Articles in Category: Supply & Demand

Physical delivery premiums are a pretty accurate measure of primary aluminum metal supply. They reflect the balance between suppliers’ aspirations for the highest price and buyers’ determination for the opposite.

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

The setting of physical delivery premiums is, therefore, a function of supply and demand — or, more accurately, the availability of physical metal in the marketplace.

So when Metal Bulletin announced that third-quarter main Japanese port (MJP) premiums have fallen 7.4% quarter on quarter and settled for the July-September period at $118-119/ton, from $128/ton in the second quarter, it supported anecdotal evidence that, despite supply disruption from Australia and New Zealand, the Asia-Pacific market remains well supplied.

Source: Reuters

Credit for this — if “credit” is the correct term — goes in part to China’s failure to sufficiently implement supply-side reform of its aluminum sector.

The aluminum price rose strongly in the first quarter with the expectation that Beijing’s announcements regarding curtailment of excess aluminum capacity would be vigorously implemented this year.

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The landmark North American Free Trade Agreement (NAFTA) went into effect 23 years ago — unsurprisingly, many in the metals industry are eyeing reforms to modernize the long-standing agreement signed by the U.S., Canada and Mexico.

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

In late April, President Donald Trump signed an executive order focusing on trade-agreement violations and abuses, directing the Department of Commerce and the United States trade representative (USTR) to study the U.S.’s free-trade agreements. One month ago, the office of the USTR notified Congress of the administration’s intention to renegotiate NAFTA.

In recent months, Trump has indicated he is willing to terminate the agreement if renegotiation efforts don’t go anywhere. In April, the president said he was “psyched” to terminate the deal, but ultimately had a change of heart after speaking with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto, per media reports.

That came three months after Trump pulled the U.S. out of the Trans-Pacific Partnership (TPP), negotiated by his Democratic predecessor Barack Obama.

When will renegotiation actually happen? The timeline isn’t clear. On Monday, Secretary of Commerce Wilbur Ross told reporters renegotiation might not happen until next year.

As uncertainty clouds NAFTA’s future, domestic metals organizations have weighed in on the ways in which they believe the 23-year-old agreement can be improved.

Metal Industry Hopes to Keep Positives, Target Problem Areas

Players in the metals industry have spoken out about how they want to see 23-year-old trilateral trade agreement modified for this new age.

In a filing June 12, The Aluminum Association, addressing U.S. Trade Representative Robert Lighthizer, urged that NAFTA should be renegotiated in a way that modernizes it without compromising the benefits of the original agreement.

In the letter to Lighthizer, The Aluminum Association underscored three ways to strengthen the agreement:

  • Improving and strengthening customs procedures and cooperation to facilitate the movement of aluminum and aluminum products among the United States, Canada, and Mexico
  • Working with the Canadian and Mexican governments to ensure that “NAFTA preferences are available only to aluminum articles that truly originate in the territory of a NAFTA party” and that “unscrupulous producers and exporters operating outside the NAFTA region are not improperly claiming preferential treatment under NAFTA by either making fraudulent country of origin claims or incorrectly classifying the article at issue”
  • Negotiating common disciplines on the operations of State-Owned Enterprises (SOEs), which “often benefit from favorable government policies and subsidies that create significant market distortions”

Regarding the third point, the release specifically zeroed in on China, noting “massive overcapacity” encourages unfair trading practices.

In addition to the aluminum industry, steel groups are weighing in on a potential NAFTA face-lift.

The American Iron and Steel Institute (AISI), like The Aluminum Association, stressed in a letter to Edward Gresser, chair of the Trade Policy Staff Committee, that NAFTA has yielded “significant benefits” but could be modernized after nearly a quarter of a century since its passage.

NAFTA has been critical to the steel industry, as 90% of all U.S. steel mill product exports went to Canada or Mexico in 2016, according to the June 12 AISI letter.

U.S. steel exports to Canada and Mexico grew rapidly following the passage of NAFTA. Source: American Iron and Steel Institute

Like The Aluminum Association, the AISI cited rules-of-origin issues, global overcapacity and conduct of SOEs as issues needing assessment in a revamped agreement.

