STEEL PRICES EXPECTED TO INCREASE
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Steel prices are expected to rise again, according to increasing opinions from analysts. China's Duong Son is currently imposing a 50% production restriction to combat air pollution. The competition between high-quality stainless steel and low-quality steel is intensifying, which could lead to higher raw material prices. Additionally, Indonesia is facing criticism for a surge in CO2 emissions and trade restrictions.
Futures steel prices continue to trend upwards, supported by ongoing production restrictions in Duong Son, China's leading steel production center. According to reports, Duong Son has requested 11 A-rated steel plants to proactively reduce output, while B-rated and lower-rated plants will have to close 50% of their sintering facilities from July 1-31 due to poor air quality. Furthermore, some Chinese steel producers have announced maintenance plans for July, following a similar pattern in previous months.
These actions contribute to the latest expectations among Asian analysts of reduced steel supply in the market, thereby supporting steel prices. On the Shanghai Futures Exchange (SHFE), rebar steel prices increased by 0.78%, hot-rolled coil prices rose by 0.89%, and wire rod prices increased by 0.45%.
The competition between different types of nickel is expected to accelerate soon. As announced in early June 2023, Indonesia is facing increasing issues with the availability of low-grade nickel ore and intends to restrict production, such as low-quality nickel ore and nickel pig iron, to conserve precious raw materials for producing higher-grade products.
According to media reports, production capacity of around 200,000 tons of Type 1 nickel will be available in Indonesia by the end of 2024. This also explains the need for raw material shifts among different producers.
On one hand, this may lead to relief in the rapidly developing electric vehicle market, which has recently significantly reduced inventory levels on commodity exchanges and caused prices to drop to historically low levels. However, on the other hand, it will reduce the supply of nickel-containing scrap, which is used in stainless steel production.
Furthermore, China plans to increase the proportion of scrap in stainless steel production from the current 21% to 26% by the end of 2025, equivalent to an additional 1.6 million tons of scrap stainless steel per year. This will significantly reduce the availability of nickel-containing scrap and drive up prices worldwide.
Therefore, the competition between high-grade, low-grade, and scrap materials will increasingly intensify in the future. However, this may result in relief for the electric vehicle sector, which could lead to higher raw material costs in the stainless steel industry, as NPI becomes scarcer and scrap demand increases.
Although Indonesia has emerged as the largest producer of nickel products, it comes with a high price. Recent reports indicate that Indonesia ranked sixth in the world for CO2 emissions from fossil fuels in 2022. The coal burning in this Asian country shows no signs of decline.
Type 1 nickel in Indonesia requires a significant amount of energy. This poses a challenge for Indonesia's nickel production, as the laterite ore containing nickel, primarily found in Indonesia, requires more energy to convert into Type 1 nickel. This means the CO2 emissions are up to six times higher compared to countries like Canada, Russia, or Australia, where predominantly sulfide ore containing nickel is mined and processed.
Indonesia has recently faced criticism from the World Trade Organization (WTO) and the International Monetary Fund (IMF) regarding export bans imposed or planned by Indonesia on raw materials such as nickel or bauxite. With the new regulations from the EU, another construction site for Indonesia's economy was opened in May 2023.
The excessive use of fossil fuels in Indonesia's energy mix is likely to invite even more criticism, including examples like the EU's Carbon Border Adjustment Mechanism (CBAM) and CO2 certificate trade. This raises a valid question: When will Indonesia address this issue?
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