Articles in Category: Commodities

You could argue OPEC, and those non-OPEC producers collaborating with the oil cartel to limit output, have done rather well this year.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The oil price, as measured by the most traded Brent Crude number, has been relatively stable since the agreement to limit output was implemented last year and excess inventory has been falling, aided by continued robust demand.

Bloomberg reports the comments of OPEC Secretary General Mohammad Barkindo: “There is a growing consensus that … a rebalancing process is under way. We are gradually but steadily achieving our common and noble objectives.”

We would take issue with the claim the objectives are noble.

Stitching up the market to support higher prices is hardly a noble endeavor, exploiting as it does the leverage of the few (producers) over the many (consumers).

But evidence suggests he is right in that the market is more balanced now than a year ago.

The question is: where is it going from March of next year, when the current agreement to restrict output expires?

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Have you set your 2018 metals budget?

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This free, downloadable PDF is one of MetalMiner’s most valuable pieces of content and includes coverage of commodities markets, industrial metals markets and key price drivers for aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate).

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The Annual Outlook Report continues to examine three variables which have underpinned metal markets for the past two years:

  • Demand from China (and China’s overall economic outlook)
  • The strength of the U.S. Dollar
  • Oil prices and trends

While the 2018 Annual Metals Outlook report is free of charge, we do recommend you pair it with a subscription to our Monthly Metal Buying Outlook report in order to get the most valuable, up-to-date information and analysis of market conditions.

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We feel like we have been here many times before.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The troubled history of Britain’s replacement nuclear power station Hinckley Point C (HPC) will have received scant, if any, coverage in the U.S.

But the story is an illustration of the blind alley in which nuclear power finds itself. The debate is one that is being (or will be) enacted in many other countries that rely on nuclear power as part of their energy mix.

Eight years behind schedule, HPC should have come on stream by the end of this year, but is not now likely before 2025 at the earliest (and probably later even than that distant date).

In the meantime, repeated delays have added to the costs.

A Rising Price Tag

Now estimated at £19.6 billion ($26 billion), it would be one of the most expensive structures ever built in the U.K. Last year, the British government pushed the financial risk onto French power generator and owner-to-be of the plant EDF Energy as part of a deal that has already settled on an eyewatering £92.50/MWhr fee for power produced, index linked for 35 years, the Financial Times reported.

Since that part of the agreement was made in 2013, inflation has pushed that figure to over £100/MWhr, the Financial Times reported, compared to offshore wind at £60/MWhr and unsubsidized new natural gas generation at even less.

Never mind the rights and wrongs on how an inept series of U.K. government politicians and civil servants got lobbied into agreeing to such a position. The fact remains no one, probably not even EDF themselves — and certainly not their shareholders — really wants the project to go ahead.

Fortunately, alternatives are emerging.

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This morning in metals, the U.S. dollar index is up, while gold and silver prices are on a downward trend and oil prices dip slightly from Monday’s high. In addition, there’s a very intriguing potential source of renewable energy on the horizon.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

A drop in U.S. oil inventories has helped oil prices stay more or less steady, Reuters reports. The biggest factor supporting oil prices has been Turkey’s threat to cut off oil exports from Kurdistan, and this past Monday, the price of oil came close to $60/barrel for the first time since June 2015.

U.S. Dollar Index Rises, Precious Metals Fall

Gold and silver prices fell to four-week lows as the U.S. dollar index climbed to a five-week high, fueled by the expectation that the Feds will hike up interest rates again, Reuters reports.

As Stuart Burns wrote earlier this morning, “Trump’s United Nations speech threatening annihilation on North Korea failed to support the gold price, as investors took a cue from central bank announcements that the Fed intends to start unwinding its multi-trillion dollar balance sheet in October.”

A New Renewable Energy Source?

Could 70% of U.S. energy come from plain old H2O? According to new research, energy from water evaporation could provide a staggering 325 gigawatts of power. Read more

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This morning in metals news, the International Trade Commission rules that imports of solar cells are hurting U.S. manufacturers, iron ore enters a bear market and the UN proposes that businesses take responsibility for environmental pollution.

A Bear Market for Iron Ore

The price of iron ore has undergone the biggest weekly fall in 16 months, Bloomberg reports. Having slipped into a bear market, the metal was trading at $63.56/ton on Friday, more than 20% lower than its August 21 high of $79.93/ton.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

We may see this price slump to continue for the near future. Some expect the price of iron ore to drop to the $50s in the fourth quarter. If China’s steel production cuts do go into effect as planned this winter, the country’s steel output may decrease as much as 30 million tons, thus cutting iron consumption by 50 million tons.

End of the U.S. Solar Boom?

The U.S. International Trade Commission voted in a 4-0 decision on Friday that the U.S. solar energy industry is being hurt by foreign overcapacity and cheap solar cell imports, the Washington Post reports. However, the proposed 40-cent-per-watt tariff on solar cells would double the price of solar panels, putting pressure on the rest of the U.S. solar industry.
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This week we covered the impact on the automotive industry of Hurricane Harvey and the likely boost to demand that will come from replacement of used and new vehicles damaged by the floods.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Today we look at Harvey’s impact on the oil, natural gas and refining markets — not that you will need any reminding of the impact of Harvey if you have been into the gas station to refuel your car.

According to the Financial Times, the average retail price of petrol in the U.S. rose to $2.59 per gallon on Saturday, quoting to the American Automobile Association. That was up about 10% from its level the week before Harvey hit, and its highest level since August 2015 as refineries were taken out across southern Texas. Ten refineries in the region were still shut down on Saturday morning, according to the Financial Times, with a combined total of about 2.9 million barrels per day of refining capacity, representing a whopping 16% of the U.S. total, according to the Department of Energy.

The scale of the hit to U.S. supplies and the near instant spike in prices underlines just how reliant the U.S. is on the Gulf Coast for refining, refined product exports and LNG exports. Due to their location inland, primary production from shale resources in the Permian and Eagle Ford escaped damage and were back online as soon as wind speeds dropped, but lower-lying refineries were not so resilient.

This all goes to highlight a worrying exposure the U.S. has to this particular part of the world. Whether you believe in global warming, whether you accept climate change, whether you think it is all some left-wing plot is not the issue. The issue is Gulf crude production has more than doubled since 2005, leading a 75% nationwide increase, and now accounts for almost two-thirds of total U.S. crude production, up from 54% in 2005.

Yet while oil import dependency has plunged from 60% in 2005 to just 25% today, the refining of domestically produced oil has concentrated even more in the Gulf region.

Refining capacity in coastal Texas and Louisiana has, according to the Financial Times, increased by a quarter since the middle of the last decade, such that the region now handles half of all U.S. refining.

The U.S. isn’t the only one exposed to this one region. Rising total exports of refined products have left 90% of gross exports leaving from the Gulf region exposing neighbours in the region, who are reliant on U.S. supplies, to disruption in the event of a natural disaster — like a hurricane — or even a terrorist strike.

Some would argue that the flooding of southern Texas is less of a one-in-500-year occurrence than politicians would have us believe. The whole of the Mississippi delta is gradually sinking into the sea as levees built in the last century and canals built for oil extraction access prevent the river from depositing fresh silt and simultaneously allow the ingress of brackish water that kills off the vegetation once covering the area, the Economist reported last month. Storms and floods account for for almost three-fourths of weather-related disasters the Economist wrote this month and they are becoming more common.

Source: The Economist

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According to the insurer Munich Re, the Economist states that Harvey is the third 500-year flood to hit Houston since 1979. The U.S. may have little choice in the medium term than to continue its heavy reliance on Gulf-based refining and related infrastructure; if that is the case, then significant work needs to be done to better protect those facilities in the future.

Commodities and industrial metals have historically moved in tandem.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

However, recent market dynamics highlight that this correlation has started to change.

Commodities have not moved past resistance levels, and instead have continued on a downtrend. Industrial metals traded sideways at the beginning of 2017, but have shown recent strength with the latest rally.

In the graph below, the green line represents the DBB index and the blue line represents the CRB index. The analysis at the bottom is the correlation between CRB and DBB index. It should be noticed that historically it has been positive.

Source: MetalMiner Analysis of FastMarkets

Why the Divergence?

First, readers should understand what exactly the CRB index contains.

Energy accounts for 39% of the CRB index, while agriculture is 41%. Base and industrial metals make up only 13% of the mix.

Thus, oil prices (what we actually look at as a critical indicator) have an outsized impact on the CRB index. Oil prices have been down since the beginning of 2017, as have commodities.

Oil prices. Source: MetalMiner Analysis of TradingEconomics

In terms of  industrial metals, most of the base metals have rallied this month. Aluminum, copper and zinc, particularly, were the best performers of the month. Prices have increased steadily and show strength to continue rising.

Steel forms seem to have lost a little steam, but prices are still increasing. Steel prices have been in an uptrend since November 2016.

Source: MetalMiner Index

Both steel and base metals price increases have contributed to the uptrend in industrial metals, which now appears to have taken off like a rocket.

What Can Buying Organizations Expect?

Even if the source of the current lack of correlation is clear, MetalMiner believes that one of the two (commodities or industrial metals) may show a change of trend at some point soon.

One can move the other, and that is why buying organizations should track price movements in each.

Free Sample Report: Our Annual Metal Buying Outlook

To better understand how to adapt industrial metal buying strategies based on these dynamics, take a look at our Monthly Metal Buying Outlooks.

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Hurricane Harvey touched down in Texas late last week — in the ensuing days, thousands were displaced as record rainfall of more than 50 inches blanketed some areas of Houston (the fourth-most populous city in the U.S. with a population of about 2.3 million).

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

According to a USA Today report citing preliminary research from the firm AccuWeather, Harvey could become the costliest disaster relief effort in U.S. history, with a potential price tag of $160 billion.

It should of course be noted that, before anything else, the natural disaster’s human impact is of utmost importance. The New York Times reported the death toll has hit at least 30, according to Texas officials.

In addition to widespread flooding, property damage and displacement suffered by residents in the hurricane’s path, Harvey has also left an economic impact that will be felt for the foreseeable future.

Among other things, metals prices, oil prices and shipping have all been, or will be, impacted by Harvey.

Trade Impact

The Port of Houston is one of most important trading locations in the U.S. As a result of Harvey, the port was completely closed as of last Friday. According to the Port of Houston website, it will remain closed on Thursday.

“We will continue to work alongside local agencies and the USCG to determine when operations can safely resume,” an alert on the Port of Houston website read Wednesday.

According to data on the Port of Houston website, the port is ranked first in total foreign tonnage and ranks second in total tonnage. As the largest Gulf Coast container port, it handled 68% of U.S. Gulf Coast container traffic in 2016.

So, a total shutdown of the port is a big deal.

On the export side, 3% of total container volume exported last year came from steel and other metals (27,127 TEUs).

A larger percentage of total imports come in steels and other metals — 8.6%, or 76,853 TEUs, last year.

Meanwhile, the Port of Corpus Christi, the fourth-largest port in total tonnage, was also closed as of Tuesday.

The affected areas have an immediate need for supplies of all kinds, but transportation modes are at a general standstill for the moment.

Steel Stocks

Much of Houston has been hit by record rains, leading to flooding and stranding locals without food or supplies.

Although it won’t happen overnight, eventually the area will begin to rebuild in the wake of the damages caused by Harvey.

According to a report on the Nasdaq website, Houston receives between 30% and 35% of all U.S. steel imports, making it a pivotal point of access.

In the wake of Harvey, some U.S. steel companies saw their stocks rise. According to the report, shares of United States Steel Corporation jumped by over 2.5% on Tuesday, while Olympic Steel rose more than 1.5%.

Nucor and AK Steel Holding Corporation both saw their stock prices rise by over 0.5%.

However, it’s still early to determine the true damage to the steel industry caused by Harvey.

According to a Platts report, Harvey could have a similar impact to that of 2012’s Hurricane Sandy, particularly with respect to steel scrap.

Freight Service Disrupted

In addition to the disruption of port activity, rising water levels have taken a bite out of freight service.

As a result, a rise in trucking rates can be expected, according to freight analyst firm FTR Transportation Intelligence.

“Look for spot prices to jump over the next several weeks, with very strong effects in Texas and the South Central region,” said Noel Perry, a partner at FTR. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”

According to Steel Market Update, FTR predicted 10% of freight activity will be disrupted over the next two weeks.

Gas Prices Rise

As a result of an overall glut in global production, gas prices have come down significantly since 2014, when the gas price in some metropolitan areas exceeded $4 gallon.

However, the average national gas price has increased as a result of Harvey and shutdowns of refineries in Corpus Christi and Galveston. As of Wednesday afternoon, the average national gas price stood at $2.40 gallon, up from $2.37 on Monday, according to AAA. The average price had already risen $0.04 to $2.37, which AAA said Monday was one of the largest one-week surges this summer.

According to AAA, about one-quarer of Gulf Coast refining capacity was taken offline, according to forecasts by Oil Price Information Service (OPIS), which equated to about 2.5 million barrels per day.

“Despite the country’s overall oil and gasoline inventories being at or above 5-year highs, until there is clear picture of damage and an idea when refineries can return to full operational status, gas prices will continue to increase,” said Jeanette Casselano, AAA spokesperson, in a prepared statement.

Time to Rebuild

Rescue missions continue in the Houston area, as officials move residents in flooded areas to shelters. According to the Washington Post, 32,000 people have taken refuge in 231 shelters, with many volunteers need to help clean out damaged homes.

“We expect a many-year recovery in Texas, and the federal government is in this for the long haul,” said Elaine Duke, acting secretary of the Department of Homeland Security, to the Washington Post.

The damage won’t be contained to Texas, however. According to the National Hurricane Center, Harvey touched down again, this time in southwestern Louisiana at 4 a.m. today.

More than 12,400 employees from more than 17 federal departments and agencies are working together in support of the ongoing response to damages resulting from Hurricane Harvey and subsequent flooding across Texas and Louisiana, according to the Federal Emergency Management Agency (FEMA).

When all is said and done, affected communities will have a long road to recovery. Many will eventually return to homes either damaged beyond habitability or totally destroyed.

Houston is the largest U.S. market for newly constructed homes, and demand for materials used in home construction will surge as communities transition from rescue and recovery mode to begin the arduous rebuilding process.

The question is: When will that transition happen?

For now, government agencies on the ground are prioritizing the primary disaster relief effort, and it’s unclear when resources can eventually be shifted to construction.

The pipe and tube market, in particular, is well represented in the Houston area, which offices for the multinational firm Vallourec. The Port of Houston took in nearly 40% of iron and steel pipe and tube imports through the first six months of the year, according to ustradenumbers.com.

Earlier this week, the Committee on Pipe and Tube Imports sent a letter, obtained by CNBC, to the Trump administration, urging it to move forward with trade remedies in the Section 232 investigation of steel imports. According to the letter, over 60% of current U.S. demand for pipe and tube materials is supplied by foreign producers.

The request tied into the ongoing situation in Houston.

“Based on the amount of imports flooded into America now we will not be able to help rebuild Houston,” Robert Griggs, president and CEO of Trinity Products, told CNBC.

“Not one U.S. pipe company will get a lick of work in rebuilding Houston. It will all go to China. The president needs to level the playing field and make it fair. The way it is now, American steel pipe companies will lose the opportunity to rebuild Houston.”

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Before we head into the weekend, let’s look back at some of the top stories on MetalMiner this week.

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Free Download: The August 2017 MMI Report

The U.S. Department of Commerce. qingwa/Adobe Stock

Another Tuesday, another countervailing duty (CVD) determination from the U.S. Department of Commerce.

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Two weeks after the department issued affirmative determinations in the cases of Chinese aluminum foil and silicon from Australia, Brazil and Kazakhstan, the department issued a ruling on biodiesel earlier this week.

The department announced its determination Aug. 22. The CVD investigation targeted biodiesel imports from Argentina and Indonesia.

Secretary of Commerce Wilbur Ross announced Argentina and Indonesia received countervailable subsidies of 50.29 to 64.17 percent and 41.06 to 68.28 percent, respectively.

“The U.S. values its relationships with Argentina and Indonesia, but even friendly nations must play by the rules,” Ross said in a department release. “The subsidization of goods by foreign governments is something that the Trump administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

Biodiesel fuel is typically made from a diverse range of sources, including recycled cooking oil, animal fats and and soybean oil.

As in other CVD rulings, the Department of Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of biodiesel from Argentina and Indonesia based on the aforementioned preliminary rates.

The petitioner in the investigation was the National Biodiesel Board (NBB) Fair Trade Coalition, which represents the biodiesel and renewable diesel industries, including producers, feedstock suppliers and fuel distributors in the U.S.

The NBB applauded the Department of Commerce’s preliminary determination.

“The Commerce Department has recognized what this industry has known all along—that foreign biodiesel producers have benefited from massive subsidies that have severely injured U.S. biodiesel producers,” said Doug Whitehead, chief operating officer of the National Biodiesel Board, in a release. “We’re grateful that the Commerce Department has taken preliminary steps that will allow our industry to compete on a level playing field.”

As with the announcements Aug. 8, the Department of Commerce continues to tout the uptick in countervailing and antidumping investigations this year compared with last year. According to the Aug. 22 release, the department has launched 56 CVD and antidumping investigations between Jan. 20 and Aug. 22 — a 27% increase from the previous year.

According to the release, 2016 imports of biodiesel from Argentina and Indonesia were valued at an estimated $1.2 billion and $268 million, respectively.

Free Download: The August 2017 MMI Report

Barring delays, the Department of Commerce is scheduled to announce its final determination in the investigation Nov. 7.