Despite commitments and trade friction with several of China’s trading partners, China’s June trade data surged, raising more questions on the validity of China’s commitment to cutting steel production.
China’s Exports Are Up in June
China’s June steel exports up 21% year over year. Source: marketrealist.com.
In June, China exported 10.9 million metric tons of steel, a 21% increase from June 2015 and the second highest total ever. The data raises questions on whether global steel markets will be able to absorb this much steel coming from China without it weighing on prices. Read more
To begin July, lead prices moved up nearly a quarter of 1% in futures trades as participants increased their positions due, in part, to a pick-up in spot market demand and a boost in base metals overseas.
Meanwhile, according to a report from the Business Standard, lead for August delivery at the Multi-Commodity Exchange also grew by nearly .25%.
Our own Raul de Frutos reported just this week that lead prices have hit a one-year high despite neutral fundamentals. It’s been a year of fluctuation for lead, but three-month London Metal Exchange data has prices at $1,900 per metric ton.
Stated de Frutos: “The latest data reported by the International Lead and Zinc Supply Group (ILZSG) indicate the world refined lead metal supply exceeded demand by 23,000 metric tons during the first four months of 2016. Reductions in Australia, China, India and the U.S. led the fall in global lead mine production of 5% compared with the first four months of 2015.”
A Closer Look at the World’s Lead Usage
In addition, world refined lead metal output fell by 1.8%, excluding Chinese usage of refined metal which increased by 4.2% due in part to an 8.8% increase in European demand.
These figures are considered fairly neutral, but the market has not been convinced by this development until now. What’s changed?
“Lead prices are being driven by funds’ increasing appetite for industrial metals,” de Frutos wrote. “This means that even though lead fundamentals don’t look overly bullish, the wind is now blowing at lead’s back. Funds are either seeing a tightening in the fundamentals that we can’t see yet or they are simply buying metals as sentiment in the industrial metals complex has improved. It looks more like the latter.”
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.
Global stock markets are finally showing some strength after a difficult period of almost two years when investors had a hard time making money off stocks. Following the U.K.’s decision to leave the European Union, global stock markets fell sharply but the sell-off didn’t last very long.
The fast recovery following Brexit is very encouraging and it suggests that investors are turning more positive on the health of the global economy.
U.S Markets Make New Highs
The S&P 500 Index makes all time highs. Source:MetalMiner analysis of @Stockcharts data.
In the chart above, we see the S&P 500 index making an all-time high this week after the index had struggled for almost two years. Rising stock markets don’t necessarily mean rising metal prices, but it’s a good sign. Read more
We recently held a webinar on Brexit’s impact on metal prices and the geopolitical risk posed to North American Manufacturing (sponsored by Avetta). The turnout was incredible with more than 100 registrants, half of which were from the manufacturing industry.
We posed several poll questions throughout the webinar and the responses paint a clear picture of what this industry thinks of Brexit and its impact on various companies’ industrial sourcing strategies. Here’s a recap:
Before the recap, just a reminder you can take 20% off an annual individual subscription to our Monthly Outlook by entering promo code BREXIT7 at checkout. OFFER ONLY GOOD THRU 7/31!
Question 1: “Do you consider the Brexit vote to be a ‘black swan’ event?” 21% Yes; 48% No; 30% Don’t Know
Question 2: “Why are you concerned about Brexit?” 31% have exposure to UK and/or EU suppliers; 61% don’t have said exposure but are concerned about commodity volatility; 56% concerned about currency volatility; 31% worried about other countries leaving the EU
Question 3: “How much of an impact will Brexit have on your industry?” 3% a large impact and we’re concerned; 50% some impact and we’re assessing how much; 16% I have no clue which is why I’m here; 0% no impact
Question 4: “As a result of Brexit, do you think non-ferrous metal (e.g. aluminum, copper, nickel, etc.) prices will:” 20% rise; 14% fall; 66% stay the same
Question 5: “As a result of Brexit, do you think ferrous metal (e.g. steel) prices will: 26% rise; 16% fall; 58% stay the same
Question 6: “As a result of Brexit, do you think precious metal (e.g. gold, silver, platinum, etc.) will:” 41% rise; 7% fall; 52% stay the same
Question 7: “Does your company have operations in Europe or the UK?” 40% yes; 60% no
After a year of ups and downs, lead prices are finally finding their way up.
