Articles in Category: MetalMiner IndX

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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Here’s What Happened

  • The Renewables MMI spiked upwards for the month of May (but not a terribly huge spike in the scheme of things; see the bullet below), ending at a value of 71.
  • * Editor’s note: We’ve recalibrated the index to better take into account cobalt price fluctuations, hence the spike from 54 in April to 71 in May.
  • However, the Big Heavy of our sub-index that tracks metals and materials going into the renewable energy industry is the U.S. steel plate price. That price point took a 4.8% dive.

What’s Going On in the Background?

  • Several stories from the solar sector have been making waves lately. “Growth has slowed in the rooftop solar industry in the past year,” writes Jessica Goodheart in this piece, “but many see the evolution of battery storage technology and vehicle electrification as promising for the long-term health of the residential solar industry.”
  • And the policy picture? “Industry leaders have been cautiously optimistic that Republicans will leave be the federal Solar Investment Tax Credit (ITC), a major policy driver of rooftop solar, in spite of Trump’s efforts to roll back the Clean Power Plan,” Goodheart notes.

What Metal Buyers Should Look Out For

  • Keep an eye out on steel plate’s raw material inputs — iron ore prices surged in April, as we reported in our May Monthly Buying Outlook, while coking coal prices swelled due to supply disruptions in Australia.

Key Price Movers and Shakers

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Industrial metals for the most part fell in April, but that wasn’t the case for aluminum. The lightweight metal outperformed its peers as aluminum is expected to be the next target of supply-side reform in China, according to Goldman Sachs.

The New Steel?

While China tries to transition from a manufacturing economy to a service-driven one, it is aiming to cut industrial overcapacity due to environmental problems. China previously indicated its strong intentions to implement supply-side reforms in the steel industry. As a result, steel prices in China rose by 70% in less than a year.

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China’s energy intensive aluminum smelters receive nearly 90% of their energy needs from coal. In addition, China has received a lot of international pressure to reduce its aluminum capacity. For these reasons, aluminum could be the new steel this year.

To start, China announced in late February that it would cut as much as 30% of its aluminum production over the winter months. As my colleague Stuart Burns put it, “Beijing has shown solid intent in this direction, already denying planning approval to 2 million tons of new capacity in China’s northwest province of Xinjiang and clamping down hard on plants elsewhere that it deems to be failing environmental standards.” In addition, industry watchers believe that this might just be the beginning as more closures are expected to come in heavily industrialized provinces.

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Our Global Precious Metals MMI inched up a point in April. However, this year the index seems to be struggling near 84 points. Let’s take a look at gold and palladium, two of the precious metals integrated in this index, to better understand the ongoing trend in precious metals.

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Gold

Some analysts are saying that gold is up this year on its safe haven appeal due to rising geopolitical instability. But that’s simply not true. Otherwise, we would see it reflected in stock market indexes, which are trading at record highs. Not only the U.S. but also Europe, China and other emerging markets are seeing their stock markets hit multi-year highs. Investors are confident about the prospects for the global economy, and until something proves them wrong, gold is lacking any appeal as a safe haven.

Gold CME contract. Source: MetalMiner analysis of stockcharts.com

If you held gold this year, don’t thank rising political tensions; simply thank a weaker dollar and some dip buying. This year’s rally in gold follows a 18% price slump in Q4 of last year. But prices are back to their average and just 8% below $1,380/oz, a level that has been a ceiling to gold prices for four consecutive years. This means that investors will have to find good reasons to chase prices higher. Given the ongoing strength across global stock markets and the rather neutral picture of the dollar, we wouldn’t expect gold investors to get a good return on their money for the balance of the year.

Palladium

As I’ve written earlier on MetalMiner, “palladium prices rose to a two-year high in April, making it the biggest gainer among precious metals. Last month we outlined some of the factors contributing to the palladium price rise: a growing auto sector; a strong South African currency; a falling dollar; and bullish sentiment across industrial metals. However, as prices continue to climb, it’s time to question how high prices can go. Despite a still solid outlook, there are some reasons to believe palladium prices could be nearing their peak.”

One of them is a potential slowdown in demand for cars. U.S. car sales declined in April, following a disappointing month of March. Markets suspect that the car industry boom that has run since 2010 has now come to an end.

