Non-ferrous Metals

Like steel, there has been some positive news about aluminum consumption in India. A research report said aluminum intake is poised to grow from 3.3 million metric tons in 2015-16 to 5.3 mmt in 2020-21.

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The report, “Indian Aluminium Industry: Geared for Growth,” is by global research and ratings agency Crisil and Mtlexs. It forecasts growth based on a combination of government initiatives such as “Make in India,” Smart Cities, Housing for All, and an increase in the transport of freight across the country.

Electrical Power Demand

The analysts say aluminum’s main demand would come from the power sector, since the white metal was now often used as a cost-effective, lightweight substitute for copper in transmission and distribution. In the coming five years, investments from state utilities and central government schemes worth millions of dollars are being planned to expand India’s transmission and distribution network.

The other sector that would drive the uptake is the automotive sector. The tightening of vehicular emission standards has forced automakers to look at aluminum to reduce vehicle fleet weight. India’s automobile sector is poised for heavy growth in the next five years.

As has become the norm, any news of increased consumption is accompanied by a downside: cheap imports. Like producers in the U.S., whose interests are being harmed by China’s exports of semi-finished products, India’s aluminum sector, too, as reported earlier by MetalMiner has been dogged by such imports. In India, imports make up almost 50% of the total consumption, largely from neighboring China. Just between 2011-2016, imports of aluminum increased 14%.

Smelters Want Tariffs

Aluminum majors such as Hindalco, Vedanta and Nalco have been urging the Indian government to impose a Minimum Import Price (MIP) to enable the domestic industry to take on what is being called as a “foreign economic invasion.”

Hindalco’s Managing Director Satish Pai was quoted saying such a government move would help the domestic industry compete with the cheap imports. He was addressing the recent World Non-Ferrous Conference 2016.

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He said in the last five years, the imports from the ASEAN (free-trade agreement countries including Brunei Darussalam, Myanmar/Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam) had increased from 6% of the total refined imports to 31%. The Indian Mines Secretary has indicated that the government is examining the aluminum sector’s demand and would make a decision on the imposition of an MIP in the next 15 days.The Mines Ministry already held several rounds of discussions with aluminum industry leaders.

With the closure of western aluminum smelters and widely reported global growth in demand of 5 to 6% per year, why have London Metal Exchange aluminum prices remained rangebound in the mid-1600s per metric ton? Why do physical delivery premiums continue to fall?

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Thomson Reuters recently reported that Japanese buyers have agreed quarterly premiums of $75 dollars per ton over the LME cash price for the shipments in the fourth quarter of this year. This will be the lowest premiums have been since Q3 2009 and a massive drop from the level Japanese buyers were paying in Q1 2015 when premiums reached $425 a ton. Read more

Our Copper MMI rose two points in September. Copper prices have remained range-bound in the between $4,500-$5,100 per metric ton for almost the whole year.

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Why did copper prices rise in September?

Pretty simple, because all base metals rose in September. Copper’s fundamentals still look pretty bearish and nothing relevant within the copper industry occurred in September. Investors bought copper as improving sentiment in the industrial metals complex is keeping each individual metal alive, even those without a bullish story, like copper.


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.

Rising Inventories

Now, as Chinese refined imports start to taper down, we are witnessing inventory build up in the London Metal Exchange‘s warehouse system. In September, LME copper stocks rose to 380,000 tons, the highest levels in more than two years.

Global production of copper concentrates rose by 6% in the first half and much of this abundance of raw material is going to China because it is where most smelter and refinery capacity is located. This means that if prices were to increase to attractive levels, China’s capacity would be able to absorb more raw material, increasing its refined copper exports.


Unlike other metals where we’ve seen supply disruptions, there is not much going on with copper. However, copper buyers need to keep an eye on those macro drivers that could move copper prices.

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One of the drivers supporting copper prices is crude oil. Oil prices rose to near $50 per barrel this week. In September, the Organization of Petroleum Exporting Countries reached an understanding that a crude-oil-production cut is needed to lift prices. The cartel could start to tackle the supply in November, which might help lift prices in Q4, improving investors’ sentiment on metals too.

What This Means For Metal Buyers

While industrial metals continue to rise, we don’t expect copper prices to fall significantly. On the other hand, investors are still trying to find a good fundamental reason to get on copper and make prices finally take-off significantly.

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U.S. builders and contractors trimmed spending on construction projects in August for a second straight month with housing, non-residential and government activity all seeing declines.

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Construction spending dropped 0.7% in August after a 0.3% slip in July, the Commerce Department reported Monday. It was the third decline in the past five months. Our Construction MMI fell 3% from 70 to 68 as well.


The unexpected drop hit all sectors of U.S. construction. Residential construction decreased 0.3%, while non-residential activity was down 0.4%. Spending on government projects fell 2%, dragged down by a sharp drop in activity at the state and local level, which has fallen to the lowest point since March 2014.

Infrastructure spending continues to be a key issue in the presidential campaign and these numbers back up arguments, from both candidates, that our roads and bridges are crumbling while governments at all levels turn a blind eye to the problem. The question the democrats and the republicans disagree on, and Hillary Clinton and Donald Trump are no different in this regard, is where will the money for a federal construction spending plan come from?

The Construction MMI saw prices drop nearly across the board. A week-long National Day holiday in China crimped copper prices as demand wasn’t even that strong in the world’s largest consumer before the shutdown. The cities of Guangzhou and Shenzhen are the latest to impose new measures to cool overheated real estate markets in China, including higher mortgage down payments and home purchase restrictions.

The Slowdown Lowdown

While U.S. prices weren’t expected to drop as much as they did, a slowdown was certainly expected at the end of the summer construction season and during China’s shutdown. As winter arrives in the U.S., a traditional slowdown in purchasing usually takes place. Ultra-low interest rates and a growing economy are what many economists say will keep the slowdown a short one. If that was the case, though, why wasn’t spending more robust in the summer months? The Construction MMI, like the overall U.S. economy, has been mired in slow-to-no-growth for most of the year with only a few strong months keeping it net positive (especially May).

That the “natural rate” of interest has fallen to low levels could mean the economy is stuck in a low-growth rut that could be hard to escape, Federal Reserve Vice Chair Stanley Fischer said on Wednesday. It’s hard to expect builders and contractors to buy more steel I-beams and copper wiring when they, themselves, are not increasing the number of projects they’re billing clients for.

What Growth?

Private construction is barely making up for public shortfalls. The strongest sector over the past year has been non-residential activity, which is up 4.2% from a year ago, followed by residential construction, which has risen 1.4%. Total public construction, however, is actually down 8.8% from last October, reflecting a squeeze on spending from efforts to control budget deficits at all levels of government.

This is where economists such as the Associated General Contractors of America‘s Chief Economist, Ken Simonson, say a federal infrastructure spending plan would help.

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“While demand for construction remains robust, it is no longer growing like it was earlier this year,” Simonson said. He also said the building industry could get a welcome boost if government policymakers moved to upgrade “our aging infrastructure.”

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Lead prices on the London Metal Exchange rose above $2,000 per metric ton, for the first time in 17 months. Just this week, the metal is up near 7% in only four days.

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At a face value, a combination of supply surplus and stable LME stocks doesn’t really support this bullishness. So what’s behind this price rally?

Lead hits a 17-month high. Source:

Lead hits a 17-month high. Source:

Lead prices are playing catch-up. They have lagged behind zinc’s performance this year but, it’s not a surprise that lead prices are finally taking off.

The closure of mines caused zinc prices to rally this year but it seems like the market has ignored the fact that mine closures also affect lead supply. This may be because markets expected secondary production to make up for this shortfall.

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More importantly, a rising trend in the metal complex is adding fuel to lead prices. Lead prices are being driven by funds’ increasing appetite for industrial metals. Sometimes, a metal can rise significantly in price before the bullish story becomes clear. We warned earlier this month to hedge lead. If you are a lead buyer, don’t wait until the fundamentals of this metal look bullish because it might be too late…

The International Trade Commission is preparing new rules for tariff cuts and Alcoa’s board has approved the plan to split the company in two.

ITC Adopts New Rules for Tariff Cuts

The U.S. International Trade Commission said Thursday that it is adopting interim rules to create a way for companies to submit items for potential tariff cuts under the new miscellaneous tariff bill process, forgoing the normal rulemaking process to meet a mid-October deadline.

Alcoa Board Approves Split

Aluminum producer Alcoa Inc. said on Thursday its split into two publicly traded companies is expected to be effective Nov. 1, after the company’s board approved the separation.

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Alcoa said last year it would break itself in two, separating a faster growing aerospace and automotive parts business from the traditional aluminum smelting and refining operations, as shareholders sought higher returns amid a commodity slump.

At this time last year, there was nothing really bullish about zinc.

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Global zinc markets were in surplus and prices were heading lower while sentiment in the mental complex was pretty bearish. But the picture quickly turned around earlier this year. For zinc buyers, the right time to hedge/buy forward was in April, when prices were still below $1,900 per metric ton, as we pointed out in our Monthly Outlook.

In April buyers should have hedged zinc one year out

In April, buyers should have hedged zinc one year out. Source:

Zinc investors have been drawn in by a narrative of mine closures and a resulting tightening of the supply chain. As zinc prices weakened over the past three years, more than 1.5 million mt of mine capacity was either idled or closed permanently. These closures were further exacerbated when Glencore announced plans to suspend 500,000 mt of production last October.

According to the latest data compiled by the International Lead and Zinc Study Group, the global market for refined zinc metal was in deficit by 174,000 mt from January to July 2016 with total reported inventories falling by 17,000 mt over the same period.

Is Now a Good Time To Hedge?

Earlier this month, zinc smelter Nyrstar announced the initiation of a hedging program that would lock in prices six month forward. Is this a good move given that prices are on the rise and everyone is still buying into the tempting narrative of supply shortfall?

I think Nystar made a smart move. Now it seems like a good time for producers to hedge for the midterm while on the other side, zinc buyers might want to wait for more attractive prices to hedge again. Here is why:

Zinc migt struggle to build on gains as it faces strong resistance levels

Zinc might struggle to build on gains as it faces strong resistance levels. Source: MetalMiner analysis of data.

Zinc has risen in almost a straight line since those January lows. Traders sitting on healthy profits may now be tempted to lock in a bit of downside protection. Moreover, prices are near key resistance levels, meaning that in 2014 and 2015, zinc fell as prices approached $2,400/mt. Traders might again find reasons not to chase prices higher from this point, especially given the spectacular rally seen this year.

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Moreover, a zinc rally could run out of steam if miners are tempted to bring production back quicker than originally planned. Chinese mines could respond to higher prices by lifting production and filling any supply gap. Also, bulls are concerned that Glencore could reactivate the 500,000 mt of mine capacity it has idled since late last year.

Bottom Line

Zinc is still one of the favorites among metal investors and this rally could continue into 2017. However, zinc has gone pretty ballistic so far this year and although fundamentals might back the story up, we could see a price pullback around the end of the year. Zinc producers might want to hedge some of their production now while zinc buyers might want to wait for better opportunities to time their purchases.

So, will aluminum receive a similar tariff shield as steel has enjoyed in India? The shield refers to a minimum import price (MIP) that is generally imposed on cheap commodities entering India, just like cheap steel from China.

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In the case of aluminum, too, the main “culprit” seems to be China. Yet, the stance of the Indian government vis-à-vis an MIP is still not clear, as various ministries concerned with the development have given divergent opinions. Read more

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


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