Articles in Category: Supply & Demand

President Trump announced last week that his administration is investigating whether imports of steel threaten the U.S. national security. This follows earlier administration plans to initiate trade enforcement cases involving countries such as China, Germany, Mexico, Japan, Canada (yes, Canada) or South Korea. Shares of U.S. steelmakers rallied on the news that the Trump administration could widen the probe against imported steel products.

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There is almost no difference in steel whether it’s produced domestically or in China, at least for the more commodity-grade steel products. The main difference, as many argue, is that the production of steel in the U.S. causes less environmental damage due to stricter environmental regulations.

The U.S. placed several anti-dumping and countervailing duty orders on steel products, but they had not substantially reduced the amount of steel entering the country. Steel imports account for roughly a fourth of total steel consumption in the United States. Now, import numbers are down 30%-plus from recent years but the impact has been more modest than many market participants would have predicted.

Cold-rolled coil spread US-China. Source Raul De Frutos analysis of MetalMiner IndX.

The potential of a blanket import tax comes as U.S. prices trade at unsustainable levels compared to international prices. That’s because since March, domestic prices have risen while prices in China have fallen sharply. The sell-off coincided with a big sell-off in seaborne iron ore. The declines come amid concerns that previous rallies had taken prices too far. In addition, China’s crude steel output surged to a record 72 million metric tons in March. However, prices could recover if China’s promises to address rampant, persistent overcapacity take hold sooner rather than later.

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The point is, that although a wider international price spread is partly justified by more stringent import tariffs, this phenomenon has historically led to rising import volume. Unless the new investigation materializes into something, U.S. steel prices will likely find downward pressure if world export prices continue to slide.

What This Means For Metal Buyers

Momentum in U.S. steel prices has cooled down. This is because the international price spread has widened to record levels. If the U.S. imposes a new import tax on steel, that will likely keep this price spread wide. However, Chinese steel consumption and higher steel prices is what really represent a sustainable improvement to market fundamentals. Even with a new import tax, U.S. prices are already expensive and U.S. mills will still need a recovery in Chinese prices if they want to be able to justify higher prices. Ultimately, protectionist trade policies might provide only fringe benefits to U.S. steelmakers.

Tin prices have rebounded since March. Prices fell sharply earlier this year but they have now found stability in Q2. As we pointed out in February, that month presented a good opportunity to buy tin. During bull markets, it’s good to time your purchases after a price pullback.

Tin prices bounce off support levels. Source: MetalMiner analysis of LME data.

Indonesian Exports Up

Indonesia is the world’s largest tin-exporting nation. Indonesian tin exports for 2016 totaled 63,559 metric tons, down by 9.4% compared to 2015. The decline came as Indonesia tightened its rules for tin exports in a bid to crackdown on environmental degradation and smuggling.

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However, the export permit process has been far smoother this year. For the first quarter, exports were up by 3.1% compared to the final quarter of 2016, and up 86% year-on-year. According to the International Tin Research Institute, many smelters in the country are operating on tight margins, with some understood to have paused production when prices dropped below US$19,000/mt in February before resuming when prices recovered above $20,000/mt. ITRI expects Indonesian refined shipments this year to remain broadly level with 2016. The next few months figures will give as a clearer picture on how much metal Indonesia will export this year.

Myanmar Shipments Fall

According to the ITRI, Myanmar was the source of over 99% of China’s reported tin ore and concentrate imports in January and February, which totaled exactly 40,000 mt, down 51% from 81,077 mt for the same period of 2016.

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While China’s Spring Festival impacted Myanmar’s February tin exports in both 2016 and 2017, the lower overall shipments can be explained by the large sales of local government concentrate stockpiles in January 2016. For that reason, it seems too early to tell whether exports will continue to decline or not but ITRI expects exports to be limited in 2017.

What This Means For Metal Buyers

Tin’s performance for the balance of 2017 will strongly depend on the production levels of these two Asian countries. For now, supply seems to be limited while most established producers are struggling to maintain, let alone increase, production. Meanwhile, the demand outlook for the whole industrial metals pack looks stronger than expected, which should provide a floor to prices this year.

