Industrial materials prices continue to decline with hopes of recovery in second half of 2023: Report
3 min read 24 Jul 2023, 01:56 PM ISTAmong the sub-components, energy prices experienced the most significant decline, dropping 17%. Ferrous metals also faced a considerable 11% fall, contributing to the overall bearish trend in the industrial materials market.
PremiumNew Delhi: Prices of industrial materials have been on a decline for a while now, raising concerns for various sectors, but analysts foresee a potential rebound in the latter half of 2023, according to a report by S&P Global Market Intelligence.
The Materials Price Index (MPI) compiled by S&P Global Market Intelligence reveals a 2.8% sequential decline in industrial materials prices during June . The second quarter of 2023 recorded a staggering 32% year-over-year (YoY) slump.
Among the sub-components, energy prices experienced the most significant decline, dropping 17%. Ferrous metals also faced a considerable 11% fall, contributing to the overall bearish trend in the industrial materials market. The MPI data indicates that prices saw an increase in merely eight weeks during the first half of 2023, underscoring the challenges faced by the industry.
Crude prices have been severely impacted by robust non-OPEC+ supply growth and sluggish global demand, resulting in frequent downward revisions in forecasts. Experts predict a moderate average of $81 per barrel for Brent prices during the third and fourth quarters, as the second half of the year is expected to see a rise in prices. Notably, non-OPEC+ is projected to observe a total liquid supply growth of 2.2 million barrels per day, nearly aligning with the projected demand growth outlook of 2.3 million barrels per day.
It is pertinent to note that OPEC+ production cuts over the past year, estimated to be 2.5 million barrels per day fewer than October 2022, appear to be aimed at mitigating oversupply rather than artificially inflating prices. However, the decline of nearly $30 per barrel during this period has raised concerns within the industry.
Despite members of OPEC+ expressing reluctance towards further production cuts, mainland China’s robust oil demand growth adds another layer of complexity to the situation. Despite tepid economic performance, China’s oil demand has remained strong, pushing the global market towards a deficit in the third quarter and potentially leading to price increases. However, the forecast is not without risks, as any further economic weakness could impact oil demand growth, posing potential downside risks to the projected price increases.
In the iron ore sector, prices are expected to remain range-bound between $99 and $110 per dry metric ton unit (dmtu) on a CFR China basis during the latter half of 2023. The decline in prices observed in May, followed by a brief peak in early June, and subsequent downward movement in early July, was primarily attributed to the enforcement of sintering cuts in Tangshan, mainland China’s steel-producing hub.
Lukewarm steel demand in mainland China, resulting from inclement weather conditions and macroeconomic uncertainties, is expected to play a crucial role in keeping iron ore prices bearish. Despite efforts by mainland Chinese regulators to support the ailing property market, the potential impact on an increase in steel demand remains limited.
In the nickel market, experts anticipate a price fall over the second half of 2023 due to a surge in supply and structural changes in demand composition. The surge in nickel prices during 2021, primarily driven by the growing demand for nickel from battery electric vehicles (BEVs), has led to a shift in preferences for cheaper class II feedstock materials over class I products. This shift is reminiscent of a historical trend when class II nickel pig iron captured market share from class I nickel in the mainland Chinese stainless steel sector over a decade ago.
Presently, spot prices on the London Metal Exchange stand significantly above production costs, incentivizing supply growth. However, the growing EV battery market is increasingly opting for cheaper class II nickel intermediary products for production, slowing down overall demand growth for nickel briquettes and cathodes.
