Articles in Category: Premium

The GOES M3 MMI took another jump this past month moving from 192 to 200 for a 4+% increase. Last month the index made a 5% gain.

Last month, MetalMiner examined the Trump administration’s stance on trade policy and likely impact on GOES markets (and concluded that GOES prices would not see too much of an impact since most of the imported GOES material comes from Japan, Russia and the U.K.) In other words, even in a trade war with China, we don’t expect that to drive GOES price momentum.

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However, and as one of our readers pointed out, our story failed to address “Buy America” requirements which, indeed, could impact GOES markets.

We know President Trump implemented Buy America requirements for the Keystone XL and Dakota Access pipelines including all new pipelines and retrofits (even slab imports are disqualified for domestic producers with only rolling operations here in the U.S.) Could Trump implement Buy America requirements for transformers? The answer to that question: absolutely! It’s clear that Trump will act aggressively to promote Buy America requirements. These requirements will serve as a bullish indicator for GOES prices.

In the aftermath of the GOES domestic anti-dumping case, many large equipment manufacturers moved production of stacked and wound cores as well as laminations to suppliers in Mexico and Canada in anticipation of significant duties being placed on GOES imports here in the U.S. Those duties did not materialize. Nevertheless, production moved to NAFTA countries anyway.

Which brings us to NAFTA. President Trump has promised to renegotiate NAFTA. But in truth, NAFTA has not been bad for the domestic steel industry. It remains unclear what specific changes the President will attempt to renegotiate. Furthermore, AK Steel could find itself in a bit of a pickle. On the one hand, from an overall perspective, AK Steel has probably benefited from NAFTA as the agreement currently stands, though its GOES business, in particular, may have suffered as AK customers moved operations to Canada and Mexico. As the sole remaining domestic GOES producer, AK Steel may need to walk a fine line between what it lobbies for in terms of Buy America and what it has gained with NAFTA.

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Meanwhile, the industry should pay close attention to Big River Steel which reported record first-month production for a flat-rolled mini mill. BRS has publicly stated that they will add GOES capacity at a later stage. Aperam South America has started a GOES line out of Brazil. Imports from South America could increase just as BRS is starting its GOES line.

Meanwhile, what’s driving GOES price momentum right now?

According to a recent TEX report, orders that are typically placed during the summer months did not get placed which created a surplus. Since January, buying organizations have come back into the market including: Chinese, Korean and U.S. customers. In addition, a large tender for the Middle East will soak up some extra capacity which has caused market entrants to secure material before that tender is released. This has likely caused some price momentum as Baosteel raised prices for February shipments.

U.S. import levels have also increased during January supporting the notion that demand has increased.

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Our Stainless MMI inched lower in January but it’s already working higher in February as nickel prices rebound.

That Other Ban

In mid-January, Indonesia issued significant new mining rules that will relax its ban on exports of raw nickel ore.

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The revisions to the earlier regulation will allow miners to only export low-grade ore (defined as metal content of 1.7% or less) as long as they express a commitment to build their own smelters within five years and are able to supply domestic smelters with enough low-grade ore to meet at least 30% of the country’s input capacity.

Stainless MMI

This distinction between low-grade and high-grade ore (1.7% or more metal content) is important. Lower-grade ore increases the cost base for Chinese nickel pig-iron. In addition, NPI and ferronickel are more energy intensive than the higher grade refined nickel. Therefore, the greater use of lower grade nickel leads to more pollution, an issue that China is currently tackling.

According to Indonesia’s mining minister, Indonesia produces 17 million metric tons of nickel ore per year, of which 10 mmt is low-grade. The country’s nickel smelting capacity is currently 16 mmt and may reach 18 mmt this year.

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As its mining minister puts it, Indonesia may export up to 5.2 mmt of nickel ore a year under the country’s new rules. This is less than 9% of what the country used to export prior to the ban. Although this is important information to take into account, Indonesia’s easing will not flood the global market as many feared.

More Shutdowns In The Philippines

On February second, 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. Prices rose sharply on the news as the mining shutdowns in the Philippines seem likely to be a to greater driver of price movements than the easing of Indonesia’s export ban.

What This Means For Metal Buyers

If we narrow our view to the supply/demand fundamentals of the nickel industry, the picture looks bullish, but rather complex. However, we need to widen our view to the whole industrial metals spectrum, and that picture looks quite bullish. Industrial metals continue to rise on robust demand and shrinking supply. The bullish sentiment across the metal complex, combined with more nickel mine closures should support prices in the mid-term.

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It can be tempting to lump our Renewables MMI in with the Rare Earths MMI as sub-indexes that rarely move with fairly calm, if lower-priced, markets.

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That might be true of the once-high-flying RE market, but to say that about renewables would be a mistake. Sure, many of the magnets and batteries derived from rare earth elements end up in wind power installations and hybrid/electric cars so there’s a direct relation from end use, but the real difference maker in the renewables market is solar.

An estimated 2% of all new jobs created in 2016 in the U.S. came from the solar industry, according to the Department of Energy. 10% Of those jobs came from non-warm weather climes such as Colorado, too, so regional limitation is essentially over. The solar industry employs more than three times the amount of people as the coal industry, despite the political power of the latter. Solar installations are expected to rise by 29% this year from last. While wind and other renewable technologies have a long road to adoption, the solar industry is largely “there” when it comes to supplying energy directly to homes and businesses with solar silicon photovoltaic panels affixed to them and even directly to modern energy grids.

Aside from those statistics, too, there are market forces at play that make solar adoption a strong investment opportunity. China’s National Energy Administration has revealed its solar power production more than doubled in 2016, hitting 77.42 gigawatts, making China the world’s largest producer of solar energy.

But Jeff, you say, isn’t this just yet another promised tipping point? Haven’t we been promised all of this before? What makes me feel different about these studies is that they are based on jobs, and not adoption numbers alone. You may have noticed that we have a new President who is very eager to develop new American jobs. As much as President Donald Trump might like oil pipelines, coal mines and steel mills, he’ll need solar to create millions of American jobs and to make us all tired of winning so much.

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The DOE report says 187,117 workers are employed at coal, oil, and natural gas power plants compared to nearly 374,000 people in the solar industry. This is somewhat misleading because an array of direct and indirect jobs related to exploration, excavation, construction, and well surveying—still employs millions of people come from fossil fuels such as oil and natural gas exploration and those aren’t counted. Still, the National Solar Jobs Census 2016 documents truly dramatic growth of a the solar industry in less than a decade and that 10% projected increase isn’t something the Trump administration can afford to miss. Workers who install rooftop solar panels make up the largest share employment in the sector at 137,133 jobs.

Increasing installations would be considered the low-hanging fruit of jobs growth. The Renewables MMI was up 2% this month.

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California’s Mountain Pass mine, the sole significant developed source for rare earths elements in the U.S., will go on the auction block in March, according to papers filed in late January in the U.S. Bankruptcy Court in Wilmington, Del.

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Up for sale is land and some equipment at the mine which cost former owner Molycorp, Inc. roughly $1 billion to develop, according to the court. Mineral rights at the site belong to an entity called Secured Natural Resources LLC, which is owned by creditors of Molycorp including JHL Capital Group LLC.

The open-pit mining operation was part of Molycorp’s plan to have both production and processing capability for rare earths, at a time when prices were high (early in this decade)… but as our Rare Earths MMI chart shows, prices have been flat for eight consecutive months now and low for much, much longer. The prices of the 2011 rare earths market, strongly affected by Chinese supply disruptions, appear to be nothing more than a distant memory at this point.

A switch in trade policy in early 2015 — prompted by losing a World Trade Organization case — ended export quotas placed on Chinese producers effectively killed any chance Molycorp had to compete based on costs of production. Molycorp’s rare earths processing business, with operations mainly in Asia, emerged from the bankruptcy as the core of a reorganized company, Neo Performance Materials, but Mountain Pass and its high cost of production were left behind in the reorganization.

