Market Analysis

stainless-nickel-L1Nickel ore shipments from the Philippines could be in trouble after a new president’s appointment of an anti-mining presence that could spell disaster for Chinese buyers.

According to a recent report from Bloomberg, President-elect Rodrigo Duterte is prioritizing the nation’s stance on mining by appointing a new head for its environment department. This maneuver has the potential to disrupt supplies to buyers in China.

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The London Metal Exchange echoed those concerns as nickel closed up nearly half a percent this week, indicating this new government will limit nickel ore exports.

“We might see an imminent crackdown on the Philippines’ small mines,” said Sam Xia, an analyst at China Merchants Futures Ltd. “This will reduce its nickel ore exports, including to China.”

The Philippines is now a key supplier of nickel ore to Asia’s leading economy after Indonesia stopped shipments in January 2014. Meanwhile, China’s nickel ore imports from the Philippines increased to 3 million metric tons this May, its highest point in seven months. That figure accounted for 97% of its total purchases.

Nickel Hits Six-Week High This Week

Our own Raul de Frutos recently highlighted that nickel prices hit a six-week high following a notable recovery from May’s price sell-off.

de Frutos wrote: “The metal benefited from a positive swing in investor sentiment toward commodities in June, stemming from a weaker dollar and the ongoing recovery in oil prices. Nickel has climbed steadily after hitting multiyear lows in February, but the move isn’t big enough to impress the market yet.”

You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

 

 

Nickel prices climbed to a six-week high, a nice recovery after May’s price sell-off.

Two-Month Trial: Metal Buying Outlook

The metal benefited from a positive swing in investor sentiment toward commodities in June, stemming from a weaker dollar and the ongoing recovery in oil prices. Nickel has climbed steadily after hitting multiyear lows in February, but the move isn’t big enough to impress the market yet.

3M LME Nickel hits 6-week high

Three-month London Metal Exchange nickel hits a six-week high. Source: MetalMiner analysis of FastMarkets.com data.

Chinese Ore Imports Falling

Nickel ore is the essential ingredient for China’s massive nickel pig-iron production sector. Imports for the first four months totaled 4.16 million metric tons, a 38% decline compared to the same period last year. Indonesian imports have been non-existent since the country imposed its exports ban on unprocessed minerals. Although the Philippines has managed to fill part of the gap, it hasn’t been enough. Read more

Adobe Stock/ Björn Wylezich

Adobe Stock/ Björn Wylezich

The International Lead and Zinc Study Group has released preliminary data on the global market for refined zinc, and found a notable surplus from January to April 2016 with total reported inventories increasing during that time.

The ILZSG also found that an 8.1% reduction in global zinc mine production was mostly due to decreases in India, Australia, Ireland, Peru and the U.S.

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Meanwhile, refined zinc metal production increases in Namibia and the Republic of Korea were offset by reductions in Japan, India and, once again, the U.S., leading to an overall global reduction of 3.4%.

The ILZSG states: “Global refined metal usage over the first four months of 2016 was at the same level as the corresponding period in 2015 with rises in China and Europe being offset by decreases in Japan, Taiwan (China) and the United States.”

The group concluded that Chinese zinc imports contained in zinc concentrates fell by 20% while refined metal net imports grew by 163%.

Zinc Storage Under Fire

Recently, our own Jeff Yoders covered the lawsuit over zinc storage in his Week-in-Review. Yoders wrote: “Glencore‘s Pacorini warehouse operations business will have to defend the suit as they seemingly falsified documents at the center of the gripes from customers.”

The lawsuit by U.S.-based investors deals with falsified orders and are specifically designed to conceal when and where metal entered Pacorini’s New Orleans warehouse complex.

You can find a more in-depth zinc price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

Aluminum price increases this year have been minimal compared to what we’ve seen in steel prices. However, the metal is rising slowly but steadily as investors see an opportunity to buy aluminum when prices fall short-term.

Two-Month Trial: Metal Buying Outlook

That’s exactly what happened this month, after prices sold off in May, investors are again jumping on the metal.

Aluminum hits 1-month high. Source: MetalMiner analysis of fastmarkets data

Aluminum hits a one-month high. Source: MetalMiner analysis of Fastmarkets.com data.

Demand Improves

A recovery in demand is a key factor supporting aluminum prices this year. China unleashed a renewed government stimulus in the form of credit expansion and infrastructure building in December, which has — at least momentarily — improved the demand side of the equation for industrial metals.

