indonesia did for nickel ore,” he said.
It is possible 20% of South Africa’s chrome exports could be replaced by other countries. Oman, India and Turkey would become increasingly competitive after a tax was imposed and could step in to some degree.
“Turkey used to export about 1 million tonnes more seven or eight years ago, so there is that capacity there,” he said. “[But] South Africa will continue to dominate.”
While South African miners that also produce ferro-chrome would gain from the proposal, there would also be losers, according to Cartman. “The miners that don’t turn that chrome ore into ferro-chrome will lose out, such as the PGM miners and some smaller chrome operators,” he said.
The presence of spare capacity in ferro-chrome production will limit the capacity for increased localization in response to the proposed tax.
“The big demand for ferro-chrome comes from China and - a small extent - from Indonesia. I don’t see other countries setting up smelters,” Cartman said. “We might see the growth in Chinese production stagnate or even fall back a bit - and who would benefit from that, it would probably be the South Africans.”
Developments in the US
Bennett addressed how global ferro-alloys trade might be affected by the election of Joe Biden as US president, especially in relation to Section 232 tariffs on steel imports.
“We do not expect 232 to be removed; instead we expect the Biden presidency to reach out more to traditional friendly trade partners,” Bennett said.
Exempting of European countries could occur as well as a return to more traditional trade agreements.
“We would expect to see an easing of Section 232 but more anti-dumping action,” she said, based on the history of the Democratic Party when in power previously.
Steel buyers would look to book more on contract and less to the spot market in a Trump presidency, according to conversations with steel consumers, Bennett said. But under expectations of more trade flow into the US under a Biden presidency, there would be increased spot market opportunities.
Green energy and batteries
Green energy and decarbonization became a focus in this year’s conference in comparison with previous years.
The role of carbon taxes could have a big impact on the prices of ferro-alloys in the future because their production emits a lot of carbon dioxide, Cartman said.
“If they were to properly incentivize the lower use of carbon that could be a game changer,” he said. “National or even regional efforts to tax carbon would really just offshore it.”
“Additionally, talks in Europe about tax on carbon imports could be a very important dynamic in the next 10 years and beyond,” Cartman said.
But you would need to get the big emitters on board, such as China and India, he added, as well as the United States because it is such a rich country.
Ritzema highlighted that panelists in the battery metal session agreed that materials such as manganese flake and vanadium, which are more widely used in the steel industry than for batteries, will have better demand growth in the battery sector in the future.
“Steel will continue to be the dominant usage of manganese for the foreseeable future but we are seeing increasing demand for manganese in a number of forms - as flake, sulfite, dioxide - and in any of these forms manganese can be a critical component of most battery chemistries,” Bennett said. “This is a high growth sector but it is a very small portion of total manganese demand.”
2021 ferro-alloys outlook
On the global ferro-alloys market outlook, Bennett said they are likely to pick up in 2021 when the global steel industry recovers.
Like this year, China will lead the recovery of the steel industry. But unlike this year, other countries will ramp up, she said.