Aluminum

U.S. construction spending increased in March to its highest level in more than eight years and our Construction MMI shot up 10% along with it. Gains in home building and nonresidential construction offset a drop in government projects.

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Construction spending rose 0.3% in March after a 1% gain in February, the Commerce Department said Monday. The back-to-back increases raised total spending to a seasonally adjusted annual rate of $1.14 trillion, the highest level since October 2007.

Construction_Chart_May_2016_FNL

Residential construction grew at a 14.8% annual pace in the first three months of the year. It was one of the few sources of strength in a quarter in which the economy grew at an annual rate of just 0.5% — the slowest pace in two years.

Aluminum, steel scrap and copper all saw gains on the index, moves that are in line with the broad metals mix used in nonresidential and residential construction here in the U.S. In China, numbers are similarly positive.

Chinese housing data for March showed another increase in home sales, putting a dent in China’s housing oversupply and helping the construction reset there. As lower rates and yields work with a lag, sales growth could stay strong in China this year. A reduction in the requirement for a down payment by the central government is also underpinning increasing sales.

While China’s manufacturing purchasing managers index from Caixin Media and Markit Economics fell to 49.4, missing economists’ estimates for 49.8 and down from 49.7 in March, the construction numbers in the People’s Republic remain strong and could, theoretically, pick up the slack this year if manufacturing there remains depressed.

A total of 83.19 million metric tons of iron ore was discharged at Chinese ports during April, according to ship-tracking data compiled by Thomson Reuters Commodity Research and Forecasts.

This was up from the 81.76 mmt offloaded in March, suggesting that China’s iron ore import volumes will show an increase when preliminary customs data is released in the next few days.

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China is back to producing steel at a high rate. Even zombie mills have come back from the dead. While this might not be good for the oversupply situation, it is a good thing for construction estimators and procurement professionals looking for as many options as possible to fulfill orders and reduce prices via competition.

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MonthlyMetalBuyingOutlook_May2016_210This month, What appeared to be a rally led by anti-dumping actions involving several different steel products turned into something bigger as China implemented stimulus measures, boosting demand growth not only for steel, but also for the rest of the base metal complex.

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Markets are unpredictable. Picking a bottom is a difficult task as things can change quickly. However, for the first time since 2011, we are seeing enough positive signals to believe industrial metals might have bottomed out.

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A broad recovery might be underway and metal buyers should have a plan. “Commodity price risk” might become a highly popular Google search again.

Why is the picture turning bullish? First of all, the two main drivers of metal prices are finally giving some bullish signals for the overall metal complex.

CRB commodity index hits 5-month high

CRB commodity index hits 5-month high. Source: MetalMiner analysis of @StockCharts.com data.

The dollar has weakened since January, and it’s certainly showing no signs of strength. Second, and perhaps more importantly, the sugar rush of China’s not-so-mini fiscal stimulus, initiated late last year, has really picked up momentum in the first quarter. Read more

Anti-dumping stories are our bread and butter here at MetalMiner. Nary a week goes by when we don’t cover either anti-dumping or countervailing duties cases brought by domestic metals producers against cheap imports that are getting a helping hand from foreign governments or purposely devalued foreign currencies.

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Yet, this week, a major union representing aluminum workers and a major steelmaker took things a bit further. The aluminum industry was first up, when the United Steelworkers union recently filed a petition with the U.S. International Trade Commission for the U.S. to invoke a global safeguard under Section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum.

Imports of Chinese semi-finished aluminum

Imports of Chinese semi-finished aluminum products. Source: The Aluminum Association.

Section 201 is nothing to mess around with. Section 201 requires that the injury or threatened injury to a domestic industry be “serious” and that the increased imports must be a “substantial cause” of that serious injury. Serious business, people. Read more

I know that the fundamentals for aluminum look poor: Sluggish demand and too much capacity with little to no willingness for production shutdowns. That doesn’t really make for a price uptrend. Or does it?

