Articles in Category: Sourcing Strategies

US hot-rolled coil prices retrace. Source: MetalMiner IndX.

Since November — Coinciding with Donald Trump’s victory — U.S. steel prices have been on a tear.

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However, in February momentum started to cool down. It’s now buyers’ job to determine whether this is a major peak or just a pause within this bull market.

Chinese Steel Capacity Rises in 2016

In February, a report by Greenpeace East Asia and Chinese consultancy Custeel stated that despite China’s high-profile efforts to tackle overcapacity, China’s operating steel capacity increased in 2016. The report says that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 million metric tons of cut capacity involved shutting down production plants that were operating.

Meanwhile, some 49 mmt of capacity that had previously been suspended was restarted, and 12 mmt of new operating capacity came online. That means that China added 37 million metric tons additional operating capacity in 2016. 

Hot-rolled coil prices in China also take a pause. Source: MetalMiner IndX.

This news is bearish for steel prices and it is likely contributing to lower steel prices in February, both in the U.S. and China. Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its initial lead findings for February, and found that in 2016, supply exceeded demand in the global market for the refined metal.

Furthermore, lead inventories reported by the London Metal Exchange, Shanghai Futures Exchange and consumers and producers during that same period of time increased, as well.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

The ILZSG report elaborated: “There was a sharp decrease in Australian lead mine output mainly as a consequence of the closure of the Century mine in 2015 and cutbacks in output at some Glencore operations. Production was also lower in India and Mexico. However, these reductions were partially balanced by a rise in China resulting in an overall global decline of 1.3%.”

However, world refined lead metal production actually increased 2.4% in 2016. This was mostly attributed to the Republic of Korea (South Korea) commissioning a new primary lead plant in 2015.

Lead Price Momentum on High in 2017

According to a recent piece from our own Raul de Frutos, after a strong run in 2016, lead prices pulled back to close the year. However, prices have since recovered and Raul predicts they will trade at $2,800 by the end of this year.

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“(Lead prices) are currently below $20 per metric ton, from $80 just three months ago. In this respect, lead is playing catch-up with its cousin zinc, in which the deficit for refined metal is more obvious. In 2017 investors will be closely monitoring China’s numbers. The slump in treatment charges and the fact that China must get serious about controlling industrial metals output to solve its pollution problem could result in lower lead refined output this year.”

How will lead and base metals fare this year? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

This week President Donald Trump began to deliver on his campaign promises to deregulate industry and unshackle American manufacturing, using the Congressional Review Act, a 1996 law that empowers Congress to review, by means of an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule the regulation.

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First up, Congress passed a law under the CRA that rolled back an Obama administration rule that would have required oil, gas and mineral extraction companies to disclose payments made to governments. The Securities and Exchange Commission rule never went into effect and exploration companies and industry organizations such as the American Petroleum Institute, said it put natural resource companies at a competitive disadvantage to foreign firms by disclosing too much of their contract terms.

Iron ore mine

Deregulation via the CRA will help minerals mining and exploration. Source: Adobe Stock/nikitos77.

Metals producers and other companies dependent on minerals to make their products generally supported the repeal. Another potent input for the creation of metals is coal and Trump followed up the CRA action by signing a bill that quashed the Office of Surface Mining’s Stream Protection Rule, a regulation to protect waterways from coal mining waste that officials finalized in December. Regulators spent most of Obama’s administration eight years writing the Stream Protection Rule and it was effectively wiped away with the stroke of Trump’s pen thanks to the CRA.

The House has passed several CRA resolutions, and the Senate has so far sent three of them to President Trump so far, but there are at least 10 CRA bills still moving through the House and Senate. Until now, only one CRA resolution had ever been passed and signed into law: the Occupational Health and Safety Administration’s workplace ergonomics rules, in 2001.

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If Trump and the republican Congress continue to use the CRA to roll back rules, they could potently erase much of the regulation that business organizations have said hamstrung them for the last eight years.

Using the CRA to roll back regulations would certainly make it easier for Trump to deliver on his promises of smarter, better regulations for industries such as manufacturing and mining. Using it also helps the Congress keep up a commitment from an early Trump executive order that it must repeal two regulations for every new one. We could see a slew of deregulation actions to allow Congress to “bank” new regulations if it needs to pass a law to, perhaps, create a new definition of what a countervailable subsidy is for companies to petition the Commerce Department to allow it to place duties on foreign imports.

A lighted underground tunnel in a nickel mine

Nickel prices increased early in February with hedge funds and speculators hurrying to close bets against the metal with the Philippines moving ahead with regulations on its mining industry.

According to a recent report from the Financial Times, nickel’s climb was directly attributed to the closure of 21 mines along with the suspension of another six pits, including the nation’s largest gold mine.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

The Philippines is the world’s most significant source of unprocessed nickel ore, along with being a major supplier to China, the news source stated. A renewed emphasis on environmentalism led to Philippines’ President Rodrigo Duterte appointing a like-minded resource minister to investigate the nation’s mining industry.

“My issue here is not about mining, my issue here is about social justice,” Regina Lopez, natural resources secretary, said during a recent briefing. “Why is mining more important than people’s lives?”

Nickel Price Outlook for 2017

Lopez pointed at the mine closures, which account for nearly half of the nation’s nickel output.

“We are very pleased to see the Philippines taking this action while allowing proper mining companies which adhere to better environmental practice to continue,” analysts at SP Angel told the Financial Times, adding the whole nickel supply chain was an “environmental disaster”.

“The huge growth of ore exports into China for the production of nickel pig iron disrupted the nickel industry in recent years while causing massive environmental disruption in the mining areas and at the nickel pig-iron furnaces.”

