A. Gary Shilling writes that copper’s fall will continue because producers have a great incentive to increase output despite low market prices.
Free Download: Cut Costs on International Shipping
In his Bloomberg View piece, Investment and Money Manager Shilling blames the commodity boom of the early 2000s that led to massive building and expansion in China.
“It’s not economical to suspend some of these projects due to high sunk costs and shutdown expenses,” Shilling writes. “Some producers, moreover, may not be free to slash output as prices swoon, especially if they’re government-controlled and need foreign exchange to service sovereign debts.”
Copper is produced mainly in the developing countries of Chile, Peru, Congo, Zambia and Russia. China is a net exporter of aluminum but an importer of copper. The International Copper Study Group, made up of copper-producing and consuming countries, says demand will rise just 1.1% this year while output jumps 4.3%.
This week the London Metal Exchange and several Wall Street banks saw an aluminum price lawsuit by purchasers thrown out by a Federal Judge in New York.
Free Download: Lock in International Trade Costs
US District Judge Katherine Forrest in Manhattan rejected claims brought by aluminum purchasers against several defendants including Goldman Sachs Group Inc., JPMorgan Chase & Co., Glencore Plc, and Hong Kong Exchanges and Clearing Ltd., which owns the London Metal Exchange.
Forrest said she will issue a decision later involving other defendants, including Detroit-based warehouse operator Metro International, which Goldman once owned.
Russian domestic steel prices jumped as domestic producers there continue to seek parity with expanding exports. The government is considering imposing a levy on shipments overseas.
Free Download: Importing Steel? Lock in Your Shipping Costs
The price of domestic rebar rose 17% last month, the largest increase among steel products, according to data from Metall Expert Consulting, a research firm with offices in Ukraine and Moscow. Hot-rolled coil climbed as much as 15% in the Russian Federation this month, it said.
“There is a stable demand for Russian steel on the external markets, thus domestic prices are seeking to match export price,” Nikolay Filkevich, project head at Metall Expert, which analyzes the domestic steel market, told Bloomberg News.
Producers are trying to close a price gap that by January had widened to about 4,000 rubles ($58.4) per ton of flat steel after the ruble weakened 48 percent in the past 12 months, according to Metall Expert.
Spot iron ore slipped to near its weakest level in almost six years, reflecting tepid demand for the commodity in top consumer China, where steel prices have been hit by slower consumption.
Free Download: Save on Iron Ore Trades
Soft sales have forced more Chinese steel mills to curb production after the Feb. 18-24 Lunar New Year break and hold
back on purchases of the steelmaking raw material, traders told Reuters.
Gold’s relationship with silver and the stock market seems to have changed, writes Jamie Chisholm of the Financial Times.
Free Download: Cut Your Shipping Costs.
The mint ratio is the gold price divided by the silver price. Assuming supply stays reasonably stable, the mint has usually tended to rise when equities fall.
Yet, since mid-2011, the mint and the S&P 500 have rallied in tandem. There is no big jump in silver output to account for this. So does silver’s underperformance mean investors are skeptical about global demand?
Teck Resources Ltd., Canada’s second-largest mining company, is looking to buy a copper mine as the current slump in prices puts pressure on some rivals to sell.
Free Download: Lock in International Shipping Rates
Teck, which also produces coking coal and zinc, is interested in locations with low political risk, Chief Executive Officer Don Lindsay told Bloomberg News in an interview. He declined to comment on specific assets.
“There are a couple of things that we think might shake loose,” Lindsay said. “We’re looking more towards the end of the year.”
Aluminum giant Novelis and German supplier Henkel said today they have signed an agreement to develop advanced bonding technologies for aluminum-intensive vehicles.
Free Download: Save on International Aluminum Shipping
The first product, a pre-treatment that enhances the adhesion of glue and helps paint stick to aluminum, is already being vetted by automakers. Called Bonderite M-NT 8453, it would compete with and in some cases replace a similar product called Alcoa 951, which is the current industry standard coating for aluminum.
Cheap imports and falling demand from major consumers such as China have led to a third consecutive week of losses for steel billet.
Free Download: Shipping Cost Certainty for Overseas Steel
Imports rose 33% in January and a strong US dollar and weak Russian ruble mean the trend will continue.
Xinjiang Xinxin Mining Industry, China’s second-largest producer of nickel used in stainless steel production, told the South China Morning Post it expects its fourth quarter results will show a profit and a 300% jump in revenue.
Free Download: Lock in Shipping Costs
The improvement was due to higher nickel prices, sales volume and lower production costs in 2014, while revenue was also boosted by the commissioning of a copper project in the middle of last year, the Xinjiang-based firm said in a filing to Hong Kong’s stock exchange.
Severstal and Novolipetsk Steel are paying wages and other costs, including transportation, in devalued rubles while earning dollars or euros for exported steel. That’s allowing them to undercut rivals like ArcelorMittal, the world’s largest steelmaker, while maintaining profitability.
Free Download: Lock in Shipping Costs for Steel and Iron Ore
“This is fantastic time for the Russian steel industry,” Kirill Chuyko, head of equity research as BCS Financial Group told Bloomberg News. “Most of the companies are enjoying the best profitability since the 2007 and 2008 pre-crisis commodity boom due to the ruble’s decline.”
Even before the ruble’s 47% decline last year, the industry was in good health. Output in 2014 reached the highest since the global financial crisis as demand at home was high and started to recover in European export markets. Russia’s steelmakers have invested billions in upgrading Soviet-era mills, and the nation produces more than any other country in Europe, one of its main export markets.
Now, the ruble’s slide has cut costs for Russian mills by almost half in dollar terms. Making hot rolled coil, a benchmark product, now costs $244 to $250 a metric ton in Russia compared with $405 per ton in Brazil and $434 per ton in China, according to CRU Group, an industry consultant.