Articles in Category: Commodities

gui yong nian/Adobe Stock

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

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Zerophoto/Adobe Stock

This morning in metals news, Chinese iron ore futures hit their highest price point in 10 months, Turkey’s steel sector takes another hit, and copper and zinc hit their 2019 highs.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Iron Ore Rises

Is optimism building vis-a-vis a potential resolution to the ongoing U.S.-China trade dispute?

Apparently, yes (whether that leads to an actual diplomatic breakthrough is something else entirely).

And, according to Reuters, that optimism has contributed to sending Chinese iron ore futures up to a more than 10-month high, with Dalian ore gaining as much as 2.6%.

Strain on Turkish Steel

The Turkish steel sector was already under pressure after the 2018 diplomatic standoff over the detention of American pastor Andrew Brunson. Brunson was eventually released in October, but not before the Trump administration in August announced it would double its Section 232 tariffs on steel and aluminum with respect to imports from Turkey.

The move thus raised the duties to 50% and 20%, respectively, on a Turkish steel sector that was already suffering after the initial 25% steel duty was imposed in March 2018. U.S. imports of Turkish steel through the first half of 2018 were down 56% compared with the first half of 2017.

The hits keep on coming for the Turkish steel sector, as E.U. member states this week voted to impose steel quotas extending until 2021.

“Our export markets have disappeared, the local market hardly exists, we’ve got lots of capacity and no market,” a London-based Turkish steel trader was quoted by Reuters as saying.

Copper, Zinc Surging

The price of copper and zinc on Friday reached their highest levels in the year to date, CNBC reported.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

As with the Dalian iron ore surge, markets are seizing on optimism that a U.S.-China accord is drawing nearer.

photonewman/Adobe Stock

This morning in metals news, aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 results, India is considering a higher iron ore import duty and Shanghai steel futures moved up.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Alcoa Reports 4Q Earnings

Pittsburgh-based aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 earnings this week, reporting adjusted net income of $125 million, excluding special items, for the final quarter of 2018.

The 4Q net income total was up from $119 million in the third quarter but down from $195 million in 4Q 2017.

For 2018 as a whole, the company reported adjusted net income excluding special items of $675 million, up from $563 million in 2017.

“Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments,” President and CEO Roy Harvey said. “With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead.”

In 2019, Alcoa projects a global aluminum deficit between 1.7 million and 2.1 million metric tons. In addition, Alcoa reported the global alumina market came in at a deficit of 0.6 million metric tons.

“In 2019, the Company expects the alumina market to move to a surplus that is projected to range between 0.2 million and 1 million metric tons, which assumes ongoing, third-party supply disruptions in the Atlantic region,” Alcoa states. “The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.”

India Considers Hiking Iron Ore Duty

According to a report from Creamer Media’s Mining Weekly, the Indian government is considering an increase to its iron ore import duty.

Per the report, domestic industry has lobbied the government to increase the current 2.5% duty on imported iron ore.

Shanghai Steel Picks Up

Global steel prices have lagged of late, but Thursday was a positive session for Shanghai steel futures, Reuters reported.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Per the report, the most-traded rebar contract on the SHFE ticked up 0.8%, while hot rolled coil was also up 0.8%.

Zerophoto/Adobe Stock

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:

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Want to a see Cold Rolled price forecast? Get two monthly reports for free!

The Construction Monthly Metals Index (MMI) stemmed last month’s seven-point loss by leveling out for the January 2019 reading.

Our Construction MMI sub-index — tracking a basket of industrial metals, materials and other indicators crucial to the construction sector — stayed at a value of 82, holding steady from December’s reading.

The constituent metal and material price changes, like the overall reading, held relatively steady over the month. Tracked by our MetalMiner IndX, the U.S. shredded scrap price dropped only a few dollars this month ending up at $353 per short ton, while the China H-beam steel price lost about the same ground per metric ton. Chinese rebar, on the other hand, rose by about $12, reaching nearly $557 per metric ton.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Latest Construction Spending Data Is…Still TBA

Perhaps the biggest story of the moment — the U.S. government shutdown, a result of the stalemate between President Donald Trump and Congressional Democrats — turns out to have a construction angle, as well as a direct effect on construction-sector data delays.

