Articles in Category: Supply & Demand

Three-month Nickel on the London Metal Exchange fell on Monday to a new 12-year low, falling as low as $8,175 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year-to-date.

3M LME Nickel hits 12-year low

Three-month London Metal Exchange nickel has now hit a 12-year low. Source:

This year, we heard many times that since more than 50% of producers were underwater, prices were due for a recovery. But once again, the market has proven that production costs don’t determine the price of a metal, it’s what people are willing to pay that determines it.

Why is Nickel Still Falling?

Nickel has fallen on a poor outlook for its struggling steel sector as well as a strong dollar and China’s slowing growth. These two have also driven the entire metals complex down this year.

Nickel is the first metal falling below its 2009 low. With this, we believe the chances of other metals suffering the same fate have increased. Some base metals like copper are still trading well above their recession’s lows. Aluminum however, could be next.

US construction continues to post robust numbers fueled, in part, by low materials prices. The London Metal Exchange’s new contracts haven’t drummed up support yet, but it’s still VERY early.

Nonresidential Construction Soars

Nonresidential construction in October soared 32% in October from the September level, according to a report by Dodge Data & Analytics, and the value of construction starts was up 13%.

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Residential construction was up 9% for the month, helped in part by 11 multifamily projects, each worth $100 million or more.

New LME Products Not Drawing Interest Yet

The London Metal Exchange‘s new aluminum and steel contracts failed to attract much interest at their launch on Monday, highlighting the struggle they face to gain traction and liquidity.

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In part one of this series, we analyzed how metal prices have fallen in three selling waves. In this section, we will analyze the current sell-off (third wave) in metal prices that a rising dollar is producing.

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Investors expect that the Federal Reserve will rise interest rates in December for the first time since 2006 while the European Central Bank plans to continue with more easing monetary policy. This, and the fact that growth prospects look brighter in US than they do overseas both add to the dollar’s attractiveness. Indeed, we suspect that the bullish move in the dollar over the past few weeks could be the beginning of a bigger move which could depress metal prices even more down the road.

Let’s take a snapshot of industrial metals to see the individual impact of a rising dollar since mid-October.


3M LME Aluminum

Three-month London Metal Exchange aluminum. Source: MetalMiner analysis of data.

Aluminum prices are trading below $1,500 per metric ton, the lowest level since 2009. Notice how prices fell sharply as the dollar surged in mid-October (red arrow). Read more

As the US Green Building Council finished its annual Greenbuild Conference in Washington, DC, last week, one somewhat unlikely organization came away touting better opportunities for its green and sustainable products: The Steel Market Development Institute.

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Steel, you say? Doesn’t it burn a lot of fossil fuels just to get the iron ore out of the ground? Isn’t the process to turn it into structural beams and bars energy-intensive and dirty, as well? Perhaps, if you’re looking at mined and milled steel only, but if you look at less-obvious concepts like reusability, material reduction through smart design, recyclability, decreased maintenance cost and empowerment of adaptive reuse, steel and, even some other metals, are ahead of the game when it comes to construction specification.


All of these green and sustainable steel-framed buildings might get a boost from new LEED standards. Source: Dmitry Ersler/Adobe Stock

The USGBC introduced will put its latest sustainable building certification, Leadership in Energy and Environmental Design version 4 (LEEDv4), into effect early next year. It  approaches building materials content credits in a completely different way than previous editions of LEED.

“The new version of LEED, the primary changes are in the materials section and those changes are mostly around things like lifecycle assessment, environmental product declarations, transparency really,”  said Mark Thimons, vice president sustainability at the SMDI. “What’s it take to make this product? What’s in it?” Read more

Chinese steel prices hit record lows and caused at least one major closure Tuesday and aluminum delivery premiums leveled off in Europe.

Closures in the Chinese Steel Sector

Chinese steel prices hit record lows on Tuesday amid prolonged worries over shrinking demand in the world’s top consumer that market sources say has forced one of the country’s largest private producers to cease output.

