Articles in Category: Metal Prices
Crude oil (in black) diverges from industrial metals (in red)

Crude oil (in black) diverges from industrial metals (in red). Source: MetalMiner analysis of data.

Historically, crude oil prices have moved in tandem with industrial metals. Why is that?

  1. Oil is  not just a commodity, itself, but an asset closely followed by commodity investors. Falling oil prices make investors move away from commodities and, of course, industrial metals.
  2. Oil is the main benchmark for energy prices. Lower energy prices mean lower transportation costs and lower production costs, especially for those energy-intensive metals like aluminum.

For these reasons, it’s not strange to see that the trend in industrial metals looks very similar to that of oil prices (see chart above). But since June, we are witnessing a divergence between these two trends. Oil prices have fallen while industrial metals continue to rally, for the most part.

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Just when it appeared crude oil’s oversupply was easing, a new glut of gasoline is drowning the market’s hopes for a recovery, sending crude prices sliding.

So far, oil’s price correction looks normal within this year’s bull market. It’s not strange to see profit taking following the strong rally earlier this year. However, now that prices are hovering near $40 per barrel, they should start finding support. This divergence likely won’t last too long and if oil prices continue to fall that weakness could spread out

What This Means For Metal Buyers

It’s normal to see a price correction in oil following a strong rally earlier in the year. Oil prices should start finding support near current levels; otherwise oil’s price weakness could spread out into other commodity assets, including industrial metals.

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There’s a quiet battle being fought outside the limelight between India and other steel producing nations over the world’s largest democracy’s protectionist measure, the Minimum Import Price (MIP), introduced in February.

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The MIP, essentially a tariff on imports targeted mainly at neighboring China, is set to expire August 5. While large steelmakers in India are pushing for the continuation of MIP by the government, some member-nations of the World Trade Organization have started to apply pressure to remove the MIP. The MIP on 173 steel items for six months was introduced as a way to curb cheap imports and firm up steel prices in the home market. The MIP ranged from $341 a metric ton to $752/mt depending on which product.

Other Nations Protest the MIP

In a recent meeting of the goods council at the WTO, nine members, including the U.S., the European Union and China, asked India to justify its continued restrictions on imported steel.

There are some who say that if India continues with the MIP after the deadline it could be dragged into dispute proceedings at the WTO by any of the complaining members, although India has consistently maintained it’s done no wrong and the MIP is a general agreement on tariffs and trade-compliant instrument to regulate imports. Almost all steel producing major countries have imposed one form or the other of tariffs or other protectionist measures to curb steel imports. There are also reports here that India could prune the list of 173 steel products and still keep the MIP in effect for most products.

MIP Effect: Imports Fall

In the first quarter of FY17 (India’s fiscal year begins in on April 1) total steel production in India grew by 3.8% year-on-year, while overall steel consumption grew by only 0.3%. In the same period, imports fell by 30.7% year-on-year, according to a new report by rating agency India Rating and Research (Ind-Ra).

According to the agency, the increase in Indian steel production was supported by the MIP policy but was unlikely to continue beyond August after it expires. Since the imposition of the MIP, domestic producers benefited by way of import substitution. Ind-Ra felt the continuation of the industry protection measure beyond August is required to “safeguard the interest of the domestic steel industry, which has shown signs of a recovery in the current fiscal on the back of MIP.”

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Ind-Ra opined that profitability for most steel producers is likely to remain under pressure due to the newly added capacity. The interest cost and depreciation from these new capacities has now started to impact the income statements and increased both operations and financial leverage for India’s steel industry. For India’s steel companies to see healthy profit generation, capacity utilization levels need to increase significantly.

Nickel price investment trading arrow going up rising strong indDespite nickel prices going on a hot streak — having climbed 40% since bottoming out at the beginning of the year — many nickel miners are seeing diminishing returns on their production.

According to a recent report from the Financial Post, Sherritt International Corp., a Canadian nickel miner, announced recently that more than half of global output is losing money with the percentage of underwater production even higher when capital spending and other costs are factored in.

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“This rally in the last few weeks is perhaps more robust than some false starts we’ve had over the last year,” David Pathe, chief executive at Sherritt, told the Financial Post. “But it’s got a ways to go before we think we’re at a long-term nickel price that’s sustainable.”

Prior to the recent surge, nickel prices had been a victim to lagging demand, rising inventories and supply from the Philippines in recent years. The recent increase in nickel prices has been partially attributed to speculation that new environmental regulations from the Philippine government will spur mine closures yet only a few small mines have actually been shut down so far, the Financial Post stated.

