WEBVTT - Things to Watch: Aluminum, Copper and Steel

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<v Speaker 1>This is Dana Perkins and your listening to Switched on

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

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<v Speaker 1>about the things to Watch for Industrial Metals in twenty

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

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

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<v Speaker 1>and aluminum. On the topic of steel, she shares what

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<v Speaker 1>impact a continued slump in the Chinese property market could

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<v Speaker 1>have on steel demand and whether sectors such as shipbuilding

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<v Speaker 1>and clean energy infrastructure could offset this. Regarding copper, we

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<v Speaker 1>discuss whether a global rollout of grids could drive demand

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<v Speaker 1>and following the closure of two large Latin American minds,

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<v Speaker 1>is supply secure? And finally we come to aluminum, will

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<v Speaker 1>the continued expansion of the global solar sector raise demand

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<v Speaker 1>given that on average it requires about fourteen tons of

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<v Speaker 1>the metal per megawat of additional capacity. To access this

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<v Speaker 1>research note Industrial Metals Monthly Things to Watch twenty twenty four,

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<v Speaker 1>B and EF subscribers are going to be able to

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<v Speaker 1>find it at BNF dot com or at banof Go

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<v Speaker 1>on the Bloomberg terminal.

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<v Speaker 2>Now.

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<v Speaker 1>As always, if you like this podcast, subscribe to receive

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<v Speaker 1>an update when future episodes are published, and give us

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

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<v Speaker 1>with Yu Chen regarding what lies ahead for industrial metals. Uchen,

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<v Speaker 1>thank you very much for joining us on switched on today.

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<v Speaker 2>Thank you for having me.

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<v Speaker 1>So let's start with one of the most important materials

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<v Speaker 1>for construction manufacturing of many kinds. Let's start with steel.

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<v Speaker 1>Global steel demand was impacted this last year in twenty

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<v Speaker 1>twenty three by issues that we saw in the Chinese

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<v Speaker 1>real estate sector cooling. So will a continued Chinese property

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<v Speaker 1>market cooling have an impact on steel demand in the

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<v Speaker 1>year ahead.

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<v Speaker 2>Well, yes, Chinese stew demands in twenty one and four will,

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<v Speaker 2>like we continue its decline following falls in twenty twenty three.

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<v Speaker 2>That's only to continuing issues in the real estate sector.

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<v Speaker 2>Of course, the Chinese government has been introducing multiple plans

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<v Speaker 2>and measures to rescue the sector, but there is no

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<v Speaker 2>quick remedy here, so there is going to take a

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<v Speaker 2>longer time for the sector to recover. And with that,

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<v Speaker 2>on the other hand of the story, China's shipbuilding and

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<v Speaker 2>clean power infrastructure will likely become key drivers of still

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<v Speaker 2>demand growth in twenty twenty four. And despite these overall

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<v Speaker 2>faults in China, the global steel consumption will gather positive

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<v Speaker 2>momentum and likely reach one point eight billion tons in

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<v Speaker 2>twenty twenty four, and there is steady growth in emergent Asia,

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<v Speaker 2>there is the delayed recovery in Europe's manufacturing, and there

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<v Speaker 2>is also the subsidy manufacturing revival in the US, which

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<v Speaker 2>are all growth drivers globally for twenty twenty four.

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<v Speaker 1>So there'll be a shift between industries to some extent

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<v Speaker 1>within China, and then a shift within countries around the world.

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<v Speaker 1>And you know, you're saying that we're expected to see

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<v Speaker 1>more steel next year, which then brings us to what

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

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<v Speaker 1>see the supply of iron ore actually increasing at the

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<v Speaker 1>right rate to keep up with this?

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<v Speaker 2>Global iron or supply is expected rise with the rampa

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<v Speaker 2>of new projects and the efficiency improvements at existing operations. However,

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<v Speaker 2>if you look at the supply on a quarter basis,

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<v Speaker 2>weather events such as the rainy season in Brazil and

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<v Speaker 2>the cyclone season in Australia will still likely tipen supply,

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<v Speaker 2>especially for the first quarter, and currently the China pot

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<v Speaker 2>side iron or inventry has remained low at around one

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<v Speaker 2>hundred and twenty million times after hitting a multi year

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<v Speaker 2>low in October twenty twenty three. So any disruption to

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<v Speaker 2>supply could have a pretty large impact on the market.

