Steel Market:

Steel prices in the five major categories all fell year-on-year

In the months of the year, affected by numerous uncertainties at home and abroad, China's economic development has slowed down, and the demand boost effect in the main steel-consuming industries has been limited, leading to a downward trend in the market for five major categories of steel products.

From a price movement perspective, according to data from the China Iron and Steel Association, on a certain date, the prices of five major types of steel products in China reached their highest levels since the beginning of the year. Among them, the price of wire rod (diameter 6.5mm) was 4,115 yuan/ton, the price of rebar (HRB400, diameter 20mm) was 4,070 yuan/ton, the price of medium and heavy plates (thickness 20mm) was 4,100 yuan/ton, the price of hot-rolled sheets (thickness 4.75mm) was 4,020 yuan/ton, and the price of cold-rolled sheets (thickness 1.0mm) was 4,535 yuan/ton. Subsequently, the overall prices fluctuated and declined to the lowest levels on a certain date, which were 3,850 yuan/ton, 3,800 yuan/ton, 3,830 yuan/ton, 3,750 yuan/ton, and 4,280 yuan/ton, with respective declines of 6.44%, 6.63%, 6.59%, 6.72%, and 5.62%. Accompanied by the Federal Reserve's interest rate cuts, the People's Bank of China's reserve requirement ratio cuts, and the introduction of multiple economic stimulus policies by the state, the futures market took the lead in making moves, pulling up the spot market prices strongly. By a certain date, the prices of the five major types of steel products had recovered to 4,115 yuan/ton, 4,070 yuan/ton, 4,100 yuan/ton, 4,020 yuan/ton, and 4,535 yuan/ton, with respective increases of 6.88%, 7.11%, 7.05%, 7.20%, and 6.00%.

According to statistics, the average prices of the five major types of steel products in the month-month period were as follows: wire rod (diameter 6.5mm) at RMB/ton, rebar (diameter 12mm) at RMB/ton, medium and heavy plate (thickness 20mm) at RMB/ton, hot-rolled sheet (diameter 4.75mm) at RMB/ton, and cold-rolled sheet (diameter 1mm) at RMB/ton. These prices decreased by 1.2%, 1.3%, 1.4%, 1.5%, and 1.6% respectively compared to the same period in the previous year, and by 1.7%, 1.8%, 1.9%, 2.0%, and 2.1% respectively compared to the average prices in the previous year.

In terms of supply and demand, according to data released by the National Bureau of Statistics, from January to October, China produced 776 million tons of pig iron, 875 million tons of crude steel, and 1.11 billion tons of steel products, representing year-on-year decreases of 3.2%, 2.0%, and 1.4%, respectively. Meanwhile, according to data from the General Administration of Customs of China, in the first three quarters of the year, China exported 58.5 million tons of steel products, a year-on-year increase of 31.8%, while importing 6.3 million tons of steel products, a year-on-year decrease of 30.1%. The net export of steel products, when converted to crude steel, was approximately 50 million tons. Based on this calculation, the apparent consumption of crude steel in China during the first three quarters was around 750 million tons, equivalent to an annual apparent consumption of less than 900 million tons, representing a year-on-year decrease of approximately 3.4% compared to the apparent consumption of crude steel in 2022. In the context of weak consumption, China's steel industry has been in a state of cumulative loss for 12 months. Data from the National Bureau of Statistics shows that from January to October, the profit of the ferrous metal smelting and rolling processing industry in China was -21.7 billion yuan, with a loss of 249 yuan per ton of crude steel.

At the end of the month, the short-term surge in steel prices was entirely driven by speculative financial market funds amid the ongoing market downturn, which not only underscores the increasing financial attributes of steel but also reflects the market's optimistic expectations for the future. However, the rapid rise in prices has limited long-term stimulating effects on the spot market. The key factor for the effective recovery of China's steel market remains the implementation effectiveness of stimulus policies. As national stimulus policies gradually take effect, the steel market in the fourth quarter may experience a slow and fluctuating recovery. Meanwhile, earlier price surges in certain varieties will still be subject to fluctuations driven by financial markets.

