Market Analysis

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In August, base metals experienced a breathtaking rally in prices.

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For example, aluminum and copper increased by 8% and 9%, respectively. Bullish sentiment dominates the overall industrial metals market. A weaker dollar has also accompanied the uptrend in base metals (although the dollar has had less of an impact this year than it has historically).

Why is Tin Trapped?

Contrary to other base metals, tin appears  trapped in the $19,000-$21,000 range since the beginning of 2017.

While tin has seen less volatility than other base metals, such as copper, it refuses to give signs of moving either up or down. Tin seems to be trading sideways.

Source: MetalMiner analysis of FastMarkets

Looking at fundamentals, tin appears headed for a 22,000-ton deficit for 2017, according to the International Tin Research Institute (ITRI). This supply shortfall, in theory, should act as a price support to tin.

Trading volumes appear stable, too, and are not yet pointing toward any specific direction.

How Have Other Base Metals Traded So Far?

September has started with a general fall in base metal prices, with copper prices seeing the biggest decline.

Source: MetalMiner analysis of FastMarkets

Aluminum, nickel and zinc prices have also fallen since the beginning of this month. The current downtrend is a price pullback — a normal pattern we see after big price gains.

Buying organizations might want to analyze price movements and trading volumes to commit to purchases.

In bullish markets, like we have now, buying organizations can adapt their buying strategies to  time purchases.

Free Download: The September 2017 MMI Report

To understand how to adapt a buying strategy to your needs, dive into our deeper analysis in our Monthly Metal Buying Outlooks.

Our September MMI report is in the books — overall, it was another strong month for metals.

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For our latest batch of readings, all 10 of the MMI sub-indexes posted upward movement.

It was a big month for aluminum, as the Aluminum MMI rose 8.2% and LME aluminum jumped 10.73% through the month. The Construction and Automotive MMIs also had solid months, while the Copper MMI shot up 7.7% in what was another good month for Dr. Copper.

Meanwhile, in policy news, last week the U.S. Department of Commerce launched an anti-dumping and countervailing duty investigation into stainless steel flanges from China and India. As our Irene Martinez Canorea wrote in her Stainless MMI report, a preliminary determination in the case is coming Oct. 2.

In addition, today the DOC announced it had launched an investigation into imports of titanium sponge from Japan and Kazakhstan.

More broadly, the Section 232 investigations into aluminum and steel imports are still ongoing. It’s unclear when exactly a ruling will be made, but Secretary of Commerce Wilbur Ross has January deadlines to meet, as he is required to present President Donald Trump with a report and policy recommendations vis-a-vis the probes.

Free Sample Report: Our Annual Metal Buying Outlook

You can read about all of the aforementioned — and much more — by downloading the September MMI report below.

For firms buying from suppliers in Europe, the rise of the Euro this year must have caused acute problems. Or, for those with contracts buying from European suppliers in dollars, those contracts will adjust sharply come renegotiation, as current exchange rates are applied to new contracts.

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The future direction of the world’s second-most-widely-used currency is of interest to many firms that directly or indirectly are a part of extended global supply chains.

Europe, too, is perplexed by the rise of the Euro. The dollar has declined relative to the Euro by more than 13% this year, driven by tensions with North Korea and dysfunction in Washington, according to The New York Times.

But investor appetite for the Euro has been fueled by more than tensions over North Korea.

Whereas the Euro is seen as a relative safe haven compared to the dollar, there is also a growing realization the Trump administration may not be able to deliver on tax reforms promised during his campaign at the end of last year. As a result, the relatively better-performing European markets may offer investment opportunities not previously available.

Nations Push Back Against Quantitative Easing

Many in northern Europe — Germany, in particular — are pushing for an end to quantitative easing (QE) for fear that it is stimulating asset bubbles.

The Telegraph reported comments by Deutsche Bank chief John Cryan last week saying property prices in advanced economies had hit record levels. In the same speech, Cryan urged European policymakers to start tapering relief of the Eurozone’s €60 billion ($72 billion) per month stimulus program sooner rather than later.

