Articles in Category: Supply & Demand

Well for one thing it means our retirement funds will likely be worth less, at least in the short to medium term. On the plus side, our mortgage will likely stay cheaper for longer and metal prices will remain lower for longer.

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Why? well if the Fed was worrying about a China slowdown in July, they must be in full-on panic mode by now. If the Federal Reserve was to raise rates next month, to stave off the possibility of inflation picking up next year, it would strengthen the dollar, making imports more attractive and making life tougher for US exporters.

China’s Deep Slowdown

The collapse of stock markets around the world has been precipitated by fears of a China slowdown becoming far deeper and more prolonged than previously thought – although why this appears to be such a surprise to investors today compared to 2-3 weeks or even 2-3 months ago I fail to see, the writing has been on the wall all year.

Traders in London

The signs that China’s economy could lose steam were there, but it still caused global stock market panic.

However, as the herd mentality sets in all those stop orders get hit and the fancy algorithms cut in selling stocks and becoming self-fulfilling as they drive prices down. Hedge funds have been aggressively shorting the market, not just for stocks but for commodities too. It would be a brave man who bet any pause was the start of a bounce back, markets could have a lot further to fall.

Back to the Fed and China: weaker demand from China will mean lower demand for commodities. For a few commodities, China has become a net exporter but across the board the world’s largest consumer is reversing what was once a one-way bet on demand. Read more

The Architecture Billings Index (ABI), an indicator of demand for design services, is showing strong markets for nearly all US nonresidential project types.

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An economic indicator of construction activity, the ABI reflects an approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the July ABI score was 54.7, down a point from a mark of 55.7 in June.

This score still reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.7, up slightly from a reading of 63.4 the previous month.

Free Download: Latest Metal Price Trends in the August MMI Report

“On top of what has been a flurry of design activity in recent months, some architects are reporting a break in the logjam created by clients placing projects on hold for indefinite periods, which bodes well for business conditions in the months ahead,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “There is some uneasiness in the design community that rapid growth in construction costs could escalate beyond development capital and municipal budgets, which could trigger some contraction in the marketplace down the road.”

Key July ABI Highlights

  • Regional averages: Midwest (58.2), South (55.7), West (53.8) Northeast (53.5)
  • Sector index breakdown: institutional (57.3), mixed practice (56.8), commercial / industrial (53.4) multi-family residential (49.8)
  • Project inquiries index: 63.7
  • Design contracts index: 54.5

Just when iron ore miners thought sentiment couldn’t get much worse, Goldman Sachs Group comes out with a report predicting iron ore prices will tumble by 30% over the next 18 months according to a Bloomberg article this week.

Free Sample Report: Our Monthly Metal Price Outlook

The bank is saying the rebound seen over the last five weeks is merely a blip and that normal business will shortly resume.

Source: FT

Source: Financial Times

Supply growth is set to continue, the report states, but, and this is crucial, China has reached peak steel and from now on steel production will only contract in China.

More Inventory Than Necessary

As shipments pick up from Australia, Brazil and India, the seaborne market will become awash with inventory and prices will be further driven down. Iron ore is seen by Goldman as averaging $49 a ton this quarter, and $48 in the final three months of 2015. Before falling further next year to $46 in the first quarter and $44 the following quarter. With little or no market discipline, the bank suggests 2016 will see average prices around $44 per ton. In the words of the report’s authors “the summer of 2015 is the calm before the storm.”

Free Download: Latest Metal Price Trends in the August MMI Report

Steel consumers can, therefore, expect mills’ raw material prices to continue to weaken as seaborne prices gradually knock on to contract prices elsewhere. With demand lackluster and too much finished steel chasing too few orders, even as markets like North America and Europe show encouraging signs of GDP growth, steel prices will have little to support them this year and next. Good news for consumers, tough times for producers working with low-capacity utilization and stronger domestic currencies sucking in imports.

 

Welcome to crazy MetalMiner’s low, low price week of falling metal prices, oil prices and devalued currency.

EVERYTHING MUST GO! Or Not…

…maybe prices will be lower next week? Who can tell in this crazy market? Check out our Metal Price Outlook for MetalMiner’s expert opinion. Free sample in the link.

