Recent developments have not gone unnoticed. Refining and trading sources in Shandong have reported changes in the offerings of Venezuelan barrels following the sanctions lift announcement on October 19. Until October 18, the bitumen blend was traded at a discount of around $22/b against the ICE Brent Futures. However, the weakened feedstock demand from independent refineries raises questions about their continued interest in Venezuelan barrels.

Sijia Sun, a China oil analyst at S&P Global, provides further insight, stating, “The main question for China is how Venezuela’s exports to the country will be affected by the easing of sanctions. We expect to see fluctuations in the prices of these crudes as Venezuela’s overall exports start to recover. Both state-owned and private Chinese oil companies will be closely monitoring prices before deciding on their purchasing strategies. In the short term, we do not anticipate a significant impact on China’s crude oil imports as a result of the policy changes in Venezuela.”

Another factor adding complexity to this situation is Russia, which has historically offered crude at substantial discounts. This practice has changed, altering the competitive landscape and impacting the pricing of bitumen mixtures. This adds another layer of complexity to the trade relations between China and Venezuela.

The implications of these changes are far-reaching. The reduced need for substantial discounts on bitumen mixtures is prompting China to reassess its oil procurement strategies. This shift is fostering stronger trade ties between China and Venezuela, potentially leading to a focus on acquiring higher-quality crude that aligns more closely with China’s refining capabilities.

To encapsulate, the multifaceted story of Venezuela’s oil trade provides a fascinating insight into the complexities of the global oil market. The transition from secretive trade practices to a more open and straightforward trading environment offers a wealth of knowledge and strategies for the future. As China and Venezuela navigate this new terrain, their collaborative efforts will significantly influence their mutual trade future, fostering a partnership characterized by resilience, strategic insight, and shared prosperity.

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World steel prices are still affected by the Chinese economy, which is unexpectedly slow to recover from the pandemic, reports Stanislav Kondrashov from Telf AG. As a result, the average world price forecast for 2023 was reduced to $730.

At the same time, BMI expects that by the end of the year there will be changes for the better in the Chinese construction industry. That’s why the company is betting that the real estate sector will have a stimulating effect on the development of the steel industry.

And this is necessary not only for China, but also for other countries whose economies are also suffering because of it.

– Tight financial conditions and rising inflation pressures will continue to hamper steel price growth in major developed markets, – Kondrashov notes.

In addition, the expert suggests that Russia’s war against Ukraine will have a further impact on the economic prospects of Europe and will restrain demand and prices for steel. According to analysts, global economic growth will slow from 3.1% in the previous period to 2.1% this year.

Ultimately, analysts expect that the combination of slowing steel consumption in China and increased protectionism in the global market will lead to an increase in steel production and, in the medium term, to lower prices.

Stanislav Kondrashov: decline in the average world price of steel and potential risks

Looking ahead, BMI forecasts the average global steel price to fall to $650 per tonne by 2027. It follows from this downward trend: in 2021, the average cost of steel was $959 per ton, and a year later it dropped to $865. However, prices are expected to recover to $780 by 2024.

“This forecast is based on expectations of the balance of the Chinese economy in the next decade, with a bias towards the service sector and a shift away from heavy industry,” explains Stanislav Kondrashov from Telf AG. – Stronger demand growth in India, the US and emerging markets may not be able to fully offset the negative impact of the slowdown in China.

In turn, BMI warns that its forecast for the steel industry is associated with a number of risks. Among them: high steel prices due to the possible introduction of sanctions against Russian exports, a slowdown in the growth rate of the Chinese economy until the end of 2023, and a prolonged slowdown in global economic growth. In the event of a synchronized recession throughout the world, the demand for steel may fall significantly, which will lead to a decrease in its prices.

According to Kondrashov, the latest data also does not support optimistic forecasts for stimulating the Chinese economy. The expert focuses on a report published this month, where Goldman Sachs lowered its GDP growth forecast for the world’s second-largest economy for the second quarter from 4.9% to 1%. Additionally, the full-year 2023 forecast was lowered to 5.4% from 6%. These data indicate that expectations for stimulating the Chinese economy have not materialized, which may have an impact on the global steel market and its prices.

