Articles on: Metal Prices

Set of copper pipes of different diameter lying in one heap

The copper industry is still reeling from its crisis of plummeting prices, but hope is on the horizon and a recovery is underway albeit a gradual one.

According to a recent report from Reuters, falling prices led to a reduction in output, but industry executives announced this week in a meeting in Chile, a top producer nation of the metal, that any recovery will be a slow one.

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“The market seems to have left behind its worst moment, although it’s very premature to anticipate a new cycle of high prices,” Chilean Mining Minister Aurora Williams told the conference, according to Reuters.

Arnaud Soirat, copper and diamonds unit chief at Rio Tinto added that copper prices could receive support from external factors, including pending mine closures and ore grade decline.

“Copper’s long-term fundamentals are quite positive, and we expect to see further demand growth from emerging markets,” he told Reuters, forecasting a small deficit this year.

Copper Prices on Upward Trajectory?

Reuters also reported that copper consultancy CRU is projecting copper prices to trend upward over the next 3-4 years.

Said Vanessa Davidson, director of copper research: “We expect pressure on costs to continue…but we see copper prices rising faster than operating costs, ensuring that profit margins increase.”

How will copper 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 rising trend of aluminum processors seeking protection from Chinese imports may be just the beginning if a recent Reuters article is correct.

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

Encouraged by a growing delta between the London Metal Exchange and Shanghai Futures Exchange aluminum price quotations, China’s aluminum makers are expected to step up exports in coming months, aided and abetted by a healthier global manufacturing climate and declining world aluminum stockpiles, the article explains.

Should this prove right, higher exports of semi-manufactured aluminum products would depress prices on both the LME and processors conversion premiums in the rest of the world. That would be bad news for producers, but good news for consumers who have been experiencing rising prices of both the underlying LME and conversion premiums for the last six months.

Chinese exports of semi-finished aluminum products fell last year as both LME and SHFE prices collapsed but production has rebounded more than 20% during the first two months of this year as the rising LME has made exports more profitable for Chinese producers benefiting from a relatively weaker SHFE domestic price. According to Goldman Sachs, the profitability of China’s semis exports has jumped 20% this year, encouraging the surge in exports we have seen in Q1 and portending a further increase in the months ahead.

How long the increase in exports is likely to last, and therefore how persistent the negative impact it will have on prices, remains to be seen. Despite the anticipation of rising exports, many still think the surge could be short-lived. Last month, Beijing ordered aluminum producers in 28 cities to slash output by 30% during winter months to limit coal use and curb pollution. In the mean-time, those producers are pumping out every ton they can adding to domestic availability, inventories and depressing the SHFE price. Come autumn, however, if cutbacks are enforced and the physical market tightens that surplus could turn to deficit and prices could rise. In which case exports will become less attractive and the tap will be turned off.

Two-Month Trial: Metal Buying Outlook

This isn’t the first time the global aluminum market will be dancing to China’s tune. Consumers could do well to use a dip in prices this summer to cover forward for what may be a winter in which prices rebound.

Since the beginning of March, steel prices in China have fallen sharply while prices in the U.S. have risen. That is simply not sustainable.

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

These price divergences happen once in a while but they don’t last long. Over the next few weeks we’ll either see a rebound in Chinese prices or weakness in US steel prices.

US HRC (in blue) vs. Chinese HRC (in purple). Source: MetalMiner IndX.

Why do we say this? Well, China’s output accounts for more than 50% of world steel production. Currently, China isn’t a major exporter to the U.S., but it is the biggest exporter to the rest of the world. Therefore, Chinese prices put a floor under international steel prices.

Two-Month Trial: Metal Buying Outlook

Since prices peaked in February, China’s hot-rolled coil prices have fallen nearly 15%. During the same period, U.S. HRC prices have risen nearly 8%. Interestingly, we saw a similar divergence last summer, when the U.S. imposed strong anti-dumping measures against imports. Such a wide international price arbitrage didn’t last long, as we predicted last year, this price arbitrage narrowed after that summer.

CRC price arbitrage US-China. Source:MetalMiner IndX.

U.S. steel prices are now expensive again relative to Chinese prices. In the case of cold-rolled coil, the price spread stands now at $344 per metric ton, quite high compared to historical levels and not far from last summer’s peak of $420 per mt. A level that has proven unsustainable before.

