Author Archives: Maria Rosa Gobitz

The Copper Monthly Metals Index (MMI) increased 3.3% this month, as copper producers have faced challenges that are impacting supply.

January 2021 Copper MMI chart

After a slow December, copper prices continued to increase the first week of January. Prices surpassed the $8,000/mt mark.

However, copper prices remain volatile. As the pandemic continues to develop, the U.S. dollar remains around 90, future demand is uncertain and supply is strained.

Supply constraints from copper producers

Major copper producers are experiencing supply constraints.

On Christmas Eve, MMG declared force majeure on its Las Bambas copper mine in Peru as the local community continued to block a nearby road in protest, making it impossible for the company to transport its concentrate to the port to be shipped. The blockage started Dec. 12, but production continued.

Las Bambas represents approximately 2% of global copper production.

Meanwhile, on Jan. 4 the Mongolian Government informed Rio Tinto — through the miner’s partly-owned subsidiary Turquoise Hill Resources — that if the Oyu Tolgoi underground expansion did not prove to be more profitable, it would terminate their 2015 agreement on fiscal terms.

The expansion would make Oyu Tolgoi the fourth-largest mine in the world by 2030. As such, a shutdown would represent a significant supply disruption.

Large disruptions mean supply constraints, which in the long term support prices even more.

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Low TC/RCs

Members of the China Smelters Purchase Team (CSPT) lowered treatment and refining charges to $53 per tonne and 5.3 cents per pound for the first quarter of 2021. These charges represented a 8.6% cut compared to the previous quarter.

Similarly, the annual TC/RC benchmark, set by Chinese smelters and Freeport-McMoRan, declined for the sixth consecutive year. The benchmark settled in at $59.50 a tonne and 5.95 cents per pound.

The TC/RC declines come as no surprise.

Mine supply remains tight (as mentioned above). Furthermore, smelting capacity continues to increase, particularly in China. This mix forced smelters to accept lower charges in order to secure raw material.

TC/RCs are a good indicator of raw material available in the market. When primary material is widely available, TCs go up. Meanwhile, when primary material is scarce, smelters lower their TCs. This can affect market sentiment and, ultimately, the price.

Copper scrap

Goldman Sachs reported 2021 could mark the beginning of a copper price supercycle due to the skyrocketing demand boost that the economic recovery might trigger.

As previously mentioned, supply might be tight in the following years. However, scrap might be able to offset supply constraints for at least a year.

ED&F Man Capital Markets’s analyst Ed Meir reported that in previous supercycles, scrap was not abundant and that this time around it will play an important role.

Currently, copper scrap represents about a third of global demand.

Actual copper prices and trends

LME copper prices increased marginally by 1.0% over the previous month to $7,757/mt.

Japan’s primary cash price increased 2.6% month over month to $8,098/mt.

U.S. producer copper grades 110 and 112 increased by 5.6%, resulting in a $0.23/lb increase to $4.36/lb. Meanwhile, copper grade 102 increased by 5.3%, resulting in a $0.23/lb increase to $4.58/lb.

Indian copper cash prices increased by 5.9% to $8.32 per kilogram.

Korean copper strip rose by 4.3% to $9.65 per kilogram.

China’s copper prices increased by 3.0% to $8,995/mt.

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aluminum ingot stacked for export

Olegs/Adobe Stock

This month the Aluminum Monthly Metals Index (MMI) remained flat, as the Department of Commerce announced the creation of a new Aluminum Import Monitoring and Analysis system.

January 2021 Aluminum MMI chart

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New Aluminum Import Monitoring system

On Dec. 23, 2020, the U.S. Department of Commerce announced the creation of the Aluminum Import Monitoring and Analysis (AIM) system.

The system, similar to the Steel Import Monitoring and Analysis (SIMA) system, will collect and publish data on aluminum imports into the U.S.

The system will allow users to track trade flows more easily to help spot trends earlier and to provide better guidance to the domestic industry and government. Likewise, better data collection and its analysis should allow domestic producers to compete on a level playing field.

