Author Archives: Irene Martinez Canorea

Precious metals dynamics have looked similar to base metals during these last couple of months.

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

The four precious metals (gold, silver, palladium and platinum) rallied since July, and peaked in September. In September, precious metals saw a price pullback, as did the base metals.

Gold spot prices (see graph below) reflect this movement perfectly.

After the price retracement in September, gold spot prices increased again. The gold rally that started at the beginning of 2017 appears set to continue. More movements to the upside could occur for the rest of the year.

Source: MetalMiner analysis of FastMarkets

Silver prices, however, have traded sideways, showing less of a bullish sentiment than gold. However, silver has shown the same price movements (in different price ranges) from July to October (see chart below).

Does this set the foundation for a new long-term uptrend?

Source: MetalMiner analysis of FastMarkets

As Fouad Egbaria noted: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.” Palladium prices rallied, as did gold prices, while platinum prices traded sideways, similar to silver.

Palladium prices. Source: MetalMiner analysis of FastMarkets

Platinum prices. Source: MetalMiner analysis of FastMarkets

However, both palladium and platinum showed the same price pattern since July. Those price movements may point toward an ongoing bullish market.

As reported by Reuters, the commodities outlook for Q4 looks bullish. MetalMiner also remains bullish on both commodities and base metals, and expects more movements to the upside while the U.S. dollar remains weak.

Free Download: The October 2017 MMI Report

A complete analysis of commodities and base metals for 2018 is published in our free Annual Outlook report. 

The Stainless Steel MMI dropped four points this month for an October reading of 63. The drop was driven by decreasing LME nickel prices, together with Chinese and Indian stainless steel prices trending downward.

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

However, stainless steel surcharges have increased this month. Buyers of stainless steel will see a new graphite surcharge starting in November. Outokumpu announced this new surcharge first and AK Steel shortly followed suit, explaining that production costs have risen. We expect to see other stainless mills announce similar surcharges.

This surcharge, a graphite electrode surcharge, came as a result of tighter global supply of graphite used in electrodes in the electric arc furnace (EAF) steelmaking process.

How is Graphite Used in the Steel Industry?

To better understand the impact this surcharge may have on stainless steel prices, let’s examine how graphite is used in the steelmaking process.

Graphite is a polymer of carbon that is used in the steel industry to produce steel (both stainless and carbon steel). Due to its heat and electric properties, graphite serves as the main component of the electrode, also known as a consumable. EAF production methods require the use of graphite electrodes, which require replacement every 8-10 hours.

Source: Industrial Efficiency Technology Database

Graphite prices, like other opaque markets, come as a result of direct negotiations between buyers and sellers.

Both the flake size and purity (large +80 mesh and XL flake +50 mesh) drive the negotiation process. Graphite prices have increased by 25-30% in the last couple of months on the back of improving steel demand. Prices are currently at $1,100/ton, still well below the 2012 peak of $2,800/ton.

Source: Northern Graphite pricing

Supply and Demand

China produces 70-80% of the world’s graphite supply; thus, the world depends, like it does for many metals, on China.

Back in the 1990s, China dumped graphite on the market to earn foreign exchange, which caused  graphite prices to decline.

Chinese mines remain small and seasonal, which means production appears lumpy and, in some cases, not guaranteed throughout the year.

However, recent environmental policies have impacted graphite mines.

This modernization and consolidation of the mining industry has translated to increased costs and lower production, caused by the closure of illegal miners and the elimination of marginal producers.

Moreover, China has imposed a 20% export duty on graphite and a 17% VAT to help protect its own industry. This has created supply concerns all over the world.

Both the European Union and the United States have declared graphite a strategic material. Furthermore, Hurricane Harvey impacted the domestic supply of needle coke (the primary raw material used to make graphite electrodes). This led to the  an increase in graphite electrodes spot prices up to seven times the previous contracted price.

In terms of demand, growth for flake graphite increased by 7.5% each year from 2004-2011. The steel industries rely on the flake graphite and therefore saw a price lift from increased steel demand. Graphite prices peaked in 2012, then fell for the next five years until 2017.

Source: http://northerngraphite.com/graphite-pricing/

Recently, graphite demand increased again due to battery demand (such as lithium ion batteries or vanadium redox batteries, among others).

In fact, graphite demand from lithium ion batteries has grown in six years from essentially nothing to around 130,000 tons per annum, which represents about 30% of the flake market. This battery demand will also support rising graphite demand (and prices).

