S&P Global Commodity Insights Magazine: Gigafactories Head West

Electric vehicle sales in Europe's largest passenger car markets increased to record highs in 2022, boosted by government incentives, although a number of countries will likely see subsidies for EVs being reduced or eliminated in 2023, which could have some downside risk. The reduction in subsidies comes at a time when battery metal prices are strong, with lithium prices ending 2022 more than double where they were at the start of the year, boosted in part by the increased global EV demand. Click here to see the full-size infographic Learn more: Latest Insight Blog entry: EV sales momentum to face challenges in 2023, but long-term expectations unaffected . And in the latest Platts Future Energy podcast , we uncovered the potential roadblocks facing the EV market in 2023. From lithium prices to government subsidies, learn how these factors may impact EV sales and the battery metals market:

In this week’s Market Movers Americas, presented by Laura Robb: • Upward momentum seen in US steel market • North American import rates stabilize after 10-month drop • Committee to decide on EDAM phase three final proposal • PJM to provide winter storm market impact review

The US steel sheet market will look to establish new footing in 2023 after prices took a nosedive in the second half of 2022. However, concerns of a weaker economy, sufficient inventory levels and uncertain demand outlooks are weighing on the market's potential upside for next year. The Platts TSI US hot-rolled coil (HRC) index reached a record level of nearly $2,000/st in the third quarter of 2021 and a 2022 year-to-date high of $1,500/st in April, according to data from S&P Global Commodity Insights. Prices then declined steeply until bottoming out at $620/st in November. Market participants have noted slowing demand that could extend well into 2023 with a cooling economy linked to inflationary pressures, interest rate hikes and other factors. In response to softer market conditions and encouraged by shorter steel mill lead times, steel buyers have said they are now opting to stay on the sidelines while they work down well-stocked inventories and control costs. Some sources are also planning to rely more heavily on contractual supply in 2023, rather than spot market sales. Most major North American steel producers in late November began announcing increases to their base offer prices for steel sheet in an attempt to reverse downward price trends. US HRC prices have since climbed back up to over $650/st in December, but industry sources are unsure whether the mill offers will be fully accepted by the market going into 2023. One US Midwest service center source said the mill increases and higher scrap prices could support a rebound in HRC prices, at least temporarily. "I'm not sure how long it lasts, but in the near term, it looks to be in favor of the mills getting prices up," the source added. However, a Canadian buy-side source said he hadn't seen a real change in demand since the latest round of price increases. "I am still sort of in the camp of let's give it a bit and let it play out," the source said. Could $700/st be a floor or ceiling in 2023? Steel producers could be eying $700/st as a new price floor for HRC. In a more aggressive move, steelmaker Cleveland-Cliffs said Dec. 13 it would set a minimum base price for HRC at $750/st. Cliffs is the largest steel sheet producer by volume in the US. By Dec. 15, the Platts HRC assessment reached $690/st . Despite the uptick in prices, a trader said demand remained subdued. "The price has stabilized, but no one is rushing to buy from US mills and definitely not imports," he said on the same day as the Cliffs announcement. Another trader said prices could hold at this higher level if steel mill capacity utilization stays lower compared with historical levels. The source also noted difficulty in booking import volumes. S&P Global analysts forecast monthly average US HRC prices to bounce between $650/st and $700/st for most of 2023, possibly breaching that range to reach about $720/st in December. "At this stage, we're looking at an average of $663/st for 2023 but acknowledge there could be downside to this price level if recessionary conditions bite," S&P Global said in its most recent forecast released in November. "US steel prices have been on such a rollercoaster over the past three years that it is difficult to know if pre-COVID or pre-Ukraine invasion prices are closer to a real price level." Monthly contracts for US HRC prices on the London Metal Exchange are currently holding at $707.50/st for each month in 2023 starting in February, as of Dec. 15. Demand outlook The World Steel Association, or worldsteel, offered a somewhat favorable view of US steel demand for 2023 in its most recent outlook released in October, saying it did not expect market contraction with positive momentum in the automotive sector, spending from the country's new infrastructure law and rising energy sector investment. However, potential risks to US steel demand in 2023 include softer manufacturing activity, a shift in consumer spending from goods to services, a slowdown from the recent housing boom and a delayed recovery in the non-residential construction sector, the association added. With an uncertain demand outlook, the steel market will also monitor whether the slate of new steel sheet capacity ramping up from electric arc furnaces in 2023 will pressure HRC prices. Steel sheet capacity ramp ups in 2023 Producer Mill location New capacity volume Type Nucor Ghent, Kentucky 1.4 million st Mill expansion Steel Dynamics Sinton, Texas 3 million st Greenfield mill Arcelor Mittal-Nippon Steel Calvert, Alabama 1.5 million st Mill expansion North Star BlueScope Delta, Ohio ~900,000 st Mill expansion Meanwhile, only two major mills will start 2023 with some capacity offline . Idled blast furnaces at start of 2023 Producer Mill location Capacity offline US Steel Gary, Indiana 1.5 million st US Steel Braddock, Pennsylvania 1.4 million st

