Articles in Category: Non-ferrous Metals

Aluminum prices have risen this year, but not as much as other base metals. Aluminum continues to struggle near $1,700/mt, a level that prevented prices from rising three times this year.

3M LME aluminum near stiff resistance levels

Three-month LME aluminum near stiff resistance levels. Source: MetalMiner analysis of data.

Many analysts argue that this year’s rally is limited because they expect Chinese smelters to restart capacity in the fourth quarter. The argument is that now that aluminum prices are higher than at the beginning of the year, smelters making aluminum will be more profitable.

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Some capacity has already been restarted, but the numbers are running short of analysts’ expectations. Despite all fears, it’s possible that aluminum output in China will not increase as most analysts are predicting. Why? Let’s look at the cost curve:

Energy Prices Rise

It takes a lot of energy to smelt aluminum. Indeed, energy accounts for around half of the cost for Chinese smelters to produce aluminum. While aluminum prices have increased 13% this year, thermal coal prices have surged near 70% this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to expand production.

Oil prices near stiff resistance levels. Source: MetalMiner analysis of data

Oil prices near stiff resistance levels. Source: MetalMiner analysis of data.

For this reason, it’s not a surprise that oil prices, the main benchmark for energy prices, look very similar to aluminum. Oil prices are currently at a stiff resistance level near $50/barrel.

What This Means For Metal Buyers

Most analysts expect capacity restarts to weigh on aluminum prices. However, higher energy prices could prevent Chinese smelters from restarting capacity. Oil prices are now trading near a key level. If oil prices manage to trade above $50/barrel, we would expect aluminum to finally break above $1,700/mt.

Like steel, there has been some positive news about aluminum consumption in India. A research report said aluminum intake is poised to grow from 3.3 million metric tons in 2015-16 to 5.3 mmt in 2020-21.

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The report, “Indian Aluminium Industry: Geared for Growth,” is by global research and ratings agency Crisil and Mtlexs. It forecasts growth based on a combination of government initiatives such as “Make in India,” Smart Cities, Housing for All, and an increase in the transport of freight across the country.

Electrical Power Demand

The analysts say aluminum’s main demand would come from the power sector, since the white metal was now often used as a cost-effective, lightweight substitute for copper in transmission and distribution. In the coming five years, investments from state utilities and central government schemes worth millions of dollars are being planned to expand India’s transmission and distribution network.

The other sector that would drive the uptake is the automotive sector. The tightening of vehicular emission standards has forced automakers to look at aluminum to reduce vehicle fleet weight. India’s automobile sector is poised for heavy growth in the next five years.

As has become the norm, any news of increased consumption is accompanied by a downside: cheap imports. Like producers in the U.S., whose interests are being harmed by China’s exports of semi-finished products, India’s aluminum sector, too, as reported earlier by MetalMiner has been dogged by such imports. In India, imports make up almost 50% of the total consumption, largely from neighboring China. Just between 2011-2016, imports of aluminum increased 14%.

Smelters Want Tariffs

Aluminum majors such as Hindalco, Vedanta and Nalco have been urging the Indian government to impose a Minimum Import Price (MIP) to enable the domestic industry to take on what is being called as a “foreign economic invasion.”

Hindalco’s Managing Director Satish Pai was quoted saying such a government move would help the domestic industry compete with the cheap imports. He was addressing the recent World Non-Ferrous Conference 2016.

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He said in the last five years, the imports from the ASEAN (free-trade agreement countries including Brunei Darussalam, Myanmar/Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam) had increased from 6% of the total refined imports to 31%. The Indian Mines Secretary has indicated that the government is examining the aluminum sector’s demand and would make a decision on the imposition of an MIP in the next 15 days.The Mines Ministry already held several rounds of discussions with aluminum industry leaders.

Our monthly MMI saw a boost in October as three metals tied for the biggest gain and markets seemed to tighten as manufacturers started to make decisions for their end of year and early 2017 spending.


