Articles in Category: Metal Fabricated Parts

MM-IndX_TRENDS_Chart_December2015_FNL-TOPVALUE100The December MMI Price Trends Report is out and it’s, well, just what we expected, unfortunately. Prices have plunged this year and last month was no exception with metals such as copper, 9% plummet, and raw steels, fell 4.2%, posting big losses after months of a smaller, more gradual slide.

Free Sample Report: Our Annual Metal Buying Outlook

The finished product sub-indexes are showing how much of a buyers’ market really exists right now. The Construction MMI fell 4.6% as rebar and steel scrap continued to be oversupplied, despite strong demand. For automotive products, the drop was even more precipitous with the Automotive MMI falling 7%. Santa was good to buyers this year.

Thinking 2016 will be better? No signs of that yet. Is it any wonder that a mined mineral, coal, is what everyone hopes they don’t get in their stocking this time of year? Miners and base metal producers are closing smelters, shutting mines and girding up to reduce capacity in 2016. The market, though, is still in a glut for most of the metals we track right now.

So buyers shouldn’t overspend, thinking they’re getting a great deal, this holiday season. The after the holidays sales could be even better.

The narrative flow in the automotive industry has been firmly behind aluminum in the quest for lower weight and better fuel consumption, but steelmakers were never going to stand idly by and see one of their most lucrative markets rapidly eroded even though the speed of the change has caught some of them by surprise.

Free Sample Report: Our Annual Metal Buying Outlook

Brian Aranha, Vice President of Global Automotive at ArcelorMittal is quoted in Automotiveworld saying Ford’s decision to switch a large chunk of the F-150 to aluminum “…was a bad surprise for us, we just didn’t see it coming.”

factory manufacturing

Aluminum might be making inroads, but steelmakers are going to fight to keep their automotive customers. Source: Adobe Stock/AnastasiiaUsoltceva.

Well, whether they saw it coming or not, they are reacting now. Steelmakers the world over are pouring millions into research and development to carve out a role for steel in the car designs of the future.

The Aluminum Challenge

They have much to fear, in an executive summary to a report by Ducker Worldwide last year called DriveAluminum highlight is made to the rapid gains made by the light metal.

Source Ducker Worldwide

Source: Ducker Worldwide

Although the F-150 leads the class with 1,080 lbs. of aluminum, the pickup truck segment has embraced weight reduction more than any other. The average content will be 548.9 lbs per vehicle almost the same as E segment sedans at 549.9 lbs. and SUVs close behind at 410.3 lbs.

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Spot iron ore prices hit a fresh 10-year low after falling below $40 per metric last week.

Free Sample Report: Our Annual Metal Buying Outlook

Weakening steel demand is causing a slump in finished products and raw materials prices. Our Raw Steel MMI didn’t take a break in December, falling 4.2% to 46 points, yet another all-time low.


Early this year, many believed that the steel industry would recover during the second half of the year, even steel companies’ 2Q15 better-than-expected-earnings results raised optimism of a possible recovery. We didn’t subscribe to this view. The slump in steel prices continues and the fiscal 3Q15 financial results of most steel companies failed to cheer up investors.

The market has seriously underestimated the demand erosion that the economic rebalancing in China has created.

Overcapacity Still an Issue

Steel producers are still waiting for demand to meet the overcapacity built over the past few years. In addition, almost a decade with borrowing costs near zero has lead to a situation where there is still new capacity yet to be built and also existing capacity that doesn’t close. Low-cost credit has permitted even unprofitable production to be maintained, and while production levels are well off their peaks, there have been few permanent capacity closures.

Chinese Producers

The excess of production is still a concern in China, given the high levels of debt that producers there are dealing with. While many steel companies are able to cover debt costs out of operating profits, other companies are still borrowing from one bank to pay the older debt to another.

