Articles in Category: MetalMiner IndX

We rarely see such positive growth in metal prices as we did in the August MMI Price Trends Report.

MM-IndX_TRENDS_Chart_August2016_FNL-TOPVALUE100

All the metals we track were up save for Aluminum, which fell only 1.3%, and renewables and rare earths, which held flat. The Stainless Steel MMI increased 9% amid uncertainty about Chinese nickel ore supply after mining crackdowns in top supplier, the Philippines.

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Meanwhile, the most bullish of bull runs continued for our Global Precious MMI which added a 7.2% increase to its jump last month to knock on the door of the top 10% of the IndX. The platinum group metals had strong increases along with gold and silver this month.

Wall Street Bull

“Hey metal buyers, remember me?” Wall Street bull courtesy of iStock.

Palladium, particularly, made higher highs and stumbled to lower lows in classic bull market fashion.

So buy quickly before prices increase more, right? Wrong. Our Raw Steels MMI posted a healthy 4% increase, but it’s still heavily dependent on China’s stimulus programs to keep demand up in the largest global consumer of steel products. If there is a pullback in stimulus, prices could fall dramatically. The same is true for copper.

Unlike diamonds, bullish trends in commodities and industrial metals don’t last forever. Continue to make informed buying decisions in this thriving market — watch China’s stimulus program and the strength of the U.S. dollar post- Brexit — and remember that today’s price strength might be tomorrow’s carpet getting pulled out from under your feet.

However, it appears unclear as to who will reap the benefits.

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The story begins with the U.S. GOES trade case that resulted in no duties applied to imported products to the U.S. However, U.S. power equipment manufacturers moved to alternative sources all the same, importing wound and stacked cores instead of purchasing GOES from domestic sources. Despite the unfavorable ruling for the U.S. domestic producers, other countries soon began filing anti-dumping cases.

GOES_Chart_August_2016_FNL

Chinese producers Wuhan Iron & Steel Co. and Baoshan Iron and Steel persuaded the Chinese government to rule against Japanese, Korean and European producers of GOES. The Republic of Korea received final duties of 37.3%. The preliminary duties on Korea, however, had been 14.5%-29.5%. The final duty rate, coming in significantly higher will likely shut down all Korean exports to China. With Japan receiving duties over 45%, both countries will no longer sell GOES into China.

According to a recent Reuters report, China imported over 120,000 metric tons of GOES of which over 95,000 mt came from Japan and Korea combined. Much of that material likely included the higher performing GOES grades. Japan had already started to withdraw from the Chinese market. Now China will need to find equivalent supply domestically which could limit GOES exports from China.

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In the meantime, here in the U.S., a word of clarity on the cold-rolled coil dumping case – grain-oriented electrical steel was “specifically excluded from the scope of this investigation”.

U.S. GOES prices inched up slightly.

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MetalMiner’s index of global precious metals prices notched the second-largest move for August in our Monthly MMI series, behind only the Stainless MMI.

Global-Precious-Metals_Chart_August-2016_FNL

The Global Precious MMI rose 7.2%, from 83 to 89, between July and August. Gold prices again drove the move, with U.S. bullion logging its second straight month above the $1,300 per ounce threshold; however, the U.S. palladium price experienced a significant jump, rising 18.4% over the month.

Palladium on a Bullish Rebound

After hitting multiyear lows at the beginning of 2016, palladium has begun a slow down but its long-term ascent is still acting rather bullish.

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The PGM has been making higher highs and lower lows since January, and hit above $700 per ounce at the beginning of August.

palladium historical price chart 2016

Why?

Looks like investors have been giving palladium and its cousin platinum some more love.

Analysts at INTL FC Stone and Citi Research have said recently that they think investors have taken some of the money they’ve been putting behind gold and spreading it to the PGMs, according to the WSJ.

Back to Gold

While U.S. gold prices have hovered recently, they are still far ahead of their pre-Brexit levels. The Federal Reserve‘s dovishness has not given investors any reason to abandon their investments in gold, or silver for that matter.

Core Consultants Group opined recently that gold broke through a psychologically important barrier of when it crossed $1,300/ounce and is still finding overall bidding interest despite the slight declines in the price during the last few weeks.

