Author Archives: Irene Martinez Canorea

The Raw Steel MMI inched three points higher in June, increasing by 4.4%. The index hit 70-plus for just the second time this year (the first coming with March’s 70).

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The Chinese steel industry generally drives steel prices. Steel prices in China have increased during June, caused by the 23.3% jump in coking coal prices. However, this month’s uptrend counters the short-term downtrend that coal has experienced since February, which has largely driven steel prices down.

Source: MetalMiner analysis of TradingEconomics data

This downtrend in raw materials applies to both coal and iron ore. Although iron ore prices increased a bit this month, iron ore remains in a downtrend. Therefore, steel prices are at risk of following that downtrend.

Source: MetalMiner analysis of TradingEconomics data

The spread

The spread between Chinese hot-rolled coil (HRC) and domestic HRC prices has also narrowed this month.

The spread has continued to drop despite rising domestic HRC prices because Chinese HRC prices have also increased. A rising Chinese HRC price would lower U.S. steel imports, although imports have reached their highest levels since 2014.

If Chinese HRC prices increase, U.S. steel imports will decrease and lend support to domestic HRC prices.

Source: MetalMiner analysis of MetalMiner IndX data

Political uncertainty, the Trump administration’s Section 232 investigation recommendations and the recent G20 summit have only fueled price uncertainty. The outcome of these events will possibly have an effect on steel prices.

MetalMiner believes the delay in the release of the 232 recommendations — which were previously expected to be announced by the end of June — could cause U.S. steel prices to reverse this last month’s upward trend.

What This Means for Industrial Buyers

Though the Raw Steels MMI inched up this past month, scrap prices may be trading flat to slightly up from last month. However, the underlying trends do not suggest rising prices. The Section 232 investigations will yield additional clues.

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Actual Raw Steel Prices, Trends

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The Copper MMI inched two points higher in July, driven by the recovery of the LME Copper 3-month price, which has been bounced off its previous lows and has increased by 4.98%. The copper MMI is back to April’s levels.

Analysis of supply and demand might suggest quite a bullish outlook for copper. Supply and demand has indeed driven copper prices in June.

During this past month, strikes have eased and production ramped up again. Even the strike at Freeport mine in Indonesia, the world’s second-largest copper mine, is set to continue and production will likely remain the same.

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On July 4, mining company Antofagasta announced it, too, might face a strike. This strike could impact two copper mines: Zaldivar and Centinela. The decision will be made at the end of this week. Chilean mining company Antofagasta Minerals is one of the largest global copper producers, with a combined annual production at both mines of 160,000 tons.

The International Copper Study Group (ICSG) has announced a possible supply deficit for this year. This is based on June’s released data on copper world mine production, which is estimated to have decreased by 3.5%, and world refined production, which is estimated to remain unchanged.

However, LME copper prices have started July with a five consecutive days of drops. Although June suggested a slight uptrend for copper, MetalMiner does not believe the uptrend is sustainable, as I reported in last Monday’s copper article

Source: MetalMiner analysis of FastMarkets

The LME copper price has not been able to break its psychological ceiling of $6,0000/metric ton. Moreover, recent weakness at the beginning of July, combined with poor trading volumes, suggests further weakness. Unless trading volumes shift, they are not supportive of copper prices.

The U.S. dollar and Chinese PMI indicators have historically shown correlation with copper prices. Even the U.S. dollar has shown a little uptrend during June, but its downtrend may continue, which would negatively impact copper prices. The short uptrend that has boosted copper prices during May and June has been caused by supply concerns.

U.S. Dollar. Source: MetalMiner analysis of StockCharts

The Chinese Manufacturing PMI rose unexpectedly to 50.4 in June. But this small increase may just be a blip. Current sentiment suggests Chinese demand may once again fall, as authorities are still working to curb financial risks.

In addition, the construction sector has fallen during the first quarter of 2017 by 83% (measured by value).  

What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point increase and the supply-and-demand narrative suggests a bullish outlook, we would like to see a stronger uptrend and increasing trading volumes to support a more bullish narrative.

Actual Copper Prices and Trends

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The Stainless Steel MMI inched one point higher to 55 for our July reading, finding itself at the level as the July 2016 reading.

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This is the first increase for this sub-index since March 2017, when the Stainless Steel MMI reached 63 points after a four-point increase.

Surcharges in the U.S. mill surcharges have decreased sharply this month. Reductions have been recorded on a month-to-month basis, resulting in a 17.8% reduction for ATI’s 316 surcharge and 19.9% for their 304. MetalBulletin also reports a reduction in the alloy surcharges in Europe. Deliveries of grade-304 cold rolled stainless steel sheet have fallen by €52-62 ($58-69) per ton month-on-month.

