Even though silver hit a 3-month high this last week, the metal is still in an overall long-term downtrend – as my colleague Jeff Yoders writes, hey, take the victories where you can get ’em.
And long-term downtrends are where it’s at lately for the precious sectors, mirroring the ferrous and base metal sectors. Platinum isn’t immune to losses either, as prices in the US, China, India and Japan have all come down over the last month. Palladium, however, did tick up a bit across those markets. (The price for US palladium bars, for example, rose 8.5% over the month of September, up to $651 per ounce.)
As my colleague Raul de Frutos wrote recently:
“Palladium and platinum prices have been volatile after investors heard of the Volkswagen Group scandal. Industry reports are suggesting that this could be the end of diesel cars. With 40% of platinum demand coming from the making of auto catalysts for diesel cars, that’s pretty bad news for the precious metal. Platinum fell 4% after the news, although it recovered some of its losses” soon after.
Ultimately, in MetalMiner’s view, based on how investors reacted to the news, we’ll likely see both platinum and palladium trending in opposite directions in the short-to-medium term.
Notable Precious Price Mover
US palladium bars shot up 8.5% over the month of September, up to $651 per ounce from $600.
MetalMiner’s Monthly Buying Outlook report for October is now available. Sharpen your sourcing strategies for buying aluminum, copper, nickel, lead, zinc, tin and multiple forms of steel, complete with our coverage of drivers, market commentary, polished charts and more!
If you’re a manufacturer in North America that’s buying multiple metals, this is the ideal one-stop-shop report for you.
This month, you’ll learn:
Whether the Federal Reserve’s decision not to raise interest rates matters for metal prices
To what degree the China Dragon drives the Global Bear(ish commodity markets)
What the steel plate price tumble means for ferrous markets
Plus a short- and medium-term industrial buying strategy for the rest of the metals that you buy.
Individuals, small- and mid-sized manufacturers are encouraged to subscribe to our annual buying outlook reports. You can sign up at any time and receive the next 12 monthly reports emailed directly to you.Learn more and subscribe today!
You read right, dear readers – MetalMiner unveiled its forecast of average 2016 prices for aluminum, copper, nickel, lead, zinc, tin and hot-rolled and cold-rolled steel yesterday, and you may be surprised that we’re more bearish than the big banks (the Standards, Macquaries, Goldman Sachses and the like) and their 2016 average price forecasts.
And all of these average price forecasts can be yours…as soon as our Annual Metal Buying Outlookis published and ready for download. (Hint: it could drop as early as the end of this week. We’ll update this post with the link to the report, so bookmark us!)
As far as MetalMiner’s departure from the banks’ forecasts, co-founder and editor-at-large Stuart Burns had this to say recently: “It’s definitely a bullish tone that bank and senior research analysts have taken…in our view, there’s still plenty of excess capacity out there, demand is weak, and the dollar is strengthening,” and those factors, ultimately, may make many of the banks’ forecasts turn from bullish to bearish sooner rather than later.
We’re not the only ones on the block with a bearish outlook – just yesterday, the WTO released updates on its 2015 and 2016 global trade outlook. According to their full release, WTO economists have lowered their forecast for world trade growth in 2015 to 2.8%, from the 3.3% forecast made in April, and reduced their estimate for 2016 to 3.9% from 4.0%.
WTO Trade Forecast Revised Downward
Some main takeaways:
The same exact things we at MetalMiner have been hammering home. Falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations drove the revisions downward. (What’d we tell ya?!) Also, the WTO goes so far as saying, “Risks to the forecast are firmly on the downside, the most prominent being a further slowing of economic activity in developing economies and financial instability stemming from eventual interest rate rises in the United States.”
China, China, China. Globally and regionally, China’s lower economic growth rates and falling demand have really upset the apple cart. According to the WTO, Asian export and import growth for 2015 has been revised down as slower growth in Chinese imports has reduced intra-regional trade. Also, China’s struggling import demand plays a big role in world merchandise trade volume, which is expected to rise only 2.8% in 2015 – lower than the previous estimate of 3.3%.
Trade took H1 2015 hits – just like the overall commodities and metals sectors. As the WTO puts it, “At the time of our last forecast in April 2015, world trade and output appeared to be strengthening based on available data through 2014 Q4. However, results for the first half of 2015 were below expectations as quarterly growth turned negative, averaging ‑0.7% in Q1 and Q2.” Yep, the first half of 2015 was definitely not great for the metals sector, either.
For more on what US and global construction sector indicators can tell us, make sure you check out my colleague Jeff’s rundown today.
Don’t forget, come back for our annual 2016 outlook!
United States Steel Corporation’s CEO Mario Longhi made the media rounds recently, evangelizing U.S. Steel’s – and most of the domestic industry’s – key plank in their policy platform: creating a globally fair playing field when it comes to international trade.
He showed up on Maria Bartiromo’s show, denouncing unfair subsidies in foreign economies and tariffs on certain US imports into countries such as China.
Screenshot from video of Maria Bartiromo’s interview with Mario Longhi. Source: Fox Business.
He also spoke to Politico about the granting of “market economy” status to China next year, which would change how the Commerce Department determines anti-dumping duties on Chinese goods, including steel.
As you may know, China is pushing a bunch of steel beyond its borders. As my colleague Stuart Burns reports, while China’s steel production may have dropped, its exports have risen. In the first 8 months of this year, product exports reached 71.87 million metric tons, up 26.5% compared to the same period of 2014.
In fact, the China Iron and Steel Association’s vice chairman is quoted as saying that this year, the country will export more than 100 mmt of steel – that’s equivalent to more than the entire production of North America. Or nearly as much, purely in exports, as the next largest producer, Japan, produces both for domestic and export combined, according to Burns.
China demand has derailed ferrous scrap exports from the US.
At Day 2 of ISRI’s Commodities Roundtable 2015 conference, panelists got down to brass tacks.
And by brass tacks we mean, more aptly, ferrous-metal tacks (although the Copper roundtable also took place, so surely there was mention of brass tacks, even if indirectly).
Anyways, ferrous materials represent the largest piece of the scrap market pie as far as US industry is concerned, and panelists made no bones about the fact that US ferrous exports are down – especially to China.
Even before the Ferrous roundtable got going, Joe Pickard, ISRI’s chief economist and director of commodities, made note of the fact earlier in the day that China’s slowdown is concerning to the overall industry picture.
If you’re a stainless producer, scrap buyer or stainless-buying manufacturer, it’s (hopefully) no surprise to you that the nickel market has been tanking – hard.
As the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable conference kicked off Day 1 here in Chicago, one thing was clear: the expert consensus at the Stainless/Nickel roundtable leaned toward a pessimistic optimism – or should we say an optimistic pessimism?
Either way, as we wrote in our most recent monthly metal buying outlook report for September, nickel prices have lately been chasing 2009 lows – as of yesterday, the LME 3-month price has lost 33% of its value year-to-date.
Key Facts and Figures
Salvatore Pinizzotto, director of market research and statistics at the International Nickel Study Group (co-located in Lisbon along with the International Lead and Zinc Study Group and International Copper Study Group), showed just how China-heavy the data still is. Here are just a few notable stats and numbers from what he presented:
More than 100,000 metric tons. That number represents the maximum discrepancy between several market analysts’ past estimates of Chinese nickel pig iron production, many within the same year; and the max discrepancy between analysts’ estimates of European nickel usage based on ‘wildly’ different estimates of scrap ratios – major points underscoring the need for accurate measurement of nickel markets
52%. The percentage of global nickel usage that China accounts for in 2015, up from a mere 15% in 2005. That increase has brought Asia’s overall usage to a total of 70% of the global pie. China’s NPI production (although having fallen off throughout 2014 and into Q1 2015 due to environmental restrictions) and subsequent stainless production continue to chug along. (Pinizzotto agreed with our take that China making stainless production cuts would ultimately help the nickel and scrap markets.)
