The industrial metals complex saw prices slip nearly across the board in August as volatility returned to stock markets and investors lost confidence in central banks’ ability to increase growth.
Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.
This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.
There have been many among the advocates of Brexit and even more than a few among those opposed to it who have pointed out the relative stability in both U.K. GDP growth and the reaction of the stock markets to say that it wasn’t such a disaster after all, was it? Where is the economic collapse so many forecast?
Of course, we all like reassurance that all in the world is well but the reality is we are living in a phony war. The armies are massing but little engagement has taken place yet. The initial shots have been fired. The British pound dropped 10-20% against most currencies, notably the U.S. dollar and the euro. Japan sent an uncharacteristically strongly worded 15-page memo to the British government warning them of the consequences should negotiations lead to Britain leaving the single market. Jean-Claude Juncker, president of the European Commission with a long history of bitter antagonism towards the U.K., has uttered countless dire warnings as to life for the U.K. post-Brexit. But so far, in spite of these initial salvos, little has changed. Read more
According to a report from Economic Calendar earlier this month, the U.S. dollar retreated after the Labor Department reported the domestic economy added fewer jobs than expected in August, which — compounded with news from China of increased manufacturing activity — bodes well for tin prices.
“Tin prices have climbed in 2016 amid a background o declining supplies,” wrote Donald Levit for Economic Calendar. “Chinese tin supply has decreased after environmental inspections resulted in the temporary closure of domestic smelters. Four smelters, accounting for 18% of China’s output, will remain closed for just over a month, and this should further tighten the market and contribute to lower supplies for the months ahead.”
Myanmar Tin Production Peaking?
Just last month, our own Raul de Frutos wrote that tin production in Myanmar may have reached its nadir. “Tin production in Myanmar has surged more than 10-fold over the past four years, accounting for more than 10% of global tin mine supply and helping to make up for falling Indonesian tin exports. However, according to a recent study released by the International Tin Research Institute, it appears that Myanmar tin production is peaking at some 50,000 mt per year, although there is still significant potential for the discovery of new ore resources.”
How will tin and base metals fare for the remainder of 2016 and into 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:
Debate on whether or not the Federal Reserve will raise interest rates this year, as well as fluctuating signs on China’s economic strength have influenced copper prices of late, keeping the metal trading in a narrow range.
“(It’s) a go-nowhere-fast-market,” Bill O’Neill, CEO, noted investor, told the news source. “But every time it appears set to break one way or another, it doesn’t happen.”
China, the world’s largest copper consumer, is looking at an improved outlook with annual growth in industrial output growing to 6.3% in August compared to a flat 6% in July, according to the National Bureau of Statistics.
As for interest rates, the Fed is scheduled to meet next week.
“‘Jittery’ does not even begin to describe the current market,” wrote analysts at Marex Spectron. “Expect traders to continue to trade on a three-hour time horizon awaiting the next headline about what the Fed may or may not do with rates in September.”
Copper MMI Drops in September
Our own Raul de Frutos recently wrote that copper’s dive in September is of no surprise:
“Any price rally could continue to be limited this year, especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.”
How will copper and base metals fare for the remainder of 2016 and into 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:
Our Raw Steels MMI fell 7% to 53 points last month. This is the first time we have seen a significant decline in steel prices this year. August brought some interesting developments for the steel industry.
US prices Down, While China’s Prices Rise
By the end of the first half, domestic hot-rolled coil prices had risen 70% while prices in China were up by just 30%. The main driver of this price gap was trade cases, which made U.S. steel imports plunge this year, inflating prices domestically. Read more
Titanium sponge is a key raw material to produce ATI’s titanium products. While global titanium-sponge production has increased significantly in the last couple of years, the global industrial-grade titanium market has continued to be weak. As a result of these two factors, ATI is now able to purchase titanium-sponge in the global market at prices below Rowley’s cost of production.
Titanium sponge is now available at lower costs on the open market than for ATI to produce it themselves. Titanium cluster image courtesy of AdobeStock/Tomatito26.
