MetalMiner IndX

Our May MMI Report, tracking ten major metal price points, came out this week.

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As always, the MMI reflects the global market (BLS indexes by default only include US data, but that may or may not be representative of underlying global price trends) and metal prices often depend upon the underlying demand for various industries (steel prices relate to construction industry activity, for instance).

Most of our readers are buyers of aluminum, copper, stainless steel, raw steels, rare earths, automotive, construction, renewables and grain-oriented electrical steel… but some go for the VERY minor metals.

For these special users, we provide the fictitious MMI. Serving all your needs for adamantium, Rearden metal, kryptonite ore and vibranium. We recently had to move unobtainium off the list because it’s information was just too hard to obtain to keep listing.

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Domestic producers AK Steel and Allegheny Technologies, Inc. are awaiting a decision by the European Commission on tariffs for grain-oriented electrical steel. According to Law 360, the provisional duties will likely be set this week and come in at 22% for the US producers.

That tariff would likely make US exports uncompetitive into European markets.

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Meanwhile, US spot M3 prices fell 8% last month on the back of continued declining domestic surcharges. GOES prices seem to have bucked the recent rise in most metals markets (exceptions include stainless steel and rare earth metals, whereas steel held steady).

No Increase

The domestic anti-dumping case has failed to provide the much- desired increase in GOES prices. Since many of the transformer and electrical power equipment manufacturers have global operations, many of them opted to modify their global supply chains to avoid potential domestic duties (which didn’t materialize anyway). Nonetheless, stacked and wound transformer core imports continue to grow:

With 24 new nuclear reactors planned in China, demand for high grade GOES continues to be high and that has led to price increases for Japanese materials. European electrical power equipment manufacturers have come into the market early to secure high-grade material regardless of the outcome of the European trade case, according to a recent TEX Report.

Demand Still Strong

This indicates to us that demand remains brisk for high-grade materials but the type of material supplied by the US domestic producers, a market in which more competition exists, may fare worse. What’s clear is that high-grade prices are on the rise but low-grade prices seem to be trading sideways.

The anti-dumping case will provide additional clues as to where domestic producers GOES’ prices will go.

What about the actual M3 GOES price this month? Click below.

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Is this a serious rebound in copper prices? Hmm... we still doubt it.

The monthly Copper MMI® registered a value of 77 in May, an increase of 2.7% from 75 in April.

Not a Demand-Based Surge

Copper prices have surged so far this year but prices are still well below what they were just a year ago.

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Demand coming from China is still weak. We believe that traders likely won't get evidence of a meaningful uptick in demand as Chinese demand remains weak and not likely to make a significant comeback in the medium term. Therefore, demand alone has little chances of supporting prices through the balance of the year.

Supply Side? Nope

On the supply side, there have been some constraints in Chile (the largest copper producing nation) because of climate and labor problems. On the other hand, major copper miners are cutting costs. This helps miners keep producing even while copper prices fall, as major input costs like crude oil declined. Just this year, the industry’s total costs on average fell 6%. The industry seems well-supplied and at this point, we don't see warnings in the supply side with the potential to dramatically change the direction of prices.

What IS Causing the Rally?

With this said, two things seem to be causing the recent copper's rally:

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The monthly rare earths MMI® registered a value of 27 in May, a decrease of 6.9% from 29 in April.

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The jump that much of the market felt after being featured on "60 Minutes" was gone this month and Molycorp reported another net loss for Q1.

Molycorp Needs More Funding

Molycorp reported higher production volumes in the first quarter of 2015 at its Mountain Pass, Calif., rare earth facility of 1,479 metric tons of rare earth oxide equivalent. This was an 11% increase over the Q4 2014 production of 1,328 mt.

Molycorp reported Q1 2015 product sales volume of 3,436 mt on a consolidated basis, a 9% increase over the Q4 2014. Net revenues for the quarter were $106 million, an 8% decrease from the Q4 2014.

The Greenwood, Colo.-based rare earth miner reported a net loss of $0.42 per share and a reported a net loss of $0.28 per share for the quarter on an adjusted non-GAAP basis, which compares to an adjusted non-GAAP loss of $0.39 in the Q4 2014.

Molycorp was selected by Siemens AG to supply rare earths over the next 10 years for high-power, sintered rare earth permanent magnets used in Siemens' wind turbine generators, but it's unlikely that the proceeds from that deal will help its financial position this year. Molycorp reiterated that it would need more financing to continue operations.

