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S&P Global Platts is very pleased to bring you the Aluminum Virtual Symposium 2021. The 2021 program is currently in production.

The event at a glance

As the industry continues to adapt and respond to the COVID-19 pandemic, thought leadership, market transparency, and a forum to network all have become more critical than ever. In February, we will discuss the industry’s response to the pandemic as well as evolutions in the marketplace and reverberations from the 2020 U.S. election.

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After a year of disruption and uncertainty, this edition of Insight looks at emerging themes in energy, from sustainable aviation fuels to China’s net zero aspirations and the impact of the US election.

This is Part 2 of 5 in the S&P Global Platts Metals Trade Review series, where we dig through datasets and digest some of the key trends in metallurgical coal, iron ore, steel, scrap, and alumina. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Seaborne iron ore prices defied the usual late year seasonal slowdown to hit multi-year highs in the final quarter of 2020, with demand fueled by strong steel margins and high output — but margin pressures and the seasonal Lunar New Year holiday slowdown are likely to take the heat out of the rally in the first quarter of 2021.

The S&P Global Platts 62% Fe Iron Ore fines index, or IODEX, surged to a nine-year high at $177.15/dry mt CFR China Dec. 21, after starting the quarter at $123.15/mt, due to a combination of speculative buying and restocking ahead of winter and Lunar New Year.

End-users found mainstream medium grade fines the most cost-effective in Q4 due to their adequate liquidity in a volatile price environment.

Chinese steel margins, particularly for domestic rebar, have since come under pressure in early January, which could spur some pushback on rising iron ore prices. China’s ban on Australian coking coal imports has increased both CFR and domestic prices, eroding steel margins in the process, although flat steel margins have been more robust due to the recovery in manufacturing.

Beijing is expected to further tighten credit conditions in 2021 and constrain financing for property developers, which could result in some downward pressure on prices.

Iron ore prices in Q1 will likely find support in lower supply from Australia and Brazil due to wet weather curtailing exports. The Platts Iron Ore & Steel Outlook survey for the quarter found that 62% of respondents expected the IODEX to sit just above $120/mt CFR — a big price correction from current levels, and likely to prove a conservative view.

STEEL MILLS GO MAINSTREAM

Spreads between the mainstream MNP fines — Mining Area C, Newman and Pilbara Blend — gradually narrowed over Q4 and formed the bulk of sinter feed for Chinese mills. To a certain extent, these iron ore products are interchangeable.

High domestic coke prices meant end-users were reluctant to make significant changes to their blast furnace operations that would result in higher coking costs. This resulted in mills preferring a more streamlined sinter feed blend, a situation likely to continue in Q1 if China’s domestic coke prices strengthen further.

Spot premiums for Pilbara Blend fines or PBF surged to a quarterly high of more than $5/dmt over the loading month in October, dampening speculative interest as seaborne prices became higher than those at port.

The trend of procuring cargoes from ports led to an increasing lack of liquidity for seaborne cargoes. Selling pressure emerged as premiums for January loading PBF fell to less than $3/dmt, with sellers looking to avoid landing cargoes.

Despite strong appetite for port stocks, material held at Chinese ports ended 2020 at almost the same level as it started the year — at 124.5 million mt Dec. 27, compared with 124.6 million mt on Jan. 5, CEIC data showed.

END-USERS FEEL THE QUALITY

Amid the various medium grade fines including non-mainstream cargoes, there was strong demand for material with higher Fe content.

Brazilian Blend fines, or BRBF, were sold at more than $6/dmt over low alumina indices on a month-plus-one basis. Market sources pointed to BRBF’s low alumina and typical 63% Fe grade as ideal for improving production efficiency.

Other medium grade fines with Fe levels above 62% such as Kumba and Khumani attracted interest from end-users that were able to accommodate the higher alkali levels in their blast furnaces.

In the high grade fines segment, the lack of spot seaborne Carajas fines, or IOCJ, resulted in strong portside demand.

Given high coking costs, iron ore fines with high silica levels continued to be discounted. With premiums for mainstream medium grade fines weakening on the back of overall iron ore price strength, sellers were under pressure to widen their discounts for cargoes due to thinning liquidity.

