Articles in Category: Non-ferrous Metals

Aluminum led industrial metals in February. Prices on the London Metal Exchange rose above $1,900 per metric ton for the first time since May 2015.

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In February, China finally approved its Air Pollution Control regulations, which came into effect on the March 1.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.

Aluminum MMI

The idea was first proposed in January and initially there was skepticism. Markets know that in the aluminum industry it takes time to ramp down and ramp back up production with smelters taking significant losses. This time, China is committed to enforcing the new law and it will prevent local authorities from protecting local smelters.

Capacity Crunch

Some 40% of China’s total capacity is potentially affected and analysts estimate that a 1.3 million mt of output will be lost. However, this figure could be larger since the new law will also impact the supply of raw materials such as alumina and carbon anode plants. Other industry analysts see a loss of 3 mmt of aluminum capacity.

The previous years of supply surplus might provide some cushion against the sort of disruption planned by Beijing. However, this potential supply shock is unprecedented in the aluminum industry and could translate into a complete game changer in terms of aluminum’s fundamentals.

Chinese citizens have previously protested about pollution issues, but tensions are getting much worse. In February, more than 200 people chanted and held banners outside the Daqing city government headquarters to protest against a new aluminum plant. Although the plant would produce more than 30,000 jobs to locals, they now prioritize pollution reduction over employment. As we’ve warned in previous reports, it’s hard to put a limit to aluminum’s price potential as smog moves to the top of Beijing’s policy agenda.

Midwest Premiums Hit $0.1/Pound

Midwest premiums rise to $0.1/pound. Source: MetalMiner IndX.

Midwest premiums continued to climb in February, hitting an almost three-year high. As we warned last month, in addition to higher aluminum prices due to supply cuts, we could see higher aluminum premiums this year due to ongoing trade tensions, just as we saw the spread between domestic and international steel prices widen.

The U.S. experienced a sharp contraction in aluminum smelting capacity over the past year. This has created a case of supply shortfall within the U.S., which now depends on aluminum imports to satisfy its rising domestic demand.

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This year, the U.S. launched a formal complaint against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country’s vast aluminum industry. The fight against imports is getting more serious and this is something that could support domestic aluminum premiums this year.

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Our stainless MMI gained in February as nickel prices rebounded. Prices had fallen in December and January as Indonesia relaxed its ban on exports of nickel ore. But nickel bulls ran over the bears last month as the Philippines ordered more mine shutdowns. As we expected, the shutdowns in the Philippines are a great driver of prices.

Stainless MMI

On February 2, the Philippines ordered the closure of 21 mines, and seven others could be suspended. The nickel mines recently ordered to shut down account for about 50% of the country’s annual output. As a result, investors sent nickel back to $11,000 per metric ton by the end of February.

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Stainless buyers will need to monitor nickel’s supply. These two major producer nations’ actions will continue to move the gauge on price direction this year. Meanwhile, the demand side of the equation will likely limit any significant downside in nickel prices this year.

The Caixin Manufacturing PMI in China beat market expectations in February, rising to 51.7 from 51 in January. It marked the eighth straight month of growth, driven by faster rises in output and new orders. In addition, stock markets in China hit new highs, signaling that investors’ sentiment on China’s economy remains strong. This is usually a bullish sign for industrial metal prices, including nickel. This relationship has been really strong since China became the world’s top producer and consumer of commodities. In the U.S., the closely watched ISM manufacturing index hit 57.7 in February, marking the highest level since August 2014.

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Also in February, the Department of Commerce placed final, affirmative anti-dumping and countervailing duties on imports of stainless steel sheet and strip from China. Domestic flat-rolled mills are benefiting from these actions, with lead times of eight weeks.

What This Means For Metal Buyers

Industrial metals continue to rise on robust demand and shrinking supply. The supply/demand fundamentals of the nickel industry look more complex than those of other base metals. However, higher import duties in stainless markets and the ongoing bullish sentiment on industrial metals will at least, prevent nickel prices from significant downside moves.

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Copper prices remained supported in February, trading in the ballpark of $6,000 per metric ton as a return to production at two top mines — which are combined responsible for some 8% of global output — looks increasingly doubtful in the near term.

Escondida Mine

A strike at the Escondida in Chile, the world’s largest copper mine, appeared far from ending during February. The strike increasingly turned more violent as protesters blocked roads and battled police. The events reflect the increasing bitterness and division between the two sides, as positions still appear to be far apart after almost four weeks of strike. Key differences include disagreement over changes to shift patterns and the level of benefits new workers receive.

Grasberg Mine

Meanwhile, Freeport-McMoran is under a concentrate export ban as it negotiates a new operating license from the government of Indonesia. Having limited storage capacity, the company will be forced to drastically cut output if Indonesia doesn’t give the company an export license to send material to its local smelter for processing.

