Articles in Category: Non-ferrous Metals

An interesting article in Reuters this week examines the Chinese aluminum market and asks, well, what the hell is going on?

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It points out that the statistics coming out of China are even more unreliable than normal showing rises and falls of millions of metric tons from month to month. Specifically, Chinese output supposedly slumped by an annualized 6.6 million mt in the December-February period only to surge back by 5.2 mmt in March and April, almost certainly not the case when you consider the time it takes to idle and restart smelters.

Shanghai Futures Up

Taken over a longer time frame, though, run rates actually appear to have fallen slightly from Q4 to Q1 which would make sense when you look at the low Shanghai Futures Exchange (ShFE) price during that period. It fell below 10,000 yuan per metric ton ($1,525). But the worry is the 16% rise in the ShFE Aluminum ingot price will almost certainly encourage capacity to come back onstream, how much remains to be seen, but a rise like this, well in excess of the more modest 6% London Metal Exchange rise, will encourage re-starts.

Source: Thomason Reuters

Source: Thomson Reuters

According to Reuters. the most active aluminum contract on the ShFE is currently trading around 12,400 yuan per mt ($1,891), back in profitable territory for many of China’s smelters. Read more

Alumina Ltd. is not happy with joint-venture partner Alcoa, Inc. about its announced demerger. Chile’s Codelco, the world’s largest copper producer, was able to increase production and cut costs despite stubbornly low copper prices.

Alumina vs. Alcoa

Australia’s Alumina Ltd. on Monday said it has “serious concerns” about the impact of a demerger plan of U.S. partner Alcoa, Inc. on the pair’s bauxite and alumina production joint venture, Alcoa Worldwide Alumina and Chemicals (AWAC).

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Alumina in a statement said it was concerned the plan would “result in a material adverse change in the nature, size, scope and financial wherewithal of Alumina’s partner in AWAC.”

Codelco Production Increases

Codelco, the world’s biggest copper producer, boosted output and cut cash costs in the first quarter, even as a steep drop in metals prices prompted the Chilean state-run company to post a $151 million pre-tax loss.

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Production from Codelco’s wholly-owned mines rose to 437,000 metric tons, 11% higher than a year earlier, was mostly due to increases at its century-old Chuquicamata mine and also its newest deposit, Ministro Hales. Its Salvador, El Teniente and Radomiro Tomic mines also helped to boost production.

No term has brought up more discussion in the pages of MetalMiner than Ford Motor Company‘s insistence that the F-150 pickup truck is made of “military grade” aluminum.

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On this Memorial Day, we thought we’d revisit whether military grade was actually a specification or a simple marketing ploy on Ford’s part. Since the aluminum-bodied F-150 was introduced in the 2015 model year, more information about its actual construction has been shared by Ford.

Individual dealers are now touting the strength and research that went into the cab and other body parts of the F-150. “Military grade” is still sprinkled throughout the the video, but they also concede the alloy is also part magnesium and silicon. Ford also mentions that a large portion of the F-150 is, in fact, high-strength steel.

Ford has also admitted that the F-150 is primarily built from 6,000 series aluminum alloy, the strength of which is increased by heat-treating after it is formed.

The “military grade” refers to the specs that military applications of 6,000 series alloy is used in. In fairness to Ford, manufacturers and fabricators have been promoting their products as “military grade” for decades, and that’s really no different than Ford’s use of the term.

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We certainly wouldn’t recommend that anyone take an aluminum-bodied F-150 into a war zone to test just how “military grade” it really is, but, from a specification standpoint, Ford seems to have good reason to be proud of the rigor of the processes it uses to produce the F-150.

Nickel prices are, finally, on the move.

Owners of shares in nickel mines shouldn’t start popping the champagne corks just yet, it’s going to be a slow burn rise but the landscape appears to be shifting and it is because of, as usual, China. First and foremost, there is a trend among stainless producers this year, particularly in China, to produce more 300 series nickel-bearing grades than last year.

Real Demand is Up

Just as mills and consumers shifted wholesale from 300 to 400 series grades when nickel prices went through the roof in 2010-11, a prolonged period of falling prices has encouraged consumers and designers to switch back to higher-quality grades.

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Macquarie Bank is quoted by Reuters saying global nickel demand will grow by 4.4% this year, largely on the back of a predicted 4% rise in Chinese 300 series stainless production. Likewise, the INSG estimates the global market will fall into a small 600-ton deficit in Q1 of this year, although it must be said the market remains well supplied by huge global stocks. Read more

The fact the CME Group is looking to expand its warehouse network should come as no surprise, the fact it has taken it so long to do it should.