There seemed to be a Q4 tightening across most of the metal markets we follow. Sure, the Rare Earths and Renewables MMIs were flat as a board yet again, but Copper, Aluminum, Stainless and Raw Steels all saw strong gains. Our Global Precious MMI gained again but almost immediately suffered a pullback after talk of a Federal Reserve interest rate hike in December and renewed strength from the U.S. dollar.

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As always, we exercise caution when buying. Today’s gain could be tomorrow’s loss.

A recent CRU note shined some useful light on how the reporting of aluminum inventory in China has been distorted by changes in the supply chain between smelters and downstream consumers. Our reporting of primary metal inventory generally measures exchange stocks of ingot, sows and t-bars, and adds in an estimate for off-market stocks held by trade buyers and the reported inventory held by smelters.

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It is a process that has generally held us in good stead for decades — with the one glaring omission of off-market stock and finance trade inventory running into millions of tons that we have no visibility on, but that’s another matter! Well add to that, says CRU, the changing nature of the Chinese aluminum manufacturing industry.

China’s Shadowy Aluminum Industry

Lured by cheap coal and, as a result, low-cost power, Chinese smelters have relocated in droves to the north and north east provinces, remote from traditional downstream clients on the east coast.

Liquid Molten Metal

Is the future of aluminum liquid? Source: Adobe Stock/kybele.

Transportation costs are high and can be unreliable, particularly in winter. So, Chinese customers have come to their metal suppliers, relocating cast-house and direct casting facilities adjacent to the smelters. The products they, in turn, produce are higher value and better able to absorb those transportation costs. So far, so good. Read more

After a ballistic missile-like climb this year, zinc prices finally felt some selling pressure in October. The metal declined 8% in just two weeks.

Zinc prices fall in October. Source: MetalMiner analysis of data

Zinc prices fall in October. Source: MetalMiner analysis of data.

Why did prices fall this month? Is zinc’s bull run coming to an end?

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Zinc rose pretty fast this year. Such was the rate of advance in prices that zinc only needed some news to be the trigger for what was always in the cards technically. Moreover, zinc is at levels that prices couldn’t overcome in 2014 and in 2015. This is a level where it’s normal to see some selling pressure. Finally, in October zinc got the news that triggered selling:

Zinc faces long-term resistance level. Source: MetalMiner analysis of data

Zinc faces long-term resistance level. Source: MetalMiner analysis of data.

First, it was announced that the Antamina mine in Peru will double its zinc output to 350,000 metric tons next year. Second, Vedanta Resources said that production in one of its mines has increased and it will continue to increase in the second half. Third, Nyrstar recently announced the reactivation of three of its mines. These mines were put on care and maintenance when zinc prices were low and the company is now restarting them to take advantage of higher prices.

Are we heading back to surplus? Not really.

Actually, the first two developments were already on the table. The only one that came as anything close to a surprise was Nyrstar’s restart. These mines only generate around 50,000 mt of annual output and it will take over a year to fully restart them.

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This volume is not that significant. However, these restarts bring up the fact that more production could come back now that prices are above $2,200/mt. Zinc bulls’ biggest fear is Glencore restarting its 500,000 mt of capacity that the company closed last year.

What This Means For Metal Buyers

Zinc prices are struggling to build on this year’s gains. This is normal price action after the huge advance seen this year. There is no reason to become bearish on zinc yet but buyers need to keep an eye on further mine restarts. Glencore restarting capacity is the biggest downside risk that the zinc industry faces.

With the closure of western aluminum smelters and widely reported global growth in demand of 5 to 6% per year, why have London Metal Exchange aluminum prices remained rangebound in the mid-1600s per metric ton? Why do physical delivery premiums continue to fall?

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Thomson Reuters recently reported that Japanese buyers have agreed quarterly premiums of $75 dollars per ton over the LME cash price for the shipments in the fourth quarter of this year. This will be the lowest premiums have been since Q3 2009 and a massive drop from the level Japanese buyers were paying in Q1 2015 when premiums reached $425 a ton. Read more

A report in the Financial Times last week covered falls in metal prices due to recent Chinese trading data.

