Articles in Category: Macroeconomics

China is a top producer of aluminum, and its ongoing battle against pollution could lead to production cuts and, subsequently, skyrocketing aluminum prices.

According to a recent report from Reuters, the aluminum price rally could also potentially be offset by the oversupply situation. Any kind of extreme market fluctuation would be dependent on the Chinese government following through on the shutdown of aluminum-rich provinces during the winter months.

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“When the government in the past tried to implement measures to control production it wasn’t very successful,” Edgardo Gelsomino, research director at consultancy Wood Mackenzie, said. “The only time production cuts really happened in China was when the economics of the smelters didn’t work.”

Aluminum Prices Begin Year on a Strong Note

Our own Raul de Frutos wrote recently on exactly how much US aluminum prices and premiums can rise in 2017. Well, they started off the year strong. “While robust demand has supported aluminum prices, investors’ eyes have recently turned to the supply side of the equation. In December, China’s share of global aluminum output was more than 56%. The giant producer’s share of supply is now facing some serious risks,” de Frutos wrote.

He concluded: “In addition to higher aluminum prices due to supply cuts, we could see higher aluminum premiums due to the ongoing trade tensions, just as we saw the spread between domestic and international steel prices widen.”

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:

After over 14 hours of debate over two days and bitter clashes in Parliament, the U.K. government’s Brexit legislation has cleared its first hurdle as ministers of Parliament voted by a large majority to approve the leaving the European Union (Notification of Withdrawal) Bill by 498 votes to 114.

Source Telegraph Newspaper

The size of the majority does not reflect the relative position of “remainers” to “leavers” but, rather, the position taken by many remainers that the popular vote was to leave and, regardless of their own position, they do not have the right to vote against the decision of the people in a national referendum. The debate was more an opportunity for politicians to have their say than actually change the decision to start formal leave proceedings.

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This means Prime Minister Theresa May’s government is cleared to trigger article 50 next month, the formal start of departure from the E.U. Not that anything will change in the short term, but article 50 is the first step in a process that should take two years but could well take longer. For the next at-least-two years there will be no legal change for those manufacturers trading with the U.K. and the E.U. Article 50 is just serving notice on the U.K.’s intent to leave. Once Article 50 is invoked, the U.K. will have a minimum of two years’ negotiations during which, of course, there will be considerable volatility to exchange rates as arguments and accusations are hurled backward and forward, and firms will start making contingency plans in case the U.K. does not manage to secure a free trade deal with the E.U, at the end of the process.

The two-year period laid down in the article 50 agreement could get stretched with an “interim agreement” or “adjustment period” to three or four or possibly even five years, although that degree of uncertainty would be damaging for both the U.K. and the European Union.

Two years from now this government will be coming to the end of its term in office and will need to prove it has taken control of uncontrolled immigration, the imposition of E.U. law and has an end in sight for budget payments, so an indefinite postponement to finalize the terms of a new deal is unlikely. The next general election in the U.K. is scheduled to be held on May 7, 2020, unless it is called earlier, so the government will want to show it has delivered on its promises in the run up to the election.

Two-Month Trial: Metal Buying Outlook

In such a pre-election atmosphere, economic interests are likely to be sacrificed on the altar of political expediency. The timeframe is further constricted by elections this year in France, which means Brexit negotiations will not start in earnest until later this year, after the new French government is in office. A French government that might want to push its own exit… depending on how the election goes, of course.

So, one hurdle overcome in what will feel more like a marathon than a sprint; buckle up and enjoy the ride!

PricewaterhouseCoopers recently released its Q4 2016 Deal Insights Report. Among the findings,

  •   For Q4 2016, the total deal value of $12.9 billion for deals with disclosed value greater than $50 million was 12% higher than last quarter and 106% higher than Q4 2015.
  • Deal value in 2016 was driven by M&A activity in China, as eight of the 10 largest deals throughout the year were announced by Chinese acquirers.
  • Over the past three years, 77% of deal activity has occurred locally.

I had a chance to discuss the metals m&a market with Michael Tomera, PwC’s metals division leader, based in Pittsburgh.

Jeff Yoders: Deal volume finally took off in Q4. What did the election have to do with it?

Michael Tomera: A key driver in this global report did have to do with Chinese deals. That was the driver, industry consolidation over there, over the last two quarters. There is definitely optimism for what’s going on with the new administration.

Two-Month Trial: Metal Buying Outlook

Chinese steel industry consolidation, as much of a glimpse as we have of what’s going on in China — it is quite difficult to get exact details and good information out of China — it does, indeed, look like consolidation over there is happening and maybe even the reduction in capacity that they have said they want to do. It does look like that … from the information that is available.