Lead prices hit a one-year high. Source: MetalMiner analysis of Fastmarkets.com data.
Three-month London Metal Exchange lead hit a one-year high last week as prices tested $1,900 per metric ton level.
Lead Production vs Usage. Source: MetalMiner analysis of ILZSG data.
The latest data reported by the International Lead and Zinc Supply Group (ILZSG) indicate the world refined lead metal supply exceeded demand by 23,000 metric tons during the first four months of 2016. Reductions in Australia, China, India and the U.S. led the fall in global lead mine production of 5% compared with the first four months of 2015.
World refined lead metal output decreased by 1.8%. excluding Chinese usage of refined lead metal rose by 4.2%, mainly because of an 8.8% increase in European demand. Chinese apparent usage, however, fell by 12.1%, and overall global demand decreased by 2.5%. Chinese imports of lead contained in lead concentrates declined by 18.9% compared with the same period in 2015. Read more
What’s copper demand like in China, the world’s largest consumer? If the volume flooding warehouses in Asia is any indication, then copper prices could be weighed down as a result of that apparent demand.
According to a report from the Financial Times, copper currently residing in warehouses licensed by the London Metal Exchange (LME) has climbed by 18% over the past week, the highest level since February.
This tidal wave of copper could weigh on prices, which recently closed in on a two-month high of nearly $5,000 per metric ton due in part to expectations of further economic stimulus from central banks.
“It’s certainly a sign the market is struggling to absorb all of the supply coming to it,” Matthew Wonnacott, analyst at consultancy CRU in Hong Kong, told Financial Times. “Partly because supply is good but demand is not that great either.”
Chinese copper exports
Our own Raul de Frutos wrote recently that Chinese copper exports spiked as much as 256% in May this year when compared to the prior year. This causes some concern about domestic demand with production also rising significantly, up 7% year-over-year in May.
de Frutos added: “Along with the LME copper inventory, bonded copper stocks held in free trade zones in China have climbed this year. Higher inventory levels are, perhaps, limiting the upside potential of copper prices. Although copper rose in June, the outlook remains neutral and, due to all of this uncertainty, we could continue to see choppy price action in the coming months.”
You can find a more in-depth copper 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.
Six little letters have dominated the political and economic news cycle over the past month or so: BREXIT. While the long-term effects of Britain’s vote to exit the European Union won’t be felt for awhile, the surprising result has already roiled global markets, including commodities in general and metals specifically.
Our biggest winner of the Monthly MMI series, the Global Precious Metals MMI, gained the most from June to July, primarily driven by gold prices (themselves driven by near-term investor moves over to safe-haven assets brought on by the Brexit vote).
Some have indirect Brexit connections, such as our Renewables MMI and the consequences of the U.K. announcing it won’t make E.U. 2020 climate reduction goals… which it won’t need to if it completes its exit before 2020 (likely). Others, like our GOES MMI, were not affected at all.
The value of the U.S. dollar, China’s import/export activity, and international trade cases (especially those in the ferrous realm should continue to be watched by industrial metal buyers during these dog days of summer. However, we wish our British colleagues well in these politically uncertain times and offer our recent webinar to help them navigate the newly choppy purchasing waters.
The U.K.’s decision to leave the E.U. hasn’t really scared investors away from industrial metals. The metal complex continues to rally. As we explained in a webinar yesterday, Brexit had little to no impact on the supply and demand dynamics of industrial metals.
On the demand side of the equation, it is — not the U.K or even Europe — that is the world’s biggest consumer of industrial metals. Supply cuts amid low prices and this year’s boost in Chinese demand for industrial metals, thanks to stimulus measures, continue to be the key factors to watch. In this post we’ll look at the recent bullish price moves of individual base metals that appear to confirm that the bull market that we identified earlier this year is for real. In addition, we’ll look at the recent improvement in investors’ sentiments about China, which favors rising metal prices.
