Articles in Category: Macroeconomics

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Copper prices are on the ascent, thanks in part to the latest Chinese trade data and genuine excitement among investors over worldwide growth and capacity cuts.

According to a recent report from The Wall Street Journal, China’s debt crackdown earlier this year led to an adverse effect on metal prices and general worry from investors.

That worry has turned to elation, with copper prices up 7% due to capacity cuts in China. Meanwhile, iron ore prices are up more than 20% since the end of June.

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The most recent Chinese trade data, representing July, painted a different picture with year-over-year growth of Chinese imports of copper concentrate slowing from June’s growth.

Nathaniel Taplin wrote for the Wall Street Journal: “Overall import and export growth also slowed, hinting that the lift to China from rebounding global trade may be close to its peak.”

The takeaway for copper investors impressed with Q2 Chinese growth? Not to get too excited until the whole story is revealed as China’s demand for metals, specifically copper, is weaker than expected.

Copper Prices Still Experiencing a Stellar 2017

Our own Irene Martinez Canorea wrote earlier this week that copper is outperforming all other base metals this month with copper traded on the London Metal Exchange up 7.8% in July.

She wrote: “The sharp increase in copper prices came after an announcement of a possible ban of copper scrap in China by the end of the year. The increase in copper prices was accompanied by heavy volume, which may signal a stronger uptrend.”

How will copper and base metals fare in 2017? You can find a more in-depth copper 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:

China’s continued regulation of its bloated aluminum industry is having a far-reaching impact on the growing share price of its major producers, thus adding to a tighter global market and rising prices.

According to a recent report from Reuters, China represents nearly 60% of worldwide aluminum output with analysts estimating up to 4 million tons of capacity closing this year, accounting for one-tenth of the Far East nation’s total, putting added pressure on the global aluminum market.

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Aluminum Corp of China (Chalco) shares, a state-run entity, increased 47% since the start of last month.

“Chalco is the market leader, so if (competitors) are closing down their capacity, they are able to expand their production,” analyst Helen Lau, of Argonaut Securities in Hong Kong, told Reuters.

Aluminum Prices on the Run

While aluminum prices are on the rise, they may have further to go, analysts tell Reuters. Shanghai aluminum is up around 11% so far this year while benchmark aluminum on the London Metal Exchange is up 14%.

“The trend is definitely towards a much tighter market balance – there is an upshot to prices here definitely,” London-based WoodMackenzie analyst Ami Shivka, told Reuters. “The China market is in a surplus so any closures in China will whittle away the little bit of surplus that we have in China, and put the global market in a deficit.”

How will aluminum and base metals fare in 2017? 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:

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The Chinese government announced they have shut 42.39 million tons of crude steel capacity in the first half of this year.

According to a report from Reuters, this amounts to 84% of its target for the whole year, putting it well on track to meet its steel capacity reduction goals for 2017.

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This move also puts China very close to completing its 5-year target in reducing steel capacity, set just last year. That ultimate goal was to cut between 100 million and 150 million tons of excess steel capacity in less than two years.

According to Reuters: “China made the pledge in January 2016 as it bid to put an end to a price-sapping capacity glut that had left the country’s massive steel sector mired in debt and losses. The capacity cuts made this year do not include a nationwide campaign to shut down illegal low-grade steel production, believed to amount to around 100 million tonnes a year, which was completed by the end of June.”

Steel Market Moves Elsewhere in the World

Our own Irene Martinez Canorea wrote recently of the Brazilian steel market and where that is headed. Rising steel prices in the South American nation point toward a general uptrend, but more specific price movements depend on the steel.

Canorea wrote: “Brazil is the largest steel exporter in South America, with increasing production this year. Brazil exports primarily to the U.S. and Mexico, with Mexico serving as the second-largest steel producer in South America. According to preliminary U.S. Census Bureau for June 2017, the U.S. imported 590,473 metric tons of steel from Brazil, up significantly from the 259,285 metric tons imported in June 2016.”

How will steel and base metals fare in 2017? You can find a more in-depth steel 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:

Eramet, a prominent French nickel miner, recently announced additional cost cuts following its nickel division suffering more losses in the first half of this year.

According to a report from Reuters, this announcement comes after the mining company said it would alter its strategy to include the lower-grade nickel pig iron market with a new mining project in Indonesia.

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Nickel mining companies from across the globe are suffering the effects of a weakness in market prices, and Eramet is no exception. Pressure on nickel prices can be attributed to top producing nations Indonesia and the Philippines placing restrictions on their mining sectors.

According to Reuters, nickel prices were higher the first half of last year, but still less than production costs of Eramet’s nickel plant in New Caledonia.

