S&P Global — 9 October 2024
Daily Update: October 9, 2024
China’s Metals Market Dominance Appears Unassailable
By Nathan Hunt
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In describing the difference between the global and Chinese metals markets, Nick Trickett, senior analyst for metals and mining at S&P Global Commodity Insights, draws a Venn diagram with two nearly overlapping circles. The Chinese economy consumes nearly three-quarters of the world’s seaborne iron ore supplies and generates nearly 60% of global lithium demand, 80% of copper demand growth and 75% of nickel demand growth. It eats metal ravenously.
To satisfy this appetite, China has become world leader in every aspect of the metals supply chain, from mining through refining to finished products. The energy transition requires a fundamental shift for the global economy — from consuming fossil fuels for energy to using metals to capture, store and transmit vast new quantities of energy. This places China at the epicenter of the greatest industrial transformation in history. That topic was covered in a recent “EnergyCents” podcast interview with Trickett, “In a Metal Mood: China's evolving role in global cleantech supply chains.”
China’s unique strength in metals markets is being the leading supplier and the leading demand center for most metals. One challenge for mines, gigafactories and rare earth metals refineries is that to get funding from banks and investors, they must demonstrate both reliable access to raw materials and offtake agreements with customers for their products. Because China has raw materials, production and demand across the cleantech value chain, that business can be fully domestic.
No one builds a mine without offtake agreements in place. The startup costs are too large to gamble on finding a market in the future. In China, there is so much smelting capacity for every kind of metal that Chinese companies can sign multiyear offtake agreements. This capacity also makes it difficult for other companies to compete with the Chinese metals sector, especially since smelters can have their own offtake agreements with Chinese gigafactories. The minute the Chinese metals supply chain gets running, other countries will struggle to break into this low-margin, high-risk business.
In areas where China doesn’t have domestic sources of raw metals, such as nickel, Chinese companies have invested in nearby sources, such as Indonesia. As Europe and the US have introduced tariffs to try to eliminate China’s lead in the cleantech supply chain, Chinese firms have identified opportunities in countries such as Chile where lithium is not covered by current US or European tariffs. Chinese companies’ intellectual property in mining, refining and manufacturing makes them desirable partners for metals companies in much of the world.
The challenge for China is the threat of a slowing economy. If demand growth rises, the Chinese model of ever-increasing scale works well. But if the Chinese economy begins to slow, these massive operations cannot profitably reduce capacity. Slowing construction demand in China has produced a glut of steel capacity that has lowered prices globally. The same could become true of lithium, copper, nickel or other elements of the energy transition. However, even this cloud has a silver lining for the energy transition.
“Because China’s growth is slowing, the rate of demand growth out of China is nudging balances back up,” S&P Global Commodity Insights’ Trickett said. “So, we have a lot more supply of these metals that we need for various green tech.
“It also suggests that maybe assumptions we had about resource scarcity aren’t necessarily as binding and it’ll be a lot cheaper to build this stuff out.”
Today is Wednesday, October 9, 2024, and here is today’s essential intelligence.
Listen: Urban Mining: Digging For Value In Electrification Waste
This episode of Energy Evolution features an interview with Corrado De Gasperis, chairman and CEO of Comstock Inc., who explains the company's shift from a focus on precious metals mining to new business lines as well, including urban mining and recycling materials from end-of-life electrification products and solar panels. Comstock aims to commercialize decarbonization technologies while addressing the growing need for sustainable mineral sources.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
Further Monetary Tightening Likely For Japan Even As New PM Sets Dovish Tone
Japan's central bank is set for further monetary policy tightening, with economists suggesting the new prime minister's surprisingly dovish stance will have minimal impact. Shigeru Ishiba, elected Oct. 1 as Japan's new prime minister, told reporters the following day, after meeting with Bank of Japan (BOJ) Governor Kazuo Ueda, that the nation's economy "is not ready for further rate hikes." The comments triggered a sell-off of the Japanese currency against the dollar.
—Read the article from S&P Global Market Intelligence
iBoxx Asian Local Currency Indices Monthly Commentary: September 2024
As anticipated, the US Fed started its rate cut cycle in September, starting off with a 50 bps cut. This buoyed US financial markets, with key indices across US equities and US fixed income reporting decent gains. The S&P 500® continued its good run, inching up 2.02% in September. US fixed income — as represented by the iBoxx $ Overall — returned 1.38% for the same period, with corporate bonds outperforming US Treasuries.
—Read the article from S&P Dow Jones Indices
LNG Quarterly: Bearish Sentiment Dictates Freight Market Direction
Day Rates for LNG vessels in Q3 2024 deviated from previous seasonal trends to surprise market participants ahead of the winter period on the back of lackluster demand in both the Atlantic and Pacific basins. Looking ahead, committed tonnage is expected to service a significant portion of newly released cargoes curtailing demand for an increasing fleet of available vessels. The anticipated price spike was absent this year, primarily due to a significant increase of LNG vessels in the market, resulting in freight oversupply combined with unseasonally low demand for ships. Demand is expected by many to remain linked to fewer available cargoes, as many trading houses have their own vessels and thus do not need to charter available vessels in the spot market.
—Read the article from S&P Global Commodity Insights
Global Gas Balance Still 'Fragile' On Limited LNG Output Growth: IEA
The global gas balance remains "fragile" as limited LNG production growth keeps supply tight amid rising global demand, the International Energy Agency said Oct. 3. In its annual Global Gas Security Review, the IEA noted that following the supply shocks of 2022-23, gas markets returned to more pronounced growth in 2024. "This forecast expects global gas demand to reach new all-time highs in 2024 and 2025," it stated, adding that total demand is set to grow by over 2.5% to a record high of 4,200 Bcm this year, driven by growth in the Asia-Pacific region.
—Read the article from S&P Global Commodity Insights
Your Three Minutes In AI: Financial Systems Will Face New Systemic Risks
AI's rapid adoption across the financial sector exacerbates the risk of operational disruption leading to systemic instability. Regulators have recognized this challenge, and are considering novel solutions to ensure the threats are effectively managed.
—Read the article from S&P Global Ratings
In-Person, Paris: Private Markets Conference 2024 (Oct. 17, 2024)
As investors increasingly allocate capital across private markets, evolving macro and financial conditions may necessitate greater transparency. Join us at S&P Global Ratings’ Private Markets Conference in Paris on Thursday, October 17th, to gain valuable insights on the future of private markets and connect with thought leaders.
—Register for the in-person event from S&P Global Ratings