On the other hand, policymakers are worried about the impact of bringing money printing to an end and postponed a decision this month because of the recent weakness of the dollar. Any firm decision to taper or cease QE would result in the Euro strengthening further, potentially choking off Europe’s nascent recovery (during which growth has returned for the first time this year since the financial crisis).

Interest Rates Still Low

Inflation remains stubbornly low. At 1.5% last month, they show little prospect of hitting the 2% target this side of 2019, The New York Times reports.

The Federal Reserve began raising interest rates at the end of 2015, but the European Central Bank (ECB) is reluctant to do anything that could undermine what it still sees as a fragile recovery.

The absence of rising headline inflation figures to create an imperative — policymakers are largely turning a blind eye to asset price inflation for the time being, preferring to sweat over the rise in the Euro.

Indeed, Jörg Krämer, the chief economist at Commerzbank in Frankfurt, said as much in a recent note to clients, saying the pace of Euro strength is driving the ECB’s QE policy right now. Commerzbank is not expecting the Euro to continue to strengthen — and they may well be right.

If investors think there is a chance Congress will support the Trump administration’s tax reform that would allow businesses like Google and Apple to repatriate profits held overseas, the exchange rate landscape would transform overnight.

Half of what has been estimated as up to $1 trillion dollars is held in currencies other than U.S. dollars, so the demand for dollars would be immense, as would the boost to the U.S. economy if funds were repatriated and invested. Of course, that is the administration’s intent; for now, Washington seems in such a logjam that investors are discounting the prospects of such legislation being passed anytime soon.

The Euro, therefore, is being carried by its own relatively optimistic narrative: decent growth, low inflation and a sense of stability and, Brexit excepted, harmony not seen since the financial crisis. It’s hard to see the Euro weakening this year, but further direction may come in next month’s meeting of the ECB.

Free Sample Report: Our Annual Metal Buying Outlook

MetalMiner is expecting any decision to taper QE to be kicked further down the road, putting a lid on further rises.

Euro strength is today’s problem, asset prices are tomorrow’s — that seems to be the order of the day.

The Stainless MMI has inched eight points higher this month, reaching July 2015 levels. The increase was driven by higher nickel prices, together with an increase in stainless steel surcharges.

Stainless steel surcharges have increased this month after decreasing month-over-month since April.

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Source: MetalMiner data from MetalMiner IndX(SM)

Despite the uptick in the Stainless MMI, however, many analysts believe stainless steel will fall  in the upcoming months.

Even if the increase in prices for global stainless steel flat products increased by 6% during the first months of 2017, Oliver Spaltman, senior market analyst for Steel & Metals Market Research (SMMR), estimates that the full-year demand growth in 2017 will be 4%.

In early September, the U.S. Department of Commerce launched anti-dumping and countervailing duty investigations on stainless steel flange products from China and India. The U.S. International Trade Commission (ITC) is scheduled to make its preliminary determinations in the investigations Oct. 2.

Source: MetalMiner analysis of FastMarkets

Nickel prices began falling in early September from their previous peak. However, the uptrend remains clear and strong; we could see upward movements in the coming months.

Higher demand, boosted by Asian battery makers, has aided nickel’s rally. The Chinese electric vehicle market has grown during 2016 and 2017, producing 43% of the worldwide electric vehicle fleet in 2016. If this trend continues, Asian automotive Original Equipment Manufacturers (OEMs) might support nickel prices with their higher battery demand. Also, the latest increases for nickel prices come down to trader sentiment around nickel deficit concerns.

What This Means for Industrial Buyers

Both steel and stainless steel do not appear to follow the same recent increase in industrial metals prices as other base metals.

Every steel form has lost some of its price momentum, but has still notched some increases this month.

To understand how to adapt the buying strategy to your needs, dive into our deeper analysis in our Monthly Metal Buying Outlook.

