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Speaker 1: This is Dana Perkins and your listening to Switched on

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Speaker 1: the BNAF podcast. On today's bonus episode, we will talk

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Speaker 1: about the things to Watch for Industrial Metals in twenty

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Speaker 1: twenty four. I'm joined by Yushen H. She's an analyst

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Speaker 1: from BNF's Metals and Mining team. We discuss steel, copper,

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Speaker 1: and aluminum. On the topic of steel, she shares what

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Speaker 1: impact a continued slump in the Chinese property market could

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Speaker 1: have on steel demand and whether sectors such as shipbuilding

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Speaker 1: and clean energy infrastructure could offset this. Regarding copper, we

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Speaker 1: discuss whether a global rollout of grids could drive demand

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Speaker 1: and following the closure of two large Latin American minds,

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Speaker 1: is supply secure? And finally we come to aluminum, will

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Speaker 1: the continued expansion of the global solar sector raise demand

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Speaker 1: given that on average it requires about fourteen tons of

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Speaker 1: the metal per megawat of additional capacity. To access this

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Speaker 1: research note Industrial Metals Monthly Things to Watch twenty twenty four,

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Speaker 1: B and EF subscribers are going to be able to

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Speaker 1: find it at BNF dot com or at banof Go

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Speaker 1: on the Bloomberg terminal.

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Speaker 2: Now.

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Speaker 1: As always, if you like this podcast, subscribe to receive

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Speaker 1: an update when future episodes are published, and give us

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Speaker 1: a review on Apple Podcasts or Spotify to share us

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Speaker 1: with others. Right now, though, let's jump into our conversation

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Speaker 1: with Yu Chen regarding what lies ahead for industrial metals. Uchen,

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Speaker 1: thank you very much for joining us on switched on today.

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Speaker 2: Thank you for having me.

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Speaker 1: So let's start with one of the most important materials

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Speaker 1: for construction manufacturing of many kinds. Let's start with steel.

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Speaker 1: Global steel demand was impacted this last year in twenty

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Speaker 1: twenty three by issues that we saw in the Chinese

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Speaker 1: real estate sector cooling. So will a continued Chinese property

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Speaker 1: market cooling have an impact on steel demand in the

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Speaker 1: year ahead.

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Speaker 2: Well, yes, Chinese stew demands in twenty one and four will,

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Speaker 2: like we continue its decline following falls in twenty twenty three.

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Speaker 2: That's only to continuing issues in the real estate sector.

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Speaker 2: Of course, the Chinese government has been introducing multiple plans

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Speaker 2: and measures to rescue the sector, but there is no

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Speaker 2: quick remedy here, so there is going to take a

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Speaker 2: longer time for the sector to recover. And with that,

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Speaker 2: on the other hand of the story, China's shipbuilding and

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Speaker 2: clean power infrastructure will likely become key drivers of still

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Speaker 2: demand growth in twenty twenty four. And despite these overall

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Speaker 2: faults in China, the global steel consumption will gather positive

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Speaker 2: momentum and likely reach one point eight billion tons in

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Speaker 2: twenty twenty four, and there is steady growth in emergent Asia,

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Speaker 2: there is the delayed recovery in Europe's manufacturing, and there

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Speaker 2: is also the subsidy manufacturing revival in the US, which

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Speaker 2: are all growth drivers globally for twenty twenty four.

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Speaker 1: So there'll be a shift between industries to some extent

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Speaker 1: within China, and then a shift within countries around the world.

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Speaker 1: And you know, you're saying that we're expected to see

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Speaker 1: more steel next year, which then brings us to what

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Speaker 1: it's made of. How about iron ore supply? Do you

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Speaker 1: see the supply of iron ore actually increasing at the

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Speaker 1: right rate to keep up with this?

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Speaker 2: Global iron or supply is expected rise with the rampa

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Speaker 2: of new projects and the efficiency improvements at existing operations. However,

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Speaker 2: if you look at the supply on a quarter basis,

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Speaker 2: weather events such as the rainy season in Brazil and

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Speaker 2: the cyclone season in Australia will still likely tipen supply,

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Speaker 2: especially for the first quarter, and currently the China pot

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Speaker 2: side iron or inventry has remained low at around one

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Speaker 2: hundred and twenty million times after hitting a multi year

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Speaker 2: low in October twenty twenty three. So any disruption to

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Speaker 2: supply could have a pretty large impact on the market.

