MetalMiner Prices

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Articles on: Metal Prices

Nickel prices got a boost on Tuesday after the Philippines announced plans to suspend 20 more mines.

3M Nickel price on the LME. Source: MetalMIner analysis of fastmarkets data

Three-month nickel price on the LME. We recommended hedging back in June. Source: MetalMIner analysis of fastmarkets data.

The country already suspended 10 mines during the third quarter. The Philippines is by far the largest nickel ore supplier to China since Indonesia imposed an export ban for unprocessed material back in 2014. Lower production is already showing up in the numbers. Philippine nickel production is down 24% for the first seven months of this year. This supply deficit will widen as more mines are suspended.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Combining the previously suspended mines with those in the new announcement, only one fourth of Philippines mines comply with the country’s environmental and mining laws. It’s estimated that this combination accounts for half of the Philippines’ nickel production last year.

What This Means For Metal Buyers

In our Monthly Outlook, we recommended in June buying nickel/stainless forward one-year out. The new shutdowns are likely to further tighten the global nickel market, which could provide another attractive entry point for nickel/stainless buyers to hedge/buy forward again. To catch these opportunities, buyers only need a good a plan.

Much is being made of a mega merger between the publicly traded arm of Shanghai Baosteel Group Corp., the second-biggest Chinese steel mill by output, and the listed unit of Wuhan Iron & Steel Group Corp., its No. 6 steelmaker.

Profitable Baosteel will issue new shares to swap with the loss-making smaller firm. The Chinese press is full of the deal, saying it will rival ArcelorMittal in size and hailing it as an example of Beijing’s drive to consolidate the steel industry and tackle overcapacity.

Why the Urge to Merge?

ArcelorMittal, produced 97 million metric tons of steel last year and has a market value of $17.2 billion. Baoshan and Wuhan were worth $16.3 billion combined as of the June 24 close and produced about 60 mmt last year. Baoshan is a profitable enterprise and generally acknowledged to be well run. Wuhan, on the other hand, is loss making, carries too much debt and, probably in the newly combined group, ripe for plant closures and rationalization.

With 1.2 billion mt of crude steelmaking capacity but 803 mmt of steel production, China clearly has a massive overhang of unproductive capacity, causing some firms to be heavy loss makers. Estimates put combined losses for the industry at $10 billion last year.

But, for Beijing, it is as much a desire to clear up these loss-making companies before the market pulls them down into bankruptcy than it is to cut excess steel capacity. There is little doubt it has taken Beijing’s arm-twisting on profitable firms like Baoshan to take over loss makers like Wuhan that they would probably otherwise steer well clear of.

Beijing wants to avoid a domino collapse of lesser steel firms, like Dongbei Special Steel Group, owned by the Liaoning state government that finally filed for bankruptcy this month after eight, yes eight, defaults.

“If they can merge with others, they merge,”  Li Hongmei, an analyst at S&P Global Platts is quoted in the Financial Times as saying. “If not, they will ask the banks if they can change debt for equity. If that fails, then they will choose the last resort — that will be bankruptcy.”

But bankruptcy is bad for publicity, bad for workers, bad for the banks left holding the debt. Better, in a state-directed world, to have a profitable firm swallow them up and quietly rationalize the loss-making operations.

What’s China’s Real Plan for Loss-Making Steel?

The Economist reports on the wider trend, saying China aims to establish two major steel groups, one in the north and one in the south. The northern union of Hebei Iron & Steel Group with Shougang Group would be the nation’s biggest producer, with output of 76 mmt last year for a share of national production at 10%, topping Baosteel-Wuhan’s 8% share in the south, according to 2015 figures.

Meanwhile, there are rumors Ansteel Group Corp., the country’s fourth-biggest producer, could merge with regional peer Benxi Steel Group Corp. but, apparently, the firms are not confirming discussions are ongoing.

What About Those Steel Closures?

The aim is to close 150 mmt of capacity by 2025 but that will hardly put a dent in the 400 mmt of excess capacity in the country, more importantly for Beijing it may take the worst of the basket cases out of the public eye swallowed up by larger, state-directed groups.

The FT, though, offers a cautionary note: The drive to preserve and promote high-end, coastal steel production capacity while cutting off low-end, inland capacity is present throughout the restructuring plans, including the headline Bao-Wu merger.

“Coastal capacity is growing, and that’s the main trend of the next two years,” the FT reports. “Baosteel has a plant in Guangdong. Wisco has one in Guangxi, and they are ramping up to just under 10 mmt of capacity a year each by the end of 2017. What international steel producers really should be asking is what’s happening with the extra 50 mmt of capacity being commissioned on the Chinese coast in the next two years.”

That new capacity is better placed to service export markets than the plants being closed inland, how much of this drive is really to address overcapacity and how much is it to improve profitability and avoid the trauma of bankruptcies.