In addition, currency manipulation was a point of emphasis.

“Currency manipulation makes exports more expensive, imports cheaper, and can subsidize cheaper prices for exports to third-markets,” the AISI letter states. “The International Monetary Fund (IMF) has provisions against currency manipulation, but the lack of an enforcement mechanism has limited their effectiveness.”

The AISI also suggested possible improvements to “streamline” customs procedures and “to ensure that manufacturers can ship and receive steel in an efficient manner.” Part of that streamlining, AISI argues, includes updating border infrastructure.

So, in many ways, U.S. steel and aluminum seem to be on the same page with respect to NAFTA — that is, that there’s room for improvement.

NAFTA Renegotiation a Hot Topic

The USTR sent out a notice May 27 seeking public comments on the topic of NAFTA renegotiation. The period for public comments closed June 12, but not before 1,396 comments were submitted.

Clearly, NAFTA is a very important subject to many people and industry organizations. While the minutiae of free-trade agreements can sometimes make the subject seem opaque, the outcomes are decidedly human, as jobs and livelihoods are often at stake.

Leo Gerard, international president of United Steelworkers, submitted a public comment in support of renegotiating NAFTA, provided it is “along the lines identified in the comprehensive approach identified in the negotiating framework document submitted on behalf of the USW and other unions by the AFL-CIO.”

“We have felt the negative impact of the NAFTA first hand since it entered into force more than two decades ago,” Gerard wrote. “Tens of thousands of plants have shut down, millions of workers have lost their jobs and many other workers have seen their compensation stagnate or decline as a result of NAFTA.”

Looking Ahead

What’s next for the process? A public hearing will be held at 9 a.m. Tuesday, June 27, in the Main Hearing Room of the United States International Trade Commission, 500 E Street SW., Washington D.C.

As demonstrated by the volume of public comments, there is a wide range of suggestions being offered with respect to NAFTA renegotiations.

One thing, however, is clear: Many of the interested parties want change of some kind.

Free Download: The June 2017 MMI Report

What’s up — or should we say, down — with zinc?

Source: Fast Markets

Together with other base metals, zinc has experienced a downtrend during this past week, reaching a seven-month low on Wednesday. Since then, it has recovered slightly up to $2,540/metric ton.

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

Zinc is moving together with commodities and industrial metals, both of which have experienced a weaker start to June. These weaknesses began in the beginning of 2017, as zinc prices failed to reach new highs, turning into a sideways market.

Other metals, such as tin and lead, have also experienced lower prices during the first week of June, which could be a signal of a general trend reversal. We do not believe zinc will succeed in surpassing its previous $3,000/mt upper limit.   

In fact, zinc could be at the start of a downtrend.

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The market for biomedical metals — like the ones used in orthopedic implants — is expected to reach $34.9 billion by 2025, according to a recent market research report. Sandor Kacso/Adobe Stock

This morning in metals news, a recent report predicts the global biomedical metal market will reach $34.9 billion by 2025, palladium continues to stand strong and metal makers are looking for new markets for their products.

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

Market for Biomedical Metals to Only Get Bigger

The market for biomedical metals is large — to put a number on it, it is expected to be valued at $34.9 million by 2025, according to a recent report from Accuray Research LLP.

According to the report, the biomedical metal market is expected to grow by a compound annual growth rate of 7.8% over the next decade.

Among the factors underpinning the expected growth are: increased demand for orthopedic implants; new developments in titanium-based alloys; and recent technical developments in biomedical metal.

Palladium Defies Analysts’ Expectations on Strong Run

At around $900 per ounce, palladium is trading at 16-year highs, according to a Platts report.

Analysts told Platts they saw no justification for palladium’s strength, especially considering a struggling Chinese automotive market (palladium is an important autocatalyst ingredient in gas-powered engines).

One Japanese analyst told Platts the current state of the palladium market was a “once every decade” situation.

Is a reversal in palladium prices on the way? Only time will tell.

