Articles in Category: Premium

The M3 GOES MMI — the sub-index tracking grain-oriented electrical steel — fell two points this past month from 189 to 187.

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The small decline in the U.S. runs counter to market price trends for Japanese GOES material. According to a recent TEX Report, Japanese producers have won price increases because of supply shortages. Moreover, Korea’s Posco scored a $300/metric ton price increase to supply India.

Meanwhile, MetalMiner sources say Chinese producers appear fickle, quickly raising prices only to lower them to accept new orders and fill capacity.

The 800-pound gorilla in the room, however, involves the Section 232 investigations.

Many are speculating that the delay will bring about a more modest set of recommendations from Department of Commerce Secretary Wilbur Ross, as the much-awaited report rumored to have been released prior to the July 4 holiday and delayed to right after the G20 summit, has still yet to be released.

MetalMiner speculated about potential outcomes in a story published nearly a month ago (and still believes that to be the most likely outcome). Meanwhile, Australia appears confident that it will be exempted from any such action. Some have suggested that Canada might also feel secure in receiving an exemption, but MetalMiner has not been able to substantiate that claim. Moreover, because Canada is such a significant supplier to the U.S. for steel products, it’s hard to conceive of how that country would receive a full exemption from whatever is recommended under Section 232.

Of course, Canada remains a critical part of the GOES supply chain, as Canada produces wound and stacked cores and exports them to the U.S.

Meanwhile, Back at the BRS Ranch…

In addition to the Section 232 investigation, David Stickler, CEO of Big River Steel (BRS), recently indicated at a steel conference that BRS would move forward with an additional study and due diligence activities on its Phase II expansion to include non-oriented electrical steel (NOES) capability.

Industry participants suggest that this could also include Phase III funding that includes GOES capability.

Last month, MetalMiner reported on growth projections for electric vehicles (which requires NOES materials to get the power from the battery to the motor) and the numbers suggest very large growth within the automotive sector. This will likely form the basis of due diligence activities and indirectly impacts GOES production, as NOES is often produced on the same lines.

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What this means for industrial buyers

It’s hard to pay close attention to the month-to-month movements of what is essentially a M3 spot market index. The Section 232 investigation outcome remains potentially the single biggest price driver for the U.S. market.

Exact GOES Coil Price This Month

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Here’s What Happened

    • MetalMiner’s Global Precious MMI took a bit of a dip this month, coming down 1.1% to 83.
    • The sub-index’s value held at 84 in June and May, but on balance, the price drops within the overall basket of metals couldn’t hold the ship steady into this post-Independence Day summer lull.
    • While our U.S. platinum bar price got very close to its 2017 start-of-the-month low (which it hit in January; more on platinum below), U.S. palladium rose 3.8% month-on-month to record its highest price in 34 months — nearly a 3-year high.

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What’s Going On in the Background?

  • Diesel goin’ down? Due to negative sentiment after Dieselgate, as MetalMiner’s Editor at Large Stuart Burns pointed out recently, sales of diesel vehicles in some parts of Europe have taken a dive in the past few months over concerns that “authorities will raise costs or otherwise make living with diesel engines a less attractive proposition for owners.” Overall, total car sales have dropped in some European markets, including the U.K. — but in the spots where they haven’t, gas-powered vehicles have been winning over diesel. In short, not awesome for platinum prices.
  • BEVs are not the panacea. Battery electric vehicles (BEVs) could be the ticket … except that the World Platinum Investment Council forecasts BEVs to make up no more than 5% of the market by 2025, so that wouldn’t work either.
  • Of course, investor demand, jewelry demand and other industrial sectors, such as chemical, all play into it. But “platinum’s fortunes will in part ride on the coattails of the auto industry’s ability to re-establish the diesel engine as an environmentally acceptable propulsion unit,” according to Burns.
  • Meanwhile, as my colleague Fouad Egbaria reported yesterday, gold is now trading on the LME.

What Metal Buyers Should Look Out For

  • The divergence between platinum and palladium prices of late certainly merits attention, and perhaps may drive industrial manufacturers to broader substitution efforts — but that could be a stretch. According to analysts cited by the Financial Times (paywall), “the divergence reflects a number of factors, including speculative demand and several years of production deficits that have eroded stockpiles and reduced available supplies.” The article goes on to say that longer term, “with the increasing popularity of electric vehicles, analysts say this year’s turbocharged run for palladium could be a last hurrah for the material, which has few industrial uses outside of the car industry.”
  • Last month, we wrote that “while we’re unsure of when prices will swing back up, mainly because output cuts in South Africa and elsewhere have seemingly not helped, it may be hard to discount current windows for smaller spot buys.” Fortunately for platinum spot-buyers, this still holds true.

