Market Analysis

Monthly Metal Buying Outlook for Sept 2015The MetalMiner™ Monthly Buying Outlook report for September has arrived! Get your metal price forecast for aluminum, copper, nickel, lead, zinc, tin and multiple forms of steel, complete with drivers, market commentary, easy-to-read charts and more!

Free Download: Latest Metal Price Trends in the MMI Report

Before you cast, form or machine it you need to do one very important step: source it. When you buy can play a significant factor in the final cost of production. These markets are volatile and you’ll need the technical and fundamental research we offer for industrial sourcing strategies and specific price targets that have been tailored specifically for the North American manufacturer.

This month, you’ll learn:

  • What the China stock market crash tells us about global commodity markets
  • Why we think China devalued its currency
  • Whether or not we think recent US stock market declines portends a recession

Plus a short- and medium-term industrial buying strategy for the base metals that you source!

Individuals, small- and mid-sized manufacturers are encouraged to subscribe to our annual buying outlook reports. You can sign up at any time and receive the next 12 monthly reports emailed directly to you. Learn more and subscribe today!

A continuation of the sell-off in Chinese shares, worries about bearish commodities markets with crude oil at $40/barrel and a dash of Federal Reserve rate-hike fear, made US equity investors throw in the towel in August.

Free Sample Report: Our Monthly Metal Buying Outlook

US stocks suffered their worst losses in four years.

S&P 500 since 2014

S&P 500 since 2014. Graph: MetalMiner.

We recently analyzed the fall in US shares and how both stocks and commodities markets seem to be linked now that all eyes are on China.

Chinese Sentiment Still Bearish

It looks like, for the coming weeks, investors’ sentiment will be driven by what comes out of China.

CRB commodity Index since 2014

CRB commodity Index since 2014. Graph: MetalMiner.

Interestingly, both commodities and US stocks bounced last week after the big drop. These rallies are normal price fluctuations after a sharp drop.

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

However, this rally doesn’t look convincing, making us suspect that the fall in U.S. equities and commodities might not be over.

China Ishares (FXI) since 2014

China Ishares (FXI) since 2014. Graph: MetalMiner.

Meanwhile Chinese shares keep making new lows and nothing suggest that we’ve reached a bottom.

What This Means For Metal Buyers

China’s stock market crash doesn’t look like it’s over yet. Further declines in Chinese shares could propel more price declines in commodities and US stocks as China seems to be driving investors’ sentiment at this moment.

SMU Steel Summit 2015

Meet us in Atlanta for SMU’s Steel Summit Conference!

The Steel Market Update 2015 Steel Summit Conference invades Atlanta next Tuesday and Wednesday, and the MetalMiner™ team will be there in full force.

Lisa Reisman, CEO, Azul Partners and executive editor, MetalMiner, is presenting our September steel price forecast, as part of our Monthly Buying Outlook report, which is now available with an annual subscription.

Also presenting at the event is Serafino Capoferri, London Commodity Consultant, CRU; Peter Meyers, executive vice president, Metalico; Gaurav Chhibbar, raw material manager, Cargill Metals; Timna Tanners, research analyst, Metals and Mining Bank of America Merrill Lynch; and John Anton, principal economist, Steel IHS Inc., among others.

This is the annual event for steel producers, manufacturing companies, end-users and service centers to come together and discuss the current issues affecting the metals industry.

Learn more and register today!

Lead and zinc are two metals that performed well last year.

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Both metals have a pretty neutral supply/demand story, in which production is outpacing demand but not by much. However, both metals are falling as China’s bearish momentum hasn’t changed, it’s actually gotten worse.

World Lead Production minus Usage

World lead production, minus usage. Graph: MetalMiner.

The lead market has been in surplus over the past few years. However, production versus usage has been pretty stable since 2013, which might have caused prices to remain pretty stable since 2013.

3M LME Lead since 2011

Three-month London Metal Exchange lead since 2011. Graph: MetalMiner.

However, lead broke that price range this year leading it to more declines. It seems like although the supply/demand picture hasn’t really changed over the past few years, concerns about China are what’s really weighing on this metal.

