Author Archives: Maria Rosa Gobitz
stainless steel

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The Stainless Monthly Metals Index (MMI) decreased by 3.8% for this month’s index value, as U.S. stainless imports surged last month.

October 2020 Stainless MMI chart

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U.S. stainless imports rise 76%

The U.S. Department of Commerce reported the U.S. imported a total of 91,600 metric tons of all stainless products during September.

The September total marked a 76% year-over-year increase. In addition, the September total marked a 42% increase from the 2019 average of 64,600 metric tons.

The higher-than-usual import total is in line with the unexpected demand increase in major appliances, which use stainless steel sheets.

The U.S. market has a shortage in most appliances. This is due to customers storing larger amounts of food, plus shutdowns or personnel reduction manufacturers undertook for a few months. Additionally, manufacturers did not ramp up production to full capacity due to economic uncertainty.

These circumstances created a production backlog that might last well into 2021 and kickstart demand for stainless steel.

However, not all stainless products have recovered.

Outokumpu announced its intention to scale down its long products business, which includes wire rod, wire, bar, rebar and semi-finished long products.

The decision comes after the business made small net sales and negative adjusted EBITDAs. The scaledown measures include: personnel reduction, increasing operational efficiency and focusing on higher-value specialty grades.

E.U. imposes tariffs

Earlier we touched on U.S. stainless imports, which posted significant gains in September.

Meanwhile, the European Commission decided to impose import duties on hot-rolled stainless steel coil and sheets from China, Indonesia and Taiwan.

The tariffs from China are up to 19%. Meanwhile, they go up to 17.3% for Indonesian products and up to 7.5% from Taiwan. The tariffs kicked in Oct. 8.

The Commission made the decision after conducting an investigation. The probe ultimately determined the products were sold at artificially low prices, hurting producers from Belgium, Italy and Finland.

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The Raw Steels Monthly Metals Index (MMI) increased 2.8% for this month’s index value amid a steel market recovery.

October 2020 Raw Steels MMI chart

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend. See why.

Steel market recovery

All U.S. forms of steel prices increased throughout September.

HRC, CRC and HDG prices increased rapidly by 20.4%, 16.4% and 15.4%, respectively. Meanwhile, the plate price increased 4.3%. The wire rod price increased by 1.5%.

However, the Chinese steel market showed the opposite trend or traded sideways.

The Chinese HRC price dropped by 4.4%. CRC increased by 0.22% and HDG had a 6.4% jump the first day of September but remained flat for the rest of the months and through the first two weeks of October.

The prices’ increase in the U.S. market were followed by an increase in capability utilization rate. By the week ending Oct. 3, raw steel production increased to 66.1%. As such, the year-to-date capability utilization rate rose to 66.2% according to the American Iron and Steel Institute.

Over in the Asian market, there are overcapacity concerns.

The South East Asia Iron and Steel Institute (SEAISI) reported that the region, particularly Chinese steelmakers and banks, might have overinvested in new basic oxygen furnace (BOF) integrated mills.

The region’s current capacity is approximately 151 million metric tons. The proposed investment could bring it up to 50 million metric tons, creating 60 million metric tons of overcapacity from BOF alone. It is important to note that BOF mills cannot operate at low capacity.

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The Copper Monthly Metals Index (MMI) decreased 1.2% for this month’s value, even as the copper demand outlook shows signs of strength.

October 2020 Copper MMI chart

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Prices and warehouse stock correlation

Our technical analysis focuses on price movement and volume to scrutinize supply and demand fundamentals.

However, this month MetalMiner carried out a correlation analysis between LME copper prices and LME warehouse stock levels.

The correlation analysis found an 86.06% inverse correlation between LME copper prices and its warehouse stock (at least, for the past year). That means that when prices rise, stock inventories decrease, and vice versa.

In this case, the correlation does not include any lag for either the price or stock inventories.

Copper inventories in LME warehouses decreased slightly to 73,625 metric tons, down for the fourth consecutive month. However, stocks spiked Sept. 28 and closed at 165,600 metric tons. During that time, LME copper prices traded slightly up but mostly sideways for most of the month. The copper price sharply declined Sept. 23.

Ultimately, the copper price dropped below the $6,600/mt mark. Another important event was the large number of deliveries that occurred Sept. 28.

This shows there is a strong relationship in the copper market between prices and stock inventory. As prices continued to go up, regular copper deliveries occurred from LME warehouses and stocks declined. As the price dropped, some buyers took advantage of the lower prices to cover their demand. However, that window closed in five days and followed the rapid increase in stocks.