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The data showed a 10% fall in China’s exports last month and a greater than expected drop in imports sent copper down nearly 3% late last week before a slight recovery on Friday. The FT quotes Caroline Bein analyst at Capital Economics saying “ to drop in exports is negative for industrial commodities raising concerns about weakness in the manufacturing sector and import figures raise concerns about domestic demand.”

Broad Drop

Copper was not alone in reacting to the poor trade figures, although the Shanghai market seemed remarkably sanguine, European and U.S. stock markets dropped sharply, driving stocks lower and boosting gold, bonds and safe haven currencies like the Yen.

Are the trade figures quite as bad as they seem? And do they justify the markets sharp reaction? There are broadly two issues at work here. First, the wider issue of China’s trade data. Back to the FT, China’s trade data showed that the country’s exports last month were down 10% from a year earlier — following a 2.8% contraction in August — suggesting that global demand was decidedly weak. Read more

Copper prices started the year on a bullish note, amid positive sentiment in the overall industrial metals complex and rising Chinese imports.

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Unlike other base metals, we haven’t really seen a decline in copper supply. Therefore, copper investors can only keep an eye on copper’s demand. China consumes nearly 40% of global copper demand. China isn’t self-sufficient when it comes to its copper needs and is the largest importer of the red metal. Rising Chinese imports signals increasing demand for the metal.

Last week, China released its trade data. In September 2016, China imported 340,000 metric tons of unwrought copper and copper products, down 25% from last year. Moreover, this is the sixth consecutive month where imports fell on a monthly basis.

3M LME Copper falls on weak Chinese imports

Three-month London Metal Exchange copper falls on weak Chinese imports. Source: MetalMiner analysis of data.

Prices fell sharply following the release of the weak numbers. Investors still lack any good reason to push prices much above $5,000/mt, a level that has proven to be a ceiling for copper this year. So, while we don’t see supply cuts and demand appears stagnant, the best copper producers can expect is for prices to remain rangebound.


Chinese aluminum companies are looking to get into the lucrative aerospace and automotive markets while U.S. oil drillers are ramping up production with oil above $50 per barrel.

China Eyes Automotive, Aerospace Aluminum Markets

China’s giant aluminum makers are pushing into the global automotive and aerospace markets, with industry sources expecting their presence to heat up competition and possibly spark a buying spree for Western metals companies.

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China’s top aluminum companies are venturing into the more lucrative parts of the global value chain.

US Drillers Extend Rig Recovery

The number of oil rigs drilling in the U.S. rose again this week, extending one of its best recoveries with no cuts for 16 straight weeks, with analysts expecting more additions as crude prices hold over $50 a barrel. Drillers added 4 oil rigs in the week to Oct. 14, bringing the count up to 432, the most since February, but still below 595 rigs a year ago, according to energy services firm Baker Hughes Inc. on Friday.

Alcoa opened up earnings season with disappointing results and China seems to have sided with North Korea on U.N. sanctions on its coal exports.

Alcoa Earnings Disappoint

Metals manufacturer Alcoa, Inc., posted a higher third-quarter profit, but revenue fell and discouraged investors punished the company’s stock.

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In the final reporting period before it splits into two companies in November, Alcoa’s net income more than tripled from $44 million a year ago to $166 million in the third quarter. Excluding one-time items, adjusted net income increased 47.7% to $161 million. But total revenue fell 6.5% to $5.2 billion. The company cited “curtailed and closed operations” and lower pricing for its products. Alcoa asset sales are expected to total $1.2 billion for the year.

Alcoa shares plunged 10.7% to $28.15 at 2:15 p.m. Tuesday.

China Pushes Back on North Korean Coal Sales

China appears to have pushed back on a U.S. bid to close a United Nations. loophole that allows North Korea to export coal for “livelihood purposes,” saying the well-being of North Koreans is a priority in negotiations on possible new U.N. sanctions on Pyongyang.

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Since North Korea’s fifth and largest nuclear test four weeks ago, the U.S. and China, a close ally of North Korea, have been negotiating a new draft Security Council resolution to punish Pyongyang.