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<v Speaker 2>Whether we do think that in twenty twenty four there

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<v Speaker 2>will be rice in production from none maystream suppliers and

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<v Speaker 2>help the market to meet the growth demand.

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<v Speaker 1>You talked about the weather in relation to iron ore supply,

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<v Speaker 1>and I definitely familiar with the weather and its impact

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<v Speaker 1>on gas consumption when we talk about this in our

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<v Speaker 1>summer and our winter gas outlooks here. So those who

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<v Speaker 1>are actually looking at this metal, are they also looking

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<v Speaker 1>very closely at the weather or is this something that

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<v Speaker 1>just happens every season? And do you expect a decrease

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<v Speaker 1>in supply in certain parts of the world because you know,

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<v Speaker 1>cyclone season happens every year.

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<v Speaker 2>Yeah, you are right. I think this is a more

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<v Speaker 2>seasonal trend that we observe for every first quarter of

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<v Speaker 2>the year because that is the rainy season in Brazil.

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<v Speaker 2>At the same time, it is also the cycled season

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<v Speaker 2>in Australia, and during those seasons we might see disruptions

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<v Speaker 2>to operations, we might see disruptions to port my close

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<v Speaker 2>down because of cyclones. So people will be closely watching

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<v Speaker 2>this in the first quarter, and you usually has an

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<v Speaker 2>impact in the first quarter, but because there is an anticipation,

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<v Speaker 2>so the market should be already managed without any significant

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<v Speaker 2>weather issues happened in the first quarter.

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<v Speaker 1>So in twenty twenty three, China had mandated some steel

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<v Speaker 1>production curbs and as we enter the air ahead, should

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<v Speaker 1>those persist in some form? What are really the dynamics,

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<v Speaker 1>how is this going to impact steel production?

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<v Speaker 2>Well, Chinese steel production curbs in twenty twenty three has

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<v Speaker 2>been less restricted if we compare that to what happened,

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<v Speaker 2>for example, in twenty twenty one, but it is still

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<v Speaker 2>impactful and this could remain a wild card, especially for

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<v Speaker 2>the second half of twenty twenty four, and the China

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<v Speaker 2>State Console in the December of twenty twenty three has

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<v Speaker 2>reiterated that any new increase in the still making capacity

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<v Speaker 2>is prohibited in an action plan for continuous air improvement quality.

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<v Speaker 2>That said environment to controls on steel manufacturers could make

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<v Speaker 2>a return in twenty twenty four, and these curves have

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<v Speaker 2>proven in the past to be pretty powerful market movers

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<v Speaker 2>for Chinese steel prices as well as global ingwork prices.

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<v Speaker 1>Now, given that we're kind of doing a whistle slop

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<v Speaker 1>tour of many of the industrial metals in the things

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

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<v Speaker 1>which we know is really important for electric vehicle batteries,

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

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<v Speaker 1>what an important theme, expanding grid connectivity for all the

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<v Speaker 1>new infrastructure. So this metal is important for us. What

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<v Speaker 1>do you think is going to happen with it in

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<v Speaker 1>the year ahead.

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<v Speaker 2>Yeah, I'm really glad that you mentioned grids because the

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<v Speaker 2>bulk of energy transition de mond for copper will be

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<v Speaker 2>coming from power grid expansions, which is to connect newly

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<v Speaker 2>built renewable power generation plants. And we do forecasts and

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<v Speaker 2>this will need five point eight million tons of refined

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<v Speaker 2>copper in twenty twenty four, and that is eight percent

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<v Speaker 2>higher on the year. Overall copper de month globally is

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<v Speaker 2>projected to increase slightly into twenty twenty four, and that's

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<v Speaker 2>driven by increase in what you mentioned, including ev adoption

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<v Speaker 2>and clean power installations. However, there is going to be

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<v Speaker 2>some stagnation in the traditional sectors.

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<v Speaker 1>So with more than half of the largest copper refineries

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<v Speaker 1>in the world in China, essentially, are we seeing the

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<v Speaker 1>same output constraints on copper as we are for steel

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<v Speaker 1>or do we expect copper output in China to continue

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<v Speaker 1>to grow.

