Author Archives: Irene Martinez Canorea

The bullish trend has become even stronger.

Copper and zinc prices have joined the bullish trend led by aluminum in the latest rally, which started at the beginning of August.

This new uptrend in these three metals is accompanied by heavy buying volume — signaling a a bull market.

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As suggested in our article published Tuesday, aluminum prices have outperformed and broke out from their sideways trend.

Source: MetalMiner analysis of FastMarkets

Copper prices have decided to join in on the fun, and are also trending up again.

After the breathtaking rise that copper prices demonstrated at the end of July, prices are up again. A bullish sentiment has returned for copper.

Source: MetalMiner analysis of FastMarkets

Zinc prices have also hit their highest levels recorded since 2007, according to FastMarkets historical data, and point to a possible continuing uptrend. A rally in zinc prices occurred just after the sharp increase in aluminum prices. Buying trading volumes remain heavy, therefore the uptrend is underpinned by strong buying sentiment.

Overall Outlook

Although MetalMiner considers a variety of variables, indexes and data to analyze market sentiment, the most important variable is how metal prices behave.

Commodities have re-started a short-term uptrend after they lost steam at the beginning of the year. Meanwhile, industrial metals have moved from bullish (to nearly sideways/top, as we had even considered switching our industrial metal outlook to bearish but did not) to absolutely bullish again (mainly caused by these three metals rallies). The U.S. dollar has fallen relentlessly since the beginning of the year.

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What This means for Buying Organizations

Buying organizations should watch metal prices closely to determine the best strategy to commit long- and short-term purchases.

For more insight into forward buys and hedging, subscribe to our monthly reports.

Gold prices rallied during the first three months of 2017 on the heels of the presidential election and a weaker U.S. dollar.

However, gold prices showed some weakness during March and have traded sideways since then, with an average price of $1,250/ounce.

Source: MetalMiner analysis of FastMarkets

Gold prices have not been able to surpass the resistance level of $1,300/ounce, which would ensure the metal retain its bull market status.

In July, however, gold prices increased together with other base metals and commodities.

The U.S. Dollar

The U.S. Dollar weakness in 2017. Source: MetalMiner analysis of TradingEconomics

Gold prices received a lift from a weaker U.S. dollar.

A bearish U.S. dollar contributes to rising gold prices. The U.S. dollar is currently at its lowest level in a year and is close to its support level.

Source: MetalMiner analysis of TradingEconomics

The U.S. dollar could rebound from this support level and recover — or it may continue its sharp downtrend and show weakness. Gold prices could remain supported by a weaker dollar.

Stock markets

The S&P 500 has continued its uptrend since 2016. The index has reached an all-time high. The rising stock market may have kept a lid on gold prices this year.

However, the increase in stock markets has shown low volatility.

Low volatility periods (calm periods) are commonly followed by high volatility periods (storm periods).

We may be in the calm before the storm.

S&P 500. Source: MetalMiner analysis of TradingEconomics

What this means for metal buyers

Gold prices have lost steam and have traded sideways since March (with the exception of July’s bullish move).

A stronger U.S. dollar could drive gold prices down again. The opposite also remains a real possibility.

Buying organizations may want to watch the U.S. dollar closely.

stockquest/Adobe Stock

For three months, MetalMiner has claimed a sideways trend for aluminum. This sideways trend could both signal a market top or a price consolidation, and a continuation pattern of the bullish market that started last year.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The price increase in aluminum has coincided  with heavy trading volume, signaling a breakout of a price consolidation. Thus, we could see a bullish uptrend for aluminum, which means increasing aluminum prices.

Source: MetalMiner analysis of FastMarkets

As previously explained by MetalMiner, buying in a bullish market means buying organizations will want to identify opportunities to buy forward (hedge).

This new price increase, together with other strength in LME base metals (such as copper), may be the start of a new uptrend for aluminum.

The U.S. dollar has also continued to show weaknesses this year, providing a lift to base-metal prices. The CRB index is still in a long-term downtrend, but has shown a slight recovery in the short-term trend. The DBB index is currently in an uptrend, both for the long- and short-term.

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Buying organizations may want to buy forward given aluminum price dynamics, together with trading volume.