Iron Ore: Price Decline Less Than Steel

The Platts Iron Ore Price Index (major Chinese ports, %, dry basis, tax-excluded) showed a clear downward trend in the month of the month. However, in terms of price movement, on the day of the month, the iron ore price reached its highest level of the year at $/ton, and then fluctuated downward with steel prices to the lowest level of $/ton on the day of the month. With the Federal Reserve's interest rate cuts, the central bank's reserve requirement ratio cuts, and the introduction of multiple economic stimulus policies by the state, the futures market drove a strong rebound in spot market prices. Since the day of the month, the Platts Iron Ore Price Index completed an upward move from the lowest $/ton to $/ton in just trading days, with a gain of over %. The average price of the Platts Iron Ore Price Index in the months of the month was $/ton, down by .% year-on-year, and down by .% compared to the average price of the year, but still showed strength compared to the .% drop in the price of rebar (diameter mm) during the same period.

In terms of supply and demand, domestically, based on data from the National Bureau of Statistics, from January to October, China produced approximately 7.71 billion tons of iron ore concentrate, which is equivalent to no more than 2.57 billion tons of iron ore finished products. In terms of imports, data from the General Administration of Customs of China shows that from January to October, China imported nearly 928 million tons of iron ore. From the perspective of port inventories, according to incomplete statistics from relevant research institutions, as of the end of October, the inventory of major iron ore import ports in China slightly increased to around 1.28 billion tons, an increase of nearly 10 million tons compared to the end of last year, but no significant accumulation of inventory was observed.

Based on the above data, it is estimated that approximately 1.1 billion tons of iron ore resources flowed into the domestic steel raw material market in the previous quarters of the year, equivalent to about 0.7 billion tons of pig iron production. Comparing this to the approximately 0.7 billion tons of pig iron produced in China during the same period, it is evident that the supply of iron ore resources in China is quite sufficient.

Market Outlook. Since the launch of the Platts Iron Ore Price Index, the long-term average price has remained at $/ton, and it has been accepted by the industry as the price benchmark for the iron ore market. However, this price level is significantly higher compared to lower steel prices. In late April, the sharp surge in the short-term price of the Platts Iron Ore Price Index once again strongly declared the enhancement of the financial attributes of iron ore and the dominant position of the Platts Index in the iron ore spot and futures markets. Due to the persistent "pathology" of the iron ore industry characterized by "three highs and one low" (high external dependence, high single source dependency, high foreign monopoly, low domestic supply security), coupled with the enhancement of the financial attributes of iron ore and the clear linkage between steel and iron ore prices, China's steel industry is severely burdened by iron ore. Iron ore remains the most critical variety for China to address in its urgent need to ensure stable supply.

Nickel: Average price down nearly % compared to the same period last year.

In the first quarter of the year, nickel prices (spot market, closing price) operated in an "inverted character" pattern. After a sluggish market in January, the market showed signs of rebounding from February to March, reaching a peak of $21,000 per ton on March 7th, the highest since the beginning of the year, before fluctuating and falling to a minimum price of $19,000 per ton on April 12th. In late April, influenced by the Federal Reserve's interest rate cuts, the central bank's reserve ratio cuts, and a series of national economic stimulus policies, nickel prices rebounded upwards, reaching $20,000 per ton by the end of April, a rebound of over 5% from the lowest price since the beginning of the year. In the first quarter of the year, the average nickel price was $20,500 per ton, a decrease of nearly 2.5% compared to the same period last year and a decrease of over 3.5% compared to the average price in 2022. Overall, nickel prices have basically formed a trend of fluctuating downward.

On the supply side, the nickel resource investment projects of Chinese enterprises in Indonesia, which were initiated earlier, are expected to go into operation one after another by the end of this year. Coupled with the breakthrough in the technical route of laterite nickel ore for battery-grade nickel resources, and the increase in nickel production by enterprises such as Tsingshan, Delong, and Huayou, the demand for nickel metal in China's stainless steel and new energy battery sectors has been effectively met, effectively repairing the global nickel metal supply-demand gap that previously existed.

On the demand side, according to statistics from the Stainless Steel Branch of the China Iron and Steel Association, in the first half of the year, China's stainless steel production reached 10 million tons, an increase of 10% year-on-year, with 10-series stainless steel production at 10 million tons, up 10% year-on-year. It is expected that China's stainless steel crude steel production worldwide could approach 10 million tons in 2023, with 10-steel (10-series) potentially surpassing 10 million tons, bringing about an incremental demand for approximately 100,000 tons of nickel metal. Coupled with China's continuous efforts in the new energy battery sector, it is anticipated that the global nickel demand increment will be around 100,000 tons for the full year, maintaining a strong growth momentum.

