China

After hitting an all-time low in December 2015 – dipping down into the 60s – the Global Precious Metals MMI rebounded a bit and is now hovering at 70 for the second consecutive month.

Free Sample Report: Our February Metal Buying Outlook

Of the three heaviest-weighted metal price points within this precious sub-index, gold bullion in both the U.S. in China, and silver ingot/bars in the U.S. all increased over the the last month, the primary drivers buoying the February MMI reading.

Global-Precious-Metals_Chart_February-2016_FNL

Gold Price Outlook

The longer-term outlook, though, may not be all that rosy for gold prices. “Despite talks of China and Russia buying gold, I still see main factors such as a strong [U.S.] dollar and a bear commodity market keeping a lid on gold prices,” Raul de Frutos, metals procurement specialist for MetalMiner, told me. “The price rally seen in January is way too small to consider that something is changing in the long-term picture.”

“I still have a neutral/bearish view on gold,” he concluded.

The Bigger Price Story: Palladium Downtrend

However, in a more interesting trend on the industrial metals side of the precious sector, two of the PGM price points we track on the MetalMiner IndX – for U.S. platinum and palladium bars – dropped 1.7% and 8.1% (!), respectively.

The U.S. palladium price has ticked up for a few days in a row since we took our MMI reading on Feb. 1, but it’s lost a whopping 26.3% in value since the beginning of November 2015.

So what’s going on in the palladium market?

The recent stock market selloff in China, which caused global tumult, is the real culprit hurting both palladium and platinum. A strong dollar is not helping matters, either.

Compare Prices With The January 2016 MMI Report

Strong car sales globally – in Europe, China and the U.S., with the latter two hitting all-time highs – did not correspond with stronger performances for platinum and palladium prices.

Despite analysts calling again for deficits in palladium and platinum markets this year, Raul has written that “it’s hard to imagine these two metals rising while China keeps driving everything down.”

Exact Precious Prices, Trends

For exact prices, log in or sign up below!

For full access to this MetalMiner membership content:
Log In |

Honestly, what is the answer to the problem of China’s steel exports destroying domestic producers around the world?

Free Download: The January 2016 MMI Report

It is no exaggeration to say the United Kingdown faces the end of its domestic steel industry. Last week, Tata Steel announced the elimination of 1,050 redundancies mainly at its giant Port Talbot plant in South Wales, adding to the more than 2,000 positions the company cut last year.

Can the UK steel industry survive? Source: Adobe Stock/Inzyx.

Can the UK steel industry survive? Source: Adobe Stock/Inzyx.

In October, SSI shut its steel plant in Redcar Teeside with 2,200 staff being made redundant, shortly after the announcement that 400 jobs were lost with the implosion of Caparo in the Midlands, the London Telegraph reported earlier.

What’s at Stake

Port Talbot is Britain’s last integrated steel works, at two-and-a-half miles long and 100 years-old it is also one of Europe’s most productive, churning out 3.5 million metric tons a year of top-quality flat-rolled steel. It has, in recent years, broken every target the company has set for efficiency, production and tonnage, yet when faced with Chinese imports priced at $34 per mt below the cost of production, according to trade body UK Steel, it is at risk of closure. Tata is losing $1 million a week and the Indian owners have been forced to write down the value of their UK steel investments by over $1.2 billion last year. Read more

An appeals court will allow the EPA Clean Power Plan to stay in effect while it is argued in court and China’s plans to tame its largely state-run metals producers are starting to become more clear.

Clean Power Plan Will Stay in Effect

The Washington D.C. Circuit on Thursday refused to put the Environmental Protection Agency Clean Power Plan on hold until legal challenges to the rule are completed, but they did fast-track a trial on the legality of the new rule.

Free Download: New! The January 2016 MMI Report

The Obama administration considers this an early victory as it looks to defend and implement the sweeping regulations that would slash carbon emissions from existing power plants.

29 States and several industry groups petitioned to overturn the CPP or, at the very least, block it from being implemented while the legal battle plays out. They’ve argued that they’ll be irreparably harmed by starting the compliance process, even though they’re likely to succeed in convincing the court that the rule is illegal.

However, the D.C. Circuit panel shot the request down in a two-page order, though it said the appeals court would expedite the consideration of the case and schedule oral arguments for June 2.

China’s Metals Transition Plan

China’s plans to set up funds to manage coal and steel capacity closures and stockpiling schemes for metals such as aluminum have offered nervous markets some clarity on the likely future make-up of the country’s sprawling and predominantly state-run metals and mining industries. But it’s still way too early to tell if these initiatives even can be successful in taming overproduction.

As the world’s largest producer of aluminum, steel and other metals, and the biggest consumer of copper and iron ore, China is crucial to global metals markets which have slumped in the past year as Chinese industrial demand growth slowed.

