Author Archives: Irene Martinez Canorea

Last week, the Department of Commerce released the reports accompanying the Section 232 investigations for both aluminum and steel products. The Department of Commerce initiated the investigations last April under Section 232 of the Trade Expansion Act of 1962, which grants the president the ability, along with his Department of Commerce, to determine whether certain imports are having an injurious effect on national security. 

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As reported last Friday on MetalMiner, the Department of Commerce proposed two alternative solutions for the alleged harm caused by a glut of aluminum imports. Both solutions seek to restore domestic aluminum production to 80% of capacity utilization. This data may not surprise readers, as the Section 232 steel investigation recommendations include three steel policy alternatives constructed on the same premise.

What MetalMiner found most striking about both report recommendations involves the goal of restoring both the aluminum and steel — stainless steel, too — industries to 80% capacity utilization rates.

The DOC believes an 80% capacity utilization rate reflects a healthy industry. By healthy, the Department of Commerce in the Section 232 steel report acknowledged that, “Industry analysts note that utilization of 80 percent or more is typically necessary for sustained profitability, among other factors.” Moreover the Section 232 report for steel suggested, “For most capital and energy-intensive U.S. steel producers, capacity levels of 80 percent or higher are required to maintain facilities, carry out periodic modernization, service company debt, and fund research and development.” (Sources cited in the Steel Section 232 report included Market Realist’s “Why steel investors are mindful of capacity utilization rates,” October 2, 2014.) 

The aluminum analysis looks similar.

The aluminum report pointed to several factors as driving the need for the 80% capacity utilization rate. The DOC examined employment numbers, the dangers of overcapacity, declining R&D and fewer capital expenditures.

Of these arguments, some will seek to argue that employment is somewhat less important, as gains in efficiency and productivity could lead to a decline in employment. But clearly the overcapacity issue in general has forced all but Alcoa and Century Aluminum to declare bankruptcy. By poorer profitability, the industry will not effectively invest in R&D — because it can’t afford to — which will impact future military applications and capabilities.

Therefore, as with the steel industry, the 80% capacity utilization rate reflects a “healthy” aluminum industry with regard to profitability, efficiency and innovation.

Here is the National Security Argument

When steel and aluminum industries do NOT operate at 80% capacity utilization, the economic viability of the industry to produce materials in various war-time scenarios becomes tenuous. MetalMiner will cover this point more explicitly in our Section 232 steel analysis.

Certainly, when mills do not operate at healthier 80% utilization levels, the means to innovate and develop new products, improve production capacity and further increase efficiencies becomes more challenging.

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Aluminum Products

The Department of Commerce included almost all downstream aluminum products in its recommendations.

However, the scope of the investigation does not include bauxite or alumina, or feedstock for the production of primary (unwrought) aluminum.

The investigation also does not include aluminum waste, aluminum scrap, aluminum powders and flakes.  

(Editor’s Note: In the next part of this series, we’ll look at the domestic industry, other relevant findings and the potential impact on prices.)

The Stainless Steel MMI (Monthly Metals Index) jumped four points again this month for a February reading of 75.

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In January, skyrocketing LME nickel prices drove the Stainless Steel MMI. Nickel prices have climbed above the $13,000/mt level. 304 and 316 surcharges increased this month, returning to their previous levels.

LME Nickel

Nickel prices increased sharply during January. However, prices decreased slightly in early  February. As reported previously by MetalMiner, nickel price volatility has increased over the past few months. Therefore, nickel prices may prove quite tumultuous from a short-term perspective and are trading within the orange-dotted band in the chart below.

Source: MetalMiner analysis of FastMarkets

The long-term nickel price uptrend also remains strong. Prices have moved toward June 2015 levels and already breached our October 2017 long-term resistance levels, as per our Annual Outlook. Therefore, nickel prices remain in a strong uptrend and could continue increasing in the coming months.

Domestic Stainless Steel Market

Following the recovery in stainless steel momentum, domestic stainless steel surcharges increased this month. Surcharges remain above last year’s lows (under $0.4/pound); they remain in an uptrend, even if their pace has slowed. However, buying organizations may want to look at surcharges closely to reduce risks, either via forward buys or hedging.

Source: MetalMiner data from MetalMiner IndX(™)

FerroChrome vs. Chrome Metal

Two months ago, MetalMiner reported on the anomaly between ferrochrome and chrome metal prices.

Source: MetalMiner data from MetalMiner IndX(™)

Ferrochrome (FeCr) is a chromium and iron alloy containing 50% to 70% chromium by weight. Historically, Ferrochrome and chrome prices correlate tightly but the high iron ore prices caused ferrochrome to spike. However, both prices (ferrochrome and chrome) have fallen back to their historical trading pattern of moving together.