Copper has been on a bit of a roll this month. After a quiet summer, investors have been looking at growing concentrate imports in China and increased refining to pure copper as signs that Chinese demand is picking up.

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A recent article by Reuters throws some light on what is going on behind the scenes that suggests while demand from refiners is robust, it does not mean demand from China’s consumers is equally as strong and rising imports should not necessarily be seen as a bullish sign for copper.

Copper Price

Source: Kitco.com

The metal had hit a four-week high last week, approaching $4,800 per metric ton after better-than-expected Chinese data lifted sentiment. Read more

A couple of developments made precious metals soar in the first half of the year.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

A falling dollar was the first development that helped gold, silver and platinum group metals soar. Second, the U.K.’s Brexit referendum. Since their January’s lows, gold, silver, platinum, and palladium rose 30%, 50%, 44%, and 50% respectively.

Yes, supply/demand fundamentals differ from one metal to another. Gold has a big role in jewelry and investments. Silver has more of an industrial role, while automotive catalyst demand makes up about 40% and 75% of platinum and palladium demand. These distinct elements can cause these metals to behave differently from time to time but, overall, there are more two more critical drivers to pay attention to. The dollar and economic fears:

Gold (in yellow) vs Platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data

Gold (in yellow) vs platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data.

  • Back in December the U.S. dollar peaked. Weakness in the currency lasted until May and boosted the price of precious metals.
  • In May, the dollar bottomed out and started to climb, having a depressing effect on precious metals. But the effect didn’t last too long as toward the end of June, the U.K.’s Brexit referendum took place. The economic uncertainty pushed safe haven assets higher.
  • Finally, during the third quarter, the U.S. Dollar has been pretty neutral as investors wait for the Federal Reserve to take steps on raising rates at the same time as economic fears ease. The result? Investors lack reasons to push prices higher and consequently prices are retracting.

What This Mean For Metal Buyers

Unless the upcoming monetary policies cause the dollar to weaken, or new economic fears bring back the appeal for these safe haven assets, it might take a little while until we see precious metals rising like we saw in the first half.

Black lead zinc ore closeup rocky textureA recent report from the International Lead and Zinc Study Group found the global market for refined zinc was in deficit from January to July, with total reported inventories declining over the same time frame.

Global zinc mine production declined 6.1% during the same period, which mostly was due to substantial reductions in India, Australia, Ireland and Peru. Meanwhile, world refined zinc metal output fell 3.9% due to a significant drop off in Indian production and a decline in the U.S.

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 report stated: “A rise in global usage of refined zinc metal of 0.7% was driven mainly by an increase in Chinese apparent demand of 6% that more than balanced sharp declines in the United States and Taiwan (China). European usage increased by 1.9%.”

Last, Chinese zinc imports contained in zinc concentrates fell 34.5% while the Far East nation’s net imports of refined zinc metal climbed 96%.

Zinc on the Rise?

Our own Raul de Frutos recently wrote that a year ago today, zinc was anything but bullish.

“Global zinc markets were in surplus and prices were heading lower while sentiment in the mental complex was pretty bearish. But the picture quickly turned around earlier this year. For zinc buyers, the right time to hedge/buy forward was in April, when prices were still below $1,900 per metric ton, as we pointed out in our Monthly Outlook,” de Frutos wrote.

How will zinc and base metals fare for the remainder of 2016 and into 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 Department of Commerce placed anti-dumping duty and countervailing duties on imports of welded stainless pressure pipe from India today. This was a final determination that affirmed Commerce’s previous preliminary determination in March.

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In the countervailing duties investigation, Commerce found that mandatory respondent Steamline Industries Limited received countervailable subsidies at a rate of 3.13% and that mandatory respondent Sunrise Stainless Private Limited, Sun Mark Stainless Pvt. Ltd., and Shah Foils Ltd. (collectively, “Sunrise Group”) received countervailable subsidies at a rate of 6.22%. Commerce assigned a final subsidy rate of 4.65% for all other producers/exporters in India.

Two-Month Trial: Metal Buying Outlook

As a result of the affirmative final determinations, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits equal to the applicable weighted-average dumping and subsidy margins.

At this time last year, there was nothing really bullish about zinc.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Global zinc markets were in surplus and prices were heading lower while sentiment in the mental complex was pretty bearish. But the picture quickly turned around earlier this year. For zinc buyers, the right time to hedge/buy forward was in April, when prices were still below $1,900 per metric ton, as we pointed out in our Monthly Outlook.

In April buyers should have hedged zinc one year out

In April, buyers should have hedged zinc one year out. Source: Fastmarkets.com.