Global prices of ferrochrome, one of the raw materials used to make stainless steel, has dropped to lowest levels this year. This reduction is caused by weaker demand from stainless steel mills in China, currently the top producer of stainless steel, as reported by Reuters. Two of the largest stainless producers in China (Taiyuan Stainless and Tsingshan Group) blame weaker demand on increased stocks of ferrochrome in Chinese ports.  

The U.S. manufacturing PMI fell to 52.1 in June from 52.7 in May. This indicator has fallen below market expectations of 53, revealing a slowdown in business growth. Manufacturing PMI is at its lowest value since September 2016.

Chinese economic indicators, meanwhile, point to a moderation in Chinese growth.

China’s GDP is also expected to fall 0.1% this quarter. The Caixin Manufacturing PMI in China has increased this month to 51.70 points, 2.1 points above its previous value. This growth has beaten the market expectations of 49.5, caused by the faster rate of exports and output in the Chinese manufacturing industry.

The Section 232 investigations for both aluminum and steel (including stainless steel) have created additional price uncertainty. Europe is now beginning to express its concerns about the possible outcome of the investigations. A report on the investigations is due by January 2018, though there is speculation that Commerce Secretary Wilbur Ross will release his recommendations in July.

Nickel prices have also shown weakness this month, reaching an 11-month low of $8,680/metric ton. Recently, nickel saw a stabilization in its supply. The export ban has eased in Indonesia, allowing the country to maintain its position as the world’s largest nickel producer.

What This Means for Industrial Buyers

The boost in stainless steel prices that comes from China counters the reduction of stainless steel surcharges this month. Political and macroeconomic indicators should also be watched closely.  

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Actual Stainless Steel Prices, Trends

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The Rare Earths MMI inched one point higher, reaching 22 points in July. This sub-index increased almost 5% from the previous reading.

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Rare earth prices have continued their uptrend that began in March.

Samarium oxide rose by 8.5%, while terbium oxide increased by 5.9%. Meanwhile, the dysprosium oxide price continued to fall slightly, posting a price drop for the second straight month. 

What’s Going On in the Background?

China currently produces around 85% of rare earth metals. Supply is, therefore, restricted to Chinese production and environmental policies.

With growing demand due to the investment in renewable sectors, such as electric cars and wind turbines, investment in rare-earth metal production remains critical.  

South Africa could play a strategic role in rare-earth metals supply.  The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths. 

In addition to South African rare-earth production, Canada’s Mkango Resources confirmed its  plans to start mining from its Songwe Hill mine in Malawi within three years.

By 2021, the mine will produce about 3,000 tons per year of rare earths. The mine will produce  1,000 tons of praseodymium, neodymium, dysprosium and terbium, according to a recent Reuters article.

The Mountain Pass mine, located in California, is struggling to reopen due to a long-running fight between distressed debt investors. Since Molycorp filed for bankruptcy, due to spending on an experimental ore-processing system, its mine has been caught between the feuding creditors.

The court process remains in its early stages— depending on the outcome, Molycorp could lose its rights to run this mine.

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What This Means for Industrial Buyers

Rare-earth metals seems to show signs of a bullish narrative. However, dysprosium oxide finished June weaker than it finished May, which potentially points to a good opportunity to buy.

Actual Rare Earth Metals Prices and Trends

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Copper is commonly considered to be a proxy for the general economy by metal analysts — hence the name “Dr. Copper.”

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During this last year, both political and supply and demand concerns have driven LME copper prices up. Despite a small price dip in May, those prices continued to increase in June.

Source: MetalMiner analysis of FastMarkets

After Donald Trump won the presidential election, copper rallied and surpassed its previous psychological price ceiling of $6,000/metric ton.

However, copper has failed to continue that initial uptrend.

Although copper supply concerns during the first quarter helped sustain price momentum, these same supply concerns eased in April and slowed copper’s price rise.

Most copper analysts believe copper prices will likely increase on the basis of fundamentals like  supply and demand only. Alternatively, MetalMiner sees copper prices declining, not as a result of fundamentals, per se, but as a result of a rising U.S. dollar index (USD) and a falling commodities index (placing the historical inverse relationship between the USD index and commodities back in play).

Chinese demand has improved during June, and, consequently, prices increased this month. However, current economic indicators suggest this demand may fall, which would cause copper prices to slip.

Automotive sales within China have risen from April to May, which may have provided a short-term lift in copper prices. However, if analyzing automotive sales compared to last year’s data, sales have only held steady; therefore, we do not see a growing automotive sector or increased demand for copper and the subsequent lift in copper prices.