325,000 tons. Roughly the total volume of ferro-nickel imported by China in the first half of 2015, a significant jump from the previous period. This is a broader testament to overstocked inventories across the board: ore surpluses, refined metal in exchange warehouses, NPI being pumped out of Chinese mills and plenty of ferro-nickel – all are conspiring to keep nickel prices low for the foreseeable future.
As I caught Pinizzotto saying at one point, “We don’t want to be too pessimistic…but we’re not that optimistic.”
After hitting a new all-time low last month, the monthly Global Precious Metals MMI® bounced back up a bit to catch its breath, and registered a value of 76 in September, an increase of 2.7% from 74 in August.
So What’s At Play? Gold Prices and Fed Hikes?
Yesterday, Reuters reported that spot gold prices lost more ground, after drifting downward the past several days.
The precious metal was “hurt by a stronger dollar and as investors awaited a key US jobs report to gauge the timing of a Federal Reserve rate hike” – however, the global stock market [expletive]-show that has been rocking investor confidence lately may just be the only thing the Fed needs to go through with the hike.
(Besides, ADP‘s private-sector jobs report, released this past Wednesday, betrays severe underperformance – fewer than 200,000 jobs have been added in 6 of the last 8 months, as mentioned here.)
The gold price points from each of the 4 global markets we track (the US, China, Japan and India) all rose over the past month, and along with platinum increases in Japan, China and the US, were the main drivers of the wholesale increase in the Global Precious Metals MMI®. That’s likely due to the fact that equities markets have been doing so poorly – no, heinously – from China to the Dow.
So, on the face of it, gold was a factor in the global precious index’s rise…but let’s turn attention to the historical lows of palladium.
“No. 2″ PGM More of a Concern
Palladium, platinum’s cheaper and less scarce cousin, hit another bottom. The US price of palladium bars tracked on the MetalMiner IndX℠ clocked in at $600 per ounce (log in or join as a MetalMiner member at the bottom of this article to get full pricing to all the precious metals we track) – the lowest since November 2012.
As my colleague Jeff Yoders wrote recently, although US auto markets appear robust at the moment, there is uncertainty in China and correspondingly lower auto sales there. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.
What will the number of IPSAs look like for 2015? Source: Deloitte
Recently, Deloitte put out a story in their Heads Up newsletter on what companies should be thinking about for their next Section 1502 (“Conflict Minerals Rule”) compliance reports, including how to best prepare for independent private sector audits (IPSA). Below are some nuggets for US manufacturing organizations to keep in mind. For an excellent rundown of the latest legal challenge to SEC’s Conflict Minerals Rule from the US Court of Appeals, read my colleague Jeff’s recent article.
Currently, there is uncertainty as to whether SEC will require IPSAs for all companies filing conflict minerals reports (CMR) for calendar-year 2015. More on that below, but first, a quick refresher: Read more
As the base metal and ferrous metal complexes we cover continue to take a bruising, the peripheral hits have struck our precious metals price index as well, with PGMs platinum and palladium leading the charge downward.
In fact, the monthly Global Precious Metals MMI® registered a value of 74 in August, a decrease of 7.5% from 80 in July – thereby hitting a new all-time low. Every single metal price point for gold, silver, platinum and palladium dropped across all geographies we track, including the US, China, India and Japan.
This index has never seen the 70s before, and it’s not having a really nice day as they used to say in the ’70s (at least not for investors).
According to my colleague Raul de Frutos, writing at the end of July, palladium prices fell as much as 14% during that month:
Palladium price since 2013. Graph: MetalMiner.
Ironically, palladium was the best performer among precious metals until just about a year ago when it started to fall, Raul wrote. So far, year-to-date, palladium has tanked 32% with the most precipitous drop showing over the past two months. So what’s been driving the price meltdown?
Just a couple days ago, BMW and Toyota Motor Corp. publicly voiced their concerns over China’s car market, saying that the days of double-digit growth are likely over, as reported by Bloomberg. Both companies are concerned about their profits getting dinged, and are therefore cutting back production based on low demand numbers – BMW, for example, said earlier this week that it had cut production in China by 16,000 cars so far this year.
South African mines, producers of 70% of the world’s supply, have been reporting production levels for platinum above those during the 5-month strike in 2014, as Raul has pointed out in his previous coverage. Combined with the lollygagging of the Chinese auto sector, looks as though platinum prices may not see a huge rebound for some time as well.
Remember, the strength of the US dollar plays a big role in the movement of this index. The dollar-to-euro exchange rate has been listed as the No. 1 driver of all the base metals in our latest, newly revamped monthly buying outlook, and it’s safe to say that’s no exception for gold and silver movement – when the dollar is strong, investors tend to leave gold behind as a safe haven a little more often.
The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals 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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The EPA is getting closer to unveiling the final versions of its Clean Power Plan, which targets existing power-generating sources in the United States, and the US manufacturing community has expressed many concerns over the CPP.
However, there is some indication that EPA may make three significant changes to the proposed rule before it finally hits the books, which could alleviate cost- and compliance pain for US businesses:
Easier interstate greenhouse gas emission credit trading
This would get closer to making good on EPA’s promises for a more “flexible rule” by allowing states to trade emissions credits amongst themselves without officially creating a cap-and-trade program, which would be more costly and create barriers to participation, according to Adam Riedel’s article in JDSupra Business Advisor.
EPA may adjust state-specific emission reduction targets
Essentially, this would alleviate the effects that the most manufacturing-economy-dependent states would feel from the proposed rule, since those states would have been disproportionately affected by the emissions targets. It’s pretty clear that EPA overestimated the ease with which some of these states would be able to switch to natural-gas-fired plants, or access renewable energy for its (in many cases non-existent) infrastructure.
Will a recent Supreme Court decision send the EPA back to the drawing board?
Also, the “early mover” states that already began carbon reduction initiatives would have been unfairly hit by the initial emission reduction targets.
EPA may adjust – or remove entirely – the binding interim emission reduction targets
This is exactly the issue that Lanny Nickell, VP of Engineering at Southwest Power Pool, told MetalMiner in an interview he is most concerned about: the virtually unachievable turnaround for interim emissions target goals to be met by 2020, before final goals must be met by 2030.
“Our concern is that the EPA is allowing the states to develop plans to comply with both the interim goals and the final goals, but those plans can be developed as late 2018,” Nickell said. “So if you think about the fact that fairly significant actions have to take place as early as 2020, the period of time between 2018, which is when they will, in theory, complete their plan, and 2020, which is when it would have to be implemented, that’s not a lot of time to build replacement generating capacity.”
He continued, “And it’s not nearly enough time to build transmission infrastructure that would be needed to support any new generation or any change in use of the existing generation capacity that we have.”
But Here’s the Most Interesting Part:
Legal experts are essentially calling the current period ‘the eye on the storm.’ In other words, as Adam Riedel writes on behalf of Manatt, Phelps & Phillips, LLP, “Although the past year has been a relatively tranquil period of waiting and speculating” – as we at MetalMiner have been doing! – “regarding EPA’s regulation of greenhouse gas emissions from power plants, the finalization of EPA’s rules is likely to usher in a transformative period for large sectors of the economy that will last until at least the end of the current administration.”
Which means, folks, get ready to strap yourselves in for a fun ride – and check back in with MetalMiner after the final rule has been announced for in-depth follow-ups on the legal challenges to the final rule of the EPA Clean Power Plan.