Copper MMI

In late February, the company announced that it sees “no returning to business as usual,” as the miner cut output and laid off workers. Copper concentrate production at the mine has been stopped since Feb. 11, and ore output is being limited to stockpiling for future processing.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In a memo, The company stated that during February it revised its operating plans, slowed its underground expansion and announced plans to drastically reduce manpower levels in an effort to cut costs as the company needs to survive while it works with the government to achieve a mutually viable solution to resume exports. So far, that agreement doesn’t seem close to coming together in the near term.

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This year, there will be other temporary suspensions at smaller copper mines such at El Soldado mine in Chile. In addition, some major contract negotiations in large mines are due this year.

What This Means For Metal Buyers

Copper prices might look expensive compared to what they were just three months ago, however sentiment in the industrial metals complex remains quite bullish and current supply issues could turn into large deficits if stoppages and disruptions are prolonged. It’s seems early to call for an end on copper’s bull market.

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Copper prices are trading near $6,000 per metric ton, up 30% from just four months ago. Things can change quickly and I don’t know where prices will be by the end of the year, but what’s clear to me is that most analysts’ forecasts seem way off. According to a recent survey polled by Reuters, copper analysts are are expecting prices to average $5,350/mt this year.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In my opinion, this is a very conservative price average and quite bearish due to what Behavioral finance calls “anchoring,” the human tendency to attach or “anchor,” our thoughts to a reference point even when it makes no logical sense. Analysts see that copper prices have risen significantly and quickly, so they anchor the new price of $6,000/mt onto the $4,500/mt level where prices were trading at just a few months ago. This creates the idea that $6,000/mt is an expensive price for copper and, for this reason, you will almost see no one but me calling for an average above $6,000/mt this year. Read more

A recent article from news service Reuters raises concerns over the continued strength of the aluminum price.

Benchmark Your Aluminum Price by Grade, Shape and Alloy: See How it Stacks Up

Global aluminum prices have risen over the last six months, led by a strong rebound in the Chinese market. From a low of just over 9,000 yuan (electric town) in November 2015, the Shanghai price as risen steadily to above 14,000 yuan today as this graph from Thompson Reuters illustrates.

Source: Reuters

Spurred by healthy demand and the rising price, smelters have responded with gusto. As primary metal production in the rest of the world has fallen by an annualized 182,500 metric tons per year, output in China has surged. Although monthly figures are subject to considerable swings, Reuters reports January hitting a record of 2.95 million mt according to figures from China’s non-ferrous metals industry association. That is equivalent to an annualized rate of 34.7 mmt or 56% of global output, a staggering 19% year-on-year growth. Read more

When it comes to metal prices, is any one price really representative of the hundreds of transactions that happen every day? While market prices posted on exchanges are a good guide, isn’t it the transactions behind them actually move markets?

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Organizations have been tapping the potential of crowdsourcing, defined by the Tow Center for Digital Journalism as the act of specifically inviting a group of people to participate in a reporting task—such as newsgathering, data collection, or analysis—through a targeted, open call for input; personal experiences; documents; or other contributions.

The British Parliament used a primitive form of crowdsourcing in 1719 to find a way to measure a ship’s longitudinal position. The Crown offered the public a monetary prize to whoever came up with the best solution. In 1970 French amateur photo contest ‘C’était Paris en 1970’ (‘This Was Paris in 1970’) — sponsored by the city of Paris, France-Inter radio, and the Fnac — got 14,000 amateur photographers to produce 70,000 black-and-white prints and 30,000 color slides of the French capital to document the architectural changes of Paris. Photographs were donated to the Bibliothèque historique de la ville de Paris.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The actual term crowdsourcing wouldn’t be coined until 2005 when Wired writer Jeff Howe used it. Some organizations have successfully mined its potential to create powerful e-businesses. Netflix used crowdsourcing to improve its recommendation engine by 10%, attracting over 44,000 submissions. Wikipedia’s content is entirely crowdsourced from contributors to create a “free-access, free content Internet encyclopedia. Wikipedia executives have said the non-profit service never could have worked without crowdsourcing.

MetalMiner Benchmark

We recently launched MetalMiner Benchmark. Source: MetalMiner.

Lego Ideas is a platform that lets individual Lego builders submit their ideas, like this Volkswagen Golf brick creation, to the company for production. Kickstarter, GoFundme and other platforms have branched out into crowdfunding, using crowdsourcing to solicit donations for specific projects or, as in the link above, even funding for zoo animals like giraffes.

What Does This Mean for Metal Buyers?

MetalMiner recently launched a new metal price benchmark service. You can currently use MetalMiner Benchmark to compare what you’re paying for raw materials against 31,384,272 price benchmarks from 1,232 companies in 22 Industries. By adding your prices to the MetalMiner Benchmark database, the crowdsourced price database will grow exponentially.

