Articles in Category: MetalMiner IndX

U.S. steel prices have had a spectacular run this year mostly attributed to trade the U.S. trade cases.

Free Download: The June 2016 MMI Report

Hot-rolled coil in the U.S. has risen over 70% on the year to date. Although trade cases are what helped U.S. steel prices the most, the domestic rally was also supported by rising steel prices in China, too.

Chinese Steel Prices Fall

Prices in China surged this year for two reasons:

First, this year we saw an improvement in steel market demand in China thanks to stimulus measures. Second, the world’s biggest steel producer vowed to cut production capacity by 45 million metric tons this year and 100-150 mmt over the next three to five years. This combination of demand and supply measures boosted sentiment in the steel market and prices in China rose.

China HRC falls since April. Source: MetalMiner Index

Chinese HRC falls since April. Source: MetalMiner Index

The world steel sector has urged China to reform its steel sector because of growing international pressure on the country to halt its surging steel exports. But China, so far, is failing to produce results. Read more

While nearly all of the metals markets we track were up in May, our June MMI has experienced what’s believed to be a broad market correction that has touched nearly every metal (only the specialized and range-bound Rare Earths MMI saw an increase this month).

MM-IndX_TRENDS_Chart_June2016_FNL-TOPVALUE100

The Automotive MMI was our second-biggest “winner,” thanks to holding its value from last month. The biggest loser was our Construction MMI, which fell nearly 10% as construction products such as rebar and copper tubing saw heavy losses.

Correction Drivers

Two factors dragged metal prices down in May: The Chinese government softened expectations of further stimulus while fighting speculation by increasing margins and fees for trading. Second, in the beginning of the month the U.S. dollar strengthened amid new expectations that the Federal Reserve might be more aggressive than previously thought in raising interest rates, but that quickly changed late in the game after a disastrous jobs report and the dollar is now falling again.

Chief Forecasting Analyst Raul de Frutos sees this movement as “a normal reaction as prices zigzag, and we don’t see enough evidence to turn bearish (on metals) yet.”

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We are now very much back in a wait-and-see period, expecting a bounce back in prices, but also very understanding of the weakness many of the markets we track still face thanks to oversupply and waning stimulus in China.

U.S. Steel prices, however, are separating themselves from what’s happening in world markets as anti-dumping and countervailing duties orders have taken root.

The MetalMiner monthly domestic GOES MMI reading continued its slide moving from 195 to 191 in its third consecutive month of declines against smaller import volumes, despite a higher domestic surcharge.

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Unlike U.S. steel pricing, the various global trade cases on grain-oriented electrical steel have had somewhat of a limited impact on global prices.

GOES_Chart_June_2016_FNL

The demand for certain types of steels has created shortages for some materials and surpluses for others and may help explain why the M3 price has drifted lower as opposed to moving higher (we’d expect to see rising U.S. prices in particular as a result of the closure of the Allegheny Technologies, Inc. GOES line).

Tex Reports suggests that prices have begun to rise in China because of the anti-dumping cases placing a squeeze on products coming from overseas mills, and, therefore, diverting them to other markets in the Middle East and India, with no price increases.

Compare Prices With The May 2016 MMI Report

The dynamics between the high-grade products and the standard/lower grade products have kept domestic spot M3 prices in check. Last month we reported that market participants thought M3 prices would flatten during the summer and then start slipping toward the end of the year. Indeed this appears to be happening but perhaps sooner than anticipated.

Datamyne_GOES_Chart_432_060816

Source: Datamyne

Meanwhile, the volume of imports of transformer parts has risen since a dip back in February of this year. This suggests to us that demand has held reasonably steady.

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A new $20-million U.S.-India Clean Energy Finance (USICEF) initiative will invest up to $400 million to provide clean and renewable electricity to up to 1 million households by 2020, the White House said this week during a visit by Indian Prime Minister Narendra Modi.

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Another $40-million U.S.-India Catalytic Solar Finance Program will provide financing for small-scale renewable energy investment. Modi’s visit is one of the last opportunities the Obama administration will have to pledge tax dollars to its green energy goals and the opportunity for solar development in India is, indeed, a ripe one.

Renewables_Chart_June-2016_FNL

Cumulative solar installations in India crossed the 7.5 gigawatt mark in May 2016. About 2.2 gw of new capacity has been installed so far this year and it is more than total solar capacity installed in 2015. India’s solar project pipeline has now surpassed 22 gw with 13 gw under construction and 9 gw in the request for proposal process.