Aluminum price hits 9-month high

Aluminum price hits nine-month high. Source: FastMarkets.com.

It does if aluminum gets a tailwind, and that tailwind is a bull commodity market which is what appears to be in the cards right now.

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Aluminum might not need many mine shutdowns before we see higher aluminum prices. What aluminum needs is investors to believe that the slump in commodity prices is over and that China will drive demand with its stimulus measures. Read more

Andrew Lane, source: Morningstar.

Andrew Lane. Source: Morningstar.

MetalMiner Editor Jeff Yoders recently had a chance to discuss the broad commodities rally, individual metals markets and other related news with Morningstar Senior Equity Research Analyst Andrew Lane, (here he is talking about Alcoa, Inc. on CNBC). The Chicago-based, independent investment research firm recently released its Basic Materials Observer.

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Morningstar warns that  basic materials stocks look somewhat overvalued, with the average company under its coverage trading at a 12% premium to their analysts’ fair value estimate. That’s not to say that Morningstar’s analysts don’t see pockets of significantly undervalued companies in the sector.  Key takeaways:

  • Despite the recent rally in some commodity prices, Morningstar analysts’ outlook for commodities related to Chinese fixed-asset investment remains negative.
  • Price outlooks are relatively better for commodities related to the Chinese consumer. However, Morningstar analysts would preach caution on the recent safe-haven gold rally.
  • With faltering Chinese growth likely to wreak havoc on investment-oriented commodities, the analysts look to U.S. housing as a pocket of opportunity. Morningstar analysts believe housing starts will be driven higher during 2016.

In discussing the ongoing steel overcapacity issue, Lane said that any real recovery in demand in the Chinese economy is still far away, hindering the demand outlook from what was once the main driver for worldwide production.

“Any real recovery can’t come until past 2020 which is as far our long-term outlooks go,” he said. “The funding for these loss-making facilities, it has to run out at some time. It remains to be seen how far the local governments in China can kick the can down the road by keeping their local and provincial capacity open with access to this (loan) capital. It’s a game that can’t go on forever but… we tend to think that they can maintain current production levels for a lot longer than most people give them credit for.” Read more

The United Steelworkers union recently filed a petition with the U.S. International Trade Commission for the U.S. to invoke a global safeguard under Section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum. Producers have, until recently, been reluctant to even attempt aluminum safeguards or petition section 201 for other metals.

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This proceeding could have a significant impact on global aluminum producers, particularly from China, and U.S. importers and users of aluminum products.

Are aluminum slabs welded together really "deep-processed extrusions?"

Are aluminum slabs welded together really “deep-processed extrusions?”

The ITC must decide within 60 days whether the conditions for “critical circumstances” are met and whether to recommend provisional relief. Once the ITC has made its decision on the critical circumstances claim, regardless of whether or not it recommends provisional relief, it will begin an investigation under Section 201 of U.S. trade law.

Investigation Planned

The underlying ITC investigation typically takes 120 days — although it is allowed to take 150 days for complicated cases — and then has another 60 days to develop relief recommendations for the President of the United States. The ITC’s recommendations are then sent to the U.S. Trade Representative, which formulates a recommendation to the President who then has 50-60 days to decide whether or not to grant final phase relief.

The question for the ITC is whether primary aluminum is being imported into the U.S. “in such increased quantities as to be a substantial cause of serious injury, or the threat thereof” to the U.S. aluminum industry.

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Imports of aluminum “semi-finished products,” which can be as little as ingots with minor finishing, from China into the U.S. increased 63% in 2015, according to the Aluminum Association, the trade association of North American producers.

Big news for companies buying aluminum product or semi-finished goods from China and for aluminum product producers who have been facing tough competition from Chinese exporters.

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MetalBulletin reports China has agreed to end export subsidies it provided to industries including aluminum products, titanium and specialty steel after the U.S. complained to the World Trade Organization (WTO) in February 2015. Except, according to Andy Home of Reuters, it’s not big news.