The sticking point keeping President Trump from capitulating to re-opening government business is his steadfast demand for about $5 billion in funding for the U.S.-Mexico border wall that he promised during his campaign. First indicated to be constructed of concrete, Trump has since pivoted to a steel-slat design, and most recently, a setup of “see-through” materials.

All of which is to say, the U.S. Census Bureau, which reports the monthly construction spending data, is not reporting updates during the shutdown. We will update this story, or publish a separate post, with the January data when it becomes available.

Architecture Billings Forthcoming As Well, But Last Reading Looked Strong

The next ABI reading is scheduled to arrive on January 23, but the last available numbers from November indicate growth and confidence in the sector.

Billings increased to a reading of healthy 54.7 in November — the highest since last January — up from 50.4 the previous month. (A reading over 50, like the ISM PMI, indicates positive expansion.)

Top Business Concerns for 2019

Industry folks also voiced their top business concerns for 2019 to the AIA via a survey.

“The largest share (30 percent) reported that identifying new qualified staff with appropriate technical and project management skills was one of their top three concerns for 2019, surpassing concerns about firm profitability for the first time in three years,” according to the November ABI release page. “Increasing firm profitability was still selected as one of the top concerns by the second largest share of respondents (26 percent) but that share was well below the 31 percent that selected it as a top concern last year.”

“Coping with an unpredictable economy had the largest increase from 2018 to 2019: 25 percent of firm leaders reported it as a top concern for 2019, compared to just 15 percent that reported the same for 2018,” according to the release.

About That Economy…China May Have Something to Say About That

“The slump in China’s Purchasing Managers’ Index (PMI) is likely to prove an unwelcome New Year’s gift to the world’s major exporters of bulk commodities such as iron ore and coal,” according to Reuters’ daily newsletter, referring to a column by Clyde Russell. “The manufacturing gauge compiled by Beijing’s National Bureau of Statistics dropped to 49.4 in December, dropping below the 50-level that demarcates growth from contraction, for the first time since July 2016.”

The Caixin Manufacturing PMI also dropped on the month, leading to worries over consumption slowdowns in China.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

MetalMiner has just released its January 2019 edition of the Monthly Metal Buying Outlook, in which we explore how the fall in commodities — namely crude oil prices — and the continued weakness of the greenback are driving industrial metals prices.

What Happened Over the Last Month?

According to the report,

  • Both commodities and base metals sectors have been in downtrends over the past month.
  • Crude oil prices fell below the $50/barrel level, signaling a bearish outlook for crude oil. OPEC has tried to shore up oil prices by establishing output cuts and quotas for its members and allies, including Russia.
  • The Institute for Supply Management (ISM) PMI reading for December rose, while the Caixin China Manufacturing PMI fell for the month.

What Does it Mean for Metals in the Near-Term Future?

In the detailed sections of the report, get the drill-down analysis behind trends for base metals and several forms of steel:

  • Read about why aluminum buyers should watch the U.S. Midwest premium.
  • Find out how decreasing stocks on the SHFE may be a key driver of tin prices.
  • Learn the buying strategies that come out of the analyzing the trends — from aluminum all the way down to HRC, CRC, HDG and plate steel.

Read the January report today — Request your two-month free trial (and see a sample report here!) 

This morning in metals, we’re tracking the practical effect of the steel tariffs, what China’s recent overall manufacturing slowdown could portend, and a positive outlook for oil and natural gas pipe demand.

Steel Tariff Exceptions Being Granted, But Still Confusing Buyers

  • The Wall Street Journal reports that even though “the Commerce Department as of Dec. 17 granted about 75% of the 19,000 requests it processed to exclude products from tariffs on foreign steel that took effect in March … manufacturers and other importers say some of their exclusion requests are still being rejected for reasons that aren’t fully explained to them.” For example, according to the WSJ, a stainless pipe importer claims that exclusions granted to their competitor were nearly identical to those they themselves requested. MetalMiner has gotten the sense first-hand from many manufacturers that there are still many uncertainties in the exception-and-exclusion process. It goes without saying that domestic steel producers aren’t exactly happy about the exceptions granted for steel imports, according to the article.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

OCTG Realm Looking Rosy in the Future?

  • According to a press release from the Freedonia Group, a Cleveland-based industrial research firm, their recent report ([hefty] paywall) states that “demand for oil and natural gas pipe is forecast to grow 11% annually to $15.4 billion in 2022.” This trend would reverse course from the period between 2012-2017, which suffered from declines. “Increased well completion in key fields like the Permian Basin is supporting gains for OCTG,” the release states, “while bottlenecks in such productive areas are encouraging pipeline construction.”

Trouble Brewing in the World’s Second-Largest Economy?

  • “The slump in China’s Purchasing Managers’ Index (PMI) is likely to prove an unwelcome New Year’s gift to the world’s major exporters of bulk commodities such as iron ore and coal,” according to Reuters’ daily newsletter, referring to a column by Clyde Russell. “The manufacturing gauge compiled by Beijing’s National Bureau of Statistics dropped to 49.4 in December, dropping below the 50-level that demarcates growth from contraction, for the first time since July 2016.” The Caixin Manufacturing PMI also dropped on the month, leading to worries over consumption slowdowns in China — the Apple iPhone sales drop (paywall), as just one example.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Few would have predicted this five years ago, but India is facing a real dilemma.

It is exacerbated by the country’s predilection for subsidies and set against the backdrop of a chronic power generation landscape.

As any regular traveler to India will know, while power outages are not as common as they once were, they remain an almost daily occurrence in many areas. According to the FT, quoting figures from the New Delhi-based Energy and Resources Institute, per-capita electricity consumption by the country’s 1.3 billion people is just 38% of the global average, while tens of millions of households still lack grid connections — so demand growth is high and set to continue for decades to come.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Not surprisingly, the government has made the push for reliable, universally available electricity a long-running key policy priority; a policy based largely on coal-fired coal plants that was roundly condemned by both environmental organizations and many Western governments.

India’s Coal Paradox

Coal is the only fossil fuel India has in abundance, with extensive deposits situated in the northeast of the country, although power plants in the west and south often import coal from Indonesia rather than haul product across the country on a rickety rail network. Oil and gas have never been favored because they are largely imported.

As for those subsidies mentioned earlier, the Gujarat state government has just awarded two major coal plants run by Adani — Tata Power and Essar Power — increased power rates to help stem heavy losses the plants are incurring due to uneconomic imported coal supply costs.

Over the past couple years (and estimated into the future), India’s thermal power capacity additions have given way to solar and wind. Source: FT.

Part of the problem for coal-fired plants has always been competitively priced coal supplies; even though the country has abundant supplies, it suffers from an appalling logistics infrastructure. Today, only plants sited very near to the deposits in northeastern India remain viable. Most of the rest are in trouble, with Credit Suisse estimating half of them as being ‘stressed’ – i.e. interest payment exceeding profits – putting some $35 billion of investments at risk, the FT reports.

Various sources’ share of India’s total electricity capacity. Source: FT.

Renewable Energy Power Price Collapse Plays Its Part

The second — and, in many ways, more profound — dynamic at work is the collapse of renewable energy power prices.

According to the FT, Japan’s SoftBank, as part of a consortium in 2017 agreed to sell power from a northern Indian solar park for Rs2.44 per unit, well below the cost of coal power, which typically costs well over Rs3. Last year, state-run NTPC — by far the biggest thermal power producer in India — has canceled several plans for large coal projects, including one for a giant 4GW plant in southern Andhra Pradesh state, while Adani Power invested more than $600 million in a solar plant in sunny southern Tamil Nadu. Coal is no longer seen as economically viable in India — not from an environmental point of view, but purely based on the cost of production.

Not surprisingly, in recent meetings, state thermal power station equipment manufacturers were bemoaning (off the record) the dire state of the market, with little on offer except repair and maintenance.

