Articles in Category: Investing Hedging

In October, Alcoa, Inc. divided the company into two separate entities. The split created a commodity-focused company which retains Alcoa’s name and its upstream business. The second entity, called Arconic, now operates as the company’s downstream business.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

When the split was announced last year, Arconic was supposed to drive value for shareholders once listed as a separate entity while Alcoa’s stock price was expected to remain depressed since, at the time the split was announced, aluminum prices were trading near their 2009 lows.

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of stockcharts.com data

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of @stockcharts.com data.

Guess what happened? Read more

As the dust settles from President-Elect Donald Trump’s historic win last week, we’re starting to see what it might mean for infrastructure.

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The Wall Street Journal said last week that his $1 trillion building proposal relies entirely on private financing, which industry experts say is likely to fall far short of adequately funding improvements to America’s crumbling roads, bridges and airports.

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Is it a brand new day for privately funded public infrastructure projects? Or can only direct federal spending fix our roads, rail stations, bridges and airports? Source: Jeff Yoders.

Trump wants private investors to put money into projects in exchange for tax credits totaling 82% of the equity amount. His plan anticipates that lost tax revenue would be recouped through new income-tax revenue from construction workers and business-tax revenue from contractors, making the proposal essentially cost-free to the government.

The Trump/Navarro PPP Plan

Peter Navarro — a public-policy professor at the University of California, Irvine, and an adviser to Trump — wrote on his personal website that, “For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity… The size of the required equity cushion will, of course, vary with the riskiness of the project. However, we are assuming that, on average, prudent leverage will be about five times equity. Therefore, financing a trillion dollars of infrastructure would necessitate an equity investment of $167 billion, obviously a daunting sum.” Read more

The Dow Jones Industrial Average opened at a record high today, driven by financial stocks, after the index capped off its best week since 2011 following Donald Trump’s unexpected victory in the U.S. presidential election.

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Since Trump’s triumph last Tuesday, investors have been betting on his campaign promises to simplify regulation in the health and financial sectors and boost spending on infrastructure.

The financial index rose 2.18% to its highest level since 2008. Goldman Sachs and JPMorgan Chase provided the biggest boost to both the S&P 500 and the Dow. Stock markets around the world were affected by a continued selloff in the global bond market as investors looked for more clarity regarding Trump’s policies.

Chinese Steel Output Increases in October

China’s steel output rose 4% to 68.51 million metric tons in October from a year ago, government data showed, as steel mills in the world’s top producer further expanded production.

Two-Month Trial: Metal Buying Outlook

Total output for the first 10 months of 2016 edged up 0.7% to 672.96 mmt, data from the National Bureau of Statistics also showed on Monday.

Copper has burst to life on the London Metal Exchange after a year of choppy sideways trading. Benchmark, three-month copper has exploded to the upside, hitting a 15-month high of $5,443 per metric ton on Wednesday.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

As is the way with markets, the move is feeding on itself as shorts buy back positions and momentum-chasing funds join the action.

September Steel Shipments Down From August

The American Iron and Steel Institute (AISI) reported that for the month of September, U.S. steel mills shipped 6,769,312 net tons, a 10.3% decrease from the 7,542,605 nt shipped in the previous month, August 2016, and a 4.9% decrease from the 7,120,663 nt shipped in September 2015.

Shipments year-to-date in 2016 are 65,803,018 nt, a 0.5% decrease from shipments of 66,162,973 nt in the first nine months of 2015.

Two-Month Trial: Metal Buying Outlook

A comparison of September 2016 shipments to the previous month shows the following changes: hot dipped galvanized sheets and strip, down 8%; cold rolled sheets, down 8%, and hot rolled sheets, down 13%.

There was no booing and no slow handclapping when Garry Jones, chief executive of the London Metal Exchange (LME), rose to address the exchange’s annual black-tie dinner at the Grosvenor House Hotel in London.

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There had been considerable speculation as to what sort of reception he would get after a year of falling exchange volumes and a protracted dispute with brokers over trading fees.

But decorum was maintained and Jones was in conciliatory mood, accepting with “some humility” that things hadn’t gone “as well as we hoped.” Reuters’ Andy Home has more.

Last Pre-Election Purchases Help Boost Copper

LME copper prices see-sawed in positive and negative territory on Tuesday after posting hefty overnight gains on growing signs that Hillary Clinton will win the U.S. presidential election over her Republican rival Donald Trump.

Shanghai copper futures showed consistent gains, with some traders hedging expectations that the value of the U.S. dollar would erode if Trump eked out a victory. Read more

Many active investors in the aluminim market will have watched, perplexed and confused, as to why the London Metal Exchange price continues to rise, yet the fundamental reality is one of, if not an oversupplied market, at least one with no shortage of metal in storage.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Producers will claim some credit for cutting capacity and talking up demand, which — to be fair — both positions hold some water. Western smelters in the U.S. and Europe have been relentless in cutting uneconomic refining in the face of weak prices.

