Articles in Category: MetalMiner IndX

With the Federal Reserve hinting at an increase in interest rates soon and a few metals gaining at least a little bit of their lost values back, the search for a market bottom is on.

MM-IndX_TRENDS_Chart_November-2015_FNL-TOPVALUE100This month we saw some encouraging signs that the metals undergirding our MMIs, such as Copper and Stainless, were posting gains but the overall trend still pointed to historically low prices. The underlying prices comprising our steel, aluminum, construction and renewables indexes all fell again.

Even the strong performers in this bear market, such as copper and stainless, come with a caveat: that their gain — for copper, a 1.5% increase and a 1.4% increase for automotive — or simply steady performance could very well be mere pauses in a year of losses, rather than true market bottoms. The Stainless and Rare Earths MMIs managed to hold their low price levels from October. Certainly good news for producers in this market, but not indicative, yet, of any real potential for future increases.

The Global Precious MMI showed a genuine increase of 4.1% with strong price performance from all its individual metal components. This includes increases in gold and silver as hedges against what some investors perceive as a future move to weaken the US dollar’s continuing strength against commodities and other currencies, an increase in interest rates.

It’s still too early to tell but maybe, just maybe, some of these metals are poised to bottom out.

Our copper MMI index rose by just 1 point in November to 66 from 65 in October.

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Like other base metals, copper prices have been more stable over the past three months. After the metal plummeted during the summer, prices recovered from six-year lows on the back of supply cuts by major producers. However, we still see a lot of price weakness across the board and the fact that prices are not able to fully rally on supply cuts may be indicative of the fact that we have yet to see a floor for copper prices.

Copper_Chart_November-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 and another recently announced pullback in production from Freeport-McMoRan could raise hopes of more shutdowns, however, other major producers have indicated that they don’t have any intention of cutting production.

Low Prices, Lower Costs

Despite low prices, many copper producers are still earning decent profits thanks to lower operating costs. BHP Billiton and Rio Tinto Group are ramping up their copper production.

In fact, BHP says that its mines are still generating cash. The company is confident that its well-diversified and low-cost portfolio will keep generating profits in spite of falling prices. Meanwhile, Rio Tinto announced no intentions to cut its production and lose market share. Thanks to its low-cost assets, the company sees an opportunity to actually increase its market share by expanding its Oyu Tolgoi copper mine in Mongolia.

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Given that 45% of copper demand comes from China, the slowdown in the Chinese economy offset the boost from production cuts on copper prices. So far, mine shutdowns have been unsuccessful in triggering a bull run. It seems that production cuts are only giving support to falling copper prices but it remains unclear if these shutdowns would hold prices against more disappointing macroeconomic releases coming from China.

What This Means For Metal Buyers

Copper is not giving buyers any reason to panic on mine shutdowns. While we have a strong dollar, weak Chinese demand and a still-bearish commodity environment it will be hard to see copper making significant upside moves. Refer to our monthly outlook for key price levels that we are seeing in copper markets at the moment.

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Our Stainless MMI held steady at 59 for the second consecutive month.

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Nickel prices are hovering near the lows of 2009. That level is giving support to prices as traders remain hesitant on whether nickel prices can go below recession levels. While other base metals are still trading comfortably above recession lows, nickel could be the first industrial metal hitting that psychological level.

Stainless_Chart_November-2015_FNLAnother factor supporting prices this month is the speculation that Glencore Plc, the world’s fifth-largest producer of nickel, could cut nickel production following cuts to its copper and zinc output to reduce its heavy debt levels. Moreover, other industry shutdowns could follow given that 60% of the world’s nickel is estimated to be non-profitable at current price levels.

Can Prices Go Up?

Some analysts argue that Philippine ore won’t be sufficient to cover nickel pig-iron (NPI) producers’ capacity in China, tightening the nickel market. However, Indonesia is already working on producing more NPI, as the country is pushing to win more profit from its mineral sources. Chinese producer Tsingshan Group is set to triple its capacity to produce NPI in Indonesia as soon as May, having an installed capacity of 900,000 metric tons of NPI.

Even though nickel’s supply-demand dynamics may actually be tightening, the market is facing other problems:

High Stock Prices

A period of super-fast production growth has left record high inventories. Although LME stocks declined in October, they are still above 400,000 Tons, almost 5 times higher than in 2011. Such a huge overhang of metal is pressuring prices, removing any hopes of market deficit.

Demand Woes

The slowdown in Chinese demand is keeping a lid on any price increase. Moreover, investors fear that the worse is yet to come. So far, demand woes are trampling supply woes, underscoring that significant price increases won’t likely happen until demand fears vanish.

