Articles in Category: Macroeconomics

Copper prices have long been considered a major indicator of global economic health. So when they plunged to 16-month lows on June 23, investors quickly hit the “panic button.” According to this CNN Business article, the commodity’s 11% drop over two weeks shows that global growth is slowing. However, not everyone agrees.

copper prices

Copper prices have plunged over several weeks now.

Chile’s Codelco Thinks Copper Prices Will Shore Up Soon

Reuters recently reported that Codelco, Chile’s state-owned copper mine, isn’t convinced of imminent doom. As the largest global producer of the metal, Codelco’s opinion carries a lot of weight. So when Chairman of the Board Maximo Pacheco confronted the issue in early June, people listened.

“We may be in temporary short-term turbulence, but what is important here are the fundamentals,” Pacheco said. “The supply-demand balance looks very favorable to those of us who have copper reserves.” Pacheco followed up his comments by mentioning that “the future looks very electric.”

Bullish and Bearish

Experts remain divided on if copper prices will stay bearish or go bullish.

He isn’t wrong. Copper is one of the most efficient conduits in the world. It, therefore, sees heavy use in renewable energy systems, including solar, thermal, hydro, and wind. With traditional energy prices reaching a fever pitch around the world, green investments are looking up.

However, this process takes time. Benchmark copper on the LME was 0.5% lower last Friday. It even managed to briefly decline to $8,122 per ton, a 25% drop from the commodity’s peak back in March. In fact, it was the lowest registered price since the middle of the pandemic.

Even so, Pacheco isn’t panicking. “In a world where copper is the conductor par excellence and where there aren’t many new deposits either, the price of copper looks very firm,” he says.

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Yes, The Ukrainian War Factors into Copper Prices as Well

Investors looking for answers to the barrage of economic woes may be getting tired of hearing about Russia’s war in Ukraine. Unfortunately, there is simply no underestimating the repercussions the four-month-old war has had on copper prices.

Russia, after all, has its tentacles in dozens of industries. Everything from energy and mining to telecommunications and trade. While the country only produces about 4% of global copper output, the sanctions following its invasion of Ukraine seriously shocked the market.

Back in late February / early March, copper prices skyrocketed along with other metals. The fear was that despite its meager contribution, taking Russia out of the game would strangle post-pandemic recovery. Now that recession talk is virtually inescapable, investors are growing bearish.

But it’s not all on Russia. If you look at the five-year chart, it’s clear that investors have been riding a two-year-long wave that started when the pandemic hit. In March of 2020, prices were averaging just $2.17 per lb.

So the real question regarding copper should be: how low will it last? It’s doubtful prices could retreat to pre-pandemic levels. Still, massive drops like those seen this past week are enough to make any investor nervous.

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Is Copper Really the “Crystal Ball” of Commodities?

We already mentioned that copper remains one of the biggest bellwethers for economic health. But why? Well, it’s because copper has entered a bear market preceding the past four recessions. So, all this month, analysts have weighed in regarding what this drop in copper prices means for the economy at large.

But here’s the thing: there are hundreds of so-called “recessionary markers,” and correlation vs. causation can be hard to parse out. We’ve already mentioned that the pandemic pushed commodities like copper to unprecedented highs. Following this, a natural correction could look to some like a recession.

Still, it’s compelling information. And a recession wouldn’t be surprising given the number of major factors at play. 2022 has brought us zero – COVID China policies, supply chain disruptions, and – of course – Putin’s war. It’s a lot for any market to deal with, even one as resilient as copper.

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The Global Precious Metals MMI dropped by nearly 3% this month. Palladium dropped the most, though silver also looked comparatively weak.

Precious Metals

Gold Prices Trends: Bullish or Bearish?

Gold has started to trade within a range formed by swing lows and highs. A break above either range will clear up the overall direction. Without a “big picture” view, the overall direction remains unclear.

Precious metals

According to a recent article, at least three gold analysts have a more bearish opinion of gold for the longer term. The analysts include James Steel, Chief Precious Metals Analyst at HSBC Securities and Suki Cooper, Executive Director of Precious Metals Research Standard Chartered. There’s also Rhona O’Connell, head of Europe and Asian market analysis at StoneX Financial Ltd. Even with an uncertain technical analysis, the group has pointed to a few factors most likely to stop gold’s bull run. The first being a strong dollar. The second is the Fed’s recent belt-tightening.

That said, gold tends to stay strong in both deflationary and stagflationary markets. Rising interest rates signify deflationary actions designed to put the brakes on price increases. However, many remain concerned that the US economy could tip to stagflation. This is a condition typified by slowed economic growth, rising prices, and higher unemployment. Were this to happen, precious metals prices will fluctuate greatly.

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Gold

Silver, by way of comparison, shares the same outlook as gold. However, the price of silver looks weaker with each prior high it takes out. As sell orders are filled, buyer strength gets depleted. Still, silver has room to rise in the short term before it reaches the major supply zone seen on HTFs. HTFs, in this case, stand for “high time frame.” You can see a clear example by looking at the chart on a daily, weekly, and monthly scale.

Meanwhile, platinum and palladium prices are making their own moves.

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Palladium

Precious Metals Prices: Platinum and Palladium

In the case of platinum, prices have begun to shift upwards on shorter time frames. It’s as if they’re targeting newly-introduced supply zones. The introduction of supply basically resulted in newly-formed bearish “order blocks.” Designed to create an inefficiency in price or, this can contribute to stronger moves. Prices begin to correct on a small scale as each weak high gets taken out in anticipation of a “mini-rally” into bearish ranges. That said, from a technical perspective, platinum has a similar outlook to gold and silver.

Platinum

Palladium prices appear weaker overall. Certainly weaker than platinum. The metal’s failure to form any swing highs has caused bias to the downside. Weak lows need sweeping for the trend to resume. In the meantime, short-term rallies will serve as entries for short-sellers as prices continue to form lower highs. Industrial buyers will of course implement a different strategy.

Actual Metal Prices:

  • US palladium prices dropped from $$2254/oz to  $1950/oz.
  • Japanese silver prices dropped from $7.26/ten grams to $6.74/ten grams

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Metal processors and traders throughout China are facing a grim reality today. Thanks to major economic shifts both within the country and without, metals demand has plummeted. Of course, it’s not great news for the world’s biggest metals manufacturer. But what does it mean for the rest of the world?

China aluminum

Grispb/Adobe Stock

A Hard Few Years with More to Come

When you boil it down, even the most complicated markets are just supply and demand. Of course, the world has seen extremes of both factors these past few years. In that time, we’ve seen the COVID-19 pandemic, the war in Ukraine, and the Ever Given getting stuck in the Suez Canal.

From 2020 to 2021, buyers throughout China were largely responsible for a global surge in metals prices. At the time, they were hedging their bets in expectation of further price increases. However, March and April saw massive declines in demand for their products.

According to an S&P Global article, internal property sales started the trend. Soon after came the COVID-19 lockdowns, factory shutdowns, and a huge drop in the purchase of consumer metal products. So, everything being supply and demand, those eager buyers from 2020 and 2021 have now turned into eager sellers.

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Rushing to Adjust to Metals Demand

Even China isn’t big enough to argue with data, and metals futures are indicating strong selling pressure. Financial analyst company Refinitiv has aluminum, zinc, steel rebar, and iron ore futures declining through the remainder of 2022. With no real forecast for 2023 as of yet, buyers who attempt to sit on their supplies stand to lose millions.

As previously mentioned, a lot of this has to do with low demand in China itself. The construction sector accounts for some 50% of steel consumption and 30% of aluminum consumption. With new projects floundering and projected growth nearly nonexistent, the “middlemen” are feeling a pretty big pinch. In many cases, steel traders are selling their inventories below their purchasing costs in an attempt to salvage their operations.

Stimulus to the Rescue?

Beijing has not been idle in the face of the country’s economic woes. They recently announced a series of economic stimulus measures aimed at propping up their struggling economy. The measures include cuts to benchmark lending rates and delayed loan repayments, among other things. However, the capital has yet to back off its authoritarian COVID measures.

Most experts agree that China’s commitment to lockdowns and shutdowns is too big an economic disruptor for a simple stimulus to fix.

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Global public opinion seems divided on whether or not to impose a “carbon tax” on the metal and mining sector. This goes double for steel. Depending on which side you’re listening to at a given moment, you’ll get very different opinions on the matter. Many economists, environmentalists, and the general public welcome the idea. The steel sector, of course, is firmly on the other side of the fence.

Historically, the metals mining sector has opposed carbon taxes. This is largely due to fears that it will inflate the final selling price. However, a growing section of economists believe that a carbon tax would be highly effective at reducing carbon emissions. As per World Bank’s figures,  27 countries have enacted carbon taxes so far. That said, only seven of them were mining countries.

Why the Tax on Steel?

Steel serves as one of the most widely-used building materials in the world. The process depends upon coking coal. So, for every ton of steel produced, nearly two tons of CO2 gets released. Altogether, this accounts for around 7% of global greenhouse gas emissions. These figures relate to BOF operations only.

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Tata Steel plant in IJMuiden, Netherlands

MyStockVideo/Adobe Stock

Where Does the US Stand on a Steel Tax?

Of late, US lawmakers have been working on a bipartisan energy and climate bill. According to reports, it may include a tax on carbon-intensive products entering the country. Last month, US Senator Joe Manchin, D-W.Va., began talking to both Republican and Democratic lawmakers about the possible impacts of such a bill.

According to this report, the discussion was occurring at the same time the European Union (EU) was working to implement a carbon border adjustment mechanism. Green activists feel that such tariffs may eventually cut down on emissions. At the same time, they hope to make domestic manufacturers more competitive against less carbon-efficient foreign companies.

But the proposal for such a bipartisan bill is still in the very early stages.

In July last year, US Senator Chris Coons, D-Del., co-chair of the Senate’s Climate Solutions Caucus, proposed a bill to impose a “polluter import fee.” The policy was intended to affect certain carbon-intensive products entering the US. It would initially apply to commodities like aluminum, cement, iron, steel, natural gas, petroleum, and coal. However, it would eventually expand to other types of imports. The revenue obtained from the fees could then be used to support technologies designed to reduce emissions.

In April this year, Pennsylvania became the first fossil fuel-producing state in the US to adopt a carbon pricing policy. This kind of pricing works by putting a monetary value on carbon. And therein lies the rub. What’s the correct price tag to put on carbon emissions?

Running the Numbers

So far, the Biden Administration has calculated $51 for every ton of carbon released. New York State, on the other hand, pegged the figure at $125. Meanwhile, the International Monetary Fund has been kicking around a “three-tier system.” In this structure, developed countries would pay US $75 (£56) per ton of carbon, while less-developed parts of the world would pay $50 (£37) and $25 (£18).

Carbon markets can be operated in one of two ways, according to the Paris Agreement 2015. The first is through an emissions trading system that caps a total target for emissions. The other option is to use a system that allocates “carbon permits” accordingly.

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Another possibility includes what’s known as a “carbon offsetting scheme.” This provides tradable carbon credits to offset carbon emissions outside the “capped area.” This third option imposes a fee on every ton of carbon emitted.

Ultimately, many in the US oppose levying tariffs on steel and other imports from countries with higher carbon dioxide outputs. This lobby claims that carbon taxes are too complex an issue and that merely imposing a tax will not solve the problem or fight climate change. Their solution? Simply make commodities more expensive.

The US & The EU

Late last year, the European Union and the US negotiated what was billed as the world’s first carbon-based sectoral arrangement on steel and aluminum trade. However, it would not truly take effect until 2024. In the meantime, the two nations arrived at an “interim arrangement” for trade in the steel and aluminum sectors. This deal modified tariffs on EU suppliers and strengthened enforcement mechanisms to prevent “leakage” of Chinese steel and aluminum into the US.

The EU’s efforts

In February of this year, participants in a webinar hosted by Euractiv, a Brussel-based policy events organizer, expressed worries that the European Commission’s Carbon Border Adjustment Mechanism could be counterproductive. They said this would prove especially true if it didn’t provide a solution for those EU exporters of steel and other products impacted by the policy.