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The European Parliament and Council have reached a provisional agreement aiming to make all batteries placed on the EU market more sustainable, circular and safe, the European Commission said Dec. 9, welcoming the decision. The agreement builds on the EC's December 2020 proposal and addressed the social, economic and environmental matters related to all types of batteries, it said. The new law is part of the European Green Deal and is aimed at ensuring that batteries in the EU, which are essential for reaching climate neutrality by 2050, are sustainable throughout their entire lifecycle. The new regulation will replace the existing Batteries Directive from 2006 and will require more detailed secondary legislation to be adopted from 2024 to 2028 to be fully operational, the EC said. The European Parliament and the Council will have to formally adopt the new regulation before it can come into force, the EC said. "In the current energy context, the new rules establish an essential framework to foster further development of a competitive sustainable battery industry, which will support Europe's clean energy transition and independence from fuel imports," the EC said. The rules will gradually introduce sustainability requirements on carbon footprint, recycled content and performance and durability from 2024. From mid-2025, a more comprehensive regulatory framework on Extended Producer Responsibility will start to apply, with higher collection targets being introduced over time, the EC said. These targets will be 63% in 2027 and 73% in 2030 for portable batteries, and 51% in 2028 and 61% in 2031 for batteries from light transport. All collected batteries must be recycled and high levels of recovery will be mandated, in particular of valuable battery raw materials, such as copper, cobalt, lithium, nickel and lead. "This will guarantee that valuable materials are recovered at the end of their useful life and brought back in the economy by adopting stricter targets for recycling efficiency and material recovery over time. Material recovery targets for lithium will be 50% by 2027 and 80% by 2031," the EC said. Battery material prices have been strong. Platts, part of S&P Global Commodity Insights, assessed seaborne lithium carbonate and lithium hydroxide at $76,500/mt CIF North Asia and $82,000/mt CIF North Asia Dec. 9, up 126% and 159%, respectively, since the start of 2022. The rules will also require companies placing batteries on the EU internal market to demonstrate that the raw materials used for manufacturing are sourced responsibly, meaning they will have to identify and mitigate any social and environmental risks associated with the mining, processing and trading of these raw materials. According to the EC, battery demand is set to increase 14-fold by 2030, with the EU likely to account for 17% of total demand, mostly driven by transport electrification. "Such exponential growth in demand for batteries will lead to an equivalent increase in demand for raw materials, hence the need to minimize their environmental impact," it said.