What is Behind the New Surcharge?

The introduction of a new surcharge for stainless steel came as a surprise to MetalMiner.

Even an increase in graphite prices doesn’t explain the new surcharge, since prices in 2012 were much higher than they are now.

Here are the relevant questions to ask when considering the new surcharge:

  • What percent cost of an electrode is the graphite content? And what is the cost of that graphite per metric ton of steel produced?
  • What percent of the total cost to produce one metric ton of steel does the electrode represent?
  • How does the new surcharge reflect the actual underlying increased costs to produce steel?

To answer the first part of the first question — what percent cost of an electrode stems from the graphite content — we examined data from Graftech, the largest graphite electrode producer. We discovered the following cost breakdown to produce an electrode:

Source: Graftech

Please note the 44% coke represents the graphite portion of the electrode. So, the answer to our question is 44% — that is, the graphite content is 44% of the electrode cost structure.

Now, when we consider the average consumption of graphite in the steelmaking process and the current average price of graphite, we can create a back-of-the-napkin model of the cost of graphite per metric ton of steel produced:

Source: ENTEC. EU Emissions Trading Scheme (ETS)

The average amount of graphite consumed in electrodes on a per-metric-ton basis ranges between 1-5 kg/mt of steel. Our model, therefore, uses an average consumption of 2.5 kg/mt steel for purposes of this cost build-up. The total cost of the graphite per metric ton of steel is $2.75.

Now we need to address the second question: how much of the total cost to produce one metric ton of steel do electrodes represent?

The answer, according to the table below, is $43.22/mt — or 9% of the total cost.

Source: http://www.steelonthenet.com/cost-eaf.html

So, Does the Surcharge Amount Make Sense?

Outokumpu published an electrode surcharge at 30 Euro/mt. Our “should-cost” model results in quite a different number.

Perhaps a bold buying organization will take this into their next mill negotiation to have the mill explain its model in detail.

Are we missing something? Drop us a line at research@metalminer.com. 

Actual Stainless Steel Prices and Trends

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

The Copper MMI dropped this month four points as the industrial complex took a breather during September.

LME copper prices fell more than $500/metric ton during September, which has driven the decrease in the MMI value.

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

Source: MetalMiner analysis from FastMarkets

However, market watchers can see a new rally taking place within the base metals industry. Copper prices — along with lead and tin — increased sharply on heavy trading volumes. Buying organizations can expect upward movements within the bullish market.

In September, copper prices pulled back. Rallies and pullbacks occur frequently in a bullish environment, as base metal prices need to retrace to continue the upward movements.

For now, this uptrend appears sustainable.

Copper Scrap vs. LME Copper

Copper scrap serves as an alternative source of raw material to LME copper. Global copper production using scrap currently accounts for 12% of all copper production.

Therefore, MetalMiner has started to track copper scrap usage and its impact on LME copper prices.

Source: MetalMiner data from MetalMiner IndX(™)

According to FastMarkets, China appears to have enforced restrictions on copper imports. Those measures resulted in quota cuts and fewer licenses to various Chinese regions.

Although a complete ban on scrap copper imports has yet to be confirmed, analysts still speculate the ban could impact up to seven different types of scrap copper imports.

China, of course, serves as a major global buyer of copper scrap. However, Chinese scrap copper imports fell in 2016. This year, increasing LME copper prices resulted in an increase of alternative sources of copper.

Chinese scrap copper imports are up by 14% this year. Some analysts suggest that Chinese buying organizations may be shoring scrap copper supply to avoid shortages next year.

What This Means for Industrial Buyers

As Chinese scrap copper imports are rising, buying organizations may want to monitor copper scrap prices closely to understand the impact on LME copper prices.

For LME copper prices, buying organizations may want to read more about our longer term copper price trends with our free Annual Outlook. In bullish markets, it pays to quickly adapt one’s buying strategy to reduce risks.

Free Sample Report: Our Annual Metal Buying Outlook

Actual Copper Prices and Trends

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

The Raw Steels MMI decreased by three points, falling to 79 for our October reading.

The drop is mainly driven by a steel industry that has slowed. Domestic prices appear  to have lost momentum, while Chinese prices started October a bit weaker than they finished in September.

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

Source: MetalMiner data from MetalMiner IndX(™)

U.S. HRC prices have not given signals as to which price direction they may take.

Chinese steel prices drive U.S. domestic prices. Since April, Chinese HRC prices increased. In September, Chinese steel prices also increased, although the pace of the increases slowed.