Key Price Movers and Shakers

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The Renewables MMI, which tracks metals and materials going into the renewable energy industry, moved up by a single point for our July reading, up to 72 from last month’s 71.

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For just the second time this year, U.S. steel plate posted a price drop, falling 3.7% for this month’s reading. U.S. grain-oriented electrical steel (GOES) also fell, by 1.2%. GOES had alternated between price drops and rises all year until this month, when GOES dropped in price for the second month in a row.

Meanwhile, Chinese steel plate rose 1%. Chinese neodymium, cobalt cathodes and silicon also posted price increases.

Japanese and Korean steel plate both posted price drops, by 1.1% and 5.9%.

Feeling Green

The renewable metals market is potentially in for a jolt in the coming years, especially in light of the direction of the automotive industry.

Last week, Volvo announced that “every Volvo it launches from 2019 will have an electric motor, marking the historic end of cars that only have an internal combustion engine (ICE) and placing electrification at the core of its future business.” While the reviews are mixed regarding how revolutionary the announcement actually was, it is certainly a long-term boon for the metals used in electric vehicles.

In other automotive news, Tesla is preparing to debut its Tesla Model 3. According to a Reuters report Tuesday, the new sedan model is expected to increase Tesla’s sales by 500%.

While Tesla’s sales currently represent a tiny fraction of the sales of the traditional automotive heavyweights, its sales are on the rise.

According to Autodata Corp sales figures released earlier this month, Tesla’s U.S. sales in June amounted to 3,900 units, up by 25.8% from June 2016, and year-to-date sales in 2017 (23,550) were up 42.7% from the same time frame in 2016.

However, a Washington Post report earlier this week notes that electric-vehicles sales hit a wall in Hong Kong once tax breaks there expired.

In the short term, the same thing could happen as sales pick up in the U.S.

Currently, a maximum total credit of $7,500 is afforded for consumers who purchase plug-in electric vehicles. That credit, however, begins to be phased out once a manufacturer sells more than 200,000 vehicles in the U.S.

On a macroscopic scale, despite President Donald Trump’s decision to remove the U.S. from the Paris climate accord, renewable energy, in general, has picked up momentum.

While clearly a long-term goal, France announced it will ban the sale of petroleum- or diesel-fueled vehicles by 2040. Also, the U.S. Conference of Mayors voted in late June to approve a resolution to help cities establish a “community-wide target of powering their communities with 100 percent clean, renewable energy by 2035.”

Actual Metal Prices

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The Raw Steel MMI inched three points higher in June, increasing by 4.4%. The index hit 70-plus for just the second time this year (the first coming with March’s 70).

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The Chinese steel industry generally drives steel prices. Steel prices in China have increased during June, caused by the 23.3% jump in coking coal prices. However, this month’s uptrend counters the short-term downtrend that coal has experienced since February, which has largely driven steel prices down.

Source: MetalMiner analysis of TradingEconomics data

This downtrend in raw materials applies to both coal and iron ore. Although iron ore prices increased a bit this month, iron ore remains in a downtrend. Therefore, steel prices are at risk of following that downtrend.

Source: MetalMiner analysis of TradingEconomics data

The spread

The spread between Chinese hot-rolled coil (HRC) and domestic HRC prices has also narrowed this month.

The spread has continued to drop despite rising domestic HRC prices because Chinese HRC prices have also increased. A rising Chinese HRC price would lower U.S. steel imports, although imports have reached their highest levels since 2014.

If Chinese HRC prices increase, U.S. steel imports will decrease and lend support to domestic HRC prices.

Source: MetalMiner analysis of MetalMiner IndX data

Political uncertainty, the Trump administration’s Section 232 investigation recommendations and the recent G20 summit have only fueled price uncertainty. The outcome of these events will possibly have an effect on steel prices.

MetalMiner believes the delay in the release of the 232 recommendations — which were previously expected to be announced by the end of June — could cause U.S. steel prices to reverse this last month’s upward trend.