Nickel Imports Rise

According to a recent piece from our own Raul de Frutos, nickel, along with zinc, have benefited from higher demand coming from China.

de Frutos stated: “In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.”

You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.


A new report attempts to quantify government subsidization of Chinese steel and the Fed has left interest rates alone again.

Steel Associations Release Chinese Subsidy Report

Five of the leading American steel trade associations today released a report documenting that the steel industry in China is heavily subsidized by its government, and the rapid growth in the industry there has been fueled by government subsidies and other market-distorting policies.

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The report was released by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of North America and the American Institute of Steel Construction.

The report analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis also found that these subsidies and policies have led to tremendous overcapacity and created a highly fragmented domestic steel sector in China made up of many inefficient, and heavily polluting, companies.

The full report is available from AISI.

Fed Holds Rates Steady Again

The Federal Open Market Committee of the Federal Reserve decided to maintain the target range for the its benchmark interest rate, the federal funds rate, at 1/4 to 1/2 of 1%.

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The Fed, in a statement after a two-day meeting of its policy-making committee, said that the economy had overcome wobbles this year and that job creation had increased with moderate economic growth. The central bank added that it saw fewer clouds on the horizon as the U.S. entered the eighth year of an economic expansion.

Nickel and Zinc are two base metals that every commodity investor is talking about right now. Both metals have benefited from a bull narrative of supply shortfall this year.

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On top of that, they both are benefiting from higher demand coming from China which is being reflected in the surge in Chinese imports this year:


3M LME Zinc

Three-month London Metal Exchange Zinc price. Source:

Zinc investors have been drawn in by the narrative of mine closures and a resulting tightening of the supply chain. As zinc prices weakened over the past three years, more than 1.5 million metric tons of mine capacity was either idled or closed permanently.

These closures were further exacerbated when Glencore announced its plans to suspend 500,000 mt of production last October. Although many people called for a tight market in previous years, in 2016 it really seems to be happening while the development of new mines is being restrained by limited capital to invest in new projects.

Other than the supply shortage, we are witnessing strong Chinese demand likely thanks to a boost in infrastructure spending. Net imports of refined zinc more than doubled to 280,800 mt in the first half of 2016, showing strong appetite for the metal. At the same time, China’s own production of refined zinc fell by 1% over the same period.

zinc production - usage

Zinc production – usage in thousands of metric tons. Source: MetalMiner.

Indeed, according to preliminary data recently compiled by the International Lead and Zinc Study Group, zinc is finally in deficit territory for the first time since 2014. The global market for refined zinc metal was in deficit by 64,000 mt from January to May 2016 with total reported inventories falling by 24,000 mt over the same period.


3M LME Nickel

Three-month LME Nickel Price. Source:

In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.

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On top of the supply shortage, refined nickel imports in China have surged by 189% to a record 226,100 mt in the first half of the year.

What This Means For Metal Buyers

When the metal you buy is rising in price while the fundamental picture is suddenly turning bullish, there is no time for second thoughts. Hedge metal needs and protect your budget.

Allegheny Technologies, Inc. reported sales were up 7% for the second quarter over the year before, increasing to $811 million, with the company reporting an overall net loss largely due to its recent work stoppage.

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ATI CEO, President and Chairman Richard Harshman described reason for cautious optimism to an uptick in orders in the aerospace market — both in engine components and airframes — and lowered capital expenditures in the near future ATI continues to ramp up production at its $1.2 billion Brackenridge, Pa., flat-rolled stainless production facility.

Aerospace Growth

“Commercial aerospace market sales increased another 3% compared to the first quarter of 2016,” Harshman said. “Sales to the aerospace and defense market continued to drive ATI’s results, representing over 50% of total 206 sales. Our aerospace market is being driven, in large part, by the growth of ATI’s next generation mill products, forgings and castings.”

Harshman and other ATI executives described the nickel and titanium alloys — and powders that ATI sells for additive manufacturing — it provides to the defense and aerospace markets as the future of the company. Harshman also said the business momentum ATI is experiencing “certainly the best it’s been in quite a while.”

Flat-Rolled Products

While flat-rolled stainless products are clearly not ATI’s future, ATI  officials said the flat-rolled products division improved financially in Q2. According to the earnings report, officials expect the division to be “modestly profitable” in the fourth quarter. This opened up the possibility of ATI considering reopening its Midland, Pa., production facility. ATI officials had previously said the plant won’t return to production until the flat-rolled market improves.

