Market Analysis

Here’s What Happened

  • MetalMiner’s Global Precious MMI rose 2.4% to a value of 85, breaking into a new high for 2017.
  • Our sub-index tracking gold, silver, platinum and palladium prices from around the globe last hit this level in October 2016, when it reached a value of 86.
  • That makes two straight Augusts (2016 and 2017) of strong performance for precious metals. After a lackadaisical second half of 2015 and first half of 2016, the Global Precious MMI hit a scorching 89 in August 2016 — the index’s highest peak since February 2015.

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What’s Going On in the Background?

  • Since we tend to keep a closer eye on the platinum group metals (PGMs) due to their automotive applications, the U.S. platinum price tracked by the MetalMiner IndX ticked back up 2.3%, while the U.S. palladium price continued steamrolling, rising 3.4% on the month.
  • These PGM prices increases, in addition to marginal upticks for gold and silver in the U.S., are the main drivers of the index’s gain.
  • As we reported in June, platinum companies continue to battle for profitability — one such firm being South Africa’s Lonmin. After the company reopened shafts and expanded its biggest operation a couple months ago, it’s now planning to sell excess processing capacity “of up to 500,000 platinum ounces per year, to maximize cash from processing operations and preserve cash,” according to Reuters. The tough economic environment in South Africa, as well as inflationary pressures on platinum mining in general, are to blame.

What Metal Buyers Should Look Out For

  • Certainly keep an eye on the global automotive sector, which has been motoring along lately in China especially, as the longer-term driver (HA!) here.
  • Certain rosy outlooks from firms such as Research and Markets indicate a bullishness that refuses to let up on the gas (it’s August, y’all, we’re getting those all out of our system before the fall revs up — see?!). According to my colleague Fouad Egbaria’s coverage, “advances in automobile technology and pharmaceutical applications will see a rise in demand for this subset of metals, according to the research report.”
  • The dog days of summer have shown life with a last gasp, perhaps setting the stage for a continued rise into autumn, especially if political turmoil gets any worse and any looming stock market corrections set the tone.

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Key Price Movers and Shakers

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The Renewables MMI jumped 6.9% to 77 for our August reading, as prices jumped for nearly every metal in the renewables basket sub-index.

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Of eight metals listed in this sub-index, seven posted price jumps last month. Steel plate from Japan, Korea, China and the U.S. jumped up, as did Chinese neodymium, silicon and cobalt.

The lone metal to fall this past month was U.S. grain-oriented electrical steel (GOES) coil, which fell  2.8%.

It was a much stronger July for this basket of metals than June was, when only four of the seven metals moved up in price (Chinese steel plate, neodymium, cobalt cathodes and silicon).

Cobalt Prices Have Asian Battery Makers Looking Elsewhere

As mentioned earlier this week, Reuters reported rising cobalt prices have forced battery makers in Asia to consider alternatives — namely, nickel.

According to the report, makers of lithium-ion batteries are looking to add more nickel to their battery formulas instead of the increasingly costly cobalt.

As the report notes, electric vehicle demand is set to grow significantly in the coming years. As such, automakers will be looking to cut their production costs. According to Reuters, the price of cobalt has doubled over the last year, a product of high demand and supply shortage.

Political Instability, Violence in Congo

Speaking of supply, most of the world’s cobalt is mined in the Democratic Republic of Congo, according to the United States Geological Survey (USGS). According to USGS data, an estimated 66,000 metric tons of cobalt were mined in Congo in 2016 — or 54% of the 123,000 metric tons mined worldwide. China came in second last year of cobalt mined (7,700 metric tons), followed by Canada (7,300 metric tons).

However, the unstable political situation in Congo could continue to affect supply, making the metal even pricier. Political unrest recently led to a wave of bloodshed in the country, sparking fear of a return to the civil wars of the 1990s, The Guardian reported.