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Speaker 2: Whether we do think that in twenty twenty four there

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Speaker 2: will be rice in production from none maystream suppliers and

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Speaker 2: help the market to meet the growth demand.

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Speaker 1: You talked about the weather in relation to iron ore supply,

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Speaker 1: and I definitely familiar with the weather and its impact

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Speaker 1: on gas consumption when we talk about this in our

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Speaker 1: summer and our winter gas outlooks here. So those who

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Speaker 1: are actually looking at this metal, are they also looking

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Speaker 1: very closely at the weather or is this something that

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Speaker 1: just happens every season? And do you expect a decrease

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Speaker 1: in supply in certain parts of the world because you know,

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Speaker 1: cyclone season happens every year.

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Speaker 2: Yeah, you are right. I think this is a more

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Speaker 2: seasonal trend that we observe for every first quarter of

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Speaker 2: the year because that is the rainy season in Brazil.

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Speaker 2: At the same time, it is also the cycled season

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Speaker 2: in Australia, and during those seasons we might see disruptions

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Speaker 2: to operations, we might see disruptions to port my close

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Speaker 2: down because of cyclones. So people will be closely watching

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Speaker 2: this in the first quarter, and you usually has an

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Speaker 2: impact in the first quarter, but because there is an anticipation,

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Speaker 2: so the market should be already managed without any significant

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Speaker 2: weather issues happened in the first quarter.

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Speaker 1: So in twenty twenty three, China had mandated some steel

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Speaker 1: production curbs and as we enter the air ahead, should

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Speaker 1: those persist in some form? What are really the dynamics,

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Speaker 1: how is this going to impact steel production?

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Speaker 2: Well, Chinese steel production curbs in twenty twenty three has

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Speaker 2: been less restricted if we compare that to what happened,

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Speaker 2: for example, in twenty twenty one, but it is still

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Speaker 2: impactful and this could remain a wild card, especially for

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Speaker 2: the second half of twenty twenty four, and the China

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Speaker 2: State Console in the December of twenty twenty three has

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Speaker 2: reiterated that any new increase in the still making capacity

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Speaker 2: is prohibited in an action plan for continuous air improvement quality.

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Speaker 2: That said environment to controls on steel manufacturers could make

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Speaker 2: a return in twenty twenty four, and these curves have

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Speaker 2: proven in the past to be pretty powerful market movers

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Speaker 2: for Chinese steel prices as well as global ingwork prices.

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Speaker 1: Now, given that we're kind of doing a whistle slop

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Speaker 1: tour of many of the industrial metals in the things

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Speaker 1: to watch section today, let's talk a little bit about copper,

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Speaker 1: which we know is really important for electric vehicle batteries,

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Speaker 1: we know it's important for renal energy equipment. And then grids. Oh, grids,

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Speaker 1: what an important theme, expanding grid connectivity for all the

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Speaker 1: new infrastructure. So this metal is important for us. What

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Speaker 1: do you think is going to happen with it in

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Speaker 1: the year ahead.

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Speaker 2: Yeah, I'm really glad that you mentioned grids because the

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Speaker 2: bulk of energy transition de mond for copper will be

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Speaker 2: coming from power grid expansions, which is to connect newly

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Speaker 2: built renewable power generation plants. And we do forecasts and

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Speaker 2: this will need five point eight million tons of refined

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Speaker 2: copper in twenty twenty four, and that is eight percent

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Speaker 2: higher on the year. Overall copper de month globally is

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Speaker 2: projected to increase slightly into twenty twenty four, and that's

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Speaker 2: driven by increase in what you mentioned, including ev adoption

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Speaker 2: and clean power installations. However, there is going to be

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Speaker 2: some stagnation in the traditional sectors.

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Speaker 1: So with more than half of the largest copper refineries

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Speaker 1: in the world in China, essentially, are we seeing the

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Speaker 1: same output constraints on copper as we are for steel

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Speaker 1: or do we expect copper output in China to continue

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Speaker 1: to grow.

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Speaker 2: In twenty twenty three. The monthly refined copper output in

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Speaker 2: China has reached an outcome high in November twenty twenty three,

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Speaker 2: and that's at one point four million tons, and this

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Speaker 2: is obtract to climb even further as more smelting capacities

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Speaker 2: are still being added. This massive capacit expansion is making

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Speaker 2: China more dependent on the important copper ore, which rows

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Speaker 2: nine percent in twenty twenty three from the previous year

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Speaker 2: and set a new record of twenty seven point five

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Speaker 2: million tons. And the shortage of MIND copper could restrict

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Speaker 2: global refined copper output, but additional MIND supply is also

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Speaker 2: underway in twenty twenty four.

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Speaker 1: And how about in the rest of the world. So

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Speaker 1: are we looking at any shortages on the copper ore

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Speaker 1: that's required to make copper that's useful for the grids?

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Speaker 2: Yeah? For mine copper. Actually, we have observed an increasing

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Speaker 2: challenge for building new MIND projects, and that's due to

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Speaker 2: delays in receiving mining permits coming from protests from local

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Speaker 2: communities and poorer economics of mining copper due to declining

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Speaker 2: or great and we have already seen in twenty twenty three.

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Speaker 2: For example, in Panama, the government has shut down a

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Speaker 2: giant copper mind owning to countrywide anti mining protests, and

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Speaker 2: we will. In Peru, which is the second largest copper

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Speaker 2: miner globally, the mining investments declined nineteen percent in the

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Speaker 2: first half of twenty twenty three compared to the previous year,

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Speaker 2: and that is due to political uncertainty.

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Speaker 1: So we've been through deal, We've been through copper. Now

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Speaker 1: let's go to aluminium or aluminium, depending upon where in

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Speaker 1: the world you are. How is the market positioned for

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Speaker 1: aluminium supply in twenty twenty four.

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Speaker 2: Global primary aluminum outputs likely exceeded seventy million tons in

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Speaker 2: twenty twenty three and will climb to reach about seventy

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Speaker 2: two million tons in twenty twenty four. And China's upput

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Speaker 2: sets monthly records in twenty twenty three, but there is

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Speaker 2: supplies sailing sets at forty five million tons, and we

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Speaker 2: do expect China to heat that sailing in the coming years. However,

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Speaker 2: if you look elsewhere, European smelters are not expected to

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Speaker 2: resume operations at a major scale because of the following

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Speaker 2: regional manufacturing de month. So overall, aluminum markets expected to

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Speaker 2: move into a small surplus between twenty thirty three to

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Speaker 2: twenty twenty five despite this curtailment in European production.

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Speaker 1: So you're talking about the production end of things, but

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Speaker 1: let's actually go a little bit into detail and demand.

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Speaker 1: What actually drives demand for aluminum and where is it

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Speaker 1: used the most in the transition?

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Speaker 2: Yeah, if you're talking about energy transitions a month for aluminum,

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Speaker 2: we do see that the solar sector is becoming a

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Speaker 2: key driver of the month, which requires about fourteen tons

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Speaker 2: per megabot of new capacity on average, and the twenty

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Speaker 2: twenty three estimates for global solar isolation in fact exeed

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Speaker 2: that pro benef estimates, and we do expect this to

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Speaker 2: grow another twenty four percent in twenty ninety four.

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Speaker 1: So high interest rates and inflation, the double eyes were

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Speaker 1: things that came up as important themes across most of

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Speaker 1: the sectors that we cover last year. So thinking about

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Speaker 1: interest rates, How do you think this is going to

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Speaker 1: have an impact on producers in these industrial metal sectors

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Speaker 1: in the airhead.

