[Crash in Raw Material Prices] Supercycle Broken... "Economic Slowdown Hits Export Companies Hard" (Comprehensive)

Iron ore falls below $100 per ton for the first time in 7 months
International oil prices continue to decline, hitting yearly lows
Non-ferrous metals, grain-related stocks, and ETFs plunge from high levels

[Asia Economy Reporters Oh Hyung-gil, Jung Dong-hoon, Lee Min-ji] International commodity prices, which had been breaking ceilings day after day, are plummeting. This is due to the demand slowdown caused by the resurgence of COVID-19 and lockdowns in China, the world's largest commodity consumer, as well as growing concerns about economic recession amid rapid inflation and monetary tightening policies by major countries.

Steel and oil refining companies, which benefited from the surge in raw material prices, have declared emergency management to find a breakthrough against production contraction and profit deterioration due to weak demand. As prolonged inflation is expected, non-ferrous metals, agricultural products, and oil-related stocks that had been soaring are also struggling.

◆ Iron ore and crude oil hit yearly lows one after another = Iron ore prices fell below $100 per ton for the first time in seven months. According to the Ministry of Trade, Industry and Energy's raw material price information on the 25th, the price of iron ore in North China (CFR) was $96.4 per ton (about 126,370 KRW) as of the 21st. Iron ore prices had already dropped to $96.6 on the 15th, falling below $100 for the first time since December last year.

During the same period last year, iron ore prices exceeded $200. This was passed on to steel product distribution prices. This is why the steel industry recorded record-breaking performance over the past year. However, after one year, the industry is now facing concerns of a 'peak-out' (decline after reaching a peak).

Chinese steel mills, which account for nearly half of global steel production, are expected to further reduce production in the second half of the year. Following the Chinese government's production restriction policy, the annual production cut target was achieved in the first half of this year as well. The world's largest mining company, Vale, also lowered its iron ore production forecast for this year from 320-335 million tons to 310-320 million tons this month.

A sense of crisis is spreading in the domestic steel industry as well. On the 21st, POSCO Group held a group management meeting chaired by Chairman Choi Jeong-woo, attended by presidents and all executives within the group, and entered an emergency management system. Chairman Choi ordered the establishment of urgent crisis response measures across the company, emphasizing, "Management teams of each group company must further strengthen cash-centered management to ensure that cash flow and funding situations do not become problematic."

International oil prices are also showing a downward stabilization trend, and the poor performance of oil refining companies, which recorded record-breaking results in the first half of the year, is anticipated. International oil prices have fallen below $100 per barrel this month. West Texas Intermediate (WTI) was $94.7 as of the 22nd, marking the lowest since the Russia-Ukraine war began. This is a 23% drop compared to the $123.7 recorded on March 8, the year's highest.

The driving force behind the decline in international oil prices is interpreted as the impact of economic slowdown. The Organization of the Petroleum Exporting Countries (OPEC) forecasted that the growth rate of oil demand next year will slow compared to this year. In its July Oil Market Report, it projected that oil demand this year will be 100.29 million barrels per day, an increase of 3.36 million barrels from last year, while next year it is expected to rise by only 2.7 million barrels to 102.99 million barrels.

In particular, concerns about poor performance of oil refiners are spreading as refining margins have sharply deteriorated. As of the 21st of this month, the Singapore complex refining margin was $2.71, marking the lowest point of the year. The breakeven point for refining margins is generally considered to be $4-5. If this situation persists, domestic oil refiners are also expected to face unavoidable production cuts.

◆ ETFs related to oil prices, non-ferrous metals, and grains also plunge = Commodity-related stocks have been falling continuously in the stock market as well.

Due to the surge in oil prices, S-Oil rose more than 40% from 85,900 KRW on January 3 this year to 121,500 KRW by last month’s 10th, but it has dropped more than 13% in the past month. During the same period, Jungang Enervis (-15%), SK Innovation (-10%), and Heungkuk Oil (-4.6%) also continued to decline. Shipbuilding stocks such as Daewoo Shipbuilding & Marine Engineering (-12%) and Korea Shipbuilding & Offshore Engineering (-9%), which expected order expansion due to rising oil prices, also fell.

Non-ferrous metal-related stocks such as copper and zinc are in the same situation. Poongsan, which produces products using copper, fell 16% since last month, and Hyundai BNG Steel, which produces stainless cold-rolled steel sheets using nickel, plunged more than 22%. LS (-18%), a copper smelting company, and Korea Zinc (-21%), a zinc smelting company, also declined.

The decline in grain and feed-related stocks is also deepening. Harim, a chicken-related stock that soared to the 4,000 KRW range in April, is currently trading at 2,900 KRW, having plunged more than 23% since last month.

In addition, Hanil Feed (-37%) and Woojin BNG (-16%) also plunged during the same period. The fortunes of Exchange-Traded Fund (ETF) investors diverged. Inverse ETFs, which bet on declines, turned their returns from negative to positive, while ETFs betting on rises reversed to declines.