Articles in Category: Non-ferrous Metals

The Automotive MMI fell again in October, inching down 1.4% from its previous all-time low of 73.

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It’s more of the same for an automotive metals market that, while strong on both the supply and demand sides here in the US, is being dragged down by falling demand in other large markets. Automotive specialty metals have been cited as the savior and the future demand driver for many a steel or aluminum company in this bear market.

Automotive_Chart_October-2015_FNLGerdau is practically staking its entire Indian business on it. Aerospace and automotive are also regularly cited as the growth markets for stainless and aluminum overseas, too. The aluminum-bodied Ford F-150 continues to be the darling of the US automotive market with its lighter corporate average fuel economy (CAFE) load and its Denis Leary commercials about “military-grade” aluminum. Even the Super Duty is getting in on aluminum. The emerging markets were on the aluminum train before Ford was, too, and that trend is only growing.

US, European Auto Sales

So, what gives?

In September, US vehicle sales topped a SAAR (seasonally adjusted annual rate) of 18 million vehicles. Leading automakers reported the healthy year-over-year increase in sales number thanks, in part, to big gains over the Labor Day holiday weekend.

It wasn’t just us yanks buying cars constructed cold from specialty metals, either. The Czech Republic will report its highest car sales ever this year. The Volkswagen scandal might be hurting platinum prices but it’s clearly not denting overall vehicle sales, even in Europe where the scandal hits close to home with more diesel cars on the road.

VW has a market share of around 48% in the Czech Republic, a country of roughly 10.5 million people, with the company’s domestic maker Skoda Auto the top seller.

Chinese Demand Collapses

The fly in the automotive metals ointment is demand in China. Like steel, aluminum and other markets, the economic collapse in China has eroded what was once healthy automotive – and automotive metal – demand there.

The urbanization that economists counted on to fuel more Chinese car purchases went away with housing demand there, as well as the un-manipulated renminbi. Beijing is looking entirely to exports now (hence the purposeful devaluation) to pull its economy out of the doldrums, and isn’t even trying to goose those domestic markets much.

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Sad to say, but no matter how strong the US or European automotive markets are, they can’t make up for the loss of Chinese demand, which numbers sales (and people) in the neighborhood of a billion. That’s one of the reasons so many steel companies are looking to India, with its large population, to make up for that demand. The problem there is India’s urbanization isn’t as far along as China’s was. Still, automakers and steel companies such as Gerdau are digging in there for the long haul. Here’s to hoping it’s not as long as some predict.

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The monthly Aluminum MMI® registered a value of 76 in October, a decrease of 1.3% from 77 in September.

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Aluminum prices were more stable in September, only falling slightly from the previous month. This price stabilization is normal after 4 consecutive months of declines. Upside momentum is still lacking and it seems like the bears are firmly in control of this market. The aluminum trend keeps pointing down with no sign of a turnaround.

Aluminum_Chart_October-2015_FNLChina is Still Overproducing

The Aluminum Association expressed strong concern when the China Non-Ferrous Metal Industry Association (CNIA) called for the removal of a longstanding 15% tax on exported primary aluminum. This would increase the margins of Chinese exporters, potentially exporting more aluminum to international markets. Even with the tax in place, some in the US believe that aluminum producers in China are illegally mislabeling extruded products as semi-finished to avoid exports on billet.

Aluminum exports are up 22% on the year-to-date. Exports dropped over the past 2 months but production still looks high in China, so the drop in exports likely relates more to weaker global demand. Some analysts are waiting for a rebound in exports when final reports from last month come out.

Another interesting highlight of September was that Alcoa, Inc. will split itself into 2 companies. The firm has found that its legacy smelting business, the company’s vertically integrated structure, is not the advantage it once was.

One half retains the Alcoa name and comprises the legacy business of bauxite mining, alumina production and primary aluminum smelting. The second half of the business, or the “value add” business, is yet to be named, although it’s believed to include much of Alcoa’s specialty aluminum business and recent acquisitions such as titanium fabricator RTI.

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Two months ago we mentioned the slide in Alcoa shares. Even though the company made good acquisitions and investment in downstream value-added activities, its stock couldn’t buck the falling trend in aluminum prices. On top of that, premiums fell in September below $0.07/lb for the first time since January 2012, hurting the margins of Alcoa and the rest of the US aluminum producers.