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Actual Stainless Steel Prices and Trends

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Here’s What Happened

  • MetalMiner’s Global Precious MMI, tracking a basket of precious metals from across the globe, tore itself away from a one-month downward trend to rise 4.7% for a reading of 89. That value was up from 85 at the beginning of August.
  • Palladium continues its steady yet undeniable march upward. The platinum-group metal (PGM) crushed it with yet another recent high, ending up above the $900 per ounce level as of Sept. 1. As of this writing, palladium is holding on to that increase, still hovering near that level.
  • Platinum is no slouch either, creeping upward even closer to its recent high of March 2017, when it landed above $1,000 per ounce.
  • The U.S. gold price broke — and held above — the $1,300 per ounce threshold at the beginning of the month for the first time since October 2016.

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What’s Going On in the Background?

  • Unless you’ve been living in a cave, you would’ve been hard-pressed to miss the hurricane and tropical storm news of the past couple weeks. No sooner did Hurricane Harvey slam into the Texas Gulf Coast region, Hurricane Irma made her way up into the center of Florida soon after.
  • Aside from natural disasters, other price drivers, such as political uncertainty surrounding North Korea and the U.S. Congress’ tussle over how to deal with the debt ceiling — and potential government shutdown — certainly have taken their toll on investor sentiment.

What Metal Buyers Should Look Out For

  • How will the recent storm disasters affect precious metals prices? It could hit gold and silver refiners especially hard, as South Florida is home to one of the biggest precious refiners in the country and is also a hub for “assaying, refining, logistics and financing operations,” according to this article citing, ultimately, reporting done by the Miami Herald. If you’re in the market for those two metals, keeping an eye on the short-to-medium term aftermath of Hurricane Irma looks to be crucial.
  • As for the PGMs, platinum prices may turn around to the downside soon, if the recent outlook of the World Platinum Investment Council (WPIC) is to be believed. The WPIC foresees a stalling of supply out of South Africa for the balance of 2017, while demand will equally stall, according to the council. In terms of palladium’s future, analysts at Commerzbank told DigitalLook “the metal used by the auto industry in emissions-controlling catalytic converters was benefiting from strong Chinese car sales data but that sales there are likely to weaken.”
  • Of course, vehicle replacement in Texas and Florida post-hurricanes could do their part to support platinum and palladium prices. Be sure to check out how MetalMiner’s Automotive MMI fared.

Key Price Movers and Shakers

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The September GOES MMI increased by a full 12 points, reaching 193. Market observers can note with interest that this rise comes on the back of increasing GOES imports, as noted by Roger Newport, CEO of AK Steel, on a recent earnings call.

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Unlike other steel markets, when sudden large volumes of imports begin to arrive typically a big spread exists (the price between the domestic and international markets).

In this case, something else appears to explain the volume of imports into the U.S.

When we examine the total volume of grain-oriented electrical steel (GOES) imports into the U.S., indeed, the assertion of increased import volumes appears correct:

But when we look at what is driving those imports, we come to a different conclusion – that Japanese GOES imports have led the increase (and in fact account for 55% of GOES imports):

One could argue these imports hardly appear “dumped” the average price for Japanese material at $2627/metric ton appears just under the MetalMiner domestic M3 spot price. In fact, by our own analysis of import prices, the average import price of Japanese material for the last six months has only diverged from our M3 spot index by no more than $68/mt, and in one month was more expensive by $64/mt!

It’s hard to see how GOES has been “dumped” into the U.S. market.

Moreover, the industry knows the Japanese produce the more technically advanced grades that allow manufacturing organizations to produce to higher efficiency standards.

Meanwhile, China’s Baoshan Iron & Steel increased GOES domestic prices seven times since the beginning of the year, according to a recent TEX Report. The same report indicates Japanese mills have held prices fairly steady.

The Section 232 investigation remains ongoing, with a report expected by mid- to late-January.

