Non-ferrous Metals

The three-month aluminum price on the London Metal Exchange is back below $1,800/metric ton. In April, aluminum rallied with most industrial metals thanks to a weaker dollar. However, in May the dollar bounced back up, unwilling to give up more ground, hurting industrial metals.

Aluminum prices are now hanging near previous troughs. If the dollar continues to rally, we would expect aluminum prices to hit record lows this year.

Why Manufacturers Need to Ditch Purchase Price Variance

Same story with nickel, the metal rallied in April after hitting its lowest level in six years, but in May Nickel fell as well and now it’s near that record low. As with aluminum, a stronger dollar would put nickel prices into a tailspin.

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Thanks to fees from its state cap-and-trade law, Northern California homeowners will soon start receiving completely free crystalline silicon photovoltaic solar panels.

Why Manufacturers Need to Ditch Purchase Price Variance

Oakland nonprofit Grid Alternatives is using $14.7 million raised through the state’s cap-and-trade system to install the panels in lower income neighborhoods for free. The fees were paid by industries whose emissions exceeded the state "cap" set by the new law. The fees were donated by state to Grid and the money came out of the Greenhouse Gas Reduction Fund (GGRF), also established by the cap-and-trade law.

Silicon was the biggest mover this week on our renewables MMI, as well.

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New futures contracts for rebar and scrap cleared a hurdle recently and a major automaker said thanks, but no thanks, to aluminum bodies.

LME Closes in on Market Makers

The London Metal Exchange (LME) is close to sealing deals with market makers to guarantee liquidity for its new steel rebar and scrap futures, a move that industry experts say is a step in the right direction.

Why Manufacturers Need to Ditch Purchase Price Variance

But for real longevity, the contracts will need crucial support from major banks and participation of major steelmakers and institutional investors.

A senior level source with knowledge of the process told Reuters progress had been made in discussions with professional market makers as well as physical traders. The contracts are scheduled for launch in October.

“Having market makers would make a huge difference. In the current steel contracts there are no market makers,” Antonio Novi, a director at Levmet, a metals trader that also provides hedging services to industrial companies, told Reuters.

“If it’s true that there’s market makers, we’ll be using it, but until I see it I’ll doubt it very much.”

The LME’s only existing steel contract, a physical contract for billet, has struggled with scant volumes. Its new steel contracts will be cash settled, and so cannot be crippled by problems withdrawing metal from LME warehouses.

Some key steelmakers joined the LME Steel Committee earlier this year, including AK Steel, Klesch Group and the Turkish Steel Exporters Association.

Jeep Sticking With Steel

After months of confirmed reports from inside Fiat-Chrysler suggesting otherwise, FCA CEO Sergio Marchionne has confirmed that the next-generation Jeep Wrangler will not follow the Ford F-150’s lead and adopt an all-aluminum body. Instead, the 2017 Wrangler will stay predominantly steel, and use an aluminum hood, doors, and fenders to keep weight down.

Marchionne said they’d simulated the mileage, “but because of the difference in costs, not just in materials but the actual assembly process, I think we can do almost as well without aluminum,” according to the Wall Street Journal.

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The London Metal Exchange (LME) yesterday launched a month-long consultation on proposals designed to broaden access to its electronic trading platform, LMEselect. The changes put forward include opening up LMEselect access to category 3 and category 4 (non-clearing) members of the exchange as well as adding flexibility to the criteria required to apply for LME membership.

Why Manufacturers Need to Ditch Purchase Price Variance

“Today’s proposals are crucial to our overarching aim to maximize liquidity and participation on the LME,” said Garry Jones, LME CEO. “Opening up access to trading on LMEselect is beneficial to everyone trading on any one of our venues as it will bring more liquidity and price transparency to all.”

Adding flexibility to the application criteria for LME membership means that prospective members may, in some cases, benefit from exemptions from the UK Financial Conduct Authority (FCA) authorization requirements, which represents a significant step in the LME’s Liquidity Roadmap. The changes would make the LME electronic market more attractive to non-UK based traders who want to take advantage of the Exchange’s enhanced liquidity initiatives but who are currently not eligible or are discouraged from applying by electronic access restrictions.

If the LME decides to proceed with the proposed changes after the consultation period ends, then full details of the category 4 membership requirements including fees and B share requirements will be published.

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Nickel has perplexed and confounded investors for the last year or more.

Prices had been expected to rise on the back of an anticipated shortfall in ore supply, only for the expect opposite to happen. Yet Norilsk Nickel, in it’s latest 2015 Strategy update, reported in a Platts blog that China’s inventories of nickel ore are down significantly, with only around two months of consumption left.

Why Manufacturers Need to Ditch Purchase Price Variance

Norilisk also believes China’s dependence on imported refined nickel is set to rise. It estimates that total nickel demand in China in 2015 will be made up of 42% imported refined nickel, 47% imported feed, and around 11% of domestic feed.

Imports Rising

In 2014, by comparison, total nickel demand in China consisted of 28% imported refined nickel, 61% imported feed, and 11% domestic feed. In its 2014 full-year results, the company forecast a 20,000 metric ton global deficit this year down from a 93,000 mt surplus in 2014. While a number of analysts are also forecasting a revised deficit between 20,000-45,000 mt this year, you have to say previous predictions have failed to materialize so why would this time be any different?

Maybe the issue here is that Norilisk is a producer and they are going to be bullish by nature, and indeed not all agree with Norilisk’s estimate of the current situation. The World Bureau of Metal Statistics reported just this week that the nickel market was in surplus From January to March 2015 with production exceeding apparent demand by 32.9 kilotons, less of a surplus than was running in 2014 but still significant.

