Market Analysis

For the first time in almost a year, the US dollar index is experiencing some turbulence.

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For the past two weeks the index is trading sideways. Still, the long-term trend is clearly up and we doubt this is a major top for the dollar. However, its sharp advance during 2014 certainly leaves the currency vulnerable to some profit-taking.

Weakness in the dollar is giving support to commodity prices. After a steep decline during the second half of 2014, commodities are now stabilizing. A weaker dollar during the past few months also explains recent upturns in stock markets tied to commodities such as Russia, Canada and Brazil.

Further weakness in the dollar throughout the rest of the year would give a bigger boost to commodities and these foreign markets.

Metals Still Bearish

Industrial metals haven’t really received a boost during the last few months. Although some base metals rose we also saw others recently fall to record lows. Worth mentioning, however, is oil prices climbing to their highest levels this year ($58 a barrel).


Markets move in trends. We can observe trends in any financial market, in any time. The price of the metals you buy move in trends and as you well know, and industrial metals are in a downtrend since the spring of 2011.

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So why does the price of your metal trend? Is it that the starts align and that produces a trend in a commodities market?

Heck, no! Traders are the ones making prices move and behavioral finance can help explain why trends are formed. We’ll mention three human behaviors to explain it.


Most analyst argue that lead’s fundamentals are set to tighten and that should make prices rise.

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However, that’s what they said a year ago (good thing we didn’t) and prices are now well below last year’s levels. The market is expected to move into a deficit of around 100,000 metric tons this year as supply shrinks and demand (sort of) improves.

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3-Month tin on the London Metal Exchange has fallen as low as $16,400 per metric ton, recording a new 5-year low. Tin prices have fallen 28% this year to date. Given Indonesia’s attempts to regulate supply, no one expected to see tin prices sinking like they have, well maybe we did expect something…

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Indonesia’s exports of refined tin totaled 19,700 mt in the first three months of the year, up almost 20% on the same period of 2014, so the raw ore export ban does, at least, seem to be doing what it was intended to do, increase local refining.

Why is Tin Falling?

Two major developments help explain tin’s steep price drop:

  • China managed to offset the drop in Indonesian exports. Chinese demand for imported refined tin declined as the country found a new source of mined supply. China increased its imports of ore and concentrates from Myanmar and the country has now moved from being a net importer of tin in recent years, to now be self-sufficient as it lifts its refined tin production.
  • Commodities continued to fall, driven by a strong dollar and low oil prices. As we’ve discussed before, a metal has a very hard time to move up while commodity markets fall. Tin is not the only metal falling to record lows this year. With tin’s drop and nickel prices recently plummeting, we might see these other two metals falling to record lows as well.

Tin prices now look oversold and bottom pickers might help lift prices during the second quarter, however, the long-term outlook is far from bullish, especially while commodities keep falling.

Remember to always buy on strength rather than weakness rather than try to pick bottoms. You never know how far a metal can fall in a market like this.


Precious metals keep falling. We pointed out in October that the outlook for the precious basket of metals was bearish and that palladium was the only one holding its value. Today, the picture looks even more bearish.

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Gold and silver are near their lowest levels, platinum recently made a 5-year low and palladium, the only metal that was showing some hope is now falling and marking a 1-year low.

Although last year we were bullish on Palladium, the picture is starting to look like a downward trend. The precious metal is now breaking a key support level after hitting deeper lows. This indicates that selling pressure is increasing as the metal declines, and its lower high points are a sign that there is diminishing buying pressure during those upward bounces.


This week, the 3-month LME nickel price fell to its lowest level since 2009. It’s certainly not the first industrial metal to hit a 6-year low this year.

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There has been a lot of talk about Nickel’s supply side. Indonesian authorities have not changed their minds about refusing to export raw ore and the ensuing ban on exports of nickel ore to China continues. There is no flow of material between the two countries.

NPI Demand Drops

However, it’s important to remember that China’s nickel pig-iron producers had built up significant quantities of stocks prior to the January 2014 ban, compensating for the supply decrease. At 2 million metric tons, imports of Philippine ore this year are slightly higher than last year but are still nowhere near enough to offset the loss of Indonesian supply.


