Author Archives: Stuart Burns

Aerospace may be down, automotive is coming back, albeit going through immense change from internal combustion engine (ICE) to electric vehicles (EVs), but one sector of the aluminum market that is brewing up a storm is the aluminum can market.

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Aluminum can market tightens amid pandemic

The media has been awash with reports for months now that the aluminum can market is really tight. As lockdowns hit this year and bars either closed or saw falling attendance, consumers switched to supermarkets and liquor stores for their soft and beer beverages.

Beer and soda sales have held up well and are actually increasing for some. But where brewers and drinks producers sold volume through hospitality outlets and delivered in kegs, they now have to meet demand in six-packs from supermarket shelves.

The switch to aluminum cans has been unprecedented. “For the most part, the North American can industry is sold out for the next 24-36 months, and we don’t see the supply chain catching up to real demand until 2025-26,” Credit Suisse said in a recent report.

According to SPGlobal, U.S. producer shipments of aluminum can stock for the domestic market in the second quarter rose 5.5% year over year to 912.5 million pounds. Meanwhile, in the first quarter, Aluminum Association data show U.S. imports of aluminum can sheet reached 118.18 million pounds. That figure compares with 71.59 million pounds in Q1 2019 — a 65% jump.

And therein lies the problem.

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gold, silver, copper, oil prices

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Goldman Sachs came out with a bullish report to investors last week predicting a surge in the price of commodities over the 2021-2025 period, Reuters reported.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Goldman Sachs is bullish on commodities in 2021 — why?

The basis for Goldman Sachs’ bullish view comes down to three price drivers. The extent to which investors weight those outcomes will determine the pace of price rises and markets’ supply-demand expectations by anything from 3-30 months.

There has been stock market pullback this week in the face of rising anxiety over the spread of the COVID-19 pandemic. However, Goldman see this as a temporary setback that will likely wane as the year draws to a close.

The first driver, BusinessInsider noted, is investors pivoting from older polluting areas of the economy towards tech. The huge outperformance of technology stocks over traditional businesses this year illustrates that trend.

This is and will continue to build up cumulative under-investment in what BusinessInsider terms the “old economy” sectors. As a result, businesses in those sector will have too much debt, too much capacity and high emissions.

A focus on rectifying these issues will lead to structural under-investment in new facilities and degradation in the new supply pipeline going forward.

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Scottish Highlands

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People have mined, refined and valued gold since Mesopotamian times, with records of early gold jewelry from 2600 BCE — but what about gold from the Scottish Highlands?

Anyone who has seen images of Egyptian Pharaoh Tutankhamun’s tomb created almost entirely of gold in 1223 BCE can only wonder at the volumes of gold that must have been refined over 3,000 years ago.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Gold from the Scottish Highlands

Yet, investors today are still fascinated with gold. However, gold’s actual uses are limited (outside of jewelry and high-end electronics).

Unfortunately, as a recent Daily Mail article quotes Scotgold CEO Richard Gray, who said “gold mines are where god put the gold,” not by extension where we would like them.

So, it has taken a strong gold price and political blessing for Scotland’s only domestic gold miner, the aptly named Scotgold, to gain permission to develop gold reserves in the Trossachs National Park. The park is in an area of outstanding natural beauty and is home to some of the best-preserved oak woodlands in Scotland.

Gold mining and Scotland are not activities and locations that one immediately makes an association between. In fact, more Scots rushed to California’s gold rush than ever mined at home.  However, gold prospectors have looked for gold in Scotland’s rivers for centuries.

The country is in the broad gold belt that stretches from Scandinavia across Greenland to Canada with, in places, similar topography and geology.

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The copper price breached $7,000 per ton this week, reaching $7,034 per ton on the LME — the highest level since June 2018.

What does this tell us? Is demand robust and supply constrained?

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

China’s recovery boosts copper price

Well, the world’s largest consumer, China, is certainly back to positive GDP growth. Its recovery from the pandemic lockdowns has been rapid and ahead of the rest of the world.  The country’s early application of infrastructure investment aided the recovery, which in turn boosted demand.

Higher refined metal imports support the impression China is on a 2009-2010 type stimulus led ramp-up in demand.

The reality is it will be much more highly nuanced this time, but a good story takes some discounting.

Supply side struggles

On the supply side, the pandemic has disrupted production in major copper-producing countries, like Chile.

Antofagasta advised this week their third-quarter production would be down 4.6%, according to the Financial Times.

The miner is not alone.

BHP, Glencore and Anglo American are also facing the same supply market risks. The whole Chilean market faces the risk of higher taxes and tighter water controls if Chile’s proposed re-writing of the constitution goes through.

An obvious marker driving copper price support is inventory levels. However, MetalMiner research has shown inventory and price have a very poor correlation on anything other than a short-term basis. Copper’s increased refined imports this year have in part gone to the restocking of China’s copper stocks rather than actual demand.

The Financial Times reports China has stockpiled 800,00 tons this year. At the same time, falling LME stocks are cited as evidence of metal shortage. However, what we are really seeing is a repositioning of inventory from outside China to inside China.

Is that demand or just speculative build?

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miners in Bolivia

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What does Bolivia’s socialist Movimiento al Socialismo (Mas) party’s return to power mean for the country’s resource exploitation prospects?

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Political background in Bolivia

In November 2019, a police-military coup overthrew then-Mas president Evo Morales. Afterward, it installed the right-wing evangelical Jeanine Áñez as president.

A year of repression and persecution of minorities followed. that destabilized the country and led many to believe democratic elections would never return.

But to the autocratic president Áñez’s credit, although twice delayed, elections were held this month. Furthermore, on Oct. 18, Luis Arce, finance minister during the Morales administration, was handed the position of president. In addition, his party retained its majorities in both houses of congress.

Ex-president Morales remains in exile in Argentina. He fled following allegations of voting fraud last year, allegations that have largely been disproved now. With the success of the party, Arce may herald Morales’ return at some stage soon.

Rich in resources

While rich in natural resources, Bolivia has struggled to develop to its potential over the years.

Will a return to a socialist party with a strong nationalist agenda hinder development compared with the outgoing interim neoliberal administration of Áñez?

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Sanjeev Gupta’s GFG Alliance and, in particular, its steel and aluminum subsidiary Liberty Steel, is rarely out of the news, it seems.

The firm’s insatiable appetite for bankrupt or struggling metals assets has the market split. One the one hand, boosters are cheering its entrepreneurial spirit. On the other, naysayers are questioning the opaque funding structure and apparently high levels of expensive debt underpinning what they see as a potential house of cards.

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

Liberty Steel eyes Thyssenkrupp’s steel business

We are more interested in the implications for the steel market.

Liberty’s latest foray into acquisitions would create a potentially disruptive behemoth in a crowded European market. That market is facing intense foreign competition and declining demand as a result of a pandemic-induced slowdown in manufacturing.

That Thyssenkrupp is desperate to sell its loss-making steel business is not new news.

The steel division has been a major drag on the group. According to the Financial Times, the group is likely lose €1 billion ($855 million) this year.

This year, Thyssenkrupp sold its elevator business for $17 billion in an effort to shore up its finances. The firm has been in talks with other steelmakers, including Sweden’s SSAB and India’s Tata, the Financial Times reported.

So far, however, Thyssenkrupp hasn’t found a buyer that would pass competitions scrutiny.

Which raises the question: will Liberty?

Liberty’s bid

Liberty runs plants and mines across North America, Australia, and India. The firm has global revenues of $15 billion and a workforce of 30,000.

Thyssenkrupp’s beleaguered Steel Europe unit generates sales of approximately €9 billion with 27,000 employees. Together, the firms would become the second-largest steelmaker in Europe, behind only ArcelorMittal.

Logic says in a market suffering poor capacity utilization, rationalization would be one recipe for turning the group around. However, unions and state governments are likely to fiercely resist widespread redundancies.

The German union IG Metall has held demonstrations to oppose job losses and demand government bailouts. Brussels previously denied a Thyssen-Tata merger over fears it would reduce competition. As such, it remains to be seen how it will view a Liberty-Thyssen takeover.

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Airbus and Boeing — or, more reasonably, Brussels and Washington — are still at it, haggling over subsidies both sides have received over the decades.

The action and counteractions, originally started by the U.S. to stem what it saw as a rising European rival to Boeing’s dominance, has been rumbling on for 16 years. Both sides are at fault, the WTO has ruled.

The latest development, as Reuters recently reported, is the WTO has ruled that European government loans to Airbus were unfairly subsidized through low-interest rates while Boeing received unfair support from tax breaks.

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Airbus and Boeing again take center stage

Both sides say they have remedied past flaws and are now in line with WTO rules.

However, the U.S. side feels loans still on Airbus’s books continue to provide unfair support. Furthermore, Washington thinks the European planemaker should repay interest on historic loans set at below-market rates.

Brussels says if that’s the case then Boeing should repay previous subsidies in the form of tax breaks.

