MetalMiner’s Monthly Buying Outlook report for October is now available. Sharpen your sourcing strategies for buying aluminum, copper, nickel, lead, zinc, tin and multiple forms of steel, complete with our coverage of drivers, market commentary, polished charts and more!
If you’re a manufacturer in North America that’s buying multiple metals, this is the ideal one-stop-shop report for you.
This month, you’ll learn:
Whether the Federal Reserve’s decision not to raise interest rates matters for metal prices
To what degree the China Dragon drives the Global Bear(ish commodity markets)
What the steel plate price tumble means for ferrous markets
Plus a short- and medium-term industrial buying strategy for the rest of the metals that you buy.
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You read right, dear readers – MetalMiner unveiled its forecast of average 2016 prices for aluminum, copper, nickel, lead, zinc, tin and hot-rolled and cold-rolled steel yesterday, and you may be surprised that we’re more bearish than the big banks (the Standards, Macquaries, Goldman Sachses and the like) and their 2016 average price forecasts.
And all of these average price forecasts can be yours…as soon as our Annual Metal Buying Outlookis published and ready for download. (Hint: it could drop as early as the end of this week. We’ll update this post with the link to the report, so bookmark us!)
As far as MetalMiner’s departure from the banks’ forecasts, co-founder and editor-at-large Stuart Burns had this to say recently: “It’s definitely a bullish tone that bank and senior research analysts have taken…in our view, there’s still plenty of excess capacity out there, demand is weak, and the dollar is strengthening,” and those factors, ultimately, may make many of the banks’ forecasts turn from bullish to bearish sooner rather than later.
We’re not the only ones on the block with a bearish outlook – just yesterday, the WTO released updates on its 2015 and 2016 global trade outlook. According to their full release, WTO economists have lowered their forecast for world trade growth in 2015 to 2.8%, from the 3.3% forecast made in April, and reduced their estimate for 2016 to 3.9% from 4.0%.
WTO Trade Forecast Revised Downward
Some main takeaways:
The same exact things we at MetalMiner have been hammering home. Falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations drove the revisions downward. (What’d we tell ya?!) Also, the WTO goes so far as saying, “Risks to the forecast are firmly on the downside, the most prominent being a further slowing of economic activity in developing economies and financial instability stemming from eventual interest rate rises in the United States.”
China, China, China. Globally and regionally, China’s lower economic growth rates and falling demand have really upset the apple cart. According to the WTO, Asian export and import growth for 2015 has been revised down as slower growth in Chinese imports has reduced intra-regional trade. Also, China’s struggling import demand plays a big role in world merchandise trade volume, which is expected to rise only 2.8% in 2015 – lower than the previous estimate of 3.3%.
Trade took H1 2015 hits – just like the overall commodities and metals sectors. As the WTO puts it, “At the time of our last forecast in April 2015, world trade and output appeared to be strengthening based on available data through 2014 Q4. However, results for the first half of 2015 were below expectations as quarterly growth turned negative, averaging ‑0.7% in Q1 and Q2.” Yep, the first half of 2015 was definitely not great for the metals sector, either.
For more on what US and global construction sector indicators can tell us, make sure you check out my colleague Jeff’s rundown today.
Don’t forget, come back for our annual 2016 outlook!
United States Steel Corporation’s CEO Mario Longhi made the media rounds recently, evangelizing U.S. Steel’s – and most of the domestic industry’s – key plank in their policy platform: creating a globally fair playing field when it comes to international trade.
He showed up on Maria Bartiromo’s show, denouncing unfair subsidies in foreign economies and tariffs on certain US imports into countries such as China.
Screenshot from video of Maria Bartiromo’s interview with Mario Longhi. Source: Fox Business.
He also spoke to Politico about the granting of “market economy” status to China next year, which would change how the Commerce Department determines anti-dumping duties on Chinese goods, including steel.