Zinc investors have been drawn in by a 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 mt of mine capacity was either idled or closed permanently. These closures were further exacerbated when Glencore announced plans to suspend 500,000 mt of production last October.

According to the latest data compiled by the International Lead and Zinc Study Group, the global market for refined zinc metal was in deficit by 174,000 mt from January to July 2016 with total reported inventories falling by 17,000 mt over the same period.

Is Now a Good Time To Hedge?

Earlier this month, zinc smelter Nyrstar announced the initiation of a hedging program that would lock in prices six month forward. Is this a good move given that prices are on the rise and everyone is still buying into the tempting narrative of supply shortfall?

I think Nystar made a smart move. Now it seems like a good time for producers to hedge for the midterm while on the other side, zinc buyers might want to wait for more attractive prices to hedge again. Here is why:

Zinc migt struggle to build on gains as it faces strong resistance levels

Zinc might struggle to build on gains as it faces strong resistance levels. Source: MetalMiner analysis of Fastmarkets.com data.

Zinc has risen in almost a straight line since those January lows. Traders sitting on healthy profits may now be tempted to lock in a bit of downside protection. Moreover, prices are near key resistance levels, meaning that in 2014 and 2015, zinc fell as prices approached $2,400/mt. Traders might again find reasons not to chase prices higher from this point, especially given the spectacular rally seen this year.

Two-Month Trial: Metal Buying Outlook

Moreover, a zinc rally could run out of steam if miners are tempted to bring production back quicker than originally planned. Chinese mines could respond to higher prices by lifting production and filling any supply gap. Also, bulls are concerned that Glencore could reactivate the 500,000 mt of mine capacity it has idled since late last year.

Bottom Line

Zinc is still one of the favorites among metal investors and this rally could continue into 2017. However, zinc has gone pretty ballistic so far this year and although fundamentals might back the story up, we could see a price pullback around the end of the year. Zinc producers might want to hedge some of their production now while zinc buyers might want to wait for better opportunities to time their purchases.

Macro photo of a piece of lead ore

Macro photo of a piece of lead ore

New data from the International Lead and Zinc Study Group finds that world refined lead metal supply exceeded demand during the first seven months this year. Over the same time frame, total reported stock levels increased, as well.

The ILZSG report also found that global lead mine production decreased 5.6% when compared to the same time period in 2015, mainly due to reduced production in the U.S., India and Australia.

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!

Meanwhile, a boost in world refined lead metal output of 0.7% was mostly due to growth in Canada, the Republic of Korea and Kazakhstan, which partly offset the reduction seen in China.

The report stated: “European usage of refined lead metal increased by 9.4% mainly due to increased demand in Germany, Poland and the United Kingdom. In contrast apparent usage in China fell by 6.4% and in the United States, was at the same level as during the first seven months of 2015.”

Last, Chinese imports of lead in lead concentrates fell 13.3% year-over-year.

Lead, Pher Base Metals to Fall Next Year?

Our own Raul de Frutos wrote this week that since metal prices bottomed out earlier this year, we’ve seen rising prices. But was what we saw the result of five years of a bear market, and are metal prices primed to continue their ascent in 2017?

de Frutos cites three critical factors to watch for in 2017 that will determine the sustainability of this year’s bull market. They are:

  1. Supply cuts
  2. Chinese stimulus measures
  3. The U.S. dollar

How will lead and base metals fare for the remainder of 2016 and into 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:

So, will aluminum receive a similar tariff shield as steel has enjoyed in India? The shield refers to a minimum import price (MIP) that is generally imposed on cheap commodities entering India, just like cheap steel from China.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

In the case of aluminum, too, the main “culprit” seems to be China. Yet, the stance of the Indian government vis-à-vis an MIP is still not clear, as various ministries concerned with the development have given divergent opinions. Read more

Metal prices bottomed out earlier this year and ever since we are seeing rising prices. However, was that the ultimate bottom after a five years of a bear market? Are metal prices set to continue running higher in 2017?

Industrial metals ETF flattens in Q3

The industrial metals ETF flattens in Q3. An end to rising prices? Source: MetalMiner analysis of @StockCharts.com data.

These are questions we can’t answer, but they will be answered moving forward. Although industrial metals entered a bull market this year, we have yet to see how long this rising market will last. In Q3 we already witnessed some weaknesses with many base metals struggling to build on this year’s gains.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

We see three critical factors to watch as we move in 2017. These factors will determine the sustainability of this year’s bull market:

Supply Cuts

Some production capacity was closed this year to fight low prices and the market now seems more balanced than last year. These supply cuts helped push metal prices higher, but the problem is producers might now have enough incentives to restart production. A good example is the zinc market. Zinc prices rose sharply this year thanks to supply cuts, but now markets wonder if Glencore and China’s zinc miners will start upping their production to reap the rewards of higher prices. Read more