Articles in Category: Supply & Demand

A small 3% price bump in the monthly GOES M3 index doesn’t tell us a whole lot, however, it suggests that prices may have found a floor back in the November/December 2015 time frame.

Free Sample Report: Our February Metal Buying Outlook
Part of finding that floor may have come from good, old-fashioned supply and demand. Consider that the comments from Allegheny Technologies, Inc., Chairman, President and CEO Rich Harshman recently indicated that he would be taking “rightsizing actions” to return ATI’s flat products group to profitability as quickly as possible.

GOES_Chart_February_2016_FNL

Furthermore, speaking of two recent closures he said, “The future restart of the Midland and GOES operations respectively will depend on future business conditions and ATI’s ability to earn an acceptable return on invested capital on products produced at these operations.”

This type of action, particularly the shutdown of the ATI GOES line, helps to bring some additional balance to the market. The rest of the steel industry will need to follow suit to support HRC prices, but that’s another story.

Free Download: The January 2016 MMI Report

In addition, TEX Reports suggests that one of the big Chinese mills will suspend two of its commodity grain-oriented sheet lines. MetalMiner could not identify any corroborating source as of press time.

Meanwhile, the most recent import trade data shows a 19% decline in transformer part imports:

Source: Zepol

Source: Zepol

While wound cores held steady:

Source: Zepol.

Source: Zepol.

Actual GOES Prices and Trends

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The Stainless MMI fell by one point to 51 in February. Although nickel prices didn’t decline sharply in January, prices made a new 12-year low.

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Nickel was the worst performer among industrial metals in 2015. Interestingly, now analysts see nickel as having the greatest recovery potential. On average, analysts expect nickel prices to rise 20% this year and by almost 40% next year.

Stainless_Chart_February-2016_FNL

The main reason why analysts expect such a recovery is because nickel has fallen harder than any of its peers, being the only metal trading below the price lows of the 2008 financial crisis. However, to us, the fact that a metal has fallen in price is not reason enough to expect higher prices any time soon.

Shutdowns

Another factor making analysts turn bullish on nickel is that they believe nickel is likely to see immediate cutbacks. Brazilian miner Votorantim Metals announced in January its intentions to suspend two nickel operations, which would mark the first meaningful shutdown in the West.

Also, in Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle on low prices, but companies can struggle for a long time before shutdowns actually occur. The nickel market is facing the same issue as any other industrial metal: supply is doing anything it can before shutting down.

Believing that a wave of shutdowns is about to come among nickel producers seems like too much to expect from producers. Shuttering capacity remains challenging from both financial and social perspectives. In addition, non-China producers keep convincing themselves that Chinese nickel pig-iron producers will close first, partly because of the nickel ore constrains after Indonesia’s export ban and partly because of the perception that NPI makers are at the top of the global cost curve.

The issue with that prediction is that NPI producers have managed to cut costs and find a substitute to Indonesian ore — supply from the Philippines.

Compare Prices With the January 2016 MMI Report

We believe that shutdowns will probably come gradually since any individual closure will give hopes of survival to the rest of the market participants as they face less competition, encouraging those left over to keep running.

What This Means For Metal Buyers

Some people might see nickel as an attractive asset just because it looks “cheap” compared to historical levels. That could be true in the long term, but the timing could be way off. Right now, we don’t see any signs of a bottom. Nickel prices will likely turn around with the rest of the base metal complex, but that time hasn’t come yet. Stainless buyers should stay disciplined to their buying strategy.

Exact Stainless MMI and Nickel Prices, Trends

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This week, the Bank of Japan introduced negative interest rates in the latest attempt to goose the Pacific nation’s stalled economy.

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Essentially penalizing people for saving money seems like a curious thing to do to try to turn around a struggling economy, but it’s not the first time banks have gotten a push to force them to lend. The European Union has done it, too, in recent memory.

Shorter supply chains for in-demand products could benefit retailers around the holidays. Source: Adobe Stock/cacaroot.

Boy does Toyota Motor Corp. ever wish it had a bigger supply chain this week. Source: Adobe Stock/cacaroot.

My colleague and metal price analyst Raul de Frutos wrote that, “negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.” Read more

Democratic senators want more restrictions on investment banks activities in commodities markets, including industrial metals. Chinese metal traders are thinking of taking an even longer break for the Lunar New Year due to to low prices.