Persistent Low Prices

The problem for Molycorp is much the same as that for the entire rare earths industry: low prices. China ending export quotas on the elements has not yet resulted in higher prices and companies such as Molycorp, Texas Rare Earth Resources and Australia's Lynas Corp. are feeling the pinch as a result. Many high-tech buyers of the magnets and oxides in the rare earths ground have moved on to other sources.

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Bolstered by a weaker dollar, global precious metals rose last month as industrial demand for palladium was finally joined by higher gold bullion and platinum prices.

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The number of Americans applying for first-time unemployment benefits inched up by 3,000 to a seasonally adjusted 265,000 in the week ended May 2, the Labor Department said recently. This was less than the 275,000 economists predicted and within reach of the unrevised 262,000 level for the prior week—the lowest since 2000.

This is the latest sign that an interest rate hike may come from the Federal Reserve as continued improvement in the US labor market might clear the path for rate hikes.

How High Will They Go?

Once the Fed starts the cycle of interest rate increases, the market can focus on how high the rates may rise, which will be less of a weight since the expectation is that rates won’t rise very much. Higher interest rates are bearish for gold because they give investors a reason to move money into investment vehicles that produce a yield. Gold has no yield.

End of the Stock Supercycle

There is also rampant speculation that a combination of downward earnings revisions and the difficulty of the banking system to turn bank reserves into money growth will lead to a large correction in the stock market. Precious metals are also a hedge against falling stocks.

The monthly Global Precious Metals MMI® registered a value of 84 in May, an increase of 1.2% from 83 in April.

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Stainless steel and nickel rebounded impressively this month, gaining 5.6% from a low of 72 in April. The monthly stainless MMI® registered a value of 76.

3-month London Metal Exchange nickel rose in April, after falling as low as $12,200 per metric ton, the lowest levels since 2009. Technically, this recent price increase is nothing to be concerned about, at least yet.

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Nickel prices fell as much as 40% from October to April so a 5.6% increase this month seems just like a normal price reaction after a significant fall.

For the first time in nine months a weaker dollar and more stable oil prices are giving some short-term momentum to commodity prices. Nickel certainly benefited from this in April, as did most of the base metals we track. If weakness in the dollar continues, nickel prices could keep rising in this second quarter but momentum will likely vanish before prices are able to make a significant move.

Demand Not Helping Prices

End market demand seems to be robust in markets such automotive and residential appliance, although it's still weak in the energy market due to low oil prices. However, a moderate growth in stainless steel demand won't likely help move prices up too much this year. Service centers have excess inventory and that is putting pressure on US mills. This glut of inventory is a big contrast from last year when lead times went above the standard, causing service centers to look for alternative sources.

As my colleague Katie Benchina Olsen pointed out recently, until service centers reduce their inventory backlogs and nickel prices start to improve, service centers will not buy, regardless of price. Service centers need to focus on getting their inventories in check before they resume anything resembling regular buying patterns. ​​However, the mills are under pressure to book capacity and that could put more pressure on prices if they are not able to think longer-term.

What This Means For Metal Buyers

Nickel prices went up this month but that should not panic nickel buyers. Prices could keep rising in the second quarter as the dollar weakens but the outlook for the balance of the year remains bearish.

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Like most of the US solar industry, I have been watching for the tipping point in silicon photovoltaic panel installation and energy costs since the early 2000s.

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It's long been-promised by proponents of renewable energy, so I was a bit skeptical in December when it was again predicted to cause a disruption taking market share away from coal and other traditional energy providers in the US market and cause mass adoption of solar as a home heating/cooling and electricity technology.

I also don't immediately buy into the ability of the EPA Clean Power Plan to convert those millions of consumers to home-based solar generation purely based on changes in law that mainly effect producers and not consumers of energy.

Classic 'Solar Tipping Points'

Some great moments in the solar tipping point so far:

  • In 2012 ThinkProgress gave us three handy charts which showed why solar "has hit a tipping point."
  • In 2011 the tipping point supposedly happened for 3rd party residential panel ownership in California, the largest adopter market state... and that did nothing for material costs or even made a speed bump in demand for the dirtier technologies.
  • Even back in 2005, silicon crystalline solar photovoltaic panel technology "hit a tipping point" to supposedly make solar a much more viable energy generation technology. 10 years ago. Yet the demand for materials has still not risen much ever since we began tracking prices in 2012.

