Author Archives: Lisa Reisman

We recently received a note from a reader with questions regarding the recent Chinese remninbi currency devaluation and how sourcing professionals ought to engage with their Chinese metals suppliers. The questions included:

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  1. Should I be approaching all of my Chinese suppliers for a 3.5% price reduction?
  2. Should I expect to get it?

There are several ways to answer that question. So let’s start with the narrow answer and then expand into other aspects of China’s currency announcements.

US dollar vs. RMB

What will the devalued yuan mean for your metal buying strategy?

The Basics

First, if you pay your Chinese metal suppliers in RMB (yuan) then you ought to expect an automatic price reduction of 3.5% because the currency has depreciated. In other words, when you convert your dollars to RMB, you should see a 3.5% advantage (or whatever the newest/latest currency exchange rate is). Read more

Any outside observer (or inside observer for that matter) may struggle to keep up with the continuous stream of trade complaints filed by practically everyone involved in the global trade of grain-oriented electrical steel.

Free Sample Report: Our Monthly Metal Price Outlook

Consider the following:

  1. US producers AK Steel and Allegheny Technologies filed (and lost) a trade case against multiple producers from multiple geographies and in a stunning decision last year, the domestic producers were found not to have been “materially injured” by foreign imports of GOES produced by Japan, Germany and Poland.
  2. Back in May, European GOES producers asked the European Commission to investigate dumping by producers from several countries including: Russia, USA, Japan, Korea and the People’s Republic of China.
  3. China appears to be working on its second anti-dumping case in a year – the first against imports from the US (in which the WTO recently ruled against China) and a new case against producers in Japan, South Korea and the EU.
  4. Please note who has not filed trade cases – producers from Japan and South Korea. We will come to why in a moment.

But First: What the August 2015 GOES Price Index Did

Based on the latest M3-grade pricing, MetalMiner’s monthly GOES MMI® registered a value of 190 in August, a decrease of 3.5% from 197 in July:

GOES_Chart_August_2015_FNL_1

metaltalk signAre you new to the GOES market and trends? Listen to our recent podcast in which I give listeners a “GOES Market 101.”

Back to trade: If we go back in time, we’d see that electrical steel serves as one of the most popular metals involved in all metal trade-related cases.

If Only Free Markets Prevailed

One might think all of these trade cases actually helped producers, but we are coming to the conclusion that they are all likely an enormous waste of time and taxpayer dollars. Here in the US, GOES prices have largely traded sideways and certainly well off 2011 highs. Global transformer and power equipment producers shifted their transformer production to both Canada and Mexico in anticipation of a favorable trade ruling.

Moreover, the battle really centers on which producers can make the highest-performing grain-oriented electrical steels around a few parameters – high permeability, low core loss and low magnetostriction.

Here, the Japanese, Germans and South Koreans rule the day. For their capability in producing the higher-performing materials, they have earned handsome price increases for the second half of this year, according to TEX Reports (in the $700-$1,000/mt range).

Compare Prices With the July MMI Report

The balance of the producers taking their case to the streets in the form of dumping cases do not have suitable high-end products to fill the “growth” portion of the market and have, instead, only received “lower” prices for their efforts.

Meanwhile, New Government Policies…

The US government has upped the ante by implementing a range of regulations and rules that require these transformer and power equipment producers to adhere to new more stringent efficiency standards. The new EPA Clean Power Plan final rule will also put pressure on power producers to make pollution cuts and become more efficient – driving more demand for transformers and power equipment using higher-performing raw materials.

If I were Big River Steel, I’d be seriously looking at how to create my GOES lines to compete head-on with the Japanese producers. In fact, it makes little sense that AK Steel and Allegheny Technologies haven’t done that already. It’s clear that playing at the low- and mid-ends of the markets yields poor price realization.

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The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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Earlier this week the London Metal Exchange announced that its clearinghouse would now accept offshore Chinese renminbi as collateral, effective immediately. MetalMiner Editors and Co-Founders Lisa Reisman and Stuart Burns discuss the significance of this announcement but more important, its potential impact on industrial buying organizations.

US dollar vs. RMB

For the first time, the LME will accept renminbi as collateral.

Lisa: Do you think this could mean that eventually metals are offered in a currency other than US dollars?

Stuart: I think that is still some way off for the main London market but the HKEx has run RMB-priced Asian mini metals markets for aluminum, zinc and copper since late last year in Hong Kong. This announcement by the LME now is about collateral placed by market participants for open positions. They are not suggesting London contracts will be priced in RMB.

Three Best Practices for Buying Commodities

 Lisa: Why do you think the LME made this move?

