Articles in Category: Macroeconomics
Liquid metal

The Chinese aluminum industry has been able to cut costs by essentially selling liquid metal to nearby product manufacturers. Source: Adobe Stock/Kybele.

The head of aluminum for Rio Tinto Group is making a bold prediction: prices for the metal are heading for an “extremely” volatile crossroads.

According to a recent report from Bloomberg, Alfredo Barrios cites uncertainty with the timing of China curbing production, which will further serve to keep investors on the edge of their seats.

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!

“That’s really where the uncertainty is at the moment,” Barrios told Bloomberg in an interview at their Toronto office. “There’s no doubt that if you look at the supply side, if you look at the environmental issues, sooner or later that will change. But when is a question mark.”

China continues its fight against pollution by ordering to reduce steel and aluminum output in more than two dozen northern cities.

Aluminum Price Impacted by Overcapacity, High Inventory

Barrios added that overcapacity and high inventory could impact aluminum price increases in the near future.

“There’s a number of factors which will dampen any price increase if it goes too far,” he told the news source. “If you look at what are the fundamental reasons behind why prices are where they are, and how different they are from a year ago, it’s sometimes very difficult to see what has made aluminum be higher at all. What’s changed so radically in the last year?”

How will aluminum 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:

Liquid steel.

Innovation in steelmaking is coming from novel uses of liquid metal. Source: Adobe Stock/Photollug.

One South Korean steelmaker is seeing significant business returns as a result of rising steel prices.

According to a recent report from Reuters, POSCO, the steelmaker in question, said its estimated Q1 operating profit likely grew 82%, far exceeding analyst expectations. The reason? Rising steel prices outpacing raw material cost growth.

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!

It is also worth noting that POSCO’s (formerly the Pohang Iron & Steel Company) estimated revenue grew 17% in Q1 with final Q1 numbers expected to be reported sometime in April.

Steel Industry Rallying Behind President Trump

Our own Jeff Yoders reported this week the American Iron and Steel Institute stands firmly in the corner of the Trump administration in supporting its executive actions against regulation. The AISI released a statement supporting the executive action lifting the Environmental Protection Agency‘s Clean Power Plan.

“The domestic steel industry has made substantial gains in reducing our energy usage as well as our environmental footprint, and we remain committed to our sustainable performance,” said Thomas J. Gibson, president and CEO of AISI. “However, these burdensome regulations could harm the international competitiveness of energy-intensive, trade-exposed U.S. industries like steel.’

How will steel 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 lighted underground tunnel in a nickel mine.

Nickel prices remained steady last week due to a lack of new fundamentals that would drive the commodity either up or down.

According to a recent report from the Economic Calendar, nickel traded on the London Metal Exchange at $10,210 to $10,115 a metric ton with support at $9,860/mt and resistance at $10,735/mt.

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!

Leia Toovey, writing for the Economic Calendar, said “Nickel futures experienced upside earlier in the month when Philippine President Rodrigo Duterte threatened to stop all mining in the world’s biggest exporter of nickel. This comes after the Philippines suspended mining activities at numerous nickel mines found to be in violation of environmental regulations.”

Nickel Prices Break Even in Q1

Our own Raul de Frutos recently wrote extensively on the current state of the nickel market, and found that while most industrial metals will finish Q1 2017 on the upside, nickel is one exception.

de Frutos wrote: “The metal has traded up and down to finish the first quarter close to flat. Nickel prices are significantly higher than they were one year ago and traders are now finding little reason to be any more bullish than bearish due to a mix of news that helps both positions.”

He concluded that nickel is in dire need of new fundamental price drivers, positive or negative.

“With all of this uncertainty, industrial buyers might want to wait for new clues before making purchasing decisions,” he wrote.

How will nickel 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:

Did you honestly think it had gone away? In the week that the U.K. government is set to announce article 50, formally notify its European partners that it plans to leave the E.U. within two years, we’re reminded of the ongoing political process which is likely to add significant volatility in the year ahead.

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

The U.K.’s (or at least Great Britain’s, Scotland is vowing to hold its own referendum on staying in the U.K.) decision to leave the E.U. will have far-reaching consequences but, realistically, does not look likely to signal a breakup of the E.U. itself. Recent elections in the Netherlands saw a swing back to liberal pro-E.U. political parties and a rejection of more xenophobic and anti-E.U. sentiments as espoused by Geert Wilders and his Party for Freedom. Although she is likely to do well in the first round, the Dutch result does not bode well for Marine Le Pen in the upcoming French elections with pro-E.U. parties doing well in the polls. The E.U., politically, is currently showing a united front particularly in its pre-negotiating stance with the U.K.

Clean Break? Or Regulatory Cooperation?

Britain, on the other hand, is waging what can the politely be called an internal debate between those who are lobbying for a hard Brexit or clean break from all E.U. laws and institutions, and those on the other side taking a more pragmatic view that it could be in Britain’s interest (if it genuinely wants some form of open access to E.U. markets) to maintain compliance with many E.U. regulations and institutions. Read more

The head of an Indian zinc company is using the surge in metal prices to the financial benefit of his shareholders in a major way.

According to a recent piece from Bloomberg, Anil Agarwal, the billionaire head of Hindustan Zinc Ltd., is parlaying metal price increases into a $4 billion dividend for shareholders in what is being called a record return for the company.

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 closest beneficiaries include Vedanta Ltd. (65% ownership) and the Indian government (30% ownership), Bloomberg stated. Hindustan Zinc is the largest zinc producer in India.

“Vedanta continues to be in a very good space given all its verticals are doing well and if they can reduce debt that would be a better ploy and would increase the returns for shareholders,” Sanjiv Bhasin, executive vice president at India Infoline Ltd., told the news source by phone. “Metals, as a proxy to global growth and given the stimulus announced in the U.S., have been the best asset class in the past one year, and it will continue to outperform.”

Zinc Price Rally Amps Up

Our own Raul de Frutos wrote earlier this week that zinc prices climbed the week prior and the metal is now trading near the milestone of $3,000 per metric ton, which is the last time prices have been at this point since September 2007.

de Frutos wrote: “Zinc has doubled in price since it hit bottom in January of last year. As prices climbed, many buyers probably made the mistake of thinking prices were too high, missing this spectacular rally. However, buyers that subscribe to our monthly outlook, didn’t miss this rally. We recommended buying forward starting in April of 2016. Ever since, prices have risen without looking back.”

How will zinc 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:

Macro photo of a piece of lead ore

Lead prices grew 0.7% at the beginning of the week, reaching $2,290 per metric ton, while sister metal zinc rose 0.4% to $2,875 per mt.

This data, reported by Reuters, is trending in line with our own Raul de Frutos’ projections that lead prices will trade at $2,800/mt by the end of the year. The metal has fluctuated fairly wildly over the past several months following a significant run throughout most of 2016.

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!

de Frutos stated: “Prices are now back near new highs as bulls seem to be taking control again.”

He added that lead prices are currently holding well and could be ready for another rally, thus the anticipation for a $2,800/mt by the end of 2017.

Lead Prices Still Have a Ways to Go

“Lead treatment charges have plummeted over the past few months. They are currently below $20 per mt, from $80 just three months ago. In this respect, lead is playing catch-up with its cousin zinc, in which the deficit for refined metal is more obvious.”

How will lead 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:

Tin cans. Cans are used for packing all sorts of goods – conserved food, chemical products such as paint, etc

Tin prices hit $20,459 a metric ton to begin the week, marking its highest point in nearly two months due in part to concern over shortages on the London Metal Exchange following cancelled warrants.

According to a report from Reuters, those shortages grew to nearly 50% of LME stocks.

Tin has been riding a high wave since January 2016 with global prices for the metal surging by nearly 40% since that time.

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!

