Non-ferrous Metals

Steel Drivers

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for steel? Check out our complimentary July Metal Buying Outlook!

1. MOH service center inventory

2. US import levels (volume trends)

3. Total China steel exports

4. Raw material input cost trends

5. Quoted lead times

Market Commentary (HRC)

Without a doubt the historical passage of several trade measures in the US has the potential to change the steel products landscape in the coming years. After all, US HRC steel prices have dropped by 25% since the start of this year. The steel industry (e.g. producers) believes this price drop has come as a result of massive imports that have begun to slow. Certainly the data supports that conclusion though other factors undoubtedly contribute to falling steel prices.

Regardless of where one stands on the import issue (either for or against) buying organizations are likely to feel the impact of the new legislation. We will discuss some of these impacts in upcoming reports.

A Fundamentals View (HRC)

Meanwhile HRC pricing has held steady from a month ago (up slightly). However, service center inventory levels (which supply some 40% of all metal to buying organizations) still suffer from too much MOH inventory. According to the latest MSCI data, steel product inventories jumped 11% in June from the same period in 2014 and perhaps more significantly, the current MOH inventory of 2.8 months of supply remains above “healthy” inventory levels.

With higher than healthy MOH inventory, service centers remain weak buyers in the market and that helps keep a lid on prices.

The Outlook (HRC)

HRC prices seem to have begun to stabilize after falling for nearly a year by closing the month of May at $464/st. We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar still holds stronger. It would appear challenging for HRC to make any bold price moves to the upside. But we may have found HRC’s floor. This will require buying organizations to be particularly mindful of any upward price movements.

Market Commentary (CRC)

CRC has fallen by some 21%+/- since the beginning of the year. The pricing dynamics for CRC are similar to HRC. Undoubtedly the impact of the trade legislation signed into law in late June will impact all steel product market segments including CRC.

Globally, European mills have filed an anti-dumping suit against cold rolled coil imports from China. India has begun collecting duties on HRC products from three countries but could add CRC tariffs as well. In short, all eyes remain on China but other countries are also contributing to the oversupply.

In the meantime, domestic steel capacity utilization rates are running at 72.5%, down 7.4% from a year ago. Generally speaking a “healthy” capacity utilization rate is up above 80%.

The Outlook (CRC)

CRC prices have crept up during the month of June closing at $590/st but failing to breach last month’s short-term resistance levels. We also still see some price weakness on the horizon and continue to remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC, it would appear challenging for CRC to make any bold price moves to the upside.

Market Commentary (HDG)

HDG continues to face price weakness, falling from $619 to $594/st, a 4% price drop. Interestingly, while steel imports have dropped during the month of May by 3.6% from April, HDG imports have continued to increase growing by nearly 17% from April to May after having jumped 20% from March to April. As with the other forms of metal, the new trade legislation will provide more enforcement “teeth” to the import process.

Six steelmakers with major US operations filed a trade complaint over HDG in June, seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan. The suit is the first salvo in the campaign this year by the beleaguered US steel industry to protect itself against a record flood of imports.

And though US auto numbers remain positive, Chinese automotive sales continue to decline placing additional price pressure on HDG prices – which have fallen some 24% since the beginning of the year.

The Outlook (HDG)

We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC and CRC, it would appear challenging for HDG to make any bold price moves to the upside. It is possible, however that we will see some price stabilization.

Market Commentary (Plate)

Steel plate prices have held nearly steady this past month despite continued weakness in the energy sector, which contributes heftily to plate demand. US imports of plate products grew 13% in May and are up 36% from the same five- month time period one year ago June – May.

The Outlook (Plate)

Plate prices held steady this past month at $574/st. And indeed last month we indicated prices may be stabilizing. However, we remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. In addition, plate suffers from an inventory overhang that will take some time to work off.

So What Should My Industrial Buying Strategy Be?

This steel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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Another two metals fell last week into multi-year lows, aluminum and copper. The price drop is not surprising, commodities keep falling, the dollar remains and other industrial metals like Nickel, already fell sharply amid China’s stock market tumble.

3M LME Aluminum since 2012

Three-month London Metal Exchange aluminum since 2012. Graph: MetalMiner.

We recently wrote that aluminum would need to fall further in order to cause additional non-Chinese closures to balance the market. Chinese aluminum exports surged 35% year-on-year in the first half of the year, adding to global excess supply of the metal.

Three Best Practices for Buying Commodities

Three-month aluminum on the London Metal Exchange closed on Friday below $1,650/metric ton, hitting a six-year low.