Aluminum Hits a One-Year High
Three-month LME aluminum hits a one-year high. Source: Fastmarkets.com
Aluminum overcapacity is still an issue. In June, China and the U.S. failed to reach an agreement on how to address excess global aluminum capacity. But that hasn’t stopped prices from rising. On Tuesday, aluminum prices hit a one-year intraday high. Read more
The GOES M3 spot index reading fell for the fourth month in a row to 181 from 191. Contract buyers may have already begun to see a $200-per-metric-ton increase in prices from a year ago, according to a recent TEX report due to domestic mill closures.
The recent Brexit decision has also created complications for grain-oriented electrical steel markets both from the demand as well as the supply side. First, the supply side: Tata Steel’s precarious Port Talbot, South Wales operation in the U.K. that was destined for sale and then for a bailout remains in limbo. As previously reported by MetalMiner, the British government insists that its equity and pension support remain on the table. The Port Talbot operation produces grain-oriented electrical sheet at the Orb works in Newport, South Wales.
An acquisition now, with Port Talbot lacking free and open access to the European single market, may have dimmed the operation’s prospects. My colleague Stuart Burns speculated that merely the prospect of higher export tariffs for the U.K .producer would make any potential bidder skittish.
Meanwhile, Baosteel and Wuhan Iron & Steel unveiled a potential mega-merger creating the largest steel producer in Mainland China. Baosteel is a leader in GOES production within China for standard grades. This merger would likely not impact GOES production in any meaningful way.
On the demand side, Siemens announced it would hold off from making any investment in wind power in the U.K. until the E.U.-U.K. trading relationship becomes clearer. That move will contribute to the U.K. failing to meet the E.U.’s 2020 15% requirement that energy consumption come from renewable sources.
The crux of Brexit, from an energy perspective, comes down to investments. Will projects move elsewhere? Will businesses such as Siemens stall decision-making, impacting demand until the U.K. devises a clear Brexit strategy?
From a metal price perspective, it doesn’t appear as though Brexit will have much if any impact on GOES pricing. Certainly July’s price performance follows a similar price trajectory.
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Our Stainless MMI rose to 55 points in July thanks to a recovery in nickel prices. Nickel finally climbed to five-digit territory in July, trading near $10,000 per metric ton on the London Metal Exchange, its highest level in eight months.
A factor supporting nickel prices this year is expectations of lower nickel pig-iron ore exports from the Philippines. Ore producers in the Philippines warned earlier this year that they would cut production due to low prices. So far, Chinese imports of Philippine ore fell by 27% in the first five months of the year.
But price momentum picked up last month following recent news that the Philippine government would review all mining operations in the country. The new President-elect, Rodrigo Duterte, ran on an anti-mining platform and could impose an Indonesian-style raw ore ban, which could potentially disrupt supplies for Chinese buyers.
New Philippine Government
In addition, the new mining minister, Regina Lopez — a committed environmentalist — provided the latest trigger for a rally after saying that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed.
The expectation is that mines could potentially have their licenses revoked. At the beginning of July, the Philippines already ordered the suspension of operations at two nickel ore mines for environmental violations and the government halted the issuance of exploration permits as a nationwide crackdown led by the mining minister begins.
Nickel’s Bullish Backers
This bullish price action also follows a broad recovery in the whole metal complex this year, which gives more credibility to nickel’s bulls. Our historical analysis shows that a metal has far greater upside potential when the overall commodities market is in bullish mode, while its chances of going down increase in a falling commodities market. While we continue to see bullish sentiment in commodity markets, investors will continue to react in a bullish manner on news like potential supply cuts in the Philippines.
On the other hand, not everything is bullish about nickel. Most analysts call for a deficit this year due to stainless mills having to rely more on refined nickel. This deficit would follow a five-year period of surplus but estimates are for a deficit of less than 100,000 mt this year. That is not a big number considering that LME and Shanghai Futures Exchange inventories currently account for around 500,000 mt combined, at least five times more than the expected deficit.
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