Aluminum Smelter Closures

Source: CRU

This graph from CRU shows the steady demise of the U.S. primary aluminum smelting industry and you only have to Google “closure of aluminum smelters” or something similar and you will get a litany of stories about smelters being closed or facing imminent closure around the world.

Production Overseas

At the same time, though, production in the Middle East has jumped from 0.9 million metric tons (mmt) in 1999 to an expected 5.7 mmt this year, and Chinese primary production has skyrocketed from 2.6 mmt in 1999 to reach 31.2 mmt in 2015, with more to be added in 2016. Read more

The Telegraph newspaper, while widely respected, has a tendency to shout doom and gloom at the first signs of potential trouble, but that doesn’t mean it is always wrong.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The paper, and particularly those articles of International Business Editor Ambrose Evans-Pritchard, have at times been quite prescient. So dire is his latest offering it should, maybe, not be dismissed as scaremongering for headlines sake. The article makes the point that dollar Libor rates are tightening across large parts of the global economy and will, if they continue, cause significant stress in credit markets and ultimately stock markets. Read more

Oil inventory hit an all-time high after a surprisingly strong last full week of October and a major copper trader said the LME should cut fees.

Oil Inventory Hits an All-Time High

The Energy Information Administration said oil inventory is up by 14.4 million barrels in the week to October 28, reaching 482.6 million barrels. That’s the largest weekly build since the U.S. Energy Department started keeping records in 1982.

Two-Month Trial: Metal Buying Outlook

Oil prices fell after the data, with benchmark U.S. crude futures dropping 3.3%, or $1.57, to $45.12 a barrel, their lowest level since late September. U.S. crude imports jumped by about 2 million barrels per day to just under 9 million bpd, the highest rate since September 2012.

Red Kite Founder Says LME Should Cut Fees

The London Metal Exchange should further cut fees and review rules that may give high-speed traders an unfair advantage, the founding partner of Red Kite Group, Michael Farmer, said on Tuesday.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Farmer, who has earned the nickname Mr. Copper for his long experience in industrial metals trading, warned that rising fees and high-frequency trading will further cut liquidity on the LME, which has suffered sliding volumes this year.

3M LME aluminum price hits 15 month high. Source: fastmarkets.com

Three-month LME aluminum price hits 15 month high. Source: Fastmarkets.com.

Aluminum prices hit new highs this week, rising above $1,700 per metric ton on the London Metal Exchange. Aluminum supply has increased this year as rising aluminum prices triggered release of new capacity and restarts of idled capacity. However, as we recently pointed out, there are other factors pushing aluminum prices up:

Rising Costs

It takes a lot of energy to smelt aluminum. Indeed, energy accounts for around half of the cost for Chinese smelters to produce aluminum.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Thermal coal prices in China have more than doubled this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. Alumina prices in China have also entered the upward track from mid-August, increasing around 50% so far this year.

Strong Demand

Chinese demand from infrastructure and construction has been robust this year. The auto sector, another big industry for aluminum demand, continues to look strong. In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year.

What This Means For Metal Buyers

Industrial metals have been in bullish mode since early this year. Aluminum prices are finally jumping on the bandwagon. Aluminum buyers should minimize their price risk exposure if they haven’t done it yet.

Reuters reports 1.8 million metric tons of previously mothballed Chinese aluminum production capacity has now been restarted this year following a massive slump last year as prices plummeted.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

While another 2.5 mmt of new capacity, much of it ultra-low-cost, is also expected to be added by the end of the year, a process of both restarts and greenfield additions that is expected to continue into the year end. Factor in new supply from Bahrain and India, and global supply is outstripping real demand.

Distortions in the Market

The aluminum market may be distorted more than most, but copper is not far behind and steel is plagued by overcapacity running into the hundreds of millions of metric tons.

Zinc has had a strong run this year with prices rising on the back of strong (construction-supported) galvanized steel demand and a constrained supply view. But 2017 will see the return of Glencore’s 500,000 mt/year operation, previously mothballed due to low prices, significantly increasing supply.

Even the nickel market, although said to be in deficit because of Indonesia’s absence from the market and cut backs in the Philippines, has seen prices rise on the back of rising (Chinese) stainless production.

How Far Can This Stimulus Go?

Prices and production are both supported and supporting each other on the basis of strong demand and production in China across a range of metals. How much longer has China’s housing market got to run?

Free Download: The October 2016 MMI Report

How much more debt is Beijing willing to acquiesce to being added in support of maintaining an adherence to a dogmatic GDP growth target? Take your guess, but 2017 could see an easing in support and many of these markets might lose the support they have enjoyed this year. That doesn’t mean a crash, but it will mean a cap to further price increases and the possibility of prices falling back for those commodities most vulnerable to speculative support and oversupply.