What This Means For Metal Buyers

We continue to be long-term bullish on steel markets. However, buyers should closely monitor the recent divergence between Chinese and US prices. We should see a recovery in Chinese steel prices soon, otherwise US steel mills will have a hard time justifying further price hikes. Remember that we are in a global world and although US steel prices can temporarily move apart from Chinese prices, they will eventually move in tandem because otherwise, buyers will start looking to buy steel overseas.

This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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

17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.

This is the final of a three-part series on MetalMiner Benchmark. Here’s part one and part two if you missed them.

We recently launched MetalMiner Benchmark. Source: MetalMiner.

One question we often field from readers is this one: “how are other companies buying their X and how well are we buying X?” We have previously written that many buying organizations fall into one of several different “buy” scenarios that include the following:

  1. The pure spot buyer (e.g. otherwise known as 3 bids in a box): Here, the buying organization goes out to market with a specific requirement, obtains three bids and typically places the award with the most competitive supplier who can meet delivery and quality requirements.
  2. The contract buyer: Prefers nearly the opposite type arrangement. He or she likes to “lock in” all or close to all known requirements or use some formula based on 80% of last year’s demand. The contract buyer often uses a price contracting mechanism known as an index whereby the price adjusts quarterly or monthly to the index depending on the agreed-upon arrangement.
  3. The hybrid buyer: This buyer is more strategic in that he/she buys both on the spot market and also contracts for forward buys or hedges when prices warrant that action.

Pros and cons exist for each scenario. Often times, the contract buyer in scenario two actually looks more like the spot buyer in scenario one because when a buying organization uses an index like CRU Group‘s, they do, in fact, pay the market price. They don’t actually pay less than the market or avoid a cost run-up if prices rise. In that sense, the scenario two buyer is actually a spot buyer — ultimately paying the market price.

We’d argue there are tools today that allow the buying organization to take their metals purchasing to the next level. Innovative practices such as benchmarking can actually allow the buying organization to reduce its average or budgeted purchase price. Let’s see how.

There are a number of ways to this. We have identified a few below:

  1. By benchmarking your company’s current monthly metal spend, and by doing so regularly, buying organizations can walk into a supplier negotiation armed with current market price data and knowledge of how well the company buys vis-à-vis the market. Access to superior metal price intelligence gives the buying organization a leg up in negotiations and the ability to lower costs.
  2. By pairing the benchmark report with forecasting, buying organizations can better time contract purchases both to avoid significant price increases as well as to “float” when prices are dropping. In this way, the buying organization can apply a more strategic hybrid approach to metals purchasing thereby lowering average costs.
  3. Think of benchmarking as laser surgery. Buying organizations now have the means of pinpointing specific SKU-level opportunity areas while leaving other areas untouched.
  4. Stop wasting time on metal sourcing projects that have little to no ROI. Conversely, identify high-ROI metal sourcing projects. Educate your executive team with where and how the procurement organization plans on creating value within some of the largest metals purchase areas.
  5. Conduct alternative supplier identification on the fly by seeing alternative suppliers within your geography for the form/alloy/grade/size you buy. By conducting these types of analyses quickly and efficiently the long cycle time of implementing savings can be streamlined and shortened.

Try Benchmarking for free with self-service!

Bonus benefit: improve your ISO certification scores by using benchmarking, which enables a fact-based approach to decision-making, a key requirement of certification.

The most innovative metal buying organizations will become the early adopters of this type of benchmarking capability. Just as Progressive Insurance and Kelley Blue Book created market access to greater pricing visibility, metal price transparency appears within reach. This innovation should significantly improve metal buying strategies.

Palladium has been the best performer among precious metals for some time now. Since the beginning of 2016, palladium is up 65%, easily beating the price increases seen in platinum, gold and silver.

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

What factors made palladium outperform its peers and what should palladium buyers pay attention to this year?

Global Demand for Cars

According to Inside Advantage’s Outlook 2016 report, “the primary bullish factor might be the expansion of auto catalyst demand for palladium, particularly in China where air pollution problems are increasing. The auto sector accounts for around 80% of palladium demand.”