The data suggest that, in the case of the copper market, prices and warehouse stocks follow the market’s demand. However, MetalMiner will continue to carry out another correlation analysis for a wider time frame to confirm that the correlation holds over time.

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This month the Aluminum Monthly Metals Index (MMI) remained flat for this month’s index value, as the SHFE aluminum price and its LME counterpart trended sideways this past month.

October 2020 Aluminum MMI chart

Do you use cost breakdowns in your aluminum negotiations? See other tips in negotiating with mills and service centers

SHFE, LME prices’ behavior

The SHFE aluminum price has traded sideways since mid-July. The price is averaging CNY 14,661/mt over the past three months.

By August, the LME aluminum price started to follow the sideways trend as well, averaging $1,777/mt since then.

However, the SHFE aluminum price continued to move higher than its LME counterpart.

Throughout September, SHFE prices were approximately $370/mt higher than the LME price.

The arbitrage continues to promote imports in China, making it a net importer for a second consecutive month in August. This trade flow indicates large demand for aluminum in the Chinese market, which is well on its way to economic recovery.

The current state of trade raises the question: how much longer can China continue to export semi-finished metal if its cost base is approximately $370/mt over the LME? Are mills selling at a loss (or are they subsidized)?

Tariffs against China

China accounts for approximately 55% of global aluminum production.

Despite it being a net importer for the past few months, China is still a huge exporter of aluminum downstream products. Chinese exports caused other large markets to contemplate restrictions on Chinese aluminum imports.

Currently, India is seeking to develop policies to protect its own domestic production. India’s first measure might require every importer to obtain a license from the government for every shipment. Even though the measure applies to exports from all origins, the Federation of Indian Mineral Industries pointed out most of the country’s imports come from China.

Meanwhile, the European Commission imposed provisional anti-dumping duties on aluminum products from China, with duties reaching as high as 48%. The Commission opened an investigation in February after it suspected China of dumping aluminum extrusions.

The director general of the European Aluminium Association said the duties were not only crucial for the survival of the domestic aluminum market but also for a greener regional economy.

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stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 11.3% for this month’s index value, as stainless steel surcharges rose for a fourth consecutive month.

September 2020 Stainless MMI chart

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Stainless steel surcharges continue to increase

Stainless alloy surcharges are rising for the fourth month in a row.

Alloy surcharges for 304 in September will be $0.6231/lb, an increase of $0.0361/lb compared to August.

Over the past month, LME nickel prices increased approximately 12%, up to $15,442/mt by the end of August.

Chinese nickel price followed a similar trend, increasing to $17,590/mt (or CNY 120,750/mt).

U.S. demand recovery

Throughout July and August, the U.S. Department of Commerce reported the U.S. imported a total of 93,600 metric tons and 88,700 metric tons of all stainless products, respectively. The totals were twice as high as the year’s bottom of 46,800 metric tons back in May. Furthermore, the totals were much higher than the 2019 average of 64,600 metric tons.

Import levels reported match the expansionary track the U.S. has seen in the past four months.

August ISM PMI data came in at 56%, up 1.8 percentage points from July. Moreover, the ISM Manufacturing New Orders index came in at 67.6% in August compared to 61.5% in July.

Auto industry outlook

Besides consumer goods, the automotive industry is another major consumer of stainless steel.

As the U.S. presidential election approaches, both candidates have expressed their desire to boost the U.S. auto industry to create jobs.

A few particular differences could impact the price of stainless steel.

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steel mill production line

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The Raw Steels Monthly Metals Index (MMI) increased by 4.3% for this month’s value. 

September 2020 Raw Steels MMI chart

Does your company have a steel buying strategy based on current steel price trends?

U.S. steel prices start increasing

HRC prices increased by over 5.4% throughout August, closing at $486/st. During the first two weeks of September, the price rallied up to $521/st.

Meanwhile, Chinese HRC prices mostly traded sideways during August and the first two weeks of September.

The recovery of the U.S. auto industry might be driving the steel price increases.

U.S. auto production continued to improve. Producers such as General Motors, Ford and Fiat Chrysler ramped up their assembly plants.

However, supply has not quite caught up with demand. As such, U.S. auto inventory continues to tighten.

By the end of June, vehicle inventory fell to 2.6 million, or 33% fewer units year over year. Pundits suggest U.S. auto sales will reach an annualized 13.5 million unit rate for 2020, with stronger demand coming in 2021.

The aforementioned factors have not only supported the U.S. HRC price; HDG prices also surged.

The U.S. HDG price only increased by 5.6% throughout August, reaching $736/st, but found further support during the first two weeks of September. By the end of the second week of September, HDG broke resistance to $788/st.

Chinese steel market

After record imports in July, China’s iron ore imports in August fell 10.9%.