New WTO Agreement

Before we get excited that Chinese manufacturers may be forced to join the real world, Home urges some caution. United States Trade Representative (USTR) Michael Froman’s headline grabbing statement was, “Today we have signed an agreement with China to eliminate export subsidies that the United States challenged because they are prohibited under WTO rules.”

Are aluminum slabs welded together really "deep-processed extrusions?"

Are aluminum slabs welded together really “deep-processed extrusions?”

That actually covers a host of product areas including textiles, footwear, medical products and chemicals to name but a few. Aluminum comes a lowly third on the list and the sums involved are paltry when you consider the breadth of products effected and the time frame — the last three years. Apparently, most of the support mechanisms had already been dismantled so it will amount to so much hot air as far as the aluminum market is concerned. Read more

This week we saw oil prices climb back above $40 a barrel and that triggered higher prices for most of our metals, too.

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There’s a big meeting of the Organization of Petroleum Exporting Countries this weekend and all signs point to a continued freeze in production, at least among major producers Russia and Saudi Arabia so many speculators and market watchers are becoming bullish on oil. Oh, how quickly they turn!

Oil and Inflation

A direct knock-off of this oil mini surge is price inflation of everything that oil is used to produce, whether as a base material or for transport and production costs. What’s our favorite industrial metal that also has investment potential and is still considered so downright precious?

That’s right, silver! Despite being mined with just about every other metal in the world silver is still a precious metal and its industrial uses combined this week with investors grabbing it up to create a sweet spot for the gray metal. As of this writing it’s riding a 10-month high and looking to gain even more.

Aluminum Still Lags

However, not all metals are enjoying a healthy rebound. Alcoa, Inc. reported first quarter results this week and things weren’t so good for the aluminum smelter. How bad was it? Profits fell 92%. So, yeah, pretty bad.

Our own Stuart Burns put virtual pen to paper and explained that, thanks to Chinese overproduction and stockpiling, smelting aluminum simply isn’t a good business to be in right now. He even called it “an industry on the cusp of shooting itself in the foot.”

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If there’s a better example of why Alcoa will soon split itself into two and CEO Klaus Kleinfeld will join the new aerospace, titanium and value-added products half, I haven’t seen it.

Copper Loses All its Gains

My colleague Raul de Frutos also examined why copper has underachieved this year, even amidst the Q1 base metals rally. Dr. Copper is apparently only starting on the back nine and didn’t do any real work in Q1. We’ll monitor the situation with the rest of the base metals in Q2.

With eight of our 10 monthly MMI sub-indexes gaining, and even the other two holding their value, April was the most positive month we’ve seen since 2014.

MM-IndX_TRENDS_Chart_April2016_FNL-TOPVALUE100

We felt a bit like Oprah reporting this month’s prices. You get an increase, copper! You get an increase, aluminum! EVERYONE gets a price increase! Except you, of course, rare earths and stainless, but at least you held your value, eh? That’s progress in your markets. Especially for you, stainless.

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The standout performer (our “Biggest Winner”) was our Raw Steels MMI®, which posted an impressive 8.5% increase, egged on — at least in the U.S. — by anti-dumping measures that have in large part spurred demand for domestic rebar, cold-rolled and hot-rolled coil and even specialty steel. Specifically, the Korean and U.S. shredded scrap prices tracked by this sub-index bumped up significantly, with Chinese and U.S. finished prices also rising for the month.

Our Global Precious Metals MMI® also posted a healthy 1.2% increase on top of its 10% jump in March for an 11% increase over the last two months. This is no thanks to gold, which acted as a drag on the basket – instead, silver and the platinum group metals drove the increase. Global precious is our biggest winner, leading all of the other sub-indexes at 78.

The Rare Earths MMI® is still lagging behind the rally at a lowly 16, making it our “Biggest Loser” this month, but just reporting a month with no price declines is a moral victory after the losses of 2015. Check out the entire report for a more in-depth at all 10 metal categories tracked in the monthly MMI.