Also in this series:
Met coal: China-Australia relations transform market dynamics

LOW GRADE DISCOUNTS WIDEN

High coking costs weighed on discounts for low grade fines due to their relatively higher contaminant levels and lower Fe content.

High iron ore prices initially led to monthly term contract discounts for FMG’s low grade Super Special fines and Fortescue Blend fines narrowing from 6% to 4% and 3% to 2% respectively in November from October, as weaker steel prices led to end-users cutting costs.

However, a resurgence in steel margins led to a shift away from lower grade fines, with discounts for SSF and FBF widening in December to 7% and 4% respectively, despite surging iron ore prices. Discounts for Indian fines also widened as buyers turned back to mainstream sinter fines.

Lump premiums saw a steady recovery in Q4 on the back of increasingly expensive pellets and the broader preference for higher grade raw materials. For much of Q4, seaborne lump premiums were subdued given minimal lump premiums in the portside market. The push for production efficiency also helped kick-start the greater utilization of lump.

PELLET PREMIUMS GO FROM ZERO TO HERO

Seaborne pellet prices and premiums rebounded in Q4 from a slump in Q3, with the 65% pellet premium hitting a year-to-date high of $44.10/dmt in December and the 64% pellet index an all-time high of $200/dmt CFR China in the month.

The restoration of blast furnace utilization rates in Europe, North Asia and North America took pellet supply away from China, reversing the trend seen earlier in 2020 when all the unwanted pellet supply was diverted to China. There was subsequently little high grade pellet availability, and China premiums bounced back strongly.

India exported fewer pellets as they were needed for domestic steel consumption, particularly as there were delays in accessing mines following mining area auctions.

New production capacity in Southeast Asia, along with end-users restarting operations, was also seen as a demand driver. Market sources expect stronger demand for Indian pellets in Q1 as a replacement for European high-grade pellets, given the lack of spot availability.

CONCENTRATE’S UNUSUAL TREND

One of the more unusual trends seen in Q4 was the spread that emerged between hematite and magnetite sintering concentrate. Magnetite concentrate is mainly used for pelletizing purposes, but the lack of Chinese end-users with pelletizing facilities meant it was used for sintering instead. This resulted in discounts, as magnetite quality is not as good as hematite for sintering.

The impact of high coking costs and discounted valuations for high silica material were evident in the concentrates market, where low contaminant variants from Chile and Peru received high premiums despite their magnetite qualities.

China’s domestic 66% grade concentrate prices rose by 17% from the previous quarter in Q4, with demand supported by firm steel prices, before starting to weaken in winter due to environmental concerns and operational restrictions.

London — A rise in the price of copper is likely to continue in 2021 on low inventories and a bullish demand narrative, though at a slower pace, industry analysts said.

The red metal has found support on the back of upcoming elections and labor negotiations in Chile and Peru, an anticipated rebound of the global economy, sustained growth of industrial activity as well as robust metal demand by China, global COVID-19 vaccination rollout, and a weaker dollar.

“This provides a lot of confidence,” said ABN AMRO Group senior economist Industrial Metals Markets Casper Burgering.

“As a result, total long positions are high, but this also brings a downside price risk because it increases the likelihood of profit-taking by speculators. In 2020, the market has taken a substantial advance on the good news of 2021. The copper price will rise further in 2021, but in a lower gear.”

The coronavirus pandemic’s impact on the global supply chain and logistics have resulted in year-on-year supply of the metal from Chile and Peru to tighten, said Global Commodity Research analysts at Bank of America.

“While we have factored in an increase of mine production and also scrap supply this year, this is unlikely to be sufficient to prevent the copper market flipping into a deficit,” Bank of America said.

“We lift price forecasts especially for copper, which we see averaging $9,500/mt ($4.31/lb) in 4Q21, with the market likely flipping into a deficit, as inventories are low.”

Market appetite

Canaccord Genuity mining analysts expect Chinese stimulus to support copper demand in combination with an expected global economic recovery in 2021.