Looking ahead, with the growth in the production of laterite nickel ore in Indonesia, the supply of nickel continues to increase. Meanwhile, the anti-dumping measures by the US and European markets against Chinese new energy vehicles will put greater pressure on the already overcapacity in China's new energy sector. This dynamic, where one factor increases while the other decreases, will likely result in a relatively loose supply-demand balance for nickel. However, the increase in nickel delivery varieties by Chinese companies at the London Metal Exchange (LME) and the continued sanctions on Russian nickel products have kept financial speculators interested in the nickel market, making it possible for malicious speculation in the nickel market to occur again. It is therefore expected that nickel prices will most likely continue to fluctuate and decline, with support likely around USD/ton. It is important to note that the competition for market control between traditional sulfide nickel mines highly controlled by overseas mining giants and laterite nickel mines dominated by emerging Chinese mining companies may intensify in the future. This could potentially lead to capital speculation on nickel prices, causing significant market volatility.

Chromium: The average import price of chromium ore in China has increased by %.

Affected by the voluntary production cuts of major chrome ore producers (Glencore) and the scarcity of domestic resources, the price of imported chrome ore (South Africa, %) in China experienced a mostly upward trend during the first quarters of the year, rising from the lowest price of $100/ton at the beginning of the year to a peak of $150/ton. Subsequently, due to the overall sustained downturn in steel market prices and weak downstream consumption, chrome ore prices showed a downward trend in the second half of the year, with a cliff-like drop from $150/ton on October 1st to $100/ton on November 1st, a decline of nearly 33.3%. From January to November, the average price of imported chrome ore (South Africa, %) in China was $120/ton, a year-on-year increase of 20% compared to the same period in 2022, and a 10% increase compared to the average price in 2021.

Due to the extremely scarce domestic chromium resources, almost all chromium raw materials rely on imports. In the first quarters of the year, China's ferrochrome prices maintained a relatively high and volatile pattern. The price trend of ferrochrome (%%, %%) was basically consistent with that of chrome ore: it fluctuated and rose in the first half of the year, showed a fluctuating and declining pattern after June, and experienced a sharp decline after September. In the first quarters, the average price of ferrochrome in China was RMB/ton, a decrease of .% compared to the same period in , and a decrease of .% compared to the average price in . This fully illustrates the awkward situation where China, as the global manufacturing center, is "constrained" in the metal resources sector. Although ferrochrome prices have decreased year-on-year, it still ranks alongside chrome ore as one of the most "eye-catching" varieties in the overall black commodities this year.

Supply and Demand Aspect. As a necessary chromium metal for stainless steel production, China's domestic resources are extremely scarce, with an external dependence close to 100%, fully relying on imports to meet domestic production needs. With the annual growth in China's stainless steel production, the demand for chromium metal has been increasing year by year. Relevant data shows that China's stainless steel crude steel production may increase to around 30 million tons in 2023, equivalent to a chromium metal demand of around 1.5 million tons. However, according to the analysis of the United States Geological Survey (USGS), the global supply of chromium is fully capable of meeting production needs. From January to October 2023, China imported 16.7 million tons of chromium ore and its concentrates, equivalent to 1.3 million tons of chromium metal; cumulative imports of high-carbon ferrochrome were 3.9 million tons, equivalent to 1.3 million tons of chromium metal; cumulative support supply was 2.6 million tons, accounting for 87% of the annual chromium demand, equivalent to 1.9 months of usage (including a factory inventory cycle of 30 days). The above data indicates that China's supply of chromium resources is relatively sufficient, and the supply-demand structure is basically balanced.

Market Outlook. This year, China's stainless steel production will remain at a very high level, and the demand for chromium will remain high. At the same time, chromium is extremely scarce in China's resources and highly dependent on imports from South Africa. Overseas mining giants, represented by Glencore, have a strong control over the chromium resource sector. It can be inferred that in the near future, the price of chromium-based commodities in China will continue to fluctuate at a relatively high level.