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The market has been ripe for CME to expand the physical delivery locations for the metals it trades in the wake of the last few years furor over long load-out queues at certain London Metal Exchange warehouses across the U.S. and Europe.

LMEring_550

Should the CME Group add a physical trading ring with red couches? Source: London Metal Exchange.

If the CME had a wider network with more tonnage in storage five years ago then, arguably, some of the LME warehouse operators would not have been able to game the system to the extent that they did. The recent launch of zinc and lead contracts by the CME has presumably been a spur to add more locations. Zinc was added last year and lead followed earlier this year.

Dynamic Approach

Yet, a new dynamism in the CME’s approach in recent years is also in evidence. The CME clearly has intentions to take on the older LME’s dominance of the physical trade market, particularly outside the CME’s home base of the U.S. Read more

Improvements in commodity markets made copper prices hold above the lows recorded in January but investors are not yet excited enough to trigger a bull run in copper prices.

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We noticed in March that copper, aluminum and nickel were lagging badly in this year’s industrial metals rally, and they still are. Copper fell this week below $4,600 per metric ton, the lowest level in two months.

3M LME Copper hits 2-month low

Three-month London Metal Exchange Copper hits a two-month low. Source: Fastmarkets.com.

Overcapacity issues are still visible. Last December, a group of Chinese smelters announced intentions to cut refined copper output. However, recently, China’s largest copper producer,Jiangxi, said those output cuts have been offset by new capacity there.

More Expansion

Also, earlier this month, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines. Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers seem quite optimistic on the long-term picture. Read more

Our Editor, Jeff Yoders recently reported on the launch of the CME Group’s new alloy 380 aluminum alloy contract, a product many in the domestic market have been eagerly awaiting and consider long overdue.

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Historically, consumers would have hedged their alloy ingot requirements against the London Metal Exchange contract but as the LME’s aluminum benchmark became increasingly disconnected the casting industry all but boycotted the LME’s Primary HG contract, making the case for the CME to step in even more compelling.

From a high point in 2011 the LME aluminum alloy contract has plunged in popularity with volume down year after year.

Source: LME Data

Source: LME Data

Although nearly all traded volumes are down in recent years on the LME, aluminum alloy has fallen further than most. The exact reasons for the LME’s wider decline in volumes is a subject of some debate.

The ‘Right Trades

Reuters recently reviewed several reasons, one of them is the rise of activity on the Shanghai Futures Exchange. This year the SHFE has seen an explosion in traded volumes although not of the kind the LME would have welcomed. The SHFE volumes have been driven by highly speculative trades. Worse still, much of it is retail in nature.

This has the effect of distorting real price discovery and would undermine the foundation of the LME which was set up and has operated for a century or more on the basis of price discovery for producers, processors and consumers, not what many unfamiliar with the market have on occasion alleged, to speculate.

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Increasing volumes on the CME pose more of a threat to the LME in terms of providing reliable price discovery and hedging for the trade, particularly in the North American market. Where the SHFE is so dominated by the speculative element, the CME’s cornerstone is more from trade participation… much like the LME.

Who Will Use the New Alloy Contract?

The CME’s aluminum alloy contract is not likely to garner support or participation from outside the North American market, but for consumers in the U.S. it should provide a welcome hedging and price discovery tool. Even if LME aluminum alloy volumes stabilize at current lower levels the CME, with a contract focused as it is on a specific part of the U.S. manufacturing base, has a solid role to play in the years ahead.

This week, the market heard some words of wisdom from Norilsk Nickel’s vice president Pavel Fedorov.

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Very unusual for a metals producer, instead of talking up the market, Fedorov gave a very candid assessment, reported by the Financial Times, of metals markets in general and the nickel market in particular.

Until producers begin to behave rationally, he said, prices will remain depressed for the foreseeable future. Pointing to the state of demand in the world’s largest nickel consumer, China, Fedorov said about a third of current Chinese stainless steel capacity was unsustainable due to a slowdown in real estate demand while Macquarie Bank is quoted as saying Chinese stainless steel demand is likely to fall a further 7% in the first quarter of this year from the same period a year earlier and that demand is not going to come back.

