Copper

Chinese authorities have frozen money invested by commodity trader Trafigura in a copper smelter there and Venezuela claims that an Organization of Petroleum Exporting Countries  (OPEC) agreement to curtail production will come together soon.

Trafigura Sees its Chinese Copper Smelter Stake Frozen

Chinese authorities have frozen part of commodity trader Trafigura’s investment in a Chinese copper smelter as part of a years-long probe into the Swiss firm’s oil trading, according to documents from the police and banks reviewed by Reuters.

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In October, police in the northern Chinese city of Cangzhou, froze $32.9 million Trafigura Pte Ltd had injected into the metals project, a joint venture with Chinese metals producer Jinchuan Group Co Ltd  in the southwestern city of Fangchenggang, documents dated Oct. 28, 2015 show.

OPEC Output Deal Imminent?

Venezuelan President Nicolas Maduro said on Sunday that OPEC and non-OPEC countries were close to reaching a deal to stabilize oil markets and that he aimed for a deal to be announced this month.

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OPEC members may call an extraordinary meeting to discuss oil prices if they reach consensus at an informal gathering in Algiers this month, OPEC Secretary-General Mohammed Barkindo said during a visit to Algeria, the country’s state news agency, APS, reported on Sunday. Venezuela’s economy has been facing complete collapse for more than a year now as oil prices have seen prices fall by more than half during that time.

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase
growth.

MM-IndX_TRENDS_Chart_September2016_FNL-TOPVALUE100

Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

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This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.

Copper prices have been on the decline this summer, depressed by reports of oversupply and, worse, an exodus of inventory from top consumer China.

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Indeed, we recently wrote about the rise of metal coming out of Shanghai bonded warehouses ending up in London Metal Exchange stocks around Southeast Asia, leading to a 60% increase in LME stocks last month.

Why Are Exports Slowing?

We speculated this was probably a result of slowing domestic demand and unwinding of financing deals. But a recent Reuters article reports that exports have slowed and imports of refined copper have picked up in China after the price plunged to 12-month lows last month.

Reuters suggests this is due to price declines taking copper into territory where investors once again feel it is oversold and, on the back of a pick-up in demand after the summer, ripe for restocking.

Source Reuters

Source: Reuters

The article states a flood of new supply will still prove too much for the copper price and 2017 will see prices remain under pressure. Read more

There are conflicting messages out there.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Last month, Business Insider ran a piece saying “Recent movements in copper inventories highlight the lack of significant demand for the metal, particularly in the ever-important Chinese market.”

Shanghai Futures Exchange inventories are falling while, London Metal Exchange inventories are rising, suggesting metal is flowing out of Shanghai bonded warehouses into local Asian LME sheds. The contango has grown, allowing traders to store and hedge metal on the LME supporting the move but the fact that refined metal is flowing out China suggests industrial demand is weak. BMI calls the move a red flag and says it expects imports of refined metal to fall in the coming months.

Copper_Chart_September-2016_FNL

Copper supply in LME sheds might be up, but our copper MMI is down.

Yet, just last week, better-than-expected official industrial PMI numbers unexpectedly rose to the highest level since 2014, according to Bloomberg, resulting in a bounce in copper prices, share prices in Hong Kong  and London and a fall in bond prices.

What’s Up With Copper?

So, what does this mean for copper? Was the export surge a temporary phenomenon prompted by the market moving into contango? Or is this truly a sign of an underlying weakness in demand?

China imported a record amount of refined copper in the second half of 2015, partly fueled by a relaxation of credit controls and encouraged by Beijing’s stimulus plans. Domestic refined production also increased significantly, but refiners are now cutting back and appear well supplied with concentrate in what remains an oversupplied market. Read more

The facade of the Federal Reserve Bank.

The facade of the Federal Reserve Bank.

Copper prices dipped this week with a stronger U.S. dollar hindering foreign demand for the metal.

According to a report from Nasdaq, copper for December delivery fell 0.2% at $2.0960 a pound on the Comex division of the New York Mercantile Exchange, after trading higher earlier.

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

Debate on whether or not the Federal Reserve will raise interest rates this year, as well as fluctuating signs on China’s economic strength have influenced copper prices of late, keeping the metal trading in a narrow range.

“(It’s) a go-nowhere-fast-market,” Bill O’Neill, CEO, noted investor, told the news source. “But every time it appears set to break one way or another, it doesn’t happen.”

China, the world’s largest copper consumer, is looking at an improved outlook with annual growth in industrial output growing to 6.3% in August compared to a flat 6% in July, according to the National Bureau of Statistics.

As for interest rates, the Fed is scheduled to meet next week.

“‘Jittery’ does not even begin to describe the current market,” wrote analysts at Marex Spectron. “Expect traders to continue to trade on a three-hour time horizon awaiting the next headline about what the Fed may or may not do with rates in September.”

Copper MMI Drops in September

Our own Raul de Frutos recently wrote that copper’s dive in September is of no surprise:

“Any price rally could continue to be limited this year, especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.”

How will copper and base metals fare for the remainder of 2016 and into 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:

Our Copper MMI fell 5% during the month of August. The price drop is no surprise. Copper has struggled near $5,000 per metric ton multiple times this year and as we pointed out last month, buyers could expect prices to retrace in August.

Copper_Chart_September-2016_FNL

Weaker Chinese imports over the past few months and the bearish calls of some major banks have contributed to the recent price fall. Unlike other base metals, sentiment about copper is still sort of bearish, making this metal the worst performer among its peers this year. In our monthly outlook, we haven’t recommended buying copper forward yet.

Chinese Imports Lose Momentum

China isn’t self-sufficient when it comes to its copper needs and is the largest importer of the red metal. Rising Chinese imports signals increasing demand for the metal. In metals such as zinc and nickel, we’ve witnessed a surge in Chinese imports this year, adding fuel to the bull (market).