The monthly renewables MMI® registered a value of 60 in May, a decrease of 1.6% from 61 in April. The decrease is on par with the generally flat "terse investor frown" trend the index has tracked since its inception so, while it's not disconcerting, it doesn't give great hope for prices of raw materials for silicon panels or wind turbines to rise in the short term, either.

No Increased Demand for Raw Materials

A lot of the metal inputs of these technologies are suffering their own price problems due to market gluts that have nothing to do with solar or wind adoption, particularly steel plate.

The most promising development for solar generation is that it's now cheaper than gas in 47 states, but there's no evidence that that will spur on solar adoption in a place like, say, Minnesota where it's dark much of the day and snowmelt will ruin your roof-mounted panels every winter.

Silicon, itself, is rising in both demand and price as semiconductor and energy use is definitely on the upswing in mature markets. The adoption problem continues to be the scale of the industry. Powering California, Texas, the rest of the West and Florida will not deliver the amount of panels on roofs needed for consistent power generation for utilities and grid owners to divest in backup generation technology. It also won't deliver the amount of homes and commercial businesses generating electricity necessary to push raw material prices up significantly.

Paypal, SpaceX, Cars, Why Not the Solar Tipping Point?

Enter Elon Musk, sensing a business opportunity, and this month's announcement from Tesla Motors that it's expanding its li-ion battery business to homes and commercial properties interested in using a modified version of the automaker's batteries to store solar power generated during the day for their homes' use at night. Hey guys, another tipping point!

It's true that Tesla's advance is economical, necessary and fills a major need in the market: the ability to store energy collected from the panels at night in places where daylight doesn't extend beyond 8 PM. It could also resolve the orientation battle now being waged in California between utilities and homeowners by taking a decision on where stored power goes out of utilities' hands.

Actual Renewable Materials Prices

Still, as we are cautious about the markets we cover, I will wait to see if Tesla's battery business takes off and provides a boost for silicon solar demand. We've been promised a tipping point before. Now, how about that SpaceX IPO, Elon?

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Seems that somebody forgot to tell the automotive metals that the bear market was still going on this month. Strong aluminum and high-strength steel demand, and end-user purchases, have again made auto the standout in a field of mostly down markets.

After flattening in April, the monthly automotive MMI® registered a value of 87 in May, an increase of 2.4% from 85 in April. A big factor was the performance of aluminum coil on the index, as its index broke resistance and soared as well.

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China removed export taxes on aluminum, opening more markets up to the automotive-grade sheet and coil prices that automakers in the West have been experimenting with for a decade now. Prices of palladium, lead and even copper also notched strong LME growth filling strong demand from domestic and foreign automakers.

Consumer Sales Rising

In the US market, April new car sales rose by 5% from a year ago, to more than 1.463 million units as predicted in a J.D. Power and LMC Automotive's mid-month auto sales forecast update. April's totals are anticipated to be the highest since April 2005.

SUVs and smaller "crossover utility vehicles" were the main leaders in the sales surge. While not all US automakers posted strong Q1 results, profits were generally up even if they were up lower than some analysts expected. General Motors' results were better than in the same period a year ago, when costs associated with safety recalls limited quarterly profit to $125 million.

Fiat Chrysler Automobiles reported a profit of $101.2 million (€92 million) d​uring the first quarter compared with a loss of $173 million (€190 million) during the same period last year.

What This Means for Automotive Buyers

Consumer demand for automobiles traditionally picks up in the summer months, so this could be the beginning of a big turnaround for our Automotive MMI®. Fundamentals continue to look strong as the index had better supply and demand numbers than other metals even when it was losing price ground. Stay tuned.

For actual prices of the automotive metals this month, read the full article by logging in or signing up to become a MM member.

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Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.

The monthly raw steels MMI® registered a value of 60 in May, on par with April's value.

Raw Materials Undercutting Scrap

Scrap prices are at their lowest levels and we don't really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.

Why Manufacturers Need to Ditch Purchase Price Variance

Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.

Cheaper to Produce

Moreover, although prices seem low, it's still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.

Meanwhile, steel imports keep arriving. Since US prices are no longer inflated compared to the rest of the world ,we would imagine steel imports to start slowing down through the remainder of the year. However, Chinese exports could actually increase due to the recent removal of export tariffs.

Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn't seem likely that steel prices will rise significantly higher this year.

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Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April's value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It's a testament to the resilience of the US construction market that our MMI was even able to hold steady this month. For complete prices, read the complete story – log in or sign up for MetalMiner membership!

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