Articles in Category: Commodities

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December proved to be a fruitful month for U.S. housing starts, which reached their highest level since 2007.

The new data came the same day the Federal Reserve reported manufacturing production had ticked up slightly in December.

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Housing starts rise 16.9%

According to data released by the U.S. Census Bureau and the Department of Housing and Urban Development, privately owned housing starts in December reached a seasonally adjusted annual rate of 1,608,000, up 16.9% from the previous month. December starts were up by an even larger percentage on a year-over-year basis (40.8%).

Broken down further, single-family housing starts reached a seasonally adjusted annual rate of 1,055,000 in December, up 11.2% from the previous month.

Meanwhile, the rate for units in buildings with five units or more reached 536,000.

Overall, housing starts in 2019 reached their highest level since 2007, according to Census Bureau historical data.

U.S. housing starts from 2007-2019 (data from the U.S. Census Bureau)

Housing starts plummeted after the 2008 financial crisis, down from 1,355,000 in 2007 to 905,500 in 2008 and 554,000 in 2009.

After 2009, housing start activity gradually returned, crossing the 1 million start threshold in 2014.

Low mortgage rates have in part contributed to the rise. According to Freddie Mac, 30-year fixed-rate mortgages averaged 3.74% in 2019, the lowest annual average rate since the company began issuing its weekly survey on mortgage rates.

Building permits down 3.9%

Housing units authorized by permits reached a rate of 1,416,000 in December, down 3.9% from the previous month but up 5.8% on a year-over-year basis.

Permits for single-family homes reached a rate of 916,000, down 0.5% from the previous month, while permits for units in buildings with five units or more hit a rate of 458,000.

Overall, permits increased in 2019 compared with the previous year. In 2019, approximately 1,289,800 units were authorized by building permits, marking a 3.2% increase from the previous month.

Housing completions rise

Housing completions were also up in December, hitting a seasonally adjusted annual rate of 1,277,000, which marked a 5.1% increase from the previous month and a 19.6% increase from December 2018.

Single‐family housing completions in December hit a rate of 912,000, up 0.7% from November. For units in buildings with five units or more, the rate reached 357,000.

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An estimated 1,250,600 housing units were completed in 2019, which marked a 5.6% increase from 2018.

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Steel companies and mining companies in India have heaved a sigh of relief after the federal government amended the prevailing mining law to permit the “seamless transfer” of regulatory approvals to new owners of operational iron ore mines, the Economic Times reported.

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Earlier the week, the government amended the Mines & Minerals (Development & Regulation) Act to ensure smooth transfer of ownership.

The lease of 334 non-captive mineral mines will expire March 31 this year. Of these, 46 mines are operational, 26 of which are iron ore mines.

When the lease expires, all will go on the auction list as per the mining law. However, for some time now there have been apprehensions that the auction round would not be concluded as scheduled.

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The January 2020 Monthly Metals Index (MMI) report is in the books, including coverage of rising steel prices, U.S. automotive sales, construction spending and much more.

This month, all 10 of the MMIs increased.

The GOES, Rare Earths and Global Precious MMIs were the biggest risers, surging by 19.1%, 5.3% and 4.5%, respectively.

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Some highlights from this month’s MMIs:

  • U.S. steel prices made gains across the board during the first half of December.
  • Copper prices made gains but were capped somewhat by concerns over demand.
  • U.S. automotive sales were forecast to fall 1.7% in 2019 compared with the previous year.
  • U.S. construction spending in November picked up 4.1% on a year-over-year basis.

Read about all of the above and much more by downloading the January 2020 MMI Report below:

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The inverse relationship between the strength of the U.S. dollar and the price of commodities has held good over time.

That relationship isn’t a constant, of course. Political, economic or supply-demand fundamentals can trump dollar strength at times of stress. However, as a broad measure, it can impact prices day to day, week to week and year to year.

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While stock prices are currently at all-time highs, commodity prices are as cheap today as they pretty much have been for decades — not historic lows, but relatively speaking commodities have not enjoyed the same boost from cheap money and asset-boosting policies like quantitative easing that stock prices have seen.

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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 metals coverage here on MetalMiner, including: a natural gas transit deal between Russia and Ukraine; aluminum prices; the impact of escalating U.S.-Iran tensions on oil prices; and the copper demand picture.

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The assassination of Iranian top military official Qassem Soleimani outside Baghdad airport last week caused a near 4% surge in oil prices and a drop in share prices as investors took fright at the prospect of an all-out war between the U.S. and Iran. Not long after, however, oil prices retreated over 4% to below $60 per barrel Wednesday morning after President Donald Trump said Iran appeared to be “standing down.”

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In reality, while that remains a possibility, a more likely outcome is an ongoing lower-level exchange of tit-for-tats as evidenced by Iran’s attack overnight earlier this week on two airbases housing U.S. and coalition forces in Iraq.

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This morning in metals news, the United States-Mexico-Canada Agreement (USMCA) received a bipartisan push from the Senate Finance Committee, average retail gasoline prices in 2019 were down compared with the previous year and iron ore futures in China reached an over five-month high.

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Senate committee gives USMCA approval

The United States-Mexico-Canada Agreement (USMCA) inched closer to ratification when the Senate Finance Committee overwhelmingly voted in favor of it Tuesday.

The White House and House Democrats reached an agreement on a revised version of the USMCA late last year; however, the deal must still be ratified with a vote in the Senate.

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In the short term, a new five-year gas transit agreement between Russia and Ukraine, agreed just 12 days before the current agreement is to expire, is good news for Europe, Russia and Ukraine — a rare example of pragmatism and compromise in today’s winner-takes-all approach to diplomacy.

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But in the longer term the agreement, heralding as it does a waning of the Russian-Ukrainian interdependency, removes an issue that demands a degree of cooperation and opens to the possibility that bilateral tensions could rise in the future.

Still, for now, as a Stratfor Worldview report observes, Europe will not have to worry about keeping the lights on or heating their homes this winter and nor will Ukraine (so economically dependent as it is on gas transit revenues).

The deal is the result of compromise on both sides.

As part of the deal, Russia will gradually reduce its use of Ukrainian pipeline infrastructure over the next five years as it expands its access to the European natural gas market through the Nord Stream 2 and TurkStream pipelines.

Ukraine, meanwhile, will use the next five years to continue its efforts to reduce its dependence on natural gas that comes directly from Russia by ramping up domestic gas production and searching for alternative routes for imports.

As gas volumes decrease through the Ukrainian system — decreasing from the current volume of 90 bcm to 65 bcm next year and just 40 bcm in 2021 — and the infrastructure continues to age, income would be expected to decrease and maintenance expenditure to rise. However, as part of the deal, Russia has agreed to fix transit fees over the next five years at a higher level to allow Ukraine to sustain its roughly $3 billion in revenue even though volumes will halve, Stratfor reports.

It will be interesting to see whether pragmatism and compromise can prevail over the completion of the new Nord Stream 2 and TurkStream pipelines — not between Europe and Russia but between Europe and the U.S.

According to Reuters, President Donald Trump signed a bill late this month imposing sanctions on the Nord Stream 2 gas pipeline project led by Gazprom, Russia’s state-controlled gas company. The project aims to send gas under the Baltic Sea, bypassing Ukraine and doubling the capacity of the existing line.

Source: Stratfor

The threat of sanctions blocking access to the U.S. financial system forced Allseas, a Swiss-Dutch company that lays deep-sea pipe, to suspend work on the project. All but a 100-mile (160-kilometer) stretch remains to be completed, the article states.

Most European countries are furious at the U.S. action, seeing it as interference in an internal European project. The U.S. has been against Europe’s greater reliance on Russian gas since the Obama administration on the grounds it strengthens Putin’s economic and political grip on Europe. Europe suspects the U.S. simply wants to substitute cheap Russian gas for more expensive U.S. liquefied natural gas (LNG) shale gas exports, arguing that if the U.S. were really concerned about Russian influence over Europe, the president would be a stronger advocate of mutual defense and, in particular, NATO.

For now, work toward completion of the last 130 kilometers of the Nord Stream 2 pipeline has been stopped by the sanctions threats, but Russian state media reported Gazprom’s pipe-laying vessel Akademik Cherskiy, currently in the far east, would be brought to the Baltic to complete the pipeline regardless.

Europe’s desire to see dialogue and cooperation with Russia, as opposed to distrust and detachment, may yet prove naive.

Europe relies on Russia for something like half its natural gas supplies and Russia has shown it is not above restricting supplies to achieve its political ends, as happened in 2014 after the Russian annexation of Crimea and Moscow’s attempts to pressure Ukraine — and, hence, Europe — by cutting off gas supplies.

Some European countries agree with the U.S. that diversification, whether to the U.S. or elsewhere, would make more sense, however convenient and cheap Russian gas is. Over-reliance is clearly a risk, however strongly many on the other side argue Russia needs the revenues even more than Europe needs the gas.

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Mark it down as yet another item on the world’s agenda to be resolved in 2020 requiring compromise and pragmatism all round.

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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 metals storylines here on MetalMiner:

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This morning in metals news, the price of copper has surged to an eight-month high, Nucor earlier this month announced a new coil paint line and iron ore prices were also up on the final Friday of 2019.

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Copper prices rise

On this final Friday of the year, copper prices are up to their highest level in eight months, Reuters reported.

According to the report, LME three-month copper jumped 0.7% to $6,256 per ton.

Nucor to add new Arkansas coil paint line

Earlier this month, Nucor Corporation announced it would be adding a new coil paint line at its sheet mill in Mississippi County, Arkansas.

According to the company, the new line is expected to come onstream as of the first half of 2022 and will have a capacity of 250,000 tons per year.

Nucor’s Arkansas facility produced hot-rolled sheet steel for a wide range of applications, including automotive, appliances and construction, among others.

Iron ore up on China’s lifting of anti-smog alert

According to another Reuters report, iron ore futures received a boost when China’s top steelmaking city, Tangshan, lifted anti-smog measures.

The lifting of the measures is expected to lead to increased demand for the steelmaking raw material iron ore.

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The most-traded iron ore contract on the Dalian Commodity Exchange jumped 1.2% to 642.50 yuan per ton ($91.83), according to Reuters.