Zinc’s supply/demand equation is a bit different:

World Zinc Production minus usage

World zinc production minus usage. Graph: MetalMiner.

After two years of deficit, zinc supply has outpaced demand so far this year. The main reason for this shift involves China, which is now producing more and consuming less zinc. Chinese imports of refined zinc have decreased by 66.3% to 126 kilotons, according to the International Lead and Zinc Study Group.

3M LME Zinc since 2011

Three-month London Metal Exchange zinc since 2011. Graph: MetalMiner.

With this shift in demand/supply and a bearish market in China’s future, zinc prices have fallen more than 30% in less than four months, a sharper decline than lead’s. The metal is now at a five-year low and heading south.

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

Nickel has already halved its year-to-date value after peaking in May 2014.

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This week, prices fell below the $10,000 per metric ton, a physiological resistance level. Prices are now approaching the record low of 2009 when prices hit $8,850/mt. If so, nickel would be the first industrial metal to fall below recession levels.

3M LME Nickel below $10k and approaching record lows

3-month LME Nickel below $10,000 and approaching record lows. Graph: MetalMiner.

The slump in prices made some producers cut output and we’ve heard people talking about a price spike as producers are underwater. But as you are aware, production costs do not determine prices, investors do.

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

The bearish momentum in China’s stock market and the commodities markets will keep a lid on nickel prices and, in our view, prices could keep sliding. Why not? They’re already nearing the lows of 2009.

Coiledsteel

Get your short- and medium-term steel forecast!

China’s economic struggles have claimed a new victim: BHP Billion Ltd., which reported a 52% drop in full-year profit due, in part, to falling commodity prices, and has thus reduced its long-term forecasts for steel production in the Far East nation.

China also happens to be BHP Billion Ltd.’s largest customer and buyer of metals and energy, but with the yuan devalued, economic instability and supply gluts forecasting the slowest growth for the nation in more than 25 years, mining companies are bound to take a hit.

“The changes that we see in China at the moment are things that we’ve foreseen for several years,” Andrew Mackenzie, CEO, BHP, told Bloomberg Business. “China’s rate of growth would slow, but we still think it will be 7 percent this year.”

The company said in a statement that crude steel production in China will fall to between 935 million metric tons and 985 mmt over the next 10 or so years.

Want to know how this will affect future steel prices? Get your 30-day forecasts for steel and 9 other metal forms in our new Monthly Metal Buying Outlook report.

Global steel news: Indian companies affected by Asian imports

Meanwhile, in India, steel companies are asking their government for safeguards to protect domestic organization from the deluge of lower-cost imports from South Korea, Japan and China.

We reported last week that state-owned Steel Authority of India (SAIL) and several private steel makers, including Tata Steel, have jointly filed a petition with the Director General of Safeguards (DGS) requesting to undertake those safeguard duties.

Safeguards are measures implemented specifically to protect local organizations that surpass the measures from anti-dumping and countervailing as designated by the World Trade Organization.

You can find a more in-depth steel price forecast, including HRC, CRC, HDG and plate, in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

hand holding binoculars metalminer promo

Get your short- and medium-term buying strategy for industrial metals.

Less than one week away! Join us Thursday, August 27 at 10 a.m. CDT for the webinar, PREVIEW: MetalMiner Price Forecasts for September.

Can’t make it live? Register anyway and we’ll send you a copy of the slides and recording of the webinar for you to view at your convenience.

For the second consecutive month, we will be providing a behind-the-scenes look at our metal price forecasts and how we formulate our new Monthly Metal Buying Outlook reports. If you source aluminum, copper, nickel, lead, zinc, tin or steel and are in need of expert insight, market commentary and a medium- and short-term trend analysis for these base metals then this is the webinar for you!

Speakers to include:

lisa reisman metalminer headshotLisa Reisman, CEO, Azul Partners and executive editor, MetalMiner
Lisa has more than two decades’ experience in management consulting and direct materials sourcing. She previously owned and operated her own aluminum trading company, as well as served in past roles at Andersen and Deloitte Consulting.

 

john conolly metalminer headshotJohn Conolly, managing director, Azul Partners
John also has more than two decades’ experience, but in listed derivatives, trading commodities and client advisement on hedging commercial risks. He comes to us from the CME Group where he was director of product marketing, and has been featured on CNBC, Bloomberg and Fox Business News.

Register today!

 

China’s stock market crash continued last week as the country devalued its currency. Although US equities were showing resilience against global economic weakness, last week the picture changed completely.

Free Sample Report: Our Monthly Metal Price Outlook

The last sell-off in Chinese shares, worries about bearish commodities markets with crude oil at $40/barrel and a dash of Federal Reserve rate-hike fear, made US equity investors to throw in the towel last Friday.

S&P 500 falling sharply breaking support

S&P 500 falling sharply breaking support. Graph: MetalMiner analysis of @stockcharts.com data.

US stocks suffered their worst losses in four years and the technical picture looks at least worrisome. All major indexes fell in heavy volume, breaking a key support level that was established this year.

Correction?

Some people might argue that the market is in a normal correction and, therefore, Friday left a good opportunity to buy a dip. Although that could be the case, we believe this could be the first leg of a further decline in US shares.

When a market refuses to rally from a sharp decline like the one we had Thursday and Friday, it’s a sign that institutions are selling big blocks of stock. This is also happening after the general market had an extended advance (the stock market barely had a correction since 2012) and now the amount of supply (all the people and funds that are holding stocks) can overwhelm the indexes as investors flee stocks to lock in profits.

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

Indeed, in the black Monday of 1987 the market had had a similar advance prior to the crash. The chances of a similar crash are not high but you get the point.

All this is just making investors to keep a closer eye on China and a growing concern about China’s economy is pushing commodities down.

CRB commodities index in free fall

CRB commodities index in free fall (2014-today). Graph: MetalMiner analysis of @stockcharts.com data.

The CRB commodity index keeps making new lows. Now both the US stock market and commodities markets seem to be linked and sharing a common driver: China.

What Does This Mean For Commodity Buyers?

Now that all eyes are on China, both commodities and US shares might start moving together and the plunge might stop once the sentiment on China changes. When will that be? Nobody knows, but it doesn’t look like we are there yet…

Copper prices are dipping below the psychological basement support level of $5,000 per metric ton.

3M LME Copper since 2010

Three-month London Metal Exchange copper since 2010. Graph: MetalMiner.

The metal has done nothing but fall since 2011, but the declines have become steeper over the past few months. Investors particularly dislike copper, as worries about China’s economy are simultaneously rising. China’s stock market crash and the recent devaluation of its currency are just aggravating expectations of a further copper fall.

Meanwhile, China’s latest Purchasing Managers’ Index numbers fell to a two-year low, while construction numbers are still disturbing to investors. The slowdowns in the Chinese manufacturing and construction sectors are significantly hitting copper demand, or at least any hopes of demand coming back.

Zinc_228

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The CEO of a leading Chinese zinc supplier believes the devaluation of the yuan will help manufacturers on the mainland, but possibly not before year’s end.

Clara Chan of Lee Kee Group told Reuters: “The depreciation of the yuan will help customers when they get import orders. Obviously it just happened last week so it will take a few months to see the effect.”

Want to know how this will affect future zinc prices? Get your 30-day forecasts for copper and 9 other metal forms in our new Monthly Metal Buying Outlook report.

Lee Kee supplies zinc and other base metals to automobile manufacturers and other end-users throughout Southeast Asia. It is one of just a few Asian members of the London Metal Exchange.

“The US market is recovering, but at a slower pace than before,” Chan added. “Europe is a bit slow at the minute and so is the Chinese economy. We have started to see some activities coming back after summer, but it’s still too early to tell. So the outlook for the metal prices, we think that it will stay challenging in the short term.”

Zinc Prices: Brace for volatility

We reported last week that the zinc market continues to confuse, and we expect that to continue as the metal has been in a consistent downturn for the past year. In China, manufacturing sentiment and refined zinc import levels are the main drivers for the metal, but stocks in New Orleans, a region far from any other representing demand, are trending lower and LME stocks likewise, suggesting a tightened supply for what would constitute a “normal” market.

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