Articles in Category: Commodities

Copper prices continued to make new lows in January. Prices fell below $2 per lb. for the first time since May 2009. Our Copper MMI tracking prices globally fell 5% to 58 points.

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Some investors see copper not only as a benchmark for base metal prices, but also as a benchmark for the state of the global economy. Right now, there is not much going in favor of copper. The global economy is having its worst moment since the global recession of 2009, at least from an investor’s perspective. Meanwhile, commodity markets continue to slide driven in part by a slump in oil prices.

The combination of lower copper and oil prices is specially hurting some copper producers that also have energy assets such as Freeport-McMoRan. The company is the world’s largest copper producer while oil and gas accounts for almost one-sixth of Freeport’s revenues. The company’s stock price fell 45% just in the first two weeks of January, after it hit a 13-year low in December.

Copper_Chart_February-2016_FNL

Copper investors are closely watching Chinese economic data, as China is the world’s largest consumer of copper. The year started on a weak note after the China’s PMI came at 48.4 in January. The index has been in contraction territory (below 50) since March 2015.

The Copper Lining

On the other hand, copper bulls could find some bright spots in January’s data. China is not self-sufficient in its copper requirements, so it imports the metal in large quantities. December’s trade data showed that Chinese copper exports increased sharply, rising hopes among copper bulls that the country’s copper demand might not be as weak as the current price trend depicts.

Copper import data will be something to watch in the months ahead as it will provide insight on whether the spike seen in December imports was something sustainable or more of a one-time blip.

Better than expected copper imports in January could give some support to copper prices although if China’s copper imports start dipping that could spoil investors’ sentiment.

Free Download: The January 2016 MMI Report

Another factor that could have some positive impact on copper prices is the recent dollar weakness. The dollar and dollar denominated commodities are inversely correlated. The Fed not rising rates in March could potentially cause the dollar to weaken in the months ahead. On the other hand, rising rates could trigger more sell-offs in copper and the rest of base metal prices.

What This Means For Metal Buyers

Other than better-than-expected Chinese copper imports in December, there is little going on to expect a turnaround situation in copper markets. While the slump in commodities continues and global markets slide, copper has little upside potential.

Exact Copper Prices and Market Trends

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There was a lot of talk last year about coal resources needing to be left in the ground if the world was to reach it’s 2-degree-celsius reduction environmental targets.

Free Sample Report: Our February Metal Buying Outlook

The suggestion was that legislation was required to force power generators to switch to less polluting energy sources and, while in the meantime tougher emissions standards have played their part, the market has been much more active than government in encouraging change.

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy.

A recent US Energy Information Administration report covered by Reuters states that generators produced 101.86 million megawatt hours (MWh) of electricity with gas in November versus just 87.78 million MWh with coal, the lowest monthly level since May 1980 when monthly coal use was 84.88 million MWh.

How Coal Lost Ground

After more than one hundred years during which coal was the dominant fuel for power generation, some analysts think that when the final data for December is in, 2015 will prove to be the year natural gas took over. Read more

Screen Shot 2016-01-29 at 10.12.15 AMAre you making day-to-day metals purchases and spot buys? Or do you need a longer-term perspective for budgeting and planning, improved negotiation of contracts with customers and more effective SLAs and contracts with suppliers? We have the complimentary report that will do all that, plus help you manage your hedging strategy.

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Democratic senators want more restrictions on investment banks activities in commodities markets, including industrial metals. Chinese metal traders are thinking of taking an even longer break for the Lunar New Year due to to low prices.

Democrats Push for Commodities Oversight

Democratic senators pressed the Federal Reserve on Wednesday to act more forcefully, and quickly, to limit banks’ involvement in the commodities business.

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For months, Congress has been evaluating complaints that the huge commodities holdings of investment banks such as Goldman Sachs and Morgan Stanley pose a risk to the financial system. Businesses and consumer groups have also expressed concern that the banks’ financial heft gives them an unfair advantage over other competitors as well as the ability to manipulate prices for essentials like energy, cotton and food.

Senator Sherrod Brown (D.-Ohio), who led Wednesday’s hearing on the issue, said he was “incredulous” that the Fed had been examining the matter for six years and had yet to make significant changes.