Free Download: The October MMI Report

Finally, rumors of an increase in US interest rates from the Federal Reserve are pushing the dollar higher. The dollar index is surging as foreign currencies tumble. This is another, and not less important, factor that will continue pressuring nickel prices.

What This Means For Metal Buyers

There is no point in making predictions. After this pause, nickel prices could go both ways but we wouldn’t discard the possibility of nickel falling below the lows of 2009. Buying only small quantities remains the dominant purchasing strategy but buyers should watch nickel’s support and resistance levels to be ready to change their strategy.

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The Rare Earths MMI held steady at 18 for the third straight month, settling in at a low price point that it has fluctuated around for the entire year.

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In the bearish commodity environment, specialty metals such as rare earths are not likely to break price resistance anytime soon without a major supply shock. The biggest news in rare earths this month was that US producer Molycorp Inc. filed its restructuring plan in bankruptcy court.

Rare-Earths_Chart_November-2015_FNLMolycorp’s recovery plan envisions a dual-track process wherein its assets are actively marketed for sale, either as a whole or through the separate sale of its business units. Molycorp’s four business units are chemicals and oxides, magnetic materials and alloys, rare metals, and resources, which consists primarily of its assets at its Mountain Pass, Calif., mining facility which it shut down in August. Molycorp previously said it would continue production at its mines in Estonia and China.

“If approved, the plan would help to significantly reduce our $1.9 billion of debt and cut our interest expense, putting us on a more solid financial and operational footing going forward,” said Geoff Bedford, Molycorp President and Chief Executive Officer.

While the plan looks like it could work, it would make Molycorp a US-based producer in name only and cause the nation to lose one of its few remaining miners, depending on who purchases the business units at Mountain Pass. The lengthy process to restart mining at Mountain Pass would likely mean it will be years after a sale before production could begin anew.

Free Download: The October MMI Report

Our recommendation remains the same for manufacturers looking to purchase rare earths, remain conservative and do not attempt to catch falling market knives.

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The Renewables MMI fell 3.6% this month, erasing last month’s gains and losing a bit more to hit a fresh all-time low.

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As we cautioned last month, renewables look like they have farther to fall. The low-price range they have been trading in for the past six months is, itself, a downward departure from its previous range, in the 60s, where it had been since January 2013.

Why Renewables Prices Stay Low

The bearish commodity picture is certainly a part of the problem for renewables but the sector looks increasingly price-challenged as most of the metals trading in this range, such as steel, had sharp losses and selloffs in the last year whereas renewables have lost comparatively little of their value in 2014 and 2015.

Renewables_Chart_November-2015_FNLSteel plate, itself, has been a big part of renewables’ falling price range this year. Used in the construction of wind turbines and some certified sustainable construction projects, steel plate prices have dipped under pressure from cheaper overseas imports and a strong dollar.

Silicon and cobalt have fallen, as well, despite strong demand for photovoltaic solar panels. Both wind and solar have proven themselves as power generating technologies, so much so that this week, unlikely advocate BP said the cost of producing energy from renewable sources will fall sharply over the next 35 years. BP’s statement went on to say without a system in place that levies a charge for carbon emitted into the atmosphere, natural gas and coal will remain the cheapest source of supply to 2050.

We’re BP and We’re Here to Help

Hard to believe that BP is truly on the cap and trade bandwagon but, as an entity, it would know energy markets better than most.

BP’s report analyzed the impact of technology on energy production and consumption in coming decades. The oil giant said that a carbon price of $40 a metric ton would make gas a more economical power source then coal—a more carbon-intensive fuel—but a higher carbon price will be needed to make wind and solar more competitive.

“Without a price on carbon, fossil fuels are fiercely competitive,” said David Eyton, BP’s technology chief.

The oil giant’s long-term forecasts project that coal will remain the dominant fuel in power generation by 2035, but will lose market share to natural gas and renewables. In transportation, liquid fuels are expected to continue to dominate in coming decades.

BP and other large oil companies are producing an increasing volume of natural gas, with BP expecting it to comprise 60% of its production by the end of the decade.

Free Download: The October MMI Report

The coal industry has defended its role in the energy mix, highlighting that advanced technologies can sharply reduce carbon emissions and that coal remains a critical fuel, particularly in fast industrializing emerging markets. Mass market adoption will be needed for solar, particularly, to be anything but a power generation pawn in the war between coal and natural gas.

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Follow Jeff Yoders on twitter at @jyoders19.

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The Raw Steels MMI fell 5.9% to 48 points, the first time our index has ever fallen below 50 points and, of course, another all-time low.

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Steel prices continued to fall in October, stressing the risks of buying large quantities when prices look “cheap” while the market is in bearish mode.