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The shutdown by Tangshan Songting Iron & Steel, with an annual capacity of 5 million metric tons, would be one of the biggest in the sector’s years-long downturn as the world’s No.2 economy slows, traders and analysts said.

Aluminum Surcharges Fall in Europe

Surcharges for physical delivery of aluminum in Europe leveled off after recent gains and may come under pressure from additional supply if Chinese exports rebound and some inventories are liquidated.

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The surcharges, or premiums, which consumers pay on top of the London Metal Exchange (LME) cash price for immediate delivery of metal, have gradually climbed over the past couple of months amid tighter availability.

Fallout from the Samarco mine disaster in Brazil continues, and construction input prices are at their lowest cost, overall, since 2011.

Insurance Caps Already Exceeded

The cost of a deadly dual dam burst at an iron ore mine in Brazil run by Samarco has already exceeded the insurance cap for civil damages, co-owner Vale SA said on Monday.

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Samarco, owned by Vale and BHP Billiton has been fined 250 million Brazilian reals ($65.5 million) and forced to pay for accommodations for the dispossessed, after two dams burst earlier this month, killing at least seven people, with 15 still missing.

Construction Materials/Inputs Fall in Price Again

The Producer Price Index for inputs to construction industries declined for a fourth consecutive month in October, according to an analysis of the Bureau of Labor Statistics data by the Associated Builders and Contractors (ABC) of America.

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The index stands at its lowest level since the first quarter of 2011 as prices for construction inputs declined 0.2% on a monthly basis and 4.6% on a year-ago basis. Nonresidential construction input prices exhibit a similar pattern, falling 0.3% since last month and 5.1% over the past 12 months. Nine of 11 key input prices are down on a year-over-year basis.

Some key takeaways for metal purchasers:

  • Steel mill product prices fell 1.7% in October and are 16.1% lower than one year ago.
  • Natural gas prices shrank 1.8% on a monthly basis and 36% on a yearly basis.
  • Iron and steel prices lost 4.4% month-over-month and 21.2% year-over-year.

ABC_ producerpriceindex_construction_111715

The fallout from the Paris attacks was felt in markets this morning as both gold and oil jumped in early trading. There’s still little good news to report for copper, which saw a major producer slash its premium for delivery to China.

Gold, Oil Up in Early Trading

Gold and oil edged up in nervous trading this morning following the deadly attacks on Paris and large-scale French airstrikes in Syria, although broader commodities markets remain weak on poor fundamentals, Reuters reported.

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Gold, typically seen as a safe haven in times of heightened risk, jumped about 1% as Asian shares and US stock futures fell but later fell. The euro skidded to a 6-1/2 month low. Oil prices edged higher, but copper slipped to a six-year low.

Codelco Cuts Chinese Copper Premium

Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.

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In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner, Codelco, offered a premium of $98 per metric ton for 2016 term shipments, down from $133 per mt this year.

Except for the well-connected in India’s iron ore and steel circles, very few know, or care, about the going-ons around Essar Steel’s proposed US iron-ore-pellet production facility in Minnesota. But in the US, it continues to hit the headlines regularly.

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At its center are two competitors — Essar and Cliffs Natural Resources. There have been over a decade of delays (accompanied with a series of controversies), but now, the Essar Steel Minnesota project, insists the company, is headed toward completion. The plant is expected to start making iron ore pellets sometime late 2016.

Minnesota Iron Ore Ship Loader

One of the many iron ore ship loaders in Minnesota. Could Essar Steel’s production facility revive the iron range? Source: Johnsroad7/Adobe Stock.

Essar plans to produce 7 million tons of processed taconite pellets a year. This may ultimately go to ArcelorMittal’s Indiana steel mill near Chicago, as well as Essar’s own steel mill in Algoma, Ont., Canada.

State Help

Essar received about $70 million in state grants and state loans after taking up the project in 2007 to build one of Minnesota’s only integrated taconite and steel mills. Read more

Last Wednesday, the Federal Reserve said that a December interest rate increase is still on the table. On top of that on Friday, data showed an addition of 271,000 jobs were created in October, with the unemployment rate dropping to 5%, beating expectations.

