Articles in Category: MetalMiner IndX

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Before we dive into the weekend, let’s take a look back at the week in metals news:

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  • Our Stuart Burns started out the week with a piece on confirmation bias and how those in the media and metal-buying communities can sometimes let bias affect their interpretation of data.
  • What’s the diagnosis for the ailing U.K. steel industry? According to Burns, it’s a product of a lack of government support and global oversupply. A recent report showed that the U.K. steel industry has declined in monetary output value by 30% from 1990 to 2013.
  • In case you missed it, our July MMI report has long been in the books. You can download it here.
  • What did the recent G20 summit in Germany mean for India? Our Sohrab Darabshaw touched on the subject this week.
  • What’s up with oil prices? Unsurprisingly, as with the metal markets, prices are so low because there is just so much of the stuff out there. Burns dug deeper into oil price trends in a piece earlier this week.
  • What’s a Section 332? In short, it’s a fact-finding investigation by the United States International Trade Commission, which recently conducted a large-scale look into the competitive factors affecting the U.S. aluminum industry.
  • Another big story, the ongoing debate regarding a potential renegotiation of NAFTA, got an update this week when it was announced that the U.S., Canada and Mexico will come together for talks beginning Aug. 16.

Free Download: The July 2017 MMI Report

After sustaining a one-point drop last month, the Automotive MMI regained lost ground during the one-month period ending July 1. The Automotive MMI — our sub-index of industrial metals and materials used by the automotive sector — increased by one point, from 86 to 87, via a 1.1% boost.

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Although the increase was small, the one-point jump is an encouraging sign, as it marked the first increase for the sub-index since early this year, when it jumped from 82 to the February reading of 92. After that 92 mark, the sub-index posted four straight months of decreases.

Overall, U.S. auto sales continue to drop after a record 2016. Auto sales to the midway point of the year were down 2.1% compared with the same point last year, according to Autodata Corp data released earlier this week. Standard passenger cars took a nosedive in the year to date, with an 11.4% drop in sales (from 3.64 million units to 3.22 million).

However, the news isn’t all bad. Consumers have taken a liking to trucks this year — trucks have seen a 4.6% increase in sales in the year to date (compared to the same point last year).

In the year to date, General Motors (GM) sales fell 1.8% (but leads the way with nearly 1.44 million units sold in the calendar year to date), Ford‘s fell by 3.8% and Fiat Chrysler fell by 6.7%.

On the positive end, Nissan sales were up 2.7%, Volkswagen sales were up 7.6% and Mitsubishi sales were up 5.1%. As for Tesla, the electric car manufacturer, sales were up 42.7% after a jump from 16,500 units sold to 23,550 units sold in 2017 to date.

Meanwhile, growth in Chinese auto sales is slowing, partially due to lower tax breaks for compact cars, according to the Nikkei Asian review.

GM, however, reported a strong June, according to a Reuters report Wednesday. After two consecutive months of sales drops, GM reported a 4.3% sales increase in June compared with June 2016, according to the report. However, GM’s year-to-date sales are down 2.5%.

Total vehicle sales from January-May are up 3.7%, according to Reuters, lower than the anticipated 5% growth predicted by the Chinese Association of Automobile Manufacturers.

The Political Backdrop: Section 232

The Trump administration was expected to announced the result of its Section 232 investigation of steel imports late last week. That announcement never came, but many in the U.S. steel industry expect the administration to introduce tariffs or quotas in an attempt to strike at Chinese excess capacity.

Those policies would lead to domestic steel producers to raise prices, which would, of course, have an effect on automobile prices.

President Trump is headed to Germany this week for a Group of 20 (G20) summit, where Section 232 is likely to come up.

Whatever the administration ultimately decides, the steel and aluminum industries — and by proxy, the automotive industry — are watching closely.

Actual Metal Prices

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The Rare Earths MMI inched one point higher, reaching 22 points in July. This sub-index increased almost 5% from the previous reading.

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Rare earth prices have continued their uptrend that began in March.

Samarium oxide rose by 8.5%, while terbium oxide increased by 5.9%. Meanwhile, the dysprosium oxide price continued to fall slightly, posting a price drop for the second straight month. 

What’s Going On in the Background?

China currently produces around 85% of rare earth metals. Supply is, therefore, restricted to Chinese production and environmental policies.

With growing demand due to the investment in renewable sectors, such as electric cars and wind turbines, investment in rare-earth metal production remains critical.  

South Africa could play a strategic role in rare-earth metals supply.  The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths. 

In addition to South African rare-earth production, Canada’s Mkango Resources confirmed its  plans to start mining from its Songwe Hill mine in Malawi within three years.

By 2021, the mine will produce about 3,000 tons per year of rare earths. The mine will produce  1,000 tons of praseodymium, neodymium, dysprosium and terbium, according to a recent Reuters article.

The Mountain Pass mine, located in California, is struggling to reopen due to a long-running fight between distressed debt investors. Since Molycorp filed for bankruptcy, due to spending on an experimental ore-processing system, its mine has been caught between the feuding creditors.

