Base Metals Dashboard - Week Ending August 19, 2022

Steel

Compared to 2021, finished steel exports from China are expected to dip by 0.7% this year to 66.19 million mt, according to Platts Analytics. The slight drop in exports is largely due to weaker global demand, as well as a decrease in domestic production because of COVID lockdowns. Production issues in Russia and Ukraine as a result of the ongoing war led to a surge in Chinese exports. Exports jumped in May and June; however, volumes have dropped since then.

Aluminum

On Wednesday, Norsk Hydro announced it will shutter its Slovakia-based aluminum smelter, Slovalco, at the end of September due to high electricity prices. The 175,000 mt/year capacity smelter is currently operating at 60% capacity; however, the company estimates it would experience significant losses if operations continued in 2023. This was Norsk’s second production cut announcement this week, as the company stated that 20% of production at the Norway-based Sunndal plant will be taken offline due to an upcoming worker strike. Both of these shutdowns add to a growing list of European smelter curtailments, as nearly 50% of the region’s smelter capacity has been lost, according to Bloomberg estimates.

Regarding raw materials, China’s alumina exports could stay above 100,000 mt/month in 2H 2022, according to Bloomberg estimates. This is an increase from the record 570,000 mt the country exported in 1H. Exports have increased in recent months due to ample domestic supplies and increasing international prices. Rusal, which is Russia’s largest aluminum producer, is grappling with sanctions and logistical issues and has received most of China’s recent alumina shipments. According to Bloomberg, Chinese annual production could increase by 8% to 78 million mt this year, and another 5% to 82 million mt next year, as new capacity is brought online.

Zinc

Zinc’s supply issues continue. Zinc prices surged over 6% Tuesday morning after Trafigura announced it will be shutting down one of Europe’s largest smelters beginning next month due to high electricity prices. Even prior to this announcement, analysts were increasing their zinc price forecasts.  Earlier this week, Citigroup predicted that despite falling demand, further smelter curtailments in Europe due to an ongoing power crunch could lead to a rebound in zinc prices over the next 12 months. The bank has thus raised its three-month price target to $3,200/mt, and its six-to-twelve-month target to $3,400/mt. Both targets are up $400/mt from their prior forecast. However, the bank remains “marginally bearish,” as the power crisis in Europe could also suppress demand.

Cobalt

Finally, regarding cobalt, prices at the CME are nearing 11-month lows due to weak demand from a variety of sectors, according to S&P Global. However, several anonymous sources interviewed by S&P Global late last week suggest that China could begin stockpiling 2,300 mt of cobalt for its strategic metals reserve. Prices for metals normally rally as China starts its stockpiling efforts. However, others feel that battery demand needs to recover to see a sustained rally. Likewise, COVID lockdowns, which shut down manufacturing activity, could hinder any price gains. China has made similar purchases in the past, purchasing approximately 2,000 mt in 4Q 2020, and a rumored 3,000 mt in early 2021. Global cobalt mine production was 170,000 mt in 2021, according to the USGS.