Chinese car sales for the first two months of 2017 beat expectations and were 8.8% higher compared to the same period in 2016. According to a Market Watch report, the pace is still weaker than the 14% increase reported last year by the industry as tax incentives urged customers to buy cars. In Q4 of 2016, China announced a 50% cut in its sales tax from 10% to 5% for small automobiles. The tax cut was effective until the end of 2016.

Most analysts were expecting a big slowdown in the largest automobile market this year, but China continues to surprise markets. The country agreed to extend the cut, although at a higher rate of 7.5%. In 2018 it will revert to 10%. Therefore, while auto sales might not beat the high levels reached last year, Chinese citizens will still likely take advantage of a lower tax in 2017.

According to a recent Reuters article, “March’s figures for the world’s second-largest automotive market came in below market expectations and gave early evidence that the growth in America’s car sales may be running out of steam. Sales in March fell by 1.6% compared with the same month a year ago.”

Overall, auto markets were really strong in 2016, contributing to a 50% rise in palladium prices last year. This market might surprise again in 2017 but signs of a plateau in the U.S. and uncertainties in China due to an extended but higher tax cut are factors to watch this year.

Strong South African Currency

South African Rand Index. Source:MetalMiner analysis of @stockcharts.com data.

South Africa is the largest producer of palladium, and controls around 40% of world output. The Rand (South African currency) has been one of the best performing currencies since 2016. A rising Rand makes South African exports more expensive to the rest of the world, limiting producers margins and potentially leading to a reduction of output. Read more

Global steel prices tend to find a floor based on the price of Chinese steel. If Chinese prices fall, domestic U.S. prices also tend to fall. However, grain-oriented electrical steel continues to beat to its own drum, often not aligned with underlying steel prices.

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

March is no exception.

Although U.S. domestic steel prices continued to rise in March, the GOES M3 price fell and fell rather significantly dropping by nearly 7%.

GOES MMI

Meanwhile, according to a couple of recent TEX Reports, GOES prices from Baosteel increased by $38/metric ton in April after increases of $168/mt from January through March. Baosteel acts as the price leader and according to a recent report, and will likely stand pat until or unless others also increase their prices. Those “others” may have a near-term opportunity to do so as a large tender from Bharat Heavy Electricals for 20,000 mt will bring in the global GOES producer community. As China tends to set the “market floor” for global steel prices, the TEX Report suggests that this tender will serve as the global price floor for GOES for the balance of 2017.

Supporting the rising price theory, TEX Report also suggests that prices have risen by $200-300 per mt in the Middle East and India.

Ironically, prices for steel rebar on the Shanghai Futures Exchange have declined by 5% according to a recent MetalMiner story on the back of declining coking coal (4%) and declining coke prices (5%), as well as falling iron ore futures. Some, including MetalMiner, believe the price declines are due to speculators unwinding bullish bets.

Chinese HRC

Source: MetalMiner Forecasting

Regardless, Chinese prices for hot-rolled coil are falling and though GOES prices often diverge from underlying steel market trends, upward price movements may be elusive.

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The signals the U.S. is sending in the steel sector really worry Germany, so said Brigitte Zypries, German Economy Minister, according to Reuters in a recent article.

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

This isn’t the first time the European Union has had a trade spat with the U.S. over steel but it is unusual for one party or the other to take the case to the World Trade Organization, claiming “accounting tricks” and “protectionism” designed to give domestic producers an “unfair competitive advantage.”

The E.U.’s position is this issue should have been addressed through bilateral negotiations giving them the opportunity to show Germany, French and Austrian steel producers are not dumping steel and are not being subsidized, but President Trump signed executive orders last Friday aimed at identifying abuses causing the huge U.S. trade deficit, and Germany is deemed one of the worst culprits.

Port Talbot steel plant

British Steel and its Port Talbot plant could be the next company in line for carbon and alloy steel plate tariffs from the U.S. Source: Adobe Stock/Petert2

However, by issuing a final finding that European and Asian producers dumped certain carbon and alloy steel cut-to-length plate in the U.S. market, the Department of Commerce says it is allowed to impose duties ranging from 3.62 to 148%, but the E.U. claims the decision has been determined on the basis of dodgy accounting estimates and the correct place to discuss them is at the negotiating table or via the WTO, not by applying duties which will then take months to address and impact trade for a year or more, essentially shutting European mills out of the U.S. market. Read more

If “imitation is the sincerest form of flattery, then perhaps being labeled a “disruptor” and compared to the likes of Amazon by an industry luminary isn’t such a bad thing either. Referring to the recent launch of MetalMiner (SM) Benchmark, Denny Oates, CEO and President of Universal Stainless named MetalMiner as a potential “threat” to the industry [stainless] at the recent Specialty Metals Conference hosted by MSCI in March.  

I guess it all depends on your perspective. When it comes to the inevitable arrival of price transparency in metals markets you can see the proverbial glass as half empty or as half full. We (and a growing number of other industry leaders) view it in a far more positive light. It’s simple really — when it comes to consumer demand for transparency, the choice is  pretty clear — get on the train or get run over by it. As former Chief of Staff of the U. S. Army, General Eric Shinseki, put it less delicately:  “If you don’t like change, you’ll like irrelevance even less.”

It’s natural to view any change to the status quo as potentially threatening but that most basic of human instincts — to fear something new — can often prevent you from seeing the opportunities that change brings. This, the first of a multi-part series on MetalMiner (SM) Benchmark, will attempt to shed light on this crowd-sourced application and show metal buying organizations as well as service centers and producers how this new capability can serve as an enabler creating trust between buyers and sellers, accentuating often overlooked value added capability, quality and on time delivery.  It also reduces uncertainty, speculation, and risk for all parties.

First, let’s set aside emotion and take a look at the facts — what has price transparency really meant in other industries? Let’s begin with the problem because most new solutions and innovations come from addressing an actual problem. In this case, the number one problem we hear from our audience always involves a version of “where can I get the price of (fill in the blank)?” And that “fill in the blank” typically covers aluminum, steel, stainless steel, copper, tinplate and GOES (grain-oriented electrical steel). In our world, if a customer wants something, figuring out how to give it to them is a good thing.

We’d argue that buying organizations constantly want to know:

  • the price of the specific metal they are buying (form/alloy/grade/thickness)
  • the forecast for that specific metal they are buying
  • the historical price for that specific metal they are buying
  • what other people are paying for that specific metal they are buying
  • what the drivers are for the specific metals that they are buying

In that same presentation by Denny Oates, he argues wisely (below) the different strategies industry players, both mills and service centers will have to take in order to succeed.

Benchmarking

The role of the “trusted advisor” appears prescient, except that we’d argue that being transparent with customers on what constitutes a “fair and reasonable market price” is something service centers need to embrace not fear. Trust between supplier and buyer is the currency of business in the new, high information, digital world in which we live. A case in point: An Accenture study of B2B sales suggests that 94% of B2B buyers say they conduct some form of online research before purchasing a business product. For large corporate purchases of more than $5,000, 34% spend over three hours researching products. Metals price benchmarking does not change buyer behavior, it simply makes it easier.  What’s interesting, though, is what happens when sellers embrace transparency and use it to endear customers to them.   Read more

The London Metal Exchange aluminum price has risen steadily since this time last year and seemed at times like it may hit, if not breach, $2,000 per metric ton. Many consumers are asking how much further does it have to go? will it break that psychologically important barrier anytime soon? and if it does, how much further does it have to go?

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

To understand this, we should consider what has caused price strength in recent months and that you will not be surprised to hear is easy to list, but harder to judge to what extent each factor has had an impact.

Why is Aluminum Up?

First, there are general commodity category price drivers, nearly all base metals have shown price strength over the period as industrial demand has remained positive and surplus supply markets have either tightened or gone into outright deficit. In the case of aluminum, there are several indicators suggesting the market deficit has increased over the last 12 months. Physical delivery premiums have increased not just in Asia, but in the U.S. with the Midwest premium currently trading just below ten cents per pound on the CME Group exchange, up from six cents per pound in the third quarter of last year. Japanese physical delivery premiums have been agreed at $128 per metric ton for the second quarter up from $95 per ton for the first quarter.

Source: Reuters

Meanwhile, LME inventory continues to decline with almost 400,000 mt electing to leave the system in February alone. Now it must be said that not all this metal is destined for consumption, as Andy Home in a recent Reuters article points out, the majority of metal leaving the LME system is almost certainly heading to off-market lower cost storage options. Read more