Author Archives: Maria Rosa Gobitz

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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stainless steel

Maksym Yemelyanov/Adobe Stock

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

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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

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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

zjk/Adobe Stock

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

September 2020 Raw Steels MMI chart

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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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