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In this week’s Market Movers Americas, presented by Valarie Jackson: • Steel market monitors impact of mill price hikes • Weak consumer demand pressure North American container rates • First West Coast offshore wind lease takes place

Despite serving multiple purposes in the energy transition , batteries have their own footprint, and downstream players want to have that addressed. With automakers in the driving seat, ESG requirements have been spreading out through battery supply chains , although there remains a lack of standardized guidelines. In this episode of the Platts Future Energy podcast, metals editors Henrique Ribeiro and Leah Chen discuss the main ESG challenges faced by the battery industry and what steps are being taken to mitigate the risks. More listening options: Related price assessments: BATLC04 - Lithium Carbonate CIF North Asia $/mt BATCA04 - Lithium Carbonate DDP China Yuan/mt BATLH04 - Lithium Hydroxide CIF North Asia $/mt BATHY04 - Lithium Hydroxide DDP China Yuan/mt BATSP03 - Lithium Spodumene 6% FOB Australia $/mt Wkly BATCO04 - Cobalt Sulfate 20.5% CIF North Asia $/mt BATCS04 - Cobalt Sulfate min 20.5% DDP China BATCH04 - Cobalt Hydroxide CIF China $/lb BATNS04 - Nickel Sulfate DDP China Yuan/mt BATMS00 - Manganese Sulfate DDP China Yuan/mt No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

On this week's S&P Global Commodity Insights' Market Movers Asia with Remya Nair , Digital Content Editor: *Asian refiners hunt for more Kazakhstan CPC Blend crude cargoes *Steel demand in China hit by COVID-19 lockdowns *Thermal coal demand in Asia is likely to pick up as winter peaks *More corn shipments from Brazil are expected to head to China

Vale has been pursuing partnerships with steelmakers, looking to address the challenges of finding cleaner ways to process minerals. The company also plans to create solution hubs to make high-quality iron ore and green products in regions with low energy costs, including the Middle East and the US. As executive vice president for strategy and business transformation, Luciano Siani Pires plays a crucial role in bringing Vale’s vision into fruition. He joined the company in 2008 and has held positions such as global strategy director as well as global human resources and governance director. He is also currently the chairman of VLI, the second largest logistics provider in Brazil. Pires talks to S&P Global Commodity Insights Managing Editor Adriana Carvalho about Vale’s initiatives as the company positions itself for the future. What makes Vale different today from decades ago? And what is Vale’s vision for the metals industry for next decades? Ten years ago, the world of mining and metals was ruled by the growth of China. The mission and vision of Vale and all mining companies was to grow by serving this opportunity, taking as many projects off the ground as possible to meet this demand in China, driven by urbanization. In the next 20 years, we will have a different dynamic. The big driver and challenge for the industry are energy transition and decarbonization. Vale sees itself in a privileged position to support and lead the supply of the materials necessary for this transition. The iron ore business will increasingly be a quality business, because all technologies that have been developed for the steel decarbonization route have quality as a common denominator. Vale has signed several memorandums of understanding with customers to jointly research the best combinations of technology and raw materials for the production of green steel. As of base metals, Vale has a leading role in the West, with the highest volume and highest quality in the production of nickel, which is also a fundamental metal in transport electrification. How are Vale’s projects going on the iron ore side of the business? Nowadays, we have the challenge of resuming our total pellet production because it still has to do with the consequences of the Brumadinho