“We now expect copper prices to average $3.50/lb ($7716/mt) in 2021, an approximate 17% increase on our previous forecast of $3.00/lb ($6,614/mt),” Canaccord said.

In terms of copper supply, two aspects that are also hindering supply are the lower grade and deeper deposits as well as market appetite and availability of projects, Stifel Financial analysts said.

“Due to the cyclicality of the copper market, we have looked across the sector at mega projects currently board greenlighted to get a sense of downside price protection for the red metal. With a copper market in excess of 22 million mt Cu annually, only major projects (we define as those greater than 200,000 mt/year Cu produced) have the ability to materially swing the needle on the supply/demand balance,” Stifel said.

“Based in part on capital costs, operating costs, and a minimum acceptable return on investment, we estimate that current major projects require a minimum price in excess of $3.20/lb ($7,055/mt) Cu, globally.”

Sustainable energy

The expected increase in copper demand is also a result of the sustainable energy generation and consumption agenda, part of the green energy drive by governments.

“Of all the metals used in the generation, transmission, storage, and consumption, copper remains the common denominator,” Stifel said. “Electricity generation, transmission infrastructure, energy storage, and consumption all require copper.”

Copper’s long-term demand is backstopped by green energy and the push toward it, “as it is significantly more copper intensive than traditional, fossil fuel-based infrastructure,” Stifel said. “We are updating our LT [long-term] Cu price to $3.40/lb ($7,496/mt). We believe a combination of short- and long-term market support in pricing.”

This was echoed by Bank of America. “Given the increased focus on tackling climate change, the focus of government spending will be worth following as de-carbonization is bullish metals.”

“Linked to that, we believe copper could once again rise above $10,000/mt ($4.54/lb) at some stage. What are the risks? Vaccine efficacy, delays to opening up economies and tighter monetary policy.”

On Jan. 18, the copper price stood at $8,012/mt ($3.63/lb), up 0.7% on Jan. 11, with the metal experiencing “volatile trending, down last week on a firmer dollar and as China’s renewed COVID-19 concerns offset prospect of US stimulus,” South African research house Afriforesight said. “Up today on strong Chinese growth data.”

Pittsburgh — The US State Department is sanctioning several entities and individuals for doing steel-related business involving the Islamic Republic of Iran Shipping Lines, its subsidiaries and other Iranian shipping entities, the department said Jan. 15.

State is imposing sanctions on IRISL under the Iran Freedom and Counter-Proliferation Act for knowingly selling grain-oriented electrical steel to Hoopad Darya Shipping Agency Company, according to a statement.

Hoopad is included on the List of Specially Designated Nationals and Blocked Persons maintained by the Treasury Department’s Office of Foreign Assets Control.

“The State Department is also imposing sanctions on Mohammad Reza Modarres Khiabani, CEO of IRISL, who has been determined to be a principal executive officer, or person performing similar functions and with similar authorities, of IRISL,” the department added.

IRISL was previously sanctioned under Executive Order 13382 due to its status as the preferred shipping line for Iranian proliferators and procurement agents. IRISL is also included on the List of Specially Designated Nationals.

Among other companies based in Iran, the State Department said it is designating sanctions on Iran Transfo Company, Zangan Distribution Transformer Company, Mobarakeh Steel Company and IRISL subsidiary Sapid Shipping under IFCA.

Transfo and Zangan knowingly imported grain-oriented electrical steel to Hoopad, the department said.

Mobarakeh sold, supplied or transferred raw or semi-finished steel to Sapid. Additional sanctions are being imposed on Mobarakeh CEO Hamidreza Azimian in relation to the transaction, the department added. Both companies are on the List of Specially Designated Nationals.

The State Department is also designating China-based Jiangyin Mascot Special Steel and UAE-based Accenture Building Materials for sanctions under IFCA.

Jiangyin Mascot knowingly transferred grain-oriented electrical steel to Iran via IRISL.

Accenture knowingly sold, supplied or transferred raw or semi-finished steel to Sapid to Mobarakeh.

As a result of the sanctions, all property and interests in property of the designated companies that are in the US or in the possession or control of US persons must be blocked and reported to the Office of Foreign Assets Control.