For more insight into forward buys and hedging, subscribe to our Monthly Metal Buying Outlooks.

The Raw Steel MMI jumped up four points this month to 75, increasing by 5.6% and returning  to 2015 levels, along with copper.

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Increasing Chinese steel prices have driven domestic steel prices this month. Both Chinese hot-rolled coil (HRC) and cold-rolled coil (CRC) prices have experienced an uptrend since the end of 2015. Chinese HRC prices increased 10.7% this month.

Source: MetalMiner data from MetalMiner index

Even though the degree of movement in U.S. steel prices as great as those seen in China, U.S. prices have continued to increase. While Chinese steel prices continue to increase, domestic prices may continue the same uptrend.

The Spread

Considering both U.S. domestic and Chinese HRC prices, the spread has continued to decrease this month. We would expect a drop in imports if the spread continues to decline. This would lend support to U.S. domestic HRC prices.

Source: MetalMiner data from MetalMiner index

Domestic Scrap

Meanwhile, U.S. shredded scrap prices declined 2.4% this month.

Falling  scrap prices could push domestic buyers toward scrap instead of other raw materials, and domestic steel prices could face downward price pressure.

However, the long-term trend in scrap signals rising, not falling, prices.

Source: MetalMiner data from MetalMiner index

Raw Materials

Both iron ore and coking coal prices have rallied during July.

Increasing raw material prices may create upward pressure in steel prices as production costs increase.

What This Means for Industrial Buyers

Steel momentum appears to have shifted upwards.

Buying organizations should watch commodities to analyze the signals for both the short- and long-term trends.

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Actual Raw Steel Prices and Trends

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The Copper MMI jumped five points to 78 for our August reading, a high not seen in more than two years (the sub-index hit 79 in January 2015).

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Copper has outperformed all the other base metals this month. LME copper prices increased by 7.8% in July.

The sharp increase in copper prices came after an announcement of a possible ban of copper scrap in China by the end of the year. The increase in copper prices was accompanied by heavy volume, which may signal a stronger uptrend.

However, volumes declined during the final days of July and the beginning of August.

Source: MetalMiner analysis of FastMarkets

The U.S. dollar has shown weakness since the start of 2017. The fall of the dollar during July coincided with an increase in copper prices. A weaker dollar commonly drives non-U.S. investment into commodities that are dollar-dominated (as copper is).

The U.S. dollar remains in a strong downtrend, touching lows not seen since May 2016.

Source: MetalMiner analysis of Trading Economics

What This Means for Industrial Buyers

Even though copper prices have increased sharply this month, a price retracement could occur  some time in August or September.

Copper price dynamics, together with volumes, will provide the signals to read the short- and long-term trend correctly.

Our Monthly Metal Buying Outlook informs buyers of the precise support/resistance levels (signals) to help decide when to shift buying strategy.

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Actual Copper Prices and Trends

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The Stainless Steel MMI jumped four points this month to 59, driven by an increase in most of the underlying metals that make up the index. That included big jumps for stainless steel coil prices in China and LME nickel prices.

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Stainless steel prices in China have recovered from previous lows last seen in May of this year. The increase in stainless steel prices coincides with increases in other forms of steel, such as hot-rolled coil (HRC) or plate.

Source: MetalMiner data

Stainless steel surcharges decreased again during July due in large part to chrome, which is negotiated quarterly, declining from $1.54/pound to $1.10/pound.

Chinese data released this month has driven positive sentiment in the steel industry.

The China steel Purchasing Managers Index (PMI) rose to a 15-month high in July, reaching a value of 54.9. The PMI increase was caused by stronger demand — mainly at the beginning of July — and reduced inventories.

Nickel prices also increased in July. Nickel prices rallied during the second part of July, together with other base metals, such as copper. Nickel prices have been driven by stronger demand from U.S. stainless steel buyers.

The current short-term uptrend appears weaker than the previous downtrend. Some additional movements may be expected to the upside, even though the commodities outlook remains bearish.

What This Means for Industrial Buyers

Steel and stainless steel prices are being driven this month by increasing Chinese prices. The Section 232 investigation, together with curtailing capacity in China, have also supported steel prices.