The system is expected to be available on Jan. 25, 2021.

LME aluminum changes

The London Metal Exchange announced its intention to move forward with its sustainability strategy after receiving market feedback. Part of the strategy will include a spot trading platform for price research and trading of low-carbon aluminum for interested buyers and sellers.

As part of this strategy, the LMEpassport, a digital credential register, will be launched to allow greater visibility of carbon sustainability criteria.

The LME will implement it gradually over three years across its physically settled metals requiring Certificates of Analysis (CoAs) and other value-add information to facilitate disclosure under existing standards across metal brands. The service will start in 2021 and will initially focus on aluminum.

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The Stainless Monthly Metals Index (MMI) increased by 3.8% for this month’s index value.

December 2020 Stainless MMI chart

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U.S. producers wary to ramp up capacity

Demand from automotive and white goods manufacturers has been strong in the past few months.

For this reason, mill sales have increased. However, mills are not operating at full capacity. Rather, mills have kept long lead times.

This is leading to declining inventory levels across the U.S. stainless steel market. The trend follows several months of destocking in the distribution sector, as well as at manufacturers’ warehouses.

This mix could create challenges for manufacturers to replenish their depleted stock levels in upcoming months. Nevertheless, mills remain hesitant to ramp up capacity to pre-pandemic levels given current unstable market conditions.

In the meantime, these dynamics may continue to support stainless steel prices.

Chinese market

Reported sales of household appliances in China this October showed a nearly 10% year-over-year increase.

Meanwhile, demand for stainless steel increased approximately 13% year over year.

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The Raw Steels Monthly Metals Index (MMI) increased by 9% for this month’s value.

raw steel mmi chart

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U.S. demand continues to recover

Year-to-date production through Nov. 28, 2020 declined 18.4%, according to the American Iron and Steel Institute. However, several indicators show that demand continues to recover.

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The Copper Monthly Metals Index (MMI) increased 11.0%.

Copper index

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New copper futures contract

On Nov. 19, the Shanghai International Energy Exchange (INE), a subsidiary of the SHFE, started trading new bonded copper futures contracts. This contract addresses the second of “two” spot markets for copper — the tax-included domestic market currently supported by the dollar-denominated SHFE contract and the on-shore “bonded facility” market based in Shanghai to be denominated in RMB.

Not only does this create a new risk management tool for copper buyers, but it suggests China is now moving toward fulfilling its “dual circulation” strategy and bringing its currency more fully into the global market.

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This month the Aluminum Monthly Metals Index (MMI) rose by 7.9%.

aluminum price breach

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Aluminum prices continue uptrend

During November, LME aluminum prices increased by 10.9%, closing at $2,023/mt. This means that since its April low, the price recovered 38.5% and even reached a two-year high.

The price increase appears supported by a few factors:

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South Africa flag

JEGAS RA/Adobe Stock

The Stainless Monthly Metals Index (MMI) increased by 5.3% for this month’s index value, as this month we touch on Chinese stainless production, South Africa’s proposed chrome export tax and more.

November 2020 Stainless MMI chart

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Chinese stainless steel market

The Stainless Steel Council of China Special Steel Enterprises Association anticipated domestic stainless steel production to increase by 2.1% at the end of 2020. The increase would bring total output to more than 30 million metric tons.

High demand incentivized production. Apparent stainless steel demand for 2020 is expected to rise by 6.4% to 25.5 million metric tons.

Besides producing stainless steel, China also imports significant quantities.

Most stainless steel imports come from Chinese mills in Indonesia such as Tsingshan Holding Group. China imported 1.1 million metric tons of stainless steel in the first three quarters of the year, a 24.3% increase compared to 2019.

Furthermore, China exported 2.37 million metric tons during the same period, a 12.4% decline from 2019.

South Africa chrome export tax

The world’s largest chrome producer, South Africa, proposed an export tax on chrome ore.

The export tax could have a significant impact for China, as 83% of its chrome ore imports came from South Africa in 2019.