How will nickel and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

Ezio Gutzemberg/Adobe Stock

The tin market in London remained tight last month and the underlying problem appears to be a lack of deliverable metal.

According to a recent Reuters report from Andy Home, a closer look at China reveals a significant supply of tin registered with the Shanghai Futures Exchange, but it previously was hiding behind the country’s 10% export duty.

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However, that doesn’t appear to be the case any longer as China evidently removed the barrier without notification, which could lead to serious consequences for the worldwide flow of tin and, more specifically, the London Metal Exchange market.

Home writes: “There is still a good deal of uncertainty as to what exactly may, or may not, have happened. But tin industry body ITRI has drawn attention to the fact that the tin export duty has not been referenced in China’s 2017 Exports Commodities Tax Rates table.”

Home adds the reason for China dropping the duty, a standard for nearly 10 years, can be attributed to the US-filed complaint last July to the World Trade Organization regarding their export duties on numerous metals and minerals, including tin.

Tin Price Update for February

Just last week our own Raul de Frutos wrote tin prices dropped 9% since the beginning of the year, reaching a 5-month low.

de Frutoes wrote: “There are two factors driving this decline:

  • Profit taking: Prices rallied near 70% in 2016 and prices need to digest those gains.
  • Speculation that China has removed it’s 10% export duty on refined tin exports.”

How will tin and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

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Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

Last year, investors were wondering whether copper was worth more than $6,000 per metric ton or not.

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Late in 2016, prices were struggling to overcome this psychological level, but things are shaping up for 2017 to be a hot year for copper production, which could translate into a hot year for the copper price.

Upside momentum for copper prices picked up on supply disruptions. Copper rises above $6,000 per metric ton. Source: MetalMiner analysis of FastMarkets.com data.

Escondida Stops Production

Chile’s massive Escondida mine’s processing plants completely stopped supplying refined copper to markets on Thursday as no miners arrived for morning work. The mine produced around 1 million mt of copper last year, or 5% of global production.  Read more

The 2010 Dodd-Frank law explicitly gives the President of the United States authority to order the U.S. Securities and Exchange Commission to temporarily suspend or revise the Conflict Minerals rule included in the Dodd-Frank banking reform law for two years if it is “in the national security interest of the U.S.”

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Last week we reported that the Trump administration was working on a draft executive order to, indeed, suspend the rule which requires reporting of supply chains to enforce a ban on tin, tantalum, tungsten and gold from the Democratic Republic of the Congo. It’s backed by human-rights groups but many businesses say the rule, as is, requires a swath of industries to investigate whether their products contain the metals far down their supply chains. Compliance has already been hit or miss for the rule. Last year, 65% of companies said they still could not make determinations about their full supply chains.

Reuters reported that the leaked draft memo, which its reporters saw, said that the Secretary of State and Secretary of the Treasury were tasked with proposing a plan for addressing human rights violations and the funding of armed groups in the Congo and were also required toreport back within 180 days.

The memo also lays out a justification for suspending the rule, saying that while it has helped discourage some American companies from purchasing materials in the region, it has also led to “some job loss.”

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Of course, this is only a draft and it could significantly change before any actual executive order is drafted. The one thing that is sure, however, is that thanks to the wording of the Dodd-Frank law, President Donal Trump (R.-N.Y) does, indeed, have the power to suspend the rule for up to two years.

SONY DSC

Copper prices have been on the rise and could continue their ascent if the world’s two biggest copper mines continue their strike.

According to a recent report from CNBC, copper futures contracts for March delivery grew by more than 1.5% this week following information that BHP Billiton is halting production at the world’s largest copper mine, Escondida, located in Chile.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“It’s presenting the market with a bullish case for a little upside, Vivienne Lloyd, base metals analyst for Macquarie in London, told the news source.

Copper prices were already on the ascent, growing more than 30% last fall with the U.S. dollar weakening close to the election, combined with traders’ more optimistic views on China.

“Traders were already bullish into the strike, Dane Davis, commodities research analyst at Barclays, said. “People have watched the negotiations deteriorate.”

Copper Disruptions Bring Upside Potential

Our own Raul de Frutos wrote just this week on the factor the copper mine strikes will play in the metal’s recent bull run. He added:

“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.”

Raul concluded: “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.”

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Tin prices plunged 9% since the year started, hitting a five-month low. There are two factors driving this decline:

  • Profit taking: Prices rallied near 70% in 2016 and prices need to digest those gains.
  • Speculation that China has removed it’s 10% export duty on refined tin exports.

After this decline, we believe buyers can now take advantage to time some purchases.

Prices Near Support

Tin prices are trading near key support levels. Source: MetalMiner analysis of FastMarkets.com data.

Technically, the recent price decline seems normal within the context of a bull market. In bull markets, buyers can find good opportunities to buy metal after prices pull back.

Two-Month Trial: Metal Buying Outlook

Tin prices are now nearing a support area where traders will likely lift prices, especially given the ongoing bullish sentiment across the metals complex.

The Removal of an Export Duty is Not That Bearish

Some say that China’s removal of its export duty could have a significant impact but we don’t necessarily agree. If China was a net exporter of tin, and prices in China were lower than in the rest of the world (as is the case with steel), then the removal of the export duties would have a significant impact on the market balance. However, that’s not the case.

Tin primary cash China vs LME. Source: MetalMinerIndX.

China is a net importer of tin. In 2015 China produced 146,600 metric tons while it consumed 175,842 mt. In addition, prices in China are lower than those on the London Metal Exchange. Moreover, China is trying to curb local output of metal, including tin, to fight pollution.

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For these reasons, we can’t see why removing the duty would result in a flood of metal coming out of China. In anything, it will just encourage more refining.

What This Means For Metal Buyers

Tin price levels look attractive. Now it could be a good time to minimize your tin price risk and buy forward.