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Exact GOES Coil Price This Month

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The Raw Steels MMI increased again this month by seven points, returning to 2014 levels.

The increase came as a result of rising Chinese steel prices, which have rallied since April 2017.

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Early September data reveal that Chinese hot-rolled coil (HRC) prices increased quicker than U.S. HRC prices.

Domestic steel prices, including HRC prices, mostly held steady in August. The spread between the two has fallen by 5% since the beginning of August. Rising Chinese prices typically lead to reduced imports overall, as U.S. prices become more competitive.

Chinese steel prices have been boosted by better-than-expected demand, together with supply concerns.

China Data Creates Uncertainty

China remains the dominant player in steel market.

Thus, Chinese economics serve as one of the most powerful indicators of the steel industry.

Chinese economic data, however, has created some uncertainty around the steel market. Even if the market expects a correction, economic indicators still reveal positive data.

Yet, some analysts believe China remains in a bubble set to explode at any time.

Raw Materials Show Some Weakeness

Steel prices also take their cues from raw material prices.

Steel prices commonly move together with iron ore, coking coal and steel scrap prices. Raw material price dynamics slowed in August. Both iron ore and coal prices have increased slightly, but showed some weaknesses during the middle of the month.

The previous uptrend for both iron ore and coal comes down to solid demand from China, as steel production has increased this year. However, July iron ore import data reveals a decrease of 8.9% from June’s reading, and 2.4% below last year’s reading. The lower import levels may signal possible future softness in the demand of this commodity. Chinese iron ore has increased by 2%, while Korean pig iron prices decreased by 0.44%.

What This Means for Industrial Buyers

Steel momentum appears to have lost some steam.

Buying organizations should watch commodities to analyze the signals for both the short- and long-term trend.

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Actual Raw Steels Prices and Trends

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The Renewables MMI rose seven points in August, reaching a reading of 84.

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The basket of metals in this sub-index posted a strong month. Steel plate from Japan, Korea and China rose in the month. U.S. steel plate, however, fell 4.6%.

Meanwhile, in the topsy-turvy world of grain-oriented electrical steel (GOES), the U.S. GOES price jumped 7.3%.

Of the nine metals in the sub-index, only one (U.S. steel plate) posted a drop in price as of Sept. 1. Chinese silicon, cobalt and neodymium all also posted price gains.

Charged Up for Cobalt

Last month, we wrote about cobalt, which is in high demand for its application in electric vehicle batteries. Cobalt is mined predominantly in the Democratic Republic of Congo, which has been shaken by violence and political instability this year.

The instability there has seen production in the DRC decrease this year, yielding significant price increases in the metal. As we wrote last month, the instability of cobalt (not to mention growing ethical concerns vis-a-vis child labor at mines) has some battery makers looking to adjust their metal formulas, in some cases suggesting the use of more nickel, instead.

According to a Reuters report, however, cobalt has been boosted by projections touting a rise in purchases of electric vehicles. According to the report, UBS forecasted electric vehicles will account for 3.1% of global car sales in 2021 and 13.7% in 2025, up from 1% this year.

In addition, cobalt listings have skyrocketed, the report says. As of the end of July, 100 companies that explore or mine for cobalt were listed on the Toronto Stock Exchange and TSX Venture Exchange, up from fewer than 30 in 2015, according to SNL Financial.

In short, despite issues of supply volatility — and, thus, material cost — cobalt’s profile continues to rise in tandem with the rise of electric vehicles.

What About U.S. Steel Plate?

Like the rest of the U.S. steel industry, steel plate producers are anxiously awaiting the Trump administration’s determination in its Section 232 investigation of steel imports.

The investigation, announced in April, has a January deadline. The investigation picked up steam earlier on in the summer, but has seemingly been put on the backburner for the time being. As such, initial optimism from U.S. steel producers regarding potentially imminent trade action stemming from the investigation began to wane.

