Commentary

Nickel prices reached a 10-month low this week due in part to concern over demand from China, a top consumer of the metal.

According to a report from Reuters, these concerns were supported by Chinese trade data, indicating falling imports on the alloying material used to make stainless steel.

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Nickel traded on the London Metal Exchange ended Wednesday at $9,225 per metric ton, its lowest mark since June of last year.

John Meyer, SP Angel analyst, told the news source he anticipates nickel to be supported by concern over supplies of ore from the Philippines, which recently announced the ordered closure of more than half its mines in order to protect water sources.

“There is still a lot of stock for the market to burn,” Meyer told Reuters.

Nickel Trailing Other Industrial Metals

Our own Raul de Frutos wrote earlier this month of the downward pressure seen on nickel prices during Q1, which is in stark contrast to other industrial metals that have rallied during that same time.

Wrote de Frutos: “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.”

How will nickel and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

10 years ago, the concept of self-driving cars seemed the stuff of science-fiction. Today, self-driving cars are not an uncommon sight in some cities and the U.K. government has just approved their trial operation between London and Oxford in a bid to bring the technology more rapidly to market.

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Companies like Google, Uber, Apple and a host of mainstream automotive giants are all investing hundreds of millions of dollars to bring the technology to reality. Over a few brief years, we as the general public have begun to accept the statistics that self-driving cars are dramatically safer than those is piloted by human beings.

Flying car!

Why don’t we have flying cars yet? They’ve been promised by science fiction for decades. Source: Adobestock/Sergeysan.

As a result, acceptance by both the public and the insurance industry is now almost a given for the probable implementation by the end of this decade. But what of flying cars? A concept equally the stuff of science fiction for 70 years or more that now thanks to the dreams and deep pockets of Silicon Valley entrepreneurs may be becoming a reality sooner than we think.

Uber has announced plans to demonstrate flying vehicles by 2020 in Dubai and in the Dallas Fort Worth area, with full scale operations by 2023 the Financial Times reports. Unlike its efforts in self driving cars where Uber has spent hundreds of millions of dollars to develop the technology in-house for flying cars the ride-hailing service is forming partnerships with established aerospace firms like Brazil’s Embraer, Bell Helicopter; Mooney, a Texas-based light aircraft manufacturer and Aurora flight sciences, a Virginia-based drone maker. Like Uber’s taxi service, the firm sees flying taxis as being initially human piloted but later autonomous as the technology and FAA approval permits. Construction of four landing pads will begin in the Dallas Fort Worth area within the next year the FT reports and as part of the Dubai Road and Transportation Network Study into flying cars, Uber expects to have a demonstration service running there to coincide with the World Expo in 2020. Read more

Gold bears have had quite a ride since the start of this year. The price spiked to $1,286 per ounce last week, a rise of 11% since the end of last year as this chart courtesy of the Financial Times shows.

Gold in 2017

Source: Financial Times

Despite a gradually improving global economic picture, geopolitical tensions have increased in recent months first with Syria and more recently with President Donald Trump’s announcement that he was prepared to take military action in North Korea.

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In Europe, investors looking to protect themselves against the political risk associated with the first round of the French presidential elections where the fear of a shock victory by the far right leader Marine Le Pen was considered a distinct possibility. During this same period, the U.S. dollar has weakened somewhat in value and with gold inversely correlated to the currency, as the dollar falls gold, and other commodity prices, rise.

Well, what a difference a week makes. North Korea has shown itself to be less capable and in the face of a tougher stance from America, less belligerent than during previous bouts of posturing.

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In the French elections, the least bad option, Emmanuel Macron, has emerged victorious from the first round over Marine Le Pen with nearly all observers expecting he will win through in the second round of voting on May 7. Later this week we should hear President Trump’s tax policies which are widely expected to include substantial reductions in personal and corporate tax rates. On the back of solid U.S. and global economic growth, such inflationary fiscal stimulus will only hasten further U.S. Federal Reserve rate increases. Not surprisingly, Goldman Sachs is not alone in predicting further weakness in the gold price, which weakened promptly on the news of the French elections and is targeted by Goldman to fall to $1,200 per ounce this summer. While not a universal truth, Goldman Sachs predictions do tend do have an element of being self-fulfilling simply because so many investors take their advice into consideration when making investment decisions.

