Articles in Category: Minor Metals

The scrapping of rare earths export quotas late last year resulted in soaring exports from China which produced 84% of total world rare earths output of 124,000 metric tons, but prices have fallen to multiyear lows in 2016 in response to low demand and oversupply.

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Oxide shipments more than doubled in Q1 2016 at 11,956 mt. March was the second best month on record. That was despite expectations that exports were expected to drop off dramatically this year after December when cargoes hit a record high of nearly 5,000 mt as users built up inventories ahead of the Chinese new year.

Exports Up, Demand Down

Exports of dysprosium surged five-fold while neodymium shipments jumped more than 300%. The Chinese government plans to complete the consolidation of its rare earth industry under six large state-owned firms — Chinalco, Northern Rare Earth, Xiamen Tungsten, China Minmetals, Southern Rare Earth and Guangdong Rare Earth — by the end of June, deputy industry and information technology minister Xin Guobin said.

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Much of the expected consolidation in China was slowed in the first two quarters by the weak market and stimulus at home that has led miners and domestic producers of smartphones and cars to increase production despite demand not moving much at all. If rare earths are to make a comeback in the second half of the year, actual end user demand will have to increase independent of government stimulus.

The broad metals rally continued in April with all but three of our MMI sub-indexes gaining value this month and two of those holding their value from last month. Only the GOES MMI lost value and that had more to do with its specialized market.

MM-IndX_TRENDS_Chart_May2016_FNL-TOPVALUE100

The Aluminum, Raw Steels, Global Precious, Renewables, Stainless Steel, Automotive and Construction MMIs all increased in April amid a broad commodities rally. The U.S. dollar continued to weaken, hitting its lowest point in 15 months, pushing oil and other key commodities up in value and helping metals see their boat rise with the tide.

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In investments, both gold and silver are testing multiyear highs as investors look to them for a short-term safe haven from falling currencies.

Further dollar depreciation could increase demand for all dollar-denominated commodities and metals are currently in a sweet spot on the demand side, particularly because of China’s economic turnaround.

The China Front

Continued stimulus in China is increasing demand for steel, aluminum and other metals there. As we’ve previously reported, the People’s Bank of China has cut requirements for first-time homebuyers, cutting the minimum mortgage down payment from 25% to 20%, taking it to the lowest level of requirement ever.

This is just one of many stimulus measures that Beijing has undertaken in recent months. However, global steel and aluminum oversupply is still a top concern, and China’s role in that glut continues to be front and center.

Other Drivers

With U.S. home sales and the non-residential sector continuing to show strength, construction in both of the world’s largest markets has been a positive driver for metal, as has automotive demand.

The MetalMiner monthly GOES MMI reading dipped slightly from 202 to 195 against smaller import volumes. Market participants report to MetalMiner that grain-oriented electrical steel prices have fallen a bit in China, as well, though non-grain-oriented electrical steels have increased.

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However, AK Steel did add a surcharge of $65 per metric ton effective with June orders, the first higher surcharge since January.

GOES_Chart_May_2016_FNL

According to recent comments made by Roger Newport, CEO of AK Steel, demand appears solid for high-efficiency electrical steel. He also pointed to stronger housing starts, though they remain below historical norms. In addition, Newport indicated the new transformer efficiency standards would help with overall demand. AK Steel also received a boost when ATI closed its Bagdad facility in Gilpin, Pa., driving approximately 35,000 tons of new business to AK Steel.

Steel Rising

In the meantime, the steel market price rise, in general, appears more supply-driven as opposed to demand-driven. Many have questioned whether any more new demand will appear during the second half of the year which means that for prices to stay supported, producers will need to remain vigilant about managing capacity. Some believe prices will flatten during the summer and then start slipping toward the end of the year.

Although GOES markets don’t closely correlate with underlying steel markets, some of the drivers of steel prices also apply to electrical steel. These drivers include: China’s ability to hold prices higher (we have started to see some cracks in that foundation). Unlike in the U.S., Chinese producers work together to set market prices, a recovery in products and materials used in the oil and gas industry on the basis of a rising oil price and, finally, the overall health of commodities markets and base metal prices.

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The Rare Earths MMI joined copper this month as the only sub-indexes that didn’t increase this month.

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During 2015, flat performance was, relatively, a moral victory as we saw commodities fall across the board against a strong dollar. It’s now safe to say, though, that that environment is shifted as the dollar has weakened and a broad commodities rally has set in. Standing still is now tantamount to falling behind.

Rare-Earths_Chart_May-2016_FNL

Of course rare earth elements are difficult to track as many of the high-tech elements not exchange-traded and their prices and production can be hard to come by. Efforts to modernize the industry, particularly in China, have not yet been able to add transparency to their production and pricing.

China’s Ministry of Industry and Information Technology (MIIT), however, intends to change that by setting new standards for domestic rare earth producers. The proposal is still being discussed in Beijiing, but the idea is to specify minimum production utilization levels, recovery rates and yields, as well as to implement an exploitation plan that complies with environmental standards.

