Rystad Energy: OCTG Prices on the Rise; Lithium Maintains its Recent Upward Momentum
A rich combination of strong demand and supply tightness in the US OCTG market is driving prices upwards this week.
Seamless casing from US mills has experienced around a $70/NT month-on-month increase.
Drilling activity continues to increase, triggered by higher oil and gas prices, and further growth is likely in the short-term, while US OCTG mills are working on their capacity limits.
Over this trend, any constraint on the supply side will likely cause price spikes.
At the beginning of 2021, high levels of inventories hampered the increase in the price, but the US market absorbed excess OCTG inventories, and now the level of inventory is extremely low, another bullish factor on prices.
The trade case on OCTG imports may also justify some additional price surges.
It looks like increasing prices in the OCTG market may drive a startup of new facilities in the US market.
Considering rising OCTG prices and the current downward trend in the HRC segment, some additional capacity of ERW OCTG may come to the market.
European API plate prices stay high and are currently at around EUR 1,050-1,100/tonne for X65 non-sour grade across Europe following tight material availability and high production costs.
The prices for sour grade API plates may go $100-150/tonne higher depending on projects and capacity availability.
Robust demand is bringing the plate mills globally to their capacity limits.
Especially for sour-grade API plates, EU mills are fully booked for three quarters ahead of 2022, refusing new inquiries from customers.
Japanese and Korean API plate suppliers would rather focus on supplying material for the shipbuilding industry.
API plate prices are expected to stay strong in the first half of 2022, supported by firm demand from non-API consuming industries, supply shortage and high production costs, aggravating by surging gas and electricity prices and CO2 emission costs.
Marina Bozkurt, Senior Analyst
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Post-holiday restocking appetites and concerns over supply shortage continued to send stronger-than-expected support to the lithium complex.
At the same time, other battery cathode raw materials mostly managed to make moderate gains over the past month amid steady demand.
Spot lithium carbonate price in domestic China hit CNY 380,000 ($59,774) per tonne in early February, up by 26.67% from CNY 300,000 per tonne in early January.
Faced with persistent supply constraints of lithium carbonate, the cathode producers in the country have kept topping up units in addition to what they regularly require for operations each month, fearing further spot shortage and price hikes.
Battery manufacturers are experiencing the same concerns and are taking the same stance.
As such, additional procurement from downstream participants at every link of the battery supply chain is piling up, resulting in a significant spot deficit.
Estimates suggest such weak supply in the spot market in China will persist until the late second quarter of the year before brine operations in the country largely resume.
Lithium carbonate and lithium hydroxide prices in domestic Chinese will move up by 11% in the coming month or so.
Moving into the second half of the year, Rystad estimates the momentum for lithium will be moderated in light of restarted mining projects and ramp-up among lithium processors.
The cobalt price at in-whs Rotterdam basis made slight gains over January to $34.60 per pound.
Spot buying slowed in January, with consumers comfortable with supplies within long-term contracts.
In the second half of the first quarter, weak consumption and traders’ profit-taking will pressure the blue metal price.
That said, any notable correction in the short term is unlikely in light of tighter-to-balanced supply dynamics.
The deliveries of cobalt hydroxide in China are estimated to drop in January and February, impacted by the slow efficiency of logistics and customs clearance during the holiday season, which in return will impact the operations of cobalt refiners in the country to various extents in the near term.
The supply of nickel in battery application is also estimated to be tighter-to-balanced in the first half of the year, which in theory will underpin the price of nickel sulfate.
However, the market will also need to check whether the recent volatility of nickel futures prices on the London Metal Exchange (LME) will persist, especially when a potential interest rate hike in the United States materializes in March.
For the long term, the consensus in the market is that nickel price on the LME will stay firm above $20,000 per tonne in 2022 in light of strong stainless steel performance globally.
In addition, the demand for NCM batteries will grow by 40% or so in 2022 compared to 2021.
But nickel sulfate producers might take a breath from last year’s feedstock tightness in light of the increased supply of mixed hydroxide precipitate from Indonesia.
Natural graphite mining and processing in northern China (the main capacity center) was suspended in January due to the New Year holidays.
Consumers were enquiring around the market to secure supply for the whole year of 2022 or, even further, raising spot prices.
Rystad Energy’s monthly price index suggests that graphite flake prices in China stand at $760 per tonne in early February, up by 11.8% from January and up by 38.2% from a year ago.
China’s natural graphite output is expected to be stable in the long run, while natural graphite supply outside of China is expected to increase, which will weigh on the spot prices.
China has been a net exporter of graphite flake in the past years and holds around 80% of the global graphite market, while European, and US battery market participants are resourcing for graphite outside of China to reduce their reliance and build a closer feedstock supply chain.
Anode market participants will watch the processing side, instead of mining, especially in the synthetic graphite sector.
China’s graphitization capacity, which is the most critical process step in synthetic graphite production, is still expected to be tight this year as the utility price, which counts for more than 50% of the processing fee, is estimated to go higher.
Echo Ma, Analyst
