Author Archives: Stuart Burns

As the World Bureau of Metal Statistics (WBMS) will tell you, the global aluminum market reached a surplus of 1,603 kt in the January to September 2020 period.

That tripled the surplus of 480 kt recorded for the whole of 2019.

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Global aluminum market sees rising production

Production continued to rise in China. In addition, production made a strong comeback in North America, where it rose 4.3% year over year, according to Capital Economics, largely due to the recovery of Alcoa’s Becancour smelter in Canada.

Chinese output grew 3.8% to nearly 31 million tons in the January to October period. Even so, demand still outstripped supply. The country imported some 766 kt of primary metal, according to Reuters.

Despite Chinese demand — or maybe because of it — an estimated 3.2-million-ton global surplus will build this year, according to CRU estimates. Some 2.9 million tons of that tonnage will occur outside of China.

Aluminum stocks and demand

Yet if ever there was an example of how exchange stocks are no indication of demand, LME inventory levels actually fell this year (down by 53 kt so far).

Surplus production has a way of disappearing off the radar in the aluminum market. The stock and finance trade soaks up excess production and profitably stores it away on the back of a strong LME forward price curve.

The portion that is visible via the LME’s off-warrant reporting structure doubled from 730 kt in February to 1.56 million tons by September. That figured has continued to climb since.

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The World Platinum Investment Council (WPIC) released a report this month with a bullish view of the platinum market in 2021.

The WPIC is bullish on the basis of stronger investment demand and restricted production in South Africa.

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Platinum in deficit

The WPIC is predicting a record deficit of 1.2 million ounces in 2020. The projected deficit would mark a sharp uptick up from a deficit of 100,000 ounces in 2019.

The report states supply in 2020 fell by 18% due to virus-induced lockdowns. Meanwhile, demand fell only 5% as automakers managed to maintain output, resulting in a deficit of -1,202 Koz.

Next year, the council is expecting demand growth of 2%. That growth, it expects, will come on the back of stronger consumer and industrial demand as consumers return to less cautious ways and increase spending on jewelry and cars.

Automotive will see support not just from increased car sales but also greater per-vehicle PGM use as implementation of new, tighter Euro 6 emission standards in Europe come into effect.

This is expected to result in supply increasing by 17% and demand rising by 2%, resulting in a lower deficit of -224 Koz.

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The disconnect in recovery between Asia and North America/Europe is having an unprecedented impact on the transpacific and Asia-Europe container markets.

The world’s shipping industry had a near-death experience in the early part of the year as China went into lockdown.

To its credit and to consumers’ detriment, the industry has since got a grip of the situation and turned disaster into triumph.

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Container markets see rising rates

Ocean carriers are charging skyrocketing rates. In a bid to maximize returns, they are exacerbating shippers’ woes. Carriers have been shipping empty containers back from destination markets to origin rather than carrying cargoes.

The problem, as laid out by The Load Star, is a shortage of containers rather than space on container ships. That shortage is the main driver of the unrelenting spike in freight rates.

But the situation is made worse by carriers actively working to reposition their empty equipment as quickly as possible back to Asia to take advantage of skyrocketing spot rates. Meanwhile, they do not get those rates on the U.S.-Asia direction.

Exporters scrambling

This has left exporters around the world scrambling for boxes.

Indeed, one U.K.-based carrier executive reportedly admits, “We would much rather stick the empties back on the ship to Asia where we can use them straight away with premium-rate cargo than have them tied up for weeks on an export load from Europe.”

The same predicament pertains to the U.S.-Asia Pacific route.

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Industrial metals have had a good few months in Q3, in part due to a China recovery.

It’s not a bull market, of course — we have called it a sideways market.

However, it has been a pretty positive sideways market. Copper is up from $2.60/lb at the end of the European lockdowns to $3.20/lb today. Aluminum is up from $0.70/lb to approaching $0.90/lb.

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 recovery

Much of that rise has ridden on the back of a resurgent Chinese economic recovery driving such strong domestic demand that the country has switched to becoming a net importer on key metals this year.