Stuart: On one level there is the recognition of the RMB’s growing importance as an international (although we’d like to point out, not freely traded) currency and of China (and Chinese companies) importance as a major player in the global metals markets. On another level, it could also be seen as a political move. The LME is owned by the Hong Kong Exchanges and Clearing Group (HKEx) and the key to unlocking fair value in their purchase of the LME was always their ability to open up China as a market for the LME’s services. Anything they can do to make the LME more accessible and more acceptable as a trading platform for Chinese companies is a beneficial step in that direction. Read more

Steel Drivers

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for steel? Check out our complimentary July Metal Buying Outlook!

1. MOH service center inventory

2. US import levels (volume trends)

3. Total China steel exports

4. Raw material input cost trends

5. Quoted lead times

Market Commentary (HRC)

Without a doubt the historical passage of several trade measures in the US has the potential to change the steel products landscape in the coming years. After all, US HRC steel prices have dropped by 25% since the start of this year. The steel industry (e.g. producers) believes this price drop has come as a result of massive imports that have begun to slow. Certainly the data supports that conclusion though other factors undoubtedly contribute to falling steel prices.

Regardless of where one stands on the import issue (either for or against) buying organizations are likely to feel the impact of the new legislation. We will discuss some of these impacts in upcoming reports.

A Fundamentals View (HRC)

Meanwhile HRC pricing has held steady from a month ago (up slightly). However, service center inventory levels (which supply some 40% of all metal to buying organizations) still suffer from too much MOH inventory. According to the latest MSCI data, steel product inventories jumped 11% in June from the same period in 2014 and perhaps more significantly, the current MOH inventory of 2.8 months of supply remains above “healthy” inventory levels.

With higher than healthy MOH inventory, service centers remain weak buyers in the market and that helps keep a lid on prices.

The Outlook (HRC)

HRC prices seem to have begun to stabilize after falling for nearly a year by closing the month of May at $464/st. We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar still holds stronger. It would appear challenging for HRC to make any bold price moves to the upside. But we may have found HRC’s floor. This will require buying organizations to be particularly mindful of any upward price movements.

Market Commentary (CRC)

CRC has fallen by some 21%+/- since the beginning of the year. The pricing dynamics for CRC are similar to HRC. Undoubtedly the impact of the trade legislation signed into law in late June will impact all steel product market segments including CRC.

Globally, European mills have filed an anti-dumping suit against cold rolled coil imports from China. India has begun collecting duties on HRC products from three countries but could add CRC tariffs as well. In short, all eyes remain on China but other countries are also contributing to the oversupply.

In the meantime, domestic steel capacity utilization rates are running at 72.5%, down 7.4% from a year ago. Generally speaking a “healthy” capacity utilization rate is up above 80%.

The Outlook (CRC)

CRC prices have crept up during the month of June closing at $590/st but failing to breach last month’s short-term resistance levels. We also still see some price weakness on the horizon and continue to remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC, it would appear challenging for CRC to make any bold price moves to the upside.

Market Commentary (HDG)

HDG continues to face price weakness, falling from $619 to $594/st, a 4% price drop. Interestingly, while steel imports have dropped during the month of May by 3.6% from April, HDG imports have continued to increase growing by nearly 17% from April to May after having jumped 20% from March to April. As with the other forms of metal, the new trade legislation will provide more enforcement “teeth” to the import process.

Six steelmakers with major US operations filed a trade complaint over HDG in June, seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan. The suit is the first salvo in the campaign this year by the beleaguered US steel industry to protect itself against a record flood of imports.

And though US auto numbers remain positive, Chinese automotive sales continue to decline placing additional price pressure on HDG prices – which have fallen some 24% since the beginning of the year.

The Outlook (HDG)

We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC and CRC, it would appear challenging for HDG to make any bold price moves to the upside. It is possible, however that we will see some price stabilization.

Market Commentary (Plate)

Steel plate prices have held nearly steady this past month despite continued weakness in the energy sector, which contributes heftily to plate demand. US imports of plate products grew 13% in May and are up 36% from the same five- month time period one year ago June – May.

The Outlook (Plate)

Plate prices held steady this past month at $574/st. And indeed last month we indicated prices may be stabilizing. However, we remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. In addition, plate suffers from an inventory overhang that will take some time to work off.

So What Should My Industrial Buying Strategy Be?

This steel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for zinc? Check out our complimentary July Metal Buying Outlook report!