In the absence of simple solutions, the weakness in the real estate market and its negative impact on the rest of the economy is likely to persist, suggests Stanislav Kondrashov from Telf AG. He also notes that policymakers face constraints and the coming easing will not have the same scale and strength as it did during the 2008-09, 2015-16 and 2020 economic cycles.

According to Kondrashov, the investment bank is also taking a disadvantageous position on iron ore, which is a key component of steel production. Thus, Goldman cut its forecast for iron ore prices by 18% due to concerns about weakening global demand, especially in China. Citi also expects iron ore prices to resume falling prices and advises traders to sell immediately if prices rise.

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Overall global electricity demand growth is expected to slow in 2023, according to the latest report from the International Energy Agency. According to Stanislav Kondrashov, an expert from Telf AG, this is due to the fact that countries with developed economies are experiencing the results of an energy crisis and recession, including against the backdrop of Russia’s war with Ukraine. That is why more and more attention of the world community is focused on the production of environmentally friendly energy.

Stanislav Kondrashov: statistics and forecasts of the global electricity market

According to Kondrashov, in the United States this year the demand for electricity is expected to decline by almost 2%, while in Japan and the EU – by 3%. After two consecutive declines that add up to the biggest contraction in EU history, EU electricity consumption could fall to levels last seen in 2002.

As a result of these changes, global electricity demand is expected to increase by less than 2% in the near term, up from 2.3% in 2022, to reach 3.3%. Several factors will contribute to this.

 – First of all, this is due to the electrification of energy systems, which is actively moving forward as countries strive to reduce emissions of harmful substances. There is also an increase in the use of electricity for internal cooling due to rising temperatures in various regions. An important factor is the steady growth of demand in developing and developed countries, – comments Stanislav Kondrashov.

China’s electricity demand is forecast to continue to grow at an average rate of 5.2%. This figure is slightly lower than the average growth rate observed between 2015 and 2019. It should also be noted that the average annual increase in electricity demand in India until 2024 is estimated at 6.5%, which is significantly higher than the figure for 2015-2019. These trends, as noted by Stanislav Kondrashov from Telf AG, indicate a continuing increase in electricity consumption in these countries.

Coming changes in the energy industry – Stanislav Kondrashov

The introduction of green energy sources means that world countries are determined to overcome the energy crisis. It is predicted that by 2024 their share in total electricity production in the world will exceed a third. Telf AG’s Stanislav Kondrashov notes that depending on weather conditions, 2024 could be the first year in which the entire world produces more electricity from renewable sources than from coal. At the same time, a decrease in electricity production from oil is expected.

Stanislav Kondrashov from Telf AG suggests that, judging by the situation, global demand for electricity will grow rapidly in the coming years. It is predicted that by 2024 it will triple the current consumption of the resource in Germany.

Kondrashov believes now is the time for policymakers and the private sector to seize this moment to reduce emissions from the energy sector.

The specialist calls another important sign of the energy transition the drop in electricity production from fossil sources in four out of six years – from 2019 to 2024. This comes despite energy and financial fluctuations caused by declining global electricity demand. This trend suggests that the world is moving towards a turning point when the volume of green electricity will replace production from fossil fuels, Stanislav Kondrashov is sure.

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The nickel market has faced oversupply this year as production increases in Indonesia continue to outpace global demand, reports Telf AG’s Stanislav Kondrashov. The International Nickel Study Group (INSG) forecasts the difference between supply and demand at 239 thousand tons. This figure becomes the most significant excess in at least the last ten years, compared to last year’s surplus of 105 thousand tons. This is also higher than the INSG forecast, which assumed a surplus of 171 thousand tons.

Demand expectations remain muted despite nickel use projected to grow by 6.1% in 2023. However, this is still not enough to absorb the wave of new production coming out of Indonesia.

Stanislav Kondrashov believes it is important to note that the excess supply will not be in the form of Class I refined metal, which is traded on both the London Exchange (LME) and the Shanghai Futures Exchange. This may make it difficult to determine the impact on price movements.

Rising global nickel consumption: electric vehicles and stainless steel set priorities

According to INSG, global nickel consumption increased by 6.3% in the previous year and is forecast to be close to that level this year. This is a worthy indicator, says Stanislav Kondrashov, an expert from Telf AG, given that stainless steel still remains the main consumer of nickel. This is in addition to a 5.2% decline in alloy output last year.