tragedy. But in a long-term view, 12-18 months, we should have the [Minas Gerais-based] Brucutu and Itabira mines producing again, taking our production to 50 million mt/year. To produce more pellets or briquettes for direct-reduction iron as part of the decarbonization route, we need more concentrated products. And Vale has been investing a lot in concentration technology. We are currently building the New Steel 1.5 million mt/year concentration plant at the Vargem Grande complex. It’s a dry concentration process which means no water – and therefore no dam. We have another 8 million mt concentration technology called Cleaner, in Oman, that cleans the blast-furnace pellet feed and transforms it into DR-pellet – a nobler and more important product for decarbonization. Succeeding on both projects at this first scale, we plan to expand them. Moreover, we are building the first 7 million mt/year green briquette iron plant, an agglomerated product that allows steelmakers to reduce the need for sintering. And we have a roadmap to increase this production to 25 million mt/year by 2030 and with a long view to reach up to 50 million mt/year. Vale is also betting on the Tecnored technology, which allows us to produce green pig iron on a large scale, using biomass as reusing waste from the blast furnace process itself. There are already conversations with customers to co-locate Tecnored plants at their steelmaking sites. So, we can serve the product or serve the technology. The first large-scale plant is under construction in Marabá, Pará. Initially, it will have a production capacity of 250,000 mt/year in 2023, potentially expanding to 500,000 mt/year. Which markets will be pioneers in the production and consumption of these green solutions? Europe is a pioneer. Most European steel companies have decarbonization targets and they are desperate over the upcoming regulation. The US is also starting to migrate production, and some Chinese customers are already thinking and anticipating their decarbonization needs. There is an opportunity to create big technology hubs. For example, send iron ore to the Middle East, concentrate there, clean the pellet through the Cleaner process and make DR-pellets, then use gas to produce HBI [hot-briquetted iron], and also set up there a Tecnored plant. We see the US and the Middle East as great candidates to host these solution hubs. Vale’s goal is to develop these hubs within this decade. How about on the base metals side? We are directing part of our product portfolio to the battery market. There is a feasibility study to build the first nickel sulfate plant in Canada to feed precursors and gigafactories for electric vehicles. We are currently looking for partners to produce 25,000 mt/year of nickel sulfate for the manufacture of nickel-based batteries. There is a lot of nickel in the world that cannot reach this market, which does not have the proper specification for the battery market. How do you see Brazil’s future as a green steel producer? Before hydrogen-based green steel, an intermediate step would be natural gas-based production, which reduces CO2 emissions by half. But on that, Brazil is already at a disadvantage. There is no competitive natural gas. There is a lot of talk about pre-salt gas, but there is no infrastructure. Now it is more economical to reinject gas into the wells that transport that to the market. But when we talk about hydrogen, there are some regions in the world pointed out by experts as the best-positioned for production and one of them is mainly the Brazilian northeast, due to the abundance of sun and wind. Certainly, the Port of Pecém can become a hub to produce green hydrogen, then green steel. This article was first published in the October 2022 edition of Commodity Insights magazine Commodity Insights Magazine We dig deep into the wealth of S&P Global Commodity Insights data and intelligence to examine emerging trends, opportunities and challenges in the steel and metals markets Launch the report

