reuters_chartoftheweek_550_072716London Metal Exchange copper edged down but held above one-week lows hit in the previous session ahead of the outcome of a Federal Reserve meeting where it held rates steady, keeping costs lower for capital-intensive commodities. Source: Reuters.

The U.S. and the European Union filed a joint World Trade Organization challenge against China on July 19 over its use of duties and export quotas to control shipments of metals such as tin, tantalum, lead, copper, chromium, cobalt and others.

Two-Month Trial: Metal Buying Outlook

The E.U./U.S. effort comes after the U.S. government’s original request for consultations filed on July 13. It also comes after the European Union failed to resolve a dispute with China over its use of duties and export quotas during bilateral meetings with China last week.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: Adobe Stock.

Chinese export quotas are being challenged by the U.S. and the E.U. Source: Adobe Stock.

The new request adds challenges to export duties on chromium to the original list of antimony, cobalt, copper, graphite, indium, lead, magnesia, talcum, tantalum and tin. The new request also includes China’s export quotas imposed on antimony, indium, magnesia, talc and tin.

Trade Rep Speaks Out

During last week’s announcement, U.S. Trade Representative officials said export duties on the raw materials ranged from 5 to 20% and enabled Chinese companies to produce lower-priced goods than their U.S. competitors. China also used the lower cost of raw materials to encourage U.S. companies to move production to China, the office of the U.S. Trade Representative charged. Read more

Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

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.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Sign up for your free trial to our monthly buying outlook reports!

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.

Two-Month Trial: Metal Buying Outlook

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.

China, this year, is becoming more than just the world’s largest metals consumer, it’s also taking a larger role in setting metals prices. While oil prices have crept up this summer, another selloff could be caused when refined products in storage finally come to market.

China is Taking a Bigger Role in Setting Metals Prices

The prices of metals from aluminum to zinc have long swayed to the beat of the world’s largest manufacturing nation, Reuters’ Andy Home writes.

Free Download: The June 2016 MMI Report

But this is the year that China has emerged from the limelight to take center-stage in the trading of those metals. On one day alone, March 10, trading volumes on the Dalian Exchange iron ore contract exceeded one billion metric, more than the combined annual output of the world’s biggest three producers, Rio Tinto Group, BHP Billiton and Vale SA.

Another Oil Glut is Likely Due to Products in Storage

In its July Oil Market Report, the International Energy Agency warned about shockingly high levels of refined oil products sitting in storage. Gasoline, diesel and heating oil are built up to such high levels in so many parts of the world, that a sharp rise in crude oil prices is unlikely in the short run, reported.

Two-Month Trial: Metal Buying Outlook

The IEA said that “the fact that crude oil has in the past two months moved within a range in the high $40s/bbl should be a relief for some producers.” But it went on to caution that “the existence of very high oil stocks is a threat to the recent stability of oil prices.”

Like most industrial metals, copper saw an increase in June. However, the metal is still lacking the strong upside action we have seen in other metals and it continues to struggle near the $5,000 per metric ton mark on the London Metal Exchange.

Two-Month Trial: Metal Buying Outlook

The latest trade data showed a huge spike in Chinese copper exports, which increased by 256% in May from a year earlier. This raises fears about domestic demand. Domestic production is also rising strongly, up 7% year-on-year in May. With these figures, it’s tempting to view May’s export surge as a warning sign that the Chinese market is saturated.


In addition, Chinese manufacturing data came in weak in June. The Caixin Manufacturing PMI, which focuses more on small-to-medium-sized private firms, stood at 48.6 in June. That reading missed estimates and was the weakest number since March.

Uncertainty Still Looms

Given the disappointing industrial data and the ongoing economic uncertainties after the U.K.’s decision to leave the European Union, the market is expecting more economic stimulus from China. That stimulus, if it happens, will be critical for copper prices to finally pick up steam.

On a side note, although most people focused on the export surge, China’s imports were robust. China has imported 1.77 million mt of refined copper so far this year, up 24% from the same period last year. Even with May’s high exports, net imports are also up by 22% for the first five months. That gives copper bulls hopes that China is starting to work off its previous glut.

But to make this issue even more complex, inventory levels also rose sharply last month. Copper warehouse levels in the LME system increased by almost 40% in June. 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.

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

The Construction MMI held steady at 66 in July, as spending remains stubbornly low during the traditionally strong East Coast construction season.

Two-Month Trial: Metal Buying Outlook

Construction spending during May reached a seasonally adjusted annual rate of $1,143.3 billion, 0.8% below the revised April estimate of $1,152.4 billion, but 2.8% above the May 2015 estimate of $1,112.2 billion, according to data from the U.S. Census Bureau. Construction spending in the first five months of this year, construction totaled $438.5 billion, which is 8.2% higher than the $405.4 billion for the same period in 2015.


It’s difficult to quantify the lack of spending increases in what outwardly looks like a robust U.S. construction sector.

Spending Struggles to Stand Pat

Residential construction was at a seasonally adjusted annual rate of $451.9 billion in May, virtually unchanged from the revised April estimate of $451.7 billion, while nonresidential construction was at a seasonally adjusted annual rate of $407.4 billion in May, a mere 0.7% dip from the revised April estimate of $410.1 billion.

Ken Simonson, chief economist at Associated General Contractors of America, a construction industry trade group, noted that the latest data affirms complaints that contractors are having an increasingly hard time finding skilled workers to hire.

“Mild winter weather in many regions early in 2016, followed by extreme rains in some locations in May, has probably distorted monthly spending patterns but shouldn’t mask the robust widespread growth in demand for construction so far this year,” Simonson said. “It appears there will be plenty of activity in the remainder of 2016 — if contractors can find the workers they need.”

