Steel supply and demand is in balance towards the end of the year, with global EAF-based production having been curtailed as Chinese exports increased this year, while expectations for Chinese stimulus are firming sentiment into 2024, according to Cargill Metals managing director Lee Kirk.
Over 100 million tonnes fewer of scrap were consumed this year globally excluding China, but with no resulting downward pressure on scrap prices. This has prevented EAF mills from increasing their margins and ramping up steel production. China has meanwhile exported 19 million tonnes of steel more on-year so far in 2023, with the year expected to end at 25mt up on-year.
The Chinese market is “starting to get excited about 2024,” Kirk said during last week’s Capital Markets Update hosted by Cargill partner and iron ore miner Rana Gruber. “Sentiment is starting to shift. What we haven’t yet seen is a real increase in demand. We are in a situation where iron ore prices are starting to improve to the kind of highs we’ve seen in the last 24 months but largely because of expectations.”
“If we get a continuation of the stimulus rhetoric that turns into a real demand increase and we come out of Chinese New Year with stronger demand, then I think we have a very positive outlook for next year,” Kirk added during his presentation monitored by Kallanish.
The risks to this outlook are two-fold. The words around stimulus may not really turn into real demand, and the US may end up with some form of recession, he continued.
As for future low-emission steelmaking, although there is still uncertainty over the cost of producing hydrogen, the cost of coal-based production will simultaneously increase due to carbon taxes and reduced coal production. On the other side, green premiums are being established to account for the delta in steel, said Cargill customer and sustainability lead Leon Davies.
“We’ve seen, anecdotally, green steel traded, which is not green steel of the future but mass balanced green steel where steelmakers lower their overall carbon footprint by, say, 5% and then sell 5% of their steel as mass-balanced green steel … You’ve seen this trading in the market at around €150/tonne [premium] but with limited liquidity and transparency. But you’re also seeing clear established green premiums in some of the new green steel projects for the future as well. So, you’re getting both a cost impact on traditional steelmaking and a green premium for low-carbon steelmaking of the future.”
Adam Smith Poland