3M LME Copper since 2012

Three-month LME copper since 2012. Graph: MetalMiner.

Copper prices keep doing the same thing over and over: lower peaks, lower troughs. Copper’s fundamentals are nothing but bearish, excess supply from mines and weak Chinese demand for the metal. We recently highlighted some Chinese numbers showing poor demand from key sectors.

During the first half, we questioned every copper rally. Three-month copper on the LME closed on Friday below $5,300/mt, the lowest level in six years.

What This Means For Metal Buyers

The outlook for base metals remains bearish. The buying strategy to take on aluminum and copper is pretty clear: don’t buy on weakness.

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July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for zinc? Check out our complimentary July Metal Buying Outlook report!

Zinc Drivers

1. Dollar to Euro exchange rate

2. Global production

3. Global capacity utilization

4. Zinc refining capacity utilization rates

Market Commentary

Last month we reported the International Lead and Zinc Study Group suggested 2015 demand for refined zinc would exceed supply by 151,000 metric tons. Those numbers have turned out to be wildly wrong – in fact zinc is running a surplus to the tune of 181,000 metric tons. In addition, buying organizations will want to pay careful attention to the flow of metal into LME warehouses.

According to the most recent LME data available, zinc stocks declined in May by some 57k+
metric tons but some analysts believe that just the opposite will happen through July – more
inventory will make its way into LME warehouses than out of them. In addition, plenty of
extra inventory exists in non-LME warehouses throughout Asia and the United States.

Market sentiment toward zinc has hinged on the supply/demand equation and it has become a little less likely that any real zinc shortage will materialize.

The Outlook

Three-month zinc fell significantly in June, closing at $2,000/mt. As with lead, zinc’s rally this spring wasn’t sustainable in the face of a bearish commodity market. In the long-term we expect zinc prices to stay range-bound at best.

So What Should My Industrial Buying Strategy Be?

This zinc price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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SMU Steel Summit 2015We here at MetalMiner™ are thrilled to be a part of Steel Market Update’s 2015 Steel Summit Conference in Atlanta, Sept. 1 and 2, featuring metals industry professionals. We will not be alone, however, as this event will be filled with steel producers, manufacturing companies, end-users and service centers affected by the ebb and flow of the metals industry each and every day. The audience will be tuned in, the discussions engaging and the takeaways tangible.

“[We have] a perfect storm of weakening demand and surging supply [that] has sent benchmark ore prices tumbling, shacking miners’ business models across the globe. After a decade of super cycle, does 2015 mark the beginning of a ‘buyers’ market’ in steel raw materials?” – Serafino Capoferri, consultant, Steel Raw Materials & Steel Costs, from CRU Analysis

Capoferri will be joined by Peter Meyers, executive vice president at Metalico and Gaurav Chhibbar, raw material manager at Cargill Metals to discuss iron ore, scrap and world pricing for the Commodities & China: The Gorilla in the Room portion of the summit.

Our own Lisa Riesman (CEO, Azul Partners and executive editor, MetalMiner™) will also be in attendance, discussing our latest forecast report and where she sees the direction of commodities heading.

So come join us at the Georgia International Convention Center on Sept. 1 and 2 for what will surely be an engaging event!

More info and registration

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This is part two of an analysis of how China’s recent stock market crash affects neighboring India.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metal prices had gone down in the range of 2-21% in the first six months of 2015.

Free Download: Latest Metal Price Trends in the July MMI Report

On a year-to-date basis, Chinese domestic hot-rolled coil steel prices declined by 21%. London Metal Exchange nickel prices are down by about 12%, LME copper prices by 9% and China alumina prices by about 10%. In the last one month, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

What’s This Mean for Steel?

In reference to India’s steel sector, rating agency Ind-Ra pointed out that Indian manufacturers were already struggling with low capacity utilization, and lukewarm domestic demand was unlikely to benefit the margins of manufacturing units in the short term.

So was there any silver lining at all for India where the Chinese downturn is concerned? Depends who you listen to or talk to. Here’s what a report in the Business Standard claimed — the economic downturn would be good for smart cities. The rationale — copper is trading at a 6-year-low and China is the world’s top copper consumer, accounting for 40% of global consumption.

How About Aluminum?

Similarly, aluminum is trading at new lows and was already trading at prices below cost of production of many Chinese companies. For India, as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, would reduce.

And that extends to a lower price for a technology innovation dear to almost everyone in the world, according to the report. Mobile phones will be cheaper, it predicted. If the Chinese really devalued their currency, world markets will be flooded with Chinese goods at low prices affecting exports of other countries, including India.

As for the rest, such as automobile manufacturers, it could possibly get only worse in the coming days.

Free Download: July Metal Price Forecast

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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The Senate, on Tuesday, unveiled a bipartisan bill containing three years of funding for America’s highways, bridges and rail systems but it quickly ran into a roadblock that could force Congress to settle for a shorter-term fix already approved by the House.

Free Download: Latest Metal Price Trends in the July MMI Report

The legislation would provide $130 billion for surface transportation investments through 2018 and, if passed, would be the first multi-year highway bill in more than decade. It is expected to dominate Senate deliberations into next week as Republicans and Democrats work against a July 31 deadline to keep the national Highway Trust Fund from running out of money. Lawmakers avoided an increase in the national gasoline tax and instead cobbled together funding totaling $47 billion. Funding sources include $9 billion in oil sales from the Strategic Petroleum Reserve and $16.3 billion from a cut in Federal Reserve dividends to large banks.

However, opposition to the bill in both parties.

“Based on my conversations with the Democrats in the House (of Representatives) and their conversations with Republican leaders, I don’t think there’s a chance in the world they’re going to take up this bill,” Senate Minority Leader Harry Reid (D.-Nev.) told Reuters.

Free Download: July Metal Price Forecast

Senate Democrats on Tuesday shot down an initial push to begin debate on the bipartisan legislation, saying Republican leaders had not provided enough time to review the 1,030-page bill. In the House, Majority Leader Kevin McCarthy (R.-Calif.) criticized the bill for only providing three years of funding when the overall Senate infrastructure plan calls for six years of spending. McCarthy said senators should pursue another short-term bill now and work toward six-year legislation “that you actually pay for.”

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Lead drivers:

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for lead? Check out our July Metal Buying Outlook report!

1. Dollar to euro exchange rate

2. Global production

3. Global capacity utilization

4. Automotive production Europea/NA/China

5. China lead prices

Market Commentary

Lead looked a little exciting in May but June has brought prices down on the back of soaring LME inventories (please note MetalMiner does not subscribe to the notion that inventory levels necessarily correlate with metal prices). However, in March a 100,000-ton surge in canceled warrants (metal to be taken out of LME warehouses) does not suggest sudden industrial demand but rather a storage arbitrage, similar to what has happened with
aluminum and to a lesser extent, zinc.

China lead prices (not SHFE but industrial trade prices) peaked in early May and have
declined ever since according to MetalMiner IndX™ data.

Last month we made mention of data that suggested a global balance between lead supply
and demand. The most recent data from the International Lead and Zinc Study Group
suggests demand is down across the board from Europe (4.2%), the US (3.9%), China (4.3%)
and Korea (9.8%). Nonetheless the market appears in somewhat of a balance. Regardless,
we don’t see lead’s fundamentals much differently than some of the other base metals.

The Outlook

Lead prices continued to fall in June closing at $1,761/mt. The rally that we saw in April has already vanished. Neither fundamentals nor technicals support a sustainable price rally. The long-term outlook remains bearish, especially while we see other industrial metals making record lows.

Lead price forecast 2015

So What Should My Industrial Buying Strategy Be?

This lead price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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Forecast webinarHave you ever wondered what ingredients go into our Monthly Metal Buying Outlook recipe? Well today is your lucky day as we are pulling aside the curtain to reveal the tools we use to develop our August metal price forecasts.

PREVIEW: MetalMiner™ Price Forecasts for August will take place Thursday, July 30 at 10 a.m. CDT. Register today!

Can’t make it live? Register anyway and we’ll send you a copy of the slides and recording of the webinar!

“Understanding the major factors influencing price is key to managing your risk and the first step in implementing an effective sourcing strategy. Our forecasts are based on a methodology we have developed for some of the largest metal buying organizations in the world. We use all of these tools to analyze the markets and distill the pertinent information into single page reports for our customers. At this event we will be happy to discuss our outlook for aluminum, copper, nickel, lead, zinc, tin, and various steel forms including HRC, CRC, HDG and plate” – Lisa Reisman, executive editor, MetalMiner

Speakers will also include John Conolly, managing director, Azul Partners:

John has over 20 years of experience in listed derivatives, trading commodities and advising clients on hedging commercial risks. In addition to being a regular contributor to CNBC, Bloomberg and Fox Business News, John developed an industry leading market commentary product as Director of Product Marketing for CME Group.