The court process remains in its early stages— depending on the outcome, Molycorp could lose its rights to run this mine.

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What This Means for Industrial Buyers

Rare-earth metals seems to show signs of a bullish narrative. However, dysprosium oxide finished June weaker than it finished May, which potentially points to a good opportunity to buy.

Actual Rare Earth Metals Prices and Trends

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Bautsch/Adobe Stock

An article this week in Bloomberg catches the eye with a title announcing “hard-to-believe” steel shortages in China.

After years of excess supply, over-capacity and atrocious levels of resulting pollution, it would be a bit much to hear the country was short of steel — but that is what Fortescue’s CEO Nev Power is quoted as saying in an interview with Bloomberg Television in Beijing on Monday.

The gist of his claims? Closures of induction furnaces are creating a shortage of rebar, not because market demand is strong but because supply has become constrained, Power explained.

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Actually, the story is not a new one.

Read more

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Our Raw Steels sub-index score dropped by 10% from March to April, partially a result of slumping prices in China.

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That score experienced a bit of a comeback for our June reading, rising to 68 from the May reading of 66.

This time around, Chinese steels posted price increases, providing a boost after a tepid April. Chinese slab steel prices rose by 20.1% and billet steel also experienced a major bump, rising by 15.2%.

In the U.S., shredded scrap steel prices stabilized after a 7.1% drop the previous month. Shredded scrap’s June price point is the metal’s second-highest of 2017.

U.S. Steel Prices: Going Up or Down?

As we’ve previously reported, Chinese and U.S. steel price divergences usually mean one will have to move to close the gap.

So, what does that mean for U.S. steel prices?

As we noted previously, U.S. steel prices rose as Chinese prices dropped by 20%, leaving a widening price spread. Ultimately, the former may have to pull back price momentum.

And, given data in 2017 to date, a price drop for U.S. hot-rolled coil (HRC) and shredded scrap would not be surprising. The former has posted price drops every month this year, while the latter has shifted back and forth on either side of a $300/short ton baseline.

President Donald Trump and his administration’s ongoing national security probe into U.S. steel imports will continue to be something to monitor. The administration’s actions with respect to the investigation, if any, would have effects on steel prices and the interplay between U.S. and Chinese prices, in particular.

Actual Metal Prices

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The Construction MMI, tracking metals and raw materials used within the construction industry, bounced back up to 81 for our June reading after notching a 79 for May.

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Construction continues to trend positively, as evidenced by the latest U.S. Census Bureau data.

For the most recently available statistics for the month of April, total construction spending dipped from March to April, but April spending exceeded the April 2016 total by 6.7%. The Census Bureau estimates approximately $1,218.5 billion in April spending, a 1.4% decline from $1,235.5 billion in March.

Total spending (public and private) through the first four months of 2017 outpaced that of the same time frame in 2016, with $359.5 billion in spending this year, a 5.8% increase from last year. Spending on residential construction in April 2017 was up by 15.6% from April 2016. Spending on commercial and office spaces was up by 12.4%, in each case, from April 2016.

The Architecture Billings Index (ABI), put out by the American Institute of Architects, painted a similar picture. The most recent ABI report for April notes that architecture firm billings increased for the third month in a row.

With a score of 50 as a midpoint (meaning no decrease or increase), the South and Midwest regions of the U.S. came in strongest, with scores of 55.3 and 53.3, respectively. The West and Northeast regions also posted increases, with scores of 50.9 and 50.7, respectively.

U.S. Scrap Fights Way Over $300 Mark

In the United States, shredded scrap steel again surpassed $300/short ton after dipping under last month. The price for scrap saw a 1% increase. (For the exact prices in this story, log in or sign up below.)

On the bright side for buyers, steel bar fuel surcharges decreased across the U.S.

In the Gulf Coast, fuel surcharges dropped 2.8%. Midwest prices fell by 1.3%. Over in the Rocky Mountain region, prices settled in after a .07% drop on the month.

President Donald Trump’s administration’s investigation into U.S. steel imports — and any resulting policy effects of that investigation — will be something to monitor through the rest of the year and possibly into next year.

Chinese Steel Prices Get a Jolt

While many expect growth to slow in China in the second half of 2017, prices for rebar and H-beam steel increased significantly, bouncing back after a sharp drop in April.

Th rebar price spiked by about 9.5%. H-beam steel had a similarly large boost, rising by 7.6%.

Chinese aluminum bars dropped by 1.1%. Iron ore prices also rose by 1.1%.

European Aluminum Sheets in Neutral

In Europe, commercial 1050 aluminum sheets held steady, with prices ticking up by .02%.

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Here are the Exact Prices of Those Movers and Shakers

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Here’s What Happened

  • Our Rare Earths MMI, tracking 14 rare earth metal and mineral prices, ticked up to 21 for the June 1 reading, a whopping 10.5% increase from May.
  • We write “whopping” mainly because the Rare Earths MMI has held below the value threshold of 20 since August 2015 — a full 22 months ago. As we wrote last month, that’s when the stock market had its worst month in 5 years.
  • Rare earths prices on the whole, however, seem to be recovering from their 2016 lows. Terbium oxide, for example, rose 11.8% from May to June. Europium oxide, for its part, spiked up 16.7% in the same period.
  • Meanwhile, the dysprosium oxide price has fallen off slightly month-on-month.