New Markets for Metals

According to an article Wednesday in Bloomberg, makers of metals are looking for new commercial uses for their products, particularly as a boom in Chinese demand for raw materials has tempered. In general, China’s intent to crack down on credit — particularly on the heels of May’s Moody’s downgrade — has led many to believe a negative impact for metals markets will follow.

To make up for the loss of Chinese demand, producers of metals are looking for new markets for their products.

What uses do producers have in mind?

According to Bloomberg, a few uses include fertilizer, salmon cages, electric-car batteries and household cleaning products, among others.

Free Sample Report: Our Annual Metal Buying Outlook

Many expect growth to slow in China through the remainder of the year. As such, producers will have to get creative in finding new uses for their products, from cars to fertilizer and everything in between.

Qatar is a major supplier of liquefied natural gas. donvictori0/Adobe Stock

Editor’s Note: This is the second part of Stuart Burns’ analysis of last week’s decision by several Arab nations to break ties with Qatar. On Friday, Burns covered the political backdrop. 

Qatar may well be asking: why now?

The country has been engaged in such activity (as detailed Friday) for a decade or more, but the young Saudi Deputy Crown Prince Mohammed bin Salman and Abu Dhabi’s Crown prince, Sheikh Mohammed bin Zayed, seem to have found common ground to take Middle East politics into their own hands and mold the region the way they would like to see it.

It would seem they are not above fabricating their own fake news to achieve it, either. For example, Qatar’s Emir Tamim is reported to have said that Hamas is “the legitimate representative of the Palestinian people,” and called Iran “a big power in the stabilization of the region.”

But attendees at the speech reported he said no such thing. Shortly afterward, it was discovered the Qatar News Agency (QNA) website had been hacked into and the stories inserted.

The timing of the diplomatic freeze is also relevant.

Just two weeks after President Donald Trump’s visit, you have to think this was discussed and approval was sought for U.S. backing, at least politically, for such a dramatic move. It should not be forgotten that the U.S. has a major intelligence-gathering military base in Qatar, the Al Udeid Air Base on Qatari soil is a pivotal staging ground for U.S. counterterror operations, the Washington Post states.

In a more recent development, Secretary of State Rex Tillerson on Friday made a call for de-escalation, asking the Saudi-led coalition to ease its blockade of Qatar on the grounds that it is creating food shortages and making the fight against ISIS more difficult, according to Bloomberg.

The alliance is trying to pull Qatar into line with the position taken by the other members of the Gulf Cooperation Council — aligning against Iran and backing away from supporting terrorist sympathizers. In that they are to be applauded, but the risk is the situation gets out of control. One must assume closed-door discussion has not worked and the GCC coalition is taking this more extreme step to shock Qatar into compliance. The danger is it could also drive Qatar further into the arms of the Iranians, further polarizing the region’s political blocs.

Not surprisingly, the move caused a jump in the oil price and jitters in the liquefied natural gas (LNG) market, in which Qatar plays an outsize role as a major supplier to Europe and Asia. Oil prices immediately jumped but then fell back, as it became clear Qatar’s 30,000 barrels a day were unlikely to have any impact of global supply.

Of more concern, however, was LNG.

Qatar supplies a third of the U.K.’s consumption and is the world’s largest exporter of LNG.

Qatari production of aluminum — at 610,000 tons per annum, in a 50:50 joint venture with Norsk Hydro — represents less than 1% of the global market Prices have been unaffected by the news of the GCC blockade.

In the short term, exports may be disrupted because cargoes were transhipped in neighbouring UAE onto larger vessels. However, Qatalum (the joint venture between Qatar Petroleum and Norsk Hydro) says it can ship directly from its own ports, if necessary.

Pabrady63/Adobe Stock

This morning in metal news, the European Union urges the United States to focus the scope of its national security probe — launched by President Donald Trump’s administration in April — into steel imports; nickel prices continue to tumble amid concern about global oversupply; and China’s attempt to tackle its debt could impact metal markets throughout the second half of 2017.

EU Officials Express Concern About US Steel Import Probe

On the heels of President Donald Trump’s first round of overseas visits, there remains uncertainty about the president’s stance on several issues, including whether or not Trump will pull the U.S. out of the 195-member Paris climate accord (the president is expected to make an announcement on that subject this afternoon). In addition, EU officials are concerned about the scope of the Trump administration’s national security probe into U.S. steel imports, Reuters reported.