Free Sample Report: Our January Metal Buying Outlook

After weeks of talks between government officials and leading metals producers, Beijing looks set to take a direct approach to managing capacity cuts and layoffs in coal and steel. It will provide smaller-scale financing deals to groups of producers of non-ferrous metals, such as aluminum, for stockpiling and capacity cutback initiatives.

Morningstar recently published its Basic Materials Outlook. Like most analysts, Daniel Rohr, director of basic materials research is bullish on the overall commodities sector and cautions investors that the transitioning Chinese economy will continue to depress both prices and consumer spending.

Free Download: New! The January 2016 MMI Report

“You are already seeing a knock on effect from the slowing fixed-asset investment environment and deflation of asset prices on households’ willingness to spend,” Rohr said. “That would more broadly fit the pattern that you observe when you look back through history at prior episodes of profound economic rebalancings. Japan, Taiwan, South Korea all had spectacular investment-led growth. Once that growth came to an end, a rebalancing wasn’t accomplished by an acceleration in consumption and a deceleration in investment. In each and every case, consumption decelerated sharply as well.”

Divestment as a Strategy

Morningstar expects Chinese household consumption growth to decelerate from the trailing 10-year average. Rohr said companies are responding to tectonic shifts in the macroeconomic environment by reorganizing their portfolios.

ATI can still pay off for investors, according to Morningstar, once it settles its lockout and uses its new stainless production facility. Source: Adobe Stock/Jovanning.

ATI can still pay off for investors, according to Morningstar, once it settles its lockout and uses its new stainless production facility. Source: Adobe Stock/Jovanning.

Miners coping with poor Chinese demand and weak commodity prices are looking to sell assets and shrink. Agricultural chemical companies have taken a different approach. Faltering crop prices have prompted many to seek mergers in a bid to cut overhead and grab synergies.

Read more

This has got to be the dumbest idea to come out of China in a while.

Is stockpiling more aluminum the answer, China? Really?

Is stockpiling more aluminum the answer, China? Really?

Not that I am suggesting China has a monopoly on stupid ideas, we have more than our fair share of them at home, but reports last week that six major Chinese companies are considering forming a joint venture company that will purchase primary aluminum and hold it in stock — for what ultimate end use or for how long isn’t clear — but the suggestion is it would support the market price. That stupidity will take a lot to beat.

Free Download: New! The January 2016 MMI Report

Indeed, one analyst at China Merchants Futures went so far as to laughably suggest that “if they stockpile 500,000 metric tons in the first half of this year, the Chinese market may have a supply deficit,” according to Reuters.

Let’s Stockpile Aluminum!

The six companies involved comprise four state-owned firms and two private enterprises including Aluminium Corp of China (Chinalco), State Power Investment Corporation, Yunnan Aluminium, Jiugang Group, Jinjiang Group and Weiqiao Aluminium & Electricity, the state research company Antaike is reported. An early report suggested they were seeking finance to support the program but a China Daily report suggested that each company will simply put a certain amount of their products together to realize a centralized reserve, with the intention that they will not then be forced to sell it onto the market and further depress prices. Presumably, at least.

The idea that taking 500,000 mt of aluminum inventory out of the Chinese market and, overnight, put it into deficit presupposes all of the capacity closures talked about and promised actually happen. Which, based on past performance, is highly unlikely. Companies such as Chinalco, for whom many mills are underwater, will have to drastically restructure, close production or persuade the State Reserves Board to buy metal off them at inflated prices because, by most reports, they can only continue to lose money at current prices.

The new mills springing up in the low-cost power regions of the northwest can make money even at current prices. have recently commissioned new plants and probably see no reason why they should now shut down.

New state-of-the-art capacity will continue to churn out metal and will do so profitably. At least marginally profitably, which is all the incentive that is required when you have start-up loans and investors to pay back.

What Could Possibly Go Wrong?

Even the domestic market didn’t seem overly impressed by the idea. Prices ticked up briefly but then fell back on the Shanghai Futures Exchange this week, and it hasn’t moved the needle for the LME, either. Possibly because the market is aware that part of the doom and gloom that has pervaded the aluminum market since the financial crisis is due to the ominous stockpile that has overhung the market — both visibly in terms of the LME but, more importantly, in the undefined volume sitting with the stock and finance trade in off-exchange warehouses. This is believed to be in the region of 5-10 million metric tons.

What, the market has repeatedly asked itself, will happen to prices when that metal flows back into circulation? As a result, spot prices as represented by LME plus physical delivery premiums have reacted in response to supply and demand by a responsive physical delivery premium, but the underlying exchange price has failed to respond.