The General Administration of Customs reported China imported 100.36 million tons of iron ore throughout August, while consumers bought 112.65 million tons in July. However, imports increased 5.8% year over year.

According to Tang Binghua, of Founder CIFCO Futures, imports slowed in August partly due to port congestion from coronavirus-related restrictions. In addition, fewer shipments came from Australia as it closed its financial year.

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The Copper Monthly Metals Index (MMI) increased 5.1% for this month’s value, as copper prices continue to pick up globally.

September 2020 Copper MMI chart

LME copper prices increased throughout August, trading over $6,500/mt the last few weeks of the month. SHFE prices also increased during the same period, as local demand remained strong and refined production tightened.

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Copper prices pick up, find further support

LME copper prices declined for the first half of the month and, after increasing, traded sideways, moving from $6,439/mt at the end of July to $6,702/mt in August. The SHFE price followed a similar trend to the LME price. Both prices had not reached this level since June 2018.

Copper inventories in LME warehouses continued to decrease, closing at 89,350 tons. Stocks have not fallen to this low of a level since January 2006.

On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks continued to increase throughout the month, rising to 170,086 tons this month. These trends have only accelerated in the first weeks of September.

Copper prices are partly driven by high Chinese demand. Consumption increased 14.9% year over year during the January to June period, up to 12 million tons.

Cuts on the supply side may have resulted in temporary fears in the market.

Chinese refinery capacity declined in recent months. Summer maintenance, along with concentrate supply tightening due to the pandemic, brought down refined production. Production fell by 5.3% to 814,000 tons in July, according to the National Bureau of Statistics.

China does not appear to be the only country producing less refined copper.

For example, Rio Tinto delayed the restart of its Kennecott mine in Utah due to maintenance.

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The Aluminum Monthly Metals Index (MMI) increased by 2.4% for this month’s MMI value.

September 2020 Aluminum MMI chart

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SHFE, LME arbitrage

LME and SHFE aluminum prices traded sideways this past month.

The LME price reached $1,818/mt on Sept. 1, a level it had not reached since January 2020.

Meanwhile, the SHFE price reached CNY 14,960/mt on Aug. 24. However, the SHFE aluminum prices continued to move higher than the LME price.

Throughout the month, SHFE prices were approximately $360/mt to $415/mt higher than the LME price. Some of the arbitrage has occurred due to the weakening of the U.S. dollar, which makes the Chinese price appear higher.

Chinese imports remain high

The price arbitrage between the LME and the SHFE continues.

China became a net importer for the first time in July. The country imported 440,000 tons in July, according to the General Administration of Customs.

July imports rose by 35.5% from the previous month and by 570% from July 2019.

The arbitrage and increase of aluminum imports in China led to the decline of LME warehouse stocks to 1.55 million tons by the end of the month.

On the other hand, Chinese exports are down 11% from August 2019 (despite a slight increase in August). However, exports reached a four-month high at 395,424 tons. The downtrend is mostly due to weak demand overseas, as most countries are still in the early recovery phases of the coronavirus pandemic, while China seems to be ahead.

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hot rolled steel

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The Raw Steels Monthly Metals Index (MMI) increased 1.5% for this month’s MMI value. 

August 2020 Raw Steels MMI chart

Learn when you should use a steel scrap cap collar contract versus a finished price index (such as CRU).

Chinese demand on the rise

In the past few months, Chinese HRC and CRC prices have increased over 20%. Meanwhile, their U.S. counterparts have followed the opposite trend. This is due to weaker U.S. demand and stronger-than-expected Chinese demand.

China produced a record amount of crude steel in July as the government boosted infrastructure spending. In addition, the manufacturing sector rebounded as the government lifted lockdown restrictions.

China produced 93.36 million tons of crude steel in July, up 1.9% higher from June. The July total marked a 9.1% increase from July 2019, according to the National Bureau of Statistics of China.

Most of China’s steel production comes from integrated mills. As a result, iron ore prices continue to increase as China’s demand remains strong.

China continued to increase its iron ore imports. In the first half of 2020, China imported 546.91 million tons of iron ore, or a 9.6% year-over-year increase.

Typically, the U.S. market lags the Chinese market by a month or two. Market watchers should monitor if the U.S. steel market to see if it follows a similar price trend to China in the following months.

U.S. steel market

Another factor contributing to the slow recovery of U.S. steel prices may come down to  the rapid recovery of mills’ capability utilization rate.

According to the American Iron and Steel Institute (AISI), the U.S. steel sector’s capacity utilization rate rose to 60.4% for the week ending Aug. 8.