India’s Solar Mission

This is all part of Modi’s long-term plan to have 100 gw of solar capacity powering India by 2022. The investments by the Obama administration are also a goodwill gesture that’s designed to get U.S.-based solar panel companies and multinationals with a large presence in the U.S. specified as providers in India’s massive solar park projects. Both governments have been trying to iron out differences that earlier came to a head with the U.S. winning a WTO dispute panel.

The Renewables MMI fell 1.8% this month to 54 from 55 in May. It was one of many slight movements in a tight range for the sub-index that’s not shown much prince movement since September of 2015. The steel metals in the sub-index were also affected by the wild swings between U.S. and foreign steel prices, too.

It doesn’t seem like the pattern of a slow price decline interrupted only sporadically by small periods if increase will change much in the rest of year. Just like it didn’t in the previous three.

Compare Prices With The May 2016 MMI Report

As such, investments such as those being made in India will still take years to come to fruition and the markets for solar silicon, neodymium and pretty much everything but the steel components of wind turbines and solar panels will remain niche markets for the foreseeable future.

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Stockpiling of rare earths by China’s six largest producers has pushed up prices over the past two months.

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Following the completion of the first stage of a national inventory-filling effort in mid-April, China’s rare earths prices have seen increases almost across the board. This stockpiling comes as China prepares to finalize consolidation of its industry under six large state-owned firms — Chinalco, Northern Rare Earth, Xiamen Tungsten, China Minmetals, Southern Rare Earth and Guangdong Rare Earth — by the end of this month.

Rare-Earths_Chart_June-2016_FNL

It’s a time of both stockpiling and tightening in the People’s Republic, the world’s largest producer, as a nation, of the metals used in batteries, magnets and high-tech is trying to reform both how it mines and how it sells rare earths. As we previously reported, much of the expected consolidation in China was slowed in the first two quarters by the weak market and stimulus measures that gave producers new reasons to overproduce. Now, the Chinese industry is scrambling to consolidate and force the closure of smaller producers.

Tax Reform in China

After July 1, China will expand its reform of resource taxes across the board and base this tax on prices instead of quantity. Authorities believe that a price-based tax would reduce tax burdens on unprofitable resource sectors (such as rare earths) and boost taxes on the more profitable sectors. The expectation is that taxes will then follow the resource-cycle.

Our Rare Earths MMI was up 11% this month, but it was only a 2 point increase, belying how low the level that rare earths have traded in for the last year really is. The price boost can be attributed, almost entirely, to the aforementioned stockpiling.

China’s second quarter commercial stockpiling supposedly ended on May 31. The initiative helped boost prices, but that’s really just a temporary market effect ahead of the expected consolidation. In the long term, the market is still oversupplied and forcing out smaller producers in China really won’t have much of a practical effect.

Compare Prices With The May 2016 MMI Report

Companies such as Mitsubishi are also touting new methods they are researching for rare earth magnet and battery recycling, processes that would be a further threat to primary mining. We advise buyers to approach rare earths with caution as this is one market whose supply still exceeds considerable demand.

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The Global Precious MMI joined most of the other sub-indexes this month in experiencing a 6% loss as a broad metals correction hit most markets.

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Unlike the base metals, however, our precious metals are not facing bifurcated markets where U.S. tariffs are keeping domestic prices high. As almost always with precious, this month’s fall was a global phenomenon.

Global-Precious-Metals_Chart_June-2016_FNL

Johnson Matthey is weathering the storm as best as it can this year as platinum group metals prices are starting to lose the momentum the first half of the year promised.

Production Surplus Stubbornly Lingers

According to Thomson Reuters‘ “GFMS Platinum Group Metals Survey,” a rebound in mine production last year pushed the platinum market back into a marginal physical surplus, despite improved demand.

Macroeconomics have continued gold’s roller coaster ride this month. Before Federal Reserve Chairwoman Janet Yellen dialed back expectations of an interest rate hike this week — after a bad jobs report — a strengthening U.S. dollar dragged gold prices down for much of May. Now, though, with a dovish Fed, gold is strengthening again. Silver has taken a similar ride.

Perfect Storm

The investment and industrial metals, globally, saw prices fall this month as a storm of both bad economic data for the investment metals and oversupply for the industrial metals came together. Yet, even as I write this gold and silver are strengthening again as the dollar weakens in light of that horrid jobs report. But it might just be that neither industrial demand nor monetary policy will be the story of the last six months of 2016 in precious metals.

Compare Prices With The May 2016 MMI Report

Jessica Fung, a metals strategist at BMO Capital Markets, said in the Wall Street Journal that slowing global growth should help push gold higher and likely bring silver with it.