Global crude steel production totaled 147.3 million mt in October, stable year on year, but down 2.9% from September to an eight-month low, according to World Steel Association data published Nov. 22. This brought total production for the first 10 months of 2022 to 1.55 billion mt, down 3.9% on the year. China produced 79.8 million mt in October, up 11% from a year ago, but down 8.3% from September and also at an eight-month low, making up 54.1% of total global crude steel output. This brought January-October steel production in China to 860.6 million mt, down 2.2% year on year. The world's second-largest steel producer India also saw production grow 2.7% year on year in October to 10.45 million mt, which was also up 5.8% month on month, the data showed. India's cumulative January-October output also rose 6.1% to 103.8 million mt, according to worldsteel. Japan's October production was 7.35 million mt, down 11% on the year, but up 2.9% from September, with January-October output down 6.5% on the year to 75.2 million mt. US output in October was 6.7 million mt, down 8.9% year on year but up 2.7% on the month, taking January-October production to 68.1 million mt, down 4.8% year on year. Russia was estimated to have produced 5.8 million mt in October, falling 11.5% from October 2021, but up 3.3% month on month, bringing its estimated January-October output to 60.4 million mt, down 6.6% on the year, likely impacted by the Russia-Ukraine war and western sanctions. South Korea produced 5.1 million mt of crude steel in October, down 12% year on year, but up 10% month on month, with the 10-month volume down 5% on the year to 55.7 million mt. Europe January-October output down 9.3% For Europe, including the UK and Turkey, crude steel production fell 17% on the year in October to 15.03 million mt, although this was 5.5% higher on the month and at a four-month high, the data showed. Europe's January-October volume was 155.5 million mt, dropping 9.3% on the year. Germany, the largest steel producer in Europe, saw its crude steel production fall 14% on the year in October to 3.1 million mt, although this was up 11% on the month and also at a four-month high. High energy costs have hit steel production, as well as demand, with the auto sector also still facing the ongoing semiconductor chip shortage. In January-October, Germany produced 31.4 million of crude steel, down 6.9% year on year, the data showed. Domestic prices for hot-rolled coil in Europe have been weakening since the second half of March on low demand, with Platts assessing domestic HRC prices in Northern Europe at Eur615/mt ex-works Ruhr Nov. 21, down 33% since the start of 2022, according to S&P Global Commodity Insights. Turkey October production down 18% on the year Turkey saw the largest year on year fall in October, down 18% year on year to 2.9 million mt, according to the data, although this was up 7% from September's volume. Ten-month production was down 10% on the year to 30.2 million mt. Brazil produced an estimated 2.8 million mt in October, down 4.5% year on year, but up 3.3% from September, while Iran's monthly output was 2.9 million mt, up 3.5% on the year and 4.7% higher than the previous month. Brazil's January-October estimated production fell 5.2% on the year to 28.7 million mt, while Iran's output for the 10-month period rose 9% to 25.1 million mt. October production of pig iron from 38 countries was 104.5 million mt, up 3.1% year on year, the data showed, while direct reduced iron produced worldwide amounted to 9.3 million mt, up 8.4% year on year, the data showed. Pig iron output over the January-October period totaled 1.1 billion mt, down 2.2% year on year, while DRI production for the period rose 7.6% on the year to 91.9 million mt. Crude steel data covers the 64 countries that report to worldsteel, accounting for about 98% of the world's crude steel production.