All forms of steel (including stainless steel) have recovered this month. However, MetalMiner remains cautious about this short-term uptrend until the overall commodity outlook becomes clearer.

U.S. stainless base prices have remained stable as the anti-dumping and countervailing duties levied against China have nullified the impact of Chinese prices into the U.S. South Korea and Vietnam have replaced China in Asian imports. For the short term, U.S. stainless buyers still have access to imports to complement the supply of U.S.-made stainless steel.

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Actual Stainless Steel Prices and Trends

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The Aluminum MMI inched two points higher in July, returning to 2015 levels.

The Aluminum MMI increase was driven by a  5% increase in Chinese primary aluminum. The LME price inched up by 1%, contrary to other base metals that have experienced higher price increases this month.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Analysis of supply and demand might suggest quite a bullish outlook for aluminum. According to a recent Hydro aluminum quarterly report, global primary aluminum production through Q2 of this year saw a .492 million metric ton deficit. However this deficit needs to be weighed against increased Chinese aluminum smelting capacity of up to 2.39 million metric tons this year, according to a recent article in Hellenic Shipping News.

Thus, we could see an oversupply situation.

However, going back to an earlier article on aluminum price direction, as expected prices have stayed between the two limits of what is called a wedge formation. Aluminum prices have traded  in a sideways trend since April. As stated above, aluminum prices, contrary to other base metals, have not jumped in July.

Aluminum prices tried to climb but instead, retraced back again with heavy selling volume, which commonly signals price weakness.

Source: MetalMiner analysis of FastMarkets

We would expect to see aluminum prices climb and remain in a bullish market.

The Gasoline-Aluminum Correlation

Buying organizations have told MetalMiner gasoline prices are correlated with aluminum prices.

Source: MetalMiner analysis of Fastmarkets and Trading Economics

Analysis of the two charts together suggest indeed the general trends move in tandem. Aluminum prices rose at the end of 2016, as did gasoline prices. It should not come as a surprise to MetalMiner readers that the two prices are correlated.

MetalMiner carefully considers overall commodity price trends for individual metal market analyses, of which oil is an important element for commodity analysis. When oil — and, therefore, gasoline — prices go down, aluminum prices tend to follow the same trend.

The longer-term analysis of gasoline prices reveals a sideways trend, which began during the spring of 2016.  What did the trend for aluminum look like compared to gasoline for the same time period? It looks the same!

The conclusion: Gasoline prices and aluminum prices are correlated.

However, when looking at shorter time periods, the degree of the price movements may be dissimilar. One can see that in the chart below. Gasoline looks like a good barometer for longer term correlation with aluminum but less so for short-term fluctuations:

What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point MMI increase suggests a bullish outlook, we would like to see aluminum ingot prices break out of a sideways trend with increased trading volumes before claiming a bullish market.

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Actual Aluminum Prices and Trends

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Felipe Peroni and Ana Paula Camargo of MetalBulletin spoke July 19 during a webinar about the Brazilian steel market — particularly, the slab market and hot-rolled coil (HRC).

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Brazil is the largest steel exporter in South America, with increasing production this year. Brazil exports primarily to the U.S. and Mexico, with Mexico serving as the second-largest steel producer in South America. According to preliminary U.S. Census Bureau for June 2017, the U.S. imported 590,473 metric tons of steel from Brazil, up significantly from the 259,285 metric tons imported in June 2016.

Source: TradingEconomics

Macroeconomics in Brazil

Brazil’s political crisis resulted in the impeachment of President Dilma Rousseff at the end of August 2016, which negatively impacted the economy and reduced investment activity in Brazil.

The lack of investments and spending have negatively impacted steel demand.

Although many expect demand to improve in the next few years, the Brazilian economy has not yet rebounded.  The recovery has taken longer than expected.

Source: MetalMiner analysis of MetalBulletin data

Brazilian GDP from construction has decreased since 2013. As construction activity has shown weaknesses, steel long products demand remains weak, as well.

Source: TradingEconomics

Even Brazilian auto sales remain in a downtrend since 2013 (when they last peaked).

Positive auto sector activity would positively impact flat steel market demand. Auto sales have increased by 22% this month. We’d expect to see more robust demand for hot-dip galvanized (HDG) and cold-rolled coil (CRC) steel.

Source: TradingEconomics

Brazilian Steel Drivers

In terms of domestic Brazilian steel prices, China is the main driver of the steel industry.

Both Chinese CRC and HRC prices have increased since April of this year. Considering a long-term perspective, the uptrend started in February 2016. Chinese steel prices, like they do in the U.S., also drive other domestic steel markets, including Brazil’s.

The latest increase in Chinese prices gave upward price momentum to Brazilian steel prices, together with the recovery of the steel industry. Brazilian mills increased margins to remain profitable.

Source: MetalMiner data

Iron ore prices also support the steel price uptrend. An increase in raw materials commonly goes along with an increase in steel prices, as production costs are higher. Oil and coking coal prices have also increased during July, adding price support.

Even though the Brazilian steel industry is recovering from its previous downtrend, it does not yet appear anywhere on the list of the top steel producers around the world. According to the Top Steelmakers 2017 edition published by MetalBulletin, the top Brazilian mill took 20th place.

What This Means For Industrial Buying Organizations

Even if Brazil is not currently a top producer of steel, the country currently exports steel to the U.S. If prices increase in Brazil, we expect U.S. buying organizations to source elsewhere.

In fact, buying organizations have reported to MetalMiner that prices for steel in Italy and Spain are some of the lowest in the world.

Free Download: The July 2017 MMI Report

Moreover, rising Brazilian steel prices point toward a general uptrend. Specific price dynamics will depend on the specific form of steel.

Further analysis and industrial buying strategies can be found in the Monthly Outlook Report.

TTstudio/Adobe Stock

Copper prices jumped to a five-month high on Tuesday. Chinese positive data (like the PMI and economic growth) and supply concerns have driven copper market sentiment, increasing the number of copper buyers and, therefore, the metal’s price.           

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Source: FastMarkets/MetalMiner analysis

Trading volumes,  for the first time this year, support the uptrend. Even if it is soon to be bullish on copper, copper could experience some additional price increases following this new uptrend. Investors  seems to be willing to buy copper. In particular, Chinese buyers have bought copper  based on lower stocks due to supply concerns, which also supports copper prices. 

MetalMiner indicated a ceiling price for copper at $6,000. Since the beginning of the year, copper prices have traded below this level. However, copper prices broke this psychological ceiling twice in July, encouraging traders — who actually move copper prices— to buy more copper.

Free Download: The July 2017 MMI Report

Based on historical analysis, when copper prices breakout over $6,444/metric ton and are supported by high trading volumes, that could signal a new long-term uptrend. Buying organizations should watch the U.S. dollar and industrial metals, very closely.  

A deeper analysis is discussed in detail in our Monthly Metal Buying Outlooks

stockquest/Adobe Stock

Aluminum prices have been in the spotlight since the beginning of the year.

Since June 2016, aluminum prices have risen. However, for the past three months, they have traded somewhat sideways.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Source: MetalMiner analysis of fastmarkets.com data

From a technical perspective, aluminum prices are trading in what is called a wedge formation, with prices fluctuating between the two main blue lines drawn in the chart above. Because the top line descends from a previous uptrend, which characterizes a bull market, this movement could suggest a market top. By observing aluminum prices this month, the market will show us whether aluminum has reached the top of its bull run and will fall, or if it will continue to rise.

If prices fall below the bottom blue line, it will signal to us that a major trend reversal has started. We would also expect to see heavier trading volumes for any shifts in trend. If not, prices will likely continue to move in a sideways direction. This statements works for both the upper and lower limits.

These types of triangle trading patterns show us when to buy on the dips when prices appear in their lower limit. Aluminum has counted two buying dips since prices began to fluctuate in May and June. As prices fluctuate between the triangle limits, a potential third dip could appear if prices retrace to $1,865.

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What This Means for Industrial Buyers

Although industrial metals remain bullish, commodities have shown a recent downtrend revealing price weakness.

Buying organizations that need to make aluminum purchases would do well by monitoring aluminum prices closely and taking action if prices break move outside the blue lines, as discussed in detail in our Monthly Metal Buying Outlook.