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<v Speaker 2>In twenty twenty three. The monthly refined copper output in

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<v Speaker 2>China has reached an outcome high in November twenty twenty three,

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<v Speaker 2>and that's at one point four million tons, and this

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<v Speaker 2>is obtract to climb even further as more smelting capacities

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<v Speaker 2>are still being added. This massive capacit expansion is making

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<v Speaker 2>China more dependent on the important copper ore, which rows

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<v Speaker 2>nine percent in twenty twenty three from the previous year

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<v Speaker 2>and set a new record of twenty seven point five

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<v Speaker 2>million tons. And the shortage of MIND copper could restrict

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<v Speaker 2>global refined copper output, but additional MIND supply is also

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<v Speaker 2>underway in twenty twenty four.

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<v Speaker 1>And how about in the rest of the world. So

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<v Speaker 1>are we looking at any shortages on the copper ore

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<v Speaker 1>that's required to make copper that's useful for the grids?

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<v Speaker 2>Yeah? For mine copper. Actually, we have observed an increasing

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<v Speaker 2>challenge for building new MIND projects, and that's due to

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<v Speaker 2>delays in receiving mining permits coming from protests from local

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<v Speaker 2>communities and poorer economics of mining copper due to declining

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<v Speaker 2>or great and we have already seen in twenty twenty three.

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<v Speaker 2>For example, in Panama, the government has shut down a

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<v Speaker 2>giant copper mind owning to countrywide anti mining protests, and

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<v Speaker 2>we will. In Peru, which is the second largest copper

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<v Speaker 2>miner globally, the mining investments declined nineteen percent in the

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<v Speaker 2>first half of twenty twenty three compared to the previous year,

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<v Speaker 2>and that is due to political uncertainty.

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<v Speaker 1>So we've been through deal, We've been through copper. Now

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<v Speaker 1>let's go to aluminium or aluminium, depending upon where in

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<v Speaker 1>the world you are. How is the market positioned for

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<v Speaker 1>aluminium supply in twenty twenty four.

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<v Speaker 2>Global primary aluminum outputs likely exceeded seventy million tons in

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<v Speaker 2>twenty twenty three and will climb to reach about seventy

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<v Speaker 2>two million tons in twenty twenty four. And China's upput

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<v Speaker 2>sets monthly records in twenty twenty three, but there is

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<v Speaker 2>supplies sailing sets at forty five million tons, and we

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

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<v Speaker 2>if you look elsewhere, European smelters are not expected to

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<v Speaker 2>resume operations at a major scale because of the following

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<v Speaker 2>regional manufacturing de month. So overall, aluminum markets expected to

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<v Speaker 2>move into a small surplus between twenty thirty three to

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<v Speaker 2>twenty twenty five despite this curtailment in European production.

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<v Speaker 1>So you're talking about the production end of things, but

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<v Speaker 1>let's actually go a little bit into detail and demand.

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<v Speaker 1>What actually drives demand for aluminum and where is it

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<v Speaker 1>used the most in the transition?

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

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<v Speaker 2>we do see that the solar sector is becoming a

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<v Speaker 2>key driver of the month, which requires about fourteen tons

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<v Speaker 2>per megabot of new capacity on average, and the twenty

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<v Speaker 2>twenty three estimates for global solar isolation in fact exeed

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<v Speaker 2>that pro benef estimates, and we do expect this to

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<v Speaker 2>grow another twenty four percent in twenty ninety four.

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<v Speaker 1>So high interest rates and inflation, the double eyes were

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<v Speaker 1>things that came up as important themes across most of

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<v Speaker 1>the sectors that we cover last year. So thinking about

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<v Speaker 1>interest rates, How do you think this is going to

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<v Speaker 1>have an impact on producers in these industrial metal sectors

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<v Speaker 1>in the airhead.

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<v Speaker 2>Yeah, I think inflationary pressures in twenty twenty three has

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<v Speaker 2>really give industrial metals producers some difficulty in twenty twenty three,

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<v Speaker 2>and we do see that, for example, China's average steel

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<v Speaker 2>product margins nearly have from the previous average in twenty

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<v Speaker 2>twenty two, and at the same time, for aluminum smelters

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<v Speaker 2>in China they also seeing their profit margins narrowed in

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<v Speaker 2>twenty twenty three as the selling prices of the product

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<v Speaker 2>dropped faster than the costs, and one reason is the

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<v Speaker 2>distress real istics sector in China hampered the month for

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<v Speaker 2>both still and aluminum. But at the same time there