According to the Wall Street Journal, a Swiss investment fund linked to Russian-born billionaire Vladimir Iorich is part of a buyout group that has made an offer to take over Mountain Pass. Pala Investments Ltd., Iorich’s investment firm, is a partner in a buyout group’s $40 million offer for the assets. Joining Pala is Novatrek Capital GmbH, a private-equity firm founded by Pala alumnus Joseph Belan, as well as Sole Source Capital of Los Angeles, according to filings with the bankruptcy court.

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Efforts to sell Mountain Pass out of bankruptcy had struggled because the mine carries with it national security concerns, due to its ability to produce rare earths for high-tech military equipment, and might catch the eye of international trade regulators. The Committee on Foreign Investment in the U.S., or CFIUS, is likely to take an interest in new owners, according to courtroom discussions during the bankruptcy case, the Wall Street Journal reported. CFIUS is an interagency body tasked with reviewing transactions that could result in control of a U.S. business by a foreign person to determine if the deal would have affect the national security of the U.S.

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Copper prices rebounded to a 6% increase in January. The combination of a falling dollar and a potential work stoppage at the world’s largest copper mine lifted prices to test the psychological level of $6,000 per metric ton.

Base metals looked more bullish in January and strong Chinese data is no doubt driving that. China’s PMI was in growth territory for the seventh consecutive month. Here in the U.S., President Donald Trump signed executive orders to continue progress on two key energy pipelines, making good on his campaign pledge to rebuild the nation’s infrastructure.The new president also broke with protocol and expressed a desire for a weaker dollar.

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Trump’s words helped drive the value of the dollar down in January. This gave a boost to industrial metal prices and dollar-denominated commodities such as crude oil, which continues to remain supported above $50 per barrel.

Escondida Strike: New Catalysis?

Even though copper markets are still in surplus, investors know that copper is a very slow business in terms of new project development. Consequently, even if prices continue to rise enough to incentivize new developments, it will take a long time for that new supply to hit the market.

Supply concerns have recently risen due to a potential strike in the giant Escondida copper mine in Chile. Last week, the mine’s workers voted against the company’s latest wage offer, opening the door for a strike and potentially setting the case for wage negotiations across the industry since almost a fifth of global mine capacity is facing contract renewals.

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This is the largest copper mine in the world, supplying 5% of the world’s copper production. The potential stoppage at Escondida coincides with an interruption to supplies from Indonesia’s Grasberg, the world’s second-biggest mine where exports of concentrate have been halted.

What This Means For Metal Buyers

Copper prices might look expensive compared to what they were just three months ago. However, that rally might just be the beginning of a bigger move. Sentiment in the industrial metal complex remains quite bullish and there are factors currently playing out that could build the case for another rally in copper prices. Copper buyers should minimize their commodity price risk exposure accordingly.

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Our Raw Steels MMI rose 8% in January. Flat products achieved or came close to multiyear highs across the sub-index. In this post we will lay out some of the factors driving this price rally. A rally that we predicted three months ago.

Rising International Steel Spreads

In late January, President Donald Trump took executive action to advance construction of the Keystone XL and Dakota Access oil pipelines. This will significantly increase U.S. steel demand from the energy sector.

The new president also issued another executive order that required them, and all pipeline projects, to use only American-made steel. There is no language in Trump’s memo that indicates any waivers for American-made steel would exist for trade-agreement countries. If this policy is adopted, for at least the next four years even by only the executive branch, it is, by far, the most stringent definition of “American-made” we have seen in federal steel procurement.

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With the expected increase in U.S. demand for steel and new “Buy American Steel” policies, the spread between U.S. and international prices could widen this year. Spreads bottomed at the end of November and it looks like there have room to rise again.

Strong Chinese Steel Prices

China shut at least 45 million metric tons of steel production capacity last year, meeting its target, in a drive to address a glut through 2020. In January, China unleashed its boldest reform plan so far for its bloated steel sector, saying it will eliminate all production of low-quality steel products by the end of June.

Coal burning is the biggest contributor to air pollution in China. One of the principal users of coal, and therefore most polluting, is its steel industry. This is another reason to believe Beijing will strengthen its supply-side reforms this year.