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Speaker 2: Yeah, I think inflationary pressures in twenty twenty three has

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Speaker 2: really give industrial metals producers some difficulty in twenty twenty three,

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Speaker 2: and we do see that, for example, China's average steel

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Speaker 2: product margins nearly have from the previous average in twenty

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Speaker 2: twenty two, and at the same time, for aluminum smelters

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Speaker 2: in China they also seeing their profit margins narrowed in

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Speaker 2: twenty twenty three as the selling prices of the product

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Speaker 2: dropped faster than the costs, and one reason is the

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Speaker 2: distress real istics sector in China hampered the month for

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Speaker 2: both still and aluminum. But at the same time there

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Speaker 2: is elevated oilwoard and coking prices which limited any cost

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Speaker 2: relief for the producers. And in twenty twenty four, we

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Speaker 2: do expect policy measures to boost infrastructure spending and help

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Speaker 2: rescue property market to gradually improve conditions for producers. But

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Speaker 2: outside of China, as gas and electricity prices stabilized in

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Speaker 2: Europe in twenty twenty three, energy intensive metal industries including

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Speaker 2: steel making and aluminum smelting found some relief in this cost. However,

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Speaker 2: production costs climbed again in the second half of twenty

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Speaker 2: twenty three due to higher input material prices that include

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Speaker 2: i or and stew scrap in particular. So we do

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Speaker 2: expect these pressures to continue, ring fluctuations in exchange rates,

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Speaker 2: in freight rates as well as world material input costs.

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Speaker 2: So at the same time, calls associated with carbon emissions

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Speaker 2: in metals producing processes will also see increasingly reflected, especially

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Speaker 2: in Asia produced calculations. For example, China is looking to

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Speaker 2: include steal aluminium in a des carbon market and we

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Speaker 2: do expect to come true in the coming years.

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Speaker 1: Okay, so lastly, let's finish on prices, and I would

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Speaker 1: say that your team, you guys went out on the

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Speaker 1: skinny branch, and you guys decided to give proper price

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Speaker 1: forecasts for next year. So of course, telling the future

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Speaker 1: it's impossible to do, and there's a number of factors

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Speaker 1: that could come any which way changing things, including the weather.

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Speaker 1: But let's go through the three industrial metals. So we

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Speaker 1: just discussed, and let's hear what their price forecasts are.

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Speaker 1: Starting with say iron.

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Speaker 2: Of course, ironor price forecast is pointing to declining trends

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Speaker 2: in twenty twenty four as the money is unlikely going

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Speaker 2: to sustain due to weakness, especially in China's recovery and

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Speaker 2: the medium price forecast in twenty twenty four. A clarification

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Speaker 2: here is that the forecast is not just from beneath ourselves.

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Speaker 2: We do composit and look at others forecasts and the

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Speaker 2: medium price forecast where ironore in twenty twenty four is

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Speaker 2: one hundred and ten dollars per metric time and moving

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Speaker 2: to other metals for copper has a later valley in

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Speaker 2: twenty twenty three, and we do expect those momentum to

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Speaker 2: be carried over into twenty twenty four and studied de

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Speaker 2: month outlook is the main driver for the price growth

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Speaker 2: in forecast in twenty twenty four, which is expect to

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Speaker 2: reach eight thousand and six hundred dollars per ton for

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Speaker 2: the medium price forecast, and forum aluminum pricess is set

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Speaker 2: to grow as well with production curbs and supply disruptions

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Speaker 2: from delayed for the exerting upwar pressure on the market

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Speaker 2: and the twenty twenty four median press forecast is two

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Speaker 2: and three hundred and fifty dollars per ton.

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Speaker 1: So behind those numbers and you went through this, but

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Speaker 1: just to quickly summarize, iron ore declining, copper staying high

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Speaker 1: at the start of the year, and aluminum potentially growing.

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Speaker 2: So great summary.

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Speaker 1: All different, all different for each of the three, So

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Speaker 1: it'll be an interesting year to watch industrial metals. Yushen,

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Speaker 1: thank you so much for coming and doing this kind

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Speaker 1: of quick bonus episode and walking through the various things

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Speaker 1: we're thinking about in the year ahead.

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Speaker 2: Thank you for having me.

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Speaker 1: Switched On is produced by cam Gray with production assistance

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