According to a recent report from The Star Online, Malaysia Smelting Corp is anticipating better performance this year given the continued ascent of tin prices. MSC is the world’s second-biggest tin supplier and is counting on tin price growth, along with a strengthening of the U.S. dollar, to bring substantial improvement to the company’s profit over the course of the coming quarters.

“We will continue to make the necessary strategic decisions and adapt to the ever-changing marketplace,” CEO Datuk Dr. Patrick Yong told the Star.

How will tin 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:

The U.S. dollar fell sharply last Wednesday against a basket of currencies as the Federal Reserve announced a rate increase of a quarter point.

US Dollar index: Source @stockcharts.com.

The move seems to contradict common economic wisdom. In theory, higher raters in the U.S. should make the dollar more attractive for yield-seeking investors when interest are rates are lower around the globe. Then, what caused the currency to weaken?

All About Expectations

A rate increase came as no surprise to U.S. markets. The real surprise came in the language that wrapped the announcement. Fed officials intend to keep raising rates, however they want to keep the economy from getting too hot… but also not too cold.

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

Investors were probably betting on an acceleration in the path of raising interest rates, not a warming down. Read more

We haven’t heard much of late about President Donald Trump’s border adjustment tax, but that doesn’t mean to say it has gone away.

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

Indeed, the fact that it has a measure of support in the Republican Party suggests it could be on the agenda in the not-too-distant future. The idea is to transform the corporate tax landscape from a system that has prevailed for nearly 100 years, in which profits are taxed at the place of production, to a system in which profits are taxed at the place of sale.

A-destination based cash flow tax (DBCFT), as proposed by the House Republican tax plan, would include border adjustments that exempt exports but include imports in tax bills rather than raising federal income from a corporate income tax. As William Gale, a senior fellow in Economic Studies at the Brookings Institution explained in a recent article, all advanced countries except the U.S. already have a form of value-added tax (VAT), generally levied on top of corporate income taxes. All of those VAT systems are border adjusted, such that goods that are imported are taxed and those that are exported are not.

BAT or VAT

As part of the president’s pledge to bring jobs back to America, the border tax could have much to commend it. For example, if the U.S. introduces the system unilaterally, a factory in Ohio will pay no tax on the goods it exports to the E.U. while a factory in the E.U. will pay the border tax on its exports to the U.S. If you are a multinational corporation, suddenly it makes a ton more sense to have your new factory based in Ohio rather than some “lower cost” location. Read more

President Trump’s $1.1 trillion budget blueprint, released today, proposes dramatic cuts to the State Department and the Environmental Protection Agency, while seeking billions more for defense issues and $1.5 billion for the president’s proposed U.S.-Mexico border wall.

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

It proposes the previously reported $54 billion increase in defense spending and corresponding cuts to non-defense spending at the State Department, the Department of Housing and Urban Development, the Environmental Protection Agency and the wholesale elimination of other federal programs.

Mick Mulvaney, Trump’s director of the Office of Management and Budget, described the proposal as a “hard power budget” in a Wednesday briefing with reporters, meaning the Trump administration will prioritize defense spending over diplomacy and foreign aid. It significantly cuts funding to global institutions such as the World Bank and the United Nations, too.

While the budget notes that plans and costs for the border wall are not yet completed, according to Mulvaney, the budget will include a request for $1.5 billion as the first installment payment for the promised wall and then another installment of $2.26 billion in 2018.

Steel Shipments Up in January

The American Iron and Steel Institute recently reported that for the month of January 2017, U.S. steel mills shipped 7,708,416 net tons, a 7.5% increase from the 7,173,245 nt shipped in the previous month and a 9.6% increase from the 7,031,307 nt shipped in January 2016.

Two-Month Trial: Metal Buying Outlook

A comparison of January 2017 shipments to the previous month of December 2016 shows the following changes: hot-dipped galvanized sheets, up 14%, cold rolled sheets, up 13% and hot-rolled sheets, up 4%.