This is all without even getting to the ethical concerns present in the Congolese cobalt mining world. As noted by numerous media reports, significant chunks of mining revenue tend to go missing via corruption linked to President Joseph Kabila. All in all, the rising demand in cobalt has not benefited the Congolese people. A 2015 IMF report showed the country was experiencing significant economic growth, but poverty reduction lagged behind.

On top of all this, the conditions for Congolese cobalt miners add another ethical concern to the mix, one which big multinational brands will have to answer to with respect to their supply chains. For example, a Sky News report revealed workers as young as 4 working in the Congolese cobalt mines in deplorable conditions.

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While the status of cobalt on the marketplace is obviously not the most important takeaway from the grim situation in the DRC, cobalt production has fallen this year amid the unrest, The Guardian reported, leading to a 90% rise in the price of the metal and a peak of $61,000/ton in July.

Actual Metal Prices and Trends

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Copper prices are on the ascent, thanks in part to the latest Chinese trade data and genuine excitement among investors over worldwide growth and capacity cuts.

According to a recent report from The Wall Street Journal, China’s debt crackdown earlier this year led to an adverse effect on metal prices and general worry from investors.

That worry has turned to elation, with copper prices up 7% due to capacity cuts in China. Meanwhile, iron ore prices are up more than 20% since the end of June.

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The most recent Chinese trade data, representing July, painted a different picture with year-over-year growth of Chinese imports of copper concentrate slowing from June’s growth.

Nathaniel Taplin wrote for the Wall Street Journal: “Overall import and export growth also slowed, hinting that the lift to China from rebounding global trade may be close to its peak.”

The takeaway for copper investors impressed with Q2 Chinese growth? Not to get too excited until the whole story is revealed as China’s demand for metals, specifically copper, is weaker than expected.

Copper Prices Still Experiencing a Stellar 2017

Our own Irene Martinez Canorea wrote earlier this week that copper is outperforming all other base metals this month with copper traded on the London Metal Exchange up 7.8% in July.

She wrote: “The sharp increase in copper prices came after an announcement of a possible ban of copper scrap in China by the end of the year. The increase in copper prices was accompanied by heavy volume, which may signal a stronger uptrend.”

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

Global trade developments with a dose of healthy demand appear to be setting the stage for grain-oriented electrical steel (GOES) price movements for H2.

Although the big story in the U.S. involves Section 232 developments, GOES prices globally are increasing because of several measures in both China and Europe.

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According to a recent TEX Report, Japanese mills received a $100/metric ton increase for GOES shipments to India and Southeast Asia. And, because of an anti-dumping order in China, Baoshan has raised its prices six times this year.

Curiously, the European Union implemented a system by which a “price floor” has been established for GOES. This price, according to TEX Report, is higher than the international GOES price. Europe can expect to see higher-priced imports as a result.

Meanwhile, the U.S. Department of Commerce has not released any recommendations on the Section 232 investigation. Although GOES producer AK Steel — along with other steel producers —  has lobbied hard for some sort of import curb, the fact that no recommendations have been made suggests the DOC acknowledges that the Section 232 investigation contains a number of complexities across a broad range of stakeholders that have all weighed in on the findings.

The Section 232 investigation, to some extent, has slowed down annual negotiating cycles for manufacturing organizations, as several recently told MetalMiner at our 2018 Budgeting and Forecasting workshop.

Producers had likely hoped for the release of the findings to take their price cues. MetalMiner believes that without the release of the report, producers will start considering 2018 contracts in September, similar to normal annual contract cycles.

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Exact GOES Coil Price This Month

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China’s continued regulation of its bloated aluminum industry is having a far-reaching impact on the growing share price of its major producers, thus adding to a tighter global market and rising prices.

According to a recent report from Reuters, China represents nearly 60% of worldwide aluminum output with analysts estimating up to 4 million tons of capacity closing this year, accounting for one-tenth of the Far East nation’s total, putting added pressure on the global aluminum market.