Trade figures this year showed China’s relatively strong appetite for aluminum. Higher demand means exporting less as Chinese companies are consuming more aluminum domestically. China’s exports of unwrought aluminum and aluminum semis were 420,000 metric tons in May. From January to May, exports are down 7.9% compared to the same period last year.

Overcapacity Still an Issue

China has committed to stop the expansion of steel capacity and to actively and appropriately wind down “zombie enterprises” through a range of efforts, including restructuring and bankruptcy. That’s not the case when it comes China’s equally giant aluminum sector. Read more

Gold is recovering its strength this month. Prices last week rose to the highest levels in almost two years. We already pointed out last month that prices had upside potential.

Free Download: The June 2016 MMI Report

There are mainly three factors contributing to the price move:

Gold hits new highs on falling bond yields and economic fears. Source: Stockcharts.com

Gold hits new highs on falling bond yields and economic fears. Source: @Stockcharts.com

Economic Fears

The yellow metal is being bought as a hedge against falling global stocks. The unusually dovish comments from the Federal Reserve last Wednesday showed a lot more pessimism on the U.S. and global economy while investors fear that central banks are losing their ability to boost global stocks or economies. Moreover, this week’s British Brexit vote is causing a lot of global volatility.

NYSE Composite Index acting like 2007’s top. Source: MetalMiner analysis of @StockCharts.com data.

NYSE Composite Index acting like 2007’s top. Source: stockcharts.com

As we warned in May, stock markets pulled back in June. There is no guarantee that the worst has passed. Indeed, so far we are just witnessing choppy action.

Read more

lead-prices-L1The International Lead and Zinc Study Group released its latest findings for June, and revealed that lead metal supply surpassed demand during the first quarter of 2016.

Also, over that same time frame, total reported stock levels declined by a small amount.

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On a geographic basis, drop-offs in China, Australia, India and the U.S. were the main contributors to a global lead mine production decrease of 5% for Q1 2016 (compared to Q1 2015).

On a global scale, refined lead metal output decreased 1.8% during the first four months of 2016, compared to 2015, due primarily to lower reported output in China. This offset the gains made by Canada and the Republic of Korea.

“Ex-China usage of refined lead metal rose by 4.2% mainly due to an increase in European demand of 8.8%,” the ILZSG stated. “However, Chinese apparent usage fell by 12.1% and overall global demand decreased by 2.5%.”

The Fed and Metal Prices

Our own Raul de Frutos recently wrote about the Federal Reserve leaving interest rates unchanged while lowering the outlook for rate increases in the future. What impact does this have on metal prices?

“Higher rates mean higher borrowing costs, which usually make a currency more attractive to investors seeking higher yields than in other currencies,” de Frutos wrote. “So, basically, higher rates domestically (or expectations of a rate increase) normally translate into a stronger dollar which leads to lower metal prices. This happened in May, when the U.S. dollar strengthened amid new expectations that the Fed would raise rates in June or July. Consequently, base metals fell.”

You can find a more in-depth lead price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

At Wednesday’s meeting, the Federal Reserve left interest rates unchanged and officials lowered the outlook for rate increases in the coming years.

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This outcome suggests that slow economic growth and low inflation are forcing the central bank to rethink how fast it can move rates higher. But let’s get to the point: how will this decision impact metal prices? The key here is that interest rates impact the value of the U.S. dollar which has a huge impact on metal prices.

Higher rates mean higher borrowing costs, which usually make a currency more attractive to investors seeking higher yields than in other currencies. So, basically, higher rates domestically (or expectations of a rate increase) normally translate into a stronger dollar which leads to lower metal prices. This happened in May, when the U.S. dollar strengthened amid new expectations that the Fed would raise rates in June or July. Consequently, base metals fell.

Industrial Metals ETF pulls back in May and recovers in June

The Industrial Metals ETF pulls back in May and recovers in June. Source: @StockCharts.com

However, in June, the dollar pulled back, as expectations for rate increases receded. A dismal May employment report, combined with concerns about the June 23 British referendum on whether to leave the European Union, made officials pause while they weighed when to raise rates. Now, although the Fed still sees two rate increases later this year, a greater number of officials see now one increase, rather than two.

The Fed’s Economic Pencil Sketch

These projections aren’t set in stone, but they do indicate how officials’ views are changing.The Fed doesn’t see rates going as high as it thought they would before and, if this trend continues, the dollar could continue to weaken which would support metal prices.