Ongoing policy stimulus in China has made its way into industrial and construction investment. That should continue to boost investment and industrial output in the coming months.

Retail sales, while slow to recover in the early summer, are now back to pre-pandemic levels. Auto sales have benefited from pent-up demand earlier in the year supporting the retail sales numbers.

How long can China’s recovery continue?

Industrial metals buyers may be asking how long can this continue. Will prices continue to rise?

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We all remember the Obama-era Trans-Pacific Partnership (TTP) trade deal, right? The trade deal the U.S. withdrew from in early 2017 after President Donald Trump called it a disaster for American workers?

Well, Australia, Japan, and nine other countries went ahead with it, lowering tariffs and bolstering trade within the region.

But, crucially, TTP did not include China. Part of the attraction for the Obama administration was that the deal strengthened the U.S.’s role in Asian regional trade at the expense of China.

Even so, the deal was also a source of puzzlement to participants at the time. The argument went, if it did not include China, then why was the U.S. so worried about American jobs (as TTP gave no privileges to China)?

Two years on and the region has just signed an even larger agreement.

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RCEP trade deal and worries over China’s dominance

The Regional Comprehensive Economic Partnership (RCEP) cuts tariffs on trade across a new trade zone larger than the E.U. in population. Gross domestic product of the zone represents some 30% of the global total, the Washington Post reports.

Unfortunately, America’s absence from this agreement has left the way clear for Chinese dominance.

The U.S.’s absence also contributed to the withdrawal of Asia’s third-largest economy India from the agreement.

There is still some trepidation, even among parties that have signed up, that without the counterbalance of the U.S., the agreement leaves China in too dominant a position.

Australian labor unions have questioned the deal. Singapore is concerned about the failure of RCEP to detail rules around issues like data privacy, IP protection, digital trade, and e-commerce. These are all issues the U.S. would have put at the top of its agenda.

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Port Talbot steel plant

Port Talbot steel plant. Petert2/Adobe Stock

Tata Steel has been having a pretty horrid time trying to get rid of its loss-making European steel business.

Last year, the European Commission rejected a potential merger with ThyssenKrupp’s equally struggling steel business on competition grounds. The combination of two such significant European steelmakers would give them undue dominance in the European market, the Commission argued.

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.

Tata Steel faces challenges

However, Tata Steel has to find a solution.

Tata Europe is almost certainly hemorrhaging cash this year. While it has been a responsible owner, it must be desperate to offload the two main assets: Tata UK and Tata Netherlands.

The combined businesses purchased from Corus were originally two distinct plants. British Steel Port Talbot and the Netherlands’ Koninklijke Hoogovens steel plant merged in 1999 to form Corus.

Unable to find a buyer for the combined business, Tata is now looking to separate the two businesses again in the hope of finding buyers for the individual plants.

Potential suitor for Tata Netherlands

Sweden’s SSAB is reportedly a suitor for Tata Netherlands. The giant IJmuiden integrated steel plant is Tata Netherlands’ main asset.

The plant includes two blast furnaces with a capacity of 7.5 million tons per annum and an associated rolling mill.

SSAB is being coy about progress on the talks.

However, for the Swedish firm — having already absorbed Finland’s Rautaruuki back in 2014 — the acquisition would further enhance SSAB’s position as a major European steel group.

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India came in for considerable criticism over its reaction to the spread of the coronavirus pandemic in the first wave.

Locking down the economy almost overnight and trapping millions of migrant workers from returning home, only to then release them a week or two later to flood out into rural areas and spread the virus, was roundly condemned (both inside the country and out).

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.

Coronavirus pandemic in India

Since then, infections have been on a relentless rise. Infections reached a peak in mid-September of some 93,000 per day. That brought the total to some 9 million cases and deaths to nearly 130,000 (one of the highest totals in the world).

Rolling local containments and much more effective work at the city and community levels have gradually reduced infections. Infections are about half of what they were in late September, as this graph illustrates:

chart of coronavirus cases in India

Lacking the financial firepower of mature economies, the government has been unable to support the economy in the way many Western governments have done.

As a result, India’s GDP contraction has been brutal.

According to the Financial Times, gross domestic product contracted almost 24% year over year in the second quarter of 2020. In the third quarter, GDP fell by an additional 9%.

The decline puts the country into a technical recession for the first time in its history.

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oil price chart

Sodel Vladyslav/Adobe Stock

The oil price was not alone in responding positively to this week’s encouraging news from Pfizer and BioNTech regarding progress with their mRNA COVID vaccine.

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.

Stocks, oil surge on positive news on potential COVID vaccine

Stock markets surged as investors took heart from the firms’ optimistic media announcements.

The oil price has dropped back a little since yesterday’s high. At around $44.50/barrel, it is up 5% and still well supported.

Joe Biden’s win in the U.S. presidential election is something of a double-edged sword for the oil market.

The president-elect’s environmental policies could raise costs and, hence, stifle a rebound for the U.S. shale market. While supportive for prices, the possibility he would take the U.S. back into the European-U.S. Joint Comprehensive Plan of Action (JCPOA) deal with Iran is seen as a path to relaxing Trump-era sanctions. A return of the deal would ostensibly result in the release of Iranian oil onto the world market.

The reality is, although the new administration would like to get Iran back into an agreement to limit the refining of fissile material the process is fraught with complexity. Progress is likely to come slowly.

For the time being, neither dynamic is likely to have much impact before well into the middle of next year, if not the year beyond.

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We wrote last month how China’s rapid recovery from the COVID-19 pandemic resulted in the country importing semi-finished products for which it previously had been self-reliant or even a net exporter for the last decade.

Some steel products and primary aluminum swung into becoming significant net inflows for the economy during the summer months.

But as we cautioned at the time, this was only expected to be a temporary phenomenon.

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China’s steel flows recalibrate

Sure enough, although volumes are still down on this time last year, exports have picked up and imports have fallen.

In a recent post, Argus Media reported China’s steel exports in October rose by 5.2% from September to 4.04 million tons. Chinese mills shifted supplies to overseas markets, enabled — or forced, depending on your point of view — by falling domestic prices.

Summertime exports rose as domestic prices fell

Falling domestic prices in the summer aided Chinese steel mills’ ability to export so aggressively.

Domestic inventory levels rose and domestic crude steel production hit record levels of 3.09 million tons a day in September, in large part to meet domestic demand. Weakness in domestic steel prices suggests overoptimism by the steel mills, inevitably resulting in excess production leaking into export markets looking for a home.

Domestic Chinese steel prices have recovered since the summer as global steel prices have risen and imports have fallen.

As the global recovery has lifted demand and prices, mills in India and elsewhere have not felt the need to distress sell metal into China. In addition, the arbitrage window has narrowed.

Imports have therefore appeared less attractive to Chinese buyers and exports more attractive to mills. That is a trend we expect to continue through Q4.

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E.U. and U.S. flags

cunaplus/Adobe Stock

As poll workers continue to count the final votes in the U.S. presidential election, it looks like we have a Biden victory — not by the landslide he and many of his supporters had hoped for, but a victory nevertheless.

There will be ongoing legal arguments, demands for recounts, and claims of fraud. However, the U.S. voting system is one of the most robust in the world: fraud is, in reality, not an issue.

Furthermore, the legal challenges are not intended to change the outcome. They are more about setting the scene for the post-Trump landscape, for what the then-ex-president does next. Even a Trump-stuffed Supreme Court knows it answers to the constitution first and the president second.

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Market implications of the presidential election

So, now we have a better idea of the political outcome, does that change our election day review of the implications for markets?

Yes and no.

Most of us in business would take comfort from the fact a more constrained government is one that is less able to do anything radical. Markets generally don’t like radical, at least from politicians.

The prospect of a Democrat presidency and a Republican-controlled senate could be a positive for equities. Such an arrangement reduces the possibility that regulation and corporation tax can be increased.

Market sentiment turned a little cautious overnight. For example, new environmental laws are likely to be more limited, helping those sectors that had been sold down in the run-up to the election.

But others have declined that might have benefited from the proposed stimulus program. A split executive and house likely reduces the size and scope of any future fiscal stimulus package in the U.S.

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