As the Western world looks looking to increase battery making capacity, one challenge facing the industry is raw material supply and whether there will be enough to meet demand by 2030. Battery maker Northvolt does not believe there will be enough raw material supply and refineries to supply the planned gigafactory capacities planned by 2030. "This is exactly the eco-system that needs to be developed during the upcoming decade, not only to increase raw material supply but also the sustainability and reliability within that supply," Northvolt's director of communications and public affairs for the Nordics region Anders Thor told S&P Global Commodity Insights. Northvolt has a broad strategy to ensure it had sufficient supply for its plants, he said, including setting up regionalized streams of raw material, or exploring and developing alternative materials, while recycling was key. "Our goal is that by 2030, at least 50% of the raw materials we use for battery production should come from recycled materials," Thor said. There is a need to diversify the raw materials being used in supply chains and use other materials, like sodium-ion, for appropriate applications, while government support is vital, AMTE Power CEO Kevin Brundish said. Graphite producer Talga said challenges included a shortage of suitable deposits, ease of access to mining and availability of refinery capacity. "There is a current push to speed up the permitting process for critical raw materials projects and while such changes would help, they would not solve the problem entirely," it said. Talga plans to expand its initial battery anode project in Sweden from 19,500 mt/year to around 100,000 mt/year to meet around 10% of European anode demand by 2030, it said, adding that it was also conducting geological exploration to enable further expansions beyond 2026 to meet long-term demand. On the other hand, clean battery developer Freyr Battery believes there are enough raw materials, related materials projects and overall capacity to meet the supply requirements in the coming decade, CEO Tom Einar Jensen said. "We expect both supply and demand to grow tremendously, and naturally, we anticipate that there will be periods of temporary imbalance," he said. "Despite some volatility, we expect the future average raw material prices to be lower than they are today." Platts, part of S&P Global, assessed seaborne lithium carbonate and lithium hydroxide at $76,000/mt CIF North Asia and $83,800/mt CIF North Asia Nov. 10, up 124.85% and 164.35%, respectively, since the start of 2022. In Jensen's opinion, lithium could present the greatest challenge, as many projects in Europe and the US are "generally always off from commercial production." However, Freyr has already secured most of the raw materials for its Customer Qualification Plant and for the initial phase of its Giga Arctic factory, while continually qualifying new materials and new suppliers. Sufficient cobalt The Cobalt Institute believes there will be enough cobalt to meet demand by 2030, although it will require investment, continued diversification and recycling, its president Adam McCarthy said. Supply diversification could come from untapped reserves in Australia, while cobalt could also be sourced from tailings ponds from historical nickel and copper mining in Australia, the Democratic Republic of Congo and South America. Recycling is also a growth sector, with around 10% of global cobalt supply currently recycled and that is set to grow with more recycling and more batteries coming to the end of life, McCarthy said. "Policies to support and encourage and sometimes mandate recycling will be helpful," he said. In the short to medium term there is expected to be some tightness in supply, but this will ease if investments continued to take place in new mines and processing facilities, he said. "Just from land-based mining and recycling and seeing what else we can find in tailings, there is enough supply to meet demand -- we're pretty confident about that," McCarthy said. Different battery chemistries will also have an impact on cobalt demand, although he expects demand to increase anyway, due to rising battery manufacturing. "People talk about substitution of cobalt out of batteries...but the bottom line is that those technologies, besides LFP, are in their infancy and are not ready for mass market or being produced to scale," McCarthy said. "We don't see cobalt-containing batteries going away any time soon -- once the competition is there, we'll be recycling so much, substitution will not likely be an issue in 10-15 years' time." Refining gap Meanwhile, the lack of conversion and refining capacity in Europe is also an issue, AMG Lithium Global Director Sales and Marketing Andre Majdalani said. "Unfortunately, you can take it further upstream and wonder, how little is being done to start mining local deposits -- not that they would fully satisfy Europe's demand, but they would certainly help increase Europe's resilience," he said. AMG is concentrating on Europe to start and plans to serve local cathode manufacturers with battery-grade lithium hydroxide from its refinery in Bitterfeld-Wolfen, Germany, which it is on track to commission in the second half of 2023. It is planning to build five 20,000 mt/year lithium hydroxide modules that will be flexible in terms of feedstock, he said, reaching a capacity of 100,000 mt/year by 2030, when Europe's requirement is expected to be more than 550,000 mt/year. Freyr's Jensen said he believed raw material shortages, particularly for lithium, could be alleviated by building out greater refining capacity in Europe, which would enable sourcing from a wider range of raw material suppliers. However, McCarthy did not see the lack of refineries in the Western world being an issue, with it expecting Western governments to ensure investments in refining for all critical minerals to tackle China's dominance. "For cobalt today, around 65% globally is refined in China, but the next biggest refinery is Finland with around 13% of global refined supply at Kokkola," he said. There are investments in Europe and in Canada, in particular, and there is a political imperative to build refineries, as there are concerns about security of supply, meaning governments have to make it happen, McCarthy said.