What This Means for Industrial Buyers

Though the Raw Steels MMI inched up this past month, scrap prices may be trading flat to slightly up from last month. However, the underlying trends do not suggest rising prices. The Section 232 investigations will yield additional clues.

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Actual Raw Steel Prices, Trends

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The Aluminum MMI dropped one point for our July reading, falling back to 87 after May and June saw the sub-index check in at 88.

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The sub-index has been in somewhat of a holding pattern since April, when President Donald Trump’s investigation announced it was opening investigations into steel and aluminum imports, invoking the little-used Section 232 of the Trade Expansion Act.

The Commerce Department held a public hearing June 22, during which industry executives offered their opinions on the challenges facing U.S. aluminum and whether protectionist actions should be taken. While primary manufacturers welcomed tariffs or quotas, downstream manufacturers weren’t as keen on the idea.

More recently, the International Trade Commission (ITC)  released its own report on the competitive conditions affecting the U.S. aluminum industry. The report’s executive summary zeroed in on five factors: the global aluminum industry is widely affected by government intervention through policies and programs that principally impact primary aluminum production costs; the chief determinants of competitiveness vary among industry segments; as of 2015, China was the world’s largest aluminum producer and consumer; competitiveness of the U.S. industry varied across segments; and the global aluminum market experienced price declines of roughly 30% during 2011–15 due to oversupply.

U.S. imports rose by 41% during the period from 2011–2016, to nearly 1.7 million metric tons, according to the ITC report. In terms of wrought aluminum imports, in 2016 the U.S. took in the most product from China (531,000 metric tons), with Canada coming in second (452,000 mt).

There was an uptick in optimism from the metals industry after the election of President Donald Trump, given his campaign promises regarding infrastructure building projects. Those campaign promises have yet to gain traction, and that initial excitement has leveled out — in short, many are in wait-and-see mode.

Per Section 232, the Commerce Secretary has 270 days to present the president with a report and recommendations. Many expect those investigation results to be announced sometime this month, although no official word has been given.

In an emailed statement Friday, Heidi Brock, president and CEO of The Aluminum Association, wrote: “Regarding the Section 232 investigation on aluminum imports and national security, we continue to engage the Administration and Capitol Hill to promote our three principles of 1) focus on the problem of Chinese subsidized aluminum overcapacity, 2) exempt Canadian imports and other foreign producers such as the European Union who trade fairly and have not contributed to rising global overcapacity, and 3) consider the effects of overcapacity on both primary and downstream producers.”

Actual Metal Prices

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The Copper MMI inched two points higher in July, driven by the recovery of the LME Copper 3-month price, which has been bounced off its previous lows and has increased by 4.98%. The copper MMI is back to April’s levels.

Analysis of supply and demand might suggest quite a bullish outlook for copper. Supply and demand has indeed driven copper prices in June.

During this past month, strikes have eased and production ramped up again. Even the strike at Freeport mine in Indonesia, the world’s second-largest copper mine, is set to continue and production will likely remain the same.

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On July 4, mining company Antofagasta announced it, too, might face a strike. This strike could impact two copper mines: Zaldivar and Centinela. The decision will be made at the end of this week. Chilean mining company Antofagasta Minerals is one of the largest global copper producers, with a combined annual production at both mines of 160,000 tons.

The International Copper Study Group (ICSG) has announced a possible supply deficit for this year. This is based on June’s released data on copper world mine production, which is estimated to have decreased by 3.5%, and world refined production, which is estimated to remain unchanged.

However, LME copper prices have started July with a five consecutive days of drops. Although June suggested a slight uptrend for copper, MetalMiner does not believe the uptrend is sustainable, as I reported in last Monday’s copper article

Source: MetalMiner analysis of FastMarkets

The LME copper price has not been able to break its psychological ceiling of $6,0000/metric ton. Moreover, recent weakness at the beginning of July, combined with poor trading volumes, suggests further weakness. Unless trading volumes shift, they are not supportive of copper prices.

The U.S. dollar and Chinese PMI indicators have historically shown correlation with copper prices. Even the U.S. dollar has shown a little uptrend during June, but its downtrend may continue, which would negatively impact copper prices. The short uptrend that has boosted copper prices during May and June has been caused by supply concerns.

U.S. Dollar. Source: MetalMiner analysis of StockCharts

The Chinese Manufacturing PMI rose unexpectedly to 50.4 in June. But this small increase may just be a blip. Current sentiment suggests Chinese demand may once again fall, as authorities are still working to curb financial risks.

