Articles in Category: MetalMiner IndX

Steel prices continued to soar in April, holding their place as the best price performer among industrial metals this year.

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In Q1, it appeared that anti-dumping actions were the only force causing steel prices to rally. That questioned the longevity of the price rally since steel buyers could always turn to international suppliers for cheaper prices if domestic prices overextended. However, the picture has recently changed.

China Steel Prices Surge on Government Stimulus

Prices are not just rising domestically but globally, particularly in China. Chinese steel prices have jumped over 40% in a matter of weeks. Take HRC prices, in the U.S. they have increased in the ballpark of 30% so far in 2016 while Chinese HRC prices have now risen over 50% this year.

Raw-Steels_Chart_May-2016_FNL

China’s not-so-mini fiscal stimulus, initiated late last year, has really picked up momentum in recent weeks. Across a number of metrics, China’s economy has surged this year driving a risk on sentiment among investors, the strength of which has caught many by surprise.

In Q1, China’s industrial production rose 5.8% year-on-year, the highest growth figure since June 2015. State banks and local governments are also pumping money into fixed asset investment (FAI). In Q1, FAI growth accelerated to 10.7%. The data indicates that China’s real estate investments grew due to rising home sales.

Raw Material Prices Rise

Of course, the rally in steel prices was also supported by a rise in raw material prices. Oil prices managed to climb above $45 a barrel, shaking off bearish news in April, a sign that underlying sentiment might be shifting in favor of higher prices. Iron ore prices climbed as high as $70.46 in April, the highest level in 15 months. Scrap prices also continued to rise in April.

Production Ramps Up

Global raw steel production during March reached its highest total in nine months with global raw-steel capacity utilization at 70.2%, up 3.9% from February although still 1.3% lower than the same period last year.

Previously, China committed to reduce its excess steel capacity. However, it doesn’t look like this will be in the form of supply cuts. For the month of March, China’s raw steel production increased 20.74% from February to 70.7 million metric tons, an increase of 2.9% over the March 2015 total. That seems to suggest that rising steel prices have only ensured that Chinese steel mills produce more of the metal. The big question is whether the stimulus-driven demand will be enough to absorb current supply. So far, markets seem optimistic about it.

Sustainable Price Rally?

These developments might only serve to prolong the problems of overcapacity in the steel industry but that doesn’t change the fact that we could see strong steel prices for at least much of the second half of the year. Prices could come down sometime in the future but, right now, momentum is clearly pointing upward for steel and for commodities across the board.

Compare Prices With The April 2016 MMI Report

Chinese stimulus programs suggest that lax lending and stimulus have, indeed, spurred a new infrastructure economic boom. China has stated that it doesn’t want to create an additional property bubble but there are reasons to be skeptical. Previously, China has shown that shot-in-the-arm stimulus programs often turn into prolonged addictive habits, perhaps spurring demand growth for longer than what most people anticipate.

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Our Aluminum index rose to 80 from 75 points in May, a 7% rise.

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LME aluminum prices recently hit a nine-month high. Investors are now scratching their heads trying to figure out the cause of such a sharp increase.

Markets Still Oversupplied

If we narrow our view to the specific supply/demand fundamentals in the aluminum industry, it’s really hard — if not impossible — to find a reason for the price increase. The aluminum industry still seems oversupplied and April marked another month with little to no willingness for production shutdowns.

Aluminum_Chart_May-2016_FNL

On top of that, Chinese aluminum exports surged in March, up 17% year on year. The steep rise in aluminum exports is a negative for aluminum markets as it exemplifies the issue plaguing global aluminum markets. Interestingly, though, prices reacted — in this instance — in a bullish manner.

Meanwhile, the U.S. is investigating whether aluminum imports are harming the domestic industry, an inquiry that could help pave the way for new import tariffs. Aluminum prices are more global in nature than steel prices since they are decided by exchanges. If import duties were imposed on aluminum products, aluminum producers couldn’t arbitrarily hike their selling prices. However, duties could potentially bring U.S. Midwest premiums up, which are now hovering near $0.08 a pound.