Free Sample Report: Our January Metal Buying Outlook

Warehouse queues were only ever part of the problem. Some would suggest a symptom rather than a cause, since the stock and finance trade also played their part. Building up further inventory in China will only add to the sense that even if producers eventually cut back, there will continue to be millions of metric tons of metal around.

As our editor said last week, the road to hell is paved with good intentions, an apt phrase for the events unfolding in China this week.

Regulators were obliged last year to relax tight controls over the currency in order to qualify for Reserve Currency status from the International Monetary Fund for the yuan/renminbi but had probably not foreseen the consequences. Indeed, many are still not seeing the collapse of share prices on the Shanghai Stock Exchange this week as a currency-related issue.

If You’re an Investor, It’s Your Money Getting Purposely Devalued

Anyone holding shares or a pension will be painfully aware that some $2.5 trillion has been wiped off the value of global equities this week, in just four days, events starting in China have rippled around the world causing one of the worst starts to the year for stock markets since the 1980’s.

On the Shanghai market, trading was stopped on Monday as “circuit breakers” closed the market after shares plunged 5% and, again, Thursday trading was canceled for the day after just 29 minutes when the CSI300 fell more than 7%.

Under the “circuit breaker” system, created after the plunge in shares last August, if an index rose or fell 5%, trading was halted for 15 minutes. If it dropped by 7%, trading stopped for the rest of the day.

So what prompted the sell-off? Many have been saying the Shanghai market is a bubble waiting to burst for quite some time, but is it a sudden epiphany among investors that prices are overvalued? No. Actually, it has little to do with share prices and a lot more to do with currency and ill-judged rules imposed by Beijing to try to control the market, Beijing’s actions often have unforeseen consequences in such situations.

What is the Real Value of a Controlled Currency?

First, the currency: as we mentioned above Beijing allowed the yuan to respond more readily to market forces. We won’t say float, but the trading bands were widened and the currency has fallen for much of 2015 against the rising dollar. This got investors worried, even if the Shanghai market was not shaky, a falling currency makes shares less valuable over time.

Further, holders of yuan,companies and investors made up of China’s rising middle and wealthier classes, see the cost of foreign investments such as houses, land, companies, rising almost daily in yuan terms.

Valuation of the yuan moved to a basket of currencies last year rather than a loose peg against the dollar with the promise by Beijing that it would remain more stable against the China Foreign Exchange Trade System basket. That was December, since then the currency has slid for three straight weeks and the central bank has burned through $140 billion trying to defend it.

Falling Production Data Adds to the Misery

Combine that with a fall in China’s Purchasing Managers’ Index composite for both manufacturing and services to below 50 and frightened investors took flight, dumping shares in a repeat of what we saw last August after Beijing’s snap devaluation of the yuan as this graph from the New York Times illustrates.

Yuan_USD_ Stockmarket

Source: The New York Times

In an attempt to calm the panic selling, Beijing has actually made matters worse. The end of a share sale ban, that was imposed last year wherein investors were prohibited from selling for a lock-in period, was extended. Believing they were going to continue to be locked in to shares that were falling in value and, naturally, becoming spooked by company insiders selling shares, investors rushed for the exits. Beijing then had to move fast to extend the ban into 2016, which has helped calm markets temporarily but done nothing the address the underlying causes.

Read more

Our Rare Earths MMI fell 6% to 17 this month, yet another all-time low.

Free Sample Report: Our January Metal Buying Outlook

Rare earths prices have been in free fall ever since China removed export quotas on the minor metals that are key components for defense, high-tech gadgets and data storage products.

Rare-Earths_Chart_January-2016_FNL

US rare earths producer Molycorp, Inc. is spiraling closer to a bankruptcy sale as this story went to press. Embroiled in a bankruptcy court fight between its main lender and junior creditors, Molycorp reached agreements with the latter group on Friday. That clears the way for the bankrupt company to accept bids for the company and to ask creditors to vote on a plan to exit the bankruptcy.

Molycorp, the only US producer and processor of rare earths, has been battling its bondholders who have alleged it is doing the bidding of its main lender, Oaktree Capital Management.

Unsecured Creditors

Lawyers for Greenwood Village, Colorado-based Molycorp told a US Bankruptcy judge it would allow advisers for the official committee of unsecured creditors and a group of bondholders to join calls and meetings about potential bids.

On Tuesday, Bloomberg reported that potential buyers from China and Australia submitted nonbinding bids of more than $700 million for Molycorp’s assets, including processing operations in Mountain Pass, Calif. The company has estimated the operations were worth less than $450 million.

Bids for the company’s bonds have jumped this week from less than 5 cents on the dollar to more than 12 cents as the prospects for repayment have improved for bondholders. The asset auction is scheduled for March 4. If bids fall short of a certain threshold, Molycorp has proposed exiting bankruptcy through a reorganization plan, excluding the Mountain Pass mine, under the control of Oaktree.