Free Download: The July 2016 MMI Report

We, too, can’t see gold’s recent increases being pushed back, or even tempered, by anything other than significant interest rate increases by the Fed. The type of radical action that the central bank has shown no stomach for, lately, despite recent comments that it won’t rule out increasing rates this year.

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Our Aluminum MMI fell by one point for the month as investors seemed unwilling to chase prices much above $1,600 per metric ton.

Surplus or Deficit?

There is still a divided opinion over weather aluminum is in a surplus or a deficit this year. On one side, is the opinion that China hasn’t cut enough capacity and that its smelters are planning to increase output after a modest recovery in prices this year. Meanwhile, many others believe that aluminum markets will record their first deficit year in a decade.

Aluminum_Chart_august_2016_FNL

According to the latest figures released by the International Aluminum Institute (IAI), Chinese aluminum production has now fallen on a year-over-yeqars basis in five out of the last six months. For the first half, Chinese aluminum production has fallen by 3.3% compared to the same period last year. If things continue like this, this will be the first year where Chinese annual aluminum output declines.

Rising Aluminum Demand

While production is likely to fall this year, unless Chinese smelters decide to ramp up production, demand is also looking pretty good. Real state indicators in China for the first half are much better than last year. Also China’s car sales continued to climb in June, up 18% from June of 2015. Finally, the Caixin Manufacturing PMI in China rose above 50 points for the first time since February 2015.

Looking at the Chinese aluminum demand indicators, aluminum’s demand could grow in the ballpark of 5-6%, as most aluminum producers are projecting, especially if China continues to provide stimulus in the second half.

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So, for the first half of the year, China’s aluminum demand rose while production fell. This is also being reflected in exports this year. China’s aluminum exports rose by 10% y-o-y in 2015. However, for the first half of 2016, exports have fallen by more than 9%. Falling aluminum exports are a welcome sign for U.S. aluminum producers.

Midest Premiums Fall

For aluminum buyers, the all-in aluminum price consists of the aluminum price plus regional aluminum premiums. U.S. Midwest premiums fell slightly in July, with current quotes of $0.07 per pound. The picture doesn’t look any better in Europe where physical premiums are near their all-time lows.

The ongoing weakness in premiums this year might look surprising, given falling exports and a projected deficit this year. Some analysts attribute this weakness to the current flow of aluminum from non-LME-registered warehouses to physical markets.

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Our Rare Earths MMI held steady, or flat, depending on how you look at it, at 17 this month, an example of how stagnant prices have been in a low range this year.

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The low price of rare earths did not come about because of export quotas being struck down in China or the World Trade Organization loss that precipitated the quotas’ end. In China, heavy rare earths production became more stable, but that wasn’t the reason either. What has caused the rare earths market to essentially collapse is substitution on a large scale and better recycling of the high-tech minerals.

Rare-Earths_Chart_August-2016_FNL

Rare earths demand has fallen because manufacturers sought to eliminate the threat of a national blockade, the likes of which Japan felt after Chinese rare earths producers essentially blacklisted the country in 2011.

Companies such as Siemens, Samsung and Honda have accelerated research on how to use less of the minerals, especially the “heavy” rare earths such as lanthanum and dysprosium. In that way, China hurt its own monopoly by forcing their customers to apply more ingenuity and brains to eliminating or limiting the scarce elements in their supply chains. Honda even produced a hybrid car engine, the first ever, that doesn’t rely on heavy rare earths.

Honda’s apparent turning point was a partnership with fellow Japanese firm Daido Steel in 2011, prompted by China’s squeeze. The result today is a new technique for designing crucial engine magnets that avoid heavy rare earths and are 10% cheaper and 8% lighter, Honda told the Wall Street Journal.

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The world will still likely need rare earth elements, particularly for renewable energy products such as solar panels and wind turbines, but the evidence of the damage done by China’s attempt to corner the market on heavy rare earths is now overwhelmingly apparent and a recovery in prices will not happen in the short term.

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Our Renewables MMI was flat again this month, another sign of stagnant prices and renewable power generation markets that are simply not maturing very fast.

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Perhaps it’s a sign of just how tepid renewable technology metals markets are, that the purchase of major photovoltaic panel manufacturer SolarCity and electric/hyrid automaker Tesla Motors didn’t really make a blip in the prices of silicon or our other renewable metals.

