Articles in Category: Non-ferrous Metals

This morning in metals news, the strike at Freeport McRoRan’s Grasberg copper mine was extended for a second month, oil prices rose in expectation of supply cuts, and silver prices reached a three-week high.

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Freeport Indonesia Strike Extended

This past Saturday, the union representing thousands of workers at Freeport’s Grasberg copper mine in Papua, Indonesia announced that the ongoing strike will be extended beyond May 30, Reuters reported. As union industrial relations officer Tri Puspital told Reuters, “We will extend the strike for 30 more days.” Approximately 9,000 workers are participating in the strike.

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The reason for the strike revolves around employment. Last month, Freeport laid off about 10% of its 32,000 workers to cut costs, which accrued to the tune of millions thanks to an ongoing dispute with the Indonesian government over rights to the Grasberg mine. “With this problematic combination of protests from workers and tensions with the Indonesian government,” wrote MetalMiner analyst Raul de Frutos earlier this month, “it’s no wonder that investors are concerned about further supply disruptions this year.” It looks like supply disruptions will continue.

A Key Week for Oil

One hopes that this will be the only time when news source after news source mentions Saudi Arabia and glowing orbs in the same headline. In more important news, Bloomberg reported yesterday that Saudi Arabia has received Iraq’s support to extend oil output cuts for nine months, after Saudi Minister of Energy Khalid Al-Falih flew to Baghdad to talk to Jabar al-Luaibi, his Iraqi counterpart. Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its Spring 2017 Meetings/Forecasts, which found that global demand for refined lead metal will increase 2.3% this year to 11.39 million tons.

The main reason? Further development in Chinese usage, which is projected to grow 4.3%.

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The ILZSG report states: “After increasing by a robust 9.8% in 2016, usage of lead metal in Europe is expected to remain unchanged in 2017. A stable outlook is also foreseen in Japan and the Republic of Korea. In both India and the United States modest growth of 1.5% is predicted.”

Lead Supply Update

Furthermore, the ILZSG report states that global lead mine production is projected to increase 4.3% to 4.92 million tons this year, due in part to growth in China and increases in Canada, Mexico, India, Greece and Kazakhstan. Read more

The International Lead and Zinc Study Group (ILZSG) recently released its annual demand/supply forecast for the zinc market.

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The group anticipates global demand for refined zinc to be greater than supply in 2017, keeping zinc markets in a deficit for a second consecutive year. The ILZSG predicts a deficit of 226,000 tonnes, not much different from the deficit recorded last year.

Global refined zinc metal balance. Source: MetalMiner analysis of ILZSG data

Given these numbers, you could assume that prices have no other option but to go up. However, despite a projected deficit, I’m starting to doubt zinc’s ability to climb much above today’s levels. Indeed, high prices are simply what could play against zinc’s rally. Zinc has more than doubled in price since the beginning of 2016, and investors now seem unwilling to chase prices above $3,000/mt, a level that has acted as a ceiling for prices this year. Read more

So much has been written in recent months about China and the Chinese aluminum market that we are in danger of losing sight of the performance of major producers outside of that market.

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The position of producers like Alcoa and Rusal arguably have more impact and more significance for Western consumers than those behind the tariff barrier walls of China’s borders. The Financial Times reported last week that Rusal (still the world’s second largest producer, according to Statista) is in robust health and has reported rising profits on the back of stronger first quarter prices.

According to the FT, net profit for the first three months of the year was $187 million, up 48% from $126 million in the same period last year, on the back of 20% rise in revenue to $2.3 billion. While not quite reaching analysts’ predictions, it allowed the firm to reduce debt levels and encouragingly was achieved on the back of only a modest 0.7% increase in production to 910,000 metric tons. Likewise, alumina production was up a correspondingly small 0.9% to 1.889 million tons.

Costs, however, have remained a bugbear with electricity prices, transportation – principally railways, and other raw material costs rising in Q1, in part due to rising commodity prices but also due to a 6.7% strengthening of the ruble.

Nevertheless, demand growth remains robust, and supply outside China remains relatively tight with the forward market spreads not favouring the roll-over of stock and trade storage of primary metal with only a 3.5% margin over 18 months.

Much will depend on China going forward and how seriously Beijing continues to pursue its policy of clamping down on environmental non-compliance and limiting new smelter investment. Aluminum demand in China grew at 7.5% in the first quarter, according to Aluminium Insider, and it is growing at 5.0% in the rest of the world.

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Prices may have slipped back of late but that was probably to be expected after the surge of enthusiasm following Beijing’s clampdown. As the realisation sinks in that China’s winter heating period closures are still six months away, some softening is to be expected.

There are certain models that economists use to explain markets or to illustrate market behaviour. Cyclical commodity markets are one such model, and the principle of swing producers is another.

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Among metals, nickel has been a wonderful example of both in recent years, and a Financial Times article written by a team from consultancy Woods Mackenzie ably illustrates how the metal’s current poor price performance is a result of both.

Cyclical commodity markets are invariably caused by violent swings in supply and demand. In times of rising prices, miners invest in new mines. As they take time to come to fruition, they often unhelpfully come in at the end of a commodity bull run, flooding the market with oversupply just as demand falls. Prices then collapse.

In the case of nickel, as the article reported, five years of surpluses meant nickel prices have more than halved between 2011 and 2015. Having just invested in new capacity, the miners tend to be slow to adjust. But in the end, mine closures ensue, and in the case of nickel, this resulted in the loss of about 6% of global mine supply. Supply, however, has remained more than adequate with many countries competing for market share. Read more

If I had to pick a base metal to put my money on this year, it would have been aluminum. The lightweight metal presented an attractive bullish narrative due to the combination of rising political tensions and the potential for supply cuts in China.