Gold Bears

These gold bears haven’t had as big a run as their metals brethren. Source: Haribo

Of course, there remain counter arguments as to why the gold price may yet rise. Trump’s presidential decrees are easier to make than getting legislature onto the statute book. Proclamations this week over the tax reduction will likely meet a more favorable Republican response than there was the case with healthcare but, even so, may be much delayed or watered-down before having any impact on the economy.

Likewise, U.S. growth could slow reducing the impetus for the Fed to deliver on its three expected rate increases this year. The Fed has frequently undershot rate rise expectations over recent years. Finally, our friend in Pyongyang has the ability, and no doubt inclination, to still do something stupid despite pressure being brought to bear to back down by his Chinese bankers. On balance, though, gold bears have probably had as good run this year as they are likely to get and profit-taking is now inevitable for all but long-term holders of the yellow metal.

ERP Strategic Minerals, LLC, part of the ERP Group of companies, has been selected as the stalking horse bidder by the Chapter 11 trustee for Molycorp Minerals, LLC and related entities and entered into an asset purchase agreement with Molycorp’s bankruptcy trustee to purchase substantially all the assets and the surface property rights of the company’s debtors at the  Mountain Pass Rare Earths mine in California.

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The offering price is $1.2 million, a far cry from the $40 million offered and abruptly withdrawn earlier this year by Russian-born investor Vladimir Iorich and his Pala Invesments firm. However, ERP, as part of its offer, is also promising to shoulder up to $100 million worth of Mountain Pass’ debts and liabilities. Read more

Americans for Prosperity and Freedom Partners recently released a report on the prospect of a Border Adjustment Tax being included as a piece of major tax reform, a framework of which is expected to be released today by the Trump administration. AFP and FP are not fans of a BAT.

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The free-market group with ties to conservative billionaires Charles and David Koch said in its report that “It is impossible to predict the real world impact of the BAT because something like this has never been done before. This proposed system is unlike anything in existence and there is a tremendous amount of risk surrounding its implementation.”

Going to BAT

A BAT would certainly be unprecedented. We have previously written about the scheme and how the novel approach to corporate taxes could possibly deliver similar export benefits to those of a value-added tax without actually imposing a national sales tax on every single transaction that American citizens make. A BAT would, rather, tax companies on their imports as part of the corporate tax code rather than impose a sales tax on transactions. Read more

France’s first round presidential run off may not have matched Britain’s Brexit referendum of last year or the United States of America’s presidential election of Donald Trump in upsetting the pollsters, but it does say a lot about the mind set of French voters all the same.

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Novice centrist candidate Emmanuel Macron and Far Right leader Marine Le Pen advanced to the second round presidential run-off on Sunday and in the process achieved a historic wipe out of the two principal political parties that have traded power in France since World War II.

Neither Benoit Hamon of the Socialists, whose popularity had dwindled to single figures under the bungling of outgoing president Francois Hollande, nor the centre-right candidate — Francois Fillon, a former front runner — came close to challenging the two eventual victors. France has clearly had enough of the established order and much like Britain almost exactly 20 years ago cho0sing a young and charismatic Tony Blair,  the new favorite Macron is young, dynamic, charismatic and unquestionably clever. Read more

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is the final post in our three-part series that covers border-adjustment and tax policy.

JY: The reason you might want to avoid a VAT is that it would apply to all transactions, right? It would be on individuals and not companies.

DP: Think of it as the difference between a sales tax in the United States and an income tax. They are completely different. A VAT is essentially a national sales tax. We have sales taxes but the issue we’re talking about is the corporate income tax. If the U.S. adopted a VAT it would be a huge change so the idea here is to stay within the corporate income tax concept, but make some tweaks so that U.S. companies aren’t disadvantaged relative to foreign companies. Because we’re not talking about a VAT, though, you might get a different outcome at the World Trade Organization when it’s challenged by another country.