We have, indeed, documented the lack of skilled labor in the U.S. market for more than two years now. Labor costs are increasing so much that they are outstripping the savings many general contractors had captured from low commodity prices for construction products. While it’s true that many are also cutting costs by using more efficient construction methods, the drop in spending is still highly concerning since most sectors look like they should be growing with strong demand and, supposedly, lots of design work on the boards.

Chinese Spending Grows

There is, however, good news from abroad. In China, the Caixin/Markit services purchasing managers’ index for June rose to 52.7 from 51.2 in May on a seasonally adjusted basis. Readings above 50 indicate an expansion on a monthly basis, while readings below signal contraction.

Free Download: Compare Prices With The June 2016 MMI Report

Beijing has fast-tracked planned infrastructure spending this year to boost growth, and a strong run-up in housing prices as buying restrictions were loosened helped turn around a slowdown in property development. Like many of our sub-indexes this month, it will be interesting to see what effect the U.K.’s vote to leave the European Union has on construction prices when markets have had a month to settle.

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

Falling global demand for commodities has led to steep declines in their prices, but savings are being offset by higher demand and wages for a dwindling pool of skilled construction laborers in the U.S.

Two-Month Trial: Metal Buying Outlook

Worker shortages have continued to drive up labor costs for the construction industry, according to new research from real-estate brokerage firm CBRE, Inc.

Commodity Prices Drop, Labor Costs Rise

The Wall Street Journal reports that prices for asphalt have dropped more than 42% and iron and steel products have fallen by nearly 15% over the past year, but average construction costs increased by 1.8%, the report found. That is because average hourly wages for construction workers have continued to climb as more projects come online throughout the recovery and the supply of skilled workers isn’t keeping pace.

Even though some markets saw increases in construction employment, most lost jobs in the last 20 years. Source: WSJ.

Source: WSJ

The article states that workers in the domestic construction industry are aging, a trend we have been documenting for some time. The share of people aged 19-24 entering the industry in 2012 and 2013 was 13%, down from 18% in 2006, according to U.S. Census Bureau data.

Changes in immigration patterns are contributing to the shortage, too. The U.S. had 570,000 fewer construction workers born in Mexico in 2014 than in 2007, according to research from Chris Porter at John Burns Real Estate Consulting, as immigration has sharply declined during that period.

Technology Replaces Some Jobs

The article also notes that risk-averse construction companies are increasing off-site prefabrication and other processes that eliminate on-site work. Industry giant Turner Construction, has been relying on 3D modeling and other process technologies to control risk and costs over the last 20 years as well.

Another report, this one from the Associated General Contractors of America reported that only 19 states saw month-over-month construction employment growth between April and May, a loss of 15,000 jobs.

AGC CEO Stephen Sandherr said in a press release that “it is only a matter of time” before the skilled worker shortage affects the general economy.

While nearly all of the metals markets we track were up in May, our June MMI has experienced what’s believed to be a broad market correction that has touched nearly every metal (only the specialized and range-bound Rare Earths MMI saw an increase this month).


The Automotive MMI was our second-biggest “winner,” thanks to holding its value from last month. The biggest loser was our Construction MMI, which fell nearly 10% as construction products such as rebar and copper tubing saw heavy losses.

Correction Drivers

Two factors dragged metal prices down in May: The Chinese government softened expectations of further stimulus while fighting speculation by increasing margins and fees for trading. Second, in the beginning of the month the U.S. dollar strengthened amid new expectations that the Federal Reserve might be more aggressive than previously thought in raising interest rates, but that quickly changed late in the game after a disastrous jobs report and the dollar is now falling again.

Chief Forecasting Analyst Raul de Frutos sees this movement as “a normal reaction as prices zigzag, and we don’t see enough evidence to turn bearish (on metals) yet.”

Two-Month Trial: Metal Buying Outlook

We are now very much back in a wait-and-see period, expecting a bounce back in prices, but also very understanding of the weakness many of the markets we track still face thanks to oversupply and waning stimulus in China.

U.S. Steel prices, however, are separating themselves from what’s happening in world markets as anti-dumping and countervailing duties orders have taken root.

A stronger dollar in May caused most base metals to weaken. However, in June, the dollar has pulled back, as expectations for rate increases recede.

Two-Month Trial: Metal Buying Outlook

That helped to lift most base metals, so far, this month. But that wasn’t the case for copper, which continues to struggle on the upside.

3M Copper falls in June. Source:

Three-month LME copper falls in June. Source:

The red metal has held its value well this year, but it has found strong resistance near $7,500 per metric ton. Unlike other metals like zinc and steels for which we recommended buying forward earlier this year, we’ve kept recommending buying only small quantities of copper for quite some time now.

Rising Inventory Levels

60 Day LME Copper Warehouse stocks levels. Source: Kitcometals

    60-Day LME copper warehouse stocks levels. Source: kitcometals

Due to a surge in inventories at London Metal Exchange warehouses, the weaker dollar in June failed to provide a lift to prices. Copper warehouse levels in the LME system rose by almost 40% on the month to date after experiencing the highest two-day inventory surge since 2004.

Chinese Imports

China’s copper imports jumped 19.4% in May from the same period last year. Imports are running strong over the first five months, up 22% compared to the same period last year, after a weaker dollar boosted Chinese purchasing power.

Free Download: The May 2016 MMI Report

The increase in refined copper imports could be taken as bullish. However, reading the fine print, imports of copper concentrate for use by smelters jumped 45% from a year ago. The surge in concentrate imports suggests that China’s copper refined imports could ease further in June as rising  domestic smelting production will increase domestic supply and reduce import demand. That could keep a lid on prices for some time.