The chrome export tax aims to incentivize the production of ferrochrome in South Africa. However, building or expanding chrome smelter capacity in South Africa could be challenging in the country, as smelters are highly power intensive.

The country already battles with unreliable electricity supply, which makes production more costly.

If South Africa approves the chrome export tax, stainless steel prices could go up as production costs rise.

The chrome export tax is not likely to impact stainless steel prices in 2020. However, the tax may have an impact on the first quarter of 2021.

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The Raw Steels Monthly Metals Index (MMI) increased by 5.4% this month, as U.S. steel prices continued to rise last month.

November 2020 Raw Steels MMI chart

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U.S. and Chinese prices relation

U.S. steel prices continued to increase in October for the third consecutive month.

HRC, CRC, HDG and plate prices increased by 15.4%, 10.0%, 9.0% and 5.3%, respectively. As demand recovers, so have prices.

Wire rod, however, was the only form of steel that did not increase in price this month, as it instead remained flat.

In contrast, Chinese HRC, CRC and plate prices increased around 2% in October. Meanwhile, HDG prices remained flat throughout the month. For the second month,

U.S. prices surpassed Chinese HRC, CRC and HDG prices. No price arbitrage existed for Chinese buyers, as local prices were lower than imported prices. Chinese prices had a four-month uptrend before prices flattened. On the other hand, U.S. prices started their uptrend approximately 2.5 months ago.

For the past two years, Chinese prices have led U.S. prices. Will that relationship mean U.S. prices will flatten within the next month and half?

Domestic demand increases, supports U.S. steel prices

Steel demand in the U.S. seems to be getting stronger.

As we have reported for a few months now, U.S. automotive production is on the rise.

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This month the Aluminum Monthly Metals Index (MMI) rose by 3.5%, as the aluminum price made gains in October.

November 2020 Aluminum MMI chart

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Aluminum prices and demand increase

The LME aluminum price reached a 17-month high on Oct. 16 at $1,863.50/mt. The price has increased over 27% since its pandemic low of $1,459.50/mt. Prices dropped the last week of October but have since recovered sharply.

The aluminum price continues to rise along with demand.

According to the JP Morgan Global Manufacturing PMI, global manufacturing activity increased to 53.0 in October. The October reading marked the PMI’s best in 29 months. In the the North American market, the U.S. and Canada saw increases in new orders and production, along with Germany.

In Asia, manufacturing rose rapidly in China, India and South Korea.

The recent sharp increase in coronavirus cases — and consequent lockdowns — could be a risk to the improving manufacturing sector, particularly in Europe.

In the manufacturing sector, aluminum is used for construction, packaging and transport.

Strong demand in China

China continues to show signs of strong aluminum demand.

Unwrought aluminum and aluminum product imports remained high at 355,999 metric tons during September despite decreasing compared to 426,469 metric tons in August.

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The Copper Monthly Metals Index (MMI) increased 1.2% this month, as copper prices surged to a 28-month high in October.

November 2020 Copper MMI chart

Copper price gains

Copper prices reached a 28-month high at $6,901.50/mt on Oct. 22. The price has lost support since, potentially due to surging global coronavirus infections and stalled U.S. stimulus negotiations.

Copper is a good indicator of economic growth and concern. However, the copper price reacted mildly to the U.S. election. The LME price moved up 1.2%.

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Future copper demand

Analysts at Goldman Sachs believe that structural underinvestment, policy-driven demand and macro tailwinds from a weakening dollar and rising inflation risk may create a bullish outlook for 2021.

They estimated a Biden win would increase U.S. copper demand by 2% over the next five years. In addition, it predicted copper prices, which fell back to $6,800 on a general metals pullback last week, to be at $7,000 in three months. Furthermore, the investment bank predicts copper to hit $7,250 in six months and $7,500 by this time next year.

Besides the increase of electric vehicle demand, according to the International Energy Agency (EIA) energy investment is shifting away from fossil fuels, with renewables growing 80% by 2030.

Solar and wind energy projects are benefiting from government support and monetary policies. The expansion of transmission and distribution of those forms of renewable energy will require large amounts of copper.

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