Zinc prices have fallen sharply over the past two weeks.

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While others panic and see this decline as the end of zinc’s bull run, I see this price pullback as a great opportunity to purchase the metal at a good price.

The 3-month LME zinc price. Source: MetalMiner analysis of LME data.

After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.

Short-Term Resilient Supply but What About Long-term?

The recent price weakness can be attributed to fears that high prices could trigger more mine supply to come online in China. Refined zinc supply remains resilient in the country, where refined production rose by 4.4% year-on-year in the first two months of 2017. However, they might prove less resilient in the coming months after some of China’s largest zinc smelters jointly announced they will curtail roughly 540,000 mt of annualized capacity over an unspecified period of time. The announcement comes after China’s largest zinc smelter, Zhuzhou, started an indefinite maintenance period for 100,000 mt of smelting capacity earlier in March.

In addition, the second-largest zinc plant in North America has been running at a 50% of normal operating levels since a strike began on February 12. Typical annual zinc production at the plant is 270,000-275,000 mt a year.

China’s Demand Still Strong

Other analysts might be attributing the recent price weakness to slowing Chinese demand. That really hasn’t been the case. China reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market. The pace accelerated from the 6.8% expansion in the previous quarter and puts China well ahead of its annual target of about 6.5% growth. Growth prospects in the country seem to be improving thanks to easing trade tensions with the U.S.

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Construction and infrastructure make up for more than 60% of zinc’s demand. In China, investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, while construction starts rose 11.6% during the same period. If that’s not enough, in April, China’s government announced plans to build a new megacity from scratch. The construction will require massive amounts of steel and industrial metals.

What This Means For Metal Buyers

Despite recent price weakness, zinc’s fundamentals remain strong. It seems way too early to call an end of zinc’s bull run. This month buyers might find a good opportunity to purchase zinc. You can check out our monthly metal buying outlook for monthly strategies on how to time your purchases.

Coking coal has more than doubled in two weeks on the back of disruption to Australia’s coal exports associated with Cyclone Debbie, which caused the evacuation of several mines and damaged coal trains supplying export terminals, forcing some miners to declare force majeure on their deliveries.

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It is estimated that shipments accounting for 50% of the global coking coal supply will be delayed and that Australia will need at least two months to regularize its coking coal exports following the natural disaster.

Australian coking coal’s free-on-board price in US dollars per metric ton.

Coking coal prices rose sharply in the second half of last year when China reduced allowable work days at the country’s coal mines, which reduced output and tightened the global coking coal market. These events added fuel to rising steel prices in China. But a slump in coking coal prices since December added pressure to steel prices, especially in China since the country strongly depends on the commodity to make steel.

Can Higher Coking Coal Prices Give a New Boost to Chinese Steel Prices?

The Chinese cold-rolled coil price. Source: MetalMiner IndX.

Australia is the world’s biggest coking coal exporter and is China’s largest supplier. The recent disruptions are forcing China to look for alternative supplies. Russia, Mongolia and Indonesia are other potential sources of coking coal for China’s hungry mills. Meanwhile, North Korea is out of China’s exporter list after Beijing ordered an import ban following North Korean missile tests.

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Higher coking coal prices translate into higher input costs, particularly in China. Chinese steel prices set the floor for international steel prices, a topic that we discussed recently. Steel buyers should monitor the recent surge in coking coal prices closely as  since steelmakers will potentially pass on the increase to consumers, giving a boost to weakening steel prices in China.

The rising trend of aluminum processors seeking protection from Chinese imports may be just the beginning if a recent Reuters article is correct.

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Encouraged by a growing delta between the London Metal Exchange and Shanghai Futures Exchange aluminum price quotations, China’s aluminum makers are expected to step up exports in coming months, aided and abetted by a healthier global manufacturing climate and declining world aluminum stockpiles, the article explains.

Should this prove right, higher exports of semi-manufactured aluminum products would depress prices on both the LME and processors conversion premiums in the rest of the world. That would be bad news for producers, but good news for consumers who have been experiencing rising prices of both the underlying LME and conversion premiums for the last six months.

Chinese exports of semi-finished aluminum products fell last year as both LME and SHFE prices collapsed but production has rebounded more than 20% during the first two months of this year as the rising LME has made exports more profitable for Chinese producers benefiting from a relatively weaker SHFE domestic price. According to Goldman Sachs, the profitability of China’s semis exports has jumped 20% this year, encouraging the surge in exports we have seen in Q1 and portending a further increase in the months ahead.

How long the increase in exports is likely to last, and therefore how persistent the negative impact it will have on prices, remains to be seen. Despite the anticipation of rising exports, many still think the surge could be short-lived. Last month, Beijing ordered aluminum producers in 28 cities to slash output by 30% during winter months to limit coal use and curb pollution. In the mean-time, those producers are pumping out every ton they can adding to domestic availability, inventories and depressing the SHFE price. Come autumn, however, if cutbacks are enforced and the physical market tightens that surplus could turn to deficit and prices could rise. In which case exports will become less attractive and the tap will be turned off.

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This isn’t the first time the global aluminum market will be dancing to China’s tune. Consumers could do well to use a dip in prices this summer to cover forward for what may be a winter in which prices rebound.

Palladium has been the best performer among precious metals for some time now. Since the beginning of 2016, palladium is up 65%, easily beating the price increases seen in platinum, gold and silver.

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What factors made palladium outperform its peers and what should palladium buyers pay attention to this year?

Global Demand for Cars

The primary bullish factor might be the expansion of auto catalyst demand for palladium, particularly in China where air pollution problems are increasing. The auto sector accounts for around 80% of palladium demand.

China’s auto sales for the first two months of 2017 beat expectations and were 8.8% higher than sales for the same period in 2016. The pace is still weaker than the 14% increase reported last year by the industry as customers rushed to take advantage of tax incentives. In Q4 of 2016, China announced a 50% cut in its sales tax from 10% to 5% for small automobiles. The tax cut was effective until the end of 2016.

Most analysts were expecting a big slowdown in the largest automobile market this year, but China continues to surprise markets. The country agreed to extend the cut, although at a higher rate of 7.5%. In 2018 it will revert to 10%. Therefore, while auto sales might not beat last year’s record-breaking levels, Chinese citizens are still expected to take advantage of a lower tax in 2017.

Meanwhile, March’s figures for the world’s second-largest automotive market came in below market expectations and gave early evidence that America’s long boom cycle for automobile sales may finally be losing steam. Automakers sold 1.55 million vehicles in March, a 1.6% decline compared with the same month a year ago, capping a first-quarter performance during growth stalled.

Overall, auto markets were really strong in 2016, contributing to a 50% rise in palladium prices last year. This market might surprise again in 2017 but signs of a plateau in the U.S. and uncertainties in China due to an extended but higher tax cut are factors to watch this year.

Strong South African Currency

South African Rand Index. Source:MetalMiner analysis of data.

South Africa is the largest producer of palladium, responsible for around 40% of world output. The Rand (South African currency) has been one of the best performing currencies since 2016. A rising Rand makes South African exports more expensive to the rest of the world, limiting producers margins and potentially leading to a reduction of output. Read more

A recent Financial Times article lays the blame for falling iron ore prices in China firmly at the door of Australia’s Department of Industry Innovation and Science, whose latest quarterly report predicted average prices in China would fall to $65 per metric ton this year before ultimately declining further to $51 per mt.

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The FT quoted the department’s report saying prices would be weighed down by the combined impact of ongoing growth in low-cost supply and soft demand.

Source: Financial Times

While we don’t doubt that investors will have taken notice of the department’s report, the fact is analysts have been calling for a fall in the iron ore price for months now. Indeed, the rising tide of supply has been expected to weigh on prices for much of the last six months, such that continued price resilience and robust demand have caught some by surprise. Read more

The London Metal Exchange aluminum price has risen steadily since this time last year and seemed at times like it may hit, if not breach, $2,000 per metric ton. Many consumers are asking how much further does it have to go? will it break that psychologically important barrier anytime soon? and if it does, how much further does it have to go?

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To understand this, we should consider what has caused price strength in recent months and that you will not be surprised to hear is easy to list, but harder to judge to what extent each factor has had an impact.