Democrats Push for Commodities Oversight

Democratic senators pressed the Federal Reserve on Wednesday to act more forcefully, and quickly, to limit banks’ involvement in the commodities business.

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For months, Congress has been evaluating complaints that the huge commodities holdings of investment banks such as Goldman Sachs and Morgan Stanley pose a risk to the financial system. Businesses and consumer groups have also expressed concern that the banks’ financial heft gives them an unfair advantage over other competitors as well as the ability to manipulate prices for essentials like energy, cotton and food.

Senator Sherrod Brown (D.-Ohio), who led Wednesday’s hearing on the issue, said he was “incredulous” that the Fed had been examining the matter for six years and had yet to make significant changes.

“The Fed’s proposal yesterday was a timid step,” said Brown. “It was too slow in coming, and there is still too much that we do not know about these activities and investments.”

A Longer Break for Chinese New Year

Chinese metal traders and merchants are likely to take longer than usual Lunar New Year holiday break this year, Reuters reported. They are betting that spot demand for metals such as copper will stay weak at least in coming few weeks, industry sources said.

Free Download: The January 2016 MMI Report

Manufacturers and merchants see weak demand weighing on spot prices that are already at multiyear lows, although some futures prices are higher as investors see demand recovering after the holidays. The most-active base metal contracts on the Shanghai Futures Exchange were up 1-7% on Thursday from late January levels.

The World Platinum Investment Council (WPIC) recently commissioned a report by Dr. David Jollie via his research vehicle Glaux Metal to look at the supply-demand fundamentals for platinum and report on the likely price direction over the next six years through to 2021.

Free Download: The January 2016 MMI Report

We are always a little wary of research commissioned by industry bodies as the pressure to produce a favorable analysis has been known in the past to overrule sound analysis, so in this instance we have compared the findings with this month’s Metals & Mining Quarterly Review by HSBC bank by way of a counter view.

The Glaux Perspective

Glaux concludes, and I quote, that the platinum market is likely to be in deficit for each of the years from 2016 through 2021 at an average annual deficit of 250,000 ounces. As a result, prices will rise over the period. Mine supply is not expected to rise significantly with older established mines declining, particularly as investment has been depressed due to low prices in recent years but also as part of a longer-term trend.

New mine production will rise with three new mines in South Africa coming onstream and modest increases forecast in Zimbabwe. Supply from recycling has been on the rise, as it is with all PGMs and this trend is expected to continue in spite of currently low prices. Supply from end of life recycling has become an increasingly important source of platinum supply with supply levels relatively unaffected by modest changes in prices.

Source WPIC

Source: WPIC

On the demand side, Glaux sees only modest growth across a range of sectors. As this graph from HSBC illustrates, platinum demand is balanced between a number of diverse and broadly uncorrelated sectors. Read more

Today in MetalCrawler, major oil exporters Saudi Arabia and the Russian Federation talked about possible cuts in production to combat low, low prices caused by a worldwide glut. Final figures for 2015 showed that US construction had a great year.

Russia and Saudi Arabia Talk Oil

Senior OPEC and Russian oil industry officials had vague talks, Reuters reported, about possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signaled its resolve to allow the market to balance itself.

Free Download: New! The January 2016 MMI Report

The latest volley of comments highlighted the intensifying pressure of $30 a barrel oil prices on cash-strapped countries such as Russia, but did not appear to tilt the scales meaningfully towards any concerted action to reverse the price crash from the Saudis and their controlling bloc of votes in OPEC. The Saudis are said to have asked for more “cooperation” on any future production cuts.

US Construction Starts Up in 2015

Dodge Data and Analytics reported that, for the full year of 2015, residential construction was up 14% to $265.4 billion, beating 2014’s increase by 4%, and non-building (mostly civil projects such as utility work) rose an impressive 23% to $176 billion, bouncing back from last year’s 8% decline.

Free Sample Report: Our January Metal Buying Outlook

By contrast, non-residential construction fell 8% to $204.2 billion, giving back some of the 2014 increase of 24% but still 14% higher than 2013.

JamesMayheadshot_150

James May

US industrial output has been falling on a month-on-month basis since August and the manufacturing PMI fell below 50 in late 2015. Even with the bounce in January PMI data to 52.7, the manufacturing outlook remains uncertain after an extended period of weakness and continued currency strength.

Free Download: New! The January 2016 MMI Report

Yet, we suggest that US mills are (right now) in a sweet spot in terms of pricing. Are we crazy?

After a dismal 2015, steel mills are finally in a position to drive prices higher. It may not be for long, but any buyers that are short of flat steel in the short term will have to pay substantially higher prices in the next few months. We suggest that prices could rally $100-150 a ton between December 2015 and April/May 2016.

Supply Finally Constrained

Import and domestic supply is curtailed. US mills operated at 60-65% capacity in December.

With continued uncertainty regarding anti-dumping actions, finished steel imports are slowing. Importers cannot start selling again until final determinations are in, meaning that June arrivals are probably the earliest.

US HR, CR & HDG Imports (000 metric tons)

JamesMay_steel_278_012116

Source: US Department of Enforcement & Compliance

Read more

Freeport McMoRan is selling part of a major Indonesian asset to generate cash as iron ore prices keep falling. The International Energy Agency said oil prices will fall even lower this year.

Selling Part of its Crown Jewel

Freeport McMoRan‘s Indonesian unit has submitted a divestment price to the Indonesian government for an additional stake in one of the world’s biggest copper mines, an energy ministry official said last week.

Free Download: New! The January 2016 MMI Report

Freeport Indonesia must sell the Indonesian government a 10.64% stake of the huge Grasberg copper and gold complex in remote Papua as part of the process to extend its right to operate beyond 2021.

Freeport valued its Indonesian asset at $16.2 billion, Bambang Gatot, the ministry’s director general of coal and minerals told Reuters and other reporters, adding that the divestment offered to the government was worth $1.7 billion.

IEA: Yes, Oil Could Go Lower

The oil price is set to fall further this year as supply vastly exceeds demand, with major oil exporter Iran’s return to the market offsetting any production cuts from other countries, the International Energy Agency told Agence France-Presse on Tuesday.

“Can it go any lower?” the IEA asked in its monthly oil market report.

“Unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.”

Oil dominated the headlines this morning as the lifting of sanctions on Iran brought unease to the markets and a major Chinese refiner made its first order of now exportable US oil.

Brent Crude Goes Below $28/Barrel

Brent crude, used as an international benchmark, fell as low as $27.67 a barrel, its lowest since 2003, before recovering to trade at $28.86.

Free Download: New! The January 2016 MMI Report

Investors fear the lifting of Western sanctions on Iran could worsen the existing oversupply problem.

Chinese Refiner Orders US Oil

Reuters reported that China’s state-run oil refiner Sinopec Corp. has purchased its first ever batch of US crude oil for export, a landmark transaction after the ending of a four-decade ban on domestic exports.

Free Sample Report: Our January Metal Buying Outlook

The cargo, due to be loaded from a Gulf Coast port in March, may mark the start of a sustained flow of US oil to China, the world’s second-largest buyer, which is eager to diversify its energy sources. As the world’s second-biggest oil refiner, Sinopec buys more crude oil than almost any other company, and has worked to improve its supply security by seeking out diverse sources.

After trading sideways for nine consecutive months, tin prices finally succumbed.

Free Download: New! The January 2016 MMI Report

Although other sources were calling for higher prices in 2016, in our monthly and annual outlooks we continued to recommend buying only small quantities. In the face of a rising dollar, China’s slowdown and falling commodity markets, tin buyer should only expect downside moves.

Tin breaking down support levels

Tin breaking down its support level barriers. Source: MetalMiner analysis of FastMarkets.com data.

Indonesian Regulations

In November, Indonesia introduced new rules requiring tin exporters to obtain new “clean and clear” (CnC) certification. Many firms ramped up exports ahead of it. Indonesian exports from January-November dropped by 1.9% compared to the same period last year, a somewhat negligible result. However, exports in December exceeded 10,300 metric tons, whereas December 2015 exports are unlikely to reach half of last year’s total. Despite lower Indonesian exports in 2015. More production from Myanmar offset the difference of Indonesia’s drop.

Free Sample Report: Our January Metal Buying Outlook

Thanks to already low prices and decreased Indonesian exports, tin prices held well over the past nine months compared to the rest of the base metals. However, 2016 might bring a different picture. Indonesian exports will likely recover as more companies get CnC approval and, with the ongoing Chinese stock market crash, we can only expect tin prices to head south after breaking key support levels while demand, globally, weakens.