“We’re working flat out to reach $4.50 which is still our cost target for the end of the year,” Chief Executive Christel Bories told the news source. “With a market price that languished below $4.50 in the first half and for some time before that, we’re convinced we have to go beyond $4.50 and pretty quickly.”

Nickel Price Outlook for the Remainder of 2017

How will nickel and base metals fare in 2017? You can find a more in-depth nickel 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:

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The International Lead and Zinc Study Group (ILZSG) released its first half of 2017 findings for zinc, which found the worldwide market for refined zinc metal was in deficit during the first five months of the year while total reported inventories declined over that same time frame.

The ILZSG reported that world zinc mine production grew by 6.3% despite reductions in the United States and Australia.

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“A significant 54.8% rise in Indian refined zinc metal output was largely offset by reductions in Canada, Japan, the Republic of Korea, Peru and Thailand resulting in an overall global increase of 0.4%,” the ILZSG report stated.

Furthermore, after a significant decrease in 2016, apparent demand for refined zinc metal in the United States grew 19%. In China, apparent usage declined by 2.8% and grew 1.8% in Europe. On a global basis, zinc demand grew 1.1%.

The ILZSG report on zinc concluded: “Chinese imports of zinc contained in zinc concentrates amounted to 477kt, a rise of 27.9% compared to the same period of 2016. The country’s net imports of refined zinc metal decreased by 48.4% to 129kt.”

Zinc Price Outlook for the Remainder of 2017

How will zinc and base metals fare in 2017? You can find a more in-depth zinc 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:

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group (ILZSG) released its monthly report for July, which found that global refined lead metal demand outgrew supply during the first five months of the year.

Furthermore, total reported stock levels increased over this time, as well.

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The ILZSG report revealed an increase in global lead mine production of 12.7% when compared to the first five months of 2016. This was mostly attributed to increased output in China and India, which counterbalanced decreases in Peru and Australia.

According to the ILZSG: “A rise in world refined lead metal output of 7.2% was primarily influenced by increases in China, India, the Republic of Korea and the United States. An increase in US apparent demand for refined lead metal of 23.3% was principally a consequence of a sharp rise in net imports. Chinese apparent usage rose by 13.7% and in Europe by a more modest 1.7%. Overall global demand rose by 10.3%.”

The ILZSG report concluded that Chinese imports of lead contained in lead concentrates dropped 4.9%. Meanwhile, net imports of refined lead metal grew substantially, from 12kt in 2016 to 41kt this year.

Lead Price Outlook for 2017

How will lead and base metals fare in 2017? You can find a more in-depth lead 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:

 

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India’s move to a Goods and Services Tax (GST) last month has been generally heralded as a good thing.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Unifying tax codes across states and allowing the free movement of goods between states will speed up internal trade and simplify companies’ reporting — that is, if the government had resisted the temptation to meddle with multiple tax rates.

The introduction of the GST in India creates complexity out of simplicity. Whereas markets like the U.K. that have a similar VAT system have one main rate of 20%, with a reduced rate for home power of 5% and zero on a very limited range of goods like food and children’s clothes, India has five rates (0%, 5%, 12%, 18% and 28%), with many very similar products falling into a lower or higher bracket – encouraging distortions in the market as producers switch ingredients, product focus or labeling to try and circumvent higher bands.

Still, the benefits are expected to be significant even if reality doesn’t live up to expectation. The metals industry is predicting savings of 40-45% in the time taken to move goods as border tax points to collect state taxes and hence lengthy delays of up to 10 hours will become unnecessary.

For metals producers, it will come down to what rates apply to inputs and outputs for the industry — and there does appear to be some good news on that front.

Steel producers, at least, will face lower input tariffs, as raw materials like iron ore and coking coal will attract one of the lowest rates at 5%. Of course, like all GST systems, firms can either claim back what they pay to suppliers and collect for the Treasury what they raise — such that GST becomes net neutral for processors — but there remains a cash-flow implication. If producers are only paying out 5% but collecting 18%, it is beneficial for them from a cash-flow perspective.

Maybe not surprisingly, power costs are exempt from GST (that is not the case in other countries), but for an emerging economy and one with a large contingent of poor people, exempting energy costs from the taxation system has some logic.

A pre-GST Clean Energy Tax of Rs 400 per ton is not recoverable but was previously, so its exemption now represents a minor cost to steel producers that they will not be able to reclaim. Likewise, a state royalty of 15% on iron ore is another tax outside of GST, as are various Forest Development Fees and contributions to the District Mineral Foundation and National Mineral Exploration Trust, which are considered to in effect be taxes that steel producers cannot reclaim, according to the Indian Express.