Commodity Markets Rebound

In our April MMI report, we warned that: “The long-term outlook for aluminum is still poor. Prices in the short term could rise, however, following the recent strength in the base metal sector”

The best explanation for higher aluminum prices is the recent rebound in commodity and base metals markets. If you are a frequent reader, you’ve probably heard us saying that based on our own historical analyses, 70% of the price movement of an individual metal is caused by the movements in the commodity and base metal sectors. Which is exactly what we saw during the month of April.

Aluminum prices got a tailwind thanks to a recovery in commodity markets. Every single industrial metal rose in April. The ongoing recovery in oil prices, a weaker dollar and a potential boost in demand for base metals thanks to Chinese stimulus are the real factors explaining this move in aluminum prices.

Compare Prices With The April 2016 MMI Report

If commodity markets continue to improve, we should expect higher aluminum prices even when most people would agree that the market is still oversupplied. The extent of this rally will likely depend on how successful China proves to be in boosting spending. Back in 2009, the positive sentiment lasted for more than two years. At present, we have no way of knowing how long Beijing will keep this up.

Shares of Aluminum Producers Jump

Not surprisingly, the stock prices of aluminum producers such as Alcoa, Inc. or Century Aluminum jumped on higher aluminum prices. Investors betting on a recovery in aluminum prices would increase their exposure in these companies given their strong price correlation with aluminum prices, as their earnings are very sensitive to the metal’ price movement.

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U.S. construction spending increased in March to its highest level in more than eight years and our Construction MMI shot up 10% along with it. Gains in home building and nonresidential construction offset a drop in government projects.

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Construction spending rose 0.3% in March after a 1% gain in February, the Commerce Department said Monday. The back-to-back increases raised total spending to a seasonally adjusted annual rate of $1.14 trillion, the highest level since October 2007.

Construction_Chart_May_2016_FNL

Residential construction grew at a 14.8% annual pace in the first three months of the year. It was one of the few sources of strength in a quarter in which the economy grew at an annual rate of just 0.5% — the slowest pace in two years.

Aluminum, steel scrap and copper all saw gains on the index, moves that are in line with the broad metals mix used in nonresidential and residential construction here in the U.S. In China, numbers are similarly positive.

Chinese housing data for March showed another increase in home sales, putting a dent in China’s housing oversupply and helping the construction reset there. As lower rates and yields work with a lag, sales growth could stay strong in China this year. A reduction in the requirement for a down payment by the central government is also underpinning increasing sales.

While China’s manufacturing purchasing managers index from Caixin Media and Markit Economics fell to 49.4, missing economists’ estimates for 49.8 and down from 49.7 in March, the construction numbers in the People’s Republic remain strong and could, theoretically, pick up the slack this year if manufacturing there remains depressed.

A total of 83.19 million metric tons of iron ore was discharged at Chinese ports during April, according to ship-tracking data compiled by Thomson Reuters Commodity Research and Forecasts.

This was up from the 81.76 mmt offloaded in March, suggesting that China’s iron ore import volumes will show an increase when preliminary customs data is released in the next few days.

Compare Prices With The April 2016 MMI Report

China is back to producing steel at a high rate. Even zombie mills have come back from the dead. While this might not be good for the oversupply situation, it is a good thing for construction estimators and procurement professionals looking for as many options as possible to fulfill orders and reduce prices via competition.

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U.S. new car and light-truck sales returned to the fast lane in April, setting a monthly high that put Detroit automakers back on track to claim a record for 2016 profits and our Automotive MMI increased as well.

Automotive_Chart_May-2016_FNL

Industry volume hit 1.5 million vehicles last month, a 3.6% increase year-on-year, according to data provider Autodata Corp., for a seasonally adjusted annualized pace of 17.4 million vehicles. That puts U.S. automakers on track for a second consecutive annual sales record.

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Honda led major automakers with a 14.4% sales increase as both its cars and SUVs sold well, while Nissan‘s sales rose 12.8%. Fiat Chrysler was up 6% on record Jeep sales, and Ford rode an April record for SUV sales to a 4% increase. Toyota sales rose 3.8% largely because of the RAV4 small SUV, which broke a monthly record with sales up nearly 32%.

Only General Motors and Volkswagen saw sales declines with GM blaming a 3.5% drop on a strategy of cutting low-profit sales to rental car companies. VW sales fell almost 10% as its emissions-cheating scandal continued.

The U.S. isn’t the only auto market on an upswing. European sales have been steadily rising for a few years and many of the markets in the Asia-Pacific region are growing, although at a more tepid pace than earlier this decade.