Meanwhile, demand indicators from China, by far the largest consumer of steel, continue to look strong. This combination of lower-than-expected supply and stronger-than-expected demand has translated into rising steel prices in China, which continue to look strong. In addition, iron ore prices have held above $80 per mt. Chinese steel mills rely heavily on seaborne iron ore.

Falling China Steel Exports

Chinese steel exports have fallen in double digits for four consecutive months. The E.U. has slapped anti-dumping duties on some Chinese steel products. India has set a minimum import price for steel products to fend off cheap Chinese steel from its borders. The U.S., no slouch when it comes to anti-dumping and countervailing duties on Chinese steel already, now favors a more aggressive trade policy, regularly citing job losses as a result of imports from foreign countries, especially China.

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As more countries act against the menace of Chinese steel products, we could see further moderation in Chinese steel exports in 2017, and this would bode well for global steel markets.

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Well, perhaps these rebounds are not quite worthy of The Worm — but our Global Precious Metals MMI has hit its highest level since October 2016, climbing 7.9% to 82 for the February reading.

PGMs Lead the Way

Two of the biggest movers on MetalMiner’s precious metal sub-index were U.S. prices of platinum and palladium, rising 10.2% and 10.9%, respectively.

That palladium increase nearly got the price to the 18-month December 2016 high.

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Here’s the deal with palladium in a nutshell, from MoneyWeek:

“Both U.S. and Chinese car sales have been solid of late, with the latter rising at their fastest pace in three years (in 2016) and the former potentially set for another boost thanks to President Trump’s fiscal stimulus. China’s pollution problem is forcing it to tighten car emission standards, adds Chen Lin on Equities.com, which implies a steady rise in demand for palladium over the next few years.

“On the supply side, South Africa, the world’s top supplier, is not expected to increase mined output much. Analysts reckon that dwindling sales from Russia’s stockpiles means they are probably nearly depleted. TD Securities thinks the market deficit could double this year.”

What a Gold Mine!

Our intrepid editor at large, Stuart Burns — you might remember him from world-class macroeconomic coverage as it pertains to industrial metals, or (our) voice of James Bond’s Q — recently explored the wilds of India, and with him, he brought back gold.

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Or, to be more accurate, some gold coverage.
Soon we’ll publish Stuart’s take on the gold import situation in India. Here’s a taste:

“Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu Times, that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep, down to 3 kilometers, and Bharat was operating with outmoded technology and a large unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.

India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point — any contribution will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 metric tons, there appears to be scope — with the right state and government backing — for miners to reduce some of those imports and create domestic employment.”

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In January, aluminum prices broke through the $1,800 per metric ton level. That was an important development signaling that bulls are taking over. Just a month ago we pointed out that prices had upside potential.

We believe the key this year will be on the supply side and not as much on the demand side. These are some factors that could limit growth in aluminum output this year:

Pollution in China

A recent Chinese government document proposed that about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi should be shut over the winter months. That sparked excitement among aluminum investors. These provinces account for over 20% of global aluminum output.

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In addition, late last month the country passed a law that will allow it to impose environmental protection taxes from January 2018, following an outbreak of hazardous smog in northern China where many industrial producers are located.

The takeaway is that China is taking air pollution seriously. Given that coal burning is the biggest contributor to air pollution in China, industrial metals supply could shrink this year, particularly steel and aluminum. Environmental closures are looking increasingly likely in China this year. What’s still up in the air is how much energy-efficient capacity will replace shutdowns in dirty capacity.

Trade Barriers

The fight against imports is getting more serious and this is something that could support not only aluminum prices but also midwest premiums, which rose to $0.09/pound in January. Recently, 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.

In addition, U.S. customs officials seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world. The move is the most potent action yet by federal authorities probing whether U.S. companies connected to Chinese magnate Liu Zhongtian illegally avoided nearly 400% tariffs by routing the metal through other countries.

The same combination of domestic environmental and foreign trade imperatives already forced China to get serious about steel capacity closures. Is it possible that we see a similar outcome in aluminum? Quite likely.

