Articles in Category: Sourcing Strategies

Tin prices continue to suffer with Chinese competition and Shanghai trading counteracting limited supply on the London Metal Exchange (LME).

Generally speaking, limited supply of a commodity should translate to a rise in price — this has not been the case for tin.

In a recent opinion piece for Bloomberg, Shelley Goldberg, founder and principal at Invest-with-Purpose, writes that despite tin inventory at LME warehouses reaching 20-year lows, prices are also down, to the tune of more than 5% since the start of the year.

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 reason? Goldberg writes that exchange trading competition from China is to blame.

Goldberg writes: “Low inventory levels have also historically resulted in an increase in both volume and open interest; however, for LME tin they have been falling, too. Average LME daily tin volumes this year slipped by 14 percent from January to April, compared with the same period a year earlier. On an annual basis they fell 7 percent in 2016 and 31 percent in 2015. Open interest has also been declining, totaling 16,152 lots at the end of April, compared with 22,563 lots a year earlier.”

Reconciling the SFE and LME

She added that LME is no longer the exclusive exchange for data and information on the metals markets, as the Shanghai Futures Exchange is now challenging its monopoly.

Goldberg concludes: “The bottom line is that attempting to arbitrage LME and Shanghai tin is not as easy as it may seem (different currencies, contract sizes, terms, and so on). But suffice it to say, assessing the tin markets from a more global perspective will undoubtedly provide a better perspective not only on the tin market, but on the world’s economy.”

How will tin fare in 2017? You can find a more in-depth tin 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:

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Copper prices rallied late last week on the heels of severe weather striking several South American mines, as well as labor issues cropping up in Indonesia.

According to a report from MarketWatch, copper prices climbed 1.12% to $5,688 per metric ton on the London Metal Exchange last Thursday morning.

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!

Copper had previously opened the month on the low end, but unexpected weather and labor issues quickly reversed that trend:

“Those mine disruptions in Chile are the major supply-side news this week,” BOCI Global Commodities’s Xiao Fu told the news source.

In China, import data revealed an 8.5% month-over-month increase in refined copper imports.

“That increase is a fairly substantial one and is helping prices rebound after being beaten up over the past few weeks,” ETF Securities strategist Nitesh Shah told the news source.

Copper Prices Affected by Chinese Demand

The MetalMiner Copper MMI remained steady in June. Writes our own Irene Martinez Canorea:

“Currently, copper prices are directly affected by Chinese demand, as well as by uncertainty in supply. This downtrend in copper prices might be just a brief pause in a dynamic market. Thus, copper-buying organizations should watch the market closely, looking for a possible uptrend that would show a recovery.”

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:

eugenesergeev/Adobe Stock

Aluminum exports from Qatar hit a roadblock, and it could be some time before the situation is resolved.

According to a recent Reuters report, Egypt, Saudi Arabia, Bahrain and the United Arab Emirates cut ties with Qatar, leading to an aluminum manufacturing plant, partly owned by Norway’s Norsk Hydro, to seek other routes for export.

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 reason for top Arab nations breaking ties with Qatar? Alleged support of Islamic militants, which Qatar denies.

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Liquid steel.

Photollug/Adobe Stock

European steelmakers are coming together to fight a common enemy: EU carbon reforms.

According to a recent report from Reuters, steelmakers across the continent are writing EU leaders, emphasizing they not burden the industry with what they feel are superfluous carbon emission regulation costs. Such costs, they argue, would put them at a competitive disadvantage with their global peers as well as increase the risk of job cuts and plant closures.

“You can avoid burdening the sector with high costs that will constrict investment, or that will increase the risk of job losses and plant closures in the EU,” the CEOs say in an open letter, obtained by Reuters, dated May 28, to EU heads of state and government.

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!

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Nickel, along with zinc, could see a boost on the heels of the Chinese government cracking down on the steel industry.

According to a recent report from Reuters, nickel and zinc prices reached their highest point in more than two weeks with China cutting down on production of both metals.

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 Chinese government is becoming quite aggressive in targeting environmental problems,” Oxford Economics commodities analyst Dan Smith told Reuters.

With supply in China in question, industrial demand for nickel continues to gain momentum, pushing prices for the metal up, along with prices of aluminum and zinc, according to a recent report from the Economic Times.

On the Multi Commodity Exchange, nickel for delivery in May rose by 0.6%, the Economic Times report stated.

Nickel Price Forecast for 2017

Nickel prices at future trade are also being supported by a boost in demand from alloy producers in the spot market, according to the news source.

