Articles in Category: Non-ferrous Metals

Proposals based on environmental grounds to limit polluting industries in the greater Beijing area during next winter’s primary heating period (November to March) gave a boost to the aluminum market from the moment they were first mooted last year.

Beijing’s robust implementation of environmental audits and regulation of aluminum plants this year have added to a sense that the authorities are getting serious about pollution and the environmental impact of energy intensive industries like aluminum smelting. But, as Reuter’s columnist Andy Home opined, it is protectionism in the rest of the world that is going to add backbone to these trends and act as the driving force behind further action on Beijing’s part.

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In an article this week, Home explained how the latest investigation into aluminum imports, along the same lines as an earlier steel case, has been launched under Section 232(b) of the Trade Expansion Act of 1962, which lets a president act against imports on national security grounds. The reasoning is the U.S. has but one smelter left in operation, Century’s Kentucky smelter, capable of producing the high grades required for defence and aerospace companies making combat aircraft and the like.

China supplies almost no primary aluminum to the U.S. market. Following U.S. smelter closures, surging imports are being increasingly met by Russia and the United Arab Emirates, while the bulk continues to be supplied by Canada, as the graph below from Reuters shows.

Where China has an impact is in semi-finished products, such as sheet, plate, foil, bars, tubes and sections. Here the growth of Chinese exports to the world — and U.S. imports — has been much more significant. According to Home, on that measure China has been by some margin the largest-volume supplier to the U.S. market in recent years. Read more

Our Stainless MMI took another dip in April, amid a broad sell-off in industrial metals. In addition, at the beginning of May, the Philippine parliament rejected Regina Lopez’s bid to be appointedas environmental minister. In a matter of weeks, nickel’s story has shifted from a clear supply shortfall to a rather complex narrative, ruining nickel bulls’ party.

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Nickel prices on the LME fell by 5% in the next two days after the news.

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Industrial metals for the most part fell in April, but that wasn’t the case for aluminum. The lightweight metal outperformed its peers as aluminum is expected to be the next target of supply-side reform in China, according to Goldman Sachs.

The New Steel?

While China tries to transition from a manufacturing economy to a service-driven one, it is aiming to cut industrial overcapacity due to environmental problems. China previously indicated its strong intentions to implement supply-side reforms in the steel industry. As a result, steel prices in China rose by 70% in less than a year.

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China’s energy intensive aluminum smelters receive nearly 90% of their energy needs from coal. In addition, China has received a lot of international pressure to reduce its aluminum capacity. For these reasons, aluminum could be the new steel this year.

To start, China announced in late February that it would cut as much as 30% of its aluminum production over the winter months. As my colleague Stuart Burns put it, “Beijing has shown solid intent in this direction, already denying planning approval to 2 million tons of new capacity in China’s northwest province of Xinjiang and clamping down hard on plants elsewhere that it deems to be failing environmental standards.” In addition, industry watchers believe that this might just be the beginning as more closures are expected to come in heavily industrialized provinces.

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The 100-day mark for President Donald Trump’s administration has come and passed. When it comes to the effects of his policies on various markets, only one thing is certain: uncertainty.

That uncertainty also applies to non-ferrous metal markets, which saw a boom in optimism after Trump’s election last year. For example, copper rose to a 15-month high on Nov. 9, 2016. However, that optimism has dwindled through the first few months of his administration, due to lingering uncertainty over the administration’s ability to actuate campaign promises.

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While market fluctuations are a confluence of many forces, beyond what the president does or does not do, the president does have substantial influence, both in word and deed. Thus far, Trump has been more influential in the former, campaigning on a renewed focus on mining (particularly with respect to coal) and significant investment in American infrastructure.

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” Trump had said during his victory speech in November. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.” Read more

Few metals have as controversial a supply side as tin. Cobalt also springs to mind, largely due to the relative importance of the Democratic Republic of Congo as a supply source. But tin likewise seems to come from areas prone to military unrest, where illegal mining of the ore provides an opportunity to fund said unrest. Even in established producing countries like Indonesia, supply is hampered by extensive illegal mining, and the authorities have been engaged in a long running struggle to control illegal mining, principally to avoid environmental damage that occurs at unregulated mines.

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Tin has benefitted from a broader commodity rebound this year. Prices are rising and LME inventory is falling as demand from the electronics industry, particularly in China, remains solid. However, one of the key supply-side variables is Myanmar, China’s new source of supply. As the graph below from Thomson Reuters shows, Myanmar is the only significant global source that has been on the rise in recent years. All others by and large have remained static or fallen.