Raw-Steels_Chart_November-2015_FNLAs with any other metal, China continues to be the main price driver. Chinese exports of finished steel keep rising. The latest figures showed a 27% increase on the year-to-date compared to the same period last year. Moreover, while exports keep increasing, production in the country hasn’t declined significantly, underscoring that the extra material is a direct result of weaker demand in China.

Declining Market-Based Production

Cheap Chinese imports combined with the glut of inventory explains the decline in US steel production. Capacity utilization fell to 71.3% in October. Adjusted year-to-date production through October is down 8% while capacity utilization is also significantly down from the same period last year. Capacity utilization remains persistently below 80% this year, hurting the revenues of American steel mills.

Not only domestically, but low prices continue to hurt steel manufacturers around the globe. In October, steelmaker Tata Steel announced 1,200 job cuts in the UK. The decision came only weeks after Sahaviria Steel Industries announced 2,200 job cuts due to the closure of one of its facilities. It is estimated that less than 50% of global steelmakers are profitable at current levels. High-cost mill closures have already taken place, but they are minimal in the context of overall capacity.

Free Download: Compare Prices With The October MMI Report

Other than the oversupply, and the continuous lack of demand, production costs are also helping bring prices down. In October, crude oil was unable to rise, remaining below $50/barrel for the third consecutive month. In addition, iron ore prices remain at low levels and capacity expansions won’t likely help to push iron ore prices up. Total iron ore supply is estimated to increase by 105 million metric tons in 2015 with more to come in the following years, with some analysts calling for iron ore prices below $40/ metric ton next year.

What This Means For Metal Buyers

Steel prices are at very low levels but that doesn’t mean that we’ve hit bottom. Other than lower production costs, steelmakers keep producing in order to avoid job destruction and giving away market share. Hopes that demand improvements will help prices might never become a reality. Prices might have to drop further down until forcing a tide of closures.

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Our Construction MMI was, once again, a victim of a brutal commodity environment with high production from China and a strong dollar encouraging import purchase and dwindling market share for US producers of aluminum, steel, stainless and other construction metals. The index dropped 3% to fall to 65, yet another all-time low.

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US construction spending actually rose in September to its highest level in seven-and-a-half years as both private and public outlays increased, suggesting a modest upward revision to the third-quarter GDP growth estimate.

Construction Up As Prices Lag

Estimators and procurement professionals are clearly taking advantage of the low-cost environment and buying forward, which is not a great strategy in this market as we have seen every indication that prices will continue falling. Buying now is, essentially, attempting to catch a falling knife.

Construction_Chart_November_2015_FNLConstruction spending has actually increased every month this year in the US. This week, Economists from the Associated Builders and Contractors (ABC), American Institute of Architects (AIA), and National Association of Home Builders (NAHB) predicted continued construction industry growth in 2016 during a joint economic forecast web conference Tuesday.

Oversupply for Export

The low-cost environment has created a domestic boom that builders and contractors are taking advantage of. One would think that increasing demand must eventually cause prices to rise, but that’s simply not the case for aluminum, steel and stainless as so much overcapacity has been built up, mostly by overproduction in China.

My colleague, Stuart Burns, recently wrote oversupply from China in these commodities will ensure we have a dead cat bounce kind of bottom.

“Prices of these commodities aren’t likely to rise far or fast for years to come,” he wrote.

An unfortunate continuing theme of our MMI series this month is that not all markets will experience a similar bottom. Some aren’t even close to bottoming out despite the historic low prices we have seen. At least in some commodities, currencies are shielding producers from the worst effects of falling global prices while others, such as the strong US dollar, are encouraging end users to buy less-expensive imports over dollar-enumerated-and-produced domestic supplies.

Free Download: The October MMI Report

Copper is one of the metals keeping the construction MMI from falling more. Its relative strength of late is causing some producers to hope it has already found its bottom and it was a sharp one, at that. We caution buyers to stay conservative and not make large purchases until the overall commodity picture is better.

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In case you’ve been in a cave, sheltered from the aluminum market’s precipitous dive, here’s a timeline snapshot:

  • September 28th: Alcoa announces the company would split in two. The firm found that its legacy smelting business, the company’s vertically integrated structure, is not the advantage it once was.
  • October 28th: 3-month London Metal Exchange aluminum falls as low as $1,460 per metric ton, the lowest price since June 2009.
  • November 2: Alcoa announces it would reduce aluminum smelting capacity by 503,000 mt and alumina refining capacity by 1.2 million mt, beginning in Q4 2015 and completed by the end of Q1 2016. The announcement is one more step by Alcoa to remain competitive in one of the toughest periods for aluminum producers in history.


According to Reuters, Alcoa’s cuts, coupled with recent announcements by Century, make up 30% of US aluminum production and will leave just 4 smelters operating in the nation, with capacity to produce 759,600 mt per year. That’s the lowest output since the 1950s.