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The good news greatly increased chances for a December rate hike. As a result, bond yields surged and the dollar appreciated against all currencies. The dollar index made a bullish move and is now at a seven-month high, breaking above resistance levels. The move suggests a continuation of the dollar’s bull market.

Dollar Index hitting 7-month high

The US dollar Index hits a seven-month high. Source: MetalMiner analysis of data.

Dollar Up, Metals Down

A rising dollar is something we’ve covered in previous articles. One of the side effects of a strong dollar is lower commodity prices since commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations.

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Industrial metals are commodities and a strong dollar has a depressing effect on prices. In the next chart we can see the dollar index versus the Industrial Metals exchange-traded fund. Notice how the dollar started to rise in mid-October, making industrial metals fall to multiyear lows.

Dollar Index (in green) vs Industrial Metals ETF (in blue)
US dollar index (in green) vs. the Industrial Metals ETF (in blue). Source: MetalMiner analysis of data.

What This Means For Metal Buyers

On top of weak Chinese demand, we have a rising dollar. This is bad news for metal producers and  good news for metal buyers. For metal prices, we expected, and we still expect, more downward movement ahead.

It won’t be environmentally motivated investors or carbon-emission caps that drive coal producers out of business, it will be good old supply and demand.

Recent developments suggest China, the world’s largest consumer of thermal coal for power generation, could become a net exporter as soon as next year if current trends continue. Government-backed researchers are urging Beijing to delay expansion plans for coal-fired power plants, on the basis that further additions of generating capacity will lead to electricity oversupply.

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“If it keeps on growing with no control, the oversupply troubling the steel and cement industries would be even worse for the power sector,” said Yuan Jiahai, a professor at the North China Electric Power University. Electricity demand grew at the slowest rate in 30 years in the first half of this year, according to the WSJ. The official Xinhua News Agency on Tuesday quoted Ouyang Changyu, deputy secretary general of the China Electricity Council, as saying the group had revised down its full-year electricity-demand estimate to 1% growth this year, from 2% previously.

Chinese Demand Down

As recently as 2011, electricity demand had grown by 12% annually. In the first nine months of 2015, electricity demand grew by 0.8%, as recently as the same period last year it had grown at 3.9%. Coal-fired generators produced just under 315 billion Kilowatt-hours of power in September, down 3.6% on the year and representing 69% of total power generation. The figure would have been lower but for low reservoir levels and, hence, reduced hydroelectric power production that saw hydro down 6.7%, according to Reuters.

Part of the reason for falling electricity consumption is the twin drivers of reduced emissions and economic changes. Beijing has tried, with limited success to close more polluting steel, cement and similar industries to reduce environmental pollution in major cities such as the capital. At the same time the economy is going through a longer term rebalancing of investment away from more energy-intensive heavy industry and toward lighter industries serving domestic consumption and services. Some are arguing the headline GDP growth rates are also skewed, questioning how electricity growth can be static, even fall, when the country is going through supposedly 6.7%+ GDP growth?

Energy Consumption and GDP

While there isn’t direct causation between GDP growth and growth in electricity demand, there is a strong correlation, and in China, historically, electricity demand growth has been a safer proxy for measuring growth in the economy than official GDP figures.

That aside, China’s coal imports are down by 31% in the first quarter, according to Bloomberg, leading a global drop in demand that saw coal use in power generation down 4.6% in the first nine months of this year. The paper says that’s a decline of 180 million metric tons or more than 40 mmt more than was consumed by Japan in the same period.

Screen Shot 2015-11-09 at 12.59.11

Only in India is coal consumption still relentlessly on the rise even as the country adds considerable renewable power capacity, but then as India is all-too-ready to point out, when it comes to electricity supply they have a lot of catching up to do.

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As China’s demand for imports falls, as plants are closed in North America and Europe and as new capacity from legacy investments continues to come on-stream the resulting collapse in prices could see resources still in the ground become uneconomic. Either way, it suggests power costs will remain low for many years to come with the only threat being carbon taxes on the most polluting energy sources such as thermal coal.