Copper

The Environmental Protection Agency insisted it did follow its own rules in blocking the new toxic mercury role and heavy rain in Chile of affecting copper production.

The Environmental Protection Agency Friday issued an updated cost analysis, defending its issuance of the first-ever federal regulations requiring power plants to cut mercury emissions and other toxic air pollutants.

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The agency’s move was prompted by a Supreme Court ruling last year that said the agency hadn’t taken into account the costs to industry, as it was required to do, before deciding to adopt the rules.

The Supreme Court, in a 5-4 opinion last June, said the EPA must reconsider the mercury rules because of that omission. The rules, however, have remained in effect during that process.

The EPA initially adopted the mercury rules in 2012 and they took effect in April 2015. The agency initially concluded that costs weren’t a relevant consideration when it was deciding on the need for the mercury regulations.

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Later, as it was writing the rule, the agency estimated an annual cost to the utility sector of $9.6 billion, compared with public-health benefits of at least $37 billion. The Supreme Court, however, said the agency should have made that calculation earlier, as it was deciding whether to adopt the rules in the first place.

Chilean Rains Halt Copper Mining

Heavy rains in central Chile have prompted global miner Anglo American Plc. and state-owned producer Codelco to temporarily suspend operations at two major copper mines with combined annual capacity of 880,000 metric tons.

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.

Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

Copper prices rallied this week as a weaker dollar influenced the London Metal Exchange and futures for the metal surged to a three-day high on Tuesday.

According to a report from The Wall Street Journal, three-month copper on the LME was up 0.8% in yesterday’s European trade. Copper prices increased 7% from the start of 2016 to mid-March due in part to seasonal demand, but have since died down over economic concern in top consumer China. Before this week, we were back where we were in early January as it relates to copper prices.

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“On balance, we would not be surprised to see prices edge lower in the short term, but we would expect good dip buying to provide support and eventually lead prices higher,” William Adams, head of research at Fastmarkets, told the WSJ.

Rising oil prices also contributed to this week’s rally in copper prices. It’s important to note that copper and oil are often grouped together as part of commodities in a fund, so significant increases in oil value usually correlate to the same for copper.

“Copper prices got some relief after a continued rally in crude oil,” confirmed ANZ Research, to the WSJ.

Previously Suffering Copper

This latest development in copper prices mid-week comes on the heels of recent analysis from our own Raul de Frutos that found the gains made in Q1 have already begun to dwindle under a new “bear attack.”

“To believe this bear market is over, we would need to see these metals making significant upside moves,” de Frutos said. “So far we are not seeing that. The latest decline in copper prices supports this view.”

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.

 

Just about two weeks ago, we pointed out that something was rotten in the  Q1 base metals rally: The most-liquid and the most-used industrial metals were not leading the market rally.

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In a powerful turn around situation, we would like to see Dr. Copper and his esteemed colleagues aluminum and nickel showing strength. Instead, we are witnessing tin and zinc leading this rally.

Copper Erases Gains for the Year

3M LME copper coming under renewed bear attack

Three-month LME copper coming under renewed bear attack. Source: MetalMiner analysis of Fastmarkets.com data.

Last week we saw copper prices coming under renewed bear attack. The gains made in Q1 have already begun to shrink. Read more

Steel imports are up and China may soon send a shock to copper markets by selling its stockpiles of the red metal.

China Could Send Shock to Copper Markets

China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs according to sources inside the secretive government warehouses, onto the global market.

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Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports — which are usually tiny — in the next few months. China’s refined copper exports averaged less than 10,000 metric tons a month in the first two months of 2016, and around 17,000 a month in 2015.

Market watchers are concerned that such a supply shock could stunt or even reverse recent price gains the red metal has made.

Steel Imports Up in March

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute reported today that steel import permit applications for the month of March total 2,969,000 net tons.

This was a 23% increase from the 2,414,000 permit tons recorded in February and a 30% increase from the February final imports total of 2,276,000 nt. Import permit tonnage for finished steel in March was 2,120,000, up 1% from the final imports total of 2,099,000 in February. For the first three months of 2016 (including March SIMA and February final), total and finished steel imports were 7,894,000 nt and 6,448,000 nt, respectively, each down 33% from the same period in 2015. The estimated finished steel import market share in March was 24% and is 25% 0on the year-to-date.

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Finished steel imports with large increases in March permits vs. the February final included standard rails (up 387%), cut lengths plates (up 62%), sheets and strip all other metallic coatings (up 19%), heavy structural shapes (up 16%) and wire drawn (up 11%).

Our Copper MMI jumped 5% to 62 points. Copper prices finally made some gains in March, rising to the highest level in four months. So what’s causing copper prices to rise? and, is this finally a legit rally?

Fundamentals Improving?

Trade data showed some glimmers of optimism for copper producers as China’s February copper imports surged 50% year-over-year. Many people see the rise in imports as a sign of demand picking up. However, while imports rose, Shanghai Futures Exchange inventory levels hit new records. This seems to suggest that Chinese copper imports are rising but they aren’t backed by end-user demand.

Copper_Chart_April-2016_FNL

There are also opinions that copper is rising on expectations of a future supply deficit. Some people believe that the market will get into deficit in 2017 as no new mines came onstream due to low prices.

Compare Prices With The March 2016 MMI Report

However, those are just long-term expectations and things might end up looking quite different to what people are forecasting now. So far, most would agree that copper-output cuts spurred by lower prices aren’t enough to end a surplus this year.

It’s All About Oil

You can drive yourself crazy finding the reasons that explain the oil rally. Indeed, you can probably find fundamental reasons to be either bullish or bearish on copper. However, in a market driven my macro-factors, it’s quite clear to us that this rally is not reflecting a change in copper’s fundamentals.

Crude oil (in black) versus copper (in blue) 1 year out

Crude oil (in black) versus copper (in blue), one-year out. Source: @StockCharts.com.

In the chart above we can see the huge correlation between copper and oil prices. Rising oil prices are the main explanation for rising copper prices. Investors are keeping a close eye on oil and its price movements have a huge impact on the performance of other commodities, including copper.

Legitimate Rally?

We recently pointed out that oil prices could struggle near $40/barrel and pull back. Over the past few days we just saw that, oil falling back down to the $30s, which also brought copper back below $5,000/mt.

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Copper’s rally is still normal in the context of a bear market. Indeed, exactly one year ago we saw a similar rally in copper prices that soon enough translated into a price slump. The beginning of March was a good opportunity to buy some volume but it’s still not clear if copper will be able to trade well above today’s levels. That will likely depend on the fate of oil prices and investors’ sentiment on commodity markets.

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India’s steel imports increased this week for the first time since November and Thomson Reuters warns that copper is still oversupplied and recent price increases will eventually be lost.

Indian Steel Imports

India’s steel imports increased 18% in March, snapping four straight months of falls, provisional government data showed, on the back of deals struck before the government imposed a price floor in February to curb cheap imports.

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Last week, the government extended safeguard taxes on some steel products until March 2018, and in February imposed a floor price on imports to deter countries such as China from undercutting local mills.

Copper Still Oversupplied

Copper prices are expected to slide below January’s six-and-a-half-year lows, hit by a lack of production cutbacks and weak demand in the world’s biggest metals consumer China, GFMS analysts at Thomson Reuters said.

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The benchmark copper price on the London Metal Exchange has bounced 10% since touching a low of $4,318 a metric ton on Jan. 15, but it is due to resume its downtrend, GFMS said in its Copper Survey 2016 report

U.S. auto sales increased 3% in March over a year earlier, but warning signs emerged that car companies are stretching to keep demand humming after record results last year.

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March’s selling pace came in at an adjusted annual rate of 16.57 million light vehicles, well below analyst expectations and the 17.5 million clip the industry reported in February. Detroit’s big three automakers each reported sales gains, but their results missed expectations, sending shares lower. Automakers overall sold 1.6 million light vehicles in March.

Automotive_Chart_April-2016_FNL

Automotive remains a coveted market for both steelmakers and aluminum smelters and the healthy price increase of 5.9% in our Automotive MMI reflects that. Automotive metals also got a boost from copper as the wiring metal also posted an increase this month, reversing a long flat streak.

Fiat Chrysler Automobiles said sales rose 8% to 213,187 vehicles in March. Ford Motor Co. sales rose 7.8% over a year earlier to 253,064 vehicles. General Motors’ sales edged up less than 1% to 252,128.

While those numbers might be cause for concern, long-term, they’re certainly not being felt in raw materials purchases by the Detroit automakers yet. Almost all of the component prices of our Automotive MMI were up in March and the phenomenon looks like it’s global with Chinese prices (mostly) joining U.S. and Korean ones in marching higher in lockstep.

Compare Prices With The March 2016 MMI Report

The China Automobile Dealers Association said at its monthly news briefing that one-third of dealers it surveyed said demand increased in March, up from 2.7% in February, with the survey predicting stable demand this month.

Expect steel and aluminum companies to continue to aggressively court automotive customers, especially as new automobile technology, such as Tesla Motors‘ new, less-expensive sedan is rolled out.

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The Department of Commerce yesterday initiated an anti-dumping investigation of imports of phosphor copper from South Korea.

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The investigation covers phosphor copper, which is a master alloy of copper containing 5% or more of phosphorus, by weight. Phosphor copper is used as a deoxidizer, as an alloying additive that increases strength, hardness, and elasticity, and in brazing alloys to lower the melting temperature and improve wetting characteristics. It’s also used in the manufacture of copper tubing and brazing rods and is also used by brass mills and foundries.

copper wire closeup

Commerce has opened in an investigation into anti-dumping allegations of phosphor copper from South Korea.

The petitioner for the investigation is Metallurgical Products Company of Pennsylvania.

The merchandise covered by the investigation is master alloys of copper containing between 5 and 17% phosphorus by nominal weight, regardless of form including, but not limited to, shot, pellet, waffle, ingot, or nugget, regardless of size or weight.

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In 2015, imports of phosphor copper from South Korea were valued at an estimated $4.3 million. The U.S. International Trade Commission is scheduled to make its preliminary injury determination on or before April 25.