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<v Speaker 2>is elevated oilwoard and coking prices which limited any cost

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<v Speaker 2>relief for the producers. And in twenty twenty four, we

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<v Speaker 2>do expect policy measures to boost infrastructure spending and help

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<v Speaker 2>rescue property market to gradually improve conditions for producers. But

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<v Speaker 2>outside of China, as gas and electricity prices stabilized in

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<v Speaker 2>Europe in twenty twenty three, energy intensive metal industries including

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

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<v Speaker 2>production costs climbed again in the second half of twenty

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<v Speaker 2>twenty three due to higher input material prices that include

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<v Speaker 2>i or and stew scrap in particular. So we do

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<v Speaker 2>expect these pressures to continue, ring fluctuations in exchange rates,

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<v Speaker 2>in freight rates as well as world material input costs.

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<v Speaker 2>So at the same time, calls associated with carbon emissions

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<v Speaker 2>in metals producing processes will also see increasingly reflected, especially

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<v Speaker 2>in Asia produced calculations. For example, China is looking to

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<v Speaker 2>include steal aluminium in a des carbon market and we

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<v Speaker 2>do expect to come true in the coming years.

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<v Speaker 1>Okay, so lastly, let's finish on prices, and I would

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<v Speaker 1>say that your team, you guys went out on the

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<v Speaker 1>skinny branch, and you guys decided to give proper price

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<v Speaker 1>forecasts for next year. So of course, telling the future

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<v Speaker 1>it's impossible to do, and there's a number of factors

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<v Speaker 1>that could come any which way changing things, including the weather.

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<v Speaker 1>But let's go through the three industrial metals. So we

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

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<v Speaker 1>Starting with say iron.

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<v Speaker 2>Of course, ironor price forecast is pointing to declining trends

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<v Speaker 2>in twenty twenty four as the money is unlikely going

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<v Speaker 2>to sustain due to weakness, especially in China's recovery and

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<v Speaker 2>the medium price forecast in twenty twenty four. A clarification

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<v Speaker 2>here is that the forecast is not just from beneath ourselves.

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<v Speaker 2>We do composit and look at others forecasts and the

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<v Speaker 2>medium price forecast where ironore in twenty twenty four is

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<v Speaker 2>one hundred and ten dollars per metric time and moving

0:13:30.440 --> 0:13:34.760
<v Speaker 2>to other metals for copper has a later valley in

0:13:34.800 --> 0:13:37.920
<v Speaker 2>twenty twenty three, and we do expect those momentum to

0:13:37.960 --> 0:13:40.959
<v Speaker 2>be carried over into twenty twenty four and studied de

0:13:41.080 --> 0:13:44.560
<v Speaker 2>month outlook is the main driver for the price growth

0:13:44.600 --> 0:13:47.600
<v Speaker 2>in forecast in twenty twenty four, which is expect to

0:13:47.640 --> 0:13:50.760
<v Speaker 2>reach eight thousand and six hundred dollars per ton for

0:13:50.840 --> 0:13:54.960
<v Speaker 2>the medium price forecast, and forum aluminum pricess is set

0:13:55.000 --> 0:13:58.760
<v Speaker 2>to grow as well with production curbs and supply disruptions

0:13:58.800 --> 0:14:02.360
<v Speaker 2>from delayed for the exerting upwar pressure on the market

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<v Speaker 2>and the twenty twenty four median press forecast is two

0:14:06.600 --> 0:14:08.680
<v Speaker 2>and three hundred and fifty dollars per ton.

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<v Speaker 1>So behind those numbers and you went through this, but

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<v Speaker 1>just to quickly summarize, iron ore declining, copper staying high

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<v Speaker 1>at the start of the year, and aluminum potentially growing.

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<v Speaker 2>So great summary.

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<v Speaker 1>All different, all different for each of the three, So

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

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<v Speaker 1>thank you so much for coming and doing this kind

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<v Speaker 1>of quick bonus episode and walking through the various things

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<v Speaker 1>we're thinking about in the year ahead.

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<v Speaker 2>Thank you for having me.

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<v Speaker 1>Switched On is produced by cam Gray with production assistance

0:14:46.800 --> 0:14:50.440
<v Speaker 1>from Kamala Shelling and Lushi Karunaorete. Bloomberg ne EF is

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0:14:53.600 --> 0:14:56.320
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