The Covid-19 pandemic and the associated impacts on steel production, mining and manufacturing activity, end-use consumption, and trade and transportation continue to dominate ferro-alloy markets.
US steel mills are operating at around 50% of capacity, with similarly low operating rates evident in Europe as well. Chinese steel mills are increasing output on a year-on-year basis, in a positive signal for potential future market recovery.
While the world copes with the Covid-19 pandemic through lockdowns during the first half of 2020, we are forecasting a sharp decline in steel output this year. We are forecasting world crude steel output to fall by around 5% year on year in 2020 to 1.80 billion tonnes.
Our base case forecast assumes a 3.0% decline in Chinese output this year, however, we believe risks to the upside dominate. The likelihood of significant Chinese government stimulus, particularly on infrastructure spending, could drive steel output beyond our expectations in 2020, with positive implications for both ferro-alloys and ore demand.
Manganese ore and alloy prices remain elevated in China, but we expect European and US prices will struggle in the near term while little business is concluded against dramatically reduced steel production levels.
The outlook for manganese ore and alloy prices in China is stronger, given the lingering effects of the South African lockdown on ore supplies and transportation, as well as maintained Chinese steel output levels, and hence, steady demand for manganese alloys.
Moreover, if infrastructure stimulus spending does materialize, we would expect this to provide a significant boost to manganese (and vanadium) demand from the rebar sector.
Most chrome prices continued rising in May, largely reflecting supply concerns. Lockdown measures are being relaxed, but mining activity and the shipping of material in South Africa remains complicated.
Nevertheless, some areas of the market are starting to look unbalanced. The premium for higher-quality Turkish ore has narrowed sharply, while ore stocks remain high and prices in South African Rand terms have moved above historical averages to hit three-year highs.
The incentives are there for South African miners and smelters to ramp up production. When they are able to, chrome prices may retreat sharply unless demand picks up in the near term.
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