This is Dana Perkins and your listening to Switched on the BNAF podcast. On today's bonus episode, we will talk about the things to Watch for Industrial Metals in twenty twenty four. I'm joined by Yushen H. She's an analyst from BNF's Metals and Mining team. We discuss steel, copper, and aluminum. On the topic of steel, she shares what impact a continued slump in the Chinese property market could have on steel demand and whether sectors such as shipbuilding
and clean energy infrastructure could offset this. Regarding copper, we discuss whether a global rollout of grids could drive demand and following the closure of two large Latin American minds, is supply secure? And finally we come to aluminum, will the continued expansion of the global solar sector raise demand given that on average it requires about fourteen tons of
the metal per megawat of additional capacity. To access this research note Industrial Metals Monthly Things to Watch twenty twenty four, B and EF subscribers are going to be able to find it at BNF dot com or at banof Go on the Bloomberg terminal.
Now.
As always, if you like this podcast, subscribe to receive an update when future episodes are published, and give us a review on Apple Podcasts or Spotify to share us with others. Right now, though, let's jump into our conversation with Yu Chen regarding what lies ahead for industrial metals. Uchen, thank you very much for joining us on switched on today.
Thank you for having me.
So let's start with one of the most important materials for construction manufacturing of many kinds. Let's start with steel. Global steel demand was impacted this last year in twenty twenty three by issues that we saw in the Chinese real estate sector cooling. So will a continued Chinese property market cooling have an impact on steel demand in the year ahead.
Well, yes, Chinese stew demands in twenty one and four will, like we continue its decline following falls in twenty twenty three. That's only to continuing issues in the real estate sector. Of course, the Chinese government has been introducing multiple plans and measures to rescue the sector, but there is no quick remedy here, so there is going to take a
longer time for the sector to recover. And with that, on the other hand of the story, China's shipbuilding and clean power infrastructure will likely become key drivers of still
demand growth in twenty twenty four. And despite these overall faults in China, the global steel consumption will gather positive momentum and likely reach one point eight billion tons in twenty twenty four, and there is steady growth in emergent Asia, there is the delayed recovery in Europe's manufacturing, and there is also the subsidy manufacturing revival in the US, which are all growth drivers globally for twenty twenty four.
So there'll be a shift between industries to some extent within China, and then a shift within countries around the world. And you know, you're saying that we're expected to see more steel next year, which then brings us to what it's made of. How about iron ore supply? Do you see the supply of iron ore actually increasing at the right rate to keep up with this?
Global iron or supply is expected rise with the rampa of new projects and the efficiency improvements at existing operations. However, if you look at the supply on a quarter basis, weather events such as the rainy season in Brazil and the cyclone season in Australia will still likely tipen supply, especially for the first quarter, and currently the China pot side iron or inventry has remained low at around one hundred and twenty million times after hitting a multi year
low in October twenty twenty three. So any disruption to supply could have a pretty large impact on the market. Whether we do think that in twenty twenty four there will be rice in production from none maystream suppliers and help the market to meet the growth demand.
You talked about the weather in relation to iron ore supply, and I definitely familiar with the weather and its impact on gas consumption when we talk about this in our summer and our winter gas outlooks here. So those who are actually looking at this metal, are they also looking very closely at the weather or is this something that just happens every season? And do you expect a decrease in supply in certain parts of the world because you know, cyclone season happens every year.
Yeah, you are right. I think this is a more seasonal trend that we observe for every first quarter of the year because that is the rainy season in Brazil. At the same time, it is also the cycled season in Australia, and during those seasons we might see disruptions to operations, we might see disruptions to port my close
down because of cyclones. So people will be closely watching this in the first quarter, and you usually has an impact in the first quarter, but because there is an anticipation, so the market should be already managed without any significant weather issues happened in the first quarter.
So in twenty twenty three, China had mandated some steel production curbs and as we enter the air ahead, should those persist in some form? What are really the dynamics, how is this going to impact steel production?
Well, Chinese steel production curbs in twenty twenty three has been less restricted if we compare that to what happened, for example, in twenty twenty one, but it is still impactful and this could remain a wild card, especially for the second half of twenty twenty four, and the China State Console in the December of twenty twenty three has reiterated that any new increase in the still making capacity is prohibited in an action plan for continuous air improvement quality.
That said environment to controls on steel manufacturers could make a return in twenty twenty four, and these curves have proven in the past to be pretty powerful market movers for Chinese steel prices as well as global ingwork prices.
Now, given that we're kind of doing a whistle slop tour of many of the industrial metals in the things to watch section today, let's talk a little bit about copper, which we know is really important for electric vehicle batteries, we know it's important for renal energy equipment. And then grids. Oh, grids, what an important theme, expanding grid connectivity for all the new infrastructure. So this metal is important for us. What do you think is going to happen with it in the year ahead.
Yeah, I'm really glad that you mentioned grids because the bulk of energy transition de mond for copper will be coming from power grid expansions, which is to connect newly built renewable power generation plants. And we do forecasts and this will need five point eight million tons of refined copper in twenty twenty four, and that is eight percent
higher on the year. Overall copper de month globally is projected to increase slightly into twenty twenty four, and that's driven by increase in what you mentioned, including ev adoption and clean power installations. However, there is going to be some stagnation in the traditional sectors.
So with more than half of the largest copper refineries in the world in China, essentially, are we seeing the same output constraints on copper as we are for steel or do we expect copper output in China to continue to grow.
