Articles on: Metal Prices

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This afternoon in metals news, the U.S. renewable energy industry has reason to worry about the Republican tax proposal, union members at the Quebrada Blanca copper mine in Chile move closer to a strike, and precious metal prices fall.

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Renewables Market Pushes Against BEAT Tax

While the Republicans’ latest attempt at an overhaul of the U.S. tax system is receiving the usual praise and criticism, the renewable energy sector is concerned – and understandably so. As Dino Grandoni explains in the Washington Post, the bill may inadvertently end investment in wind and solar energy.

Currently, many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides. But these credits may be cancelled out as part of the base erosion anti-abuse (BEAT) tax, which is meant to discourage multinationals from moving profits abroad.

According to the American Wind Energy Association’s Peter L. Kelley, the BEAT tax – if it is not amended to exempt renewables credits – could put an end to more than half of the country’s wind projects.

Strike Brewing at Quebrada Blanca Mine

A quarter of the workforce at the Quebrada Blanca copper mine in Chile moved closer to a strike, as the 106-member union rejected Canadian miner Teck Resources’ contract offer on Wednesday, Reuters reports. Ninety-six percent of the union voted to reject the offer and strike, said the president of the union. Read more

Gold prices seem to be moving sideways after prices peaked in September.

Gold prices followed similar patterns to other base metals (such as copper and nickel), and rallied during Q3. We might expect to see price pullbacks after volatile bullish runs.

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Gold spot prices. Source: MetalMiner analysis of FastMarkets

Gold and the U.S. Dollar

U.S. dollar-price movements heavily impact gold; the weaker the dollar, the stronger the gold price.

The U.S. dollar has appeared weak since the beginning of this year, while gold prices have risen. This suggests a negative correlation.

Gold-Continuous Contract price in orange. U.S. dollar in black. Source: MetalMiner analysis of StockCharts

In the chart above, both gold and U.S. dollar prices appear in the upper half of the chart. The black line at the bottom reflects the correlation between the U.S. dollar and gold prices. Both correlate negatively, which supports our previous statement.

A weaker U.S. dollar will help boost gold prices. Moreover, the correlation value falls between  -0.70, and even closer to -1. Therefore, gold and the U.S. dollar have a strong negative correlation, and the U.S. dollar serves as a reliable indicator for gold.

However, at certain times the correlation appears positive.

In July 2016 and July 2017, both the U.S. dollar and gold prices traded together. This tells us that the negative correlation doesn’t always provide clues as to gold prices.

S&P 500 Supporting the Bulls

Stock markets also shed light on metals markets.

Even though increasing stock markets do not necessarily equate to booming metal prices, they do suggest confidence in the overall economy. The S&P 500 currently trades at its historical levels, even in uncharted territory.

S&P500. Source: MetalMiner analysis of StockCharts

A rising stock market reflects investors’ positive sentiment with respect to the economy. The S&P 500 has increased by 15% so far this year. A better economic performance may lead traders to put their money in commodities, which will support the rally in base metal and precious metal prices.

Chinese Stock Market

The Chinese FXI index reflects an expansion in that economy.

Even though the FXI index has fluctuated more than the S&P 500 during the last five years, the uptrend that began in 2016 appears sustainable (at least for now).

FXI Source: MetalMiner analysis of StockCharts

Long-Term Relationship: Copper and Gold Prices

Readers might be asking: how can I relate gold prices to base metals strategy?

The answer is simple: copper and gold have traded historically in the same trend. Both gold and copper prices are currently in a long-term uptrend.

Gold-Continuous Contract price in purple. Copper in black. Source: MetalMiner analysis of StockCharts

However, a couple of divergences took place at the beginning of 2016 and at the end of the same year.

Gold prices rallied at the beginning of 2016, while copper prices increased (but by a smaller amount). At the end of 2016, copper prices rallied and gold prices dropped. They recovered afterwards, continuing its uptrend together with copper.

What This Means for Industrial Buyers

Industrial metal buyers may want to consider gold price trends as an additional indicator at which to look.

Currently, stock markets are signaling a continuation of a commodities bullish market, as well as a healthy economy in U.S. and China. Therefore, buying organizations may want to understand how and when to buy to reduce their costs.

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Buying dips are reflected in our Monthly Outlook and a long-term analysis for every base metal and steel forms in our free Annual Outlook. 

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This morning in metals news, U.S. imports of steel are up 19% in the year to date, Shanghai nickel drops and miner BHP Billiton looks to cut costs.

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Imports Up Nearly One-Fifth in YTD

U.S. imports of steel are up 19% this year through October, according to data released by the American Iron and Steel Institute (based on preliminary U.S. Census Bureau data).