In November, Chinese steelmaker Tangshan Songting Iron and Steel, with an annual capacity of 5 million metric tons, said it would cut output due to debt pressures. Despite China cutting interest rates, as demand and prices collapse, banks are starting to tighten lending to the steel sector and losses are stacking up. Many mills are having a hard time extending their loans while they lower steel prices in competition to get contracts. The plunge in Chinese steel profits and and prolonged worries over weak demand might force more and more Chinese producers to close, removing exports from the global market before we see a recovery in prices.

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Steel prices, like the rest of base metals, were impacted in November by a strong dollar and the bearish sentiment that this adds to commodity markets. There are few to no indicators pointing to a recovery in steel prices anytime soon.

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AK Steel published a zero-dollar surcharge for December quotations. MetalMiner has never seen a zero-dollar surcharge from either of the domestic producers, going all the way back to February 2004, the start of the MetalMiner GOES price data tracking service.

Surcharges have not hit these levels since January of 2009 when AK published a surcharge of $10 per metric ton.

Surcharges reflect costs for raw materials and energy, both of which have fallen significantly this past year.

Free Sample Report: Our Annual Metal Buying Outlook

Meanwhile, the M3 GOES index held steady at 176 as other drivers of the monthly index showed some strength.


Source: Zepol

Insiders suggest that the domestic mills have taken different stands to extract price increases from the domestic market during annual contract negotiations. AK has used Allegheny Technologies Inc.’s worker lockout as a reason to move business to AK. ATI, however, has countered with new temporary workers that they say will keep lines running efficiently. No matter the winner in that battle, we believe buying organizations have hedged their moves and have already shifted some 2016 spend to overseas suppliers.

Additional Developments

As a defensive measure against the two domestic mills, global transformer and power equipment producers forged ahead with sourcing both transformer parts and wound cores from producers outside the US.


Though dollar values of imported transformer parts fell by 10% in October, wound core part imports jumped by 18% in October, according to data from Zepol.


Source: Zepol

In an unrelated move, China announced some market economy reforms to create greater competition for electricity transmission.

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This comes undoubtedly as a result of China’s Protocol of Accession to the WTO and its desire to be considered a market economy. Currently, for trade cases including GOES, WTO members treat China as a non-market economy.

MetalMiner expects China’s Protocol of Accession to the WTO to become a heated debate.

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Please follow Lisa Reisman on Twitter @LReismanMM

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Our December Copper MMI fell 9% to 60 points.

Free Sample Report: Our Annual Metal Buying Outlook

Three-month copper on the London Metal Exchange hit fresh lows last month, trading as low as $4,444 a metric ton, the lowest level since May of 2009. In the face of low prices, more shutdowns were announced during the month of November but so far, they haven’t lifted prices at all.

Copper_Chart_December-2015_FNLIn early November, Glencore announced that it would reduce its copper production more than expected. The company is now aiming to cut output by 455,000 metric tons by the end of 2017, 14% up from its previously announced figures. Glencore’s cuts came after Freeport-McMoRan announced a pullback in production.

Toward the end of the month, 10 leading copper producers in China announced plans to cut output by 350,000 mt in 2016. In addition, producers urged Beijing to buy up excessive supply to combat falling prices. The State Reserves Bureau already said that it would buy aluminum, nickel, indium, and zinc.

But supply cuts haven’t been big enough to make a sustainable impact on the market. Moreover, there are still manny producers unwilling to cut production despite the low prices. The head of the world’s biggest copper miner, Codelco, said in November that they won’t cut copper production as prices slump, pointing to the fact that if the company suspends production then it would be difficult to restart, so they would rather try to lower costs. Also, there is skepticism about how many of the announced cuts will actually be made and how long they will last.

In addition, refined copper output in China rose 6.8 % in the first 10 months from the previous year. Meanwhile, disappointing Chinese import data increased demand concerns in November, contributing to the slump in prices. So far, supply cuts haven’t been enough to balance the other side of the equation: Excess material, shrinking Chinese demand and a strong dollar. Prices might have to come down farther before we see a turnaround.

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The renewables MMI fell 1.9% to yet another all-time low of 52 this month. The index has fallen in price steadily with very few exceptions since we started charting renewables prices in 2012.