JY: How so? In some of these large mergers, such as between Baosteel and Wuhan Iron and Steel? Or from some other measures?

MT: Generally, I think what a lot of the industry folks have been looking at is the need to curb excess Chinese capacity. The Chinese have said they are trying to do that, cut the capacity, and even if it’s less than the numbers they’re talking about cutting to… there’s going to be an impact on imports into North America.

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What happens with that, combined with anti-dumping actions, is really going to drive the impact on this market. The anti-dumping regulations are things that people in the North American market are going to continue to look at rather than discussing reductions in Chinese capacity simply because anti-dumping and countervailing duties, and their collection, are things that they can independently verify.

JY: Steel deals took off in Q4, is the steel sector a good place to invest again?

MT: 43 deals in the steel category, 40% of all deals in 2016. It looks like (steel investing is back). There’s been more going in anti-dumping actions in steel than other metals categories. We can’t predict what might happen with steel, aluminum or other individual metals sectors, but it does look like anti-dumping duties will be a factor. It seems like there is a fair amount of capital available among acquirers and private-equities and there is infrastructure planning going on from the Trump administration, so these are the things that have contributed to the increased share values of metals companies, in general, and steel companies in particular since the election.

JY: The mergers and acquisitions market looks healthy, then?

MT: Probably in previous years, we thought deal conditions would be better than they were just yet, particularly at the beginning of ’15. There was a 104% increase in deal value vs. Q1 2015. Now, it really looks like things have turned a corner. There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.

plant for the production of iron and steel

Among President Donald Trump’s many campaign promises was one to utilize more U.S.-produced materials, including steel, and his actions thus far have reinforced those promises.

Last week, Trump signed executive orders expediting the approval and subsequent construction of the Keystone XL and Dakota Access pipelines. An important caveat to those orders included the use of domestic steel for the upgrade and repair for the new pipelines.

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!

Wrote Leia Toovey for the Economic Calendar, “The U.S. steel sector has suffered in recent years as imported steel has gained market share at the expense of domestically produced steel. In 2016, domestic steel prices and producers recovered and part of that recovery was based on tariffs and duties that were implemented on Chinese producers who were found guilty of receiving unfair subsidies from their government.”

Global Steel Production on the Rise

It’s been a tough couple of years for the U.S. steel industry, but global steel production has also suffered significantly. In fact, of the top 10 countries producing steel, production increased in only three over that time, according to data from the World Steel Association.

Wrote our own Stuart Burns: “Supported by a sharp upturn in real estate investment, steel prices and steel production rose by 1.2% in China, reversing the previous year’s decline. China produced 808.4 million metric tons in 2016 and domestic demand continues to remain robust even as exports face protectionist headwinds.”

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:

nickel-ore-mine

mulderphoto / Adobe Stock

It’s been all quiet on the nickel front recently as the metal is essentially even as the Chinese Lunar New Year Holiday approaches.

According to a recent report from the Economic Calendar, nickel prices ended Tuesday slightly higher due to a lower U.S. dollar, which offset the slight decline nickel saw on Monday this week.

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!

Wrote Leia Toovey for Economic Calendar: “Chinese businesses and markets will close on Jan. 27 and factories will remain closed for at least a week. With business activity at a standstill, demand for base metals from its top consumer will remain muted while there will also be fewer speculators placing their bets. With Chinese buyers absent, nickel is likely to garner the majority of its price momentum from the US dollar.”

Nickel Miners to Boost Exports?

Our own Stuart Burns recently wrote that Indonesian nickel miners might soon be allowed to export up to 5.2 million tons fo low-grade nickel ore a year. Burns wrote:

“The intent seems now to be to allow nickel miners to export providing they dedicate at least 30% of their smelter capacity to processing low-grade ore, defined as below 1.7% nickel. They can then export any excess capacity they have. That said, this move means that up to 70% of Indonesia’s nickel production capacity could potentially be put on the market, which would be equivalent to around 14% of global capacity.”

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:

President Donald Trump is expected, today, to order the construction of a wall between the U.S. and its southern border with Mexico, the first in a series of actions this week to crack down on illegal immigration and bolster national security.

Trump’s executive order is expected to direct the department of Homeland Security to begin the process for designing and building the wall with possible involvement from the General Services Administration. Trump is also expected to ask the Congress to fund the wall’s construction.

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The immigration moves are also expected to include slashing the number of refugees who can resettle in the U.S. and temporarily blocking Syrians and others from war-torn nations from entering, at least temporarily, until a vetting process can be set up to make sure refugees or other immigrants are not linked to terrorist radical movements.

Other executive orders today are expected to seek to end sanctuary cities and the practice of releasing undocumented immigrants detained by federal officials before trial.