Two-Month Trial: Metal Buying Outlook

The probe would have negative effects on both U.S. steel producers and manufacturers which use steel, a written statement from the European Commission to the U.S. Department of Commerce argued. The EU is also hoping the probe will zero in on issues of national security and won’t broadly impact exporters around the world, should the Trump administration decide to adjust steel import policy.

Nickel Continues to Roll Downhill

The price of nickel continues to fall, this time to an 11-month low on Thursday, Reuters reported.

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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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AdobeStock/Pavel Losevsky

Beijing’s focus on supply-side reforms of China’s giant aluminum industry has been a prime mover for the metal price this year.

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

But primary metal price rises aside, of more concern to aluminum consumers should be the nature and extent of China’s aluminum semi-finished product exports. There have been various facets to China’s product exports, as Andy Home of Reuters succinctly explained in an article last week.

On the one hand, the growing volume of product exports has ignited considerable trade tensions with the U.S. and Europe. In the case of the former, the article reports, it led to a formal complaint to the World Trade Organization (WTO) and, more recently, a Section 232(b) investigation under the Trump administration. In Europe, expiring duties have been rolled over on imports of aluminum wheels from China and further action sought by trade bodies on a range of aluminum products.

Meanwhile, rumours that an indeterminate but significant proportion of China’s semi-finished product exports were in fact primary metal being illegally classified as semi-finished product to circumvent export duties on unwrought aluminum have at least partially been vindicated, as a focus has been brought to bear on a massive stock of aluminum held in Mexico last year that appeared to originate from Vietnam but with links to China.

Home explained that China’s exports of commodity code 7604 (bars rods and extruded profiles) have mushroomed from just over 6,000 tons in 2012/2013 to 463,000 tons in 2015 and 510,000 tons in 2016. Some of that metal appeared in Mexico last year before media attention encouraged the metal to be recycled back to an obscure port in Vietnam. Read more

“Where next for oil prices?” Stuart Burns had asked on Monday. In the short term, that would be downwards.

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

Yesterday the Organization of the Petroleum Exporting Countries (OPEC) met in Vienna and decided to extend supply cuts for another nine months, until March 2018. That is what was expected, but oil prices responded by dropping quite a bit, Reuters reported, by roughly 5%.

The price of oil has indications beyond, well, oil. “Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum,” Burns wrote. “A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide.”

Where Next for the U.S. Dollar?

Another driver of metal prices is the dollar. This past week, Raul de Frutos looked at the movement of the U.S. dollar, which recently hit a seven-month low. What is the reason for this drop?

“First, the dollar had steadily risen for three consecutive months,” de Frutos wrote. “It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.” Read more

AdobeStock/Andrey Burmakin

This morning in metal news, a new report paints a positive picture for jobs in the renewables sector, Moody’s downgrades China’s credit rating, and the results of the OPEC meeting are in. The current supply cuts will be extended for another nine months, and oil prices tumbled on the news.

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

OPEC Agrees on 9-Month Extension of Supply Cuts

Let’s start with the big headline of the morning. As expected, the Organization of Petroleum Exporting Countries (OPEC) has agreed to extend supply cuts for another nine months, until March 2018.

After OPEC wrapped up its first meeting in Vienna around 3:30pm CEDT (8:30am CDT), oil prices responded over the next few hours by sliding 4.5% to $51.60 per barrel. Some industry analysts think OPEC should have agreed to deeper cuts. As The Guardian reported, OPEC is “sticking to the 1.8 [million] barrel a deal first agreed in late November.” Russia and other oil producing non-OPEC members are also expected to go along with the supply cuts.

Forget Bringing Back Coal Jobs

The burgeoning renewable energy sector employed 9.8 million people in 2016, according to the latest annual report released by the International Renewable Energy Agency (IRENA). Global employment in the sector has been growing every year since 2013, and there may be as many as 24 million renewables workers worldwide by 2030. Read more