However, prices have begun to slip during the first few days of October. Market watchers should not yet draw any significant conclusions, but they will want to keep an eye on Chinese HRC prices. Chinese prices typically lead U.S. steel prices, and that is how they serve as a price driver to domestic prices.

The Spread

MetalMiner tracks a number of “spreads” within the steel industry. In this case, the spread to watch involves the price of HRC in the U.S. against HRC in China.

Early readings in October suggest that the spread might have started to increase again. The lower the spread, the less Chinese steel imports are, and the more buying organizations buy steel from domestic steel mills.

Source: MetalMiner data from MetalMiner index

Raw Materials

The Raw Steels MMI tracks a number of materials, including iron ore, coking coal, pig iron and scrap, among others.

September resulted in a general slowdown after the rally in industrial metals. Steel has not participated in the latest industrial metals rally.

Iron ore fell sharply this month. From a long-term perspective (see chart below), coking coal prices have seen an uptrend since 2016.

Long-term Coal prices. Source: MetalMiner analysis from TradingEconomics

The short-term trend also suggests a rising price for coking coal. However, coal prices fell in September. Lower coking coal prices do not act as a support for steel prices. When raw materials prices decrease, steelmakers have no reason to increase prices.

Short-term Coal prices. Source: MetalMiner analysis from TradingEconomics

Scrap prices also fell slightly this month. Rising scrap prices act as a support for steel prices.

Source: MetalMiner data from MetalMiner index

If raw materials increase in price, then steel producers have an easier time getting price increases for steel.

The chart above shows how HRC and scrap prices trade in the same general trend. Even if price movements vary in their magnitude, the direction and general dynamics remain similar for both. Therefore, buying organizations may want to follow scrap price dynamics to understand how steel prices may react together with scrap price trends.

What This Means for Industrial Buyers

Steel price dynamics slowed down this month. Even the industrial metals and commodities suggest that though we might expect steel to become more bullish, we need to see how steel prices react to the market.

Buying organizations will want to read more about our longer-term steel price trends with our free Annual Outlook.

Free Sample Report: Our Annual Metal Buying Outlook

Actual Raw Steel Prices and Trends

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

The Aluminum MMI remained flat this month, holding at 97 for our October reading.

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

After skyrocketing in August, aluminum prices took a breather in September, as attention turned to other base metals, like zinc.

Source: MetalMiner analysis of FastMarkets

Aluminum traded sideways in September. This trading pattern suggests resilience, as aluminum prices digest price gains and become strong again to continue the uptrend. Trading volumes continue to support the current rally, driving aluminum prices to a five-year-high in September.

The rally has also taken place on the Shanghai Futures Exchange (SHFE), which follows the same trends as the LME. Late last month, aluminum prices reached a six-year-high on the SHFE.

However, aluminum recovered strength during the first week of October. Aluminum prices — and other base metals, like copper and zinc — posted gains during the first week of October. Aluminum prices could break a new resistance level again. Trading volumes remain heavy, which means that aluminum strength may continue this month.

From a domestic market perspective, the natural disasters of Hurricanes Harvey and Irma supported aluminum prices. Aluminum demand will receive a boost in the mid-term, as automotive production will likely not slow down as previously predicted.

Even if automotive production does not increase, automotive material substitution will prevent aluminum production from dropping. Aluminum demand will likely also receive a lift in demand from screen, window and patio enclosures damaged by the storm.

Indian Aluminum Market Trends Up

When talking about aluminum, most analysts, including this publication, talk about China, which remains the 800-pound aluminum gorilla.

According to the International Aluminum Institute (IAI), China accounted for up to 53.3% of aluminum production in August. U.S. and Asia ex-China (where India is included) each account for 6.8% of primary aluminum production. Even though that number appears drastically lower than China’s, it still represents a nice slice of the proverbial pie. Therefore, metal-buying organizations will want to pay attention to India.

The Indian primary aluminum cash price has been in an uptrend since the beginning of 2016. When comparing this chart with the LME aluminum (see chart above), Indian prices rallied twice, in January and August of this year.

Although Indian prices decreased slightly in September, a strong uptrend continues for the Indian aluminum market.

Source: MetalMiner analysis of MetalMiner Index

As our own Sohrab Darabshaw reported last week, “A recent report by professional services agency KPMG has said demand for non-ferrous metals, including aluminum and copper was likely to grow around 8% over the next five years.”

