KREATIZE & Metalshub Market Report December 2022
General market report
A glimpse of hope is clearly visible at the horizon with good news coming in from different directions. First, the Ukrainian army has forced the Russian invaders into multiple retreats over the past months, resulting in the Russian withdrawal from the city of Kherson in November. Second, producer prices in Germany have fallen for the first time in over two years, raising hopes that inflation has peaked. The main reason was a decline in costs for wholesale energy. Third, material prices have normalized to pre-war levels or even below. Fourth, energy prices, although still very high, show first signs of relief after EU ́s energy ministers started conversation in an aligned approach. Fifth, freight rates are declining to levels last seen before the outbreak of the Corona pandemic.
Despite these signs of improvement, inflation in the eurozone continues near record highs at 10,7% in October, mainly driven by energy and food prices. This puts further pressure on the ECB to continue its course of rising interest rates.
The price decrease in material prices for Aluminum, Nickel and Steel as well as most base metals continues. For Aluminum, Steel and many other base metals, prices decreased by 10-20% on average compared to pre-Ukraine war levels while the price of Nickel has started to rise again (as of CW 48)!
In contrast to the long term perspective, focusing on the last three months between September and the end of November, Aluminum prices have increased by 3% while Steel prices decreased by 23% to 620€/t for EU-hot rolled coil during that time frame. The price of Nickel increased by 32%. The Nickel price is especially facing turbulent times with daily price changes up to 15%, going both up and down. This was triggered by concerns about tight nickel supply combined with low liquidity. LME is about to conduct enhanced monitoring of nickel trading after prices fell in mid-November in volatile and illiquid conditions.
At the end of the summer holidays, the ferroalloy markets did not experience the typical seasonal increase in activity. Quotations were down in most segments. Only in November, as large customers began purchasing ferroalloys as part of their long-term contracts for next year, sellers were able to achieve an increase in some segments, but only marginally.
As before, the main reason for the fall in ferroalloys prices is the decline in carbon steel production in most of the world amid an uncertain outlook for consumption in 2023. Over January-October, global steel output fell by 4% YoY. In China, the steel production declined by 2.2% versus last year.
Record levels of inflation in the Eurozone and the US are causing concern in both financial and commodity markets.
All of the above is reflected in the dynamics of Metalshub ferroalloys price indices. Since August, ferrosilicon prices in the EU have fallen by 12%. In addition to subdued demand, the drop in prices is explained by a surplus of imported products on the market and rapidly declining electricity prices in the EU. As a reminder, ferrosilicon is one of the most energy-intensive alloys.
High-carbon ferromanganese and silicomanganese fell 7-10% in the first half of autumn, and only towards the end of November did price indices for these alloys record a 4-5% appreciation. This was due to increased demand from end-users. However, Metalshub statistics show that buyers remain cautious about long-term purchases: contracted grades are lower than last year, and contracts are more frequently signed for up to 3-4 months, rather than for the whole coming year.
Metalshub ferromolybdenum price index soared by 40% during the autumn, mainly due to speculative sentiment. In November COVID-19 outbreak and strict quarantine measures applied by Chinese authorities caused business activity to slow down, including lower demand for metals in the domestic market, and excess Chinese ferroalloys filled external markets. As a result, ferromolybdenum prices retreated by 7%.
Despite lower nickel prices and the less-than-optimistic sentiment in the stainless steel market, ferrochrome price indices in Europe generally strengthened during the autumn. This is primarily due to a significant supply imbalance. Ferrochrome produced in Russia is losing popularity among end-customers due to likely problems with sanctions. At the same time, quick and cheap alternatives to Russian products are not easy to find on the global market. More data on transaction based price indices and live market insights can be accessed by subscribing to Metalshub price indices.
High energy prices in combination with high inflation rates pose a tough challenge for European countries. But not all countries are affected in the same way. Member states of the European Union are largely responsible for their national energy policies. EU regulations allow them to take emergency measures to protect consumers and companies from rising costs.