A VAT would be a big change. We are getting into some areas of policy that I’m not an expert on here, but there are all sorts of other issues that go way beyond the issue, but from a trade perspective the idea of a border adjustment is supposed to neutralize the advantage that VAT tax countries might have in international trade. The WTO may come to the conclusion that, even though a border-adjustment does have some features of a VAT, it’s still not acceptable because it might be viewed as an export subsidy. Read more

The MetalMiner analyst team alerted subscribers and trialers last week to significant movement on the zinc front. Prices for the non-ferrous metal have pulled back over the past several weeks, and are now trading near key support levels.

Wrote our own Raul de Frutos: “The price weakness seems to come from longs exiting their positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. This could be a good opportunity to time purchases (3-5 months’ worth of demand) while prices trade near $2,500/mt.”

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

While many may panic and see this price decline as the end of zinc’s bull run, de Frutos sees this movement as an ideal opportunity to make purchases at an attractive price.

de Frutos added: “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.”

How will zinc and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

This week, President Donald Trump and the Department of Commerce used executive orders, new anti-dumping investigations, memoranda invoking national security concerns and other executive branch tools to get tough on foreign steel imports.

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Although Trump or Commerce Secretary Wilbur Ross never overtly stated it, the target is clearly China and the global steel overcapacity that it’s the main culprit in creating. China’s steel exports hit a record 112.4 million metric tons in 2015, then dropped slightly to 108.49 mmt last year, as Chinese mills have been chastened by threats of a trade dispute.

Fre trade

The Trump administration is using every tool in the box on steel overcapacity. Source: Adobe Stock/Argus.

To date, the Global Forum on Steel Overcapacity hasn’t caused overcapacity to come down very much. Can a section 232 investigation or other U.S.-only actions change that? The U.S. steel industry certainly seems to think so. Or it’s at least saying, “why not try?”

Steelmaker executives such as U.S. Steel CEO Mario Longhi and SSAB Americas President Chuck Schmitt flanked Trump and Ross at the memorandum-signing ceremony calling for the Section 232 investigation yesterday. The praise was universal from steel producers as one might expect, too. Still, Trump’s latest salvo on trade will renew concerns that China may retaliate.

China’s Foreign Ministry spokesman Lu Kang said today the country needed to ascertain the direction of any U.S. investigation before it could make a judgment. There’s also the fact that Trump now claims that he and Chinese President Xi Jinping are the best of friends.

Chinese steel executives also repeated their mantra that overcapacity is not just China’s problem and it needs global coordination to resolve it, but also said it would be tough to rein in the sector.

“The Chinese government will not set export limits for the steel mills and could not keep track of every mill,” Li Xinchuang, vice chairman of the China Iron and Steel Association, told Reuters.

What may be more effective is rising steel prices in China and what looks more and more like a very real crackdown on pollution and dirty air in China. An early-year surge in Chinese steel prices has lifted the prices of its export products and China has lost its competitiveness with other markets. With coking coal prices increasing, Chinese steel prices could increase even more, which our Lead Forecasting Analyst, Raul de Frutos, pointed out this week.

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On a personal note, this will be my last MetalMiner week-in-review. I have thoroughly enjoyed informing all of you wonderful readers and site users about the latest developments in metals markets these last three years. Thank you for taking advantage of our services. It has been an honor.

 

Lead ore. Source: Adobestock.

Lead prices, along with tin, lost some ground on the non-ferrous metals market on April 18, due in part to stockists selling as the result of subdued demand in the user industries.

According to a report from the Business Standard, lead fell slightly lower than tin with copper dropping by an even smaller margin.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Elsewhere in the realm of non-ferrous metals, lead’s sister metal zinc has seen its prices fall off sharply over the past several weeks.

Our own Raul de Frutos warns that now is the time to buy, although it’s important not to panic and view this as the end of zinc’s bull run. In fact, this is nothing more than a great opportunity to purchase the metal at an attractive price.

de Frutos wrote: “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.”

Lead Price Outlook for 2017

How will lead and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: