Non-ferrous Metals

Alcoa, Inc. revealed a new name, Arconic, for its value-added business unit in a recent regulatory filing and Iranian oil exports are decreasing but still adding more supply to global markets.

Alcoa Reveals Spinoff Details, Names Value-Added Business ‘Arconic’

Alcoa, Inc. said on Wednesday it will spin off its traditional aluminum smelting business as part of its planned company split and the renamed company will serve the aerospace and transportation industries.

Free Download: The June 2016 MMI Report

The company to be spun off will be named Alcoa, Corp. The value-added business unit will take on the name Arconic, Inc., according to a recent regulatory filing. It will make engineered products for growth markets such as automotive and aerospace. Alcoa revealed its plans in a regulatory filing.

Iranian Oil Exports Fall From June High, Still Adding Supply to Markets

Iran’s oil exports in July will fall June levels as the country battles Saudi Arabia and Iraq for market share, but the Islamic Republic’s output is still about 70% higher than a year ago, a source with knowledge of the country’s crude oil lifting plans told Reuters Africa.

Two-Month Trial: Metal Buying Outlook

Exports will be about 2.14 million barrels per day in July, down from about 2.31 million bpd in June, but still the highest since January 2012, the source said.

A recent Reuters article draws an interesting comparison between the Chinese aluminum and steel industries and then goes on to draw some not-so-encouraging conclusions for aluminum. Excess aluminum production there is damaging the prospects of aluminum producers in the rest of the world, purely because of the size of China’s massive aluminum industry.

Two-Month Trial: Metal Buying Outlook

Both metals face excess production at home due to rampant overinvestment and slowing domestic demand. Reuters lists a number of similarities between the two industries: China is the world’s largest producer in both markets, accounting for 51.5% of global steel output and 54.4% of global primary aluminum output in April.

Chinese Steel vs. Chinese Aluminum

In both industries, China has been exporting excess production of steel and aluminum in the form of semi-manufactured products, with steel product exports last year totaling 112.4 million metric tons, representing around 14% of the rest of the world’s output and aluminum product exports of 4.2 mmt representing 17% of the rest of the world’s output. In both cases, exports have damaged prospects for producers elsewhere, forcing closures, losses and delaying investments.

Source Reuters

Source: Reuters

In the case of steel, though, the threat of a delay to China’s application for market economy status by the World Trade Organization has forced a more conciliatory response by Beijing in recent discussions, and the promise of large-scale closure of older capacity in China.

Aluminum Overproduction Unabated

How effective this will be remains to be seen but, even so, it is in marked contrast to the position aluminum is in, where Beijing seems unable or unwilling to curtail new investment. As prices on the Shanghai Futures Exchange have risen this year, idled smelters have restarted and new capacity has continued to come on-stream.

Annualized run rates increased by almost 650,000 mt over the course of April and May, Reuters reports, with May’s average daily output of 86,290 mt the highest since November 2015 before prices fell below $1,518 (10,000 yuan).

The other factor apparently effecting Beijing’s attitude is the rapid rise in capacity is coming from new state of the art low cost aluminum smelters in China’s northwestern provinces. Aluminum is not seen as an old-fashioned, state-dominated industry operating polluting plants close to urban areas.

Free Download: The June 2016 MMI Report

China’s new aluminum capacity is cutting-edge, world-class technology and — at current prices at least — is making money. As a result, Reuters concludes capacity is unlikely to be trimmed anytime soon, at least by government intervention. For aluminum producers outside of China, that is not good news, and although recent rises in price to $1,600/mt are better than the $1,450-1,500/mt levels of late last year, it doesn’t offer much upside in the short- to medium-term if China keeps flooding the market with excess semi-finished products.

Reuters_MetalMiner Chart of the Week 062216_550

Source: Reuters

Aluminum reached a one-month high this week as Chinese demand took up more supply at home. As the Shanghai Futures Exchange price has risen, idled smelters has restarted.

Aluminum price increases this year have been minimal compared to what we’ve seen in steel prices. However, the metal is rising slowly but steadily as investors see an opportunity to buy aluminum when prices fall short-term.

Two-Month Trial: Metal Buying Outlook

That’s exactly what happened this month, after prices sold off in May, investors are again jumping on the metal.

Aluminum hits 1-month high. Source: MetalMiner analysis of fastmarkets data

Aluminum hits a one-month high. Source: MetalMiner analysis of data.

Demand Improves

A recovery in demand is a key factor supporting aluminum prices this year. China unleashed a renewed government stimulus in the form of credit expansion and infrastructure building in December, which has — at least momentarily — improved the demand side of the equation for industrial metals.

Trade figures this year showed China’s relatively strong appetite for aluminum. Higher demand means exporting less as Chinese companies are consuming more aluminum domestically. China’s exports of unwrought aluminum and aluminum semis were 420,000 metric tons in May. From January to May, exports are down 7.9% compared to the same period last year.

Overcapacity Still an Issue

China has committed to stop the expansion of steel capacity and to actively and appropriately wind down “zombie enterprises” through a range of efforts, including restructuring and bankruptcy. That’s not the case when it comes China’s equally giant aluminum sector. Read more

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.

Copper prices got hit in May, as prices fell short of resistance levels.

Two-Month Trial: Metal Buying Outlook

While overcapacity is still an issue, copper really needs a weaker dollar to join other metals in rising in price. We saw the exact opposite last month. The U.S. dollar rebounded and base metals fell across the board.


Overproduction Situation

Investors are simply not excited enough to trigger a bull run in copper prices. The Copper MMI fell 5% last month as overcapacity still plagued the red metal. Rather than cut capacity, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines.

Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers are still quite optimistic on the long-term picture and are expanding rather than curtailing production.

Chinese Stimulus

We also saw the Chinese stimulus show its first signs of weakening this month, further hindering demand in the world’s largest construction consumer. We continue to advise readers to not buy copper on weakness, rather, wait for strength.

Compare Prices With The May 2016 MMI Report

A softer dollar will likely be able to offset some of the negative sentiment created by weak demand in China, and copper was able to hit a four-week London Metal Exchange high on Friday as the dollar did, indeed, weaken. But the rally was short-lived and funds have already begun to sell copper again. It may be some time before we see a real shift in this market, barring production cuts.

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

Just as aluminum appeared to gain some momentum, prices failed to gain traction this month. Aluminum gave up most of April’s gains in May. The Aluminum MMI fell 3.75%.

Two-Month Trial: Metal Buying Outlook

Non-China supply has declined. The latest figures from the International Aluminium Institute (IAI) showed the lowest collective annualized run-rate level outside of China since August 2015. But what about production in China? It’s still hard to tell, especially when recent statistics coming out of China are even more unreliable than normal, showing swings of millions of metric tons from month to month.


China exported 400,000 mt of unwrought aluminum in April. This represents a year-over-year decline of 7.8%, supporting the argument that domestic demand has picked up there thanks to the stimulus effect. However, how robust and for how long that uptick is likely to last is extremely difficult to tell.

Overall, we cannot blame aluminum for the losses in May. The price decline was mainly caused by a stronger dollar and reversed expectations of China’s stimulus being sustainable. The Bloomberg Commodity Index, which tracks returns from 22 raw materials, climbed 0.7% to 87.31 last week. A close above 87.45 would mark a 20% advance. The recovery in oil prices is biggest factor.

Compare Prices With The May 2016 MMI Report

Yet, aluminum still corrected this month despite oil’s price surge.

What This Means for Metal Buyers

The sustainability of aluminum prices will still depend on cuts in Chinese aluminum production and on how much China can inflate aluminum demand through further stimulus measures. Both factors remain quite uncertain at the moment. Therefore, the shy rally in aluminum prices this year could extend but, at the same time, it looks vulnerable.

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

An interesting article in Reuters this week examines the Chinese aluminum market and asks, well, what the hell is going on?

Two-Month Trial: Metal Buying Outlook

It points out that the statistics coming out of China are even more unreliable than normal showing rises and falls of millions of metric tons from month to month. Specifically, Chinese output supposedly slumped by an annualized 6.6 million mt in the December-February period only to surge back by 5.2 mmt in March and April, almost certainly not the case when you consider the time it takes to idle and restart smelters.

Shanghai Futures Up

Taken over a longer time frame, though, run rates actually appear to have fallen slightly from Q4 to Q1 which would make sense when you look at the low Shanghai Futures Exchange (ShFE) price during that period. It fell below 10,000 yuan per metric ton ($1,525). But the worry is the 16% rise in the ShFE Aluminum ingot price will almost certainly encourage capacity to come back onstream, how much remains to be seen, but a rise like this, well in excess of the more modest 6% London Metal Exchange rise, will encourage re-starts.

Source: Thomason Reuters

Source: Thomson Reuters

According to Reuters. the most active aluminum contract on the ShFE is currently trading around 12,400 yuan per mt ($1,891), back in profitable territory for many of China’s smelters. Read more

Improvements in commodity markets made copper prices hold above the lows recorded in January but investors are not yet excited enough to trigger a bull run in copper prices.

Two-Month Trial: Metal Buying Outlook

We noticed in March that copper, aluminum and nickel were lagging badly in this year’s industrial metals rally, and they still are. Copper fell this week below $4,600 per metric ton, the lowest level in two months.

3M LME Copper hits 2-month low

Three-month London Metal Exchange Copper hits a two-month low. Source:

Overcapacity issues are still visible. Last December, a group of Chinese smelters announced intentions to cut refined copper output. However, recently, China’s largest copper producer,Jiangxi, said those output cuts have been offset by new capacity there.

More Expansion

Also, earlier this month, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines. Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers seem quite optimistic on the long-term picture. Read more

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.


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:

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.

Free Sample Report: Our April Metal Buying Outlook

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.

For all monthly copper prices sign up for MetalMiner membership.

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