Therefore, it makes sense for buying organizations to monitor the Indian aluminum market.

What This Means for Industrial Buyers

As aluminum remains in a bullish market, adapting the right buying strategy becomes crucial to risk reduction and knowing when to buy.

A deeper analysis of aluminum markets will be released this week via our free Annual Metals Outlook Report.

Actual Aluminum Prices and Trends

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

Windsor/Adobe Stock

After two months of a breathtaking industrial metals price rally, September has shown pretty significant price pullbacks for August’s outperformers (nickel and copper).

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

Some prices have increased by more than 18% (copper) over the past two months, so these pullbacks should come as no surprise.

However, when many analysts study this kind of a chart such as the one shown below, some might scream bloody murder and declare a full on nickel bear market.

Source: MetalMiner analysis of FastMarkets

And we can’t lie — nickel prices fell sharply this month on heavy trading volumes. On the other hand, prices went up with about the same momentum last month. Now, prices appear at levels last seen in August.

Looking at the nickel outlook, rising stainless steel demand has boosted nickel prices so far. As reported by Ingrid Sternby, senior research analyst at Blenheim Capital Management, approximately two-thirds of world nickel demand comes from stainless mills.

UBS has increased its stainless demand growth to 3.5% for 2017 and 6.2% for 2018.

What is Going on With the Other Base Metals?

To better understand this short-term downtrend, let’s take a look at the price trends for other base metals.

Copper has retraced and the general downtrend has slowed down this month. However, the CRB commodities index has increased, something we had suggested might happen and something that signals a potential bull run.

Even if the chart for nickel looks bearish, some other base metals are still supporting the base metals bullish sentiment. Aluminum and zinc, which both started the rally this summer too, have shown resilience this month. Therefore, the nickel price downtrend does not equate to bearish sentiment (or changing an organization’s buying strategy).

Aluminum price. Source: MetalMiner analysis of FastMarkets

Zinc price. Source: MetalMiner analysis of FastMarkets

What Does This Mean for Buying Organizations?

Buying organizations will want to understand price signals together with trading volumes to properly react and adapt buying strategies to price changes.

MetalMiner will publish a free Annual Outlook Report this week that will summarize the drivers and price trends for 2018.

Free Download: The September 2017 MMI Report

However, consider subscribing to our Monthly Metal Buying Outlook in order to get the most out of this report and better understand the buying strategies.

Given the recent price rallies in base metals, the market can continue to expect upward movements. The bull party winners — copper, aluminum and zinc — experienced rapid price increases while lead and tin have languished (tin more so than lead).

Source: MetalMiner analysis of FastMarkets data

However, lead prices appear to have joined the bull party, as prices have increased for five consecutive days. Trading volumes appear high, which means that a new uptrend may have started for lead.

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

Lead and zinc are often discussed in tandem. Between those two metals, zinc has shown greater price strength, with prices recently rallying to their highest levels in more than 10 years. Lead, meanwhile, has been the “shy sibling” during the last couple of months, prices have started to sharply increase.

Fundamentals also look favorable and support the price rally.

The Chinese environmental campaign has heavily impacted lead. According to research group Antaike, 80% of illegal secondary smelters have been shut down during the second half of 2017. China has also lost an important source of raw materials from North Korea due to its commitment to international sanctions.

Free Download: The September 2017 MMI Report

What This Means for Industrial Buyers

Even if there is still room for additional lead price increases, buying organizations will want to watch the behavior of both lead prices and trading volumes. Heavier trading volumes will signal an official lead price rally.

To better understand how to adapt industrial metal buying strategies for the metals that you purchase, take a look at our Monthly Metal Buying Outlooks.

quka/Adobe Stock

In August, base metals experienced a breathtaking rally in prices.

Two-Month Trial: Metal Buying Outlook

For example, aluminum and copper increased by 8% and 9%, respectively. Bullish sentiment dominates the overall industrial metals market. A weaker dollar has also accompanied the uptrend in base metals (although the dollar has had less of an impact this year than it has historically).

Why is Tin Trapped?

Contrary to other base metals, tin appears  trapped in the $19,000-$21,000 range since the beginning of 2017.

While tin has seen less volatility than other base metals, such as copper, it refuses to give signs of moving either up or down. Tin seems to be trading sideways.

Source: MetalMiner analysis of FastMarkets

Looking at fundamentals, tin appears headed for a 22,000-ton deficit for 2017, according to the International Tin Research Institute (ITRI). This supply shortfall, in theory, should act as a price support to tin.