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Tin producers would obviously like to think so and recent developments may suggest they have grounds for optimism in 2016.

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According to the World Bureau of Metal Statistics (WBMS) the global tin market recorded a deficit in the first 6 months of the year of 18,500 metric tons. Both refined Asian production and Chinese consumption were down for a number of reasons, but in spite of the deficit the price took a hammering along with the rest of the commodity sector.

The Tin Dynamics

Chief among the reasons for this battering, it would be easy to say, was a selloff across all metal categories due to the slow down in Chinese growth and fears over the state of the Chinese stock market. Yet, tin has some specific dynamics all its own that have contributed to price falls of nearly 40%.

Source: Kasbah Resources

Source: Kasbah Resources

Exchange inventory though has, at least since summer, been falling just as fast. To say this alone is a sign of a tightening market is too simplistic, especially for such a small niche market as tin, but it suggests there may be less metal around should refined supply be reduced in the future.

Tin has, arguably, been even more polarized over the years than any other metal. Supply from Indonesia and demand from China were, until recently, the beginning, middle and end of the supply demand equation, but much has changed in recent years. Not the least of which is Indonesia’s raw material export ban. Read more

US construction spending in August was up 0.7%, to a seasonally adjusted $1.09 trillion, reaching its highest level in 7 years, according to data from the Commerce Department.

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Government projects and home building were big contributors to the gains, even as office and shopping-center projects declined.

Construction_Chart_October_2015_FNLThe construction sector added 8,000 jobs, and the unemployment rate remained steady at 5.1% here in the US. Increased employment and a 7-year high spending high should be good news for construction product prices eventually rising, yet oversupply in steel, aluminum and copper is still keeping materials prices low.

China’s Housing Collapse

The flip side to the positive US growth numbers is the continued collapse of the Chinese construction industry, based heavily on stalled urbanization in the world’s second-largest economy.

This month, China tried some new measures to jump-start home buying and, hopefully, construction there. The central bank and banking regulator said they would be lowering minimum down payments for first-time home buyers to 25%, from the previous 30%, in cities that do not have restrictions on purchases.

The problem immediately facing China’s construction industry, however, is production, there, to be entirely export-oriented as construction activity has fallen there.

Global steel production fell by 3% in August, according to the Brussels-based World Steel Association (WSA), its biggest fall this year, which was led by a decline in Chinese production.

Lower Your Expectations

It’s still difficult to envision US construction offering much more than shelter from the storm going on in China right now. Chinese growth and urbanization fueled a boom in construction there that we likely won’t ever see again. That being said, if the current oversupply situation can be dealt with, prices of steel, aluminum and copper could increase in 2016. Oversupply is the biggest problem for products such as H-beams, rebar and steel pipes.

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We echo the sentiments of analysts who are advising caution before investment in construction materials.

MetalMiner co-founder and editor-at-large Stuart Burns had this to say recently: “It’s definitely a bullish tone that bank and senior research analysts have taken…in our view, there’s still plenty of excess capacity out there, demand is weak, and the dollar is strengthening.”

While US construction might be a safe haven as compared to the markets in other parts of the world, investors should temper their expectations.

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Zinc continued its downward slide last week as it hit a 5-year low last Monday due to fears about rising stocks and falling demand in, you guessed it: China.

The base metal fell by its maximum daily limit of 5% in trading on the Shanghai Futures Exchange as a result, reported the Financial Times. The rising stocks can be placed at London Metal Exchange warehouses in New Orleans, which climbed nearly 60% over the past month, showcasing just how much zinc could be unloaded in the market.

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“The recent increase in LME inventory, particularly in New Orleans, appears to have drawn the market’s attention to just how much zinc is sloshing around,” Leon Westgate, an analyst at ICBC Standard Bank in London, told the news source.

This increase in New Orleans inventory, some believe, can be attributed to Glencore liquidating its stocks after the company announced it will reduce its working capital by $1.5 billion over the next year.

From Bulls to Bears

Zinc had some of the strongest fundamentals to begin 2015, signaling it as one of the strongest performers of any metal. However, the remainder of this year has not been kind to zinc as it is now the second-worst performer behind only nickel.

As we reported earlier, there is simply more zinc out there than we previously thought. The combination of a rise in stocks and drop in prices, plus the Glencore situation, have investors wary that zinc inventory is much more plentiful than originally believed.