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Aluminum Corp of China (Chalco) shares, a state-run entity, increased 47% since the start of last month.

“Chalco is the market leader, so if (competitors) are closing down their capacity, they are able to expand their production,” analyst Helen Lau, of Argonaut Securities in Hong Kong, told Reuters.

Aluminum Prices on the Run

While aluminum prices are on the rise, they may have further to go, analysts tell Reuters. Shanghai aluminum is up around 11% so far this year while benchmark aluminum on the London Metal Exchange is up 14%.

“The trend is definitely towards a much tighter market balance – there is an upshot to prices here definitely,” London-based WoodMackenzie analyst Ami Shivka, told Reuters. “The China market is in a surplus so any closures in China will whittle away the little bit of surplus that we have in China, and put the global market in a deficit.”

How will aluminum and base metals fare in 2017? You can find a more in-depth aluminum price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

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For three months, MetalMiner has claimed a sideways trend for aluminum. This sideways trend could both signal a market top or a price consolidation, and a continuation pattern of the bullish market that started last year.

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The price increase in aluminum has coincided  with heavy trading volume, signaling a breakout of a price consolidation. Thus, we could see a bullish uptrend for aluminum, which means increasing aluminum prices.

Source: MetalMiner analysis of FastMarkets

As previously explained by MetalMiner, buying in a bullish market means buying organizations will want to identify opportunities to buy forward (hedge).

This new price increase, together with other strength in LME base metals (such as copper), may be the start of a new uptrend for aluminum.

The U.S. dollar has also continued to show weaknesses this year, providing a lift to base-metal prices. The CRB index is still in a long-term downtrend, but has shown a slight recovery in the short-term trend. The DBB index is currently in an uptrend, both for the long- and short-term.

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Buying organizations may want to buy forward given aluminum price dynamics, together with trading volume.

For more insight into forward buys and hedging, subscribe to our Monthly Metal Buying Outlooks.

The Raw Steel MMI jumped up four points this month to 75, increasing by 5.6% and returning  to 2015 levels, along with copper.

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Increasing Chinese steel prices have driven domestic steel prices this month. Both Chinese hot-rolled coil (HRC) and cold-rolled coil (CRC) prices have experienced an uptrend since the end of 2015. Chinese HRC prices increased 10.7% this month.

Source: MetalMiner data from MetalMiner index

Even though the degree of movement in U.S. steel prices as great as those seen in China, U.S. prices have continued to increase. While Chinese steel prices continue to increase, domestic prices may continue the same uptrend.

The Spread

Considering both U.S. domestic and Chinese HRC prices, the spread has continued to decrease this month. We would expect a drop in imports if the spread continues to decline. This would lend support to U.S. domestic HRC prices.

Source: MetalMiner data from MetalMiner index

Domestic Scrap

Meanwhile, U.S. shredded scrap prices declined 2.4% this month.

Falling  scrap prices could push domestic buyers toward scrap instead of other raw materials, and domestic steel prices could face downward price pressure.

However, the long-term trend in scrap signals rising, not falling, prices.

Source: MetalMiner data from MetalMiner index

Raw Materials

Both iron ore and coking coal prices have rallied during July.

Increasing raw material prices may create upward pressure in steel prices as production costs increase.

What This Means for Industrial Buyers

Steel momentum appears to have shifted upwards.

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

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Actual Raw Steel Prices and Trends

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The Rare Earths MMI continued its steady climb back up toward 2015 levels, hitting 23 for our August reading. 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.

Most of the heavy hitters in the sub-index posted price increases, namely Chinese neodymium oxide, which rose a whopping 21% in July.

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Rare-earth metals continued the uptrend which began in the spring. As our Irene Martinez Canorea wrote last month, China produces 85% of rare earth metals, meaning Chinese production overwhelmingly dictates the direction of this sub-index.

However, rare-earth metals can be found elsewhere, including Australia. A rare-earths mine containing dysprosium was opened in western Australia late last month, the ABC reported.