Rising Raw Material Costs

Many analysts argue that cutbacks in China won’t happen because aluminum prices are well above last year’s levels, when prices were trading at $1,450/mt. However, it’s important to note that production costs are well above last year’s levels, too. The increase in production costs will limit additional restarts this year.

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Chinese coal production dropped 10% last year. Thermal coal prices doubled and hard coking coal prices quadrupled. China also proposed to close 50% of alumina refining capacity in Shandong, Shanxi, Hebei and Henan from November to March. Alumina prices already rose by more than 50% in 2016. Further shutdowns are likely to support prices of the raw material this year.

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Our Automotive MMI took off in February, surging 12.2% along with strong gains in steel prices and all of the base metals in the automotive index saw gains in the first full month of 2017.

Hot-dipped galvanized steel was a particularly strong performer along with the catalyst metals, palladium and platinum. The tough talk about U.S. automotive production that President Donald Trump started during the campaign has only ramped up since his inauguration. Automakers could have to significantly alter their purchasing and supply chains if a border tax is enacted.

House Republican leaders have proposed what they call a “border-adjusted tax,” which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer recently said it was under consideration and could help pay for a wall along the Mexico border.

An overhaul of the U.S. tax system could hand an advantage to Ford Motor Company, Honda America and General Motors, which rely the least on imported vehicles among the major automakers. The shake-up, if it is a border-adjusted tax, would clearly undermine Toyota America, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields told analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79% of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Motors. Honda ranks just behind Tesla and Ford, with 68% of its U.S. sales coming from domestic plants, followed by GM with 65%.

If the first weeks of the Trump administration are any indication, though, initial action on a tax plan could happen quickly via executive order and the lengthy process of legislation could be a post-executive order action plan.

January is typically the weakest month of the year for U.S. auto sales, and last month appeared to be no exception. Sales fell 2% to 1.1 million, according to Autodata Corp. Supply chain executives are clearly more worried about supply chains and a possible import tax this month than end-product sales.

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U.S. construction spending unexpectedly fell in December as investment in private projects rose marginally and public outlays tumbled, which could have an impact on the economic growth estimate for the fourth quarter.

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The Commerce Department said on Wednesday that construction spending slipped 0.2% to $1.18 trillion. Construction spending in November increased by an unrevised 0.9%.

Economists polled by Reuters had forecast construction spending gaining 0.2% in December.

Construction spending still increased 4.5% in 2016, but the rate of increase was less than half of its 10.6% surge in 2015. The government reported last week that GDP increased at a 1.9% annualized rate in the fourth quarter after accelerating at a 3.5% pace in the July-September period.

Our Construction MMI increased nearly 3% in February, as prices of both steel and aluminum products increased and buoyed the index. 73% Of construction firms said they expect to expand their payroll this year, according to survey results released Tuesday by the Associated General Contractors of America and Sage Construction and Real Estate.

Increased prices and general optimism about the infrastructure plans of the incoming Trump administration are contributing the overall bullish environment for construction metals. The steel sector, in particular, is suddenly a hot investment sector. Michael Tomera, head of PricewaterhouseCoopers‘ U.S. steel analysis arm, recently told me in an interview that, “There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.”

Equipment manufacturers are also investing heavily in new technologies to apply to construction site safety, inspections and other fields. Equipment manufacturer Caterpillar, Inc. has invested in San Francisco drone tech startup Airware. Rather than make its own unmanned aerial vehicles, Airware has focused its efforts around providing software and services that help large enterprises use drones throughout their operations. Airware’s cloud-based software helps companies plan flights, automate them as much as possible, then analyze all the data their drones collect.

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Drones have been used on construction sites for the last five to ten years, but the fact that a key player like Cat is investing in the technology is a sign of a maturing market. Site technology doesn’t directly affect construction metal prices but it is part of a trend in lean project delivery that has delivered better results, and better projects, for general contractors and construction managers over the last decade. In other words, the increase in construction projects in the U.S. is directly proportional to better project management.

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