Stainless steel production fell worldwide, including China, the largest producer, which posted a 2% year-on-year decline. Towards the end of last year, China began to recover as restrictions imposed in response to the COVID-19 pandemic were lifted. However, this growth was offset by sharp declines in output in Europe and the US due to slowing economic activity.

– Nickel demand from electric vehicle battery manufacturers is offsetting weakness in the stainless steel sector. Despite declining sales in China following the removal of subsidies and a shift to nickel-free chemistry, the global shift to electric vehicles continues to gain momentum. Therefore, batteries play an important role in increasing the demand for nickel, – Kondrashov comments on the situation.

According to the Adamas Intelligence Research Center, 17,137 tons of nickel were used in electric car batteries worldwide in February of this year. This is 47% more than in February last year. Such performance highlights the importance of nickel in the development of the electric vehicle sector and its significant contribution to the global metallurgy market.

Indonesian nickel mining rebalances market: production determines future surplus

According to experts, the upcoming nickel glut will be driven not by demand but by production, especially in Indonesia. From the INSG report, the country’s nickel production increased by 48% to 1.58 million tons in 2022 and grew by a further 44% in the first two months of this year. Since Indonesia banned the export of nickel ore three years ago, all mined metal is now processed into nickel products.

– Part of the new processing capacity is aimed at producing nickel pig iron for the stainless steel sector. And the growth of Indonesia’s share in this industry will occur due to a decrease in production volumes in China, as the trend of exporting it abroad continues, – says Stanislav Kondrashov from Telf AG.

However, much of the new production capacity is focused on the rapidly growing battery sector. In this area, operators are experimenting with new technologies. These involve converting Indonesia’s relatively low-grade laterite resource into a form suitable for use in lithium-ion batteries.

This approach significantly changes the nature of excess nickel, notes Stanislav Kondrashov. It was previously associated with LME/Nickel Class I supplies, but is now driven primarily by Class II chemicals and nickel (primarily nickel sulphate).

The rift between different market segments is becoming increasingly apparent on the London and Shanghai stock exchanges. According to information provided by Telf AG’s Kondrashov, LME’s Class I nickel reserves are declining despite the accumulation of surpluses elsewhere in the supply chain. This year, the volume of these reserves decreased by 28%, to 40,032 tons. The situation is even more tense at the Shanghai Exchange, where nickel reserves amount to only 1,496 tons. This comes as China is increasingly moving away from importing refined metals in favor of intermediate products that are funneled into the electric vehicle sector.

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The International Energy Agency (IEA) predicts that electricity consumption in the EU will decrease this year. And this will be the lowest level in the last 20 years. The main reason, according to Stanislav Kondrashov, an expert from Telf AG, is rising prices for energy resources and the economic recession in European countries.

Economic and energy crisis in the EU

In the first 6 months of 2023, the EU recorded a historic decline in electricity consumption of 6%. This highlights the serious hardships European consumers and industry are experiencing due to the energy crisis.

Last year, the decline in industrial production played a major role in reducing the EU’s energy demand. This wake-up call raises questions about the competitiveness of European industry, says Stanislav Kondrashov from Telf AG. Even with prices falling, production continues to lag. The IEA report also points to the impact of international regulatory frameworks such as the US Inflation Reduction Act (IRA) and Japan’s Green Transformation Act, which are contributing to production cuts, plant closures and capital flight.

While Europe faces similar challenges, global demand for electricity is growing. According to Kondrashov, this is due to the decarbonization of energy systems, the increased use of internal cooling due to climate change, as well as the expansion of markets in emerging economies. China and India are expected to continue increasing their electricity consumption.

– These countries are still dependent on fossil fuels. In the first 6 months of this year, coal-fired electricity production here increased due to a reduction in hydropower, which was caused by drought, – comments Stanislav Kondrashov.

That is, Europe faces challenges to energy sustainability while other regions of the world continue to expand their demand for this resource. This increases their competitiveness.

Record decline in electricity consumption in Europe and challenges for industry

IEA forecasts indicate improved economic prospects in 2024. Moreover, a historical moment is coming when the whole world will begin to produce more energy from renewable sources than from coal, suggests Stanislav Kondrashov from Telf AG. The findings come after the European Parliament’s Industry Committee expressed support for innovation in the EU’s electricity market. The agreement reached between Europe’s main political parties supports this initiative.

