Lisa Reisman

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.

{ 0 comments }

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!

{ 0 comments }

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!

{ 0 comments }

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!

{ 2 comments }

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!

{ 0 comments }

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!

{ 0 comments }

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:

[caption id="attachment_71337" align="alignnone" width="551"]Source: Zepol Source: Zepol[/caption]

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

What is the M3-grade coil price per ton? Log in or register to get the pricing in the full story – and the exact price every month!

For full access to this MetalMiner membership content:
Log In |

Copper Market Drivers 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 […]

{ 0 comments }

Aluminum Drivers:

July 2015 Monthly Metal Buying Outlook copy

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

1. Dollar to Euro exchange rate

2. Primary aluminum production

3. China export volumes

4. MidWest (MW) Premiums

5. Capacity utilization

6. Oil prices

7. European & Japanese premiums

8. China GDP & PMI data

Market Commentary

Aluminum continued to fall throughout June closing at $1,686/mt, a 3+% decline from our previous monthly report and just above key support levels. The back-story remains exactly the same as one month ago in terms of global oversupply, falling MW premiums and the potential return of the stock and finance trade. What has changed are some of the details within each of these drivers. None have fundamentally changed the monthly outlook.

It’s All in the Output

World production of primary aluminum has grown 12% from one year ago. This is the fastest growth rate since 2011. The notion that China will curb production remains a pipedream. In fact, global producer UC Rusal pointed to rising Chinese aluminum exports as evidence of no checks on Chinese aluminum production. Combine that with a new “Make in India” campaign and we see a similar situation developing there – more capacity. The bottom line: aluminum prices may need to fall further and it will be the non-Chinese producers that take out capacity.

Watch the MW Premiums

Last month this report indicated the conditions appear “ripe” for the stock and finance trade – a strong forward curve combined with low interest rates may be all that is needed to soak up excess inventory and re-start the warehouse trade. MetalMiner analysis of LME data, however, suggests that total tonnages stored in Detroit warehouses are indeed declining meaning we don’t yet see any evidence of the return of the stock and finance trade. Nevertheless, aluminum buying organizations will want to pay close attention to this development.

In the meantime, semi-finished aluminum prices are under pressure. Physical delivery premiums have come down nearly to their historic levels of $100-125/ton and mills are short of work so the conversion premium is under considerable pressure. In Europe, a weak Euro is helping mills export but there is limited demand placing downward pressure on prices.

The Outlook

Metal prices are falling across the board, and some of them have already fallen below key support levels. Based on current market conditions, it’s likely that aluminum prices will keep trending lower. Therefore, making long-term commitments is not a good idea until we see real signs of strength. We do, however, leave open the possibility of rising premiums as an indicator of the resumption of the stock and finance trade.

Screen Shot 2015-07-07 at 10.13.36 AM

So What Should My Industrial Buying Strategy Be?

This aluminum 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!

{ 0 comments }

While US steel producers have reason to celebrate the signing of a trade package that includes Trade Promotion Authority (TPA) and Trade Adjustment Assistance (TAA), other manufacturing organizations will also benefit from the opening up of new markets. However, procurement professionals may perceive the legislation less favorably.

Free Download: Latest Metal Price Trends in the June MMI Report

MetalMiner asked Jennifer Diggins, Director of Public Affairs at Nucor, to explain why these trade initiatives are so important for all manufacturers and specifically how the legislation will positively impact metal buyers.

jennifer diggins nucor stillMetalMiner: A lot of your customers purchase imports. How is this legislation helpful to them in any way?

Jennifer Diggins: The legislation is not targeting fairly traded imports. The American steel industry does not have a problem with imports; imports will always be part of our market. But we do have a problem with unfairly traded imports, where governments break trade rules they agreed to and provide illegal subsidies that allow foreign steel producers to sell products below costs.

If a company cheats on price, it raises serious questions about other ways they may be cutting corners to gain an advantage, which could ultimately come back to hurt their customers. We know China has tried to evade duties on some of their steel products by routing them through third-party countries to hide the point of origin and avoid the trade duty. Steel producers in China have also added chemicals to products to avoid trade duties. Several years ago, China added boron to cut-to-length plate to avoid a duty. Nucor brought that case to the attention of the Department of Commerce who ruled that the boron added did not change the product and was subject to the trade duty.

Behavior like this should raise concerns for any customer. If China is willing to bend the rules like this, can you trust claims of product quality? Do you really know what you are buying? A free, transparent marketplace is best for both producers and consumers.

MM: Arguably the Chinese have done a lousy job curbing excess production and shutting down excess capacity. Do you think this legislation will provide the stimulus necessary for Beijing to finally shutter excess and obsolete production? Why/why not?

JD: The main goal of the legislation is to provide more effective tools to enforce our trade laws to ensure that countries sending products to our market are playing by the rules. The provisions in this legislation should create a disincentive to dump products in our market, but the legislation is not intended to address overcapacity issues in China.

The capacity problem is a much larger issue and won’t be meaningfully addressed until China gets serious about moving away from being a state-run economy to a market-based economy. Unfortunately, there are few signs they are serious about doing this. Earlier this year, China issued a draft of its Steel Industry Adjustment Policy, saying – as it has for years now – that this new policy will resolve its excess capacity problems. The major steel industry associations from North America, Latin America and Europe issued a joint response, expressing their disappointment that the Policy still shows that China insists on a top-down, state-controlled approach to the steel market. We are all in agreement that the Policy actually is less interested in eliminating excess capacity in China, but instead would seek to transfer capacity overseas through government-supported foreign investments and acquisitions.

It’s clear that China has no interest in letting market forces dictate the size of its steel industry. And so long as China maintains this state-supported approach to market competition, it’s hard to see how they can have a place in any free market economy. This legislation is an important step, and should help any company from any nation that fairly competes in the American marketplace. But so long as China can be successful dumping steel in other foreign markets, it is unlikely the Chinese government will get out of the steel business. We need more concerted action from our trading partners to force China to comply with WTO rules.

MM: Why, in general, is excess capacity (steel production capacity) a bad thing for steel buying organizations? Most might say it’s a good thing because buyers can get lower prices. How do chronically low prices harm the industry and eventually your customers?

JD: I think it’s important to note here that we are talking about artificially low prices – not competitively low prices. In a free market economy, overcapacity would be eliminated through the balancing of supply with demand. So in a situation of excess production, customers would buy steel from the companies that best meet their needs, and the other steel companies would go out of business. This kind of competition drives quality up and prices down. In a truly free market, efficient producers survive while inefficient ones go out of business.

However, the global steel market is not a true free market. Chinese steel companies are being artificially sustained by their government, creating the risk that efficient foreign steel companies will go out of business while inefficient Chinese companies survive. With state support, they can produce an overabundance of steel at absurdly low prices, and drive their competition out of the marketplace. The market will not be well served if inefficient steel producers survive at the expense of efficient ones. At some point, customers will have no choice but to buy product from those steel companies. There will be no diversity in the market place – no competition. Just one source of state-owned suppliers. And they won’t be accountable to their customers for their success. The only entity they will have to keep happy is their government’s bureaucracy. In that scenario, you can bet the absurdly low prices will disappear with no guarantee that customers will be getting a quality product.

China’s real goal is not only to dominate global steel production, but also to transfer the global downstream supply chain to China (in order to maximize job creation in China). To ensure the reliability and survival of the supply chain in the United States, including both suppliers and downstream consumers, we need to ensure that global supply chains are free from market distortions.

Disclaimer: Nucor is a sponsor of MetalMiner.

Free Download: MetalMiner’s Top Service Centers Guide

{ 0 comments }