Source: Thomson Reuters

Indonesia has the potential to export more concentrate. Its drive to control illegal mining and encourage greater domestic value-added refining has limited export volumes in recent years, encouraging China to increase imports from neighbouring Myanmar.

Reuters reports that almost all Chinese tin ore and concentrate imports now come from Myanmar, following the 2013 discovery of high grade reserves at Man Maw in northeast Myanmar. Annual production is now estimated at about 33,000 tons of tin concentrate, which Reuters reports is more than 10% of the metal’s global output. Read more

Our Copper MMI fell by two points in April, dragged down by a sell-off in industrial metals. In addition, supply concerns have eased as strikes at some mines ended.

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The strike at Escondida in Chile, the world’s largest copper mine, ended in late March. Soon after, a 18-day strike at the Cerro Verde mine in Peru also came to an end. A new strike at the mining company Southern Copper Corp. in Peru took place in April, but it lasted only two weeks, leaving no significant effect on production.

Meanwhile, Freeport McMoRan finally obtained a permit to export material from its Grasberg mine, the second largest copper mine in the world. The new permit will allow the company to export 1.1 million tons of copper concentrate through February of next year.

However, Freeport now has a new problem on its hands. Workers have threatened a one-month strike starting in May. The company had laid off about 10% of its workers, saying that there may be more layoffs in the future to stem losses. Moreover, the company is still confronting Indonesia over rights to the mine. With this problematic combination of protests from workers and tensions with the Indonesian government, it’s no wonder that investors are concerned about further supply disruptions this year.

What This Means For Metal Buyers

Although supply disruptions eased in March and April, there is overall plenty of potential for further disruptions this year. Prices took a dip in April, but that seems to be a normal price action given that most industrial metals fell in the same month.

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After a spectacular rally in Q4 of last year, prices are now consolidating in the price range of $5,500-$6,100/mt. Bulls seems still in control but they probably need another bullish development to chase prices above this price range. That development could come in the for of additional supply disruptions this year. We will be watching closely the developments at the Grasberg mine in the coming week in addition to the several mines that have contract negotiations due to this year.

Actual Copper Prices and Trends

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In preparing our new Monthly Metal Buying Outlook for May, we’ve seen that prices in both industrial metal markets and commodity markets have fallen over the past month.

What’s the deal?

Well, a few things are happening that stirred up that pot:

  • The U.S. dollar fell to a five-month low. The dollar’s movement usually has an inverse relationship with that of commodity prices, but not lately. Election season across the pond in France is heating up, and the outcome of the first round of presidential voting had eased concerns about the future of the euro, which rose against the dollar.
  • Interestingly, China’s annual GDP growth increased to 6.9% during Q1 2017, the fastest growth rate since the second half of 2015. Not only that, but the country also announced that it will build a “new megacity” — two things that would usually portend higher industrial metals prices. And yet…here’s what China’s economy has been doing since 2012 (the overall trend is pretty clear):

  • President Trump ordered two investigations, one for steel and one for aluminum, into whether imports of those metals threaten U.S. national security.

Check out how these types of events and trends are affecting six non-ferrous metal markets and four specific forms of steel — HRC, CRC, HDG and plate — in our detailed monthly analysis.

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This morning in metals news, we’ve seen a major U.S. auto supplier snap up a European counterpart just before the weekend, the EPA Clean Power Plan’s swan song stalled a bit, and more.

Lear Corp. and Grupo Antolin Marriage Consummated

Lear Corporation, one of the world’s leading suppliers of automotive seating systems and electrical distribution systems, went final on its acquisition of Grupo Antolin’s automotive seating business just last Friday.

According to a press release, Grupo Antolin has a large footprint with Europe’s largest carmakers, including Daimler, Peugeot Citroen, Renault Nissan and Volkswagen, and the acquisition will help Lear double down on its core business. “The transaction is valued at €286 million on a cash and debt free basis and is forecasted to be accretive to 2017 earnings per share,” according to the release.

Incidentally, Lear Corp. is not only one of the biggest auto suppliers, but one of the most resilient — the company is celebrating its 100th anniversary this year.

EPA Clean Power Plan Court Battle on Pause?

A federal court’s recent ruling has given environmentalists a bit of a reprieve to look over their options, as the impending court battle to get rid of the Obama administration’s chief piece of environmental regulation takes a break (paywall).