ATI stated that it is able to procure from qualified global producers even aerospace-quality sponge under long-term agreements. ATI has entered into competitive long-term agreements with qualified producers for both standard and premium titanium sponge. The Rowley facility will be idled by the end of 2016 in a manner that allows the facility to be restarted in the future if a reopening is supported by market conditions.
In addition to the idling of Rowley, higher cost titanium hot-working operations in Albany, Ore., will be consolidated into other operations. Read more
Earlier this week, Russian steelmaker Evraz dropped with fellow metals producers as the FTSE 100 hit a two-week low.
According to a report from the Financial Times, Evraz stock dipped 4.5% Monday over fears that it could be negatively affected by steel prices trending lower. Since last week, Evraz shares have dropped 17%.
Analyst Andrey Lobazov told clients Russia’s Federal Antimonopoly Service announced last month it was investigating steel makers throughout the country over their domestic pricing of rebar, which has skyrocketed 80% over the past year. The thought is the investigation will lead to lower rebar prices.
“Miners led the wider market lower as the threat of higher US interest rates put metals prices under pressure,” wrote Bryce Elder for the news source.
US Steel Prices Dip
According to a report this week from MetalMiner, U.S. flat-rolled steel prices have fallen $20-40/ton in August thus far. The reason? James May writes:
“While we don’t expect freefall just yet, we do expect HRC prices to be back in the high $300s/ton at some point next year.”
It’s becoming clear that anti-dumping duties may not be having their desired effect. May added: “While demand is flat, supply is on the increase. The high prices mean strong profitability and therefore domestic mills will maximize output. Meanwhile, the arbitrage is strong enough to justify shipping to the U.S. and there are enough holes in the anti-dumping duties to allow material in.”
You can find a more in-depth steel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.
The Government Accountability Office (GAO) reported on Tuesday that 67% of companies that rely on so-called “conflict minerals” to make products have been unable to determine whether their supply has come from parts of Africa where armed groups profit from their production.
Nickel wasn’t alone in its LME downward trend as most industrial metals retreated on the heels of commentary from the Federal Reserve, which fueled speculation that U.S. borrowing costs will rise in the coming year. Read more
Construction has been one of the few pockets of strength in the U.S. economy – until recently. Construction payrolls have declined since March and spending in May rose less than 3% from a year earlier, the lowest rate since 2011.
Coming after strong growth of 10% last year, the question now is whether the sputtering is just a blip or something more lasting that portends a significant drag on the economy.
The Associated Builders & Contractors, American Institute of Architects and National Association of Home Builders‘ chief economists recently gathered in Washington, D.C., for a mid-year market forecast, outlining stable to strong residential and commercial project activity through 2017.
Each economist discussed present and future indicators for sector performance, including ABC’s Construction Backlog Indicator (8.6, 1Q2016); AIA’s Architecture Billings Index (52.6 in June) and the Construction Consensus Forecast (5.6% growth in 2017); and, the NAHB/Wells Fargo Housing Market Index (60, August 2016).
While all of the economists predicted growth in 2017, they had varying degrees of optimism.
Anirban Basu, ABC Chief Economist: “Nonresidential construction spending growth will continue into the next year with an estimated increase in the range of 3 to 4%. Growth will continue to be led by privately financed projects, with commercial construction continuing to lead the way. Energy-related construction will become less of a drag in 2017, while public spending will continue to be lackluster.”
Robert Dietz, NAHB Chief Economist: “Our forecast shows single-family production expanding by more than 10% in 2016, and the robust multifamily sector leveling off. Historically low mortgage interest rates and favorable demographics should keep the housing market moving forward at a gradual pace, but residential construction growth will be constrained by shortages of labor and lots and rising regulatory costs.”
Kermit Baker, AIA Chief Economist: “Revenue at architecture firms continues to grow, so prospects for the construction industry remain solid over the next 12 to 18 months. Given current demographic trends, the single-family residential and the institutional building sectors have the greatest potential for further expansion at present.”