As you may know, China is pushing a bunch of steel beyond its borders. As my colleague Stuart Burns reports, while China’s steel production may have dropped, its exports have risen. In the first 8 months of this year, product exports reached 71.87 million metric tons, up 26.5% compared to the same period of 2014.
In fact, the China Iron and Steel Association’s vice chairman is quoted as saying that this year, the country will export more than 100 mmt of steel – that’s equivalent to more than the entire production of North America. Or nearly as much, purely in exports, as the next largest producer, Japan, produces both for domestic and export combined, according to Burns.
Debate is increasing about whether we have reached peak steel. What that means is have we reached peak Chinese steel production? Because with China producing over half the world’s steel, minor rises elsewhere would be nothing compared to a significant drop in China.
Global steel production fell by 3% in August 2015, according to the Brussels-based World Steel Association (WSA), its biggest fall this year led by a decline in China’s steel production. World steel production went down to 132 million metric tons last month, as China registered a 3.5% drop in steel output to 66.9 mmt. The global decline came in spite of number 2 producer Japan, and both Germany and India, posting double digit gains.
Globally, though, steel production is struggling and, more importantly, so are steel producers. The WSA said the crude steel capacity utilization ratio for the 65 countries it coordinates data from (covering 98% of global steel production) in August 2015 was just 68%. This was 3.6% lower than August last year and a decline on the month before. Read more
We’re glad that got your attention. We’re just not convinced that it will happen. Yet, we received an industry alert to that effect. Allegedly, a new law in China (for which we can find no public reference) goes into effect January 1, 2016 banning “unqualified” petcoke.
So what? you might say. Well, petcoke is a necessary raw material in aluminum production.
Will this pile of petcoke set off a global aluminum shortage? Image courtesy of China Environment
But before we move to the point of hysteria our readers might find it helpful to understand the quick criteria we deploy in determining whether or not we’ll publish something forwarded to us:
Does the news item have the potential to impact one of the metal markets we cover?
What is the likely order of magnitude of said news item?
Do we think this will have any impact on the underlying metals price? And if so, in what direction?
A set of criteria that seems relatively straightforward to us right?
Why This Law Might Not Matter
Even ThomsonReuters’ Andy Home sounded the alarm bells on this issue. However, we here at MetalMiner remain more skeptical.
The email from an associate in China, who has extensive experience in that country’s aluminum industry sent an overview with the headline, “New law in China to hit global aluminum market.” Andy Home undoubtedly received the same information.
The basics of the situation include the following:
China [may have] implemented a new law starting January 1, 2016 that bans the import, sale or burning of “unqualified” petcoke.
Petcoke is an essential raw material used to make aluminum.
There is no clarity as to what will be considered “unqualified” petcoke. “Unqualified” pertains to the sulphur content. If a 3% sulfur (and up) standard is adopted, the thought is that there could be severe ramifications to the aluminum industry. If a 5% sulfur standard is considered “unqualified” then there will be a much smaller impact.
Is China Really Tackling Its Greenhouse Gases?
Without a doubt, petcoke yields more greenhouse gas emissions than its cousin coal. And China, for obvious reasons, wants to clean up its environment. Limits to the sale and usage of petcoke represent as logical an opportunity as any to help reduce harmful pollutants.
Time and again we’ve heard China say that they want to clean up their environment. And yet the country’s actions suggest otherwise.
Possibly, if you listen to Indian politicians and senior business leaders. In a recent FT article Arun Jaitley, India’s finance minister, said in an interview with the BBC: “An economy which can grow at 8 to 9% like India certainly has viable shoulders to provide support to the global economy.”
Officially, Chinese economic growth will be 7% this year, but with industrial growth weak and consumer demand held back by stock market falls, it could quickly head towards 5% or below in the second half. India, meanwhile, is expected to expand at 7.7% according to the country’s official measure. A separate Financial Times article reported that New Delhi comments that India’s economy in the June quarter grew 7%, year-on-year, exactly the same as in China.