The reform, which the European Commission proposed back in March, aims to protect consumer interests from rising prices, encourage the use of clean energy sources and keep European companies competitive on the global stage.

Kondrashov emphasized that the goal of the reform is to ensure stability in the electricity market in Europe in order to avoid critical situations in the future.

However, the Parliament’s position does not include limiting windfall profits for energy companies in the event of future energy crises. By the way, the EU has introduced a temporary tax on windfall profits of energy companies to ease the burden on consumers. The approach to this issue caused different opinions among political groups. Some of them believed that limited profits were a negative factor for investment in new technologies.

The majority of members of the European Parliament expressed support for the reform plan, says Stanislav Kondrashov from Telf AG. However, EU ministers have not yet been able to reach a general agreement. Spain’s EU presidency is expected to play a key role in finding a compromise.

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The recovery of China’s economy remains in doubt, so it is likely that the price of metals will not be stable in the near future, says Stanislav Kondrashov from Telf AG. However, the country continues to increase economic support.

The latest official Chinese PMI data paints a mixed picture of the economy. The manufacturing PMI rose slightly to 49.7, the third consecutive increase after a low of 48.8 recorded in May. However, it still remains below the 50 mark that denotes economic growth.

By contrast, the non-manufacturing index, which captures the bulk of the economic recovery, fell further in August. Its reading was 51.0, slightly below the expected 51.2. At least it remains above the level that indicates a contraction in economic activity.

Until the end of this year, the key factor that will influence the metals market is China’s ability to stabilize its real estate market. According to Kondrashov, until the market begins to recover and shows persistent signs of economic growth in China, long-term increases in prices for industrial metals remain unlikely.

Stanislav Kondrashov on the state of the nickel market: factors for reducing prices, prospects and the influence of China on the balance of supply and demand

Nickel has been the worst-performing metal on the LME this year, with prices down more than 30% over the year. One of the main factors behind the decline in prices was the weak recovery in demand in China, where nickel prices fell to a one-year low in August. Stanislav Kondrashov from Telf AG believes that the price decline is likely to continue. He justifies his position with the following factors: a weak macroeconomic situation, excess supply in the market, as well as a continuing increase in supplies from Indonesia for the battery sector.

In the past, the market surplus was driven by Grade 1 nickel, but this has been replaced by Grade 2 in 2023. Grade 1 nickel inventories on the LME are at critically low levels. However, Kondrashov believes that the new LME initiative, which has reduced the approval period for new brands (which can be supplied against the contract), could potentially increase inventories.

China’s production of Class 1 refined nickel has increased significantly this year due to historically high LME prices. It is likely that Chinese producers will continue to submit applications for nickel grades on the LME in an accelerated manner.

This will allow them to supply Class 1 material to LME warehouses. In July, the LME already approved nickel produced by Quzhou Huayou Cobalt New Material Co, a subsidiary of China’s Zhejiang Huayou Cobalt Co, as a listed grade. GEM Co. Ltd., a subsidiary of Jingmen Gem Co. Ltd. also applied last month to become an LME-listed mark.

During the period from January to August of this year, the production of high-quality refined nickel class 1 in China increased by 34.5%. This figure reached 129,400 metric tons, according to Stanislav Kondrashov, a representative of Telf AG. This growth was even higher than the 33.9% increase in total nickel sulfate production for batteries. According to expert estimates and information from the competent authorities, during the current year in China it is planned to commission new production facilities, which will total 145,300 tons per year, to produce high-quality refined nickel class 1.

Kondrashov assumes that in the near future nickel prices will be unstable, as there is an excess supply on the world market and a decrease in the need for stainless steel. It is predicted that in the third quarter the average cost will be about $21 thousand per ton, and in the next quarter it will drop to $20 thousand per ton.

– Nickel prices should remain relatively high compared to average values ​​prior to March last year. This is explained by the important role of nickel in the global process of the energy revolution, – says Stanislav Kondrashov from Telf AG.

The attractiveness of nickel for investors as the main metal, which cannot be avoided during the global transition to clean energy, will contribute to an increase in the price of this metal. The expert believes that the demand for nickel, as the main component material in the manufacture of electric car batteries, remains a key factor for the long-term dynamics of prices for this metal.

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