Dow Breaks 20,000

U.S. equities rose to all-time highs in early trading today after the series of executive orders from Trump in the first few days of this week increased bullish sentiment on Wall Street.

The Dow Jones Industrial Average broke above 20,000 for the first time, rising 150 points as Boeing and IBM contributed the most gains.

Well, President Donald Trump certainly hit the ground running this week.

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On his first day in the Oval office he signed 3 executive orders, the most significant of which is probably the one withdrawing the U.S. from the Trans-Pacific Partnership trade deal — TPP. The TPP is a giant free trade agreement forged by the Obama administration with the aim to cut taxes and develop trade with 11 other Pacific Rim nations from emerging markets to mature economies like Australia. Trump has been consistent throughout his campaign and since that TPP was bad for American jobs so his statement on signing the executive order as “a great thing to the American worker,” comes as no surprise.

What Does No Deal Mean for the US?

Critics have argued that backing out of TPP would reduce America’s strategic position in the Asia-Pacific region and leave the door open for China to take the lead as the champion of free-trade. According to Fox News, U.S. Sen. John McCain (R-Ariz.) called the withdrawal a “serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.” Read more

In addition to executive orders essentially reviving the Keystone XL and Dakota Access pipelines this morning, President Donald Trump signed a memorandum that will require the secretary of Commerce (his nominee, Wilbur Ross, still awaits confirmation) to come up with a plan to mandate American-made steel for all new, expanded or retrofitted pipelines in the U.S. The plan is due in six months.

Two-Month Trial: Metal Buying Outlook

“Going to put a lot of workers, a lot of steelworkers, back to work,” Trump said after signing the memo. According to the memo, “produced in the United States” shall mean:

  1. With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
  2. Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
  3. Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.

Trump also urged the chief executives of the Big Three U.S. automakers to build more cars in the U.S., pressing his pledge to bring jobs to America and discourage Ford Motor Company, General Motors and Fiat-Chrysler Automobiles from investing in Mexico.

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Trump has threatened to impose 35% tariffs on imported vehicles and opened the White House meeting with General Motors CEO Mary Barra, Ford CEO Mark Fields and Fiat Chrysler Automobiles NV CEO Sergio Marchionne saying he wants to see more auto plants in the U.S.

This is part two of a two-part series on recent trade developments in the U.K.’s pending divorce with the European Union, read part one here if you missed it.

British Prime Minister Theresa May appears more wedded to a policy of not extending Brexit past the two-year deadline that was dictated by the outcome of the referendum. Possibly due to her years in office as Home Secretary, May seems desperate to reclaim control of the U.K.’s borders and to reject the jurisdiction of European courts, regardless of the economic consequences of taking such a hard-line position.

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Committed Brexit supporters have championed the establishment of free trade agreements with countries outside the European Union, almost as an extension of their rejection of Europe. But the reality is geography will dictate that the E.U. is likely to remain the U.K.’s biggest export market after Brexit whatever Brexiters’ global ambitions may be.

Who Loses More Post-Brexit?

According to a Financial Times article last November, U.K. exports to fellow E.U. countries accounted for 48% of total exports and, in the 18 months before that, the figure ranged from 38% to 51%. The U.S., by comparison, was just 22% and few beyond the hardliners give any credence to the benefits of a President Donald Trump-inspired U.S.-U.K. Free Trade deal, knowing that in Britain’s desperation for an alternative to Europe such a deal would likely be very one-sided in favor of the U.S. Read more

vvoe / Adobe Stock

The International Lead and Zinc Study Group released its initial 2017 report, which found the global market for refined zinc metal was in deficit over the first 11 months of last year with total reported inventories declining over the same time frame.

The ILZSG revealed a significant increase in Chinese output while the world’s zinc mine production fell overall by 1.2%.

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!

“Global refined zinc metal production over the first eleven months of 2016 was at the same level as the corresponding period of 2015 with increases in China and the Republic of Korea offset by reductions in Australia, India, Japan, Mexico and the United States,” the ILZSG report stated.

The rise in worldwide demand for refined zinc metal, to the tune of 3.5%, was mostly due to an 8.8% increase in Chinese apparent usage with European demand at the same level in 2015 and US demand falling 12.7%.

Also of note: Chinese imports of zinc contained in zinc concentrates represented a 42.3% decrease compared to the same time frame in 2015 with the Far East nation’s net imports of refined zinc metal growing 7.9%.

Zinc Benefits from Investor Interest

Our own Stuart Burns wrote last week that aluminum has benefited from renewed investor interest, particularly over the course of 2016, but that it hasn’t experienced the same jolt as zinc and copper have seen.

“Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017,” Burns wrote.

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: