Author Archives: Stuart Burns

The perennially bullish Goldman Sachs is not alone in predicting a higher oil price.

A recent report by the Boston Consulting Group asks the question, “are we on the cusp of a new supercycle?”

In BCG’s opinion? We are.

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Bullish on the oil price

Brent crude oil price chart

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Hedge funds on the whole agree.

By a factor of 6-to-1, bullish long petroleum positions outnumbered bearish short ones on the NYMEX and ICE WTI contracts, according to Reuters.

Net long positions climbed to 919 million barrels, the highest since January 2020, before the pandemic took hold, and prior to that October 2018, before the trade war between the United States and China intensified, the post reports. Demand exceeds supply, which is constrained by OPEC discipline and a subdued US shale market.

In previous oil price rises, shale production has responded rapidly, lifting drilling within months and output inside of a year. However, this time around, those producers that survived the last crunch have chosen to repair their balance sheets rather than borrow and burrow.

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To protect or not to protect, that is the question for Brexit Britain.

Britain was taken into its rupture from Europe on the Global Britain ticket, with the promise of liberating new trade deals once it was unfettered by Europe’s stifling protectionist culture.

That’s not a bad mandate for change. However, it would seem that most of those who voted for Brexit missed the memo that free trade works in both directions.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

UK after Brexit

Brexit

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The U.K. has been successful in rolling over many of the trade deals forged by the E.U. into bilateral agreements. It can now continue with those arrangements in more or less the same guise after Brexit.

Some headline-grabbing new deals are in the cards. Those include ones with Japan and Australia.

But after Britain’s chief negotiator, International Trade Secretary Liz Truss, announced the imminent signing of a new deal with our friends on the other side of the world, howls of protest erupted in the media and among lobby groups against a feared flood of agricultural imports.

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China’s steel and aluminum market is undergoing a quiet revolution.

It’s not a revolution of investment or innovation.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Peak aluminum, steel in China?

China aluminum

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According to Reuters, Beijing’s target of peak coal use by 2030 is asserting a dampening effect on new steel mill and aluminum smelter investment.

As such, the country could be at or near peak production. As Reuters’ Andy Home notes, the country’s rising output over the years as had a dampening effect on prices. That trend has led some Western producers to cease operations.

But a combination of harsher environmental legislation resulting in Beijing dissuading investment in new coal fired power projects, combined with Western markets’ meaningful action — after years of simply complaining — to block out Chinese exports of aluminum and steel products suggests the Chinese impetus to build capacity and the rest of the world’s willingness to buy product are both going through a transformational change.

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The global logistics market has gone through a horrible winter.

The pandemic caused massive disruption. US and European ports became gummed up with PPE and medical equipment. This resulted in port delays and tens of thousands of containers being out of position at destination when they are needed at origin, further exacerbating a lack of space.

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Shipping market challenges

Shipping

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Shipping lines that had cut back in the pandemic have been caught on the hop. As such, they have been unable to catch up with the unprecedented surge in demand for shipping space as global supply chains have rushed to restock.

Any consumer who imports or relies on domestic suppliers who in turn import — or rely on imported components — will have been hit with delays and cost overruns.

Back in the early part of this year, many observers, us included, expected the market would improve. Indeed, freight rates – a barometer of demand – had started to come down early last month. That encouraged some to believe the worse was past.

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China’s rare earth (RE) oxides market is a controlled market — or at least it is today.

There was a time it was the mining equivalent of the wild west with multiple operators. There were once zero controls and, as a result, the sector’s operations led to massive environmental damage.

The authorities stepped in, consolidated the operators and enforced licences.

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Managing the rare earth oxides market

rare earths loaded on cargo ship in China

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Today, Beijing’s Ministry of Industry and Information Technology (MIIT) with the Ministry of Natural Resources sets quotas every half year for how much can be produced.

Market prices remain volatile, though. A half yearly quota set by government officials is not the optimal system to match supply, demand and prices. As the economy bounced back last year, the rare earths market was caught on the hop and prices rose strongly.

Some light rare earths, like praseodymium-neodymium (PrNd) oxide, reached multiyear highs.

As a result, the MIIT relaxed quotas this year. It raised the quota from 66,000 tons in the second half of 2020 to 84,000 tons in the first half of 2021. Prices continued to rise as global demand roared back. China’s exports are also controlled (the country still produces something like 90% of global supply). Grateful producers elsewhere have made up the shortfall.

MetalMiner tracks Chinese rare earths prices on a daily basis and produces a rare earths Monthly Metals Index (MMI) displayed above. After rising strongly in Q1, the index took an unexpected reversal in April and again in May, as my colleague Fouad Egbaria posted at the time.

The index has dropped again for the start of June. This suggests the MIIT’s loosening of production limits has had the desired impact and availability is proving sufficient to meet demand.

Last year, rare earth element refiners operated at just 45% of capacity, the Global Times reported. Even with higher output this year, there is still substantial spare capacity. With exports likewise controlled, producers’ enjoyment of higher output permits look like they will be mitigated by lower prices.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

iron ore stockpile

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The iron ore price has been about as volatile of late as most of us can remember.

The price powered relentlessly upwards this year on the back of surging demand from China and constrained supply from Brazil.

Then, after hitting a peak May 10 and 12, it fell sharply into bear territory, as Beijing sought to dampen inflationary raw material costs by issuing a string of warnings about speculation and excessive pricing.

Having achieved its objective in dampening prices, you would think Beijing would have left it at that.

But last week, China’s Ministry of Industry and Information Technology said it will seek to establish a mechanism to contain steel output based on carbon emissions, pollutant discharges and energy consumption, Bloomberg reported.

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

Iron ore bounces back

Iron ore promptly bounced back, climbing more than 6% in Singapore. Meanwhile, steel futures in Shanghai recovering on fears of constrained steel supply.

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Peru on a map

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You have to feel for poor Peru, the second-largest copper producer in the world.

The country is facing the double affliction of the worst COVID-related death rate per head of population anywhere in the world.

At the same time, it is enduring a presidential election between two almost equally obnoxious candidates.

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

Peru faces pandemic hardship

Firstly, the pandemic. According to the Financial Times, on Monday the government revised its figures, saying 180,764 people had died from COVID-19 since the start of the pandemic.

That number is nearly three times the total of 69,342 that it had previously registered.

The new figure means that one in every 177 people in the nation of 32 million people has died from the virus. That amounts to a rate of about 565 deaths for every 100,000 inhabitants — worse even than Brazil’s 509.

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emissions

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Activist investors and environmentalists make strange bedfellows, but both are like the hordes at the citadel gates of the oil majors.

In the US, activist investor Engine No. 1 forced at least two and possibly three directors onto the board of Exxon Mobil. In doing so, it aims to force a change in direction for the world’s largest oil company away from oil and gas and toward a lower-carbon future.

What is remarkable is Engine No. 1 drove through the imposition of new directors despite holding a mere 0.02% stake (or $54 million) in the company. It won the backing of state pension funds, like that of New York state, and asset managers such as BlackRock, Vanguard and State Street, the Financial Times reported.

Investor action was driven by chronic underperformance. That’s not just at Exxon but across the oil and gas sector, the post reports. It should be seen as the market’s growing demand for the oil business to address the challenges of the future and reposition itself for a world in which the markets demand issues seen as existential threats, like carbon emissions, are addressed in a meaningful way.

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It is no secret that, on the whole, Europe was backing a Joe Biden win in the 2020 US presidential election.

A few eastern European countries, like Hungary and Poland, rather warmed to former President Donald Trump’s narratives. However, on the whole, socialist Europe saw more of a kindred spirit in Biden. In that vein, it expected his election would see a thawing of US-EU trade relations.

With volatile steel markets, knowing which strategy to execute and when can make all the difference. See how MetalMiner looks at different market scenarios.

US-EU relationship under Biden

US and EU flags

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To some extent, Biden has not disappointed.

A rapid return to the 2016 Paris climate change agreement and last week’s removal of sanctions on the company behind the all-but-completed NordStream 2 gas pipeline from Russia were expected and welcomed.

But two linked and particularly thorny issues remain.

The first is as much commercial as political. We’ve covered it before: the decades-long dispute between Boeing and Airbus over claims and counter-claims of unfair state support and subsidy rumbles on.

In March, the EU and US agreed to suspend all retaliatory tariffs on EU and US exports imposed in the Airbus and Boeing disputes for a four-month period. The pause allows both sides to focus on resolving the dispute.

Arguably, Trump’s hard-nosed approach is what ultimately brought both sides to the table. Biden’s approach may find a solution. Neither side has gained from the sanctions since 2018.

As such, a solution is to everyone’s benefit.

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aluminum ingot stacked for export

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A bullish report in Reuters last week advising metal output in China was breaking records, again, looks at odds with developments this week.

Relentlessly rising prices have taken a sharp about-turn, the BBC reported.

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

Rising metals output

Reuters reported that China’s aluminum production in April rose to a record monthly volume. China’s primary production reached 3.35 million metric tons in April. That marked a 2.3% jump from 3.28 million tons in March. Furthermore, it jumped by 12.4% from April 2020.

Nor was April an anomaly.

In the first four months of the year, China produced 13.02 million tons, a rise of 9.6% from the same period a year earlier. High prices and strong demand encouraged smelters to ramp up output. In addition, power restrictions in Inner Mongolia were eased.

The SHFE price hit 20,000 RMB ($3,106) per ton, the highest since 2011. In addition, production of 10 nonferrous metals — including copper, aluminum, lead, zinc and nickel – rose 11.6% to 5.48 million tons from a year earlier. Year-to-date output of the 10 metals rose by 11.5% to 21.43 million tons.

High prices have boosted output. While strong demand has also been a factor, investors have gone long and bid up prices.

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