In twenty twenty three. The monthly refined copper output in China has reached an outcome high in November twenty twenty three, and that's at one point four million tons, and this is obtract to climb even further as more smelting capacities are still being added. This massive capacit expansion is making China more dependent on the important copper ore, which rows nine percent in twenty twenty three from the previous year and set a new record of twenty seven point five
million tons. And the shortage of MIND copper could restrict global refined copper output, but additional MIND supply is also underway in twenty twenty four.
And how about in the rest of the world. So are we looking at any shortages on the copper ore that's required to make copper that's useful for the grids?
Yeah? For mine copper. Actually, we have observed an increasing challenge for building new MIND projects, and that's due to delays in receiving mining permits coming from protests from local communities and poorer economics of mining copper due to declining or great and we have already seen in twenty twenty three. For example, in Panama, the government has shut down a giant copper mind owning to countrywide anti mining protests, and
we will. In Peru, which is the second largest copper miner globally, the mining investments declined nineteen percent in the first half of twenty twenty three compared to the previous year, and that is due to political uncertainty.
So we've been through deal, We've been through copper. Now let's go to aluminium or aluminium, depending upon where in the world you are. How is the market positioned for aluminium supply in twenty twenty four.
Global primary aluminum outputs likely exceeded seventy million tons in twenty twenty three and will climb to reach about seventy two million tons in twenty twenty four. And China's upput sets monthly records in twenty twenty three, but there is supplies sailing sets at forty five million tons, and we do expect China to heat that sailing in the coming years. However, if you look elsewhere, European smelters are not expected to resume operations at a major scale because of the following
regional manufacturing de month. So overall, aluminum markets expected to move into a small surplus between twenty thirty three to twenty twenty five despite this curtailment in European production.
So you're talking about the production end of things, but let's actually go a little bit into detail and demand. What actually drives demand for aluminum and where is it used the most in the transition?
Yeah, if you're talking about energy transitions a month for aluminum, we do see that the solar sector is becoming a key driver of the month, which requires about fourteen tons per megabot of new capacity on average, and the twenty twenty three estimates for global solar isolation in fact exeed that pro benef estimates, and we do expect this to grow another twenty four percent in twenty ninety four.
So high interest rates and inflation, the double eyes were things that came up as important themes across most of the sectors that we cover last year. So thinking about interest rates, How do you think this is going to have an impact on producers in these industrial metal sectors in the airhead.
Yeah, I think inflationary pressures in twenty twenty three has really give industrial metals producers some difficulty in twenty twenty three, and we do see that, for example, China's average steel product margins nearly have from the previous average in twenty twenty two, and at the same time, for aluminum smelters in China they also seeing their profit margins narrowed in twenty twenty three as the selling prices of the product dropped faster than the costs, and one reason is the
distress real istics sector in China hampered the month for both still and aluminum. But at the same time there is elevated oilwoard and coking prices which limited any cost relief for the producers. And in twenty twenty four, we do expect policy measures to boost infrastructure spending and help
rescue property market to gradually improve conditions for producers. But outside of China, as gas and electricity prices stabilized in Europe in twenty twenty three, energy intensive metal industries including steel making and aluminum smelting found some relief in this cost. However, production costs climbed again in the second half of twenty twenty three due to higher input material prices that include
i or and stew scrap in particular. So we do expect these pressures to continue, ring fluctuations in exchange rates, in freight rates as well as world material input costs. So at the same time, calls associated with carbon emissions in metals producing processes will also see increasingly reflected, especially in Asia produced calculations. For example, China is looking to include steal aluminium in a des carbon market and we do expect to come true in the coming years.
Okay, so lastly, let's finish on prices, and I would say that your team, you guys went out on the skinny branch, and you guys decided to give proper price forecasts for next year. So of course, telling the future it's impossible to do, and there's a number of factors that could come any which way changing things, including the weather. But let's go through the three industrial metals. So we just discussed, and let's hear what their price forecasts are. Starting with say iron.
Of course, ironor price forecast is pointing to declining trends in twenty twenty four as the money is unlikely going to sustain due to weakness, especially in China's recovery and the medium price forecast in twenty twenty four. A clarification here is that the forecast is not just from beneath ourselves.
We do composit and look at others forecasts and the medium price forecast where ironore in twenty twenty four is one hundred and ten dollars per metric time and moving to other metals for copper has a later valley in twenty twenty three, and we do expect those momentum to be carried over into twenty twenty four and studied de month outlook is the main driver for the price growth in forecast in twenty twenty four, which is expect to reach eight thousand and six hundred dollars per ton for
the medium price forecast, and forum aluminum pricess is set to grow as well with production curbs and supply disruptions from delayed for the exerting upwar pressure on the market and the twenty twenty four median press forecast is two and three hundred and fifty dollars per ton.
So behind those numbers and you went through this, but just to quickly summarize, iron ore declining, copper staying high at the start of the year, and aluminum potentially growing.
So great summary.
All different, all different for each of the three, So it'll be an interesting year to watch industrial metals. Yushen, thank you so much for coming and doing this kind of quick bonus episode and walking through the various things we're thinking about in the year ahead.
Thank you for having me.
Switched On is produced by cam Gray with production assistance from Kamala Shelling and Lushi Karunaorete. Bloomberg ne EF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment a vice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANIAF should not be considered as information sufficient upon which to base an
investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed