ungvar/Adobe Stock

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.

Iakov Kalinin/Adobe Stock

To an external viewer, the wheels can appear to grind slowly at the world’s oldest metal exchange.

But the years have taught the London Metal Exchange about the danger of hasty rule changes — often made for the best of intentions, such changes can lead to unexpected consequences.

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In addition, as the LME is at pains to point out, the exchange’s network of warehouses operates in numerous locations around the world, each with distinct laws and regulations; new rules not carefully though out could contravene those differing sets of laws.

As frustrating as it can sometimes be to the trade, the LME’s cautious approach to changes designed to improve the experience for buyers, sellers, and stakeholders of the market — such as warehouse operators — is a methodology that in the long run mitigates the risk of “unintended consequences.”

The LME’s recent changes take just such a cautious approach.

After consultation far and wide, the LME released a Press Office statement Friday that outlined three main changes, plus additional commentary on what was proposed but the LME felt was too early to implement.

Broadly, the first change is intended to improve logistical optimization and is designed in part to guard against the structural queue model. The Queue-Based Rent Capping (QBRC) period has been extended from 50 to 80 days over a nine-month period and is intended to allow warehouse operators to compete more effectively for metal.

Queues have been probably the most sensitive issue the LME has had to address in the years since the financial crisis, so extending the permitted period took some consideration.

The exchange says it remains vigilant to such incentives not out-bidding or distorting physical market premiums and has instigated a reporting regime to monitor such risks. The LME intends to freeze rents and FOT load out charges until 2027-28 to mitigate the gulf between LME and non-LME warehouse rates.

On the topic of off-warrant stocks, the exchange is implementing a reporting regime intended to increase transparency and allow the market “to trade on the basis of a more holistic view of metal availability” – a move many of us welcome.

The LME intends to do this by requiring reporting for any metal in LME-registered sheds and/or under agreements in which the owner has a right to warrant metal in the future but is currently not on warrant.

Although the identity of the off-warrant metal owners will not be revealed, warehouse companies will gather and report the tonnage data periodically. There will still be some material that is not stored in exchange warehouses and where the owner is willing to pass the option of ever delivering such metal onto the exchange — but that is likely to be the exception.

Ultimately, the LME remains the market of last resort, as such is an option any investor would want to retain.

Do not, however, expect this data to be instantly available.

The LME caveats its plans by saying it will not release the data unless and until it is satisfied that the data is reliable and accurate – that could mean months, possibly a year, of monitoring.

Finally, of less interest to metal consumers is the seemingly arcane practice of so-called “evergreen rent deals,” whereby the owner retains an interest in warehouse rent on warrants they have sold on.

Going forward, this practice is only to be allowed on metal that is placed on warrant for the first time, not for warrants that are already registered and sold on. The intention is to incentivize metal coming onto the exchange but avoid a largely pointless ongoing cost that adds nothing to market efficiency.

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As we said in the opener, these changes are an opening gambit and remain subject to monitoring and, if necessary, adjustment should any of the changes prove counterproductive or should additional steps be required.

Never let it be said that metals markets are not dynamic (and I am not talking about metals prices).

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After the financial crisis, the one area of the market that was making money was the stock and trade financiers, plus the warehouse companies on whom they depended for safe storage. In 2010, Goldman Sachs bought Metro for some $450 million and proceeded to cream the market as inventory swelled to record levels. Stuck behind massive load-out queues, warehouse companies pulled in guaranteed rents.

But following implementation of strict LILO and queue-based rent capping (QBRC) rules by the LME, queues ran down and, maybe coincidentally (do you believe that?), the grey market stock and finance firms exited the LME warehouse system in droves.

According to FastMarkets, total stocks in LME-listed warehouses are currently just above 2.5 million metric tons, down from their peak of 7.6 million tons back in July 2013 (before the warehousing reforms were bought in). In Europe, the total area allocated for LME metals storage sheds dropped by 18% from June 2017 to 2018, down to 1,747,114 square meters. Previously, Glencore dominated Vlissingen, more than half of warehousing space has gone in the past year.

The situation is arguably even more brutal in Asia.

Busan in South Korea, plus Malaysia and Singapore — locations that all expanded rapidly a few years ago — have seen volumes collapse.

In Singapore — home to most LME aluminum metals in Asia, according to FastMarkets — live aluminum stocks have plunged by half to 91,725 tons over the last year, while Busan has seen a 71.8% drop in aluminum from a year ago and a 66.6% drop in copper.

It could be tempting to brand firms exiting the market to rats abandoning a sinking ship — but who can blame them?

With falling volumes, it is proving tough to turn a profit.

Noble sold out to Australian and Singapore investors in early 2017 and its Worldwide Warehouse Solutions (WWS) has now gone bankrupt, while Katoen Natie of Singapore has closed its LME operations in Asia following irregularities. Henry Bath, a firm that has seen markets rise, fall and rise again over more than 200 years of trading, and will likely ride out these trials, has taken over their sheds.

Warehouse companies put the swift decline in margins down to a fall in volumes and the exodus of the stock and finance trade. LME stocks of aluminum at 1.145 million tons have returned to where they were before the financial crisis.

According to CRU data quoted by Reuters, shadow stocks held off warrant but often in the same warehouses as LME stocks have fallen from 10 million tons at the start of 2016 to just over 6 million tons at the end of Q2, and are still falling. That is a massive loss of revenue for storage firms and in part explains why the big names, both in warehousing and finance, saw the writing on the wall and got out in recent years.

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So, this is an industry that is maybe not in crisis, but is certainly facing challenges and radical change.

Not surprisingly, any discussion of iron ore prices in top consumer China inevitably involves some reference to import stock inventory.

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So when Reuters reports that the Dalian commodity exchange May iron ore contract price touched a low of 475.50 yuan per ton this week and China’s Qingdao port price dropped below $70 per ton — the lowest since Dec. 11 — analysts readily refer to record port stocks as being the cause.

Port inventory stood at 158.6 million tons at the end of last week, closer to the previous week’s record of 159.1 million times, according to a separate Reuters article. The article goes on to explain why headline port stocks are far from the whole story. China’s environmental crackdown on polluting industries this winter has driven steel mills to favor high-purity minimum 62% iron ore grades, supplied by firms like Australia’s Rio Tinto and BHP Billiton, Brazil’s Vale, and South Africa’s Kumba, over lower 58% Fe grades, such as Australia’s Fortescue Metals group and some Indian suppliers.

Much of the rise in import stocks has been a buildup of low-grade iron ore shunned by steel mills keen to avoid the pre-blast furnace upgrading needed for lower grades or the increased consumption of polluting coking coal that the protracted smelting of lower grades requires.

Read more

After rising aggressively, some would argue that lithium prices have already peaked.

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Reuters quotes Paul Robinson, director at consultancy CRU Group saying that prices have little upside because demand growth has been met with aggressive supply build up, similar to rare earths and vanadium in past cycles. Even though demand is projected to soar 60% to 300,000 metric tons of lithium carbonate equivalent (LCE) annually by 2020, the newspaper quotes a National Bank Financial report saying new players could flood the market.

Strong Demand is Company, 60% Growth is a Crowd

“It’s crowded, no doubt about it, and it will get culled,” said Jon Hykawy, president of Stormcrow Capital, calling lithium, the “latest bubble sector.”

An indication of extent to which lithium fever has gripped investors and junior miners is illustrated in a Bloomberg article which reports that in the wake of President Mauricio Macri’s decision to remove currency and capital controls and taxes introduced by his predecessors, about 40 foreign companies began to consider opportunities in Argentina’s mining industry. More than half of those planning to mine lithium. Read more

We are used to steel producers and their trade bodies raising objections to steel imports from China here in Europe, even from Russia and Ukraine but here’s a new one: Iran.

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Reuters reported last week that Steel lobby group Eurofer said Iranian exports to Europe had leapt to just over 1 million metric tons annually, putting the country just behind India at 1.9 mmt, and third to China at 5.7 mmt last year. Read more

The showdown between global copper miner Freeport-McMoran, Inc. and the Indonesian government got a little hotter this week.

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Arizona-based Freeport majority-owns the world’s second-largest copper mine, Grasberg in Indonesia. The company has been trying to get a new permit from the Indonesian government to continue exporting copper concentrates for the last six months. On Monday Freeport said it would not accept terms of a deal the government offered that would allow it to resume shipments of copper concentrate that have been idled since January 12.

One More Year… Then Give Up Your Mine

Friday the Indonesian government offered Freeport a new, one-year deal that would allow the company to continue exports but only if it agrees to new rules requiring it to build a new copper smelter in Indonesia within the next five years and also agree to switch to an operating license, the terms of which would require Freeport to, eventually, give up control of Grasberg.

Open pit copper mines such as Rio Tinto’s Kennecott in Utah could increase production and increase sales if Grasberg stays closed. Source: Adobe Stock/Photofly.

Freeport CEO Richard Adkerson, naturally, turned down that offer and said the company is unwilling to revisit the terms of its 30-year contract to mine at Grasberg, which accounts for about a third of Freeport’s annual copper production and 40 to 50% of its worldwide assets. He also said Freeport would consider going to arbitration if it can’t settle this dispute within 120 days. Read more

Most aluminum consumers seem quite content with the range-bound behavior of the light metal over recent months.

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Aluminum on the London Metal Exchange has been trading broadly between $1,700 and $1,750 per metric ton for much of the fourth quarter. Maybe not to the same extent as copper or zinc, but aluminum along with most of the base-metal sector benefited from renewed investor interest as 2016 went on. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017. Read more

As we continue to spotlight and republish our top posts of 2016, we travel way back to New Year’s Day 2016 for another metal price story. This one by our Editor-at-Large and MetalMiner Co-Founder, Stuart Burns noting an aluminum price increase from almost exactly one year ago today. — Jeff Yoders, editor.

Aluminum has since taken off with the rest of the base metals and we’re in a full bull market. It’s quite a contrast from situation just one year ago.

The London Metal Exchange (LME) aluminum price has risen from the low $1,400s per metric ton in October to the mid $1,550s this week.

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At the same time, the Japanese have started settling first quarter 2016 physical delivery premiums at $110 per mt, 22% higher than the previous quarter, the first time they have risen in a year.

What is behind the increase in the aluminum prices? Adobe Stock/uwimages.

Meanwhile, probably not unconnected, Japanese port stocks have fallen at the country’s three major ports. Stockpiles fell in November by 7.5% to 401,000 mt according to Reuters. Over the in US, the Midwest transaction price, which includes the LME price and premium that buyers pay to take delivery of the metal, has risen steadily this month to $1,736 per metric ton by December 24, up from $1,599/mt on 28 October, which was its lowest point since May 2009. Read more

A massive stockpile of 500,000 metric tons of aluminum has been trucked out of the Mexican city of San José Iturbide and shipped to a remote port in Vietnam, according to shipping records and people familiar with the matter.

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The Wall Street Journal reports that the stockpile is believed to be related to or entirely the product of Chinese aluminum producer China Zhongwang. As a result of moving the massive stockpile, Vietnam has become a major importer of aluminum extrusions this year.

Preliminary Steel Exports Down

Based on preliminary Census Bureau data, the American Iron and Steel Institute reported that the U.S. imported a total of 2,682,000 net tons of steel in October, including 2,225,000 nt of finished steel (down 3.4% and up 4.7%, respectively, vs. September final data).

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On the year-to-date (YTD), through 10 months of 2016, total and finished steel imports are 27,486,000 and 22,017,000 nt, down 19% and 19.8%, respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 33.0 and 26.4 million nt, down 15% and 16.1%, respectively, vs. 2015. Finished steel import market share was an estimated 26% in October and is estimated at 25% on the year.