Articles in Category: Non-ferrous Metals

Oil prices slipped nearly 1% on Monday, extending last week’s decline, on lack of confirmation that OPEC will extend output cuts until the end of 2017 and as Russia indicated it can lift output if the deal on curbs lapses.

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Russian oil output could climb to its highest rate in 30 years if the Organization of the Petroleum Exporting Countries and non-OPEC producers do not extend a six-month supply reduction deal beyond June 30, according to comments by Russian officials and details of investment plans released by oil companies.

Freeport Gets Copper Export License

Freeport-McMoran Inc. has secured a permit to resume copper exports from Indonesia on Friday after a hiatus of more than three months, hours after a state visit by U.S. Vice President Mike Pence, who discussed the copper miner’s dispute with Jakarta.

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Indonesia’s trade ministry issued Freeport with a permit to export 1.1 million metric tons of copper concentrate up to February next year, although it was unclear how long shipments would last.

Tin prices have rebounded since March. Prices fell sharply earlier this year but they have now found stability in Q2. As we pointed out in February, that month presented a good opportunity to buy tin. During bull markets, it’s good to time your purchases after a price pullback.

Tin prices bounce off support levels. Source: MetalMiner analysis of LME data.

Indonesian Exports Up

Indonesia is the world’s largest tin-exporting nation. Indonesian tin exports for 2016 totaled 63,559 metric tons, down by 9.4% compared to 2015. The decline came as Indonesia tightened its rules for tin exports in a bid to crackdown on environmental degradation and smuggling.

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However, the export permit process has been far smoother this year. For the first quarter, exports were up by 3.1% compared to the final quarter of 2016, and up 86% year-on-year. According to the International Tin Research Institute, many smelters in the country are operating on tight margins, with some understood to have paused production when prices dropped below US$19,000/mt in February before resuming when prices recovered above $20,000/mt. ITRI expects Indonesian refined shipments this year to remain broadly level with 2016. The next few months figures will give as a clearer picture on how much metal Indonesia will export this year.

Myanmar Shipments Fall

According to the ITRI, Myanmar was the source of over 99% of China’s reported tin ore and concentrate imports in January and February, which totaled exactly 40,000 mt, down 51% from 81,077 mt for the same period of 2016.

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While China’s Spring Festival impacted Myanmar’s February tin exports in both 2016 and 2017, the lower overall shipments can be explained by the large sales of local government concentrate stockpiles in January 2016. For that reason, it seems too early to tell whether exports will continue to decline or not but ITRI expects exports to be limited in 2017.

What This Means For Metal Buyers

Tin’s performance for the balance of 2017 will strongly depend on the production levels of these two Asian countries. For now, supply seems to be limited while most established producers are struggling to maintain, let alone increase, production. Meanwhile, the demand outlook for the whole industrial metals pack looks stronger than expected, which should provide a floor to prices this year.

Philadelphia Energy Solutions Inc., the largest refiner on the U.S. East Coast, will not be taking any rail deliveries of North Dakota’s Bakken crude oil in June, a source familiar with delivery schedules told Reuters on Tuesday, a sign that the impending start of the Dakota Access Pipeline is upending trade flows.

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At its peak, PES would have routinely taken about three miles’ worth of trains filled with Bakken oil each day. But after the $3.8 billion Dakota Access Pipeline begins interstate crude oil delivery on May 14, it will be more lucrative for producers to transport oil to refineries in the U.S. Gulf Coast.

Alcoa Moves Headquarters Back to Pittsburgh

Alcoa Corp. announced today that the company’s expansive Pittsburgh, Pa., office will soon serve as its global headquarters again, a decade after its predecessor, Alcoa Inc., left for New York City.

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Alcoa said in a statement that its headquarters in New York would be one of seven offices in the U.S., Europe and Asia that would shut in the next 18 months in a cost-cutting initiative. Alcoa had kept its offices in Pittsburgh’s North Shore even after it moved the headquarters to Manhattan, with the bulk of its administrative functions remaining in Pittsburgh. Now, the Pittsburgh presence will once again serve as the company’s international headquarters.

Beijing is caught in something of a quandary.

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On the one hand, an admirable, and increasingly important social imperative, the Chinese government’s focus on air pollution, has resulted in a crackdown on a range of polluting industries. Coal-fired power stations around Beijing and other major cities have been closed. Steel capacity has been targeted for cutbacks, although not universally.

Reports suggest rebar production used in construction has been prioritized over other product areas and that’s just one example of selective enforcement. A recent report by Reuters states new aluminum production capacity has been halted. What China fails to meet capacity cutback targets — an issue one suspects would have been “worked around” a year or two back when environmental considerations where less of an imperative?