What This Means for Industrial Buyers

Stainless steel momentum appears in recovery, similar to all the other forms of steel. As both steel and nickel remain in a bull market, buying organizations may want to follow the market closely for opportunities to buy on the dips. To understand how to adapt buying strategies to your specific needs on a monthly basis, take a free trial of our Monthly Outlook now.

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The Raw Steels MMI (Monthly Metals Index) inched three points higher this month, reaching 86 points.

Steel price momentum appears to have continued as prices increased sharply in January. February has already signaled a continuation of this uptrend, with HRC prices breaching the $700/st level. HRC prices have reached the highest levels in more than two years and could continue to climb.

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Source: MetalMiner data from MetalMiner IndX(™)

The spread between HRC and CRC prices fell this past month, returning to the  $140/st level. Since the beginning of 2016, the spread between HRC and CRC prices increased to around $200/st. The spread has returned to normal levels, with HRC prices increasing more than CRC prices.

President Trump has yet to release results from the Section 232 investigation. Commerce Secretary Wilbur Ross sent his Section 232 steel report to Trump last month; the president has 90 days as of Jan. 11 to act on the report’s findings and recommendations.

Global Steel Sector

According to the World Steel Association (WSA), global production of crude steel increased by 5.3% during 2017. The world map below reflects some of the changes in steel production by country and the  impact on total steel output.

Source: MetalMiner analysis of WSA data

Chinese global production of crude steel increased by 5.7%. However, China’s exports fell to 75.4 million tons last year from the previous 108.5 million tons. Japanese production of crude steel decreased by only 0.1%, while U.S. crude steel production increased by 4%.

According to Eurofer, European steel demand could increase by 1.9%. In 2017, European steel imports fell by 1% due to defensive trade measures.

Shredded Scrap

Shredded scrap prices increased again in January, shifting the latest short-term downtrend to an uptrend. The long-term uptrend remains in place, and scrap prices have now moved together with U.S. steel prices.

What This Means for Industrial Buyers

As steel price dynamics showed a strong upward momentum this month, buying organizations may want to understand price movements to decide when to commit mid- and long-term purchases. Buying organizations with concerns about the Section 232 outcome and its impact on the steel industry may want to take a free trial now to our Monthly Metal Buying Outlook. Our Monthly Outlook will include a detailed analysis of the Section 232 outcome.

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Actual Raw Steel Prices and Trends

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The Copper MMI (Monthly Metals Index) traded lower this month, falling one point for a February reading of 87. The fall was driven by a slight retracement of copper prices, which had skyrocketed in December. In January, LME copper prices fell by 1.21%.

Despite the price retracement, LME copper prices held above the $7,000/mt level at the beginning of February, and fell below this level during the second week. Trading volumes still support the uptrend. Copper prices could continue their rally.

Need buying strategies for copper in 2018? MetalMiner’s Annual Outlook has what you need

Source: MetalMiner analysis of FastMarkets

Labor Disputes Could Threaten Copper Supply

Mine strikes continually threaten copper supply. BHP’s Escondida mine, the world’s largest copper mine, failed to develop a new labor agreement in advance of formal negotiations, scheduled for June. Last year, a 43-day strike at the Escondida mine impacted copper supply.

Since BHP’s Escondida copper mine produces around 5% of the world’s copper, it’s easy to see the impact of strikes on LME copper prices.

Meanwhile, Glencore forecasts its own copper output to increase by 150,000 tons at its Katanga mine in the Democratic Republic of Congo.

U.S. Dollar, Copper Back to Negative Correlation

Copper and the U.S. dollar maintain a strong negative correlation. The negative correlation gives the direction of the trends; when the U.S. dollar is weaker (downtrend), copper prices are stronger (uptrend).

The negative correlation did not hold during the first six months of 2017, nor did it hold for commodities and the U.S. dollar. However, the historical negative correlation has reappeared, as copper prices and the U.S. dollar now trade in opposition to one another.

The U.S. dollar in black. Copper spot prices in purple. Source: MetalMiner analysis of StockCharts

The U.S. dollar traded sideways during Q3 2017. Many analysts (not MetalMiner) started to believe  the U.S. dollar had reached a bottom.

MetalMiner, however, remained more bearish on the U.S. dollar, as the dollar did not give any clear signs of a trend reversal. The distinction between a short-term trend that could impact prices in one to three months, versus a long-term trend, which could actually impact a buying strategy becomes important. The fact remains, the U.S. dollar has fallen to a more than three-year low.

Copper Scrap vs. LME Copper

In January, copper scrap prices did not move with the LME copper price. LME copper prices fell  slightly, while copper scrap prices increased by 2%. Therefore, the spread between the two decreased slightly this month. We can expect these types of divergences in the short term, although the two tend to trade together over the longer term.

Source: MetalMiner data from MetalMiner IndX(™)

In January, several Chinese copper scrap restrictions went into effect. The Ministry of Environmental Protection announced that only end-users and copper scrap processors will be allowed to import. This restriction in effect removes Chinese traders from the copper scrap market.

What This Means for Industrial Buyers

In January, buying organizations had some opportunities to buy some volume. The weak U.S. dollar and strength of other base metals support the bull narrative for copper. As long as copper prices remain bullish, buying organizations may want to “buy on the dips.”  For those who want to understand how to reduce risks, take a free trial now to the MetalMiner Monthly Outlook.

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Actual Copper Prices and Trends

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After last month’s sharp increase, the February Aluminum MMI (Monthly Metals Index) inched up one point.

The basket of metals increased despite the slight retracement of LME aluminum prices.The current Aluminum MMI index reads 99 points, 1.0% higher than in January.

In January, MetalMiner anticipated a possible retracement in aluminum prices, as aluminum — and, generally, all base metals — increased sharply at the end of the month. LME aluminum prices fell by 2.8% in January from the previous 2-year high closing price in December.

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Source: MetalMiner analysis of FastMarkets

Aluminum prices inched lower during the first few days of February. Aluminum prices broke out of  their previous sideways trend back in August, providing a strong buying signal. As prices may continue to increase, buying organizations may want to understand how to better purchase aluminum, reducing both risks and costs.

U.S. Domestic Aluminum Market

The U.S. Department of Commerce sent the Section 232 report for aluminum products to President Trump in January. President Trump has 90 days (from January 22) to review and announce actions regarding the probe for aluminum products.

Meanwhile, domestic aluminum demand received a boost from stronger U.S. automotive and aerospace sectors.

Despite the fall in U.S. auto sales in January, aluminum producers see increased demand. Demand has increased so significantly that Novelis Inc., the biggest flat-rolled products maker, announced the investment of a new plant in Kentucky to support growing automotive demand.

U.S. Total Vehicle Sales. Source: TradingEconomics

Chinese Aluminum Market

SHFE aluminum prices currently trade lower than LME prices. Although the trends appear to be similar, SHFE aluminum prices fell further in January. Lower SHFE prices relative to LME aluminum prices lead to increased Chinese exports to Asia.

Source: MetalMiner analysis of FastMarkets

According to the latest Chinese customs data, Chinese exports of unwrought aluminum and aluminum products increased by 12.8% in December compared to December 2016 data. December exports also increased on a monthly basis by 15.8% over November’s figures.

Aluminum Premiums

U.S. Midwest aluminum premiums moved again at the beginning of February, and currently trade at $0.12/pound. The Section 232 investigation and uncertainty around the outcome has increased the volatility in the U.S. Midwest premium.

Other aluminum delivery premiums also increased this month. The CIF Japanese spot premium increased 12% over January, to $98.50-$110/mt from the previous $90-96/mt. The European duty-unpaid premium jumped by 8.1%, while the Brazil CIF duty-unpaid premium increased by 3%.

What This Means for Industrial Buyers

As expected after last month’s sharp increase, aluminum prices retraced in January. In bullish markets, buying organizations still have many opportunities to forward buy. Therefore, adapting the “right” buying strategy becomes crucial to reduce risks.

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Actual Aluminum Prices and Trends

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In January, some base metal prices increased sharply. This month, bullish sentiment in the industrial metals complex has extended to all base metals, as well as steel.

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Commodities remain bullish, while the U.S. dollar continues to look more bearish.

Back in Trends

Commodities (tracked via the CRB index) and the U.S. dollar have historically correlated negatively. This means that when one increases, the other decreases. The opposite also applies.

Despite this correlation, the first six months of 2017 showed a divergence in this trading relationship. Both the CRB and the U.S. dollar traded down.

Blue line is the U.S. dollar and black line the CRB index. Source: MetalMiner analysis of StockCharts

However, the historical negative correlation has returned.

The U.S. dollar has struggled to increase. The dollar has reached its lowest levels in more than three years, and appears unable to find a bottom. Meanwhile, commodities currently trade on a clear uptrend.

Oil prices breached our short- and long-term bullish levels and may still climb further.

Raw Materials

Raw material prices have slowed down this month after the sharp increase in December. Coal prices decreased sharply at the end of the month. However, they have held over the stiff $100/mt resistance level. Therefore, MetalMiner remains bullish on raw material price trends.

Iron ore and Coal prices. Source: MetalMiner analysis of TradingEconomics

Increasing raw material prices generally support industrial metal prices. Iron ore and coal, in particular, support steel prices.

What This Means for Industrial Buyers

As the signs of a bullish market remain in place, buying organizations may want to identify appropriate price signals to better plan purchases.

For those that want to reduce risk and costs, MetalMiner recommended buying some volumes on the buying dips in December, before base metals skyrocketed again.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

To learn more about how to better plan on-going purchasing requirements given metal price volatily, take a free trial now to our MetalMiner Monthly Outlook.

Windsor/Adobe Stock

The base metal trendline appears to have shifted sideways this month after skyrocketing at the end of 2017. Market observers can take comfort knowing that after a meteoric rise, it takes time for the price to “digest” previous gains.

Wondering how your copper prices compare to the market? Benchmark with MetalMiner

Source: MetalMiner analysis of StockCharts

Base metals prices remain in a more than two-year uptrend, and both base metals and steel seem to have additional upward momentum. MetalMiner expects more movement to the upside this year.

Some analysts have suggested a possible peak for base metals this year. When markets change from bullish to bearish, prices tend to move in a sideways trend. However, macroeconomics do not support the bearish case. For example, copper could face a double supply disruption caused by Chilean copper mines and the opaque supply chain of the scrap sector.

Despite the possibility that the base metals rally could actually have started to peak, the evidence of the bulls still seems to outweigh the case for the bears. No current indicators signal the end of this bullishness for base metals.

Instead, some of the warning signals tracked by MetalMiner strongly support a sustained bullish future for base metals.

The U.S. Dollar

The U.S. dollar fell to a more than three-year low this month. The U.S. dollar fell below previous minimums, which also suggests weakness. A weaker U.S. dollar typically correlates with a bullish market for both commodities and base metals. Therefore, this seems like a strong supportive fact for base metals in 2018.

Source: MetalMiner analysis of StockCharts

Commodities

Similar to base metals, commodities also traded more sideways this month than they did in December. However, we would expect this movement because the CRB index skyrocketed in December.

Source: MetalMiner analysis of StockCharts

Oil prices, which make up one of the largest elements of the CRB index, remain in a strong uptrend since June. Oil prices breached our long-term resistance level in November and climbed further in both December and January. Crude oil prices, currently around $63/barrel, could continue to climb  this year.

What This Means for Industrial Buyers

In December, buying organizations had some opportunities to buy some volume before base metals skyrocketed. With January’s slower price momentum, buying organizations may still want to identify appropriate price signals to better plan purchases.

Free Download: The January 2018 MMI Report

To learn more about how to better plan ongoing purchasing requirements given metal price volatility, take a free trial now to our MetalMiner Monthly Outlook.

Steel price momentum appears significantly stronger with the start of the year. Steel price momentum shifted in December, showing stronger upward movement.

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Despite the momentum, MetalMiner remains cautious about steel prices.

U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

The U.S. Department of Commerce’s Section 232 outcome might also add some support to steel prices this month and until the president makes a final decision. Secretary of Commerce Wilbur Ross released the report to President Trump on Jan. 11. The president has 90 days as of receipt of the report to take action. The contents of the report have not been divulged.

Plate Prices Move Up

Domestic plate prices increased again this week. Prices increased at the very end of 2017; plate momentum seems to have recovered from its previous downtrend.

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices tend to abruptly change price direction. Will this new set of prices signal a continuous uptrend movement for the steel industry? Steel price performance in Q1 will provide buying organizations with clues and road signals.

What About Chinese Steel Prices?

Chinese steel prices, however, currently trade lower than they did in December.

Contrary to U.S. steel prices, Chinese steel prices have held in an uptrend longer than U.S. steel prices. Therefore, we would expect some sideways movements.

Chinese capacity closures might offer additional support to steel prices this year. However, the Chinese government will maintain the current steel output and ensure steel quality meets the required standards.

Last week, the Ministry of Industry and Information Technology stated that China will have stricter rules to build new steel production capacity. Just up to one ton of new capacity will be built for each 1.25 tons of old capacity closed in environmentally sensitive regions. This measure will start this year, which may add support to steel prices.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

What This Means for Industrial Buyers

As domestic steel price dynamics showed strong upward momentum this month, buying organizations may want to closely understand price movements to decide when to buy some volume. Despite slowing Chinese momentum from the previous quarter, prices still remain strong. Buying organizations can expect some additional upward price movement this month.

For specific industrial buying strategies, take a free trial now to our Monthly Metal Buying Outlook. In addition, our February Monthly Outlook will include a detailed analysis of the Section 232 outcome.

The Raw Steels MMI (Monthly Metals Index) jumped another 1.3% this month, reaching 83 points in January.

Steel momentum seems to have recovered this month. All forms of steel prices in the U.S. increased sharply. Steel momentum typically begins during the middle of Q4, but the increase occurred later this past year. January’s numbers also look bullish.

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U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

In the U.S. market, January will prove to be a decisive month.

The U.S. Secretary of Commerce Wilbur Ross has until mid-January to conclude his Section 232 probes and release a report to the Trump administration, after which the president has 90 days to act.

Shredded Scrap

The long-term shredded scrap price uptrend appears to have turned into a short-term sideways trend. Despite steel price increases in December, January scrap prices decreased.

Source: MetalMiner data from MetalMiner IndX(™)

Decreasing domestic scrap prices do not currently support steel prices. However, steel prices appear to be on a sustainable upward trend. Therefore, scrap prices could follow steel prices this month and continue their long-term uptrend.

Chinese Prices Still Strong

Chinese steel prices and U.S. prices usually tend to move similarly. Thus, when one reveals a strong upward or downward movement, the other could follow within that month.

Chinese prices were stronger than U.S. steel prices during November and December 2017. After the latest increase in U.S. steel prices, Chinese prices also continued rising.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices have found support from the curtailment campaign in the country. Therefore, steel prices could continue increasing. Chinese Q4 GDP data, expected to show strength, also support Chinese steel prices. Chinese GDP data has come in over annual growth targets for the country.

What This Means for Industrial Buyers

As steel price dynamics showed a strong upward momentum this month, buying organizations may want to understand price movements to decide when to buy some volume. Buying organizations will want to pay close attention to Chinese price trends, lead times and whether domestic mill price hikes stick.

Buying organizations who have concerns about the Section 232 outcome and its impact on the steel industry may want to take a free trial now to our Monthly Metal Buying Outlook. Our February Monthly Outlook will include a detailed analysis of the Section 232 outcome.

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The Stainless Steel MMI (Monthly Metals Index) jumped six points this month, with a reading of 71. This reading ran higher than November’s (70), which then dropped to 65 for December before bouncing back for our January reading.

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Skyrocketing LME nickel prices drove the Stainless Steel MMI. However, 304 and 316 Allegheny Ludlum surcharges fell slightly this month.

LME Nickel Makes Big Jump

As reported previously by MetalMiner, nickel price volatility has increased over the past few months.

Nickel prices jumped from the $10,600/metric ton level in October to almost breaching MetalMiner’s current $13,000/mt ceiling.

Source: MetalMiner analysis of FastMarkets

Trading volume remains strong, aligned with the recent popularity of nickel in the base metals complex. Besides stainless steel, nickel’s popularity has increased due to usage in batteries and electric cars. Q4 brought more activity for metals that have a direct impact on electric cars.

Nickel macro-indicators may support this latest rally.

The nickel deficit will continue this year. The International Nickel Study Group (INSG) reported a wider nickel deficit again in 2017, now up to 9,700 tons. A nickel supply deficit may add support to the nickel bullish rally and could create additional upward movements this year.

Buying organizations may want to be aware of these movements to identify opportunities to buy on the dips.

Chinese Stainless Steel

As reported by the International Stainless Steel Forum (ISSF), global stainless steel production increased by 7.4% during the first nine months of 2017. China drove the gains, with an increase in production of 8.8%. Stainless steel prices decreased around 7% in East Asian ports.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese stainless steel coil prices increased slightly this month. Chinese prices remain higher than they were in Q2. However, there has not yet been a clear uptrend that signals prices may increase soon.

Domestic Stainless Steel Market

Despite the recovery in momentum of the Stainless MMI, NAS domestic stainless steel surcharges traded sideways this month. Despite trading flat, stainless steel surcharges remain well above last year’s lows (under $0.4/pound).

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Stainless steel momentum appears in recovery, similar to all the other forms of steel.

However, due to nickel’s high price volatility, buying organizations may want to follow the market closely for opportunities to buy on the dips.

To understand how to adapt buying strategies to your specific needs on a monthly basis, take a look at our Monthly Metal Buying Outlook or you can take a free trial now. 

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