Ground Breakers: While iron ore is back in gear, steel production is showing a different story
How long iron ore’s new year rally lasts will be dependent on the steel impulse out of China, where MySteel expects crude steel output to fall for a third year in a row in 2023.
BHP (ASX:BHP) boss Mike Henry has previously stated his belief China’s crude steel output will still be above 1Bt in 2023 after falling 2.1% to 1.013Bt in 2022.
But world steel production shows a less rosy story than the hopes for a pick-up in Chinese construction demand that have driven iron ore prices beyond US$128/t this year suggest.
Last night’s data from the World Steel Association show flobal steel output fell 10.8% in December to 140.7Mt, far worse than the 2.6% year on year decline in November.
While that was impacted by a low base in November 2021, the data suggests Australian miners will be largely reliant on their predicted recovery in Chinese industrial demand to see iron ore prices supported at current levels.
Weak economic growth and high energy prices, as well as the war in Ukraine, severely limited EU steel output, with the USA and Japan also falling hard by 5.9% and 7.4% respectively.
Only India and Iran, up 5.5% to 10.6Mt and 8% to 2.7Mt respectively, showed solid growth amongst the top 10 steel producing nations.
That was replicated in full year terms, with Indian steelmakers ramping up output 5.5% to 124.7Mt and Iranian steel output lifting 8% to 30.6Mt.
But production around the rest of the world was challenged, with crude steel output falling 4.2% across the globe to 1.8785Bt.
However, Capital Economics chief commodities economist Caroline Bain says the worst could be over in terms of Chinese and European output falls.
“Steel production fell by 9.8% y/y in China in December, probably as a result of labour shortages due to a high rate of COVID infections at that time,” she said.
“We expect a modest upturn in output in the coming months as the economy reopens, but the bigger picture is that consumption will remain subdued in the first half of 2023 owing to weak export demand and persistent woes in the property sector.
“The picture was equally bleak elsewhere, with EU output slumping by 16.7% y/y in December and chunky falls in output among other large producers too.
“In all cases, the high power costs and slower economic activity were weighing on production. Looking ahead, we think the big declines in EU output are now behind us given the recent plunge in energy and power prices.”
Iron ore producers buoyed by a recent uptick in prices will hope so.
Its commissioning phase is now 91% complete, with battery quality 99.76% lithium carbonate produced in a single run during the commissioning of its 2000tpa starter plant.
98% of development works are complete, with AGY now targeting steady state production by the end of the June quarter.
While lithium prices have fallen marginally in early 2023, AGY is targeting the start of sales with prices for lithium carbonate in Asian markets still paying US$76,000/t according to Benchmark Mineral Intelligence.
“The company is extremely excited as we prepare to commence lithium carbonate production operations at our Rincon Lithium Project 2,000tpa operation and progress towards becoming the second ASX listed commercial scale lithium carbonate producer,” MD Jerko Zuvela said.
“We look forward to achieving many more significant milestones in 2023 as we transform into a cashflow generator, capitalising on lucrative lithium carbonate prices via upcoming product sales revenues, leading to a significant near-term growth phase for the company.”
Other lithium and battery metals stocks were in fine form today, with Allkem, Mineral Resources (ASX:MIN), Lynas (ASX:LYC), Pilbara Minerals (ASX:PLS) and Rio Tinto (ASX:RIO) all among the top performing large caps.
Meanwhile NdPr hopeful Arafura Rare Earths (ASX:ARU) was up over 13% after Hancock Prospecting’s stake in the company was upped to more than 10% following shareholder approval for the second tranche of a $121m share placement announced last year.
Arafura also released a greenhouse gas emissions reduction pathway for its Nolans project yesterday, with ARU targeting 50% of project power generation from wind and solar with battery storage by 2030, with solar thermal generation and thermal energy storage to commence in 2030 and a transition from gas to renewable fuels for firming power from 2040.
The materials sector was up 1.21% this morning, with copper, nickel and iron ore mid-tiers also catching a bid.
At Stockhead, we tell it like it is. While Arafura Rare Earths is a Stockhead advertiser, it did not sponsor this article.