President Trump used an executive order in late March to dismantle the Obama administration’s climate change agenda, according to Environmental Protection Agency Administrator Scott Pruitt. As MetalMiner reported at the time, the action will order several other federal agencies to undo the Obama administration’s climate change work: It will tell the Interior Department to end a moratorium on new coal leasing on federal land, the official said, and the Obama administration’s assault on methane emissions — outlined in early 2014 and overseen by Interior and EPA — will be ended, too.

EPA’s CPP, as it came to be known, could have had far-ranging consequences on U.S. manufacturing, especially on heavier emitters such as the steel industry, if enacted to its fullest.

China’s Copper Appetite Shifting from Refined Metal to…?

Reuters’ Andy Home examines how the 28 percent year-on-year drop in China’s imports of refined copper in Q1 2017 don’t tell the whole story of that country’s love affair with the red metal. In fact, China has shifted its focus to copper scrap, among other things. Read Home’s full analysis here.

And don’t forget to check back in tomorrow morning, May 2, to get a free trial of the latest edition of our Monthly Outlook Report — including forward-looking copper market analysis and buying strategies.

You can’t accuse the aluminum market of being boring, which is exactly what most consumers don’t want to hear.

As buyers, we like nothing better than a nice steady predictable market. A little bit of price inflation is good if you are a stockist or trader, as it keeps the market turning over and encourages forward buying. But as consumers, most buyers would rather the market be flat and boring, the same next month as this and predictable for six months out. “Can’t think when it was last like that,” you will say.

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The problem is that the most highly traded metal on the LME and the second most highly produced metal after steel is still buffeted by squalls from every quarter. Recently, talk (and let’s remember that so far it is mostly talk) of capacity closures next winter in the greater Beijing hinterland to combat pollution has helped lift the price by encouraging talk of scarcity. Beijing has shown solid intent in this direction, already denying planning approval to 2 million tons of new capacity in China’s northwest province of Xinjiang and clamping down hard on plants elsewhere that it deems to be failing environmental standards.

The next target is said to be smelters in China’s heavily industrialized provinces of Shandong and Inner Mongolia. Of China’s total illegal aluminum capacity (which, according to some sources, is between 3.7 million metric tons and 6.6 million metric tons), the clear majority of it (up to 4.3 million metric tons) is situated in Shandong, Aluminium Insider reports.

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This means that the impact of proposed closures could be profound. While Beijing was being dismissed for environmental posturing just months ago, the market is now taking it at its word. The expectation is that we will be seeing more of the same, with further closures likely during this year. Combined with the potentially more serious closure of alumina refining and carbon anode production capacity removal of even 2-4 million tons out of China’s 31+ million metric tons annual primary smelting capacity would tighten the market, probably pushing it into outright deficit.

At the same time, among a flurry of 100-day directives emanating out of the White House, President Donald Trump is due to sign an executive order this week calling for the Department of Commerce to accelerate the investigation on aluminum imports in the name of national security. The allegation is that damage to the U.S. aluminum industry from imports, particularly overproduction in China driving down global prices, has implications for national security. A positive ruling on this could result in tariffs or other restrictions against the estimated 55% of current US supply that is met by imports.

Both developments could be supportive of higher prices this year. In fact, when you look at the aluminum market, set against a backdrop of solid global growth and continued above GDP growth in the use of aluminum, you must ask where negative price pressures are to come from.

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One could be a more rapid appreciation of the U.S. dollar. A stronger dollar usually has a negative impact on commodity prices, but the market is already factoring in three Fed rate rises this year, and potentially inflationary tax changes proposed by the new administration are at least a year away from implementation. Short-term profit taking aside the only medium-term cap could be a psychological one of $2,000 per ton. But once breached, that becomes a support level for further rises.

It will certainly be an interesting year for aluminum.

The Commerce Department launched an investigation on Wednesday to determine whether a flood of aluminum imports from China and elsewhere was compromising U.S. national security, a step that could lead to broad import restrictions on the lightweight metal.

Commerce Secretary Wilbur Ross said the investigation is similar to one announced last week for steel imports into the U.S., invoking Section 232 of the Trade Expansion Act of 1962.

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“Here’s why we did it,” Ross told reporters, “Imports have been flooding into the aluminum industry and the defense angle is that high-purity aluminum is used in the F-35” as well as other military aircraft and vehicles. In the event of a war, domestic manufacturers might be unable to meet the Pentagon’s needs, Ross said.

The investigation mirrors a probe Commerce launched a week earlier focusing on the steel industry, also invoking section 232 of the act. North American aluminum trade groups have been pushing for such action for the last five years.