In addition, the construction sector has fallen during the first quarter of 2017 by 83% (measured by value).  

What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point increase and the supply-and-demand narrative suggests a bullish outlook, we would like to see a stronger uptrend and increasing trading volumes to support a more bullish narrative.

Actual Copper Prices and Trends

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The Construction MMI showed no movement for our July reading, checking in at 81, the same mark as last month’s reading.

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According to U.S. Census Bureau data released July 3 — which includes the most recently available construction spending data for the month of May — spending just about held flat from April to May. U.S. construction spending in April amounted to $1,230.4 billion and fell slightly to $1,230.1 billion in May.

The spending picture is more robust when considering the year to date. During the first five months of 2017, total construction spending amounted to $469.2 billion, 6.1 percent more than the $442.4 billion for the same period in 2016.

Total private construction ($943.2 billion) was down 0.6% from the previous month but up 6.2% compared with May 2016. Public construction, meanwhile, amounted to $286.9 billion, up 2.1% from the April total but down 0.6% from May 2016.

While the year-to-date numbers are encouraging, a pair of issues are causes for concern among those in the construction industry.

Despite Static Picture, Things to Build With

The Architecture Billings Index (ABI), put out by the American Institute of Architects, noted that billings for U.S. architecture firms increased for the fourth straight month in May.

The ABI report was mostly positive, but included concerns regarding labor shortages and rising prices of building materials. According to the report: “The US Labor Department’s Bureau of Labor Statistics recently reported that prices for construction materials like steel, copper, aluminum, and asphalt have risen at a double-digit percentage pace over the past year. Cement, lumber, and gypsum have risen at a high single-digit pace over this period.”

As the specter of the Trump administration’s Section 232 investigations into steel and aluminum imports continues to loom, construction outfits might have to deal with further price increases if tariffs are slapped onto imports.

By region, the South notched the strongest month. With a score of 50 as a midpoint (meaning no decrease or increase), the South region of the U.S. came in strongest in the most recent ABI, with a score of 56.1. The West (52.3), Midwest (50.4) and Northeast (46.5) followed.

Actual Metal Prices

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The Stainless Steel MMI inched one point higher to 55 for our July reading, finding itself at the level as the July 2016 reading.

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This is the first increase for this sub-index since March 2017, when the Stainless Steel MMI reached 63 points after a four-point increase.

Surcharges in the U.S. mill surcharges have decreased sharply this month. Reductions have been recorded on a month-to-month basis, resulting in a 17.8% reduction for ATI’s 316 surcharge and 19.9% for their 304. MetalBulletin also reports a reduction in the alloy surcharges in Europe. Deliveries of grade-304 cold rolled stainless steel sheet have fallen by €52-62 ($58-69) per ton month-on-month.

Global prices of ferrochrome, one of the raw materials used to make stainless steel, has dropped to lowest levels this year. This reduction is caused by weaker demand from stainless steel mills in China, currently the top producer of stainless steel, as reported by Reuters. Two of the largest stainless producers in China (Taiyuan Stainless and Tsingshan Group) blame weaker demand on increased stocks of ferrochrome in Chinese ports.  

The U.S. manufacturing PMI fell to 52.1 in June from 52.7 in May. This indicator has fallen below market expectations of 53, revealing a slowdown in business growth. Manufacturing PMI is at its lowest value since September 2016.

Chinese economic indicators, meanwhile, point to a moderation in Chinese growth.

China’s GDP is also expected to fall 0.1% this quarter. The Caixin Manufacturing PMI in China has increased this month to 51.70 points, 2.1 points above its previous value. This growth has beaten the market expectations of 49.5, caused by the faster rate of exports and output in the Chinese manufacturing industry.

The Section 232 investigations for both aluminum and steel (including stainless steel) have created additional price uncertainty. Europe is now beginning to express its concerns about the possible outcome of the investigations. A report on the investigations is due by January 2018, though there is speculation that Commerce Secretary Wilbur Ross will release his recommendations in July.

Nickel prices have also shown weakness this month, reaching an 11-month low of $8,680/metric ton. Recently, nickel saw a stabilization in its supply. The export ban has eased in Indonesia, allowing the country to maintain its position as the world’s largest nickel producer.