Bears Everywhere

Our August MMI Report shows that nine of the 10 metals we track have hit an all-time low since we started tracking them in January 2012. It’s been a gradual fall for sub-indexes such as raw steels and renewables, whereas aluminum and copper suffered big drops this month that coincided with historic London Metal Exchange lows.

Three Best Practices for Buying Commodities

The strong dollar continues to drag down all commodities, shunting investment dollars elsewhere and depressing prices of investment metals such as gold, which hit a six-year low last quarter, according to the World Gold Council. Guess what else hit a six-year low? Oil, of course! Read more

Oil prices are again at the cheapest point in six years. Oil fell sharply right after prices broke key support levels last month. The rebound in prices during the first half has already vanished, proving again that trying to fish out price bottoms in a falling market is not a good idea.

Crude Oil CME price 1 year out

CME crude oil price, one year out. Graph: MetalMiner analysis of stockcharts.com data.

Pessimism is spreading among investors about China’s economy.

Free Sample Report: Our Monthly Metal Price Outlook

The Chinese stock market crash just two months ago already signaled that something was rotten in China. If that wasn’t enough, China devaluating its currency on Tuesday is only boosting many parties’ conviction that global demand can’t catch up with a continuous oversupply of crude.

The yuan’s plunge is also bearish for oil because it makes China’s oil imports more expensive, which means that, most likely, China is not going to come rescue the oversupplied global oil market anytime soon.

Three Best Practices for Buying Commodities

The latest data show that production is at historic highs in the US and OPEC lifted its total output in July to the highest level in three years. The cartel is responsible for more than a third of global oil production. Besides, the end of Iran’s oil export ban will likely only add volume to the already oversupplied market.

What This Means For Metal Buyers

Falling energy prices lower the cost of producing other commodities, adding more pessimism to the already bearish commodity market. Metal prices remain under pressure.

SMU Steel Summit 2015Which direction are metal prices headed? What does China have to do with it? Join a who’s who of manufacturing companies, steel producers, toll processors, end-users and service centers for two days of commodity issues and price forecasts at Steel Market Update’s Steel Summit Conference 2015 in Atlanta, GA, Sept. 1 and 2.

Get your 30-day forecasts for aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, plate) from our new Monthly Metal Buying Outlook report

Our own Lisa Reisman (CEO, Azul Partners and executive editor, MetalMiner™) will be talking metal prices. She will be joined by iron ore expert Serafino Capoferri, London Commodity Consultant, CRU; scrap expert Peter Meyers, executive vice president, Metalico; and world pricing expert Gaurav Chhibbar, raw material manager, Cargill Metals; among others.

“[We have] A perfect storm of weakening demand and surging supply [that] has sent benchmark ore prices tumbling, shacking miners’ business models across the globe. After a decade of super cycle, does 2015 mark the beginning of a “buyers’ market” in steel raw materials?” Capoferri said.

The metals industry will be extensively covered at this exciting two-day event. Click here for more information and to register.

As China goes, so too does the rest of the world, and that has been none more painfully clear than with the plummet of aluminum prices. China export volumes continue to be a main driver for this industrial metal’s decline. You can learn all about it, in addition to how other industrial metals are faring, by subscribing to our new Monthly Metal Buying Outlook.

China Export Volumes

We touched on the rise of Chinese aluminum exports back in April, as the Far East nation continued its transition into a consumer economy and, in turn, saw its domestic demand for aluminum fall off. However, that didn’t stop the Chinese from commissioning a new plant later this year that has the ability to produce upwards of 2 million tons of finished aluminum.

With so much aluminum being produced and so little domestic demand, what is a nation that has historically had issues unloading the product to do? The Shanghai Futures Exchange price has helped alleviate China’s difficulty exporting aluminum by dropping relative to the LME, allowing Chinese producers to better compete across Asia.

Just last month, the sharp increase in Chinese aluminum exports (35% year-over-year) raised a few eyebrows, most notably from Alcoa Inc.‘s Klaus Kleinfeld, who claimed the nation’s surging export figures were skewed by semi-finished products. The 2.5 million metric tons of unwrought aluminum and related products in the first half of 2015 equaled a 650,000-mt increase compared to the year prior.