Free Download: The June 2017 MMI Report

It should come as no surprise then that even  “Dr. Copper” has reflected a price uptrend this June — but future prices may not be as bright as expected for copper traders.

Buying organizations will want to evaluate indicators this month and follow the detailed analysis in our monthly forecast reports.

A magnifying glass is on steel, particularly Chinese steel.

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

The U.S. Department of Commerce’s Section 232 steel and stainless steel investigation appears to be under the watchful eye of European leaders.

In that vein, newly released Chinese data has not gone unnoticed.

Read more

So far, June is busting out all over, but not in the way metals producers would like.

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

Market observers may actually observe a possible change in trend (note: the current bull market, which began in May 2016, appears to have run out of steam).

First, the Fed hiked interest rates by 0.25% last Thursday. Though expected, it will most likely not impact markets in an abrupt way.

Let’s take a look at some of the key indicators:

Dollar Up

Source: TradingEconomics.com

The most recent Fed rate hike breathed a little life into the dollar, which has fallen for most of this year.

We believe this could have a direct impact on the metals industry — namely, causing prices to fall.

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Similar to other base metals, tin prices have started a gradual decline, starting from the beginning of June.

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

A market analysis of tin prices and trading volumes suggests a more bearish scenario for tin.

The chart below shows both a sharp drop in tin prices accompanied by heavier selling volume, also known as a “selling climax,” and may be perceived as a signal of a bearish market to follow.  

Source: Fast Markets

According to the International Tin Research Institute (ITRI), the fluctuation of tin stocks has varied based upon tin prices in the market. Indonesian exports remain robust, with an increase of 10% in May compared to April. However, Myanmar tin exports decreased slightly again in May. This reduction of Myanmar output is expected to continue until the end of this year, as analyzed in detail in our monthly forecast reports.  

Chinese VAT removal could lead to price convergence

Tin prices may also be influenced by the approval of a new Chinese policy that will directly impact  the largest tin-producing company in China, Yunnan Tin Company.

This policy consists of the removal of the valued-added tax (VAT) structure, which taxes imports of tin concentrates and was supposed to provide a tax rebate of 17% on exports.

The catch? Exporters were never able to collect the rebate, so they ended up buying tin exclusively from domestic sources.

According to ITRI, by removing the VAT rebate scheme, the new policy will likely cause exports to increase and prices to rebalance between the London Metal Exchange (LME) and China.  In other words, the two prices will likely converge — China’s may come up and the LME price may fall.

We believe tin prices will move close to support levels — and may eventually fall below this limit.

Free Download: The June 2017 MMI Report

Considering the current situation and the sideways trend of commodities, tin should be analyzed closely this month.

What’s up — or should we say, down — with zinc?

Source: Fast Markets

Together with other base metals, zinc has experienced a downtrend during this past week, reaching a seven-month low on Wednesday. Since then, it has recovered slightly up to $2,540/metric ton.

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

Zinc is moving together with commodities and industrial metals, both of which have experienced a weaker start to June. These weaknesses began in the beginning of 2017, as zinc prices failed to reach new highs, turning into a sideways market.

Other metals, such as tin and lead, have also experienced lower prices during the first week of June, which could be a signal of a general trend reversal. We do not believe zinc will succeed in surpassing its previous $3,000/mt upper limit.   

In fact, zinc could be at the start of a downtrend.

Read more

The June Stainless MMI follows its prior three-month trend, dropping 3 points again this month to end up at a value of 54. With the 5.3% loss, the sub-index is coming back to the same levels as one year ago.

The steel (and stainless steel) industry has always been strongly influenced by political issues. Now that the trade cases have largely been decided, the Trump administration’s Section 232 investigation will likely have an impact on domestic steel markets, including the stainless steel sector. Recommendations will likely be released in July.

Steel capacity utilization has increased this past month, according to the American Iron and Steel Institute (AISI). We’ve also seen a healthy manufacturing PMI, indicating positive industrial development.

Notwithstanding, the Chinese Caixin manufacturing PMI index hit an 11-month low. Despite strong growth indicators here in the U.S., steel market participants should carefully monitor the powerful link between the price of steel in China and that in the United States. A rebound in the Chinese economy — and consequently in the steel market — might result in increased steel (and stainless steel) prices. Conversely, the opposite is also true.

Nickel prices have also fallen this month due to Philippine mines reopening, together with increased Indonesian exports.

What This Means for Industrial Buyers

Stainless steel prices usually move drastically in one direction and then hold steady for a little while. While we watch a possible price correction, buying organizations might want to follow the market closely to identify possible buying opportunities should prices continue to decline.

Actual Stainless Steel Prices and Trends

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