Industry consolidation is usually a good sign for emerging technologies and the synergies that Tesla could possibly take advantage of in providing electric car batteries, home energy storage and now solar-energy-collecting panels sort of make sense to allow Tesla to own the green power storage segment. If vertical integration hadn’t been abandoned by the auto industry decades ago.

Renewables_Chart_August-2016_FNL

Markets have responded with a veritable shrug. SolarCity shareholders are almost certain to file a lawsuit questioning the merger, all the shareholders who are, of course, not Tesla CEO Elon Musk who is also a major SolarCity shareholder. SolarCity’s CEO is Musk’s cousin. The $2.6 billion takeover will pay shareholders only $25.83 a share. Less than SolarCity’s share price the day the deal was announced.

Analysts hate the merger, too. Adam Jonas, an influential auto industry analyst at Morgan Stanley, slashed his price target for Tesla and wrote in a note to clients that potential rewards would not adequately compensate investors for the greater risks and cash flow drain. Expanding into a non-auto business like solar energy exposes Tesla to “untested cost, competitive and regulatory forces,” he warned.

Tesla shares, themselves, dropped 10% the day the deal was announced. Even if this deal won’t move markets for silver, silicon, lithium or neodymium anytime soon, there are economies of scale that could pay off in the long run that Musk is looking at.

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Tesla owners will eventually need to get power from energy sources other than plugging into a wall unit fed by a coal-fired electricity plant, after all. Just don’t expect Tesla to become the vertically integrated battery/solar panel/electric car maker that changes the world in the next five to 10 years.

Actual Renewables Prices

Neodymium dropped from $50,642.96 per metric ton in July to $48,920/mt this month, a big drop of 3.4%. Silicon increased to $1,821.33/mt this month from $1,818.34/mt in July, an increase of .2%.

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Nickel, the main price driver of stainless steel, scored gains of 11% during the month of July causing our stainless MMI to surge by 9%.

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Industrial metals entered bull market territory earlier this year and that puts the wind behind nickel’s back. Apart from the more bullish macro environment, we are witnessing two key developments within nickel’s industry that are undoubtedly adding fuel to this rally.

Tighter Environmental Rules

The Philippines isn’t joking around about tightening its environmental rules. On the first of the month, the Philippines new President, Rodrigo Duterte, used some bold words against his country’s miners: “We will survive as a nation without you. Either you follow strictly government standards or you close down.”

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The country has so far suspended the operations of seven domestic nickel mines for failure to comply with environmental regulations. Moreover, the new mining minister, Regina Lopez — a committed environmentalist — recently vowed to close more nickel mines causing environmental destruction.

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The Philippines is the biggest supplier of nickel ore to top consumer China since Indonesia banned shipments of unprocessed mineral ores back in 2014. The recent suspension of mines and the risk of more closures lifted nickel prices over the past few weeks.

Surge in Nickel Imports

Although the metal has benefited for the most part from a bull narrative of supply shortfall this year. The bulls are finding more reasons to bet on nickel amid growth in Chinese demand, which is being reflected in the surge in Chinese imports this year. Refined nickel imports in China have surged by 189% to a record 226,100 metric tons in the first half of the year.

What This Means For Metal Buyers

The Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply. Moreover, demand seems solid thanks to China’s stimulus measures. These two factors, combined with a bull sentiment across the industrial metals complex, have given buyers enough reason to take risk off the table as prices could continue to trend up.

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Our Raw Steels MMI rose by 2 points in July, thanks to the stabilization of Chinese steel prices. On the other hand, prices in U.S. remained flat for the second consecutive month as this year’s rally seems to be losing momentum.

Chinese Prices Up on Demand Growth

Chinese steel prices rose steeply earlier this year but we saw a correction start in late April. However, following the downward pressure, steel prices in China rose in July. Last month, stability in Chinese steel prices seemed to be driven by improved demand.

Raw-Steels_Chart_August-2016_FNL

The Caixin Manufacturing PMI in China rose to 50.6, way above June’s levels and that easily beat expectations. It’s the first time since 2015 that the index is in expansion (readings above 50) since February 2015. The country’s real estate indicators have also improved this year. This demand improvement seems driven by the fiscal and monetary stimulus provided by the Chinese government and markets expect China to announce more stimulus measures.