No Shutdowns Yet

The only rational reaction to reduced demand is to cut supply, if producers want prices to recover, which will bring with it profitability and a return for shareholders. In part, producers are recognizing this new reality and assets are being written down.

Glencore wrote down its nickel assets last year contributing to a $5 billion loss, but in spite of writedowns Glencore and fellow Australian miner BHP Billiton have said no more than they “may” close capacity at Murrin Murrin and Nickel West, respectively, even though they are losing money at current prices.

Yet Norilsk is Still Profitable

Indeed, Norilsk’s comments are all the more interesting because the company is not suffering losses as a result of the low prices, just loss of better profits. The world’s largest miner has a cost of production currently below $8,630 per metric ton price levels, aided and abetted by co-mined minerals and the depreciation of the Russian Ruble.

Almost in provocation, Fedorov is quoted as saying that due to the value of its Talnakh deposit in the Russian Arctic — which contains some of the world’s largest concentrations of platinum, palladium, gold, copper and silver — the company could “theoretically stockpile nickel and still make money.”

Betting on the long term, Norilsk is moving ahead with the development of new projects despite current prices. Last year it is said to have sold a 13.3% stake in its Bystrinsky copper mine in Siberia near the Chinese border to a group of Chinese private equity and other investors. The project is expected to cost $1 billion, the company has said. That’s before it starts production in 2017, adding pressure to the 70% of global capacity that, in Norilsk’s estimation, is losing money at current prices.

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Nickel is not an isolated case. Across the metals spectrum there are plenty of examples of oversupply where prices are depressed and unlikely to recover in the face of weaker demand and excess supply. We are into a new normal but many producers are unable or unwilling to face up to the the implications.

CNBC recently reported that home construction weakened in March even as sentiment among builders remained high, but what’s more interesting is a quote from a Goldman Sachs report further down.

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“Our analysis of payroll growth and wage inflation data suggests that labor shortages may not be to blame for the mediocre level of housing activity,” analysts wrote in a Goldman report. “We find that, on the one hand, the construction sector has experienced the largest job growth over the past year.”

Construction_yoders_550_030116

U.S. Construction workers are using 3D imaging, laser scanning and drones to place structural members like this one. Can the skilled labor shortage possibly be over? Source: Jeff Yoders/MetalMiner.

Construction growth has led all other sectors at 5%, according to the Bureau of Labor Statistics, but average hourly earnings in construction gained only 2.2% over the past year, which is about the national average.

Still, Goldman’s pronouncement that there’s simply no construction labor shortage anymore very much runs the opposite of what the industry has claimed for years. The numbers only tell half of the story because a lack of skilled labor is what plagues most construction sites.

Nearly 70% of home builders surveyed by the National Association of Homebuilders last June reported a shortage of carpenters, for example, up from 63% in 2014. And in a July survey by the Associated General Contractors of America, 86% of commercial builders said they’re having trouble filling hourly or salaried positions, up from 83% last year.

This may not look like it affects the bottom line to Goldman-Sachs, but it certainly does when only carpenters, iron workers or electricians can move your project along.

Many high schools have phased out shop classes and parents increasingly have steered graduates to four-year colleges and white-collar careers. The Home Builders Institute, which does training, and local home builders groups, recently rolled out more instruction programs but it takes at least 12 to 18 months for a new recruit to become a productive worker. That’s why pay increases had reached as high as 2.6% last year before falling back down to around the national average that Goldman cited. It’s likely a small rest in the rate of increase rather than a full stop, as unfilled job openings in the construction industry have risen steadily since 2009.

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So, while I respect Goldman Sachs and its analysts’ learned opinions, I’m not ready to bless this report’s findings and call the skilled construction labor shortage over. Mike Rowe may have to fill all of the dirty jobs that are still out there before that happens.

Tin and zinc are the best base metals performers this year.

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These two metals have risen on expectations of supply constraints. In the case of zinc, it’s about the number of key larger-scale mine shutdowns over the past months. Meanwhile, tin’s performance comes largely on the back of low first-quarter exports from Indonesia.

3M LME Tin trading flat after a big rally in Q1

3-month LME tin trading flat after a big rally in Q1: Source Fastmarkets.com.

Indonesian tin exports slumped by 50% in the first quarter of the year. Tin exports were low because of the application of new government environmental regulations, requiring smelters to provide new documentation. Moreover, the decline in exports was also because of extreme weather conditions that affected production during the first quarter. Read more