Current global steel market dynamics should have presented the Venezuelan hot-briquetted iron industry with a golden opportunity. That is, if only Venezuela's HBI industry was in a position to take advantage of such a scenario. Global metals supply has been dented by Russia's war with Ukraine, the use of direct-reduced iron and HBI combined with hydrogen are emerging as a key route for steel decarbonization and research has shown HBI utilization in blast furnaces lessens the rate of coke usage while enhancing quality and stretching hot metal production. With a reported installed capacity of 6.9 million mt/year, the Venezuelan HBI sector certainly should be a hot topic. However, the story is quite the opposite. Venezuela's five HBI producers – Orinoco Iron, Venprecar, BriqVen, Comsigua and Ferrominera – have been operating at less than 10% of their installed capacities after being restarted in September 2021 following a nearly year-long hiatus. Any supply they can offer has been focused mainly on the domestic market or used to repay debts to former trading partners, sources said. Sanctions hit hard Venezuela's production of HBI, iron ore and steel have been hampered for years in the wake of US sanctions imposed on the country's oil sector in 2019. The sanctions disrupted raw material supply and natural gas and energy production. The government struggled as financing dwindled and an economic crisis engulfed the nation. With the sanctions in effect , shipping companies stopped sending vessels to Venezuela and removed all remaining ships from the country by Sept. 4, 2019. "No one was willing to take the risk of remaining in Venezuela and possibly suffering retaliation from the US," one source said. Moreover, Venezuela's domestic issues were further spelling the end of its HBI export activity. Venezuela was formerly the world's largest exporter of HBI, but in 2019 it exported less than 400,000 mt, sources estimated, compared with about 7 million mt roughly a decade before, in 2008. Venezuelan HBI had been exported to 36 destinations, with Mexico and European its most frequent destinations. Apart from large HBI producers Russia and the US, suppliers in Malaysia, India, Iran and Libya usually export surplus material to regional markets. Trade and pricing decisions With the start of the Russia Ukraine war in late February, buyers from Oman, India, Mexico, Poland, UK and Slovenia were checking Venezuela's ability to send 30,000 mt HBI cargoes, with traditional suppliers in Malaysia and the US booked for several months ahead. "I spoke to Venezuelan companies, and they said the financial debt to China was very high, so all their HBI availability was booked for them, but a long time ago," one agent said. The agent added that it's been over a year since regular trades have been reported involving Venezuelan HBI, with European traders refusing to entertain deal with corruption "and the demands for prepayments ranging from 80%-100% of the cargo value." Since 2019, trade and pricing decisions related to HBI have been centralized with the Corporacion Venezolana de Guayana, or CVG, which is controlled directly by Venezuela's office of the president. A fixed-price mechanism was implemented by government authorities, in which a $260-$265/mt FOB range was considered for standard-quality cargoes with 88.3% Fe content. However, given the lack of appropriate raw material, HBI Fe content has widely varied among producers and dropped constantly over the years. Historically, HBI was usually negotiated at a discount to Turkish imported scrap, but it has lagged behind in recent years due to a dearth of negotiations. S&P Global Commodity Insights clarifies Venezuelan HBI FOB assessment A doomed industry? Many market participants question whether there is hope for the Venezuelan HBI industry to return to its former global stature. The premises on which it was established remain the same: Plentiful natural gas, large iron ore reserves, a well-situated river, the Orinoco, with access to the Atlantic Ocean and specialized labor. "However, by the time the industry was nationalized, in May 2009, the sector gradually deteriorated amid poor management, coupled with government officials placed in positions without technical knowledge," a source familiar with the government's role in the industry's operations said. The construction of a second 3 million mt/year pellet line by Venezuela's sole iron ore producer, Ferrominera Orinoco, headed by China's Metallurgical Group (MCC Group), did not take into consideration that DR-grade pellets production was the exclusive goal. "HBI is made of DR-grade pellets exclusively," the source said. "But they built a blast furnace pellets facility." The direct consequence, he added, was a 40% reduction in general HBI production. Plus, FMO's iron ore has high phosphorus content, which ultimately reduces HBI quality. "It would be naturally sold at a discount to Metalloinvest/ArcelorMittal's Texas Corpus Christi material," another source said. Metalloinvest and AM are the largest producers in Russia and US, respectively. Over the years, sources said experienced labor working at the facilities left Ciudad Guayana l ooking for better work and living conditions elsewhere. Venezuela's electricity grid also has deteriorated, supplying only one third of the industry needs. Moreover, "Venezuela has gas supply from natural wells and associated petroleum gas," one of the market sources said, adding that HBI producers can only take the gas from oil wells because their production units are located far from natural gas wells. "This means that if we pump oil, we have gas. If we do not pump oil, we do not have gas," he added. However, state oil company PDVSA has seen output plummet after the imposition of sanctions and is unlikely to rebound for years and skittish foreign investors are not expected to infuse the much-needed cash into the nation's crumbling oil fields, upgraders, pipelines, refineries and ports. The Orinoco, which gives access to the Atlantic Ocean hasn't been dredged for years – which means its draft is too low and logistics another issue for the sector. "Vessels are unable to load full cargoes, causing a considerable hike in freight levels, as Handymax and Supramax vessels are forced to depart short-loaded, or top-off could be needed," one source said. Ultimately, facilities have been slowly dismantled and sold as scrap metal for neighboring countries and most recently to Turkey. And a billion dollar revival plan by the government, announced several times in past years but without a detailed program, seems by far an impossible move. "You can't look to Venezuela as a quick response to HBI supply; it would take decades to reestablish the industry there," one observer said.

With energy transition being the focus globally, the pressure on copper supply doubles down setting the stage to fall short in supply by 2035. Know what lies ahead for the copper industry in this special report by S&P Global Commodity Insights. READ HERE

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