“We believe focusing on the Fed alone is simplistic and only drives very near-term sentiment and volatility,” Ms. Fung wrote in a note. “The potential impact of sluggish global growth on the U.S. economy should not be ignored.”

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Similar to copper, nickel is not metal investors’ favorite child right now. While oversupply is still and issue, only a weaker dollar and further Chinese stimulus could lift prices. However, that wasn’t the case during the month of May, driving prices down. Our Stainless MMI was no exception, falling 4%.

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For the past six months, every time three-month London Metal Exchange primary nickel approached $9,500 per metric ton, prices fell short. It happened in March and again in May.

Stainless_Chart_June-2016_FNL

Recently, Russia’s Norilsk Nickel, the world’s largest nickel miner, said that in order for a sustained recovery to happen, more cuts will have to materialize. That’s a very unusual statement for a metal producer as they tend to talk up the market. According to the company, over 20% of the global nickel supply needs to be cut if we want to see a sustained recovery in prices.

If Norilsk has it right, it will take some time until we see a significant recovery in prices since, so far this year, there hasn’t been any supply cut announcements. The latest significant production cut was announced late in 2015. Despite its non-optimistic outlook, the company is moving ahead with the development of new projects. Norilsk Nickel is still profitable, aided and abetted by co-mined minerals and the depreciation of the Russian Ruble.

U.S. Prices Buck Global Trend

Not only Norilsk but producers that are loss-making at current prices seem redundant to shut down capacity. Glencore and fellow Australian miner BHP Billiton have recently said no more than they “may” close capacity at Murrin Murrin and Nickel West, respectively.

Here in the U.S., however, anti-dumping actions are having an effect and stainless, cold-rolled prices have been steadily rising this year. The three base price increases for 2016 have been firmly implemented on spot business. Although contractual business may have been protected from immediate base price increases, the next contract periods will definitely reflect the higher base prices.

U.S. mills have been trying all year to recoup unrealistically low base prices from 2015. The anti-dumping and countervailing duty actions filed by U.S. stainless mills against China have solidified the base price increases as well as disrupted the supply of several niche products.

All 200, 300 and 400 series alloys have been impacted by the 2016 base price increases. The three stainless base price increases for 2016 have cumulatively impacted 304 stainless base prices by at least $0.10 per pound on base gauge and almost $0.13 on 22 gauge. 430 stainless has risen by close to $0.08 per pound. 409 has risen by $0.06 per pound. Several sources speculate that there could be another round of increases on the horizon because U.S. cold-rolled stainless supply is tight.

U.S. Supplies Tighten

Mill lead times remain extended with North American Stainless (NAS) maintaining a controlled-order-entry mechanism. Some service centers also report that the light gauge stainless is limited and available only for customers who also place base gauge volumes.

Buyers of metal need to have well-established supply chains for all of their cold-rolled stainless products. NAS and Outokumpu Coil Americas remain the core suppliers of austenitic commodity products.

Two Producers Inherit Commodity Stainless Market

AK Steel is not focused on nickel-bearing commodity stainless grades. Allegheny Technologies’ Flat-Rolled Products segment continues to seek higher-value stainless and has limited its exposure to commodity stainless.

In theory, Allegheny and AK Steel could relieve some of the long lead times metal buyers are experiencing, but their mill capacity is focused on supplying other products or has been idled. The anti-dumping and countervailing lawsuits against China have impacted the Asian supply of cold rolled stainless. For instance, Taiwanese rerollers using Chinese hot band for bright annealed have limited new offers.

POSCO, which has South Korean and Vietnamese stainless mills, is being cautious with offers into the U.S. market. Bright annealed and light-gauge, cold-rolled stainless remain the product categories most impacted by the trade cases.

Compare Prices Wtih The May 2016 MMI Report

Stainless flat-rolled pricing remains poised for further base price increases. Stainless demand is expected to remain around the same volume in the U.S. The trade cases against China are proceeding in a multitude of steel products, not just stainless. Although domestic mills are capable of producing more stainless volume, the appetite for AK Steel and Allegheny does not appear to be there yet. Until then, NAS and Outokumpu will be the core commodity stainless producers. Metal buyers will need to look to alternative sources for niche products and perhaps should look to European mills such as Aperam or ThyssenKrupp AST as Asian importers are spooked by the trade cases against China.

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Copper prices got hit in May, as prices fell short of resistance levels.

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While overcapacity is still an issue, copper really needs a weaker dollar to join other metals in rising in price. We saw the exact opposite last month. The U.S. dollar rebounded and base metals fell across the board.