This crackdown on output comes at the same time as the economy is performing quite well. Official data released last week showed China’s economy grew by a better-than-expected 6.9% comparing the March quarter to the same period in the previous year, Australian Financial Review reports. That is up from 6.8% in the final quarter of 2016. Industrial production was also far better than forecast, growing at 7.6% in March compared to 6.3% in first two months of the year. Read more

Zinc prices have fallen sharply over the past two weeks.

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While others panic and see this decline as the end of zinc’s bull run, I see this price pullback as a great opportunity to purchase the metal at a good price.

The 3-month LME zinc price. Source: MetalMiner analysis of LME data.

After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.

Short-Term Resilient Supply but What About Long-term?

The recent price weakness can be attributed to fears that high prices could trigger more mine supply to come online in China. Refined zinc supply remains resilient in the country, where refined production rose by 4.4% year-on-year in the first two months of 2017. However, they might prove less resilient in the coming months after some of China’s largest zinc smelters jointly announced they will curtail roughly 540,000 mt of annualized capacity over an unspecified period of time. The announcement comes after China’s largest zinc smelter, Zhuzhou, started an indefinite maintenance period for 100,000 mt of smelting capacity earlier in March.

In addition, the second-largest zinc plant in North America has been running at a 50% of normal operating levels since a strike began on February 12. Typical annual zinc production at the plant is 270,000-275,000 mt a year.

China’s Demand Still Strong

Other analysts might be attributing the recent price weakness to slowing Chinese demand. That really hasn’t been the case. China reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market. The pace accelerated from the 6.8% expansion in the previous quarter and puts China well ahead of its annual target of about 6.5% growth. Growth prospects in the country seem to be improving thanks to easing trade tensions with the U.S.

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Construction and infrastructure make up for more than 60% of zinc’s demand. In China, investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, while construction starts rose 11.6% during the same period. If that’s not enough, in April, China’s government announced plans to build a new megacity from scratch. The construction will require massive amounts of steel and industrial metals.

What This Means For Metal Buyers

Despite recent price weakness, zinc’s fundamentals remain strong. It seems way too early to call an end of zinc’s bull run. This month buyers might find a good opportunity to purchase zinc. You can check out our monthly metal buying outlook for monthly strategies on how to time your purchases.

The rising trend of aluminum processors seeking protection from Chinese imports may be just the beginning if a recent Reuters article is correct.

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Encouraged by a growing delta between the London Metal Exchange and Shanghai Futures Exchange aluminum price quotations, China’s aluminum makers are expected to step up exports in coming months, aided and abetted by a healthier global manufacturing climate and declining world aluminum stockpiles, the article explains.

Should this prove right, higher exports of semi-manufactured aluminum products would depress prices on both the LME and processors conversion premiums in the rest of the world. That would be bad news for producers, but good news for consumers who have been experiencing rising prices of both the underlying LME and conversion premiums for the last six months.

Chinese exports of semi-finished aluminum products fell last year as both LME and SHFE prices collapsed but production has rebounded more than 20% during the first two months of this year as the rising LME has made exports more profitable for Chinese producers benefiting from a relatively weaker SHFE domestic price. According to Goldman Sachs, the profitability of China’s semis exports has jumped 20% this year, encouraging the surge in exports we have seen in Q1 and portending a further increase in the months ahead.

How long the increase in exports is likely to last, and therefore how persistent the negative impact it will have on prices, remains to be seen. Despite the anticipation of rising exports, many still think the surge could be short-lived. Last month, Beijing ordered aluminum producers in 28 cities to slash output by 30% during winter months to limit coal use and curb pollution. In the mean-time, those producers are pumping out every ton they can adding to domestic availability, inventories and depressing the SHFE price. Come autumn, however, if cutbacks are enforced and the physical market tightens that surplus could turn to deficit and prices could rise. In which case exports will become less attractive and the tap will be turned off.

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This isn’t the first time the global aluminum market will be dancing to China’s tune. Consumers could do well to use a dip in prices this summer to cover forward for what may be a winter in which prices rebound.

This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.

The London Metal Exchange aluminum price has risen steadily since this time last year and seemed at times like it may hit, if not breach, $2,000 per metric ton. Many consumers are asking how much further does it have to go? will it break that psychologically important barrier anytime soon? and if it does, how much further does it have to go?

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To understand this, we should consider what has caused price strength in recent months and that you will not be surprised to hear is easy to list, but harder to judge to what extent each factor has had an impact.

Why is Aluminum Up?

First, there are general commodity category price drivers, nearly all base metals have shown price strength over the period as industrial demand has remained positive and surplus supply markets have either tightened or gone into outright deficit. In the case of aluminum, there are several indicators suggesting the market deficit has increased over the last 12 months. Physical delivery premiums have increased not just in Asia, but in the U.S. with the Midwest premium currently trading just below ten cents per pound on the CME Group exchange, up from six cents per pound in the third quarter of last year. Japanese physical delivery premiums have been agreed at $128 per metric ton for the second quarter up from $95 per ton for the first quarter.

