KREATIZE & Metalshub Market Report September 2022
General market report
While the war in Ukraine and China´s Covid-related lockdown in Shanghai caused the biggest challenges in our last market reports with major influence on prices for materials and ferroalloys, we have to shift focus to energy prices now. Although the war in Ukraine continues and China maintains its zero-Covid-strategy, many material prices have normalized to pre-war levels. The political aggression between China and the USA that revolves around Taiwan increases tension globally, but does not show a huge impact on material prices or supply-chains yet..
Meanwhile, the increasing cost of energy is driving inflation across Europe. One major cause is the gas price which has reached all time highs. In addition the summer heat worsens the situation, forcing nuclear power plants to reduce production, thus adding to the ever-rising energy prices.
Material prices for Aluminum, Nickel and steel as well as most base metals have reached price levels last seen before the Ukrainian war had started or even lower (as of CW 34). Overall, material prices have retreated for the fourth month in a row and for some materials are even below pre-Ukraine war levels.
Between June and the end of August, Aluminum prices have decreased by 14%. Steel prices also decreased by 16% to 785€/t for EU-hot rolled coil during that time frame while the price of Nickel decreased by 37%.
The seasonal decline in business activity in the European and U.S. markets and continued macroeconomic uncertainties are putting pressure on the nickel market. During the summer months, the weighted average premium to the exchange price of nickel briquettes halved again, as evidenced by the relevant Metalshub index. Thus, nickel prices have returned to pre-war levels. The question remains open as to whether the absence of the Russian metal at the European market will be a sufficient reason for the quotations to go up in autumn amid intensified business activity.
The decline in demand for ferroalloys in the summer months was caused by a reduction in carbon steel output. Thus, according to worldsteel, global steel production totaled 149.3 million tonnes in July, down almost 7% year-on-year. EU steel production fell 6.7 percent year-on-year to 11.7 million tonnes, including a 2% decline in Germany to 3 million tonnes.
The dynamics of ferroalloys price indices from Metalshub during summer months shows the prevalence of the downward price trend in most segments of the market. Thus, the cost of ferrosilicon decreased by more than 25% from May to August, and high-carbon ferromanganese – by 20%. By late summer, ferroalloys producers, especially in Eastern Europe, began to be pressured by rising production costs, which was provoked by the unprecedented rise in electricity prices in the EU. Some plants, for example in Slovakia, were even forced to stop production. In this connection, some reduction of supply on the market is expected, which will support prices in autumn on the background of growing demand.
Quotations in the market of noble and chrome ferroalloys also declined. Since May, the ferromolybdenum price index sagged 10%, while ferrovanadium and ferrochrome dropped almost 20%. In addition to seasonally weak demand, prices fell due to a sharp strengthening of the dollar against the euro, and noble alloys are traditionally quoted in US dollars in Europe. More data on transaction based price indices and live market insights can be accessed by subscribing to Metalshub price indices.
Europe is facing an enormous energy-price shock. Based on the country-specific energy mix, not all countries are affected the same way. The higher the share of gas in the country’s energy mix, the higher the price increase for consumers, companies and manufacturers in that country. Energy prices are heavily influenced by the gas price, which has quadrupled in the last year.
Energy prices in Europe continue to remain on a very high level. On average, European benchmark gas prices at the Dutch TTF hub increased 37% during the last three months. One reason is that EU´s gas imports from Russia fell 70% in the last year (July 2021 to July 2022).
German baseload power for delivery next year, the benchmark European price, was at €455 per megawatt hour in CW 33. This is five times higher than the price at the same time last year. The long-lasting European heatwave has increased the problem in the past month, driving up energy demand while also energy generating capacity was disrupted, e.g. for wind energy due to low wind speeds because of high temperatures or low river levels for nuclear power plants..
Governments are scrambling to secure enough gas for the winter. Regarding energy prices in Germany, the German government announced the gas levy of 2.419 ct/kWh on gas consumption for companies and private households. According to VDMA (German Engineering Federation), this measure is only a first step. They expect to see at least a threefold increase compared with pre-crisis levels. Meanwhile, the fill level of German gas storage facilities exceeded 75% in mid August. Leading German industrial companies like Covestro fear that the natural gas crisis could lead to the total collapse of both supply chains and production chains. Gas storage facilities compensate for fluctuations in gas consumption and thus form a kind of buffer system for the gas market.
As we have seen many positive trends and new supply routes being established over the last months, the summer heat brings new problems to inner German logistics. The railway system struggles to take-on extra capacity, seaports face workforce strikes and a container handling backlog while shallow waters in rivers like the Rhine limit inland shipping supply routes. In addition, 40 container ships were waiting for a place in a port in the German Bight (as of CW 33).
Demand for shipping capacities for ocean freight from China to Europe is slowing down, although supply capacities are still limited. Port congestion in Europe, mainly Hamburg with strike actions of port employees and Rotterdam, can lead to problems as they currently operate on critical levels.
Demand for air cargo planes en route from China to Europe remains on a low level. This slow market demand leads to slight decreases in air freight rates, although rates are still on an elevated level due to high high fuel prices and many cancellations.. Occasionally Covid-related delays occur, which prolong transit times by 2-3 days on average.
Manufacturing lead times
China´s zero-Covid-strategy continues. This poses a constant threat to manufacturing lead times – not only from China but globally. Shortages of workers for rail, port and trucking in China and the US remain a constant challenge to solve. Congestion of the global major ports are still delaying ships which causes many container ships to wait for weeks to berth at ports in Asia, Europe and the US.
The summer heat also affected factories in the Shanghai area and 19 other Chinese cities because of government planned power cuts.
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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