The demand side of the equation looks solid, assuming China provides more stimulus, but the supply side is still question mark:

China Not Cutting Capacity… Yet

China cut 13 million metric tons of excess crude steel capacity in the first half of the year, less than a third of its annual target. In June, China exported 10.9 million metric tons of steel, a 21% increase from June 2015 and the second highest total ever. The data raises questions on whether the demand growth is enough to absorb this much steel coming out of China without it weighing on prices.

However, China’s vice industry minister said in July that the country will step up efforts to cut capacity in the second half. The minister pointed out that the focus of their work in the first half was mission planning, and in the second half they will step up the implementation and enter a new stage, from allocating targets and drawing policies to actually pushing capacity cuts.

China’s second- (Baosteel) and sixth-largest (Wuhan Iron & Steel Co.) Chinese steelmakers said last month that they were planning on restructuring (merging) together. While the two state-owned enterprises (SOEs) didn’t provide any details on what that entailed, there are rumors that these companies may have been ordered by Beijing to take over all or a majority of the other amid a broader push to reduce the number of state-owned enterprises.

Rally in US Prices Cools Off

Meanwhile, in the U.S., prices struggled to build on previous gains. It’s still unknown whether this price stabilization is a market top or just a pause before domestic prices continue to climb. That will likely depend on what the world’s largest steel producer and consumer does in the second half. First, will China provide more stimulus and, therefore, more demand for steel? Second, will China actually cut that steel capacity it promised? Lots of things to watch for in the second half…

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The boost that the Automotive MMI recently felt from platinum and palladium continues as automotive catalyst prices continued to post strong increases, bolstering our sub-index to a 3% increase.

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Yet, end user automotive sales are starting to show signs of plateauing after years of increases. Sales for the top three automakers selling in the U.S. increased, but slipped off their record pace in July as the strong growth rate that defined the past six years slowed to a crawl.

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Declines at General Motors Co., Ford Motor Co. and Toyota Motor Corp. overshadowed increases by smaller rivals, including Nissan Motor Co. and Honda Motor Co. Sales were on pace to set another record this year but that’s in serious doubt after this report.

Analysts say sales incentives and fleet sales need to play a bigger role in the market to get back on that record pace. Overall sales increased modestly in July, rising 0.7% to 1.52 million, according to research firm Autodata Corp., translating to a seasonally adjusted annualized selling pace of 17.9 million.

While higher than the prior July, the adjusted sales pace has leveled off compared with the sizable year-over-year increases from 2015’s final six months, which drove the U.S. light-vehicle market last year to its first record in a decade and a half.

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Meanwhile, prices of automotive metals are still being buoyed by the bull run in precious metals. Catalysts are no exception and platinum and palladium prices posted strong increases while offsetting losses by other automotive metals, such as hot-dipped galvanized steel. With no sign of an increase in interest rates from the Federal Reserve anytime soon, expect the calalyst metals — and gold and silver — to continue increasing.

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The Commerce Department said construction spending declined 0.6% to its lowest level since June 2015 after dipping 0.1% in May. June marked the third straight month of declines in outlays.

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Economists polled by Reuters had forecast construction spending increasing 0.5% in June after a previously reported 0.8% drop in May. Their June estimates were largely based on the government’s assumptions for private residential and nonresidential construction spending in the advance GDP report.

Construction_Chart_August_2016_FNL

Weak nonresidential spending and a pullback in home building were credited for the drop. Our Construction MMI still increased from 66 to 67 this month, largely based on jumps in still-in-demand steel products such as rebar and H-beams. Those prices made up for steep drops elsewhere to eke out the 1.5% increase.

However, weak U.S. economic growth seems to have finally hit the construction industry, previously a bright spot of the U.S. economy. A third straight month of declining construction spending will certainly be reflected soon in overall purchasing.

“It’s a deceleration process after two years of fairly decent growth,” Robert Murray, chief economist of Dodge Data & Analytics, told Reuters.

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The slowdown can be seen in construction payrolls. Adjusted for seasonal fluctuations, the number of people working in construction has dropped by 22,000 since hitting a post-recession peak in March of about 6.7 million.

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