“The Fed’s proposal yesterday was a timid step,” said Brown. “It was too slow in coming, and there is still too much that we do not know about these activities and investments.”

A Longer Break for Chinese New Year

Chinese metal traders and merchants are likely to take longer than usual Lunar New Year holiday break this year, Reuters reported. They are betting that spot demand for metals such as copper will stay weak at least in coming few weeks, industry sources said.

Free Download: The January 2016 MMI Report

Manufacturers and merchants see weak demand weighing on spot prices that are already at multiyear lows, although some futures prices are higher as investors see demand recovering after the holidays. The most-active base metal contracts on the Shanghai Futures Exchange were up 1-7% on Thursday from late January levels.

The Raw Steels MMI held steady at 47 this month. Although international steel prices remained depressed in January, domestic prices drew a different picture.

US Mills Increase Prices

US steel mills began raising prices in December, leading to higher domestic prices in January. Domestic supply had declined significantly in 2015, with capacity utilization close to 60%.

Raw-Steels_Chart_February-2016_FNL

At the same time, with the uncertainty regarding anti-dumping actions, finished steel imports have slowed.

Free Sample Report: Our February Metal Buying Outlook

Finally, steel companies’ shipments were impacted over the past few months as service centers focused on destocking and now that inventory has finally come down, service centers will finally need to start restocking activity. This combination of factors left US mills in a sweet spot in 2016 to increase prices.

Sustainable Increase?

Domestic prices might continue to rise in the coming weeks. After the huge price slump in 2016, domestic prices deserve a bounce in Q1. However, mills won’t likely succeed in raising prices for too long.

The world remains oversupplied and demand is weak. Due to the political backlash from job losses spurred by mill closures, China wants to keep its mills running. With the ongoing Chinese yuan devaluation, Beijing has made its intention clear. China wants its exports even more competitive in global markets, especially in the steel industry as China continues to seek a home for its excess steel.

Compare With The January 2016 MMI Report

If domestic prices stayed higher, that would attract more imports, resulting in more material coming into the US and depressing prices as a result. In addition, it’s hard to imagine steel prices bucking the falling trend across the industrial metal sector. It will be hard for US mills to convince buyers to pay higher prices while commodities nearly universally fall.

Falling Raw Material Costs

Another important factor that will keep a lid on steel prices is the slump in input costs. In January, oil prices fell below $30/barrel. Falling energy prices will cause companies in the energy sector to reserve capital to keep on their balance sheets, rather than spending money on new exploration. This will continue to hurt steel demand from the energy sector. At the same time, while raw material prices keep falling, it will be difficult for US steel mills to justify their price increases for long.

Actual Raw Steel Prices

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With aluminum prices falling over the past year, stock prices for companies that smelt the metal such as Alcoa, Inc., and Rio Tinto Group are suffering as a result, but more action will have to be taken on their part if they’d like to return to profitability.

According to a recent article from US News & World Report, aluminum smelters have already started to reduce production of the metal, but they may have to further cut back on output if they want to return to the black as aluminum demand is not expected to rise any time soon.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“The price in general has gone lower even though we’ve seen industrial demand and some production cuts,” Michael Turek, a senior trader at BGC Partners, a New York-based global financial services firm, told the news source. “The fact that prices continue to go lower suggests the market feels that thus far, it’s been a cosmetic surgery rather than mainstream surgery.”

On the London Metal Exchange, aluminum prices have dropped about 20% over the past year with global demand slowing. China’s economic issues have spearheaded the decline, as has been the case with many commodities.

“In terms of pure fundamentals, (the aluminum industry) doesn’t appear to have a lot going for it,” Turek added. “I don’t have any major grand upside aspirations for the market. We’re going to need more production cuts, and they’re going to have to be sustainable.”

We here at MetalMiner™ agree with this sentiment.

How will base metals fare in 2016? You can find a more in-depth aluminum price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Our Automotive MMI held steady for the third month in a row at 68.

Free Sample Report: Our January Metal Buying Outlook

Considering that other metals prices are still falling, it’s quite a feat that automotive has been able to even hold steady for this long. Prices of stainless, aluminum and copper are all down in their individual MMI sub-indexes this month and our Raw Steels MMI was flat.