Molycorp and Oaktree still face more legal battles with the junior creditors, who convinced the bankruptcy judge on Friday to strike a provision in the reorganization plan that would deny payments to objecting creditors.

What Went Wrong With Molycorp

Molycorp’s long fall is not news anyone who has followed rare earths for the last few years. David Abraham, author of the rare earths book “Elements of Power” recently told MetalMiner that “they faced real challenges: the amount debt they had to cover, the competition they were up against, and the processing facility they developed, which wasn’t efficient and took longer to set up than expected, indicated that profitability would be an obstacle.”

Compare Price Trends With the December MMI Report

With its main competitors, rare earths producers in China, having export duties removed the market was flooded, prices fell and it became that much harder for Molycorp to compete. The situation is the same for Lynas Corp. and anyone else competing with China’s state subsidized rare earth producers. Lynas, however, has the benefit of better backers from Japan, a nation eager to insulate itself from another Chinese rare earths shipment boycott like the one that happened in 2010.

Rare earths prices are as compromised by the bearish commodities environment as any metals. Buyers need not fear a significant. rise in prices anytime soon.

To get all of our rare earths price points, sign up to membership and receive daily prices from the MetalMiner IndX!

For full access to this MetalMiner membership content:
Log In |

Today in MetalCrawler, shipments of steel from US producers were down in November while China’s state stockpiler is looking to buy more copper.

AISI Says Still Shipments Down in November

The American Iron and Steel Institute (AISI) reported today that for the month of November 2015, US steel mills shipped 6,457,870 net tons (nt), a 12.4% decrease from the 7,369,472 nt shipped in October 2015, and a 15.5% decrease from the 7,638,086 nt shipped in November 2014.

Free Sample Report: Our January Metal Buying Outlook

Shipments on the year-to-date in 2015 are 79,990,315 nt, an 11.4% decrease vs. 2014 shipments of 90,270,336 nt for the first 11 months of 2015.

China to Stockpile More Copper?

China’s state stockpiling agency is expected to start buying up domestic copper supply this month after local smelters urged it to intervene in order to support prices, industry sources said. The State Reserves Bureau has already invited at least one large copper smelter to sell refined copper cathode in a tender, said a source at the smelter, who declined to be named by Reuters due to the sensitivity of the matter.

Free Download: The December MMI Report

The SRB plans to buy as much as 150,000 metric tons of copper, the source said.

Home sales unexpectedly fell last month and China has required its industries to report greenhouse gas emissions.

Home Sales Fall

The National Association of Realtors‘ index of pending home sales fell 0.9% in November after rising 0.4% in October.

Free Sample Report: Our Annual Metal Buying Outlook

The median projection of economists surveyed by Bloomberg anticipated a 0.7% increase for November.

China Requires Carbon Emission Reporting

China issued national standards for industrial firms to report their greenhouse gas emissions as part of the country’s plan to launch a national carbon market in 2017.

Free Download: The December MMI Report

The new standards, issued by the National Development and Reform Commission (NDRC) on Wednesday, will enable the China to create a statistical system for greenhouse gas emissions and support the establishment of a national carbon trading scheme.

2015 Turned out to be the worst year for metal producers in the past few decades. Not only because of the size of the price decline, which was big, but because prices have fallen from what many considered low levels back in 2014.

Free Sample Report: Our Annual Metal Buying Outlook

With prices at these low levels, and with so many producers underwater, next year is going to be a very interesting one. I think we can call 2015 a painful year for metal producers and my guess is that we will end up calling 2016 a bloody one, but before we enter the new year, let’s review what were the most important highlights of the 2015:

China Got Into Real Trouble

China was the great rescuer of the world economy in 2008 with the launch of an unprecedented stimulus package that triggered the biggest infrastructure investment boom in history, which led to higher commodity prices.

NYSE Composite Index acting like in 2007's top

The New York Stock Exchange’s Composite Index acting like in 2007’s top. Source: MetalMiner analysis of @StockCharts.com data.

The Chinese economy started to get in trouble in 2011. I just saw an excellent video that already, in 2011, explained what China was getting itself into. It wasn’t until 2015 when China’s economy really hit a brick wall, or at least when the market actually acknowledged it. In 2015 we saw China’s stock market crash (yet to hit the floor), Chinese exports hit record levels, and desperate government actions to spur growth such as the devaluation of its currency. China was without a doubt, the most important factor driving metal prices down this year.

The Rising Dollar

Metal prices fall on a rising dollar. Metals are priced in US dollars and they become more expensive to foreign buyers when the dollar appreciates. In 2015 we saw the US dollar index hit an 11-year high, that had a huge depressing effect on metal prices. After hitting that new high, the dollar has managed to hold its value and, just recently, made another bullish move, triggering more sell-offs in metals.

Read more