Zinc Drivers

1. Dollar to Euro exchange rate

2. Global production

3. Global capacity utilization

4. Zinc refining capacity utilization rates

Market Commentary

Last month we reported the International Lead and Zinc Study Group suggested 2015 demand for refined zinc would exceed supply by 151,000 metric tons. Those numbers have turned out to be wildly wrong – in fact zinc is running a surplus to the tune of 181,000 metric tons. In addition, buying organizations will want to pay careful attention to the flow of metal into LME warehouses.

According to the most recent LME data available, zinc stocks declined in May by some 57k+
metric tons but some analysts believe that just the opposite will happen through July – more
inventory will make its way into LME warehouses than out of them. In addition, plenty of
extra inventory exists in non-LME warehouses throughout Asia and the United States.

Market sentiment toward zinc has hinged on the supply/demand equation and it has become a little less likely that any real zinc shortage will materialize.

The Outlook

Three-month zinc fell significantly in June, closing at $2,000/mt. As with lead, zinc’s rally this spring wasn’t sustainable in the face of a bearish commodity market. In the long-term we expect zinc prices to stay range-bound at best.

So What Should My Industrial Buying Strategy Be?

This zinc price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

 

Lead drivers:

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for lead? Check out our July Metal Buying Outlook report!

1. Dollar to euro exchange rate

2. Global production

3. Global capacity utilization

4. Automotive production Europea/NA/China

5. China lead prices

Market Commentary

Lead looked a little exciting in May but June has brought prices down on the back of soaring LME inventories (please note MetalMiner does not subscribe to the notion that inventory levels necessarily correlate with metal prices). However, in March a 100,000-ton surge in canceled warrants (metal to be taken out of LME warehouses) does not suggest sudden industrial demand but rather a storage arbitrage, similar to what has happened with
aluminum and to a lesser extent, zinc.

China lead prices (not SHFE but industrial trade prices) peaked in early May and have
declined ever since according to MetalMiner IndX™ data.

Last month we made mention of data that suggested a global balance between lead supply
and demand. The most recent data from the International Lead and Zinc Study Group
suggests demand is down across the board from Europe (4.2%), the US (3.9%), China (4.3%)
and Korea (9.8%). Nonetheless the market appears in somewhat of a balance. Regardless,
we don’t see lead’s fundamentals much differently than some of the other base metals.

The Outlook

Lead prices continued to fall in June closing at $1,761/mt. The rally that we saw in April has already vanished. Neither fundamentals nor technicals support a sustainable price rally. The long-term outlook remains bearish, especially while we see other industrial metals making record lows.

Lead price forecast 2015

So What Should My Industrial Buying Strategy Be?

This lead price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

Nickel Drivers

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for nickel? Check out our complimentary July Metal Buying Outlook report!

1. Dollar to Euro exchange rate

2. Stainless steel global production

3. Global capacity utilization

4. China coking coal prices (impacting Chinese nickel pig iron production)

5. China GDP & PMI data

Market Commentary

Nickel fundamentals do not tell a very good story if you are a stainless producer or service center. However, buying organizations likely feel differently about bearish metals. Nickel faces a number of headwinds that will continue to put pressure on prices.

Specifically, nickel suffers from weak global demand, excess service center inventory levels, an Indonesian export ban that failed to do what it intended to do (we’ll come to that in a moment) and increased stockpiles in China (although we do not accept the one-to-one correlation that higher inventory levels necessarily equate to lower prices and vice versa, lower inventory levels don’t necessarily equate to higher prices).

Service centers tell MetalMiner that inventory levels remain well above historical “healthy” MOH averages (about 2.4-2.6). Instead, inventory levels are up over 3.5 months, seasonally adjusted. This is a very bearish indicator. Demand has slowed for the typical summer slow-down. Service centers report transactional business is slow.

The Indonesian Export Ban

As many are aware the Indonesian government banned the export of unprocessed minerals back in January of 2014. Instead of having the desired effect of generating new investment for higher value added processing in country, exports have dried up and the government has begun tinkering with the ban to allow for some copper exports. The ban on nickel and aluminum exports remains intact but news reports suggest the ban for bauxite might be lifted which may be an indicator that the government could change its policy.

Regardless, this too is a bearish factor weighing on nickel.

The Outlook

Three-month nickel closed the month of June at $12,000/mt, sliding to a 6-year low. Nickel is in free-fall as shortage expectations faded. The long-term outlook remains bearish, especially while the rest of base metals keep falling. We expect to see high price volatility in the coming months.

So What Should My Industrial Buying Strategy Be?

This nickel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

 

Tin Drivers:

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for tin? Check out our complimentary July Metal Buying Outlook report!

1. Dollar to Euro exchange rate

2. Indonesian export quantities

3. Chinese tin ore imports

4. Global Production

Market Commentary

Tin has not had a good year. Prices have fallen 24% year-to-date after falling 15% in 2014. All base metals have fallen this year (and continue to fall) but at least a couple have attempted to show some price strength. Tin has been unable to rally at all for the past 18 months. A sideways market for tin would be a big improvement.

Moreover, the Indonesian tin export restrictions have essentially backfired. The limit of 4,500 metric tons per month, set to go into effect in April never happened. In fact, according to Indonesia’s Ministry of Trade, the country actually exported close to 6,300 metric tons in May.

Indonesian producers expected prices to rebound to $20,000 in the second half of the year against production cut backs. That scenario seems unlikely as tin is trading closer to $14,000/mt this month, below producers’ operating costs of more than $16,000/mt.

The Outlook

Three-month tin fell in June, closing at $13,880/mt. Prices continue to free-fall and tin is now at its lowest level in 6 years. Tin is not the only metal at a 6-year low – this is not a coincidence in bearish markets. Tin however, is the worst performer among industrial metals. The long-term outlook remains bearish until we see signs of an upturn.

What Should My Industrial Buying Strategy Be?

This tin price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

Niche markets like grain-oriented electrical steel (GOES) tend to develop their own set of pricing trends.

Free Download: July Metal Price Forecast

In some respects, GOES appears more volatile than most of the other metals we track. In some cases prices bump up $350 per metric ton in a month and in others they fall nearly $200/mt. MetalMiner’s monthly M3 index moved up significantly with a 15.2% jump:

GOES_Chart_July_2015_FNL

In the case of the domestic market, we essentially have an oligopoly controlled by a small handful of players who [sort of] set the domestic price.

We say sort of because the customer base for GOES is highly concentrated. In many cases the buying power does indeed rest with the buyer. Despite the volatility, GOES also remains in a bearish trend as well.

Did the Anti-Dumping Case Change Anything?

Last fall, we released a compilation report of multiple GOES stories we ran, covering primarily the US domestic producer anti-dumping filing. For those in the industry who have followed developments closely, the story ended before the Department of Commerce ultimately ruled against the domestic producers.

We say the story ended because large electrical power equipment manufacturers moved their supply chains to alternative locations, primarily Canada and Mexico in anticipation of an unfavorable anti-dumping ruling that would have added duties to the cost of imports.

However, the duties never came, but the proverbial procurement “Plan B” went into effect all the same.

Lamentations About Laminations

In January of this year, the International Trade Commission created several new HTS codes to track product movement for laminations for incorporation to stacked cores (HTS code: 8504.90.9534) and transformer parts (HTS Code: 8504.90.9546).

Imports of transformer parts continue to ratchet up as the latest trade data from Zepol shows:

Source: Zepol

Source: Zepol

Notably, Japan has taken the second-place spot in terms of dollar value of imports. We can only surmise that some domestic buyers require the more demanding GOES materials only produced by the Japanese, and the Japanese may be more comfortable shipping a semi-finished product to the US market vs. actual grain-oriented electrical steel.

Imports for laminations for stacked cores remain small in comparison.

The Actual GOES M3 Price

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Copper Market Drivers

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for copper? Check out our complimentary July metal buying outlook!

1. Dollar to Euro exchange rate

2. China copper price (proxy for demand)

3. US capacity utilization

4. Global production

5. Refiner treatment charges

6. Chilean copper production

Market Commentary

China Demand is the Name of the Game
China really controls the copper story. Poor demand and near-term copper supply suggest copper will continue to struggle. Chinese government spending, construction spending, auto sales and power grid investment serve as the key drivers to Chinese demand as well as price support. Power grid investment has fallen. Each of these remaining indicators has fallen month over month from April to May and year over year.

Our own China industrial copper price data on the MetalMiner IndX™ shows that copper prices have already fallen by over 5% in June compared to May data. In addition, the average monthly prices in the chart below suggest that indeed Chinese industrial demand remains muted as prices are markedly lower compared to last year.

Screen Shot 2015-07-09 at 11.15.47 AM

The Outlook

Three-month copper closed the month of June at $5,760/mt, down nearly 4+% from last month. Copper prices rallied up until May but have continued to fall. Copper remains in a long-term bearish market despite the fact that the dollar has begun trading sideways. Moreover, throw in a bit of Greek uncertainty and the global price picture for copper looks a bit murky (some believe a successful Greek outcome would be bullish for copper prices). Nevertheless, we remain bearish.

While the rest of industrial metals keep falling, we would expect copper prices to trade below $6,500/mt during the second half of the year, possibly diving to record lows.

So What Should My Industrial Buying Strategy Be?

This copper price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!