After he was elected in 2014, Prime Minister Narendra Modi and his government set an ambitious target of increasing India’s renewable energy capacity by 2022 to 175GW, equivalent to 40% of the country’s total power capacity. This was a target seen as more for external consumption than a genuine strategy; but last year, despite the backlog of coal-fired plants still in the works, more solar power capacity was brought on stream than coal, suggesting the 40% target may yet be achieved, particularly if better storage solutions can be achieved to smooth out the variability of renewable power supply.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Until then, coal plants are still needed to provide base-load and increasingly intermittent power, a role they are not as well suited to as gas, but in the absence of anything else may be of such need that those subsidies keep rolling in.

nikitos77/Adobe Stock

Miner Rio Tinto has deployed what it hails as the “first automated heavy-haul, long distance rail network.”

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

The rail network is guided by what is billed as the world’s largest robot, called AutoHaul.

“The safe and successful deployment of AutoHaul™ across our network is a strong reflection of the pioneering spirit inside Rio Tinto,” said Ivan Vella, Rio Tinto Iron Ore managing director for Rail, Port & Core Services. “It’s been a challenging journey to automate a rail network of this size and scale in a remote location like the Pilbara, but early results indicate significant potential to improve productivity, providing increased system flexibility and reducing bottlenecks.”

According to a Rio Tinto release, the autonomous rail network has completed over 1 million kilometers of autonomous travel since its first run in July.

The $940 million AutoHaul program is used to automate transport of iron ore to the company’s port facilities in the Pilbara region of western Australia.

“Rio Tinto operates about 200 locomotives on more than 1,700 kilometres of track in the Pilbara, transporting ore from 16 mines to four port terminals,” the release states.

Automation will continue to be a game-changing factor across industries, metals-centric or otherwise.

Earlier this year, following the first run of the AutoHaul network — during which 28,000 tons of ore traveled over 280 kilometers — Vella laid out what the new program brought to the table and alluded to the changes that would occur for workers.

Want to a see Cold Rolled price forecast? Get two monthly reports for free!

“This programme symbolises both the pioneering spirit and innovative talents of many people across Rio Tinto and shows our absolute commitment to improving safety and productivity, as well as enabling greater flexibility across our operations. … We are working closely with drivers during this transition period as we prepare our employees for new ways of working as a result of automation.”

The dollar has been on a tear this year, boosted by a large corporate tax cut, a hawkish Fed and the imposition of import tariffs, the Financial Times suggests.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

These policy interventions were specifically designed to help Republicans in November’s midterm election, but they are unlikely to have a lasting positive effect.

Election-motivated fiscal giveaways typically increase macroeconomic instability, while tariffs reduce rather than enhance productivity. Neither will sustain the 2018 dollar recovery in the medium term, the news source believes, nor will the effects of quantitative easing (QE) continue to support mature markets (now that the policies are being withdrawn on both sides of the Atlantic).

According to the Financial Times, since late 2010 the dollar has rallied 35% in broad terms and 50% against emerging-market currencies, while the total return to U.S. stocks is 430% and German bonds have made more than 80%.

These gains have come as both a direct and indirect result of massive QE in the U.S. and Europe, funds have flowed out of emerging markets into those that are direct beneficiaries of QE. As QE is reversed, so too will the flow of funds; QE-supported markets will suffer and, relatively speaking, emerging markets will again become more attractive, the Financial Times believes.

The issue for commodities is what impact this will have on the dollar.

Dollar strength has been one factor depressing commodity prices this year. If the dollar were to weaken relative to a wider basket of currencies, this could have an inflationary effect on prices.

How quickly dollar strength ebbs remains to be seen.

The most recent hike in Fed funds was deemed by many to be a step too far — or at least too fast. At least, the White House that would have preferred a more cautious Fed approach.

The Fed’s position is that we could see two more rate hikes in 2019, a move that would support dollar strength (providing GDP growth remained positive), but recent assessments this week suggest there may be no further rate hikes next year, paving the way for a weaker dollar sooner rather than later in 2019.

Of course, dollar strength is only one of several dynamics impacting the price of commodities, but it remains a consistently strong correlator over time. Other factors include GDP and stock market growth in emerging markets, to the extent that an end to QE boosts investment interest in emerging markets that too could be supportive of commodity prices.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

For now, prices appear under pressure, but what 2019 holds for us — once the current sell-off runs its course — remains the be seen.