Europe’s alloy demand drop yet to hit term contracts

MINEX Forum | March 16, 2020 | Views: 68 | Source: Argus Media

European consumers are still steadily accepting material procured on long-term contracts, despite challenging economic conditions that have significantly depleted spot demand and are weighing on prompt prices.

The number of spot deals concluded since late January ahead of the Chinese lunar new year holiday week have dwindled in Europe, with most market participants looking to the Asia-Pacific region for price signals as Europe’s own supply/demand fundamentals start to shift.

“We just recently achieved balance in the market, but that’s gone now because of this crisis,” a European market participant said this week of the ferro-silicon and ferro-manganese markets in particular.

But while European spot trading activity has waned significantly in recent weeks following the rapid spread of the coronavirus, sellers and producers note steady consumption of minor metals, bulk and noble alloys from their monthly and quarterly contracts, with no end-users having sought to push back or delay any deliveries.

This underlying stability is providing the market with some price support in the near-term, and indicates that European metals demand has not dropped to a critical state.

European steelmakers in particular have been known to turn back contracted cargoes of raw materials when conditions are challenging, with several shipments of coking coal and iron ore delayed or pushed back last year as market conditions worsened, at which point some mills even started attempting to sell some of their metallurgical coke.

Some European mills have been actively topping up on spot coking coal cargoes lately, albeit discussions have stalled this week amid virus-related uncertainty, but no contracted deliveries are being postponed for any raw materials including ferro-alloys, sources told Argus.

Some market participants today voiced a different concern, noting that some delivery schedules might be accelerated before virus-related logistics restrictions worsen. “My [long-term] customers are very nervous about deliveries. They would like to take delivery of all next-quarter material now,” said a ferro-alloy trader focused on Germany, France and Italy.

Another source voiced concerns about whether it will be possible to transport ferro-alloys from Polish and Slovakian producers into Italy, where several metallurgical facilities are still operating as normal, including secondary aluminium producers.

Responses to the coronavirus appear to be mixed across Italy’s metallurgical sector, with the steel industry so far showing a stronger reaction than aluminium or chrome.

Several Italian steel mills have halted production, with Alfa Acciai and Ferriera Valsabbia the first to act yesterday, followed by Duferdofin-Nucor’s decision today to suspend operations at its San Zeno Naviglio plant in Brescia — albeit still functioning at a minimal level in order to get deliveries to customers. Steel market participants today told Argus that Acciaierie Venete is planning to stop production at its two mills.

“The situation is more dangerous day by day. It is possible that next week all of Italy will be closed,” an Italian steel trader said.

Italian workers’ unions Fim, Fiom and Uilm today called on the government to impose a nation-wide complete halt of operations at all steel and metal companies until 22 March and are threatening to strike. It remains to be seen if their demands will be met.

By contrast, a market participant today confirmed the sale of 3t of German-origin ferro-molybdenum which will be delivered to a buyer in northern Italy tomorrow — indicating that some activity is still ongoing in the region.

For certain alloys, like ferro-molybdenum, a steep drop in prices over 2019 resulted in consumers securing lower long-term volumes, which has eased supply pressures and supported prompt prices in 2020.

Since the start of the year, average prices for 65-70pc grade ferro-molybdenum alloy rose to around $23.50/kg in January and $25.19/kg in February, according to Argus assessments. Average prices in the March-to-date period have fallen to $23.05/kg.

But for other metals, like ferro-niobium, which is used in specialty steel sectors, and strategic materials like tungsten intermediates, buying on the spot market in Europe had already dwindled significantly over the past year, sources said, meaning there is now limited scope for further declines.

By Anuradha Ramanathan, Thomas Kavanagh and Ellie Saklatvala

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