Last week, the Federal Reserve scaled back on its plans to hike interest rates this year. The potential for a delay has taken steam out of the dollar’s rally and contributed to a bounce in commodity markets.

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Higher US interest rates usually help boost demand for the dollar, which helps the dollar to appreciate against other currencies. The dollar gained significantly last Summer. This dollar’s strength makes it harder for US companies to sell goods overseas and to compete against imports, as Fed Chairwoman Janet Yellen pointed out in the last meeting. For this reason, the Fed might not want to raise rates until the dollar cools down.


Current prices for US HRC are around $470 per ton ex-works, although big buyers dealing with some mills can still pay $450 per ton.

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Steel-Insight believes that this is close to the bottom, but we don’t expect a sharp turnaround anytime soon. So why is this a pricing trough?

Further Discounting

First, those big discounted prices have been available for around three weeks and some big distributors and tube buyers have pulled the trigger at the $450 per ton level. That has helped push out mill lead times back to four weeks and lessened the need to discount heavily. We understand that integrated mills are now far more reluctant to discount below $470 per ton. There could be further discounting on cold-rolled coil front as the spread remains too high compared to cost.

Second, shredded scrap prices look like they are stabilizing at around $250-260 per ton delivered to Midwest mills. That means mini-mills are not likely to discount below $450 per ton as they would lose money and they don’t need to take that business to fill their order books now. International scrap prices have bumped up a little, although they lack the overall momentum to rise much more, while scrap flows into yards slowed with the lower prices.

Finally, there has been a supply response.


Aluminum has lost most of its 2014 gains.

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Punished by a strong dollar and a bearish commodity environment, once-strong aluminum is finally faltering. Not only are aluminum prices falling, but the stock prices of aluminum-related companies are suffering significant declines, suggesting that investors are turning bearish on aluminum.

Alcoa Inc. has fallen 25% since its last peak. The largest US aluminum producer also announced layoffs last week as it continues to reduce its dependance on primary smelting and invest more in value-added products.

The price of crude oil continues to be a problem for all commodities and, although it has performed better than most base metals, aluminum is no exception.

It’s a precarious time for aluminum companies. UC Rusal has had to pay high legal costs for the lengthy London Metal Exchange warehousing fight last year and Venezuela’s Venalum can no longer guarantee the quality of its products.

Stock to Aluminum Price Correlation

There is a high correlation between aluminum prices and the stock price of aluminum companies. As aluminum fundamentals improve, the price of aluminum surges and that means more revenues for aluminum producers, causing an increase in their stock prices. This happened last summer.

On the other hand, aluminum stock prices decline when expectations of lower aluminum prices rise. This seems to be happening right now. Although aluminum is holding its value better than most industrial metals, we could see aluminum prices falling to new lows this year, as aluminum equities keep losing the value of their shares.


Crude oil prices keep falling. Prices slid to a fresh 6-year low this week, the lowest price since March 2009, despite the minor comeback they had recorded in the previous weeks.

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We commented last month that nothing guaranteed that oil had found a bottom and this week things are starting to look bad again. While that losing skid was snapped Wednesday afternoon after the Federal Reserve downgraded its growth outlook, weakening the dollar, there is still no guarantee prices will not start falling again.

Stored supplies of crude oil in the US are at their highest level in about 80 years, according to the Energy Information Administration, and supply just keeps growing. Domestic crude production rose to a new weekly record of 9.4 million barrels this week. In monthly data, production last exceeded that level in November 1972.

Concerns are mounting that the nation’s crude-oil storage facilities will hit full capacity in some locations, according to government figures. That has the potential to push prices even lower. For nine straight weeks, US crude stocks have been rising as traders put more and more oil in storage tanks waiting for prices to rebound.

Stockpiles in Cushing, Okla., a key hub and the delivery point for a major Nymex contract, rose by 2.9 million barrels to 54.4 million barrels, the highest level on record in data going back to April 2004.