The U.S. imported a total of 3,119,000 net tons (NT) of steel in October 2017, including 2,493,000 net tons (NT) of finished steel (unchanged and down 0.4%, respectively, compared with September final data).

Year-to-date (YTD) through 10 months of 2017, total and finished steel imports are 32,850,000 and 25,449,000 NT, up 19.4% and 15.4% respectively, vs. the same period in 2016. 

Shanghai Nickel Falls

Shanghai nickel futures dropped more than 2% on Tuesday, Reuters reported.

The drop comes as a result of potentially slackening steel demand in the face of Chinese governmental reforms, according to the report.

Mining Giant Eyes Cost Cuts

Australian miner BHP Billiton is looking to cut costs across its Australian businesses, Reuters reported.

BHP is looking for $1.6 billion in productivity gains at its Australia iron ore, copper and coal units over the next two years, Minerals Australia President Mike Henry said during a briefing in Adelaide, according to the report.

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This morning in metals news, the Indian government says the country’s steel firms can meet the railway industry’s needs, copper hits a one-month high and the Japan Iron and Steel Federation says it doesn’t expect a decline in automobile steel sheet demand.

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Domestic Firms Can Meet Railway Demand, Indian Government Says

According to an Indian government panel, domestic steel companies like Jindal Steel and Power Limited can meet the railways’ demand if given an opportunity, Reuters reported.

According to Reuters, the state-run Steel Authority of India Ltd (SAIL) has struggled to supply the steel as India looks to expand its rail network, the fourth-largest rail network in the world.

Copper Hits One-Month High

Copper rose to a one-month high on Monday, Reuters reported, topping $7,000 in the process.
The jump comes “amid signs of resilience in China’s industrial sector,” Reuters reported.

Demand for Automotive Steel: Japan Iron and Steel Federation

Despite news that Nissan and Subaru did not comply with inspection procedures for decades, the top official of the Japan Iron and Steel Federation said they do not expect a decline in demand for automobile steel sheets.

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Thank you for using our services to inform your metals purchases and trades. We take seriously the trust you place in our benchmarking, forecasting and metal price services.

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This Thanksgiving holiday we promise to continue to provide you with the best information to inform your purchases.

Happy Thanksgiving from MetalMiner!

Happy Thanksgiving from MetalMiner!

Have a happy Thanksgiving with your families and all those that you hold dear.

Before you take that post-meal nap, if you’re looking for something to read (or listen to), make sure to check out our stories and latest podcast episode from earlier this week:

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The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, the U.S. Department of Commerce announced an affirmative ruling in its anti-dumping investigation of carbon and alloy steel wire rod from Belarus, Russia and the United Arab Emirates (UAE), Nucor announces it will build a new steel mill in Missouri and the zinc price moves up on supply tightening concerns.

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DOC Issues Affirmative Ruling on Wire Rod

The U.S. Department of Commerce announced an affirmative determination in its anti-dumping duty investigation of carbon and alloy steel wire rod imports from Belarus, Russia and the UAE.

“The United States is dedicated to free, fair, and reciprocal trade with these countries, and this case was decided strictly on a full and fair assessment of the facts,” Secretary of Commerce Wilbur Ross said in a prepared statement. “The Department of Commerce is committed to protecting U.S. companies being hurt by foreign manufacturers that refuse to play fair.”

Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of wire rod at the following rates: Belarus (280.02%), Russia (436.80–756.93%) and the UAE (84.10%).

Nucor Announces New Sedalia, Missouri Facility

Nucor announced Tuesday that it plans to build a rebar micro mill in Sedalia, Missouri, scheduled to open in 2019.

The new mill represents approximately $250 million in investments, according to a Nucor release on the announcement.

“This rebar micro mill project is consistent with our long-term strategy for profitable growth and builds on our position as a low-cost producer,” said John Ferriola, chairman, CEO and president of Nucor, in the release. “Strategically positioning this micro mill in the Kansas City area will give us a sustained cost advantage over other domestic steel producers supplying rebar from outside the region.”

Zinc Prices Rise

Zinc reached its highest price in more than a week on Wednesday, Reuters reported.

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The price increase came as a result of worries about supply shortages, as well as solid performance in Chinese steel futures, according to the report.

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This morning in metals news, raw steel production in the U.S. jumped last week, Century Aluminum was down 10.8% on Monday and nickel prices are aided by steel on Tuesday.

U.S. Raw Steel Production Up 9.7%

Raw steel production was up 9.7% year-over-year for the week ending Nov. 18, according to weekly data from the American Iron and Steel Institute (AISI).

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Domestic raw steel production was 1,745,000 net tons while the capability utilization rate was 74.9%. Production for the week ending Nov. 18 was up 0.3% from the previous week, when production was 1,739,000 net tons and the rate of capability utilization was 74.6%.

Century Aluminum Has a Down Monday

Shares of Century Aluminum closed 10.8% lower on Monday, according to an AP report on Madison.com.

The question is, why?

“Market pundits aren’t entirely certain what to make of this development, noting that aluminum stocks may simply have been shifting away from expensive LME warehouses to cheaper warehouses and other countries,” the report states.

Nickel Prices Get a Boost

Steel-dependent nickel got a boost Tuesday, when prices in the Shanghai and London markets saw a jump, Reuters reported.

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The most-traded nickel contract on the Shanghai Futures Exchange was up 1.3% at 94,710 yuan ($14,285) a ton by 0126 GMT, according to Reuters. Meanwhile, three-month LME nickel rose to $11,677 per ton.

There is widespread agreement and considerable evidence to suggest the global weather patterns of El Niño and La Niña can have a significant impact on commodity prices.

But impacting average temperatures and rainfall as these weather patterns do, the most significant impact is, not surprisingly, on agricultural commodities in the grain sector.

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As Agriweb observes, “Dry weather conditions in the U.S. can threaten the development of corn, soybeans and wheat crops, and dry conditions in Argentina and southern Brazil can impact corn and soybeans.”

El Niño and La Niña broadly act as opposites, reflecting as they do the interaction of large areas of warm water in the Pacific with global weather patterns. We were under the influence of El Niño effects last year, but have recently moved into conditions meeting the La Niña pattern. The La Niña pattern is characterized by a shrinking of a large pool of warm water in the Pacific as a strengthening of westbound trade winds carry warm surface water from the east to west and allow an upwelling of colder waters in eastern regions. The overall temperature of surface water decreases and on the western side of the Pacific the arrival of warmer waters increases rainfall while on the western side cooler temperatures tend to reduce rainfall, resulting in drought conditions. The last La Nina year was 2011-2012 where drought conditions caused a grain prices to surge.

According to the Climate Change Centre, drawing on work by the National Oceanic and Atmospheric Administration (NOAA), NOAA’s National Weather Service, released in a recent report, “El Nino/Southern Oscillation (ENSO) Diagnostic Discussion,” La Niña conditions have a 65-75% chance of prevailing through to the February-April 2018 period.

But what impact can this have on metal markets?

Clearly, mining and metal extraction are less weather-dependent than the growing of crops. However, while a shortage of water for the irrigation of field crops can be dramatic for crop yields, it can also be significant for the generation of hydroelectric power for the mining sector and metal smelting in certain regions of the world.

As the above graph from a University of Sydney School of Economics paper last year illustrates, in La Niña years rainfall can be reduced in areas like the eastern Pacific such as Chile and Peru. The reverse can be the case in southeast Asia and Australia, where excessive rainfall has caused flooding and resulted in supply disruption for mining companies in the iron ore, tin and bauxite markets prompting price rises over short timeframes.

The paper suggests 20-30% of metal price variations at the one-to-two year horizon can be attributed to El Niño/La Niña oscillations.

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As a more frivolous aside, for anyone yet to book their winter ski vacation in North America this year, the developing La Niña would suggest the current outlook favours above-average temperatures and below-median precipitation across the southern tier of the United States, and below-average temperatures and above-median precipitation across the northern tier of the United States.

So, head to the northern Rockies for the snow and colder temperatures.

The contract season has already started and steel prices have yet to react. Although domestic steel prices increased during the last week of October and the first of November, prices fell again last week.

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Source: MetalMiner data from MetalMiner IndX(™)

Steel prices have traded flat for most of 2017. Prices, however, started to weaken during Q3. We still want to see more upward price movements before changing the steel outlook.

Chinese Steel Industry

Of course, Chinese steel prices and production serve as the primary drivers of the world steel industry.

According to data released by the National Bureau of Statistics, Chinese daily steel output decreased by 2.5% in October. Capacity curtailment in the steel industry has finally resulted in less steel output from that market.

Some regions, such as Hebei province, plan to continue the steel capacity cuts until 2020, further reducing production by up to 20 million tons.

Source: MetalMiner data from MetalMiner IndX(™)

The spread between U.S. HRC prices and Chinese HRC prices has fallen again this month.

In addition, all forms of steel in China except CRC saw price declines. Even if the decrease in Chinese prices appears less steep than the U.S. decline, we want to see more price movements to the upside before drawing any conclusions.

What This Means for Industrial Buyers

Steel price dynamics may recover at some point this month. Therefore, buying organizations will want to pay close attention to Chinese price trends and domestic lead times.

To read more about our longer-term steel price trends, download our free Annual Outlook.

To understand how to adapt your buying strategy this season, take a free trial now or subscribe to  the Monthly Outlook for a short-term analysis.

Before we head into the weekend, let’s take a look back at the week that was:

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Free Download: The November 2017 MMI Report