Western Australian Premier Mark McGowan told the ABC the mine was the first of its kind outside of China. Mining has already begun at the site, according to the report, and approximately 60,000 tons of ore per year are expected to be extracted during the pilot stage of the project.

South Africa is another player in the rare-earths market. Canorea wrote last month: “South Africa could play a strategic role in rare-earth metals supply.  The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths.”

But, back to China. The price of these rare-earths metals, which are used in a wide range of technologies, are expected to rise.

According to the Nikkei Asian Review, China is looking to curtail supply by focusing on enforcing environmental rules and targeting illegal mining operations.  

Also per the Nikkei Asian Review, the price of neodymium hit $65 per ton, marking the first time it had eclipsed the $60 price point in two years.

Electric vehicles are among the applications for rare-earth metals. As technology improves and more affordable electric models hit the market, the demand for these metals can only be expected to rise.

Meanwhile, in the U.S., the CEO of the only remaining rare-earths mine in the country urged the White House to nationalize the mining operations, located in Mountain Pass, California. Whether that can or will happen remains to be seen, but any effort to revive the operation faces significant challenges from China’s overwhelming dominance of the market.

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Actual Metal Prices

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The Copper MMI jumped five points to 78 for our August reading, a high not seen in more than two years (the sub-index hit 79 in January 2015).

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Copper has outperformed all the other base metals this month. LME copper prices increased by 7.8% in July.

The sharp increase in copper prices came after an announcement of a possible ban of copper scrap in China by the end of the year. The increase in copper prices was accompanied by heavy volume, which may signal a stronger uptrend.

However, volumes declined during the final days of July and the beginning of August.

Source: MetalMiner analysis of FastMarkets

The U.S. dollar has shown weakness since the start of 2017. The fall of the dollar during July coincided with an increase in copper prices. A weaker dollar commonly drives non-U.S. investment into commodities that are dollar-dominated (as copper is).

The U.S. dollar remains in a strong downtrend, touching lows not seen since May 2016.

Source: MetalMiner analysis of Trading Economics

What This Means for Industrial Buyers

Even though copper prices have increased sharply this month, a price retracement could occur  some time in August or September.

Copper price dynamics, together with volumes, will provide the signals to read the short- and long-term trend correctly.

Our Monthly Metal Buying Outlook informs buyers of the precise support/resistance levels (signals) to help decide when to shift buying strategy.

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Actual Copper Prices and Trends

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This morning in metals news, some think copper’s hot 2017 could run out of steam, copper stabilized after hitting a two-year peak recently and Asian battery makers are looking to use more nickel instead of cobalt.

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Copper Outlook for Second Half of 2017

It’s not unreasonable to wonder whether or not copper can continue its robust run throughout the remainder of the calendar year.

The metal recently hit its two-year peak. Some, however, think the metal is due to fall off its current pace.

According to a report in Barron’s, there are numerous red flags indicating copper could reverse course — with a particular focus on China.

“Analysts believe regulatory tightening will soon weigh on growth, cooling demand for copper and other industrial metals in the months ahead,” writes Ira Iosebasvili. 

If the Chinese economy hits a period of slower growth — as many in recent months have warned will happen — then the copper market will certainly be affected.

For Now, Copper Holds Steady

Although many analysts are predicting a course correction for the metal throughout the rest of the year, copper is holding steady.

A rally in Chinese steel and iron ore prices painted a positive positive in China, the world’s largest metals consumer, Reuters reported.

Trading in Cobalt for Nickel?

For makers of batteries in Asia, cobalt is getting a little pricey — so much so that some battery makers are turning to even more nickel.

A rise in cobalt prices has inspired battery makers in Asia to adjust their battery ingredient formula, according to a report from Reuters.

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Cobalt prices have shot up over the last year on high demand and supply disruptions, Reuters reports. In fact, Reuters reports the price of cobalt rose to six times that of nickel in July.