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As always, ThomsonReuters’ Andy Home turns out some excellent commentary backed by solid statistics.

Free Download: July Metal Price Forecast

In a recent article, he reviews comments made by Alcoa Inc.’s Klaus Kleinfeld about China’s primary aluminum production leaking out of the country under the cover of the burgeoning export trade in semi-finished products. As the article explains, China exported 2.5 million metric tons of unwrought aluminum and aluminum products in the first half of the year. That was 35% or a 650,000-mt increase over the same period last year.

Untaxed Semis, Taxed Ingots

The temptation for Chinese producers to ship primary metal for export is significant in a domestic market oversupplied with unwrought primary metal, but producers are dissuaded from exporting ingot by a 15% export tax and a negative treatment on the value-added tax which is set at 13%.

Rightly in a country with high power costs, China sees exports of low-value primary aluminum as a wasteful export of energy-intensive material. Producers, though, are desperate to shift metal and the article suggests (and to Klaus Kleinfeld’s point) that a large part of this tidal wave of “semis” exports is not really semi-finished product at all, but simply primary metal either misrepresented on export paperwork or marginally re-worked to qualify it as a semi-finished product.

Many point to the fall in aluminum physical delivery premiums as support for the argument that Chinese exports of this primary-masquerading-as-semi-finished metal are a significant contributory factor to greater primary metal availability outside China.

What Does This Mean for Metal Buyers?

We have our doubts that the export of Chinese semis is causing a massive disruption in the marketplace. Chinese semi-finished product is being offered aggressively all over Asia and Europe. Chinese producers – aided by changes in export taxes and a falling Shanghai Futures Exchange base price relative to the London Metal Exchange – are able to compete in the semis market now to an extent they were not able to 12-18 months ago.

We are seeing increased market penetration and volumes hitting the European distributor and end-user markets this year. We are seeing European and Asian manufacturers lead times come down, in some cases to days, for extruded products, suggesting order books are weak.

Under such circumstances converters outside of China will not be buying as much primary metal and billet. Couple that with new Middle East smelter start-ups and metal coming off long-term financing deals earlier this year and there is enough to justify the fall in physical delivery premiums without some vast confidence trick going on in misrepresented metal exports from China. We are not saying Alcoa is wrong in making their assertions regarding this trade, no doubt there are situations in which it has happened, we just doubt it is as significant or is having as much impact as they suggest.

Free Download: Latest Metal Price Trends in the July MMI Report

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Nickel Drivers

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for nickel? Check out our complimentary July Metal Buying Outlook report!

1. Dollar to Euro exchange rate

2. Stainless steel global production

3. Global capacity utilization

4. China coking coal prices (impacting Chinese nickel pig iron production)

5. China GDP & PMI data

Market Commentary

Nickel fundamentals do not tell a very good story if you are a stainless producer or service center. However, buying organizations likely feel differently about bearish metals. Nickel faces a number of headwinds that will continue to put pressure on prices.

Specifically, nickel suffers from weak global demand, excess service center inventory levels, an Indonesian export ban that failed to do what it intended to do (we’ll come to that in a moment) and increased stockpiles in China (although we do not accept the one-to-one correlation that higher inventory levels necessarily equate to lower prices and vice versa, lower inventory levels don’t necessarily equate to higher prices).

Service centers tell MetalMiner that inventory levels remain well above historical “healthy” MOH averages (about 2.4-2.6). Instead, inventory levels are up over 3.5 months, seasonally adjusted. This is a very bearish indicator. Demand has slowed for the typical summer slow-down. Service centers report transactional business is slow.

The Indonesian Export Ban

As many are aware the Indonesian government banned the export of unprocessed minerals back in January of 2014. Instead of having the desired effect of generating new investment for higher value added processing in country, exports have dried up and the government has begun tinkering with the ban to allow for some copper exports. The ban on nickel and aluminum exports remains intact but news reports suggest the ban for bauxite might be lifted which may be an indicator that the government could change its policy.

Regardless, this too is a bearish factor weighing on nickel.

The Outlook

Three-month nickel closed the month of June at $12,000/mt, sliding to a 6-year low. Nickel is in free-fall as shortage expectations faded. The long-term outlook remains bearish, especially while the rest of base metals keep falling. We expect to see high price volatility in the coming months.

So What Should My Industrial Buying Strategy Be?

This nickel price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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