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:

Goldman Sachs has set pretty optimistic forecasts on aluminum prices. According to a recent report from CNBC, the bank expects prices to hit $2,000 per metric ton in six months and $2,100 per ton within a year.

3M LME aluminum. Source: fastmarkets.com

I’ve also been pretty bullish on aluminum since last year. Similar to what we saw in the steel industry, China put cutting aluminum capacity on the top of its agenda as the country takes air pollution seriously. In addition to supply cuts promises, China’s economic numbers were running strong at that time. However, just recently, our commodity outlook is moving from bullish to bearish, and being bullish on aluminum while commodity markets weaken is a very hard sell. Here are some reasons why Goldman Sachs might need to adjust its aluminum outlook.

Two-Month Trial: Metal Buying Outlook

Aluminum Output Up

Goldman expects aluminum to be the next target of supply-side reform in China. The bank expects aluminum to be the new steel this year. Sentiment in steel markets got a boost on Beijing’s announcements to cut steel capacity. But as time goes on, markets are starting to realize that capacity cuts don’t mean lower output, at least in China.

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The International Lead and Zinc Study Group released its Spring 2017 meetings/forecasts report, which found global demand for refined zinc metal is expected to increase 2.6% to 14.30 million tons this year.

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 stated: “There has been little change in European zinc demand over the past five years and further stability is anticipated in 2017 with increases in Belgium, Italy and the Russian Federation being partially offset by a decline in France resulting in an overall rise for the region of a modest 0.7%.”

Furthermore, the ILZSG report found that a significant decrease in apparent demand in the United States last year was most likely influenced “by a drawdown in unreported stocks,” and it’s expected that apparent usage will recover this year to a level similar to what was seen in 2015.

Zinc Supply to Increase with Demand

After experiencing a decline of 5.5% last year, worldwide zinc mine production is expected to grow 6.7% to 13.70 million tons this year. Read more

The ongoing turmoil over Donald Trump has increased investors’ worries over political stability in the U.S. In addition, investors worry that under these political turbulences, the Trump administration will struggle to implement pro-growth initiatives.

The dollar is one asset that was affected by the news, falling to a 6-month low. Investors have been selling dollars and buying euros as political risks rise in the U.S. and, following the French elections, fall in Europe.

Two-Month Trial: Metal Buying Outlook

Usually, a falling dollar would give a boost to industrial metal prices, but that wasn’t the case here. Precious metals like gold did benefit from a falling dollar, but it didn’t prevent base metals from declining. This is because investors are now focused on what looks like a slow down in China.

Investors were disappointed when China’s Caixin Manufacturing PMI came at 50.3 in April, the lowest reading since September 2016. In addition, as Beijing talks about curbing credit, investors have come to realize that lower funding for the construction of infrastructure projects will hurt demand for industrial metals.

Just about two weeks ago we noticed that commodity markets were getting in trouble. As time goes on, that weakness is spreading out into industrial metals. Some specific metals are holding their value better than others due to their specific supply narrative, but overall we would expect them to move in tandem, as they always do. Here are some charts suggesting that the bull cycle in industrial metals could be ending:

Nickel falls to a 10-month low. Source: MetalMiner analysis of fastmarkets.com data

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Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its Spring 2017 Meetings/Forecasts, which found that global demand for refined lead metal will increase 2.3% this year to 11.39 million tons.

The main reason? Further development in Chinese usage, which is projected to grow 4.3%.

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 states: “After increasing by a robust 9.8% in 2016, usage of lead metal in Europe is expected to remain unchanged in 2017. A stable outlook is also foreseen in Japan and the Republic of Korea. In both India and the United States modest growth of 1.5% is predicted.”

Lead Supply Update

Furthermore, the ILZSG report states that global lead mine production is projected to increase 4.3% to 4.92 million tons this year, due in part to growth in China and increases in Canada, Mexico, India, Greece and Kazakhstan. Read more

The International Lead and Zinc Study Group (ILZSG) recently released its annual demand/supply forecast for the zinc market.

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

The group anticipates global demand for refined zinc to be greater than supply in 2017, keeping zinc markets in a deficit for a second consecutive year. The ILZSG predicts a deficit of 226,000 tonnes, not much different from the deficit recorded last year.

Global refined zinc metal balance. Source: MetalMiner analysis of ILZSG data

Given these numbers, you could assume that prices have no other option but to go up. However, despite a projected deficit, I’m starting to doubt zinc’s ability to climb much above today’s levels. Indeed, high prices are simply what could play against zinc’s rally. Zinc has more than doubled in price since the beginning of 2016, and investors now seem unwilling to chase prices above $3,000/mt, a level that has acted as a ceiling for prices this year. Read more