This month, we saw U.S. Steel file a section 337 case, alleging hacking and theft of intellectual property, against China. The suspected hacker stands accused of stealing the formula, production setup and even melting temperature for high-strength, automotive alloy Dual-Phase 980. U.S. Steel contends that the alloy showed up as a Baosteel product shortly after it was hacked.

Compare Prices With The April 2016 MMI Report

While individual cases like this one are not likely to affect the fundamentals of the automotive steel market, it does illustrate just how coveted a market automotive has become for high-strength steel, even as aluminum has not been as widely adopted as many predicted it would be by now, after Ford became the first automaker to make the jump.

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With eight of our 10 monthly MMI sub-indexes gaining, and even the other two holding their value, April was the most positive month we’ve seen since 2014.

MM-IndX_TRENDS_Chart_April2016_FNL-TOPVALUE100

We felt a bit like Oprah reporting this month’s prices. You get an increase, copper! You get an increase, aluminum! EVERYONE gets a price increase! Except you, of course, rare earths and stainless, but at least you held your value, eh? That’s progress in your markets. Especially for you, stainless.

Free Sample Report: Our April Metal Buying Outlook

The standout performer (our “Biggest Winner”) was our Raw Steels MMI®, which posted an impressive 8.5% increase, egged on — at least in the U.S. — by anti-dumping measures that have in large part spurred demand for domestic rebar, cold-rolled and hot-rolled coil and even specialty steel. Specifically, the Korean and U.S. shredded scrap prices tracked by this sub-index bumped up significantly, with Chinese and U.S. finished prices also rising for the month.

Our Global Precious Metals MMI® also posted a healthy 1.2% increase on top of its 10% jump in March for an 11% increase over the last two months. This is no thanks to gold, which acted as a drag on the basket – instead, silver and the platinum group metals drove the increase. Global precious is our biggest winner, leading all of the other sub-indexes at 78.

The Rare Earths MMI® is still lagging behind the rally at a lowly 16, making it our “Biggest Loser” this month, but just reporting a month with no price declines is a moral victory after the losses of 2015. Check out the entire report for a more in-depth at all 10 metal categories tracked in the monthly MMI.

It has become difficult to ascertain if any party that sells it, or those that buy it, have received any benefit from the spate of trade cases involving grain-oriented electrical steel.

Free Sample Report: Our April Metal Buying Outlook

The most recent case involves the Chinese producers Wuhan Iron & Steel and Baoshan Iron & Steel who brought an anti-dumping action against Japanese and Korean producers of grain-oriented electrical steel. Provisional duties of 45.7% to Nippon Steel & Sumitomo Metal, 39% to JFE Steel and 14.5% to POSCO with final duties to be determined during Q3 of this year, according to a recent TEX Report.

High-Grade Materials

The industry knows, however, that only the three mills named in that case can provide the high-grade materials needed to produce transformers that meet higher efficiency standards imposed by governments the world over, including China.

GOES_Chart_April_2016_FNL

For sure, the domestic Chinese producers will likely reap a small bump in prices but their customers, the global transformer and power equipment producers, will make adjustments as required, as well. Read more

Our Stainless MMI didn’t move for the third-consecutive month. Despite a momentary recovery in commodity markets (thanks in part to the recent rally in oil prices), nickel prices were unable to move up.

Free Sample Report: Our April Metal Buying Outlook

Although some industrial metals, such as steel and tin, moved up in Q1, important metals such as aluminum, copper and nickel are all lagging badly in this base metals rally. That gives the rally less credibility and makes us think that markets could pullback as soon as momentum vanishes.

Trade Case

The biggest headline in the U.S. involves Chinese stainless, cold-rolled-anti-dumping and countervailing duty investigations. The U.S. International Trade Commission made a unanimous preliminary determination on March 25 that unfairly-traded imports of stainless steel sheet and strip are causing injury to U.S. stainless producers. The petitioners were AK Steel, ATI’s Flat Rolled Products Division, North American Stainless and Outokumpu Coil Americas.