At the Mercy of China’s Aluminum Producers

According to the Wall Street Journal, China accounts for about half of the world’s aluminum production and its producers are showing no signs of relenting their output of the metal despite plummeting prices. This is not what the rest of the market wants to hear.

“Chinese production is growing faster than in the rest of the world,” Ivan Szpakowski, Hong Kong-based analyst with Citi, told the news source. “Most producers in China are still making money, especially the ones with new capacity.”

Although the strength of the dollar has benefited aluminum producers outside the US to offset China’s export volumes, something has to be done as the global aluminum market could reach a surplus of 3 mmt of the metal before year’s end.

“China’s government should realize that huge exports are significantly influencing lower prices at the London Metal Exchange and it hurts primary producers not just outside China, but in China too,” Goran Djukanovic, an independent aluminum analyst, told the WSJ.

What Should My Industrial Buying Strategy Be?

You can find a more in-depth aluminum price outlook and forecast in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Just two weeks ago we were expecting commodities to fall. The Thomson Reuters/Jefferies CRB Index (composed of 19 commodities) stayed rangebound during the first half of the year but the recent weakness among base metals suggested that other commodities would follow.

CRB Commodity Index - 1 year out

CRB Commodity Index, one year out. Graph: MetalMiner.

The index has now broken that six-month price range as commodities fell across the board in July. Energy prices fell in July, putting crude oil back below $50 a barrel. The US oil rig count rose last week for the third time in the last four weeks while foreign production is likely to expand too.

Three Best Practices for Buying Commodities

China’s stock market tumble raised concerns about China’s economy, which caused a sell-off in commodities. Despite the sharp sell off, China’s stock market hasn’t shown real signs of hitting a bottom and further selling might be around the corner, which means that this commodity wave might have not reached the shore yet.

Despite falling raw material costs, figures posted by U.S. Steel underline the damage imports are having on the US steel industry.

Three Best Practices for Buying Commodities

The WSJ reported U.S. Steel posted a 34% decline in revenue and a $261 million loss in the latest quarter, up from a $18 million loss for the same time last year.

Falling Prices, Rising Surpluses

Steel prices have continued to fall, just as my colleague Lisa Reisman has been predicting for the last year. As demand has suffered, cutbacks in the energy sector, particularly for drill pipe, and imports have risen with a stronger dollar and growing surplus in the global steel market. Capacity utilization in the US market is down to 72.5% according to the American Iron and Steel Institute, a sharp fall from the same period last year, with even that number looking optimistic compared to reports in Bloomberg which suggest it could now be below 70%.

Steel Coil

Expect shipments of steel into the US to stay high so long as the dollar retains its strength against other currencies.

As Bloomberg reported last week, the amount of imported steel used in the US market has swelled from 28 to 33% since last year as the economies of major producing countries like China, Russia and Brazil have slowed and producers have sought more exports. Nucor Corp., the US’s largest and most efficient producer, warned as far back as March that its first quarter profit would be as much as 71% lower due to the exceptionally high levels of imports flooding into the market. Read more

The latest Chinese stock market sell-off is hurting commodities. Energy prices got hit the most with oil prices falling below $50/barrel, followed by precious metals. Gold prices hit a 5-year low, falling as much as 8% in July, silver of course, followed because metal price correlation is still an important factor to account for.

Three Best Practices for Buying Commodities

Platinum prices fell as much as 12% this month:

Platinum price since 2013

Platinum price since 2013. Graph: MetalMiner.

Despite most analysts predicting a deficit, this precious metal has done nothing but fall during the past few years. The metal is down 35% this year.

Production Up

One factor putting the market under pressure is South African production of platinum, which accounts for more than 70% of the world’s supply, which has returned to levels above those of the five-month strike in 2014.

Palladium prices fell as much as 14% this month:

Palladium price since 2013

Palladium price since 2013. Graph: MetalMiner.

Palladium was the best performer among precious metals until just about a year ago when it started to fall, too. The metal is down 32% this year with an impressive decline over the past two months.

Free Download: July Metal Price Forecast

Unlike platinum, palladium finds more application in gasoline engines and is, therefore, more exposed to the Chinese and US automotive markets than to European markets. The slowdown of the Chinese automotive market over the past few months might help explain the sharp price decline.