For instance, Italy and Spain have decided to tax companies that profit from high energy prices and use the money to support citizens or companies in need. Poland announced to cut taxes on energy, basic food and petrol. While Western European countries heavily invest in renewable energies, some Eastern European countries like Slovakia or Romania build new nuclear power plants to create energy independently and ensure energy supply. Poland announced plans to build its first nuclear reactor ever by 2033.
After the attacks on the gas pipeline Nord Stream 1 and 2 in the Baltic Sea, the gas supply from Russia to Germany came to a complete stop. In consequence, many people and companies in Germany feared a shortage of energy supply during winter, especially because of missing gas storage facilities or low filling levels in these facilities. The German government has been tackling this issue since the beginning of the war. As a result, the filling level of German gas storage facilities has reached 100% in CW46. In the same week, the first German LNG-terminal was inaugurated in Wilhelmshaven only 200 days after the initial planning. First tanker ships are expected to deliver gas to the terminal in early 2023. Meanwhile, many LNG tanker ships are waiting off the coasts of European countries to deliver their freight.
To keep prices stable and predictable, the German government has signed-off on a price cap on electricity prices for private households as well as small and medium-sized companies as a supporting step during the energy crisis. The price cap will be applicable from January 01, 2023. While the price for private households will be limited to 40 cents per kWh, companies will only have to pay 13 cents per kWh. Although not yet in place, measures seem to be affecting the markets with energy prices in Germany declining by 10,4% from September to October.
In addition to that, the German government also presented plans for a gas price cap starting in March 2023. This would cap the gas price at 12 cents per kWh. However, the European Union opposes the German plans and prefers an aligned approach within the entire European area. Although a gas price cap for the entire EU area is still under discussion, energy ministers of European countries have agreed to jointly purchase 15 percent of gas storage requirements in the future in order to achieve lower prices and to stop outbidding each other.
The markets reacted positively to the EU energy leaders’ meeting with prices falling from about 127 euros per megawatt hour to 110 euros per megawatt hour as a consequence (CW42). Altogether energy prices in Europe continue to remain on a high level, but show first signs of relief. On average, European benchmark gas prices at the Dutch TTF hub decreased 51% during the last three months.
Supply-chain and manufacturing lead times
As global demand for goods decreases, we see a decline in air cargo rates and shipping rates. Only the German provider of rail cargo logistics announced to increase prices. In China, anti-pandemic measures on the Chinese Mainland continue to impact trade flows, but the worst turbulences seem to be over.
Demand for shipping capacities for ocean freight from China to Europe remains on a low level with rates declining further. Low demand results in free shopping capacities and a further decrease in shipping rates. The CEO of Maersk, Søren Skou, states that a turning point has been reached with regards to the size of freight ships as well as shipping rates. Bigger freight ships are technically possible, but lead to longer cycle times. He expects shipping rates to decline further in the near future. In general, freight rates have been steadily declining over the past four months and are now nearing the pre-Corona rates.
The biggest German port, the port of Hamburg, has solved issues with ships queuing in the German Bight. However, the HHLA has reported to feel an economic downturn with less turnover of goods during the first nine months of 2022. This was explained with supply chain disruptions as the primary reason. Meanwhile the Chinese shipping company COSCO tried to purchase a large stake of the port of Hamburg. After a lengthy discussion, the German government had decided to allow Cosco a maximum stake of 24.9 percent in the terminal instead of the 35 percent originally sought. The final negotiations are about to be started.
The German provider of rail cargo logistics, DB Cargo, has announced to increase prices by up to 45%. This step was justified by rising costs for energy and high inflation rates.
Demand for air cargo planes en route from China to Europe remains on a low level. This slow market demand leads to further decreases in air freight rates.. Covid-related delays occasionally still occur, which prolong transit times by 2-3 days on average.
These factors increase the complexity of managing global supply chains while posing a threat to manufacturing lead times. At KREATIZE, manufacturing lead times remain stable since the beginning of the year. This can be achieved thanks to KREATIZE ‘s global network of manufacturing partners.
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