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China has pledged to cut as much as 30% of its aluminum production over the winter months to reduce emissions from one of its most energy-intensive industries. In addition, the country has received a lot of international pressure to reduce its aluminum capacity.

The U.S. is trying to find new ways to make things difficult for Chinese aluminum exporters. Recently, President Donald Trump signed a memo to order an acceleration in the investigation of aluminum imports, citing concerns over national security. Last week, the Wall Street Journal reported that massive state-run Chinese companies helped China Zhongwang finance an illegal game of moving stockpiles around the globe to avoid paying punitive import tariffs to the U.S.

If we narrowed our view to the industry fundamentals, it would be hard to expect any downside in aluminum prices. However, broadening our view, there are a couple of factors that could put a downward pressure on aluminum for the rest of the year, especially after such a steady rise.

Potential Slowdown in China’s Demand

As I mentioned yesterday, “China is putting efforts into halting risky lending and rising borrowing costs in order to limit credit growth. Interest rates in China have risen to the highest level in two years while China’s tough talks on curbing credit are expected to put the brakes on credit growth, [hurting demand for industrial metals.]” Read more

Copper prices took a hit in May because of a surge in LME inventories. Or… was it because of that?

I’ve pointed out this before, but people continue to talk about copper stocks to explain price movements. LME inventories rose in May by 64,000 tons, or 25%, at the same time that prices fell. But that’s simply a coincidence.

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Most of the time, inventory inflows and outflows can simply happen because traders move metal from one destination to another to profit from price arbitrages. Indeed, in November copper prices climbed 20% while LME stocks rose by more than 90,000 tons. I would argue that inventory levels have no predictability on price trends. But then what drove copper prices down?

China to Halt Credit Growth

China is putting efforts on halting risky lending and rising borrowing costs in order to limit credit growth. Interest rates in China have risen to the highest level in two years while the country’s tough talks on curbing credit are expected to put the brakes on credit growth.

As I wrote last week, “the noticeable tightening in Chinese monetary policy is bad news for property markets in China. The country has also pledged to halt risky local funding on the construction of infrastructure projects. Investors know that this will hurt demand for commodities and industrial metals.” Read more

Set of copper pipes of different diameter lying in one heap

Copper on the Shanghai market traded lower this week with investors choosing equities and oil, an area where a domestic rally was overflowing into Asian markets.

According to a report from Reuters, three-month copper on the London Metal Exchange did find some support, trading 1.1% higher, which offset losses from the previous session.

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However, the Reuters report also stated that LME copper stayed close to the four-month lows reached earlier this week as the market suffered from weak demand stemming from China and falling imports.

The most popular copper contract on the Shanghai Futures Exchange slipped to $6,558 a ton, Reuters reported, a decline of 0.71%.

Copper Bears Take Over

Just this week our own Raul de Frutos wrote of the commodity outlook shifting for copper buyers, as well as buyers of aluminum, steel and tin, and that the bears are taking over:

de Frutos wrote: “About a month ago I noted that while industrial metals were on the rise, commodities were range-bound, a sign of sluggish global demand. As I had written, ‘a healthy bull market in base metals should be accompanied by a bull market in other commodity markets.’ Commodities not only have struggled to make new headway but in the past few days they weakened significantly. Recent moves in China have caused a significant shift of sentiment in financial markets.”

de Frutos cited several issues, including oil prices taking a dip and China curbing its credit, to signal that the bull market for commodities might be coming to an end.

How will copper and base metals fare in 2017? You can find a more in-depth copper 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:

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Now’s the time to buy those solar panels you’ve been saving up for. This week, Tesla announced that it is taking orders and deposits for solar roof tiles that look stunningly like… regular roof tiles. But therein lies the appeal, and the $42-per-square-foot cost isn’t so bad either, lower than what industry analysts expected, Bloomberg reported.

Keep Your Eye on Silver

This growing interest in solar energy has been supporting the demand for silver, according to the Silver Institute’s World Silver Survey 2017, which Taras Berezowsky covered on MetalMiner this week. As Berezowsky wrote, “According to the report, silver demand for photovoltaic applications shot up 34% to reach 76.6 million ounces. This growth was the strongest since 2010, and it was driven by a 49% increase in global solar panel installations.”

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In addition, “automotive will be an interesting sector to watch,” Berezowsky wrote. Silver demand could be driven up further as the world moves towards electric vehicles — whose engines and circuit boards require silver — however slowly, as Stuart Burns noted earlier this morning.

Bearish Times

“If you are a metal buyer, it doesn’t matter if you buy aluminum, copper, steel or tin,” Raul de Frutos wrote in his commodities outlook this week. “The information in this article is important for you.” Commodities may have enjoyed a bull market in early 2016, but things appear to have shifted to the bear-ish. “Commodities not only have struggled to make new headway,” de Frutos wrote. “In the past few days they have weakened significantly. Recent moves in China have caused a significant shift of sentiment in financial markets.” Read more

Aluminum Rod

Goldman Sachs is bullish on aluminum, projecting it to rise following China’s supply-side reforms.

According to a recent report from CNBC, Goldman expects aluminum prices to hit the $2,000 per metric ton point in six months and $2,100 per ton in a year.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Year-to-date, aluminum prices have outperformed other industrial metals, climbing roughly 15% compared to steel and 3% compared to copper, the news source stated.

“In our view, this strong performance has reflected an increase in the potential for aluminum to be the next target of supply-side reform in China, a tightening ex-China balance, and rising costs of production,” wrote the bank’s analysts. “Further, global political developments may also be supportive of capacity and production cuts, given the two leaders of the U.S. and China launched a 100-day (trade) plan on April 7. These developments support our existing view that aluminum is the next target for supply-side reform in China,” they added. Read more