Import Glut

Aluminum prices have plummeted thanks, in part, to a glut of Chinese exports. Despite low prices, analysts still remain skeptical that Chinese producers will cut production as local governments are very determined to keep smelters open. Although some high-cost smelters have cut production, China continues to add production in the west side of the country, where coal-based power is cheaper.

On top of that, American producers are suffering even more as aluminum midwest premiums have dropped more than 70% on the year to date. Alcoa’s cuts might be a step in the right direction to combat the global surplus and could also give some support to premiums since Alcoa’s latest round of supply cuts are from its US smelters and the 500,000 mt represent around 10% of annual consumption in the US.

What This Means For Metal Buyers

Although the cuts could impact MW premiums, they won’t likely have a long-term impact on aluminum prices. With a strong dollar and the huge amount of aluminum leaving China every month, any major upside in aluminum prices currently looks dim. Even if these production cuts make prices rise, Chinese exports would likely just start rising again, putting pressure on prices.

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The Automotive MMI bounced 1.4% this month but we would caution metal buyers to wait a bit longer before calling this anything close to a market bottom.

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As MetalMiner co-founder Stuart Burns adroitly pointed out this week, no two metals’ bottoming out experiences will be the same. Some will be sharp and some, particularly steel, could be fat and flat. It should come as no surprise to our readers that steel and aluminum were, again, the laggards in our automotive metals index.

Automotive_Chart_November-2015_FNLA mini-surge from copper and relative strength in platinum and palladium were able to collectively raise the index to its small gain this month. Therein lies the true problem for long-term Automotive MMI growth: there are signs that PGM prices will not be able to hold the modest gains they’ve made in recent weeks.

Eeek… TFs

Platinum- and palladium-backed exchange-traded funds tracked by Reuters were facing their biggest monthly outflows at the end of October since the data series began in 2010.

Platinum flowing out of ETFs is good news for the dollar and bad news for dollar-denominated commodities, such as precious metals. The bulk of the selling was seen from the Johannesburg-listed NewPlat ETF operated by Absa Capital, which saw its holdings fall 134,000 ounces in October, according to Reuters.

Free Download: The October MMI Report

While the Volkswagen scandal did not cause the price losses some expected for exhaust system metals such as platinum and palladium, the muted market reaction may still be growing. ETF outflows have also pushed gold to 4-week lows, too, and we would expect more losses for automotive metals as aluminum and steel have very little upside right now and the rug very much looks like it’s finally being pulled out from under PGMs.

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LME Week has generated nearly as many opinions on the prospects for metal prices as attendees last week and it’s little surprise that, after a dismal year for producers and an unexpectedly benign year for consumers, metal prices showed little prospect of rising. That is before some fairly substantial production cuts announced by Glencore took the market by surprise.

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The loss of some 675,000 metric tons of production next year from the planned closure this year of Century mine in Australia and Lisheen in Ireland have been superseded by news that Glencore is closing 380,000 mt of capacity at Mt. Isa and McArthur in Australia, another 80,000 mt at Iscaycuz in Peru and some 40,000 tons in Kazakhstan. That’s half a million metric tons of cuts from a market that was predicted by the International Lead and Zinc Study Group (ILZSG) to be in deficit next year to the tune of 152,000 mt.

On the Demand Side…

The only 2 negatives in the equation are, first, demand-side steel production in China, the world’s largest galvanized steel producer, is said to have peaked, possibly contracting slightly this year, and is predicted to rise by only 1.4% in the 2015 to 2018 period.

More significant, still, on the supply side is Chinese-mined zinc concentrate output has risen 11% in the first 5 months of this year according to ILZSG data reported by Reuters and is predicted to rise by a further 7.8% next year. A further 10% rise, Reuters speculates, would be enough to replace all of Glencore’s cuts.

Nor is China the only source of additional supply. A continued ramp-up at McArthur River should add another 115,000 mt and Kyzyl Tashtygskoe should add about 90,000 mt. Gamsberg remains one of few large projects on the horizon, likely to be in the region of 250,000 mt of capacity but commissioning is not due until the end of 2018.

No one is officially predicting that Chinese production will wholly replace Glencore’s cuts, but it remains a major unknown. In fact added to the fall in inventories this year, producers and analysts are once again confident a supply-side squeeze will finally arrive.

Source HSBC

Source: HSBC

On the Supply Side…

Visible inventory has fallen steadily for 4 years with the recent uptick attributed to financial stock and trade players, Glencore reported to be among them, moving metal from off-market to on-market, as we reported recently. Indeed, this should be a caveat. LME and Shanghai Futures Exchange inventory has been falling but global inventory has not, the stock and trade has been storing metal below the radar and confused the picture, to what extent is difficult to say, but if that tonnage was included the fall would certainly not be as steep. Read more