Articles in Category: Commodities

After a sharp run up from the middle last year, the oil price is hovering below U.S. $80 per barrel.  The market is finely balanced in terms of threats to supply and still has robust demand growth.

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Capacity cuts implemented by Russia, OPEC and a number of non-OPEC countries have successfully brought excess supply under control and reduced inventory. As a result, the oil price has risen with the expectation that the cartel will continue to restrict output into 2019.

So far, all significant producers appear on board with that position. The International Energy Agency (IEA) says the market is broadly balanced, with further price increases unlikely to be as significant as those of the previous 12 months.

The oil market still faces serious supply risks from the potential losses in Venezuela and Iran, the International Energy Agency (IEA) said in a new report, with only the U.S. continuing to add output. The IEA sees non-OPEC supply growing by 2 million barrels per day in 2018, followed by another jump of 1.7 million barrels per day in 2019, OilPrice.com reports; the U.S. makes up three- fourths of both of those figures, despite severe pipeline restrictions in Texas hampering development.

Growing U.S. output, though, is barely making up for declines in Venezuela, which the report describes as “catastrophic,” and potential loss of Iranian supply if sanctions are reimposed further (thus tightening the market).

So far, Russia and Saudi Arabia are not willing to increase output to dampen price rises. President Trump’s tweets this week about the oil price already being too high should be seen as an attempt to pressure OPEC to increase output to cap prices.

Interestingly, The New York Times sees the current failure of the oil price to break through $80 as evidence that the U.S., Russia and Saudi Arabia are already working behind the scenes to increase output and cap further rises. Whether that is true is unclear — judging by the president’s tweets, it’s probably not being done in any concerted or coordinated manner.

President Trump’s comments over the oil price aren’t altruistic concern for consumers; rising oil prices have added to inflationary pressures in the U.S. The Wall Street Journal reports oil price rises have contributed to a number of factors forcing up consumer prices and encouraging the Fed to consider four rate hikes this year. Even though the WTI $10 discount to Brent leaves U.S. consumers at an advantage to the rest of the world, costs are still rising this year.

The president not unreasonably does not see any need for further oil price rises. While the demand market is growing, there is plenty of capacity to meet it if producers allow it; but for various reasons, OPEC is keen to see higher prices. For Saudi Arabia, it’s because of budget deficits and maximizing the value of the upcoming Aramco float. For most other OPEC members, it’s to make up state budgets requiring close on $100 per barrel to balance the books.

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At under $80, there is clearly more incentive for producers to continue restrictions and push for higher prices. However, unexpected supply-side disruption excepted, the probability is they will be disappointed — at least in the short term — as prices show little inclination to drive higher.

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President Donald Trump has signaled his displeasure at aspirations expressed by Saudi Arabia at a recent OPEC meeting with respect to an extension in the current supply deal between OPEC and non-OPEC members for continued supply constraints with a view to higher prices.

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Saudi Arabia is rumored to be looking for prices in excess of $100 per barrel, partly to support the upcoming $2 trillion IPO of Saudi Aramco and partly to stem dwindling reserves caused by a haemorrhaging budget deficit.

According to The Telegraph, the kingdom’s massive foreign cash reserves have dwindled from a peak of $737 billion in 2014 to $488 billion today. Some oil experts think that break-even for Saudi Arabia is somewhere close to $85 a barrel.

President Trump’s comments caused a sharp retraction in oil prices, but it is not clear if the fall will be sustained.

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Happy Friday, MetalMiner readers! Here’s a look back at this week’s top stories.

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  • A number of aluminum associations around the world wrote a joint letter urging G20 leaders to hold a forum on global aluminum overcapacity at this year’s G20 Summit, scheduled to take place from Nov. 30 to Dec. 1 in Buenos Aires.
  • After a steady downward trend, LME aluminum prices recovered, rising more than 13% in a week.
  • The U.S. International Trade Commission will advise the U.S. Trade Representative on proposed modifications to the U.S. Korea Free Trade Agreement (KORUS).
  • The EU is demanding compensation at the WTO for the U.S.’s Section 232 tariffs on steel and aluminum, arguing that the tariffs were imposed to protect U.S. industry. What is behind the U.S.’s national security argument?
  • Irene Martinez Canorea’s mid-month metals analysis shows aluminum as April’s top performer so far. Prices for copper and nickel have also risen, while other base metals have fallen.
  • U.S. and India have announced a joint task force on natural gas.

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Numerous factors weigh heavily on the base metals and commodity complex: the Chinese copper scrap ban, the Section 232 proclamation on aluminum and steel combined with country-specific exemptions set to expire on May 1, the Section 301 investigation, and multiple strikes at copper and nickel mines to boot. After the turmoil of the first few months of 2018, MetalMiner reviews how base metals and commodities performed during Q1.

Aluminum, copper and nickel on the rise

Aluminum, copper and nickel prices started 2018 weaker than at the end of 2017. The end of 2017 showed a sharp rally for these base metals, following the bullish uptrend that began in the summer of 2017.