We will continue to offer the latest transactional price information to you, the metals buyer, to inform your decisions about several forms of carbon steel, stainless steel, aluminum, nickel alloy and alloy steel on our safe, secure and anonymous platform. All data entered is validated for its accuracy and then only used for price comparisons.

The showdown between global copper miner Freeport-McMoran, Inc. and the Indonesian government got a little hotter this week.

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Arizona-based Freeport majority-owns the world’s second-largest copper mine, Grasberg in Indonesia. The company has been trying to get a new permit from the Indonesian government to continue exporting copper concentrates for the last six months. On Monday Freeport said it would not accept terms of a deal the government offered that would allow it to resume shipments of copper concentrate that have been idled since January 12.

One More Year… Then Give Up Your Mine

Friday the Indonesian government offered Freeport a new, one-year deal that would allow the company to continue exports but only if it agrees to new rules requiring it to build a new copper smelter in Indonesia within the next five years and also agree to switch to an operating license, the terms of which would require Freeport to, eventually, give up control of Grasberg.

Kennecott Copper Mine

Open pit copper mines such as Rio Tinto’s Kennecott in Utah could increase production and increase sales if Grasberg stays closed. Source: Adobe Stock/Photofly.

Freeport CEO Richard Adkerson, naturally, turned down that offer and said the company is unwilling to revisit the terms of its 30-year contract to mine at Grasberg, which accounts for about a third of Freeport’s annual copper production and 40 to 50% of its worldwide assets. He also said Freeport would consider going to arbitration if it can’t settle this dispute within 120 days. Read more

The 3-month London Metal Exchange lead price is still climbing. Source: Fastmarkets.com.

Lead has had a pretty wild ride over the past few months. After a big run in 2016, prices sold off in December, offering buyers a great opportunity to buy the metal as prices pulled back.

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Prices are now back near new highs as bulls seem to be taking control again. For reasons we’ll see below, we expect momentum to pick up again on the upside.

Global Lead Refined Production and Usage. Source: MetalMiner IndX.

According to the International Lead and Zinc Study Group, in 2016 refined lead supply exceeded demand by 11,000 metric tons in the global market. Read more

Source: MetalMiner IndX

Zinc hit a record shortage in 2016. According to the International Lead and Zinc Study Group, zinc registered a deficit of 286,000 metric tons last year. Global usage of refined zinc metal rose 3.6% while supply remained pretty much flat thanks to a number of mine shutdowns.

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The tightening in zinc’s raw material segment accelerated last year thanks to the closure of big mines such as Century, Lisheen and Glencore‘s suspension of 500,000 mt of annual mine capacity. These closures have impacted the supply of mine concentrates drastically and, for the first time, we are seeing an impact in the refined metal market.

In February, Korea Zinc Co. announced it will reduce its refined zinc output by 7.7% (or 50,000 mt) this year. The company attributed its decision to tight supplies of mined concentrate and the accompanying reduction in treatment charges, which have plummeted to multiyear lows.

Prices at Multiyear Highs

Zinc is trading near multiyear highs. Source: MetalMiner analysis of Fastmarkets.com data.

As a result of this narrative of supply shortfall, zinc is trading at the highest levels in more than eight years. Bulls have been in such a powerful position that prices have barely retraced during this run.

Will China Cut Output This Year?

Outside of China, mine supply of zinc fell by 10% last year. However, production increased inside China. In 2017 investors will be closely monitoring China’s numbers. Although output rose, imports slumped by 38% last year. This, combined with falling treatment charges, suggests that a raw material shortfall is building in China as well. China must get serious about controlling industrial metals output to solve its pollution problems.

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The conclusion: it’s only a matter of time before Chinese producers are forced to cut refined zinc output.

All work has stopped at Freeport-McMoran‘s giant Grasberg copper mine in Indonesia, just over a month after the country halted exports of copper concentrate to boost domestic industries.

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Freeport had said the suspension would require the mine to slash output by 60% to approximately 70 million pounds of metal per month if it did not get an export permit by mid-February, due to limited storage. A strike at Freeport’s sole domestic taker of copper concentrate, PT Smelting is expected to last at least until March and has limited Freeport’s output options as Grasberg’s storage sites are now full.

Nippon Exec: Chinese Steel Prices Will Hold Firm

Nippon Steel & Sumitomo Metal Corp., Japan’s biggest steelmaker, expects steel prices in top consumer China to hold firm at least until its Communist Party congress late this year, amid solid demand that is underpinning coking coal and iron ore markets.

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Chinese futures contracts for steel rebar used in construction have already risen 17% in 2017, on top of a gain of more than 60% last year