The impasse has led to Washington applying $7.5 billion of, tariffs, that most favored tool, on E.U. goods. Meanwhile, the E.U. is asking the WTO later this month to apply $4 billion of tariffs on U.S. goods.

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According to the Financial Times, China’s President Xi Jinping surprised the global community by announcing last month a hugely ambitious plan to improve China’s environment and make the country carbon-neutral by 2060.

In addition, he said the country’s emissions would peak before 2030.

But does this really mean anything? If it does, what impact will it have on the country’s massive steel industry? The steel industry, of course, is the source of a significant proportion of the country’s carbon emissions?

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China’s environment and emissions figures

Firstly, let’s look at the scale of the proposition.

China is the world’s largest emitter of greenhouse gases (such as carbon dioxide and methane).

Last year, China’s emissions accounted for roughly 27% of the global total. The country’s total accounted for more than the U.S., Europe and Japan combined, the Financial Times reported.

Furthermore, the country consumes more coal than the rest of the world put together. In addition, China continues to commission new coal power plants.

On the one hand, China also leads the world in the deployment of solar power, wind power and electric vehicles. Its energy-efficiency policies are ambitious and successful. Significantly, there are no known climate change deniers in the Chinese leadership.

But is the pledge meaningful?

It contrasts poorly with that made by almost 70 countries and the E.U. Those countries have already pledged to make their economies “net-zero” greenhouse gas emitters by mid-century, or 10 years earlier than China’s pledge.

And the 2030 peak emissions date is a rehash of a commitment made back in 2014, suggesting peak emissions could be reached well before 2030 and the authorities are simply back-sliding.

Difficult changes

The scale of the challenge vis-a-vis China’s environment and emissions is considerable.

More than 85% of China’s primary energy last year came from coal, oil, and natural gas, all of which produce carbon dioxide. This came despite massive investment in solar and wind.

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China

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A relatively swift exit from pandemic lockdowns and the impact of stimulus-led infrastructure investment have powered China’s metals rebound. Furthermore, the Shanghai Futures Exchange has continued its summer disconnect from the London Metal Exchange aluminum price, which started in April of this year.

The resulting arbitrage window has sucked in imports of aluminum primary and remelt alloy casting ingot. As a result, China’s imports are at levels not seen since the aftermath of the financial crisis in 2009.

Are rising MW premiums causing concern? See how service centers take advantage of that. 

China leads the metals rebound as aluminum imports surge

Combined imports of primary metal and unwrought alloy totaled 393,000 tonnes, just shy of the previous record of 394,000 tonnes in April 2009, according to Reuters. Furthermore, cumulative net imports reached 653,000 tonnes so far.

Alloy imports should be seen as in part as a replacement for lower scrap imports. However, even so, the disconnect has continued through the third quarter. Although that disconnect is expected to narrow in the run-up to year’s end, it underlines the current two-speed nature of the global manufacturing economy.

Meaning, there’s China and then there’s the rest of the world.

China tightened up on scrap grade import controls last year and precipitated a switch to imports of refined remelt alloy over scrap, even before the pandemic took hold.

Southeast Asian regional remelters have taken in the displaced scrap and exported alloy ingot to China. A similar trend is taking place with copper scrap and alloy ingot, possibly suggesting a structural shift that is here to stay.

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There is a looming crisis in the nickel market.

Some would argue it’s a good problem to have. Demand is set to rise on the back of increasing uptake of electric and hybrid vehicles through this decade. More and more governments will mandate the production of electric vehicles (EVs) over internal combustion engine (ICE) autos. In parts of Europe, there will be outright bans on new ICE vehicles inside 10 years.

However, if nickel supply becomes constrained, consumers are going to pay the price.

Nickel market numbers

It should be said that today the problem barely registers as a price lever.

According to a recent McKinsey report, the stainless steel industry consumers 74% of nickel produced today, dwarfing the 5-8% going into batteries.

But the type of nickel required for battery production is what makes supply so sensitive in the future.

As the report explains, there are two types of nickel. Class 1 predominantly comes from the concentration, smelting and refining of sulfide ores. Meanwhile, Class 2 comes from ores, called saprolites and limonites, with higher iron and other (for batteries) levels of contaminants, such as copper.

So, whereas the stainless steel industry, to a large extent, can use a mix of Class 1 and Class 2, the battery industry draws its raw material from just Class 1, representing a more restricted 46% of the nickel supply market.

Worse, after the all the focus on the cobalt market — with its environmental, social, and corporate governance (ESG) concerns from countries like the Democratic Republic of the Congo — major consumers like Tesla are keen to establish long-term supply arrangements with nickel producers in sustainable locations with more robust ESG standards.

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