The Automotive MMI fell again in October, inching down 1.4% from its previous all-time low of 73.

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It’s more of the same for an automotive metals market that, while strong on both the supply and demand sides here in the US, is being dragged down by falling demand in other large markets. Automotive specialty metals have been cited as the savior and the future demand driver for many a steel or aluminum company in this bear market.

Automotive_Chart_October-2015_FNLGerdau is practically staking its entire Indian business on it. Aerospace and automotive are also regularly cited as the growth markets for stainless and aluminum overseas, too. The aluminum-bodied Ford F-150 continues to be the darling of the US automotive market with its lighter corporate average fuel economy (CAFE) load and its Denis Leary commercials about “military-grade” aluminum. Even the Super Duty is getting in on aluminum. The emerging markets were on the aluminum train before Ford was, too, and that trend is only growing.

US, European Auto Sales

So, what gives?

In September, US vehicle sales topped a SAAR (seasonally adjusted annual rate) of 18 million vehicles. Leading automakers reported the healthy year-over-year increase in sales number thanks, in part, to big gains over the Labor Day holiday weekend.

It wasn’t just us yanks buying cars constructed cold from specialty metals, either. The Czech Republic will report its highest car sales ever this year. The Volkswagen scandal might be hurting platinum prices but it’s clearly not denting overall vehicle sales, even in Europe where the scandal hits close to home with more diesel cars on the road.

VW has a market share of around 48% in the Czech Republic, a country of roughly 10.5 million people, with the company’s domestic maker Skoda Auto the top seller.

Chinese Demand Collapses

The fly in the automotive metals ointment is demand in China. Like steel, aluminum and other markets, the economic collapse in China has eroded what was once healthy automotive – and automotive metal – demand there.

The urbanization that economists counted on to fuel more Chinese car purchases went away with housing demand there, as well as the un-manipulated renminbi. Beijing is looking entirely to exports now (hence the purposeful devaluation) to pull its economy out of the doldrums, and isn’t even trying to goose those domestic markets much.

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Sad to say, but no matter how strong the US or European automotive markets are, they can’t make up for the loss of Chinese demand, which numbers sales (and people) in the neighborhood of a billion. That’s one of the reasons so many steel companies are looking to India, with its large population, to make up for that demand. The problem there is India’s urbanization isn’t as far along as China’s was. Still, automakers and steel companies such as Gerdau are digging in there for the long haul. Here’s to hoping it’s not as long as some predict.

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Get your short- and medium-term outlook for copper!

The picture for copper wasn’t pretty last month, with the crisis in China leading to a six-year price low for the red metal. But a recovery is already underway, thanks in part to a resurgence in stocks and a number of mine closures that will surely tighten the market for the foreseeable future.

Just last week, Glencore announced a string of mine closures that would lead to a reduction of some 400,000 tonnes of copper production in Africa, according to the Financial Times. That directly led to a copper price increase of more than 5 percent.

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Also helping matters has been the recent import window that allows refined copper to be shipped into China, allowing the Far East nation to unload much of its stock into the domestic market.

“Demand is looking a little more cheerful, but remains beset by headwinds,” Vivienne Lloyd, analyst at Macquarie, told the news source. “Improvements we begin to hear of, from power grid demand in particular, need to be maintained, while more lossmaking production should come offline in order for us to find stability in the recent price rally.”

Playing the long game with copper

Although copper prices remain weak despite the recent uptick, we can see a scenario in which producers curb production to bring supply down to realistic demand levels. Bridging the gap between now and two to three years from now will be the issue and may depend on even more mine closures to further tighten supply.

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:

Copper mining companies’ fortunes have been a pretty dismal story of late and, in truth, hold little potential for an improvement in the short term.

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China’s slowing industrial production and lack of any form of a long-awaited stimulus package have sapped any incentive for investors to buy copper and, hence, support the price. A recent rally in prices on the release of a raft of bullish news has caused an upturn but few are betting this will result in a return to an upward bull trend.

Source Kitco

1-Year copper spot price. Source: Kitco

However the fundamentals for copper are better than just about all the other major commodities. China does not control supply in the same way as it does for aluminum or steel, in fact it consumes some 45% of global production but that has been part of the problem and will, in course, be the solution to current low prices. 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.

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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.

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Refined copper production stood at 664,954 metric tons in August, compared with 663,520 mt in July, data from the National Bureau of Statistics said on Tuesday.

Copper is in a bear market. If you read us, I am sure you knew that.

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However, two factors make us think that copper prices could rise in the next few weeks:

1. Prices fell too fast

Copper zig-zagging since 2011

Copper zig-zagging since 2011. Graph: MetalMiner.

Copper prices slumped below $5,000 a metric ton in August for the first time since the financial crisis. In less than 4 months prices sank 25%. Prices don’t move in a straight line, they zig-zag (see chart above). After this sharp drop, it wouldn’t surprise us to see prices being supported as bargain hunters come into the market, causing prices to rally.