In a letter to the Trump administration last week, the American Line Pipe Producers Association (ALPPA) urged the president to take action, also mentioning steel plate in the process.

“The ALPPA strongly supports the imposition of tariffs to address this crisis,” wrote Timothy Brightbill, counsel to the ALPPA. “With tariffs in place, we could quickly return to full capacity, adding hundreds of direct jobs in addition to upstream and downstream jobs as well.

“However, in order for tariffs to be effective for our industry, steel pipe must be included in any tariff covering steel coil and plate, as failure to do so would be devastating for domestic large diameter line pipe producers and workers.”

Actual Metal Prices and Trends

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This month’s Copper MMI beat its previous gain last month en route to a six-point increase.

The boost was primarily driven by an outperforming LME copper price, which has been seemingly unstoppable since the Chinese copper ban was announced July 24.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Source: MetalMiner analysis of Fastmarkets

Copper tends to correlate with the U.S. dollar. As a dollar-denominated commodity, a weaker dollar can stimulate copper buyers. The U.S. dollar has not found a floor yet, and has continued falling, reaching a two-year low now.

Commodities, on the other hand, have increased again during the first week of September. A recovery in oil prices has led the increase.

Though it’s much too early to change the commodity outlook to bullish, we did expect the correlation between commodities and industrial metals to come back to a more normal state (where they both tend to move in the same direction).

If commodities start an uptrend, then copper prices may continue their bullish rally, too.

What About China?

As China is the main commodity consumer of the world, analysts pore over Chinese economic data. Chinese economic data released during this summer resulted in better-than-expected — that is, increasing manufacturing PMI — manufacturing data. This fact, together with the government’s environmental policies, has supported base metal prices.

One curious correlation involves the Chinese Yuan (represented by the blue line below) and the copper spot price (red line). Both have moved in a similar fashion recently.

Source: MetalMiner analysis of StockCharts

Does the Chinese Yuan serve as a guide to what copper prices might do in the future?

A deeper analysis of this and other drivers will appear in our upcoming free 2018 Annual Outlook Report, which will be released next month.

What This Means for Industrial Buyers

Even if the uptrend remains strong, we still expect high volatility for copper prices.

Thus, we expect a price retracement at some point in the upcoming months. The price retracement is normal and prices digest previous gains (in this case, a 15% increase).

Source: MetalMiner analysis of Fastmarkets

To better understand how to adapt the industrial metal buying strategies based on these dynamics,  take a look at our Monthly Metal Buying Outlooks.

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Actual Copper Prices and Trends

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The Rare Earths MMI ticked up one point for a September reading of 24.

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After hitting 29 in April 2015, the sub-index fell as low as 16 last year before slowly climbing back up this year with an uptrend that began in March.

For this MMI period, several of the sub-index’s heavy hitters posted strong months. Chinese terbium oxide rose 2% and Chinese dysprosium oxide rose 5.6%. Neodymium oxide rose a whopping 35% in the month.

An overwhelming majority of rare-earth metals production comes from China, and the metals are crucial for use in things like computers, phones and other electronic devices.

According to a recent report on nasdaq.com, China’s Rare Earth Industry Association recently proposed “releasing some of the country’s reserves and suspending the purchase and storage of additional volumes to ease price volatility for the raw materials that are crucial to mobile phones and electronics.”

Reuters’ Andy Home recently wrote about the topsy-turvy world of rare-earth metals prices.

“The prices of neodymium and praseodymium oxide are going stratospheric again, up by over 80 percent since the start of the year,” Home wrote. “As ever with rare earths, this is all about what is happening in China, the world’s dominant producer of these critical materials.”

Rare earths have come a long way since the market collapsed underneath them in 2012. The Financial Times reported last month that the price of two rare earths, neodymium and praseodymium, has jumped by more than 50% this year.

In short, Chinese policies significantly impact the direction of the global market.

The question, as it often is with the rare earths market’s peaks and valleys: when is the next valley?

Actual Metal Prices

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