Why is Aluminum Up?

First, there are general commodity category price drivers, nearly all base metals have shown price strength over the period as industrial demand has remained positive and surplus supply markets have either tightened or gone into outright deficit. In the case of aluminum, there are several indicators suggesting the market deficit has increased over the last 12 months. Physical delivery premiums have increased not just in Asia, but in the U.S. with the Midwest premium currently trading just below ten cents per pound on the CME Group exchange, up from six cents per pound in the third quarter of last year. Japanese physical delivery premiums have been agreed at $128 per metric ton for the second quarter up from $95 per ton for the first quarter.

Source: Reuters

Meanwhile, LME inventory continues to decline with almost 400,000 mt electing to leave the system in February alone. Now it must be said that not all this metal is destined for consumption, as Andy Home in a recent Reuters article points out, the majority of metal leaving the LME system is almost certainly heading to off-market lower cost storage options. Read more

Our Stainless MMI lost 3 points in March, essentially losing what it gained in February.

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Industrial metals continued their rally during the first quarter but nickel didn’t fare as well. Prices are still significantly higher than they were one year ago, but investors are now finding little reason to be any more bullish than bearish due to a complex supply narrative.

The Philippines

On March 13, The Philippines’ president Rodrigo Duterte, threatened to stop all mining in the country. Despite the potential for more closures, investors doubted that Duterte would enforce such strict regulations. Duterte reiterated his support for Department of the Environment and Natural Resources Secretary Regina Lopez. The Philippines’ mining industry hoped for the Commission on Appointments (CA) to reject Lopez as the Environment secretary in March.

However, Lawmakers opted to postpone a decision to confirm or reject the ardent environmentalist as the head of the department. Further confirmation hearings are expected to take place in May.

This will be an important thing to watch over the next weeks. A rejection would give miners a key win in the battle against environmentalists, potentially adding pressure to nickel prices.


According to an Indonesian Mining Ministry official, the ministry has issued export recommendations for state-controlled miner PT Aneka Tambang (Antam) to allow the company export 2.7 million metric tons of nickel ore over the next 12 months. The recommendation has yet to be officially issued by the mining ministry. Antam said in February that it had stockpiles of an estimated 5 million wet metric tons of low-grade nickel ore that was ready to ship.

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Indonesia was the world’s top nickel ore exporter before it imposed a ban on unprocessed nickel ore exports in 2014. This year, prices have felt downward pressure on reports that Indonesia’s partial lift of the export ban, announced in January, may result in higher volumes of ore hitting the market. Also in March, Hong Kong-listed China Hanking Holdings announced its intention to restart a low-grade nickel mine it closed in 2014. The restart is at a relatively small scale, but it rises concerns of further supply hitting the market.

What This Means For Metal Buyers

Nickel prices are struggling to make headway this year. Nickel’s supply narrative is rather complex and it’s exposed to significant changes depending on what policy makers in Indonesia and The Philippines do next. On the other hand, stainless buyers should continue to monitor their price risk exposure. Investors’ sentiment on industrial metals remains bullish and that could still trigger unexpected prices swings on the upside.

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Commodities and industrial metals have always moved in tandem. However, things have changed over the past few months. Industrial metals continue to rise in price while commodity indexes struggle to hit new ground.

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What’s up with that?

CRB commodity index (in orange) vs DBB industrial metals index (in black). Source: MetalMiner analysis of data.

Two things have caused industrial metals to outperform the rest of commodity groups (agriculture, energy, etc) this year:

First, in November industrial metals got a boost as Donald Trump won the U.S. presidential election and his republican party kept control of both houses of the Congress. Investors now hope that a Trump-led GOP government will boost domestic infrastructure, which could be a boon for industrial metals demand. In addition, the new president has stated he is willing to institute more measures to protect domestic producers.

China’s Pollution Performance

Second, and more importantly in my opinion, Industrial metals have been benefiting from a tailwind since January when China’s pollution problems got worse and authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. Steel and aluminum are leading this year’s rally. This is because these two are the most energy-intensive metals and China has shown a commitment to cut output. Read more