What This Means for Industrial Buyers

The boost in stainless steel prices that comes from China counters the reduction of stainless steel surcharges this month. Political and macroeconomic indicators should also be watched closely.  

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Actual Stainless Steel Prices, Trends

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After sustaining a one-point drop last month, the Automotive MMI regained lost ground during the one-month period ending July 1. The Automotive MMI — our sub-index of industrial metals and materials used by the automotive sector — increased by one point, from 86 to 87, via a 1.1% boost.

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Although the increase was small, the one-point jump is an encouraging sign, as it marked the first increase for the sub-index since early this year, when it jumped from 82 to the February reading of 92. After that 92 mark, the sub-index posted four straight months of decreases.

Overall, U.S. auto sales continue to drop after a record 2016. Auto sales to the midway point of the year were down 2.1% compared with the same point last year, according to Autodata Corp data released earlier this week. Standard passenger cars took a nosedive in the year to date, with an 11.4% drop in sales (from 3.64 million units to 3.22 million).

However, the news isn’t all bad. Consumers have taken a liking to trucks this year — trucks have seen a 4.6% increase in sales in the year to date (compared to the same point last year).

In the year to date, General Motors (GM) sales fell 1.8% (but leads the way with nearly 1.44 million units sold in the calendar year to date), Ford‘s fell by 3.8% and Fiat Chrysler fell by 6.7%.

On the positive end, Nissan sales were up 2.7%, Volkswagen sales were up 7.6% and Mitsubishi sales were up 5.1%. As for Tesla, the electric car manufacturer, sales were up 42.7% after a jump from 16,500 units sold to 23,550 units sold in 2017 to date.

Meanwhile, growth in Chinese auto sales is slowing, partially due to lower tax breaks for compact cars, according to the Nikkei Asian review.

GM, however, reported a strong June, according to a Reuters report Wednesday. After two consecutive months of sales drops, GM reported a 4.3% sales increase in June compared with June 2016, according to the report. However, GM’s year-to-date sales are down 2.5%.

Total vehicle sales from January-May are up 3.7%, according to Reuters, lower than the anticipated 5% growth predicted by the Chinese Association of Automobile Manufacturers.

The Political Backdrop: Section 232

The Trump administration was expected to announced the result of its Section 232 investigation of steel imports late last week. That announcement never came, but many in the U.S. steel industry expect the administration to introduce tariffs or quotas in an attempt to strike at Chinese excess capacity.

Those policies would lead to domestic steel producers to raise prices, which would, of course, have an effect on automobile prices.

President Trump is headed to Germany this week for a Group of 20 (G20) summit, where Section 232 is likely to come up.

Whatever the administration ultimately decides, the steel and aluminum industries — and by proxy, the automotive industry — are watching closely.

Actual Metal Prices

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The Rare Earths MMI inched one point higher, reaching 22 points in July. This sub-index increased almost 5% from the previous reading.

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Rare earth prices have continued their uptrend that began in March.

Samarium oxide rose by 8.5%, while terbium oxide increased by 5.9%. Meanwhile, the dysprosium oxide price continued to fall slightly, posting a price drop for the second straight month. 

What’s Going On in the Background?

China currently produces around 85% of rare earth metals. Supply is, therefore, restricted to Chinese production and environmental policies.

With growing demand due to the investment in renewable sectors, such as electric cars and wind turbines, investment in rare-earth metal production remains critical.  

South Africa could play a strategic role in rare-earth metals supply.  The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths. 

In addition to South African rare-earth production, Canada’s Mkango Resources confirmed its  plans to start mining from its Songwe Hill mine in Malawi within three years.

By 2021, the mine will produce about 3,000 tons per year of rare earths. The mine will produce  1,000 tons of praseodymium, neodymium, dysprosium and terbium, according to a recent Reuters article.

The Mountain Pass mine, located in California, is struggling to reopen due to a long-running fight between distressed debt investors. Since Molycorp filed for bankruptcy, due to spending on an experimental ore-processing system, its mine has been caught between the feuding creditors.

The court process remains in its early stages— depending on the outcome, Molycorp could lose its rights to run this mine.

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What This Means for Industrial Buyers

Rare-earth metals seems to show signs of a bullish narrative. However, dysprosium oxide finished June weaker than it finished May, which potentially points to a good opportunity to buy.

Actual Rare Earth Metals Prices and Trends

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