Low Oil Prices Advantageous to India
That, the article suggested, means that India is overtaking China in terms of growth and is poised to become the world’s fastest expanding large economy. Certainly it’s true that as the world’s third-largest oil importer India has benefited from the collapse in oil prices, both in terms of improving its balance of payments and reducing inflation.
Nor is India a big exporter of manufactured goods, not normally an advantage except in times of weak global demand when the greater reliance of the economy on internal consumption insulates it from weak external demand. 57% Of Indian’s GDP comes from household consumption.
Comparison of GDP growth, China vs India. Source: FT
However, before we get too drawn in by the hype both articles also point out the headwinds Narendra Modi’s India faces. His government has failed to implement much-needed economic reforms, in spite of hope when he came to power that he would sweep away the creaking political machine that has held India back for so many decades. Read more
A lockout continues for a major specialty steelmaker and China’s copper output is tapering off after the stock market crash there.
USW Says ATI Won’t Return to the Table
The United Steelworkers of America said it’s made another effort to get Allegheny Technologies Inc. back to the bargaining table but the Pittsburgh-based specialty steel company is sticking with its “last, best and final offer,” which was made more than a month ago, before the five-week-old lockout began.
USW Vice President Tom Conway said in a release that the union, which represents 2,200 members at 12 Allegheny Technologies’ (locations, met with company representatives on Friday and made a proposal. ATI did not respond.
Chinese Copper Production Slowing Down
China’s production of refined copper inched up just 0.2% in August, after having tumbled in the previous month as smelters restricted metal output due to weak prices and reduced supplies of raw materials in the domestic market.
Get your short- and medium-term tin buying outlook!
It sounds like the plot of a James Bond movie. Indonesian men and children using the cover of night to man wooden rafts and transport black sand from the island bays of Bangka and Belitung, transporting tin from abandoned mines.
Except it is reality, not fiction, and neither Roger Moore or Pierce Brosnan is there to save the day. It is dangerous and it is illegal, and is further undermining global tin prices.
Bangka and Belitung produce more than 90 percent of the tin in Indonesia, a region that also happens to be the world’s biggest exporter of the metal, according to Bloomberg News. While many of the major licensed and sanctioned mining companies in the area, such as PT Timah, are abandoning once fruitful mines, the illegal operations that have replaced them are doing so without taxation.
This is a huge issue as Indonesia can now no longer effectively tax one of its major export industries, which also happens to be a metal that is suffering from downtrodden global prices. Couple that with falling demand in China and increased supply from Myanmar mines, and we have tin prices dropping by more than a third in the past year and losing more than half its value since its 2011 peak, according to the news source.
Illegal activity undermining new regulations
We reported last month that tin prices had been holding up surprisingly well compared to other base metals, due in part to Indonesia’s new regulations to only allow refined products from legal mines to leave the country. However, it appears the illegal mining, done by whom Bloomberg News refers to as “vampire miners,” are starting to make their presence felt. It will be interesting to see the actions Indonesia takes to curb the activity in the coming months.
You can find a more in-depth tin 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:
BHP Billliton has revised its prediction of “peak steel” in China and an inner-OPEC oil price fight has broken out.
BHP Changes Peak Steel Forecast
BHP Billiton last month revised downwards its forecast of “peak steel” production in China, the world’s largest producer of the stuff. Reuters’ Andy Home writes that It will happen, BHP said, some time in the mid-2020s and the peak will be between 935 and 985 million metric tons, or 960 million in the middle of that range.
Rio Tinto, by contrast, is sticking with its call that the peak will come around 2030 and will be around 1 billion mt.
Kuwait, Iran Undercutting Saudi Oil Price
Kuwait and Iran have cut their crude oil prices to Asia to multi-year lows against top exporter Saudi Arabia as the battle for market share among producers pits members of the Organization of the Petroleum Exporting Countries against each other.
Kuwait, one of the lowest-cost producers, cut its October price to Asia by 60 cents compared with the previous month, undercutting a reduction for a similar Saudi grade. This pulled Kuwaiti oil to its biggest discount to Saudi crude in over a decade, at 65 cents a barrel.