Copper_Chart_June-2016_FNL

Overproduction Situation

Investors are simply not excited enough to trigger a bull run in copper prices. The Copper MMI fell 5% last month as overcapacity still plagued the red metal. Rather than cut capacity, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines.

Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers are still quite optimistic on the long-term picture and are expanding rather than curtailing production.

Chinese Stimulus

We also saw the Chinese stimulus show its first signs of weakening this month, further hindering demand in the world’s largest construction consumer. We continue to advise readers to not buy copper on weakness, rather, wait for strength.

Compare Prices With The May 2016 MMI Report

A softer dollar will likely be able to offset some of the negative sentiment created by weak demand in China, and copper was able to hit a four-week London Metal Exchange high on Friday as the dollar did, indeed, weaken. But the rally was short-lived and funds have already begun to sell copper again. It may be some time before we see a real shift in this market, barring production cuts.

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Steel markets painted an interesting picture in May. Chinese steel prices fell in May while US steel prices continued to skyrocket. Let’s explore this unusual divergent between Chinese and U.S. prices.

Raw-Steels_Chart_Jun-2016_FNL

Chinese Steel Prices Fall

This year we saw an improvement in steel market demand in China thanks to stimulus measures. Also, China, the world’s biggest steel producer, vowed to cut production capacity by 10-15% over the next five years.

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This combination boosted sentiment in the steel market and prices in China rose. However, as prices rose, the market questioned whether the price rally would hinder the country’s efforts to tackle that overcapacity problem.

And the market has good reason to have questions. Massive overcapacity in China’s steel industry has yet to shutter. While China’s crude steel output dipped 2.3% in 2015, production rose 0.5% in April compared to the same month last year.

Meanwhile, in May, government officials said that Beijing would continue to urge local governments to push forward steel industry capacity cuts and take reasonable measures to accelerate closures. China says that the capacity that has recovered is regular capacity, and not the one marked for closure. Certainly, If China falters on its commitment to reduce excess steel capacity, we could see that impact global steel markets, including U.S. But so far, unlike Chinese prices, U.S. prices didn’t tumble in May.

US Steel Prices Continue to Rise

The momentum in domestic steel prices continued in May. HRC prices rose by more than 20% just in the past four weeks. U.S. steel buyers will feel the price increase in their budgets this year unless, like our subscribers, they started hedging at lower prices earlier this year.

The price divergence between the U.S. and China comes down to imports. Steel imports into the U.S. were down in April. For the first four months of 2016 total and finished steel imports were down 34% and 33% vs. the same period in 2015. In addition, US steel producers seem reluctant to bring their idled capacity back online despite dried up import supply lines, particularly for flat-rolled steel products.

Free Download: The May 2016 MMI Report

This combination has left buyers in a short squeeze. Lead times for flat-rolled steel products have risen, allowing U.S. steel companies to raise their base selling prices.

What This Means For Metal Buyers

U.S. steel prices remain strong, but after the huge price gains seen this year, we wonder if, despite strong trade protections, domestic prices will suffer in the second half due to the ongoing global overcapacity issues and the recent correction in iron ore and Chinese steel prices.

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Just as aluminum appeared to gain some momentum, prices failed to gain traction this month. Aluminum gave up most of April’s gains in May. The Aluminum MMI fell 3.75%.

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Non-China supply has declined. The latest figures from the International Aluminium Institute (IAI) showed the lowest collective annualized run-rate level outside of China since August 2015. But what about production in China? It’s still hard to tell, especially when recent statistics coming out of China are even more unreliable than normal, showing swings of millions of metric tons from month to month.

Aluminum_Chart_Jun-2016_2_FNL

China exported 400,000 mt of unwrought aluminum in April. This represents a year-over-year decline of 7.8%, supporting the argument that domestic demand has picked up there thanks to the stimulus effect. However, how robust and for how long that uptick is likely to last is extremely difficult to tell.

Overall, we cannot blame aluminum for the losses in May. The price decline was mainly caused by a stronger dollar and reversed expectations of China’s stimulus being sustainable. The Bloomberg Commodity Index, which tracks returns from 22 raw materials, climbed 0.7% to 87.31 last week. A close above 87.45 would mark a 20% advance. The recovery in oil prices is biggest factor.

Compare Prices With The May 2016 MMI Report

Yet, aluminum still corrected this month despite oil’s price surge.

What This Means for Metal Buyers

The sustainability of aluminum prices will still depend on cuts in Chinese aluminum production and on how much China can inflate aluminum demand through further stimulus measures. Both factors remain quite uncertain at the moment. Therefore, the shy rally in aluminum prices this year could extend but, at the same time, it looks vulnerable.

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