Ground Breakers: Merry Christmas, suckers, materials looks to enter holiday season in the red

• Materials stocks fall over 1%, joining market in pre-Christmas plunge
• Ex-China steel output tumbles in November, with the World Steel Association reporting a 2.6% drop despite a 7.3% YoY rise in the Middle Kingdom
• Syrah on track with Tesla active anode materials offtake deal

We are but two sleeps from Christmas and the market grinches are out in force, with a bath in the US sending the ASX 1.09% lower.

The dose was repeated in the materials sector, which was 1.11% lower by 12pm AEDT, with BHP (ASX:BHP) takeover target OZ Minerals (ASX:OZL) and a spare two coal miners — New Hope (ASX:NHC) and Stanmore (ASX:SMR) in the green among the resources universe this morning.

Another negative was global steel production, which continues to show moribund signs, down 2.6% to 139.1Mt in November according to the World Steel Association.

That’s 3.7% down year to date to 1.6914Bt. While China’s steel output was up 7.3% YoY to 74.5Mt (giving some fundamental backing to the 30% plus price rise seen in November) that came off last year’s extraordinarily low November base.

China has produced 935.1Mt up to November 30, down 1.4% on 2021, putting the world’s biggest steel market on track for a second consecutive yearly decline but still on track to produce over 1Bt for only the third time after 2021 and 2020.

More worrying were falls among Europe, North America and East Asia, where the US (-10.5%), Japan (-10.7%), Germany (-17.9%), South Korea (-18.1%) and Brazil (-16.3%) all saw their steel output fall hard.

None were as dire as inflation stricken Turkiye, down 30.7% to 2.4Mt, with only Iran and India joining China in raising steel production in November. Ex-China steel was down a whopping 12% YoY.

Iron ore and other Chinese commodity trades can be incredibly seasonal, with MySteel reporting the China Iron and Steel Association believes winter as well as rising Covid cases will hurt steel demand in the short term.

Singapore iron ore futures fell below US$110/t this morning before recovering to a 0.53% loss at US$110.25/t.

Syrah stays on track with Tesla deal

One of 2022’s stronger mid cap battery metals performers, Syrah Resources (ASX:SYR), has closed this year as it ended the last, with news about Tesla’s deal to secure offtake from its Vidalia active anode materials plant in Louisiana.

It says the AAM specifications have been updated and agreed ahead of December 31, fulfilling one of the key conditions in the offtake agreement.

“The final specifications are aligned with Syrah’s planned AAM product from Vidalia that informed the final investment decision on the expansion of Vidalia’s production capacity to 11.25ktpa AAM,” Syrah said in a statement to the market.

While Tesla has agreed to take 8000t of AAM offtake from the initial 11,250tpa Vidalia plant, where production is targeted by the September quarter of 2023, it has also excercised an option for a further 17,000tpa from a full scale 45,000tpa plant at a fixed price for an initial term of no less than four years.

“Syrah will work towards finalising the detailed terms of this additional offtake obligation in an offtake agreement,” it said. The original offtake obligation is conditional on Syrah achieving final qualification by no later than May 31 2025, and can also be terminated if it does not start production by that same date in 2024.

Graphite miner Syrah, up 16.06% year to date, is currently completing a DFS on the 45,000tpa expansion.