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In Q1, China’s copper imports were running at record levels but over the past few months imports are coming down. In August, China imported 350,000 mt of unwrought copper and copper products. This is the fifth consecutive month that imports have declined on a monthly bases and the lowest figure in a year.

The Non-Ferrous Laggard

Unlike zinc and nickel, remember we pointed out earlier this year that the increase in Chinese copper imports in Q1 wasn’t exactly backed by end user demand. Some of the Chinese refined copper imports found their way into the Shanghai Futures Exchange system, with inventories rising to record levels.

Now, as Chinese refined imports start to taper down, we are witnessing inventory buildup in the London Metal Exchange‘s warehouse system, with copper stocks in the LME rising to a one-year high. Combining LME, SHFE and Chinese bonded stocks, most would agree that global copper inventories have risen this year, keeping a lid on prices.

Supply Runs High

Copper is among the metals wherein top consumer China actually gains if prices stay lower, unlike aluminum or steel. The country is the largest copper importer. Therefore, lower copper prices bode well for China. This also helps explain why Chinese copper imports rose earlier this year. When prices are low it makes sense for China to import more copper instead of producing more domestically.

Two-Month Trial: Metal Buying Outlook

Another factor weighing down on investors’ sentiment is the recent bearish calls by investment banks such as Goldman Sachs. The bank notes that the majority of the major global copper producers have already increased output by 5% during the first half, and it estimates that those same producers will ramp up supply by 15% over the next year.

What This Means For Metal Buyers

Any price rally could continue to be limited this year, especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.

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U.S. construction spending during July came in at an annualized rate of $1,153.2 billion, nearly the same as the revised June estimate, which was $1,153.5 billion, the Census Bureau reported ahead of the Labor Day holiday. Even so, the July 2016 figure is 1.5% higher than the July 2015 construction spending total.

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July’s numbers could be attributed to spending on private construction projects, which was up 1% compared to the revised June total. Public construction spending, by contrast, was down for the month by 3.1%. For the year, private construction spending gained 4.4%, while public spending dropped 6.5%.

Construction_Chart_September_2016_FNL

The Construction MMI reflected healthy U.S. demand for construction metals and jumped nearly 5%. Economists polled by Reuters had forecast construction spending rising 0.5% in July but keeping its gains from June is still good news for construction.

The upward revisions to the May and June construction spending data could see the second-quarter gross domestic product estimate revised up from the 1.1% annual pace reported last month and economic growth is good for construction and the economy as a whole.

Aluminum, Surcharges Up

Construction received a boost from the aluminum components of the sub-index, which posted strong gains despite the Aluminum MMI turning in an overall flat performance this month. Fuel surcharges were up across the board as oil’s taken a bit of wild ride lately. Products such as rebar and H-beam steel were also up.

Despite individual product strength, steel remains a very bifurcated market with prices up in the U.S. and down globally. Despite promises to wind down production in the second half of the year, China is buying up coal for steel production. The price of coal needed to make steel has surged more than 45% over the past three weeks, to its highest level since early 2013.

Major Shipper Close to Insolvency

South Korean shipping giant Hanjin Shipping Co. appears to be sailing toward oblivion as we’re writing this, a move that reflects weaker global steel demand or overall excess capacity. In the past week, creditors pulled the plug after $900 million (1 trillion Korean won) in support failed to keep the company afloat, forcing Hanjin to file for bankruptcy protection. Seoul Central District Court, which will decide the fate of the company, has set a Nov. 25 deadline for it to develop another restructuring plan, but many experts think liquidation will be the most likely outcome.

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Even though construction product demand looks strong, there are a lot of other factors that could plague these metals in the near future.

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U.S. Automakers sales numbers were down substantially in August, not that a drop wasn’t wholly unexpected — the industry has been growing strongly in recent years and at some stage was bound to peak — but the scale of the drop was enough to make the market sit up and notice.

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According to the FT, Ford’s drop was the first to report, down 8% year-on-year for the month of August to 214,482, GM was down 5% to 256,429 vehicles and Volkswagen, possibly suffering from the emissions scandal, was hit the most down 9.1% to 29,384 vehicles. Of the majors only Fiat Chrysler bucked the trend, buoyed by a strong line up of SUVs to post a 3% increase to 197,000. Read more

Apart from lithium consumption and aluminum for light-weighting, it is unusual for the hybrid car market to cross paths with metals consumption stories but a recent article in the Economist details a technological development in the automotive industry that will be of interest to both.

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To anyone of even a mildly geeky nature, the Economist makes interesting reading drawing on history, new developments and the future path of electrical automotive technology. In brief, the issue is car voltage.

AdobeStock_ joel_420_electric_car_550_042016

Electric cars and hybrids are touted for their fuel capabilities, but the ability to optimize energy use in operation might be their real killer app. Source: AdobeStock_/joel 420.

Historically, cars started with six-volt systems but in the ’50’s — as vehicle’ electrical systems increased in complexity — the voltage was increased to 12-volt to cope with more onboard appliances, electric starters and so on. Well few things stand still in the automotive market and in spite of acute cost pressures, designers are starting to introduce 48-volt systems and are hoping, as adoption picks up, costs will come down.

What Are Those Extra Volts For?

First, what is driving it? Well, as the Economist explains, one reason is that cars are packed with more and more components, demanding more and more electrical power. A modern vehicle may have as many as 150 electric motors and new features like stop-start technology. These are putting strain on car systems, particularly those with high-compression diesel engines. Read more

Reuters’ Andy Home recently examined the correlation between Chinese copper exports and London Metal Exchange warehouse arrivals.

reuters_copper_imports_chart_of_the_week_083116_550

Source: Reuters, China Customs and the LME.