You can find a more in-depth zinc price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Is Alcoa, Inc., succumbing to the next investor driven fad or is there sound logic in the aluminum giant’s move to split itself in 2?

It’s a fair question. Alcoa, as a firm, has navigated itself well through a torrid time for the aluminum industry. Sky-high physical delivery premiums, the company is in an industry both saved by and with a market massively distorted by the activity of financial players, a roller coaster primary metal price, unprecedented competition from China and a revolution in technologies such as aerospace and automotive driving robust demand.

Tacking Through Difficult Market Waters


It has not been easy and, on the whole, most would agree Alcoa has steered a well-managed course around the rocks.

Source FT

Source: Financial Times

But the shares have taken a battering in spite of many good acquisitions and investment in downstream, value-added activities. The firm has found its legacy smelting business, the company’s vertically integrated structure, to not be the advantage it once was. So, Alcoa has decided to split itself in 2 next year, one half retaining the Alcoa name to include the legacy business of bauxite mining, alumina production and primary aluminum smelting. Read more

Glencore shares plunged on Monday as much as 32% during the afternoon. Shares of the company are now down near 80% on the year-to-date.

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Shares crashed after one investment bank, Investec, warned of how high risk is for Glencore’s earnings outlook, saying that if commodity prices don’t recover, Glencore could end up solely working to repay its debt obligations.

Glencore stock 1 year out

Glencore stock 1 year out. Source:

Chinese Construction Collapse

After the global financial crisis of 2008, China launched a massive economic stimulus program, investing in housing, public infrastructure and rural development projects. In response, Glencore and other miners, via the cheap debt of the time, raced to increase production to take advantage of China’s expansion program.

But mines take a long time to build, and what miners didn’t know is that soon after these new mines could start producing, China’s economy would start slowing. In particular, this year we are witnessing the consequences of all that excess capacity built over the past 3 years.

Glencore is aware of the problem. The company already announced a series of measures that would, in theory, reduce its nearly $30 billion in debt by a third. One of the measures included selling nearly $2 billion worth of inventory. Unfortunately for Glencore, weak Chinese demand and sinking prices for commodities such as copper and zinc, minerals that are crucial to the company’s earnings, are causing the miner headaches when it comes to boosting investor confidence.

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Further commodity weakness will challenge Glencore’s ability to pay back its debt and the recent crash in the value of its shares is telling us that investors are not very optimistic about a recovery for commodity prices.

From being the darling of the bulls at the beginning of the year with supposedly the best fundamentals of any of the major non-ferrous metals, zinc is now the second-worst performer, kept from the bottom only by a historic fall in nickel.

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In large part, the market price is being driven by inventory changes as a raft of recent articles from Reuters and the FT underlines. First, how and where have they changed? The visible inventory changes the market is seeing are all on the London Metal Exchange and nearly all at New Orleans underlining that these have nothing to do with end-user demand and everything to do with financial and trade parties activities.

Screen Shot 2015-09-22 at 17.52.16

Source: Kitco

As zinc stocks dwindled, the market took it as a sign of constrained supply meeting rising demand. As stocks declined, prices rose at least until the big sell off in the Spring when all metals prices fell off. Read more

Chart of the Week, Zinc PricesZinc prices are in a falling channel, meaning that prices are falling and bounded by an upper and lower trend line. After 2 years of deficit, zinc supply has outpaced demand so far this year. Prices have plunged 33% in only 5 months. We might see zinc prices hitting a 6-year low soon.

China's woes continue to play a role in lead prices

China’s woes continue to play a role in lead prices

It’s been a rough 2015 for lead, after years of strength, and the latest developments indicate a recovery may still be a way’s away.

Lead, along with zinc, continue to trade lower due in part to weakening global trends and slowing economic growth in China, a major consumer of the non-ferrous metal.

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We reported last month that lead, along with zinc, have a fairly neutral supply/demand situation with production outpacing demand by just a bit. But that doesn’t take into account global weaknesses, including China’s economic crisis, which have severely affected the trend direction of the metal.

Prior to China’s economic woes, the lead market had been on the upswing, due in part to a surplus in recent years and prolonged stability in production compared to usage dating back to 2013. That is no longer the case now, however, and we will keep a close look on the situation in China as it relates to the state of lead prices.

You can find a more in-depth lead price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: