Market Analysis

After rising strongly for the last month or more, copper prices now appear to be buffeted by every scrap of news that comes out.

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“Copper prices fell this week as investors cashed in gains after the previous session’s rally,” in Australia reported yesterday. The gist of the argument seems to be the 23% rise in the copper price last month was a step too far. The site quoted Caroline Bain of Capital Economics saying “You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking inevitably as we end the year”

Reuters, on the other hand, took a somewhat contrary view, reporting copper prices climbing mid-week, buoyed by a pickup in U.S. manufacturing. The newspaper reported new orders for U.S. factory goods recorded their biggest increase in nearly 1-and-a-half years in October, evidence that the manufacturing sector is gradually recovering after a prolonged downturn and as demand signals from China also improve. Read more

Our Stainless MMI rose 3.3% in November as nickel prices continue to look strong.


The Philippines’ output of nickel ore fell 16% in the third quarter from a year earlier, as a result of several mine suspensions due to environmental violations. The country has already stopped work at 10 of its 41 mines, eight of which are nickel mines. 20 More mines, 14 of which mine nickel, could see their licenses suspended.

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Environment and Natural Resources Secretary Regina Lopez recently said that there will definitely be more mine suspensions when the country releases rulings on those 20 mines, possibly within the next few days.

Meanwhile, Indonesia will cut the royalty charged on sales of processed and refined nickel to 2%, from the current 4%, to encourage more miners to develop smelters. In addition, the country appears unlikely to resume nickel ore and bauxite exports.

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On the other side of the equation, higher than expected Chinese demand is adding fuel to nickel’s price rally. The Caixin Manufacturing PMI in China was 50.9 in November, the fifth straight month of expansion. In addition, the U.S. is set to increase infrastructure spending as Donald Trump takes office.

Apart from the bullish narrative of more demand and less supply, prices are acting strong as it appears that bulls are still in control. Over the past few weeks, nickel prices are resting near $11,500/mt in what it looks like a pause to be followed by another price rally. Specially, considering the ongoing bullish sentiment across the entire industrial metals complex.

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About 44% of all solar power that’s installed on residential rooftops, known as distributed solar capacity, is owned by private businesses, such as SolarCity, according to new government data.

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Distributed solar capacity in the U.S., which includes all solar power capacity other than utility-scale installations 1 megawatts or larger, increased to 12.3 gigawatts as of September, according to new figures from the Energy Information Administration. In comparison, a cumulative 11.6 gw had been installed in the U.S. by the end of 2015.


According to the report, third-party owners own 44% of distributed solar capacity in the U.S. residential sector, compared with 11% in the commercial and industrial sectors. The residential sector accounts for 56% of distributed solar capacity but 84% of third-party-owned solar capacity. Nearly half of U.S. solar capacity is privately owned. However, panels owned by individual homeowners and businesses are expected to eclipse TPO as the largest owner-category in the next five years.

Like the Cleveland Browns losing, the sun rising or winter bringing cold weather and shorter days, the Renewables MMI didn’t move this month and held flat at 52 as it has for four straight months. That follows four years of relative flatness, too.

We’ve previously written about the relationship between manufacturers of crystalline silicon photovoltaic panels and incentives for solar expansion and this report highlights the cozy relationship between production and ownership. If, however, individuals, can really eclipse corporate owners like SolarCity in the next few years, it could be a watershed moment for solar power in the U.S. as lower costs are expected to finally make owning cheaper and better than leasing.

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Could an ownership society push more adoption of solar? It’s hard to tell, but anything that increases demand, as falling prices generally do, would be welcome at this point.

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Our Raw Steels MMI rose 14% in November amid rising Chinese and raw material prices and a rebound in domestic prices.


Prices of flat steel products in the U.S. corrected since July but they finally showed some upside momentum in November. As we pointed out last month, there are reasons to believe domestic steel prices have found a floor and are set to rise as we move into 2017.

International Price Arbitrage Narrows: Imports Fall

Chinese demand from infrastructure and construction has been robust this year. So has its auto sector, a key industry for steel demand. Domestic prices fell over the past few months, but prices in China rose, trading now at their highest levels in two years. As a result, the international price arbitrage has come down to normal levels.

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In some steel product categories,m like hot-rolled coil, this price arbitrage has narrowed enough that there isn’t much incentive for U.S. steel buyers to look for import offers. In October, The U.S. imported 2.4 million metric tons of steel, down 11% from the same period last year. Steel imports fell on a monthly basis for three consecutive months after they hit a one-year high in July. Fewer imports provide more pricing power to domestic steel producers in an otherwise well-supplied industry. While international steel prices continue to rise, domestic mills won’t find it difficult to find arguments for a price hike.

Industry Hopes After Trump’s Victory

What changes in the steel industry Donald Trump will make are still unknown. What’s clear is that the new president-elect made trade, manufacturing and the steel industry a cornerstone of his agenda. Stocks of American steel companies were the best performers in the stock market since the election as investors are optimistic that a Trump-led government will boost domestic infrastructure, which could be a boom for steel demand. In addition he has stated he would institute more measures to protect domestic steel producers.

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A good benchmark for steel prices is the Dow Jones U.S. Steel Index, which tracks major steel producers around the globe. The index recently rose to the highest level in five years. Since the stocks of U.S. steel companies are linked to domestic steel prices, this powerful price increase hints at a big rebound in steel prices.

Rising input costs

Higher input costs help to keep supply in check as mills’ margins get squeezed. Thermal coal prices in China have more than doubled this year. Iron ore prices reached a two-year high in November, with prices trading near $80 a metric ton. This rising trend in input costs will help support the recent rally in steel prices.

Industrial Metals Boom

Finally, another reason to expect a rebound in steel prices is the ongoing price strength across the metal complex. We are witnessing powerful moves across the board. Even copper, a metal whose fundamentals didn’t look appealing, rose over 25% in a matter of days. The bullish sentiment across base metals is another reason to expect a continuation of this recent rebound in steel prices.

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Our Aluminum MMI inched lower in November. A rising dollar put some pressure but prices held well overall. Indeed, we see some potential on the upside.

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Something that has concerned aluminum investors throughout the year is the potential increase in Chinese aluminum production. However, restarts seem to be less than what the markets were expecting earlier. Rising costs of production will likely limit additional restarts.


China’s clampdown on coal mining and supply disruptions in Australia has led to a spike in seaborne coal prices. Thermal coal prices in China have more than doubled this year. In addition, alumina, which is then processed to produce raw aluminum, has risen steeply in price over the last couple of months.

Meanwhile, even the most pessimistic estimates put the annual demand growth rate at about 4%. Not only that, but Chinese aluminum demand has been better than expected. Chinese demand from infrastructure and construction has been robust this year. The automotive sector, another big industry for aluminum demand, continues to look strong.

In October, China’s passenger car sales rose 20% from the same month last year, the sixth consecutive month that car sales have risen by double digits in China. Last year, China announced a 50% cut in the sales tax for cars with small engines to last until the end of this year. Some analysts expect that China will extend the tax cut to next year but if that’s not the case, we could see some moderation in China’s car sales numbers.

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Adding to the bull case for demand growth in China is the expected boost in U.S. infrastructure spending following republican nominee Donald Trump’s election victory. During the second half, aluminum prices took support above $1,600/mt from better-than-expected Chinese demand combined with lower-than-expected Chinese output. Trump’s election is helping fuel a rally across the industrial metals complex. It wouldn’t be a strange thing to see aluminum prices comfortably trading above $1,800/mt in 2017.

On another note, recently a massive stockpile of 500,000 metric tons of aluminum has been trucked out of the Mexican city of San José Iturbide and shipped to a remote port in Vietnam.The Wall Street Journal reports that the stockpile is believed to be related to the product of Chinese aluminum producer China Zhongwang. We don’t see this news impacting prices immediately but news like this could potentially bring up the case for increasing trade barriers between China and the U.S., especially under the lead of Trump, who has vowed to bring more jobs back home during his campaign.

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The Census Bureau reported late last week that U.S. construction spending was up during October by 0.5% compared with the September total. Year-over-year, construction spending in October was up by 3.45. During the first 10 months of the year, construction spending amounted to $972.2 billion, 4.5% above the same period in 2015.

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Our Construction MMI was up 8.7% as domestic demand for construction metals shot up just as prices increased nearly across the board for the entire industrial metals complex.


Construction demand in the world’s largest metals consumer, China, continues to grow even as the central government there tries to restrict home buying, the engine for that demand.

“It’s likely that the government will expand infrastructure investment to make up for the gap left by property-related investment falling,” Julia Wang, China economist at HSBC told the Financial Times.

What is buoying construction the most is an investor class now excited about all industrial and construction metals. The election of President-elect Donald Trump promises $1 trillion in U.S. infrastructure investment and stronger protections against dumping of foreign imports.

Trump’s policies, while still in their formative stages, are seen as bullish for public construction, particularly infrastructure such as roads, bridges and airports. Stocks of construction companies and materials providers also jumped after Trump’s election.

Public construction spending actually accounted for most of the increase in U.S. construction spending in October — unusually, since that sector has been contracting in recent years — gaining 2.8% compared to September. Spending on educational facilities was especially brisk, up 4.1% for the month, while highway construction gained 1.9%. Compared with last year, however, public construction spending as a whole was off 0.6%.

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While Chinese demand remains a concern, it’s a very good time to be a construction metals investor with positive sentiment nearly across the board when it comes to both construction and metals.

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Renewed economic confidence followed the election of republican nominee Donald Trump and Americans snapped up new vehicles at a rapid pace in November, giving the U.S. auto industry a chance of breaking its all-time record for full-year sales.

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The Automotive MMI was up, too, jumping 8%.

In November, U.S. auto sales rose 3.7% compared with a year ago, according to Autodata Corp. On an annualized basis, that equaled a rate of 17.87 million units. November sales growth projections had ranged from 2.7% at to 4.2% at Kelley Blue Book. Total sales for November were 1.38 million, that shattered a record for the month that was set in November 2001.


The month’s annual sales rate, adjusted for two extra selling days this November, was 17.9 million vehicles, more than the 17.7 million average estimate.

A contributing factor to the solid month was the Thanksgiving weekend and Black Friday sales, which are having an increasing effect on the month’s output. With one month to go, the auto industry has a decent chance to match or exceed its 2015 full-year record of 17.47 million vehicles sold.

Automotive sales and metals prices are both benefiting from bullish sentiment among buyers and investors. Steel companies stock prices have increased after Trump’s election just as aluminum and copper prices in the bullish metals markets.

Another factor in new car sales is the enduring low prices for both oil and gasoline, which might change soon now that the Organization of Petroleum Exporting Countries and other producers such as Russia have finally agreed to a production freeze.

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Rising oil prices, however, might not be the detriment to auto sales that they have in the past. Hybrid vehicles and simply more efficient fuel consumption have blunted the impact of gasoline prices on new car sales. One of the reasons that the gas tax has become such a poor funding mechanism for the federal Highway Trust Fund is that motorists simply have to buy less gas for today’s efficient, newer vehicles.

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Yesterday, the Organization of Petroleum Exporting Countries finalized a deal to cut production by 1.2 million barrels a day starting in January, its first reduction since 2008.

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The production deal will last six months with a committee composed of three OPEC country members monitoring and reviewing the decision at their next meeting in May to determine if the cuts will extend for another six months.

Trading volume (at the bottom) surged as crude moved up on Wednesday

Trading volume (at the bottom) surged as crude moved up on Wednesday. Source:

On Wednesday, U.S. crude jumped 9.3% to settle at $49.44 a barrel. The number of contracts traded on Wednesday rose sharply as prices made a one-month high. Rising volumes confirm that new money is supporting the price move, increasing the likelihood that the trend will continue. Read more

Lead prices rose sharply last week, adding to the year’s gains. From its January lows, lead is up 52% on the year to date. Not bad for a metal whose fundamentals looked neutral at best.

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The International Lead and Zinc Study Group recently convened in Portugal to deliver its forecast for the coming year. The group anticipates that, through the end of the month and year, supply will exceed demand in the global refined lead metal market by 42,000 metric tons. In 2017, the group predicts a closer balance, but still a surplus of 23,000 mt.

3M LME lead price hits a three year high. Source: MetalMiner analysis of data

The 3-Month LME lead price hits a three-year high. Source: MetalMiner analysis of data.

Perhaps if you narrowed your view to lead’s supply/demand fundamentals you missed this rally. However, if you payed attention to the ongoing monster bull market in the metal complex, you shouldn’t have. Read more

Remember when Barack Obama defeated republican presidential nominee Senator John McCain? Or Usain Bolt’s first appearance in the Olympic games? Well… that’s how far back you need to go if you want to see zinc prices as high as they are now.

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Last week, zinc closed just short of $2,300 per metric ton on the London Metal Exchange, the highest level since early 2008. Zinc is the first industrial metal we can say that about (and possibly not the last one).

Zinc Hits an eight-year high. Source: MetalMiner analysis of data

Zinc hits an 8-year high. Source: MetalMiner analysis of data.

Zinc markets moved into deficit this year following the shutdown of some big mines. The International Lead and Zinc Study Group (ILZSG) anticipates that global usage in 2016 will exceed production by 349,000 mt. In 2017, the market is expected to remain in deficit with the extent of the shortage forecast at 248,000 mt.

How our subscribers bought zinc this year

How our subscribers bought zinc this year. Source: MetalMiner analysis of data.

Whether fundamentals justify zinc’s spectacular rally or not is debatable. What’s not debatable is that there is no way you can time your purchases by just looking at the fundamentals. You need to understand how prices move, or have someone do it for you. Read more