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“In our FRP segment, our second quarter results demonstrate that we are making progress in our journey toward a consistently profitable business, during a period of continuing low raw material prices, global stainless steel sheet and strip overcapacity, and uncertain end market demand,” Harshman said.

reuters_chartoftheweek_550_072716London Metal Exchange copper edged down but held above one-week lows hit in the previous session ahead of the outcome of a Federal Reserve meeting where it held rates steady, keeping costs lower for capital-intensive commodities. Source: Reuters.

The pendulum has been swinging in the direction of the suppliers of flat-rolled stainless steel suppliers for all of this year.

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Base prices have increased three times since the beginning of 2016. Stainless buyers have already been paying a steady increase in base prices in the transactional market. By now, most contract stainless buyers are at base prices higher than their prior contract period. Master distributors are extracting premiums as metal buyers scramble to fill in any gaps in their supply chains. Another base price increase is expected to be announced after the September anti-dumping duty determination on Chinese cold-rolled, flat stainless steel.

US Mills Enjoying Price Increases

The U.S. mills have the momentum to capture another base price increase. Domestic mills have strong order backlogs. Domestic lead times continue to be longer than the normal six to eight weeks. The impact of the anti-dumping and countervailing duty lawsuits against Chinese cold-rolled stainless has finally occurred.

The latest U.S. Census statistics showed cold-rolled stainless imports into the U.S. from China dropped to under 2,000 metric tons in May, compared to almost 10,000 mt in April. Other Asian importing countries have not significantly increased activity into the U.S.  Increased imports into the U.S. from Europe have amounted to less than a 1,500 mt-per-month increase.

The threat of trade cases has made many importers cautious about the U.S. market. Whether domestic or import, the metal buyer should expect to be paying higher overall prices in the upcoming months. Since publishing our July monthly outlook, nickel prices have climbed 12%.

Cover Your Volumes

Even though prices are on the uptick, stainless buyers need to ensure that their volumes are covered. Any manufacturer with spikes in stainless demand may have difficulty in procuring additional material quickly, especially in bright-annealed, polished and thicknesses less than .030 inches.

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I strongly urge metal buyers to review stainless flat-rolled requirements to ensure that adequate volumes are secured with your suppliers. Whether import or domestic sources need to be utilized, your suppliers need more transparency than ever before in your flat-rolled stainless steel needs.

Total crude steel output in the first five months of 2016 fell by 2% from the same period last year. Total crude steel production stood at 659.9 million metric tons in the first months of 2016, a slight decline from the 673.2 mmt in 2015, according to latest data from the World Steel Association.

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China also missed its goal to reduce steel production in the first half, achieving only a third of what it promised.

Baosteel and Wuhan’s Troubled Merger

Listed units of Baosteel Group, the second-largest Chinese steelmaker, and Wuhan Iron and Steel Group, the sixth-largest, said in separate stock exchange announcements on June 26 that they are planning on restructuring together.

While the two state-owned enterprises didn’t provide any details on what that entailed, industry experts say one possibility is that Baosteel may have been ordered by Beijing to take over all or a majority of Wuhan Steel amid a broader push to reduce the number of state-owned enterprises.

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The way in which the restructuring is done will be a major indication of how the government plans to transform other smoke-stack sectors of the economy where SOEs dominate. Investors will, in particular, be watching whether Baosteel is allowed to shutter much of the high-cost production at Wuhan Steel or whether profits have to be sacrificed to jobs retention as the government seeks to avoid any threat to social stability.

Copper prices rose in July on expectations that policymakers’ efforts to spur economic growth will increase demand for the metal.

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Expectation of a new round of infrastructure spending in China is giving investors reasons to bet on the metal.

China’s Imports Are Up

In June, China imported 420,000 metric tons of unwrought copper and copper products, up 20.3% from June of last year. For the first half of the year imports increased 21% compared to the same period in 2015. The growth in imports has helped support metal prices, too. However, there are different opinions on whether those imports are actual demand or just stockpiling into warehouses.

Prices Test $5,000/mt

3M LME copper struggles near $5,000

Three-month LME copper struggles near $5,000/mt. Source:

So the whole metal complex is performing well, investors are optimistic that they’ll see more stimulus coming from China and copper imports are strong. This all sounds bullish for copper prices this month but copper only recently passed that 5,000-$5,100/mt level that it has failed to overcome several times this year.

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If sentiment in copper is actually shifting to bullish, we should see that reflected in the price soon, with prices climbing into new ground as we’ve witnessed in other base metals this year. We’ll have to wait and see if the bulls have found enough reasons to overcome the bears at the level prices are approaching this month.