The bearish commodity environment is certainly one part of the story but, as we’ve written before, the market performance of renewable metal inputs such as neodymium and grain-oriented electrical steel (GOES) are only part of the story for the market since, in a commodity sense, it’s still in its infancy.

Strong Investor Interest

While prices fell this month we noted some interesting acquisitions such as Chinese venture capitalist Sonny Wu purchasing 80% of Philips’ LumiLEDs business. LumiLEDs is one of the largest producers of light-emitting diode (LED) commercial lighting, a semiconductor technology that uses rare earth phosphors and other renewables to light your home for less energy.

Free Sample Report: Our Annual Metal Buying Outlook

Investment in renewables is strong according to the UNEP Global Trends in Renewable Energy Investment 2015 report. China saw, by far, the biggest renewable energy investments in 2014 — a record $83.3 billion, up 39% from 2013. The US was second at $38.3 billion, up 7% on the year but well below its all-time high reached in 2011. Third came Japan, at $35.7 billion, 10% higher than in 2013 and its biggest total ever.

The numbers for 2015 will be out soon and most are predicting gains over last year as companies such as Tesla and SolarCity started construction of factories estimated to cost more than $1 billion — Tesla’s is actually estimated to cost $5 billion — this year.

Investors are clearly in the renewables game for the long run, as many expect a switch from coal-fired electricity production in China and the US to take off in the next 10 years. Liquid natural gas has already begun to replace it — according to my colleague, Stuart Burns the UK is even more rapidly phasing out coal in favor of LNG —and technology improvements in solar and wind are expected to make them competitive with LNG in the near future.

Consumer Demand

Can these investments speed up adoption and increase the price of parts such as motors made of neodymium magnets? It really depends on how quickly consumers accept SolarCity and Tesla’s products. Tesla’s already selling its Powerwall lithium ion batteries for home solar energy storage.

Alternative applications of solar silicon are also popping up seemingly every day, at least in the warmer parts of the US. As gadgets such as cell phones and tablets take over more and more of our work and home lives, its hard to imagine their thirst for power being slaked entirely by wall-mounted plugs fed by coal or LNG-burning plants.

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The market for these specialty metals likely won’t turn around sharply, especially not in this bearish commodity environment, but the continued investment and underlying consumer demands shows the future potential for renewables.

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The House and Senate have passed a $305 billion compromise bill to fund highways and mass-transit projects for five years — the longest in nearly two decades and an unexpected show of agreement after years of clamoring by state transportation officials for infrastructure funding.

Free Sample Report: Our Annual Metal Buying Outlook

The bill is expected be signed swiftly by President Obama, who has supported earlier versions of it, to avoid a shutdown of transportation funds to the states by the end of today.

Revives Ex-Im Bank

The measure also would renew the Export-Import Bank through September 2019, separate the budget for Amtrak’s Northeast Corridor from the rest of the passenger-rail network, and set traffic-safety priorities.


San Francisco’s Bay Bridge is one of the many projects that will benefit from a 5-year transportation bill.

Advocates have said the Ex-Im Bank is a crucial funding and shipment security institution that supports small businesses who want their goods to reach foreign markets. Others have called it corporate welfare that benefits large companies that do business overseas more than small merchants.

The bill would provide money for programs with strong regional constituencies, such buses and ferries, and for the first time set up a grant program guaranteeing funds for large freight projects, which typically haven’t garnered political support because they deliver goods and not people.

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Thomas J. Gibson, president and CEO of the American Iron and Steel Institute, said, “The steel industry is not only a user of the highway system, but it is also an important supplier to road, bridge and transit builders. This long overdue legislation will enable steelmakers and our customers to plan for the future, as the bill provides an increase in current investments levels — estimated at 15% for road, highway and bridge projects, and 20— for transit programs.”

The Construction MMI fell 2.7% as a broad swath of construction products saw further price declines last month.

Free Sample Report: Our Annual Metal Buying Outlook

As with other indexes, the year-long collapse in steel prices is responsible for some of the losses in construction this month but that doesn’t really scratch the surface. None of the component metals of the index increased this month, with the exception of one surcharge. The non-ferrous construction metals are in the same boat as steel construction inputs such as rebar and scrap steel.


We hate to continue to point the finger in only one direction, but what’s driving the fall in commodities prices is the slowing Chinese economy and its subsequent pull-back in construction demand.

The Chinese steel sector has at least 200 million metric tons of unused annual capacity and, according to Reuters, its outbound shipments of steel have jumped 27.2% in the year to September from the same period last year.

All Commodities in Freefall

It’s a similar story for Chinese aluminum. We continue to chart new all-time lows for the construction MMI as the demand that many have grown accustomed to depending on from China is simply not there anymore. There’s a good chance it might not come back for some time.

Free Download: Compare Price With The November MMI Report

That’s why, from a price standpoint, it largely does not matter that the US nonresidential construction market is now in full expansion mode. I have anecdotally observed more process efficiencies in US construction that are making materials prices less of a concern to general contractors and building owners.

We caution buyers to keep their purchases conservative as many analysts thought the market would reach a bottom by and, as this month’s drop clearly indicates. Construction materials prices could have much further to fall.

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As the price picture gets worse for most commodities, prices continue to get better for metals purchasers, particularly those working for automakers.

Free Sample Report: Our Annual Metal Buying Outlook

Major drops in steel prices led our Automotive MMI to yet another all-time low this month.


The steel market is plagued by a massive surplus, particularly of imported steel here in the US, that shows no sign of being whittled away. The US imported a total of 2,987,000 net tons (nt) of steel in October 2015, including 2,258,000 nt of finished steel, up 5.4% and 1.4%, respectively, vs. September final data. Estimates say imported steel now makes up more than 30% of the market, a record.

The UK steel industry is facing a crisis that threatens its very existence as regulations, low prices, shutdowns and imports have taken a heavy toll.

One would think that with automobile sales approaching a record in the US and getting a boost in key market China, that prices would eventually be driven higher by new demand, but this market has shown, several times, that even the strong demand in the US for end products is not strong enough to put a dent in the oversupply.

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We caution purchasers to remain conservative as prices could fall much lower before a bottom is reached, particularly when purchasing steel.

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After 2 months holding steady at 59, our Stainless MMI sank in December to 54, 8.5% down from last month.

Three-month nickel on the London Metal Exchange fell in November to a new 12-year low, falling as low as $8,145 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year to date.


This brings up the question: is there still downside potential?

Just a year ago, when nickel was trading near $15,000/mt most analysts only saw upside risk and little downside potential. Since prices were trading at a 50% discount from nickel’s peak in 2011, and half the producers were already underwater, how much lower could prices go?

They Can Go Lower

Well, so far, from $15,000 to $8,500 that’s a 44% decline, there you have your “downside potential.” Why do people make the mistake of buying low only to see prices go even lower? Behavioral finance calls this “anchoring,” the human tendency to attach or “anchor” our thoughts to a reference point even when it makes no logical sense.

When buyers see that nickel prices have fallen significantly and quickly, they anchor the new low price onto a recent price high that nickel previously achieved. This creates the idea that the new price provides an opportunity to buy nickel at a discount.

Most of the time, how high the metal was trading before is irrelevant and we can’t just say that something is undervalued when there has been a change in the metal’s underlying fundamentals. The poor outlook for struggling steel and stainless sectors, as well as China’s slowing growth, kept a lid on a nickel price increase this year. Finally, a surging dollar in November triggered a new sell-off, driving the metal to record lows.

Low prices keep putting more and more pressure on smelters. Toward the end of the month, nickel smelters in China announced plans to cut output next year by at least 20%. The smelters didn’t state how much nickel that 20% actually is, but analysts estimate it to be near 120,000 metric tons. Eight producers already agreed to cut output in December by 15,000 mt. It’s estimated that 70% of global production is now loss-making production.

Will the new production cuts lead to sustainable higher prices? We’ll have to wait and see how the market reacts. So far, price rallies have been short-lived and given the poor commodity macro outlook, we can’t mark a limit to the downside.

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