CHARTS: EV battery metals bill sets new low as lithium, nickel, cobalt price slump continues
The raw materials bill for the average EV is now down to $510 compared to a peak of more than $1,900 at the beginning of last year.
(The opinions expressed here are those of the author, Clyde Russell, a columnist for Reuters.)
China’s steel industry appears to be turning the corner, with output and profitability likely to increase in September as the world’s second-biggest economy finally starts responding to government stimulus efforts.
Steel mills have been signaling that production is likely to rise in September as profit margins return to positive territory and low inventory levels need replenishing.
The nascent signs of recovery come after steel output dropped 3.4% in the first seven months of 2022 from the same period a year earlier as the world’s largest steel maker battled lockdowns to prevent the spread of covid-19 and was hit by energy shortages amid a summer heatwave and drought.
Shanghai steel rebar has been staging a recovery from the closing low so far this year of 3,704 yuan ($539) a tonne on July 15, ending at 4,078 yuan on Aug. 26.
While a 10% recovery over the past six weeks is positive for steel makers, it still leaves the benchmark price some 20.5% below the peak so far in 2022 of 5,133 yuan per tonne on April 6.
However, profit margins at steel mills, which were negative in July, have returned to positive territory, with S&P Global Commodity Insights reporting a profit of about $50 a tonne on rebar during August.
Rebar inventories have been dropping as mills have cut output amid high energy prices and some power restrictions, with consultants SteelHome reporting stocks of 5.19 million tonnes in the week to Aug. 26.
Inventories have declined for the past nine weeks and are now some 2 million tonnes below the 7.13 million recorded during the same week in 2021.
Steel inventories typically decline after the northern winter as construction activity picks up, but the decline was shallow between March and the end of June this year amid soft economic activity caused by the strict covid-19 lockdowns.
However, an accelerating pace of drawing on rebar inventories is likely to encourage mills to ramp up output.
Add to the need to add to stocks is evidence that Beijing is taking more steps to boost economic activity, including increasing funding support for infrastructure projects and cutting interest rates.
To be sure, the new measures aren’t a panacea for China’s troubled construction sector, but at the margin, they should serve to boost confidence and activity.
The main issue for China’s housing construction sector is the weakness of several developers, which means property purchasers are reluctant to pay upfront for off-the-plan properties.
There is likely solid demand for new properties, but the typical method of purchasing housing sees buyers pay around 50% of the price upfront. If there are concerns over the financial health of the developer, it’s unlikely buyers will be willing to take the risk.
Fixing the balance sheets of developers and thereby boosting confidence among buyers is the key to a sustained recovery in China’s housing construction.
While the demand side of the equation is looking somewhat more positive for steel, another factor helping is costs on the input side becoming more steady, with both iron ore and coking coal seeming to settle at levels that will allow ongoing profitability for steel mills.
Benchmark 62% iron ore for delivery to north China ended at $105.65 a tonne on Aug. 26, up 7.2% over the week as the price responded to the stimulus announcements.
A gain of that magnitude suggests there is still volatility in the price, but it’s worth noting that for most of August the spot price has traded in a band of about $7 on either side of $105 a tonne.
In the past 12 months, the spot price has been as high as $160.30 a tonne, in March, and as low as $87, in November. So a more steady price is likely to encourage steel mills to continue buying the raw material.
Certainly, China’s imports of iron ore are on track for a solid outcome in August, with Refinitiv estimating arrivals of 103.1 million tonnes, which would be the strongest monthly figure so far this year and up from the customs figure of 91.24 million for July.
The price of coking coal in China has been dropping in recent months, in line with the seaborne price of cargoes from top exporter Australia.
China buys only small volumes of coking coal from the seaborne market, getting the bulk of its supply domestically and overland from neighboring Mongolia.
The price of coking coal in the steel-making province of Hebei was 2,300 yuan a tonne on Aug. 26, which was down from the high so far this year of 3,150 yuan in May.
The price in Hebei has been at 2,300 yuan a tonne or lower since July 25, boosting margins for steel makers.
(Editing by Bradley Perrett)
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