2. Production Cuts

While prices are looking attractive for bargain hunters, the mining giant Glencore PLC just announced that it would suspend production at two copper mines in Africa. This could give more reasons for those investors that like to pick bottoms to get into the market.

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Chinese economic growth is slowing, and we believe that’s bigger than the company cutting production, so nothing indicates that we are at the end of copper’s bear market yet. However, these production cuts could likely make prices rally in the short-term.

What This Means For Metal Buyers

Copper is in a falling market, therefore it’s risky to take long-term positions. However, even in bear markets buyers need to pay attention for opportunities to buy for short-term demand. In the case of copper, this could be one of them.

Well for one thing it means our retirement funds will likely be worth less, at least in the short to medium term. On the plus side, our mortgage will likely stay cheaper for longer and metal prices will remain lower for longer.

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Why? well if the Fed was worrying about a China slowdown in July, they must be in full-on panic mode by now. If the Federal Reserve was to raise rates next month, to stave off the possibility of inflation picking up next year, it would strengthen the dollar, making imports more attractive and making life tougher for US exporters.

China’s Deep Slowdown

The collapse of stock markets around the world has been precipitated by fears of a China slowdown becoming far deeper and more prolonged than previously thought – although why this appears to be such a surprise to investors today compared to 2-3 weeks or even 2-3 months ago I fail to see, the writing has been on the wall all year.

Traders in London

The signs that China’s economy could lose steam were there, but it still caused global stock market panic.

However, as the herd mentality sets in all those stop orders get hit and the fancy algorithms cut in selling stocks and becoming self-fulfilling as they drive prices down. Hedge funds have been aggressively shorting the market, not just for stocks but for commodities too. It would be a brave man who bet any pause was the start of a bounce back, markets could have a lot further to fall.

Back to the Fed and China: weaker demand from China will mean lower demand for commodities. For a few commodities, China has become a net exporter but across the board the world’s largest consumer is reversing what was once a one-way bet on demand. Read more

Copper prices are dipping below the psychological basement support level of $5,000 per metric ton.

3M LME Copper since 2010

Three-month London Metal Exchange copper since 2010. Graph: MetalMiner.

The metal has done nothing but fall since 2011, but the declines have become steeper over the past few months. Investors particularly dislike copper, as worries about China’s economy are simultaneously rising. China’s stock market crash and the recent devaluation of its currency are just aggravating expectations of a further copper fall.

Meanwhile, China’s latest Purchasing Managers’ Index numbers fell to a two-year low, while construction numbers are still disturbing to investors. The slowdowns in the Chinese manufacturing and construction sectors are significantly hitting copper demand, or at least any hopes of demand coming back.

copper wire closeup

Here’s the latest on China’s currency value affecting copper, other commodity prices.

Copper prices have gone the way of aluminum and crude oil.

Chinese trade data confirmed the expectation that demand will “remain slack” in the Far East nation, according to a recent report from the Wall Street Journal. Citing data from China Customs, the news source reported that national exports dropped 8.3% in July, year-over-year.

This data also confirmed that imports fell for the ninth consecutive month, to 8.1% in July, year-over-year. This was a whole 2 percentage points higher than the year-over-year decline seen in June (6.1%).

Want to know how this will affect future copper prices? Get your 30-day forecasts for copper and 9 other metal forms in our new Monthly Metal Buying Outlook report.

“As long as China worries, eurozone woes and dollar strength dominate the headlines, sentiment across metals markets will be weak,” Casper Burgering, senior economist, manufacturing and industrial metals, at ABN Amro Bank, told the WSJ. Read more

Chinese steel output fell last month. In Chile, investment funds have agreed to to buy the Mantoverde and Mantos Blancos copper mines being sold by major miner Anglo-American.

Chinese Steel Output Falls

Chinese crude steel output fell 4.6% to 65.84 million metric tons in July from a year ago, government data showed on Wednesday, as steel mills in the world’s top producer faced tumbling prices and faltering demand.

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Average daily output stood at 2.124 mmt, down 7.6% from June, its lowest since November 2014, according to Reuters calculations based on data from the National Bureau of Statistics (NBS).

Softer demand caused by slowing Chinese economic growth has pushed steel prices down 26% so far this year, plunging many mills into the red and forcing them to cut output or ship more to overseas markets.

Someone is Betting At Least $500 Million on Copper

Chilean press reports say that investment funds have agreed to buy the Mantoverde and Mantos Blancos copper mines being sold by major miner Anglo-American. The price for the deal will reportedly be significant. Coming in at between $500 million and $1 billion, according to Business Insider.

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The papers didn’t name the particular groups involved in the sale. But did note that an “English investment fund” would be the buyer of the two mines.