Steel producers’ input costs for natural gas — a fuel source increasingly becoming the preferred choice for steel producers switching to intermediate sponge iron or hot briquetted iron — will face some impairments as a result of these taxes being unreclaimable (either partially or completely).

Like the old swings and roundabouts, there will be some opportunities to win and some that will lose, but in general the industry sees it as positive – not least because it will encourage the unregulated end of the market to join the mainstream and take part in the tax system.

For firms that are not operating within the tax system, there will be significant cost implications and no opportunity to reclaim.

More than anything, that is probably the underlying purpose of India’s GST: to bring all enterprises into the tax system, speeding up boarding crossings and eventually simplifying tax collection and transparency are welcome benefits.

But getting everyone to pay their fair share will, in the long run, be the biggest win.

Free Download: The July 2017 MMI Report

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Tin prices strengthened on the non-ferrous metals market this week as a result of stockist purchases due to firm demand from alloy industries.

According to a report from the Business Standard, tin joined copper cable scrap, zinc and copper wire bar as having also moved up due to growing demand from their industrial bases.

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This growth may only be temporary, as our own Irene Martinez Canorea wrote just last month that the outlook remains bearish for the tin metal market.

She wrote that, similar to its sister metals, tin prices declined starting from the beginning of June. A market analysis of tin prices and trading activity indicates a more bearish outcome for the metal.

Canorea wrote: “According to the International Tin Research Institute (ITRI), the fluctuation of tin stocks has varied based upon tin prices in the market. Indonesian exports remain robust, with an increase of 10% in May compared to April. However, Myanmar tin exports decreased slightly again in May. This reduction of Myanmar output is expected to continue until the end of this year, as analyzed in detail in our monthly forecast reports.”

China Influencing Tin Prices

Canorea also noted that tin prices may also be impacted by the approval of a new Chinese policy that will directly affect the largest tin-producing company in China.

She added: “This policy consists of the removal of the valued-added tax (VAT) structure, which taxes imports of tin concentrates and was supposed to provide a tax rebate of 17% on exports. The catch? Exporters were never able to collect the rebate, so they ended up buying tin exclusively from domestic sources.”

How will tin and base metals fare in 2017? You can find a more in-depth tin 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:

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What is already a global copper deficit could worsen this year with more mines expected to be affected by worker strikes in the coming months.

According to a report by Reuters, South American copper mines are bracing for additional strikes, but polls indicate price movements have already been taken this information into account.

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“We will mostly likely see more disruptions later this year … but they are not to be as severe, and the price impacts should be largely priced in,” economist Amy Li at National Australia Bank in Melbourne, told Reuters.

The previous strikes Li is referring to were earlier this year in the world’s largest copper mine at Chile’s Escondida and the No. 2 Grasberg mine in Indonesia.

Reuters also reported copper traded on the London Metal Exchange increased 8% this year, ranking fourth of the six main LME-traded metals.

Copper Prices to Fall?

Despite a perceived shortage in global production of the metal, numerous reports have copper at risk for a price shortfall. The reason? Slow Chinese economic growth, which could take 10% or more off copper prices in the next several months.

“We expect several of the recent drivers of industrial metals — especially stronger economic growth in China — to slow going into the second half of the year,” Seth Rosenfeld, senior research analyst at Jefferies told Fox Business.

How will copper and base metals fare in 2017? You can find a more in-depth copper 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:

A major shake-up in the global aluminum industry as Norwegian firm Norsk Hydro will fully own aluminum products maker Sapa after buying a 50% stake from conglomerate Orkla.

According to a recent report from Reuters, this transaction values Sapa at $3.24 billion on a debt-free basis.

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!

Hydro produces primary aluminum from scratch, but by combining with Sapa, enhances its capabilities to become an integral supplier for automotive firms, aircraft makers and the construction sector.

“Sapa will enable us to assume global leadership, establish a platform for growth, and provide responsible operations and sustainable solutions for the future low-carbon economy,” Hydro Chief Executive Svein Richard Brandtzaeg told the news source.

He added: “The combination will make Hydro the only global company in the aluminum industry that is fully integrated across the value chain and markets.”

Automotive MMI Grows in June

The aluminum component remains a significant one for the automotive industry. According to recent analysis from our own Fouad Egbaria, the Automotive Monthly Metals Index rebounded from a reverse in May to move forward in June.

Egbaria wrote: “Although the increase was small, the one-point jump is an encouraging sign, as it marked the first increase for the sub-index since early this year, when it jumped from 82 to the February reading of 92. After that 92 mark, the sub-index posted four straight months of decreases.”

How will aluminum and base metals fare in 2017? 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: