Author Archives: Belinda Fuller

The Stainless Steel Monthly Metals Index (MMI) jumped seven points this month to 68, translating into an 11.5% increase, the largest monthly increase registered by the MMI since the 10.95% increase in September 2017.

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LME Nickel

Source: MetalMiner analysis of FastMarkets

LME nickel prices surged in early in 2019 after a seven-month downward trend and gained momentum during the second half of January and into early February.

Nickel hit a resistance point at around $13,000/mt when daily volume turned negative again. This price point is significant; once the price broke through this psychological price point last year, $13,000/mt became the support price until strong downward pressure hit prices in early September 2018.

Domestic Stainless Steel Market

Source: MetalMiner data from MetalMiner IndX(™)

Weakness in the index came from falling surcharges in the basket of tracked stainless steel metals for both 304/304L-Coil and 316/316L-Coil. Why did surcharges fall? The iron ore elemental value fell more than the rising nickel prices.

What This Means for Industrial Buyers

This month the MetalMiner IndX trended upward due to higher global nickel prices, despite falling surcharges.

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Actual Stainless Steel Prices and Trends

Most of the metals tracked in the Stainless Steel MMI’s basket increased this month; however,  nickel drove the trend with double-digit price increases tracked for all three prices in the index.

The LME primary three-month price increased 16.08%. Chinese prices increased 14.76%, and Indian prices increased 17.39%.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

The stainless steel 316 CR coil price for China increased 6.57%. U.S. 316 and 304 Allegheny Ludlum surcharges decreased this month by 1.92% and 0.33%, respectively.

The Copper Monthly Metals Index (MMI) hit 76 this month, up 2.7% after a decrease last month — yet it remains in an oscillating pattern that began in the summer of 2018.

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LME copper prices. Source: MetalMiner analysis of Fastmarkets

LME copper prices trended upward this month but were still within the oscillating pattern that started July 2018.

After hitting the late December low of $5,725/mt, the LME price trended upward since early January. LME copper prices increased throughout the first two months of 2019 but are still technically within the resistance boundary of the oscillating pattern, marked by the $6380/mt price point.

From a longer-term perspective, this is beyond the $6,000/mt level that served as the resistance point when prices trended lower during the first seven months of 2017.

A recent report from the International Copper Study Group (ICSG) showed worldwide demand increases are edging out global supply increases of ore and refined production, in terms of aggregate numbers.

The most notable production change reported was an increase in Chilean mine production. The most notable demand increase was the 7% increase in China, most likely due to lower availability of copper scrap in China, as discussed in this month’s MetalMiner February Monthly Outlook.

Vedanta was able to reopen its south Indian copper smelter when the country’s Supreme Court ruled in its favor and overturned a decision by the National Green Tribunal (NGT) to permanently shut down the copper smelter operation due to alleged pollution at its plant in the city of Thoothukudi.

Chinese Scrap Copper

Source: MetalMiner analysis of Fastmarkets

After some divergence in pricing trends, the LME copper and Chinese copper scrap prices re-synchronized in an upward trend. This is due to a short-term LME copper price turnaround, while the China index price is still trending upward gently.

China’s copper premiums fell to an 18-month low recently, indicating there may be some demand weakness.

What This Means for Industrial Buyers

LME copper price momentum appears solid so far during 2019.

Throughout most of 2018, both LME copper and Chinese copper scrap prices trended downward.

Both prices have turned around; however, the uptrend remains somewhat weak.

Historically speaking, prices remain fairly low. With a mild 2.7% increase in the MMI index this month, it’s too soon to determine if copper’s short-term sideways trend is over. Volumes, however, appear fairly buoyant, and prices have trended upward at the start of February.

It’s important for buying organizations to understand how to react to copper price movements. The MetalMiner Monthly Outlook report helps buyers understand the copper marketplace.

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Actual Copper Prices and Trends

In January, most of the prices in the Copper MMI basket increased, with the exception of Korean copper strip, which fell 0.24%.

Indian copper cash prices increased the most, by 4.24%, to $6.14/kilogram.

The remaining copper prices in the basket increased in the range of 1.8-3.19%, with an average change of 2.59%.

The Raw Steels Monthly Metals Index (MMI) posted a one-point increase this month, moving to an MMI reading of 80.

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Source: MetalMiner data from MetalMiner IndX(™)

As reported last month, steel prices continued to fall from their historically high levels reached back in the spring of 2018.

CRC and HDG prices are back to June 2016 levels, while HRC is still slightly higher than the price point hit following the spring 2016 raw steel price surge.

Source: MetalMiner data from MetalMiner IndX(™)

Steel plate, however, bucked the trend with a price gain into February. It remains to be seen if it will break the previous price resistance point hit earlier in the month, a historical high of $1,004/st for the MetalMiner Index.

While raw materials, such as coking coal and iron ore, typically trade in the same pattern, in January they traded differently.

Coking coal prices moved sideways, while iron ore prices increased sharply this month on the back of a 10% production cut announced by Brazilian iron ore miner Vale SA.

Moreover, iron ore prices may continue to rise if the Chinese government prohibits expansion of iron ore and steel projects in 2019.

China continues to struggle with industrial pollution in the top steelmaking city of Tangshan and in the industrial province of Henan.

What This Means for Industrial Buyers

Plate prices may be at or close to their peak.

Meanwhile, buying organizations will want to pay close attention to any price changes, particularly to the upside (in fact prices have notched up for HRC, CRC and HDG in the opening days of February) to determine if the current downtrend shifts to a sideways trend.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Actual Raw Steel Prices and Trends

Chinese coking coal prices continued to climb this month, increasing another 15.5% on top of last month’s 23% increase, ending at $315.18/mt, which was still lower than October’s $348/mt.

Korean standard scrap steel also increased in price again this month, adding a 12% increase on top of last month’s 6% increase, ending the month at $175.33, also recovering and still lower than the recent October high of $193.69/mt.

Chinese steel slab increased 7% to $566/mt.

U.S. shredded scrap fell 11% to $314/st.

The February Aluminum Monthly Metals Index (MMI) edged up this month by 1.2% for an index value of 86. The index increased one point from January’s reading and has remained near the low last seen in February 2017, when the index hit a value of 84.

 

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LME aluminum prices trended upward at the start of January but lost some momentum and are moving sideways to start February. Prices continued to show weakness by failing to breach the price resistance point of $1,970 during January (the support price for most of 2018).

Source: MetalMiner analysis of Fastmarkets

With only a weak uptrend followed by some sideways movement, prices have grown weaker at $1,783/mt this month. The politics of trade and financial uncertainty in China, rather than supply and demand in the aluminum market, continue to direct LME price levels into early 2019.

Source: MetalMiner analysis of Fastmarkets

Typically, SHFE prices move similarly to LME prices, but with a lag.

As January played out, SHFE prices stayed weaker — within the pricing trendlines identified by MetalMiner in the January MMI report — with clear sideways movement, especially during the second half of the month.

U.S. Domestic Aluminum

The U.S. Midwest Premium continued to move sideways in January at $0.18/pound, ending the month at the same price point. As previously pointed out by MetalMiner, the Midwest Premium remains at a historical high. According to some analysts, the outlook on the U.S. Midwest Premium is bearish and expected to fall through April.

The European Premium fell from $150/ton to $60/ton, attributed to the removal of sanctions on Rusal. Japanese Q1 aluminum premiums also dropped significantly (by 17-19%).

Sanctions on Rusal Lifted

The U.S. lifted sanctions on aluminum giant Rusal on Jan. 27 following the company’s compliance with the removal of the Russian oligarch Oleg Deripaska — along with several other influential Russians, identified due to their ties with Russian President Vladimir Putin — from its board and parent company En+.

Given that Section 232 tariffs on imports of aluminum remain in place, this should limit ingot price decreases from the removal of sanctions on Rusal; this could be bearish for ingot prices.

But that does not explain what is happening in the commercial alloy/semi-finished market.

Due to the increased use of flat-rolled aluminum in the automotive industry, supplies of the semi-finished metal have grown tight in the U.S. marketplace. The usage of aluminum in vehicles will likely continue to increase due to the need for automakers to adapt to 2025 Corporate Average Fuel Economy (CAFE) fuel economy standards. Some additional vehicle lines, especially those with greater sales volume, could convert to aluminum “white bodies.” For 2018, the Ford Expedition and Lincoln Navigator now also use aluminum bodies.

To give some sense of what this means in terms of aluminum usage, a single Ford F150 truck uses an estimated 676.3 pounds of aluminum per vehicle. With sales of 909,330 units in 2018, that translates to around 608 million pounds of aluminum sheet. Add in the two additional models (the Ford Expedition and the Lincoln Navigator) and it’s easy to see why flat-rolled tightness exists.

What This Means for Industrial Buyers

Aluminum prices are trending slightly upward this year; however, at this time, prices are in a short-term sideways trend. Tariffs and supply concerns linger and should continue to support prices.

Only the MetalMiner Monthly Outlook provides a continual snapshot to aid buying organizations with the pricing data that can help determine when and how much of the underlying metal to buy.

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Actual Aluminum Prices and Trends

LME aluminum prices rose during January, but the uptrend lost steam as the month played out. LME primary 3-month prices ended the month at $1904/mt, around 3% higher than December’s closing price of $1,846/mt.

SHFE aluminum prices continued to fall overall, with sideways movement during the second half of January.

Chinese aluminum bar prices rose by 3.1% to $2,152/mt. and the Chinese aluminum primary cash price increased by 2.52%. However, Chinese aluminum billet decreased this month by 1.69% to 2052.47/mt.

Korean commercial grade 1050 sheet continues to decline at a slower rate, ending about 0.91% lower at the end of January. The Indian cash price increased 3.78% from $1.85 to $1.92, retracing some of the price decrease of 6.6% reported last month.

China is one of the most-watched economies in the world because its health ties in heavily with overall global economic growth. Further, there is a strong correlation between the Chinese economy as an industrial metals demand generator and the primary metals market outlook.

MetalMiner has always followed some Chinese indicators in order to completely understand and correlate metals markets. Let’s take a look at some indicators buying organizations may want to consider.

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Chinese Annual GDP Growth is Flattening

The International Monetary Fund (IMF) recently lowered its 2019 annual average global growth projection down to 3.5% from 3.7% on the heels of China’s growth slowdown: why?

China’s contribution to total global growth is strong, accounting for an estimated one-third of total growth annually.

Figure 1. China’s flattening growth curve may mean a continued sideways trend in base metals. Source: https://tradingeconomics.com/china/gdp-growth-annual

The Chinese Caixin Manufacturing Index Is Trending Downward

The China Caixin Manufacturing PMI, an index which measures manufacturing confidence, is presently trending negatively.

The most recent downward trend emerged with the United States tariff changes in early 2018; however, the Chinese Caixin PMI is still trending higher than it did in 2017.

Figure 2. Chinese Caixin Manufacturing Index, 2014 – 2018
Source: https://tradingeconomics.com/china/manufacturing-pmi

Figure 3. Chinese Caixin Manufacturing Index – Previous 14 Months
Source: https://tradingeconomics.com/china/manufacturing-pmi

While Chinese manufacturers’ confidence appears lower overall as measured by the PMI, the bigger picture of Chinese economic confidence is more nuanced.

The Manufacturing PMI showed weaker sentiment when compared to other major sectors of the Chinese economy, while the Industrial Production and Mining Indexes showed improved confidence over the prior reporting period. In terms of the automotive industry, car production figures dropped while total vehicle sales and car registrations went up in absolute numbers.

Honson To, chairman of KPMG in the Asia-Pacific region and China, also finds reason to remain optimistic over China’s growth prospects this year, namely in the areas of domestic infrastructure projects and high-tech manufacturing. He expects infrastructure investments to contribute to continued Chinese growth, especially in the areas of high-speed railways and roads. Additionally, he projects further growth in the advanced manufacturing sector during 2019.

Beyond the direct stimulus impact, these upgrades to infrastructure will benefit the country by strengthening regional transportation across the vast country. While China boasts the world’s largest population, in terms of density it is much further down the list; therefore, improved regional infrastructure should provide a domestic stimulus for the Chinese national economy.

On the other hand, there will likely be a lag by up to a year in terms of how these domestic infrastructure projects will impact growth numbers, given the nature of such projects, as pointed out by Alistair Ramsay, a research manager with Fastmarkets, during a Jan. 25 BrightTalk presentation on the steel sector in China entitled “Ferrous Metal, Full Steam Ahead?

The Chinese Stock Market is Showing Weakness

Figure 4. The China Shanghai Composite Stock Market Index declined throughout 2018.
Source: https://tradingeconomics.com/china/stock-market

A look at the Shanghai Composite Stock Market Index shows a trend toward declining stock prices throughout 2018.

Additionally, a recent Goldman Sachs analysis of 20 well-traded stocks shows more weakness than expected coming from the domestic side of the Chinese economy, stating that the slowdown is visible in the data from the 20 stocks selected for the analysis.

Weakened performance in the consumer and producer markets has led to much speculation that the domestic slowdown has hit to a greater extent than expected.

Domestic pessimism over the Chinese economy’s health due to the U.S.’s aggressive tariff policies is viewed as the key issue, as tariffs are effectively curbing exports and slowing overall growth.

This, in turn, is impacting the U.S. through poorer market performance (take, for example, Apple’s recent off-target profit estimates resulting from weaker Chinese domestic demand for iPhones).

Foreign Direct Investment Inflows into China Remain Stable

As a factor potentially in support of China’s growth in the sectors identified by Honson, foreign direct investment (FDI) throughout the first half of 2018 (the latest dates for which figures are available) remained stable against a backdrop of falling FDI worldwide across both developed and developing countries.

According to the latest figures from the Chinese Ministry of Commerce, “FDI went up 3 percent year-on-year to $135 billion in 2018, while that of the world’s total and developed countries slumped 41 percent and 69 percent, respectively, in the first half of 2018.”

The strength of FDI in China is only second to the United States, according to another recent analysis. It should be noted that these figures, like those of the Chinese government, do not reflect the latter months of 2018 and are based on a 10-year analysis.

Others are more critical of the FDI situation in China, pointing out that even Chinese investors may prefer to invest elsewhere given a restrictive domestic investment environment resulting from recent Chinese government policies.

According to Baker McKenzie, Sweden, the UK, Germany and France were the top destinations for Chinese investment in the first half of 2018.” The move toward heavier Chinese investment in the E.U. was also spurred on by the trade situation with the U.S., according to the same report.

The Yuan Regained Weakness Against the Dollar in 2018

Figure 5. Long-term Comparison of the USDCNY – Index of the U.S. Dollar Against the Chinese Yuan
Source: https://tradingeconomics.com/china/currency

Chinese policymakers are well-known for their currency price control.

Once the yuan was devalued in 1994, the currency stayed under very tight government control, with very little change against the dollar for many years.

Quantitative easing is a popular technique; the Chinese government is well-known for injecting liquidity in the banking system to control the value of the currency.

Figure 6. The Appreciation of the Yuan Against the Dollar As a Result of Trade Policies During 2018 Quickly Reversed

The long-term effect of China’s intensive depreciation policy is to make steel and aluminum products cheaper.

Even in the current trade environment with applicable tariffs, steel and aluminum are still cheaper when compared with buying them in the U.S. due to the currency exchange rate between the U.S. and China. This situation is more or less continuing in an unmitigated fashion, as the Chinese government continues to exert artificial controls on the exchange rate. 

So What Does That Mean for Metals?

If it’s not a stock market boom year, we might expect the metals market to continue to trend sideways, if not head upwards.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

However, if the dollar stays strong, that should offset some of the gain — metals may see lower prices and then still fall in line with the sideways trend. This question is still undecided and is wrapped into the story of trade between the U.S. and China.

Beyond the strong U.S. dollar, the global production outlook appears moderate.

To read more about China’s growth in historical context, see Stuart Burns’ recent article.