Trading volumes appear stable, too, and are not yet pointing toward any specific direction.

How Have Other Base Metals Traded So Far?

September has started with a general fall in base metal prices, with copper prices seeing the biggest decline.

Source: MetalMiner analysis of FastMarkets

Aluminum, nickel and zinc prices have also fallen since the beginning of this month. The current downtrend is a price pullback — a normal pattern we see after big price gains.

Buying organizations might want to analyze price movements and trading volumes to commit to purchases.

In bullish markets, like we have now, buying organizations can adapt their buying strategies to  time purchases.

Free Download: The September 2017 MMI Report

To understand how to adapt a buying strategy to your needs, dive into our deeper analysis in our Monthly Metal Buying Outlooks.

The Stainless MMI has inched eight points higher this month, reaching July 2015 levels. The increase was driven by higher nickel prices, together with an increase in stainless steel surcharges.

Stainless steel surcharges have increased this month after decreasing month-over-month since April.

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

Source: MetalMiner data from MetalMiner IndX(SM)

Despite the uptick in the Stainless MMI, however, many analysts believe stainless steel will fall  in the upcoming months.

Even if the increase in prices for global stainless steel flat products increased by 6% during the first months of 2017, Oliver Spaltman, senior market analyst for Steel & Metals Market Research (SMMR), estimates that the full-year demand growth in 2017 will be 4%.

In early September, the U.S. Department of Commerce launched anti-dumping and countervailing duty investigations on stainless steel flange products from China and India. The U.S. International Trade Commission (ITC) is scheduled to make its preliminary determinations in the investigations Oct. 2.

Source: MetalMiner analysis of FastMarkets

Nickel prices began falling in early September from their previous peak. However, the uptrend remains clear and strong; we could see upward movements in the coming months.

Higher demand, boosted by Asian battery makers, has aided nickel’s rally. The Chinese electric vehicle market has grown during 2016 and 2017, producing 43% of the worldwide electric vehicle fleet in 2016. If this trend continues, Asian automotive Original Equipment Manufacturers (OEMs) might support nickel prices with their higher battery demand. Also, the latest increases for nickel prices come down to trader sentiment around nickel deficit concerns.

What This Means for Industrial Buyers

Both steel and stainless steel do not appear to follow the same recent increase in industrial metals prices as other base metals.

Every steel form has lost some of its price momentum, but has still notched some increases this month.

To understand how to adapt the buying strategy to your needs, dive into our deeper analysis in our Monthly Metal Buying Outlook.

Free Sample Report: Our Annual Metal Buying Outlook

Actual Stainless Steel Prices and Trends

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

The Raw Steels MMI increased again this month by seven points, returning to 2014 levels.

The increase came as a result of rising Chinese steel prices, which have rallied since April 2017.

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

Early September data reveal that Chinese hot-rolled coil (HRC) prices increased quicker than U.S. HRC prices.

Domestic steel prices, including HRC prices, mostly held steady in August. The spread between the two has fallen by 5% since the beginning of August. Rising Chinese prices typically lead to reduced imports overall, as U.S. prices become more competitive.

Chinese steel prices have been boosted by better-than-expected demand, together with supply concerns.

China Data Creates Uncertainty

China remains the dominant player in steel market.

Thus, Chinese economics serve as one of the most powerful indicators of the steel industry.

Chinese economic data, however, has created some uncertainty around the steel market. Even if the market expects a correction, economic indicators still reveal positive data.

Yet, some analysts believe China remains in a bubble set to explode at any time.

Raw Materials Show Some Weakeness

Steel prices also take their cues from raw material prices.

Steel prices commonly move together with iron ore, coking coal and steel scrap prices. Raw material price dynamics slowed in August. Both iron ore and coal prices have increased slightly, but showed some weaknesses during the middle of the month.

The previous uptrend for both iron ore and coal comes down to solid demand from China, as steel production has increased this year. However, July iron ore import data reveals a decrease of 8.9% from June’s reading, and 2.4% below last year’s reading. The lower import levels may signal possible future softness in the demand of this commodity. Chinese iron ore has increased by 2%, while Korean pig iron prices decreased by 0.44%.

What This Means for Industrial Buyers

Steel momentum appears to have lost some steam.

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

Free Sample Report: Our Annual Metal Buying Outlook

Actual Raw Steels Prices and Trends

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