Automotive_Chart_February-2016_FNL

Low prices simply have not been enough to entice larger raw material purchases by automakers. U.S. auto sales fell slightly in January because of the East Coast snowstorm, but analysts say end user demand remains strong and buyers will likely head back into dealerships this month. Sales fell less than 1% to 1.1 million, according to Autodata Corp.

Low gas prices and even lower interest rates are continuing to fuel sales and most automakers are optimistic that they can break last year’s sales record by the end of the year. The problem facing metal producers is that there is still so much oversupply out there that even the market hunger for new cars, trucks and SUVs can be sated several times over by the stockpiles that currently exist.

Producers Targeting Automotive

Automotive is still a coveted market for most producers. Nucor Corp. recently opened an office in Detroit as part of a push to increase its sales to the auto industry by 40% to 50% over the next two years. Charlotte-based Nucor saw its sales to the automotive industry increase 20% last year — 1.4 million tons of steel products — over 2014’s numbers.

Alcoa, Inc. is even coming closer to realizing its previously announced split by naming new directors for its new automotive and aerospace company, all of them with experience in the fields.

Free Download: The January 2016 MMI Report

The fundamental strength of the sector will likely still be there when stockpiles finally dwindle and we see prices rise. Many are predicting that rebound for later this year, but there’s very good reason to believe 2016 could be another low-price year as there is still no definitive deal to reduce oil production and many miners and metal producers are not curtailing production.

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You may be an investor in mining shares or you may be an investor in commodities, or you may be both, but your pension fund — if it’s any good — is almost certainly neither.

Free Download: The January 2016 MMI Report

Because, if it holds mining shares, it is nursing some heavy losses after the last 12 months.

Source: Telegraph Newspaper

Source: London Telegraph

Pension funds, thankfully, are cautious animals. They like solid dividend payers — as many in the mining sector have been for years — but they hate the combination of falling share price, high debt and low commodity prices that will almost certainly result in a cut in dividend payments this year even if mining companies are to survive the downturn. Read more

Last Friday, Japan’s central bank surprised markets by setting the country’s first negative interest rates. The current global economic instability, reflected in stock markets and low commodity prices, is threatening to drive the country back into deflation.

Free Sample Report: Our January Metal Buying Outlook

The Bank of Japan is now the second major central bank to set negative interest rates, after the European Central Bank first did so in 2014. In Sweden, Denmark and Switzerland central banks also have negative interest-rate policies.

What’s A Negative Interest Rate?

During inflationary periods, assets become more expensive over time and money that is not spent or invested is just losing its purchasing power. People tend to spend money during these periods rather than let it lose more value holding onto it.

While in deflationary periods, people tend to accumulate their money instead of investing or spending it, resulting in falling demand and lower prices. In deflationary periods central banks usually loosen their monetary policy to deal with it. However, in strong deflationary periods, simply cutting interest rates to zero may not be enough to stimulate lending.

Negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.

Dollar Up, Yen Down

Dollar jumps near 2% against yen on Friday

Dollar jumps near 2% against yen on Friday. Source: MetalMiner analysis of Yahoo! Finance data.

A result of the negative interests rates set on Friday was a devaluation of the Japanese currency against other currencies, including the US dollar. The dollar jumped almost 2% on Friday against the yen. Read more

For the foreseeable future, Allegheny Technologies, Inc. (ATI) is out of the flat-rolled stainless commodity business as well as the grain-oriented electrical steel (GOES) market.

Free Download: The January 2016 MMI Report

ATI will be focusing on global markets with high barriers to entry. As we reported last month, ATI is reducing its exposure in commodity products by idling its Midland, Pa., plant, a commodity stainless facility, and its Bagdad GOES production facility in Gilpin Township, Pa.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI’s Brackenridge facility is the future and commodity stainless is its past. Source: ATI

Earlier this week, ATI reported in its earnings call a net loss of $378 million for 2015 as compared to a net loss of $2.6 million in 2014. ATI’s flat-rolled products business segment is to blame for the staggering losses. Operating losses for flat-rolled products were $242 million for 2015. For this reason, Rich Harshman — ATI’s chairman, president, and CEO — stated that ATI is taking “rightsizing actions” to return the segment to profitability as quickly as possible and “execute our strategy for sustainable long-term profitable growth.”

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