Meanwhile in China, car sales are still going strong, but the pace is not the same as last year. As I wrote before, “weaker sales tax incentives have put pressure on demand this year and are expected to slow down demand even more next year. Buyers of cars with engines up to 1.6 liters paid a 5% purchase tax last year, but they are now paying a 7.5% rate. Buyers are still finding incentives to rush on buying cars this year since the rate will increase to 10% in 2018.”

Palladium nears long-term resistance levels. Source: MetalMiner analysis of stockcharts.com data

Finally, as with the case of gold, palladium might need the stronger fundamentals to lure investors to chase prices higher. Historically, palladium has peaked in the range of $850-$900. Prices closed in April at $827.

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What This Means For Metal Buyers

Precious metals gained this year, but gains won’t come easily from now onwards. The opportunity to buy or invest in precious metals might have passed by.

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Our Copper MMI fell by two points in April, dragged down by a sell-off in industrial metals. In addition, supply concerns have eased as strikes at some mines ended.

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The strike at Escondida in Chile, the world’s largest copper mine, ended in late March. Soon after, a 18-day strike at the Cerro Verde mine in Peru also came to an end. A new strike at the mining company Southern Copper Corp. in Peru took place in April, but it lasted only two weeks, leaving no significant effect on production.

Meanwhile, Freeport McMoRan finally obtained a permit to export material from its Grasberg mine, the second largest copper mine in the world. The new permit will allow the company to export 1.1 million tons of copper concentrate through February of next year.

However, Freeport now has a new problem on its hands. Workers have threatened a one-month strike starting in May. The company had laid off about 10% of its workers, saying that there may be more layoffs in the future to stem losses. Moreover, the company is still confronting Indonesia over rights to the mine. With this problematic combination of protests from workers and tensions with the Indonesian government, it’s no wonder that investors are concerned about further supply disruptions this year.

What This Means For Metal Buyers

Although supply disruptions eased in March and April, there is overall plenty of potential for further disruptions this year. Prices took a dip in April, but that seems to be a normal price action given that most industrial metals fell in the same month.

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After a spectacular rally in Q4 of last year, prices are now consolidating in the price range of $5,500-$6,100/mt. Bulls seems still in control but they probably need another bullish development to chase prices above this price range. That development could come in the for of additional supply disruptions this year. We will be watching closely the developments at the Grasberg mine in the coming week in addition to the several mines that have contract negotiations due to this year.

Actual Copper Prices and Trends

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Here’s What Happened

  • The Automotive MMI, our sub-index of industrial metals and materials used by the automotive sector, dropped by one point for a May reading of 8, a 1.1% drop.
  • This is the third straight month of declines for this index. Back in February 2017, the Automotive MMI hit 92 — its highest level since November 2014. But now, flagging HDG steel, copper and shredded scrap prices are dragging on the rest of the index.

What’s Going On in the Background?

  • The U.S. auto market is officially slowing. Car sales dropped 4.7% to 1.43 million units, according to Autodata Corp. That is a bigger drop than forecasted by both Edmunds and Kelly Blue Book, according to several news outlets.
  • Meanwhile in China, the first quarter of 2017 saw a 7% overall increase in car sales. As we reported in our Monthly Metal Buying Outlook (free trial here), that was the strongest showing since 2014. The Chinese government has extended tax cuts for small vehicles, which should keep citizens buying cars through the year.

What Metal Buyers Should Look Out For

  • Many factors coming down the line — including increased construction projects in China — portend longer-term support for key automotive constituent metals such as HDG steel.
  • Even though HDG has slipped a bit this month, prices for that metal form in China could see room for improvement.

Key Price Movers and Shakers

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Our Raw Steels MMI fell seven points* due to the slump in China’s steel prices in April.

Raw Steels MMI

(*Note: We changed one of the data elements of our index to map the underlying market more effectively. That change contributed to a lower number this month.)

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Since their peak in February, China’s steel prices have fallen by more than 20%, while U.S. prices have continued to climb. But guess what, things changed towards the end of April. Prices in China started to recover (see how we predicted that) while U.S. prices fell (yes, we predicted that too). In this post, I’ll analyze what this price divergence means and how you — assuming you buy or invest in steel — can take advantage of it.

China HRC price. Source:MetalMiner IndX

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This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.