Manganese: Annual manganese resources expected

Absolute demand is close to year

In terms of manganese ore, from January to March, the supply mismatch of manganese ore in the short term led to a sharp increase in prices due to the accident in Australian manganese mines. By April, as the supply gradually improved, the price of manganese ore gradually fell to the level at the beginning of the year. Taking the import of South African manganese ore (38%, Qinzhou Port) as an example, in the first three quarters, the highest price of imported manganese ore in China was 65.5 yuan/ton, the lowest price was 36.5 yuan/ton, and the average price was 48.5 yuan/ton, an increase of 5.6% compared to the level of 46 dollars/ton in the same period last year, and an increase of 10.6% compared to the annual average price of 44 dollars/ton in 2021.

In terms of silicon manganese, during the last quarter before the Chinese New Year, the weak operation of China's steel market exerted pressure on the price of silicon manganese, a key raw material for steelmaking. Amidst the upward trend in the manganese ore market due to the shutdown of major Australian mining operations, the manganese ore market experienced a short-term surge, which later declined due to the sluggish consumption in the steel market. From January to February, the highest price of silicon manganese in China's market was RMB 7,400/ton, the lowest was RMB 6,600/ton, with an average price of RMB 7,000/ton, a decrease of 5.1% compared to the same period in 2018 and a decrease of 10.3% compared to the average price in 2018. The price decline was relatively moderate compared to that of finished steel products.

Regarding manganese sulfate, from January to March, under the continuous stimulus of national policies in the new energy sector, the price of manganese sulfate (% in bags) experienced a brief downturn at the beginning of the year before rebounding strongly, rising from the lowest level of RMB/ton in January to the highest level of RMB/ton from January to March, with a rebound strength of nearly %. From January to March, the average market price of manganese sulfate in China was RMB/ton, a decrease of .% compared to the same period in , and a decrease of .% compared to the average price in .

In the electrolytic manganese sector, influenced by the upward trend in manganese ore raw material prices and the impact of the new energy battery industry, the price of electrolytic manganese in China (Shanghai) saw a first-half year trend of initially declining and then rising. By the end of the month, it reached a high of yuan/ton since the beginning of the year. However, in the third quarter, affected by the steel market, the price continued to decline, hitting a low of yuan/ton in early month. From month to month, the maximum drop in electrolytic manganese exceeded .%, with an average price of yuan/ton, a decrease of .% compared to the average price of yuan/ton in the same period of year, and a decrease of .% compared to the average price of yuan/ton in year. The sluggish price of manganese used in steel has dragged down the price of electrolytic manganese.

Supply and demand aspects. With the development of China's steel and battery industries, China's dependence on foreign manganese has been increasing year by year, nearing %. At the same time, China's manganese ore mainly comes from South Africa, posing a very high risk of single-source dependency. Globally, manganese resources are relatively abundant, and no other countries or regions outside of China exhibit a high degree of external dependence, with only China maintaining a high demand for manganese resources. In 2021, due to an accident at an Australian mine under South32, which accounts for nearly % of global production, a short-term mismatch in manganese supply occurred, driving up the prices of manganese ore and all manganese-related commodities. As the mines entered the stage of resuming production and operation, the short-term supply gap of manganese ore was quickly filled. Given China's high external dependence on manganese and the global manganese resource market's supply pattern of "the world looking to China," in the absence of extreme events, the supply and demand structure of manganese resources will remain in a relaxed state.

Market Outlook. In the first half of the year, due to short-term mismatches in resource allocation, the prices of manganese series products increased. As supply recovered and China's steel industry remained relatively sluggish, the supply-demand relationship for manganese had already been restored by the third quarter, and most manganese series product prices also softened and declined again in the third quarter. It is expected that the increase in China's annual crude steel production and new energy vehicle production will lead to an absolute demand for manganese resources that remains close to that of the previous year. Among them, the steel industry still accounts for the largest share of manganese consumption, while the demand from the battery industry will become the biggest support for manganese prices. In the near future, the manganese market will gradually move towards a reasonable range through supply-demand repair, and the overall market performance will be on par with that of the previous year, with electrolytic manganese still being a crucial lever for adjusting the two major manganese consumption sectors: steel and batteries.

(The data in this article is sourced from the National Bureau of Statistics and the Minmetals Economic Research Institute.)

Author: Zuo Geng Editor: Wang Zhi Reviewer: Liu Jiajun Planner: Chen Xiaoli