LME WEEK 2019 - COMMENT: Macro concerns, volatility leave minor metals, ferro-alloys markets looking for ways to manage risk in 2020
Bearish macroeconomic signals and oversupply have put minor metals and ferro-alloys prices variously under pressure over 2019; the structure and terms of contracts agreed over the coming weeks will show how market participants are accounting for those signals ahead of 2020.
A slowing global economy alongside uncertainty over the China-United States trade dispute and Brexit have slowed minor metals trading in 2019. The August sale of antimony stocks previously held by the defunct Fanya Metal Exchange – which had weighed on contract negotiations since the bourse collapsed in 2015 – relieved the antimony market of some of its uncertainty. But limited appetite for risk arising out of macroeconomic concerns looks set to keep any price recovery in check.
Where trade has slowed and demand has weakened, particularly in the steel and automotive sectors, typical commodity-style supply responses have started to come into play.
High carbon ferro-chrome prices hit a 10-year low in September. Following cuts to production by Yildirim and Albchrome – together taking 13,000 tonnes per month of supply out of the market – chrome prices have started to show the first signs of recovery, even if next year’s demand picture looks reserved.
Similarly, concerns around consumption of ferro-alloys from the steel sector, and waning economic growth, look set to limit the upside for ferro-molybdenum prices – which recently hit two-year lows – next year as well.
But beyond price weakness, buyers are looking at new ways to structure their portfolios to minimize the risk of leaving material – the price of which can prove volatile – sitting on their books. Wary of overstocking, some consumers are holding back from committing all of their expected 2020 needs into long-term contracts. Instead, they plan to purchase in the spot market should the need for a top-up materialize.
“People just aren’t pulling the trigger since they haven’t consumed what they committed to this year,” one trading source told Fastmarkets.
It is the same trend that beset the cobalt market a year ago, when large increases in hydroxide supply discouraged the signing of long-term contracts, later contributing to aggressive efforts to offload stock in the first quarter of this year. Where long-term contracts were signed, generous discounts and optionality on tonnage were a sign of buyers’ risk-off approach.
But after a 50% price cut in the first three months of 2019, it is cobalt where supply cuts - especially in a market where supply is consolidated in relatively few hands - have already had a substantial impact. The standard grade metal price gained more than 45% over the course of August and September after Glencore’s decision to close its Mutanda mine in the Democratic Republic of Congo brought forward expectations for a balanced market.
Lithium prices have come under similar pressure from large supply responses, with the Chinese carbonate price down 27% from the beginning of the year. New lithium producers hope to take a piece of the forecast demand from the battery and electric vehicle sector, which gives battery raw materials a somewhat rosier demand outlook than some of the other ferro-alloys and minor metals.
New long-term supply contracts are being signed for lithium and cobalt, even if some of the oversupply still needs to be absorbed.
But in the knowledge that prices have moved quickly over the past couple of years, market participants are finding new ways to do business. In cobalt, that means the consideration of floating, rather than fixed hydroxide payables, while in lithium it looks like a slow shift away from fixed, long-term prices in favor of contracts tied to reference prices published by price reporting agencies such as Fastmarkets.
Prices and price trends tell part of the story about the strength of a market; but the way contracts are structured and independently-assessed prices are used can demonstrate more about confidence in the year ahead.
In advance of LME Week starting on Monday October 28, the following series of infographics explores some of these key market themes alongside Fastmarkets’ data insight and analysis, in more detail:
LME WEEK 2019 – INFOGRAPHIC: Thin global antimony demand hinders significant price recovery
LME WEEK 2019 – INFOGRAPHIC: First signs of chrome recovery emerge on price-driven production cuts
LME WEEK 2019 – INFOGRAPHIC: Slowing steel demand, economic growth to hit molybdenum trading
LME WEEK 2019 – INFOGRAPHIC: Mutanda closure shifts some negotiating power back to sellers for 2020 deals
LME WEEK 2019 – INFOGRAPHIC: Global market oversupply keeps lithium in ‘bust part’ of price cycle