Free Download: The June 2016 MMI Report

The ongoing slowdown in China’s economy; the so-called Brexit vote set for June 23 and the next European Central Bank meeting in Frankfurt will be factors to watch for clues on whether the Fed will increase rates in the near futures. So far, unless something turns around, we continue to see metal prices supported by a weak dollar.

While nearly all of the metals markets we track were up in May, our June MMI has experienced what’s believed to be a broad market correction that has touched nearly every metal (only the specialized and range-bound Rare Earths MMI saw an increase this month).

MM-IndX_TRENDS_Chart_June2016_FNL-TOPVALUE100

The Automotive MMI was our second-biggest “winner,” thanks to holding its value from last month. The biggest loser was our Construction MMI, which fell nearly 10% as construction products such as rebar and copper tubing saw heavy losses.

Correction Drivers

Two factors dragged metal prices down in May: The Chinese government softened expectations of further stimulus while fighting speculation by increasing margins and fees for trading. Second, in the beginning of the month the U.S. dollar strengthened amid new expectations that the Federal Reserve might be more aggressive than previously thought in raising interest rates, but that quickly changed late in the game after a disastrous jobs report and the dollar is now falling again.

Chief Forecasting Analyst Raul de Frutos sees this movement as “a normal reaction as prices zigzag, and we don’t see enough evidence to turn bearish (on metals) yet.”

Two-Month Trial: Metal Buying Outlook

We are now very much back in a wait-and-see period, expecting a bounce back in prices, but also very understanding of the weakness many of the markets we track still face thanks to oversupply and waning stimulus in China.

U.S. Steel prices, however, are separating themselves from what’s happening in world markets as anti-dumping and countervailing duties orders have taken root.

Tin cansTin prices are strengthening due in part to rising demand from alloy industries.

The Business Standard reports that while tin prices are increasing, copper continues its decline due to “reduced offtake from industrial users.”

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

We reported last month that tin, along with zinc, had been outperforming other base metals this year. Our own Raul de Frutos wrote: “These two metals have risen on expectations of supply constraints. In the case of zinc, it’s about the number of key larger-scale mine shutdowns over the past months. Meanwhile, tin’s performance comes largely on the back of low first-quarter exports from Indonesia.”

He continued that Indonesian tin exports decreased 50% in the first quarter this year mostly as the result of new government environmental regulations going into effect that require smelters to provide new documentation. Supplementing these factors were extreme weather conditions that affected production during Q1 2016.

“After a very weak first quarter, Indonesian tin exports recovered in April, with exports up 36% compared to April 2015. Although many analysts are calling for a come back in exports, a recovery in Q2 was expected, but it remains questionable whether the trend will continue,” de Frutos wrote.

You can find a more in-depth tin price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

 

A stronger dollar in May caused most base metals to weaken. However, in June, the dollar has pulled back, as expectations for rate increases recede.

Two-Month Trial: Metal Buying Outlook

That helped to lift most base metals, so far, this month. But that wasn’t the case for copper, which continues to struggle on the upside.

3M Copper falls in June. Source: Fastmarkets.com

Three-month LME copper falls in June. Source: Fastmarkets.com

The red metal has held its value well this year, but it has found strong resistance near $7,500 per metric ton. Unlike other metals like zinc and steels for which we recommended buying forward earlier this year, we’ve kept recommending buying only small quantities of copper for quite some time now.

Rising Inventory Levels

60 Day LME Copper Warehouse stocks levels. Source: Kitcometals

    60-Day LME copper warehouse stocks levels. Source: kitcometals

Due to a surge in inventories at London Metal Exchange warehouses, the weaker dollar in June failed to provide a lift to prices. Copper warehouse levels in the LME system rose by almost 40% on the month to date after experiencing the highest two-day inventory surge since 2004.

Chinese Imports

China’s copper imports jumped 19.4% in May from the same period last year. Imports are running strong over the first five months, up 22% compared to the same period last year, after a weaker dollar boosted Chinese purchasing power.

Free Download: The May 2016 MMI Report

The increase in refined copper imports could be taken as bullish. However, reading the fine print, imports of copper concentrate for use by smelters jumped 45% from a year ago. The surge in concentrate imports suggests that China’s copper refined imports could ease further in June as rising  domestic smelting production will increase domestic supply and reduce import demand. That could keep a lid on prices for some time.