What’s Going On in the Background?

  • “The REE mining process is intensive and requires highly toxic processing, which reduces competitiveness,” according to this article. “Because of lighter restrictions on mining and—especially—processing, China remains the world’s top supplier of rare earths.” But a considerable knock-on effect on rare earths prices could be the environmental pollution curbs that China has been (at least publicly) committing itself to as a developing economy. The environmental pressure has likely filtered down to the rare earths processing industry, constricting output enough to squeeze prices upward.
  • Outside China, these exact environmental worries have hamstrung any viable production models (or at the very least, profitable ones) — and Exhibit A is the Molycorp/Mountain Pass debacle. The Mountain Pass mine in California, which used to the the Western Hemisphere’s best bet to unburden its markets from reliance on Chinese REEs, is now being buffeted about by investors battling for the scraps.

What Metal Buyers Should Look Out For

  • While we’re by no means at a market top for the rare earths sector, keep a close eye on “hot” REEs such as dysprosium, as we mentioned last month. New ventures that are getting folks’ attention, such as this one in Australia, are creating a lot of bullish narratives. As we mentioned before, however, in the short term, dysprosium does not look as strong as some of the other constituent metals and minerals, dropping in price between May 1 to June 1.

Key Price Movers and Shakers

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Last month we reported that in March, U.S. domestic steel prices generally rose while the GOES M3 price fell. This month, we can safely report the exact opposite price change. U.S. domestic steel prices fell while GOES prices rose in April.

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In our April update, MetalMiner indicated that GOES prices might find a price floor on the back of a large 20,000/mt tender from Bharat Heavy Electricals. That indeed appears to have happened. Moreover, according to a recent TEX Report, GOES prices have continued to climb in China as Baoshan Iron & Steel needs to service the domestic market due to anti-dumping cases preventing Japanese and Korean imports to that market.

The TEX Report also suggests that global inventories remain low and that many countries have come into the market all at the same time, requiring material. This could lead to higher prices, particularly from the Japanese mills for contracts awarded during the second half of the year.

The Gorilla in the Room

The real challenge for domestic GOES prices, however, rests on the results of the Section 232 steel product investigation launched by the Trump administration in late April. The results will likely not come much before January 22, 2018, assuming the Secretary of Commerce takes the allowable 270 days to present findings to the President. At its core, the investigation seeks to address the issue of

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Our Stainless MMI took another dip in April, amid a broad sell-off in industrial metals. In addition, at the beginning of May, the Philippine parliament rejected Regina Lopez’s bid to be appointedas environmental minister. In a matter of weeks, nickel’s story has shifted from a clear supply shortfall to a rather complex narrative, ruining nickel bulls’ party.

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Nickel prices on the LME fell by 5% in the next two days after the news.

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Here’s What Happened

  • The Construction MMI, tracking metals and raw materials used within the construction industry, slipped 1.3% to a value of 79 for May.
  • Chinese steel prices — for forms such as rebar and H-beam — dropped precipitously this month.
  • Based on the last few months’ values, the last time this sub-index has performed this well was the start of 2015 — back when California was the first state to pass a carbon tax and Bill Gates turned human waste into potable water.

What’s Going On in the Background?

  • We’re in the salad days for the U.S. construction sector, at least as far as 2017 is concerned. According to the Associated General Contractors’ analysis, “Construction spending is at record levels for the second straight month in March [in spite of the month’s slip] and is up 4.9% for the first three months of year compared to the same period in 2016,” as quoted by com.
  • Better days for Chinese construction markets may be coming down the pike as well. Beijing recently announced plans to build a new megacity “the size of New England,” which should result in quite the appetite for industrial-grade steel, aluminum and other materials. For example, the government approved $36 billion to build 700 miles of rail within the next three years, according to this article. More salad days for the global construction industry to come, perhaps?

What Metal Buyers Should Look Out For

  • The latest drops in Chinese steel prices may have a knock-on effect on U.S. and other Western steel, which make the latter ‘pricier,’ comparatively. This could lead to lower prices on both sides of the ocean hanging around for a while.
  • We’ll see if President Trump’s 232 investigation begins to have any medium-term effect on steel once the determinations come down on whether imports constitute a threat to national security. In the meantime, “iron ore and Chinese steel prices could recover if China cuts overcapacity later this year,” as we write in our latest Monthly Outlook Report. (Free two-month trial here.)

Key Price Movers and Shakers

  • The China rebar price plummeted, the U.S. shredded scrap price fell below a key threshold to start the month for the third time this year, and weekly U.S. bar fuel surcharges for the Midwest, Gulf Coast and Rocky Mountain regions all fell slightly from April to May. Exact numbers in the membership-only article:
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