Nor did they see it trailing off, in March nickel smelter/refinery production was 147.8 kt and consumption was 137.1 kt suggesting the surplus is continuing and may run through Q2.

The long-awaited dearth of ore supply resulting from the Indonesian export ban last year has failed to materialize. Chinese buyers have switched to a blend of Indonesian and Filipino ores for making nickel pig iron and an increase in refined nickel imports to meet demand.

Demand: Still Down

Demand is down, anyway. The Chinese economy is growing more slowly and stainless production (the source of two-thirds of nickel demand) is, at best, lackluster. In addition we are now coming towards the quieter summer period when demand falls and so it is unlikely the demand side is going to force a change in the downward trend in prices. Demand has stabilized in Europe after previous years’ weakness, but distributors are said to be well stocked and a restocking cycle is unlikely when most are anticipating further weakness in the nickel price.

As prices have fallen, stocks have risen, most obviously on the London Metal Exchange. Part of this rise can be attributed to finance stocks moving out of China and into supposedly safer LME Asian warehouses, but even so some 446,000 mt of LME stocks are going to take some working through and those speculators that have headed for the exits are not likely to pile back in again until they see a sustained downward trend in stocks.

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If there is a rock star among industrial metals, it’s zinc.

Why Manufacturers Need to Ditch Purchase Price Variance

The metal just rose 15% in only one month and it’s now hanging near a 4-year high. Zinc has been the only base metal able to fight this bearish commodity market that we have been in since 2011. While most metals in the group kept falling like dominoes, zinc has managed to hold its value well. We noticed this divergence just a year ago.

The metal’s fundamentals are mixed. Zinc is supposed to move in to deficit but most analysts say that it will take some time until that deficit materializes. Demand is expected to remain robust and the impeding closure of of the world’s two biggest mines (Brunswick and Century) could create supply constraints.

The technical picture tells a more positive story. The market is not letting prices fall and it seems like zinc takes every chance it gets to move up. Recent weakness in the dollar drove zinc prices up (and most base metals), but the metal will soon meet resistance near $2,400 per metric ton.

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Denied deals abound today in MetalCrawler. An Indian steel major says not so fast on a sale of its long products division and Rio Tinto Group might be close to moving an aluminum division but is refusing to comment so far.

Tata Says No Long Products Deal Done

Reports that Tata Steel is about to sell its long products division to Klesch Group are “speculative” and do not reflect the views of the company, the steelmaker told India’s National Stock Exchange on Tuesday.

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Geneva-based Klesch Group, a global commodities business involved in chemicals, metals and oil production and trading, declined to comment.

Tata Steel, Europe’s second-largest steelmaker, said in October it is in talks to sell its loss-making long products division, which employs 6,500 people mostly in the UK, to Klesch.

Same With Pacific Aluminium

Rio Tinto Group plans to sell some of its aluminum assets in a potential $1 billion deal, the Financial Times reported, reviving a sale plan for its Pacific Aluminium unit two years after it was canceled.

The FT, citing “people aware of Rio’s plans”, said on Sunday that Rio had hired Credit Suisse to find a buyer for Pacific Aluminium, known as PacAl, which comprises a group of smelters in Australia and New Zealand.

A spokesman for Rio Tinto said the company “doesn’t comment on market speculation.”

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Most of our commodity metals posted gains this month. Even laggards such as the Construction and Raw Steels MMIs were able to post at least a flat month and avoid a loss. Only the markets that were generally flat to down before commodities’ big downturn, Rare Earths and Renewables, lost ground this month.

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The big question, is, then are these metals’ prices truly going back up or are we merely experiencing temporary gains with the downward trend soon to continue? It honestly may be too soon to tell.

We have seen several commodities fall much lower this year after outside-influenced one-month rallies. As my colleague Raul de Frutos wrote regarding the copper market this month, “we know that trying to guess the bottom is a terrible strategy to take.”

The Dollar and Oil Prices

The big outside influence, of course, is actual weakness in the US dollar, the first real weakness seen this year.
The oil price reduction that has kept most commodities low this year has moderated, with oil hitting $60 a barrel this week. A 0.7% fall in the dollar index was the biggest drop of 2015.
Further weakness in the dollar throughout the rest of the year would give a bigger boost to commodities and foreign markets.

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Gilbane, Inc., recently released its Spring “Building for the Future” construction economics report and predicted that even if new starts growth were to turn flat for rest of 2015 (which is not expected), starts already recorded over the past 12 months indicate spending for nonresidential buildings in 2015 will increase 15% over 2014, the best growth since 2007.

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Nonresidential new starts have been increasing at an average of 16% per year since a post-recession low was reached in 2012.

The Gilbane report states that nonresidential building starts from April 2014 through February 2015 reached the best three-month average and best six-month average since July 2008 this month.

The construction industry is, by far, the largest consumer of steel products worldwide. Approximately 100 million tons of steel is produced annually in the US. More than 40 million tons of that is delivered to the construction industry. The next largest industries combined (automotive, equipment and machinery) do not consume as much steel as construction.

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According to a recent report from the Freedonia Group, worldwide demand for copper is expected to advance 4.7% every year to 37.2 million metric tons in 2019. It also says the Asia-Pacific region is expected to see the fastest annual gains, led by increased output in China and India.

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Electrolytic refining of primary copper will be the primary method of production in these countries, but recycled scrap will account for a larger share of total refined copper output.

Construction Spending in India, US

Outside the AP region, the Freedonia report says advances in construction spending would also fuel copper demand in North America, particularly in the US, where early signs of building construction activity significantly increasing exist. This is followed by Western Europe which could see a “moderate increase” in copper demand since construction and manufacturing output there is expected to climb at a below average speed.

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