In the first quarter of 2016, average operation rates at Chinese smelters was 52.6%. If the new utilization plan is implemented, though, the expectation is that the rates will rise above 65% at the outset, according to Core. This might help to add transparency in the long term, but In the short-term, higher production rates may place further downward pressure on prices.

There have also been rumors, since April, that China’s National Development and Reform Commission would begin stockpiling material again soon and many buyers are holding off purchases ahead of assumed government stockpiling.

Compare Prices With The April 2016 MMI Report

India is also ramping up production and auctioning rare earth mining blocks. So, RE prices remain in their low range without much upward pressure.

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Gold prices extended their best start to a year in more than 30 years this month, jumping 5.1% to 82 amid a broad precious metals rally.

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Silver has mostly caught up to its investment metal cousin, too, thanks to its dual use as an industrial and precious metal. Silver miners are seeing their stock prices increase as supply has been constrained by recent mine shutdowns.

Global-Precious-Metals_Chart_May-2016_FNLAs with most of the metals we track, China is the biggest consumer and biggest producer of gold. So, the news that China’s central bank and customs service will allow companies that have “frequent imports and exports” of gold and gold products to apply for a single permit that can be used in as many as 12 shipments was welcome for both producers and consumers. The trial to simplify the rules takes effect June 1 and applies to Beijing, Shanghai, Guangzhou, Qingdao, Nanjing and Shenzhen, the bank said in a statement.

Aside from loosened regulations, the investment metals are sitting in a good, fundamental place. The safe haven status of both gold and silver continues to help their prices as the Federal Reserve again showed no stomach for interest rate increases this month.

As my colleague, Raul de Frutos, recently wrote, this has led to the weakest U.S. dollar in 15 months and sent investors flocking to silver, gold and even the platinum group metals. That’s right, 15-month high for gold, 15-month low for the U.S. dollar index. The correlation, gold-to-dollar, is way more reliable that any physical demand indicator of gold.

It seems as if the Fed’s dovishness is catching on globally, too. Japan was expected to implement a fresh round of stimulus to weaken the yen to combat low inflation. However The Bank of Japan kept interest rates unchanged this month.

Compare Prices With The April 2016 MMI Report

There is little sign that investors will stop flocking to safe havens and with strong consumer demand in automotive and electronics it’s difficult to see an end to this bull run.

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MonthlyMetalBuyingOutlook_May2016_210This month, What appeared to be a rally led by anti-dumping actions involving several different steel products turned into something bigger as China implemented stimulus measures, boosting demand growth not only for steel, but also for the rest of the base metal complex.

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Allegheny Technologies, Inc., hosted its first quarter earnings call yesterday morning and reported higher earnings for many of the specialty metal markets it serves, while admitting it has not yet “right-sized” its flat-rolled products business. ATI booked a net loss of $101 million ($0.94 cents per share), a loss that was less than most analysts anticipated.

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Revenue for the first quarter fell 33% year-over.year to $758 million.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI executives noted during yesterday’s conference call and webcast the company’s Brackenridge production facility is only open three days, with three shifts each day. ATI would like to increase production there. Source: ATI

“Our High Performance Materials and Components segment is well positioned for profitable growth over the next five years, driven primarily by strong and growing demand from commercial aerospace,” ATI CEO Richard Harshman said. “We are committed to making the tough decisions to return our flat-rolled products segment to sustained profitability. This requires the business to be repositioned and restructured and to be more focused on differentiated products that have higher technical barriers to entry and serve markets that are global with attractive long-term growth prospects.”

Aerospace Products

Harshman and ATI’s executive team reported that the commercial aerospace market, which ATI has pursued as a growth market for the last two years, was starting to show dividends.

“ATI sales to the aerospace and defense markets grew 12% in the first quarter of 2016, compared to the fourth quarter 2015,” Harshman said. “Breaking that growth rate down by specific end markets, sales to the commercial aerospace market grew approximately 20%, with jet engine sales growth of nearly 15% and airframe sales growth of nearly 30%.”

Quarterly Numbers

The overall sales total of $758 million was up 3% over the fourth quarter of 2015, even though it was down year-over-year. High-performance materials and components sales were $493 million, up 8% over Q4 2015. Flat-rolled product sales, though, totaled $265 million, down 6% over Q4 2015. Harshman and the other ATI executives blamed the long work stoppage that ATI weathered for more than 8 months and said that production would increase with United Steelworkers personnel back on the job. ATI attributed $26 million of pre-tax costs to the work stoppage and labor contract return-to-work provisions.

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ATI also booked a $9 million for severance packages from recent flat-rolled products layoffs.

A former success story in U.S. renewable energy has filed for chapter 11 even as China’s “zombie mills” fire up steel production again.

SunEdison Files for Bankruptcy

U.S. solar energy company SunEdison Inc. filed for Chapter 11 bankruptcy protection on Thursday, becoming one of the largest non-financial companies to do so in the past 10 years.

Free Download: The April 2016 MMI Report

Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt.

In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30.

China’s Zombie Mills Fire Up Production

The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China.

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While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected.

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.

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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.

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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.

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

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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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