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The short-term downtrend sounded alarms as prices dropped significantly, not finding a floor. However, LME prices started to climb at the beginning of April, leaving the downtrend behind.

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This morning in metal news, Chinese iron ore futures rebound from a 10-month low, Saudi Arabia emerges as OPEC’s leading supporter for further reducing oil supply, and researchers discover a major supply of rare earth minerals in the seabed near a remote Japanese island.

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Chinese Iron Ore Rebounds from 10-Month Low

After dropping to a 10-month low on Tuesday, Chinese iron ore has rebounded somewhat, Reuters reported.

The price of iron ore had dropped nearly 15% this year as a result of oversupply, with stocks totaling 161 million tons. As the Wall Street Journal’s Rhiannon Hoyle wrote, “there’s enough iron ore sitting at Chinese ports right now to produce more than 100 million automobiles, in theory.” However, experts say that most of the iron ore is likely of low-quality.

A $100/Barrel Oil Price

Saudi Arabia wants to see the price of crude to rise to $80 to $100 per barrel. Reuters reported that these were the figures discussed by senior Saudi officials in recent closed meetings.

In January 2017, OPEC, Russia and other producers had agreed to reduce supply, a pact that extends until December 2018. Although the original goal of the pact is in sight, with oil prices currently at $73 a barrel, Saudi Arabia is emerging as the OPEC’s leading supporter for further supply cuts.

Off the Coast of Japan, a Rare Earths Find

A team of Japanese researchers recently discovered a treasure trove of rare earth minerals in the Pacific Ocean seabed near Minamitori Island, a small Japanese island about 1,150 miles from Tokyo, CNN reported. Read more

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This morning in metals news, oil and gold prices opened slightly lower despite the missile attacks on Syria that took place early Saturday morning local time. NAFTA renegotiation talks speed up in face of Mexico’s upcoming presidential election.

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Oil, Gold Traded Lower Following Syria Strikes

Oil and gold prices have not yet spiked following the missile attacks that the United States, Britain and France launched on Syria over the weekend, instead trading slightly lower when markets reopened, according to Reuters.

“Gold has benefited in recent days as a safe-haven asset amid a U.S.-China trade dispute and the escalating conflict in Syria, which also pushed oil above $70 a barrel because of concerns about a spike in Middle Eastern tensions,” Reuters’ Jan Harvey and Jessica Resnick-Ault wrote.

The LME’s Aluminum Woes

The London Metal Exchange’s decision to no longer accept aluminum from Russian producer Rusal has led to a scramble to withdraw non-Russian metal from the LME’s warehouses, the Financial Times reported. Buyers have also been in a bind to find alternative sources of aluminum. Read more

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Before we head into the weekend, let’s take a look back at the week that was and some of the stories here on MetalMiner:

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  • Joseph Kabila, president of the Democratic Republic of Congo, is looking to rip up a 2002 mining charter in order to secure a larger piece of the revenue from the country’s vast natural resources.
  • Copper prices have been trending down since a December surge (when the LME copper price reached $7,215/mt).
  • There’s a battle going on between two rival manufacturers of the famous London black cab.
  • Hong Kong’s housing market is overstretched, MetalMiner’s Stuart Burns writes.
  • In case you missed it, it’s Monthly Metals Index (MMI) Week! We kicked our off monthly round of subindex reports this week, which are available at the following links: Construction, Rare Earths, Renewables, and Automotive. Look for the remaining six MMI reports next week.
  • India is among the list of countries still lobbying for exemptions from the U.S.’s Section 232 tariffs on steel and aluminum imports.

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I guess you can’t blame countries like the Democratic Republic of Congo (DRC) for looking to acquire a bigger piece of the wealth from their own supplies of natural resources.

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The Telegraph reports that President Joseph Kabila is ripping up the 2002 mining charter, looking to boost royalties from 2% to 3.5% on base metals, with an additional levy of 10% on what it calls strategic minerals.

While at the time of writing it was not clear if copper and cobalt would be hit by the higher tax, both metals certainly come under the broad definition of strategic and are two of the DRC’s biggest earners.

Other reports suggest the premium for strategic metals could be just 5% and 6% on precious stones, of which the DRC is also a major producer.

The grab for a bigger share of royalties probably predates news that Glencore has struck a deal to sell one-third of its DRC cobalt production to Chinese battery recycler GEM Co. in a three-year deal, said in a Times article to cover 52,800 tons of cobalt hydroxide between 2018 and 2020. With cobalt prices at record levels, the deal is already worth between $4 and $5 billion (assuming prices don’t rise even further).

Needless to say, mining companies are lobbying hard for a reduction in any additional royalties, arguing for delays to implementation, and special exemptions. The government’s position is that the previous code, now some 15 years old, was created to make the DRC attractive for investors at a time when it was suffering the second Congo War from 1998-2003. The government argues that in the intervening period, the situation has become much more stable and mining companies can operate in a better domestic security environment (and therefore at lower cost and lower risk).

Under such circumstances, they suggest a fairer distribution of the spoils is overdue.

Perceptions of domestic security are relative. The DRC remains one of the most difficult places in the world to do business and there remains a significant risk premium that Western mining companies will demand to invest in that troubled country.

But the fact remains that the DRC has huge reserves of critical raw materials that will be needed in the years to come for a wide variety of technologies and applications.

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If the state takes a little more of the pie, it will probably be reflected in prices. But with limited alternatives for products like cobalt, it is unlikely to dent mining companies’ enthusiasm for investing in the DRC.

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Section 232 aside, given the market turbulence this month MetalMiner took a look back at commodities and other base metals to reassess trends.

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Commodities have traded lower in March, slowing down from their previous pace.

Crude oil prices (one of the most important price indicators in the commodities basket) increased this month, which may still lead to a higher CRB index by the end of the month.

CRB index. Source: MetalMiner analysis of Stockcharts

However, the long-term uptrend for commodities remains in place. Next month, buying organizations can expect to see price increases.

Meanwhile, this month base metals have traded lower. Contrary to rising U.S. steel prices, base metal prices began the month with price declines. Price retracement occurs as a normal trading pattern.

In a bullish market, buying organizations may want to identify the lows to reduce price risk.

DBB index. Source: MetalMiner analysis of Stockcharts

As with commodities, the base metals long-term uptrend remains in place.

While the CRB and DBB indexes have both traded lower in March, domestic steel prices skyrocketed.

With the recent tariffs imposed on steel products, steel prices remain at more than four year-highs for plate, and at 2011 levels for all the other steel forms (HRC, CRC and HDG).

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To learn more about how Section 232 will impact both the aluminum and steel industry, check out our Section 232 special coverage.

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Earlier this month, the U.S. Department of the Interior announced that it is seeking public comment on a recently released draft list of minerals “considered critical to the economic and national security of the United States.”

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An executive order from President Trump in December directed the secretary of the interior (in coordination with other agencies) to publish a list of critical minerals in the Federal Register. As of Feb. 27, there were 102 public comments listed on the Federal Register.

“The work of the USGS (United States Geological Survey) is at the heart of our nation’s mission to reduce our vulnerability to disruptions in the supply of critical minerals,” said Dr. Tim Petty, assistant secretary of the interior for water and science, in an Interior Department release. “Any shortage of these resources constitutes a strategic vulnerability for the security and prosperity of the United States.”

The published list covers minerals used in a broad range of practical applications, from catalytic agents to batteries.

According to the Executive Order signed Dec. 20 by Trump, a critical mineral is defined according to a trio of components:

  • A non-fuel mineral or mineral material essential to the economic and national security of the U.S.
  • The mineral has a supply chain vulnerable to disruption
  • The mineral serves an essential function in the manufacturing of a product, “the absence of which would have significant consequences” for the economy and national security

According to the order, within 180 days of publication of the list of minerals, the secretary of commerce — in coordination with the secretaries of defense, the interior, agriculture and energy — will submit a report to the president that will outline, among other things, a strategy to reduce the U.S.’s reliance on critical minerals and an assessment of “progress toward developing critical minerals recycling and reprocessing technologies.”

The full list of critical minerals from the Department of the Interior, including common applications, is as follows:

  • Aluminum (bauxite), used in almost all sectors of the economy
  • Antimony, used in batteries and flame retardants
  • Arsenic, used in lumber preservatives, pesticides, and semi-conductors
  • Barite, used in cement and petroleum industries
  • Beryllium, used as an alloying agent in aerospace and defense industries
  • Bismuth, used in medical and atomic research
  • Cesium, used in research and development
  • Chromium, used primarily in stainless steel and other alloys
  • Cobalt, used in rechargeable batteries and superalloys
  • Fluorspar, used in the manufacture of aluminum, gasoline, and uranium fuel
  • Gallium, used for integrated circuits and optical devices like LEDs
  • Germanium, used for fiber optics and night vision applications
  • Graphite (natural), used for lubricants, batteries, and fuel cells
  • Hafnium, used for nuclear control rods, alloys, and high-temperature ceramics
  • Helium, used for MRIs, lifting agent, and research
  • Indium, mostly used in LCD screens
  • Lithium, used primarily for batteries
  • Magnesium, used in furnace linings for manufacturing steel and ceramics
  • Manganese, used in steelmaking
  • Niobium, used mostly in steel alloys
  • Platinum group metals, used for catalytic agents
  • Potash, primarily used as a fertilizer
  • Rare earth elements group, primarily used in batteries and electronics
  • Rhenium, used for lead-free gasoline and superalloys
  • Rubidium, used for research and development in electronics
  • Scandium, used for alloys and fuel cells
  • Strontium, used for pyrotechnics and ceramic magnets
  • Tantalum, used in electronic components, mostly capacitors
  • Tellurium, used in steelmaking and solar cells
  • Tin, used as protective coatings and alloys for steel
  • Titanium, overwhelmingly used as a white pigment or metal alloys
  • Tungsten, primarily used to make wear-resistant metals
  • Uranium, mostly used for nuclear fuel
  • Vanadium, primarily used for titanium alloys
  • Zirconium, used in the high-temperature ceramics industries

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