Stainless_Chart_April-2016_FNL

With the threat of anti-dumping petitions looming, Chinese mills have been canceling open orders with U.S. customers, pushing domestic lead times for cold-rolled stainless steel beyond 8-12 weeks. For Q2, steel mills are in “controlled order entry” mode, trying to ensure volume for their key customers. With higher lead times and while China is under investigation, domestic mills are seeing the opportunity to increase stainless base prices. That could help support prices short-term, particularly if strength in the metal complex continues, which remains questionable.

Longer-term, U.S mills need to be mindful of any price increases as long as international prices remain low. Global nickel supply is still running strong as the supply side has proved quite inelastic to low prices with most producers hanging on while they hope Chinese pig iron producers will close first. Moreover, demand is not improving and stocks remain at elevated levels, which could prevent any market deficit and translate into tangible tightness.

Free Download: The March 2016 MMI Report

Stainless domestic mills have the natural advantage of short lead times due to proximity but when domestic lead times rise, metal buyers might prefer importing and if they do so successfully, domestic mills might have a hard time winning that business back.

Russia’s Norilsk Nickel’s Earnings Sink

Another headline in March was when Russia’s Norilsk Nickel, the world’s second-largest nickel producer, reported a 24% decline in 2015 core earnings (in spite of a weaker dollar offsetting losses) and forecasted global primary nickel consumption to remain flat this year.

Outokumpu Changes Freight Equalization Policy

Recently, Outokumpu Coil Americans announced changes to its equalized freight schedules. Bright annealed and rolled-on finishes will have the most significant increases since the point of equalization has been changed to San Luis Potosi, Mexico. This will amount of at least a $.05 per pound increase in these products.

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In March and February, gold prices — whether U.S., Indian or Chinese — were the standout performers, with some even nearly doubling in value as investors stocked up on the hard currency as a haven from a falling U.S. dollar and other global economic turmoil.

Compare Prices With The March 2016 MMI Report

But that’s not the case this month. Gold lost value in all the markets we track, a predictable pullback from its runaway performance during most of the first quarter. The precious metal that’s pacing the globe and keeping our sub-index positive is silver, helping the sub-index achieve a 1.2% increase.

Global-Precious-Metals_Chart_April-2016_FNL

Sure, the platinum group metals were predictably positive, too, but silver’s unique position as both an investment and industrial metal allowed it to gain in all the markets we track and its future potential is stronger as safe haven status doesn’t make up such a huge part of its value as with its cousin, gold.

Secondary Mining, Primary Industrial Usage

Silver is mined alongside just about every industrial metal in the world and selling it has been padding the profits of base metal miners during the first quarter. U.S.-based primary silver producer Coeur Mining reported Q1 production of 3.4 million ounces of silver and slightly more than 78,000 ounces of gold. That was in line with expectations, as the company transitions to lower-tonnage, higher-grade, higher-margin underground operations from two ore sources, Guadalupe and Independencia in Mexico.

The electronics uses of silver are pushing miners to bet their future on the metal as its still the world’s best conductor of electrical current and heat. Electronics in automobiles such as Tesla Motorsnew Model 3 “affordable” electric car will require more silver than any automobile on the road today. And electronics are already invading the comfort of our conveyances more than ever before.

Free Sample Report: Our April Metal Buying Outlook

When you add electrical transmission and use in renewables to silver’s demand side equation it’s easy to understand why its global prices could easily keep rising independently of its performance as an investment.

What This Means for Metal Buyers

Continue to expect silver and PGMs to experience strong demand independent of investment potential. Gold could still gain back its losses but its prospects, long-term, are not as strong.

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The Renewables MMI got a boost from increasing steel prices and resilience in solar silicon to increase 3.8% to 54 this month.

Free Sample Report: Our April Metal Buying Outlook

This is likely not related to the broader rally in metals prices as renewables are fairly niche and this sub-index is still trading well within the low range we’ve seen it inhabit for most of the last year. Many renewables aren’t even publicly traded and we have long lamented the effect government incentives have on hiding and keeping prices low for metals and end products subsidized at several points in the supply chain such as silicon.

Renewables_Chart_April-2016_FNL

So, to get a real feel of what’s going on out there it’s sometimes necessary to look at other metals used in the end products. For solar panels, that’s our precious/industrial friend, silver.

The average solar panel actually uses about two-thirds of an ounce of silver. That might not sound like a lot, but at around $15 an ounce on the MetalMiner IndX, U.S. silver contributes more to the cost of a crystalline photovoltaic silicon solar panel than it does to most other industrial products that use silver. Laptop computers use way less than half-an-ounce of silver while a cell phone contains a minute 200-300 milligrams of the shiny metal.

Silver Breaks Out

Silver has broken out from the lows of 2015 and has joined its precious cousin gold in seeing its value increase exponentially this year. Unlike gold, though, silver has a ton of renewable applications. The solar industry uses about 5% of the world’s annual silver supply, or an estimated 52.4 million ounces.

Demand Effect

Some might say an increase in the price of silver doesn’t have any direct correlation to the rise in silicon prices or any real connection to solar adoption, either. While this has a grain of truth to it, such a healthy increase in a related component metal can’t entirely be discounted. Silver is actually the primary ingredient in PV cells, and 90% of crystalline silicon PV cells use a silver paste. As a regularly tracked commodity, silver’s demand is relevant. Not just in the U.S. but in massive solar adopters China and India, as well.

Compare Prices With The March 2016 MMI Report

That being said, a big price spike in silver could keep adoption of the technology low, too, but that spike would still be a better indicator of loss of demand than some of the prices of subsidized metals. That and, of course, the undeniable rally in steel products being used in all of those wind turbines and solar panels.

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Our Raw Steels MMI jumped 8.5% to 53 points, after hitting a 5-month high. March was an interesting month for steel markets, with some important developments to consider:

New Anti-Dumping Determinations

March brought two new anti-dumping determinations for hot-rolled and cold-rolled coil steel products.

Free Sample Report: Our April Metal Buying Outlook

In the case of HRC, anti-dumping determinations will have less impact than in the case of CRC. Prohibitive duties were only imposed on the U.K., but the U.K. represents only 7% of HRC imported into the U.S. last year. Brazil (15% imports share) also had duties in excess of 37% imposed on its products. Meanwhile, South Korea — the biggest exporter with a 35% share) — only received between 4% and 7% duties. Similarly, the Netherlands and Turkey did not see significant duties at all.

Raw-Steels_Chart_April-2016_FNL

On the other hand, CRC duties were much more prohibitive, which helps explain why domestic CRC prices gained much more than HRC over the past few weeks. U.S. regulators claimed their biggest victory in March as China (by far the largest exporter of CRC into the U.S), was imposed with a super-high dumping margin of 265%, which would effectively shut down imports from the country.

U.S. Imports Fall

Chinese steel exports to the U.S. have fallen steeply over the last few months. The downtrend in steel imports continued in February as U.S. steel imports fell 40% compared to the same period last year. February steel imports are the lowest since December 2011.

The decline in imports is a positive sign for the U.S. steel industry. However, as long as U.S. prices remain higher than international prices, we could see an increase in imports later this year as exports rotate from other countries. Particularly, South Korea has emerged as a top steel exporter to the U.S. Meanwhile, Korea is the biggest destination for Chinese steel products. This seems to suggest that Chinese steel is possibly being exported through Korea.

Tata Steel U.K. to Close/Sell Assets

Other countries are not enjoying the protection that U.S. companies are receiving. The U.K. is a case in point.

Recently, Tata Steel announced that it would close its giant Port Talbot steel plant if it cannot find a buyer, a move that would almost bring steelmaking in Great Britain to an end. With the crisis at Tata Steel U.K., protectionism demands have started to across the European Union.

However, a spokesperson for Prime Minister David Cameron recently said that although the U.K. could provide financial support for steelmakers, it remains opposed to allowing higher tariffs on Chinese steel as those decisions would have an adverse impact in other areas of the economy.

What This Means For Metal Buyers

Although U.S. imports declined, total Chinese steel exports continued to rise. In February China exported 8.1 million metric tons of steel products, a year-on-year increase of 4%, suggesting that demand might be contracting at a higher pace than supply is.

Compare Prices With The March 2016 MMI Report

Despite much political talk from Beijing about supporting China’s flagging economic growth rate and removing excess steel capacity, there is no evidence of any turnaround yet in China’s steel demand.

The recent price rally in steel prices continues but it’s still not clear for how long. We saw that pattern in steel prices last year. It’s yet not clear how long this rally will last, but current macro conditions will need to improve to make us think the rally is finally the one ending this bear market.

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