Taras Berezowsky

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.

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Learn about the cost impact of proposed rule on US manufacturing industry, including steel production.

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:

  1. 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.

  1. 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. Also, the “early mover” states that already began carbon reduction initiatives would have been unfairly hit by the initial emission reduction targets.

  1. 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.”

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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.

RELATED: For now, enjoy some well-informed speculation on the costs and effects of the plan.

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jeff yoders chicago cubs 1060 project

Ahoy from the corner of Waveland and Sheffield.

After covering ‘Steel Dumping 101′ in Part 1 and how the grain-oriented electrical steel market is different in Part 2 of our inaugural podcast episode, we turn to a more random endeavor – checking out the Chicago Cubs’ 1060 Project at Wrigley Field to get our structural steel fix.

With Pepper Construction as the general contractor on the project, Jeff and I wanted to get some eyes on the latest phase of development. So how many tons of structural steel are likely involved here? What are some of the sourcing considerations for an undertaking such as the 1060 Project? And most important, what do the fans have to say about steel sourcing? Listen below!

Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)

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How is the Grain-Oriented Electrical Steel Market Different?

Screen Shot 2015-07-09 at 3.25.29 PMIn Part One of this inaugural episode, we ran down the super-basics of what steel dumping is all about…which got us wondering about all the recent anti-dumping hullabaloo surrounding GOES (grain-oriented electrical steel). Luckily, our in-house expert on the GOES market, esteemed executive editor and our first guest Lisa Reisman was on hand to edify us all. Listen below!

Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)

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Our very first episode of our very first podcast! We’re on DumpWatch for steel dumping: Listen below – and crank up the volume to 11!

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It's safe to say that the Greece and China crises that have hit the global economy are going to be the biggest issues to watch as far as the precious metals markets – and prices – are concerned.

Over the past month, the monthly Global Precious Metals MMI® fell 4.8% from 84 in June, and it may have further to fall before July is out.

Global-Precious-Metals_Chart_July-2015_FNL

* Read what we said in last month's analysis.

China's Star is Falling

One may think that the Chinese equity market crash may help investors flock to gold as a safe haven – but not so fast.

A leading precious metals consultancy called Metals Focus, which interestingly, according to this article, has booted GFMS as the primary supplier of statistical data to the World Gold Council, points out that due to China being a gambling culture, "reckons there is more the likelihood that weak equity prices may end up adversely affecting physical gold demand. Losses generated by the impact of the stock market crash may well hit jewellery and gold artefact purchases, while the scale of the fall is such that potential investors nursing big losses may well not have the liquidity to move back into gold."

Which would likely mean that gold prices won't see a whole lot of support. As my colleague Raul de Frutos has noted around the office water-cooler recently, "gold’s safe haven thesis" is not really playing out, probably because of a strong dollar.

Saturday Night at the Palladium: Also Down

The palladium prices from all three global markets we track on our IndX (the US, China and Japan) fell by double digits over the past month. Platinum prices also haven't looked so hot, looking at 6-year lows, mainly driven by weakness across other commodities and industrial metals.

[caption id="attachment_70867" align="aligncenter" width="500"]Palladium spot price since 2012 Palladium spot price since 2012. Source: MetalMiner.[/caption]

So what to watch in palladium and PGM markets in general?

  • Keep an eye on that US dollar – a strong dollar means a weak South African rand, and that means good news for SA producers to boost supply
  • Investment activity – ETF and other inflow/outflows
  • Next China PMI -> What that means for China automotive demand -> What that means for China auto production

Actual Gold, Silver, Platinum, Palladium Prices

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Echoing Nancy Reagan circa 1988, the US House of Representatives listened to Mitch McConnell and “just said no” – to the Environmental Protection Agency (EPA)’s Clean Power Plan. Meanwhile, the US Supreme Court finally ruled on Michigan v. EPA (involving the toxic emissions rule trying to limit mercury and air toxics, aka MATS), and the outcome, just announced today […]

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Our upcoming webinar – scheduled a week from today – is sure to create some fireworks. We couldn’t resist getting some commentary on spot-market purchasing from our metals procurement specialist, Raul de Frutos, to help light the fuses. We threw a few questions at Raul, getting at what a price risk management strategy for metals buyers should start with.

Q: When is sourcing via the spot market risky?

Raul-headshotA: Basically, if you are doing one of these two things, you are taking a risk:

  1. Buying metal without knowing how much you will sell it for. If you don’t have a price fixed with your customer (or the ability to pass on any and all declines in metal prices to your customers), your risk is any price decline from the moment you buy the metal until the moment you sell it.
  2. You make a sales agreement without knowing what the cost of the metal will be by thy time you need to purchase it. In this case, your risk is any metal price increase from the moment you have a sales contract until you actually purchase the metal.

Q: Is there a way to be risk-free when buying on the spot market?

A: The only way is to always have a fixed sales contract by the time you make your metal purchases. This is almost unrealistic, since organizations almost never know their future demand with certainty, have long lead times, and are not able to agree to a fair price with customers/suppliers, etc.

Q: So if metals buyers are taking risks, does that make them traders/speculators?

A: Pretty much. The only difference is that the trader/speculator is willing to take the risk, while the metal buyer has no choice. The trader starts with no gain, and speculates the market trying for a profit. The metal buyer already starts with a gain (assuming his business is profitable) and speculates to maximize that gain.

Q: What are the key things that successful traders/speculators do to manage their risk?

A: One of the keys for successful trading is to always know your downside risk. The market is unpredictable and things can always go in the opposite direction regardless of how good your analysis is.

Successful traders always plan ahead, and they have a solid strategy with a set of rules that tells them how to react to the market. So by being disciplined to their set of rules, they always know when to enter or exit a trade. In this manner, they never get caught in mental games, avoiding big losses.

Q: What can metal buyers learn from it?

A: Buyers can’t avoid the risk implied in purchasing metals. Instead, buyers need to accept that there is a risk and then implement a solid strategy to best deal with it. By having a consistent strategy with a set of rules, metal buyers know the right time to buy and avoid making wrong decisions caused by overwhelming panics when markets behave in unpredictable ways.

Our goal at MetalMiner is exactly that: not to make predictions, but to provide buyers with the market intelligence and the set of rules to make sound purchasing decisions.

Agree or disagree agree with Raul? Leave a comment!

And don’t forget to register to hear how Lisa Reisman and Jason Busch weigh in on this next Monday, June 29, at 12 pm ET/11 am CT, for “3 Bids and an Award: Are You Speculating When You Buy on the Spot Market?

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The red metal met the Red Cross earlier this week in the kickoff post of our series on health-acquired infections (HAI) and copper's role in the war against them – but what hospital procurement officers and facilities management departments may want to know is, what's up with the copper price?

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First step in the multi-step program of "What's Up With the Copper Price?" is a look back at where prices have been: MetalMiner's monthly Copper MMI® registered a value of 75 in June, a decrease of 2.6% from 77 in May.

Copper_Chart_June-2015_FNL

The index decline was driven mainly by spot and 3-month London Metal Exchange prices, US copper producer grades 102 and 110, and Chinese copper wire.

What's Up With That?

Second step in the multi-step program of "What's Up With the Copper Price?" is knowing some of the underlying fundamentals that may have to do with its shift. For that, we turn to MetalMiner Editor-at-large Stuart Burns, who writes that:

"Analysts expect China’s copper demand to grow by 4% this year, yet that figure is based on considerable use in power grid investment and assumes government spending plans will be met. Power grid investment actually fell by 8.65% in April, according to the FT, and in the first four months of this year China completed Rmb86.6bn of grid investment, only 20% of the planned amount for the year.

Investors agree with the pessimistic outlook cutting their net long positions in copper, joining Chinese speculators who have been betting against copper all year.

A CNBC report says recent weakness is due to weak premiums, high scrap discounts and a failure of the seasonally strongest quarter for copper to translate into solid demand. China’s factories are now approaching a summer slow-down and with it lower metal consumption."

Outside China, there's always Mongolia – and the Oyu Tolgoi copper mine, from which Rio Tinto's recent bullishness is born. According to the FT, "Rio Tinto recently forecast that copper prices will recover faster than expected with demand outstripping supply within two years. This bullish forecast comes as the Anglo-Australian miner steps up talks in May with the Mongolian government aimed at finalizing a deal on a $6 billion expansion at Oyu Tolgoi, which had been stalled for months. The lack of new copper projects in the pipeline could result in a market deficit earlier than expected," the paper indicates, "but even if Rio Tinto was right, 2 years is still a long period of time where we could see further price declines."

What's Up With the Market?

For the third step in the multi-step program of "What's Up With the Copper Price?", we cast our focus onto the future by turning to our metals procurement specialist, Raul de Frutos:

"Copper prices have been rallying since February and, in the short term, they could continue doing so. For the short term, consider placing orders now for known demand. Don’t buy long-term forward, as copper is in a bearish market and we expect prices to lose steam soon and come back to lower levels."

For more comprehensive commentary and specific copper price forecast thresholds, download our FREE sample forecast report!
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Silver prices in Japan, India and the US all rose over the past month, as did gold prices in the same regions. Silver and gold prices in China, however, fell ever so slightly. These inputs, as well as platinum and palladium prices showing mixed movement, resulted in MetalMiner's monthly Global Precious Metals MMI® registering a value of 84 in June, holding steady at May's level.

precious metal price index chart

Compare with last month's report: download it free here.

The real stories that concern us, however, may reside in the PGM markets.

2015 GFMS Platinum & Palladium Survey SAYS:

Thomson Reuters recently released its GFMS Platinum & Palladium Survey 2015, and in it, noted that the platinum market to be in a deep deficit last year "(prior to inventory movements) of 1.02 million ounces, singularly owing to major strike-related production stoppages in South Africa." The 2014 deficit comes on the heels of surplus in 7 of the last 8 years; the deficit is expected to continue.

Meanwhile, palladium has been a market in deficit since 2007. The GFMS team estimates "the palladium market deficit last year at 1.58 million ounces, representing the most severe market imbalance for more than a decade."

GFMS Platinum, Palladium Price Forecast

According to the survey, the average platinum price is forecast to fall by 16% year-on-year, averaging $1,170/oz, about 5% higher than May's closing price on the MetalMiner IndX. Analysts indicate that this suggests a closing of platinum’s discount to gold. The average palladium price forecast is broadly flat year-on-year at $800/oz, not too much higher than current prices.

William Tankard, research director of mining at Thomson Reuters, is quoted as saying, “It appears to us that forward buying programs by the automotive sector are developing increasing levels of flexibility for these consumers to purchase metal when they want to, rather than need to; the sector is becoming increasingly price-sensitive. Without enduring production cuts to be achieved, by permanently closing high-cost mines, the platinum market is expected to return to surplus next year. Of course, it’s a huge challenge as a producer to make that call, incur restructuring costs and permanently close capacity, if you believe the price will recover in the short- to medium-term.”

How Does That Compare to MetalMiner's Outlook?

It roughly matches what our lead forecasting analyst, Raul de Frutos, has written recently; in short: "Recent weakness in the dollar is giving a boost to precious metals. However, these price movements have been quite shy so far. It still makes sense to be long-term bullish on the dollar and bearish on precious metals."

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The price forecast for US steel markets, much like me after contracting salmonella poisoning last week, has been quite lethargic lately.

An imminent pullout from the doldrums doesn't look all too likely due to several major factors, which we'll dive into shortly, and is supported by MetalMiner's monthly Raw Steels MMI® clocking in with a value of 59 in June, a 1.7% drop from 60 in May.

steel price index chart june 2015

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The monthly Raw Steels MMI® – a price sub-index tracking a basket of finished steel and raw material prices from all corners of the globe – has been unhealthy for quite a while, and (after undergoing a slight recalibration at the end of 2014) has hit a new all-time low this month. Why?

Today's Steel Market: Some Factoids to Consider

Here are a few elements to take into account:

  • Imports are a huge issue for the US domestic market. According to the American Iron and Steel Institute (AISI), for the first 5 months of 2015 (including May Steel Import Monitoring and Analysis and April preliminary data), total and finished steel imports were 18,636,000 net tons and 15,365,000 net tons, respectively, up 7% and 20% from the same period in 2014. China plays an outsize role in this: according to data compiled by James May of Steel-Insight.com, Chinese supply of CRC was 6% of the US market in 2014 while Chinese and Indian supply of HDG was a combined 8%. Construction markets in China have stagnated, and rather than shutter mill capacity, the Chinese just ship it out to foreign shores. Ministry of Commerce spokesman Shen Danyang has been quoted as taking a defensive line, saying the rise in steel exports is due to higher global demand and is a result of Chinese steel products having strong "export competitiveness" – but we have our doubts.
  • Therefore, capacity has been dinged. According to AISI, adjusted year-to-date steel production through May 16, 2015 was 33,210,000 net tons, at a capability utilization rate of 72.3%. That is down 7.2%from the same period last year, when the capacity utilization rate was 77%.
  • Distributors are well-stocked with inventory. Until inventories (which are nicely loaded with that imported steel we mentioned) are drawn down, it will be hard to make price increases stick in the near term.

[caption id="attachment_69511" align="alignnone" width="550"]Steel_Insight_051515_550 Carbon flat-rolled inventories. Values in millions of tons (add 000 to the end of each number on the chart). Source: MSCI, Steel-Insight. Chart courtesy of Steel-Insight.[/caption]

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Tomorrow's Steel Prices: Wild Cards to Watch

  • Anti-dumping filings may help steel prices – but "may" being the operative word, and if so, only in the short term. Filings against imported Chinese coil products may succeed in removing some of that low-priced steel from the US inventory pool, thereby helping US mill volumes, but again, from what we're hearing, that's simply a temporary "Band-Aid" solution.
  • What will happen with scrap pricing? As part of this month's Raw Steels MMI®, our shredded scrap price rose 1.6% over last month, and is in a 3-month uptrend. According to industry sources, scrap is expected to rise anywhere from $10 to as much as $30 per gross ton, depending on the region and product. We'll have to wait and see where prices end up by the end of June, as that may clue us further into where finished steel pricing is headed.
  • And a last longer-term bit of news from China...An announcement made at the recent Singapore Iron Ore Week, hailed by some as a gamechanger, indicated that steps are being taken toward international trader/broker access to Dalian iron ore. If this indeed goes down, it would signal a big move toward internationalization of China's futures markets.

Steel Price Outlook: HRC, CRC, HDG, Plate

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The US price of hot-rolled steel coil (HRC) has recently bumped up near the end of May on our IndX, which indicates more broadly that HRC, as well as CRC and HDG steel, seem to be stabilizing after falling for over a year. However, it seems early to call for a bottom. While commodity markets remain bearish and the dollar holds, we don’t expect HRC, CRC or HDG prices to make significant upside moves.

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