While the rate is lower than the same period in 2019, when it reached 79.1%, the rate has increased steadily over the past few weeks despite low steel demand.

Similarly, steel production increased to 1.35 million tons — up from the previous week but still 26.5% below the same period in 2019.

Nonetheless, the rise of capability utilization rate at mills could mean quite the opposite for scrap.

As U.S. steel production and the capability utilization rate continues to increase, so could demand for scrap. Consequently, scrap prices might increase.

Steel in the rest of the world

The European Steel Association (EUROFER) reported steel consumption in the European Union slid by 12% year over year in the first quarter of 2020.

Furthermore, EUROFER anticipated consumption might dip lower in the second quarter due to lockdown measures.

The association expects the construction industry to perform better than other sectors. However, that still means construction output is forecast to decline by 5.3% in 2020. However, EUROFER forecast a 4% increase in 2021.

Meanwhile, Junichi Akagi, general manager of JFE Steel in Japan, said steel demand should pick up throughout the third and fourth quarters. However, Akagi does not expect demand to recover to pre-pandemic levels until March 2021.

The Japan Iron and Steel Federation reported orders of steel from automakers, which represent approximately 20% of steel demand, declined by 58% during the second quarter of 2020.

This makes it clear that these large steel-producing countries do not expect to recover their steel demand until early 2021.

Actual metals prices and trends

The Chinese slab price rose 3.2% month over month to $538.87/mt as of Aug. 1. Meanwhile, the Chinese billet price rose 2.5% to $487.27/mt.

Chinese coking coal increased 9.7% to $289.35/mt.

U.S. three-month HRC fell 1.5% to $518/st. U.S. shredded scrap steel fell 8.1% to $238/st.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy. 

stainless steel

Maksym Yemelyanov/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 4.4% for this month’s MMI value.

August 2020 Stainless MMI chart

Surcharges increase for a third month

While stainless demand continues to remain in line with U.S. flat-rolled producer supply, alloy surcharges are rising for the third month in a row.

Why? The surcharge increases are again due to an increase in the nickel price.

Over the past month, the LME nickel price increased over 6% to $14,433/mt as of Aug. 6.

Similarly, the Chinese nickel price increased to $16,515/mt (or CNY 113,850/mt).

Are rising surcharges causing concern? Make sure your base prices are held fixed. See how service centers negotiate with you.

Nickel price jumps over supply fears

The Mines and Geosciences Bureau reported that Philippines nickel exports declined by 28% year on year to 102,310 tons during the first half of the year.

The export decline made waves on the LME and SHFE, where the nickel price increased.

Top producers reassured the market that no further disruptions are anticipated for the remainder of the year, despite coronavirus cases having increased since the first half of the year.

Moreover, the largest exporter of high-grade nickel, SR Languyan Mining Corp, will likely deplete by the end of this year, according to the Ministry of Environment and Natural Resources of the region. This would mean the Philippines may fail to keep up with their current exports to China, further supporting the nickel price.

Demand in China has remained high. Macquarie analyst Jim Lennon estimated Chinese mills produced 2.88 million tons of stainless steel in July, or a 4.8% year-over-year increase. High-nickel containing 300-series grades of stainless grew 17.5% year over year to 1.46 million tons in July (an all-time high).

However, Lennon still expects a nickel ore surplus of around 100,000 tons for 2020.

Some demand recovery in the U.S.

The Association For Manufacturing Technology (AMT) reported U.S. manufacturing technology orders in June increased to $346.7 million, 56% more than the previous month. June orders, however, increased just 6% from June 2019.

Orders from January to June totaled $1.69 billion in 2020, down 26% year over year.

According to the AMT, manufacturing technology encompasses metal cutting, forming and fabricating. One of the industries that saw the largest order increase was the automotive sector, which almost doubled orders from June 2019. Meanwhile, agricultural equipment manufacturers nearly quadrupled and manufacturers of HVAC and commercial refrigeration equipment more than tripled orders for manufacturing technology.

The AMT expected a similar amount of orders for the month of July as demand bounces back.

Actual metals prices and trends

The Allegheny Ludlum 316 stainless surcharge declined 1.6% month over month to $0.79/pound. The 304 surcharge rose 0.8% to $0.61/pound.

LME primary three-month nickel rose 7.5% to $13,806/mt.

Chinese 316 and 304 cold-rolled coil rose to $2,923.63/mt and $2,106.74/mt, respectively.

Chinese primary nickel rose 8.0% to $15,592.71/mt. Indian primary nickel rose 7.4% to $13.85/kilogram.

FeCr lumps increased 1.3% to $1,490.48/mt.

Make sure you are following the five best practices of sourcing stainless steel