Source: Reuters

Meanwhile, LME inventory continues to decline with almost 400,000 mt electing to leave the system in February alone. Now it must be said that not all this metal is destined for consumption, as Andy Home in a recent Reuters article points out, the majority of metal leaving the LME system is almost certainly heading to off-market lower cost storage options. Read more

Copper prices continued to trade flat in March. Over this month, strikes at major mines Escondida and Cerro Verde ended while Freeport-McMoran got a temporary export permit for its Grasberg mine.

Escondida’s Strike Ends

The strike at the world’s largest copper mine, Escondida in Chile, ended in the final week of March. The strike had lasted 44 days, longer than expected.

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The mine is not rushing to ramp up back to prestrike output levels. Owner BHP Billiton has said will outline the impact of the strike on Escondida’s output in results due for release on April 26. The strike is estimated to have cost Escondida more than 200,000 metric tons in copper production.

Copper MMI

Workers at the mine voted to return to work, despite not having reached an agreement on a new pay deal with management. Instead, workers extended their existing contract by 18 months, losing out on a new signing bonus or wage increase, but they will be able to renegotiate a new deal in 2018 after a new pro-union Chilean labor law goes into into effect.

Cerro Verde Mine Resumes Operations

Cerro Verde, Peru’s largest copper mine, had been operating at 50% of capacity since workers initiated a strike on March 10. At the end of the month, workers signed an agreement as the union accepted the company’s offer to improve family health care benefits and pay workers their portion of the mine’s profits earlier than usual. The mine produced just under 500,000 mt of the red metal last year.

Grasberg Mine Gets Temporary Export Permit

Freeport-McMoran was granted a temporary permit to export copper concentrates from its Grasberg mine in Indonesia, the world’s largest gold mine which also produces copper. The new permit broke a 12-week deadlock that had cut supply to Asian smelters. The new export license will last eight months. The amnesty means the company can renew deliveries of copper concentrates in Asia after declaring force majeure in February, but longer-term discussions over the company’s rights in Indonesia have yet to be determined.

What This Means For Metal Buyers

Copper supply disruptions have lasted longer than expected. Although they seem to have come to an end, their impact on supply still need to be outlined. In addition, these strikes have set the case for wage negotiations across the industry.

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Some major contract negotiations in large mines are due in the coming months. In the meantime, copper investors might focus their analysis on macro factors such as the ongoing China-U.S. trade negotiations, the performance of the U.S. dollar and global demand for industrial metals.

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Our Aluminum MMI rose again in March. London Metal Exchange prices rose above $1,950 per metric ton and, given the bullish sentiment among investors, aluminum might soon reach the $2,000/mt milestone.

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Prices were buoyed by confidence that China will implement their agreed-upon cuts. The world’s largest nation-producer of the metal will force about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi to be shut down over the winter season, which runs from the middle of November through the middle of March, putting at risk about 1.3 million mt of production.

Aluminum MMI

It would be normal to see these producers to simply ramp up production ahead of the winter season to make up for lower output during the winter months. However, that won’t be the case.

China’s environmental crackdown is already affecting producers as inspection teams visit aluminum smelters on a regular basis to keep production in check. We suspect that China’s strategy to curb pollution will offer further support to prices.

Global Political Heat

While China tackles overcapacity in the form of an environmental clampdown, international pressure on China is rising. In March, global aluminum associations released a joint letter in advance of the upcoming G20 summit calling for the creation of a Global Forum to address aluminum overcapacity.

This is the first time that a global coalition of aluminum producers has called for such an effort to address Chinese overcapacity in the marketplace. In addition, earlier last month, The Aluminum Association (a trade organization that represents North American producers) filed a petition seeking anti-dumping duties on aluminum foil.

China Hongqiao in Trouble

The world’s biggest aluminum smelter was recently suspended from the Hong Kong Stock Exchange as the company is being forced to defend itself against allegations that it has inflated its profit.

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As my colleague Stuart Burns explains, part of the problem seems to be how China Hongqiao has been reporting its profits and handling internal transfer pricing. Like many of the new breed of Chinese aluminum producers, China Hongqiao has captive power production but, since 2010, the firms profit margins have diverged from most of its peers, maintaining in excess of an 8% margin even when many of its domestic competitors fell into periods of loss.

Even during periods when the coal price rose the reported cost of power produced by China Hongqiao dropped suggesting the firm was trapping profits in the smelting division while hiding losses in power generation. Likewise it has been suggested that China Hongqiao has declared transfer prices from its alumina production division roughly 20% below those of similar companies operating in the same provinces.

Ernst & Young will announce the results of the audit next month. Not just investors but the whole aluminum industry will be keen for a a peek behind-the-scenes into the sometimes murky world of Chinese aluminum producers. Proof of bad reporting would add more tensions to the global aluminum market.

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