Incidentally, the European steel industry exports 20 million MT every year, worth almost EUR £20 billion. The Mechanism is currently in the proposal stage and is still being discussed by the European Parliament.

Europe, however, seems to be ahead of the US in the march toward carbon compliance. Many steel companies, including H2 Green Steel and Hybrit of Sweden, have begun using hydrogen and non-fossil fuels to produce “green” steel.

The de-carbonization of the steel industry is going to be a long journey. Obviously, taxation is an option that’s still on the table. However, steel producers will have to decide on a technologically and economically viable way to decrease their carbon footprint. Whether the use of hydrogen is the answer remains to be seen.

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The bears are back in the metal markets, and one of their prime motivators is this year’s dismal prospects for China. A note in the FT’s Unhedged today explored the country’s “impossible trilemma” of achieving 5.5% GDP growth, reaching a stable debt-to-GDP ratio, and meeting zero-COVID initiatives. When you combine this with the reality that China demand is already sagging, you have a real recipe for disaster.

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The article also mentioned how the typical “get out of jail free card” won’t work for China. This usually consists of pouring debt into low productivity real estate and infrastructure projects. However, that will trash their debt-to-GDP growth limits. This would also be futile given the ongoing zero-COVID lockdowns, which are estimated to cover some 300 million people. After all, who is going to buy a new house if they are locked in their current one?

Destina/Adobe Stock

Dismal Numbers and Little Optimism

April’s data was, to quote the FT, “horrendous:”

  • Retail sales were down 11% from a year earlier, against an expected decline of less than 7%
  • Industrial production dropped 2.9%.
  • Manufacturing was particularly weak, with auto production falling by 41%.
  • Export growth was 4%, a screeching slowdown from 15% growth in March.
  • Real estate activity collapsed, with new construction falling by 44%.

On top of all this, credit growth has stubbornly refused to accelerate. It’s worth noting that this is despite policy moves such as last month’s reduction of banks’ reserve requirements. Meanwhile, household loans are falling, medium to long-term corporate loans are falling, and the issuance of government bonds is slowing. This all points to lower investment and activity.

China’s extremely strict zero-COVID policies are finally showing signs of reducing infection rates. And while Shanghai has announced that it will begin easing restrictions, major changes are unlikely to take place before the Presidential elections in Autumn. For that reason, we can expect consumer and corporate spending to remain cautious (and growth to remain tepid).

With China Demand Down, Exports Are Way Up

All in all, it’s no wonder then investors’ view of metal demand is pessimistic. While China’s metals production has recovered strongly from last year’s power restrictions, demand has not. As a recent report by Reuters states, metal is flowing out of the country at unprecedented rates.

Indeed, exports of all metals increased significantly this year. Even in the case of metals like copper and nickel, where China remains a net importer, the net import ratio has fallen.

  • In March, China exported 45,260 tons of primary aluminum. This represents the highest monthly total since April 2010, despite a 15% export tax.
  • Simultaneously, exports of semi-finished metal have surged. With little demand in the domestic market and most Chinese mills on short-term leads, the outbound flow rose 18% to 5.5 million tons last year. In the first quarter of this year, that figure added another 23%.
  • Refined Lead exports also increased to 98,000 tons last year and 38,000 tons in just the first three months of 2022.
  • Even Zinc exports are up. As with aluminum, this is in spite of a 15% export tax due to high energy content. In fact, export figures for the first quarter of this year were more than double what we saw through all of 2021.

These levels of surging exports are only possible because domestic primary and semi-finished prices in China are lower than in the rest of the world. Why are they lower? Because demand is lower. This may be good for consumers benefiting from supply in an otherwise constrained global market. However, it does not speak to China’s growth prospects, especially when the rest of the world is doing relatively well.

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The Construction Monthly Metals Index (MMI) fell by 2.9% from April to May, with construction spending averaging a very minor increase.

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Labor, Supply Chain Drag U.S. Non-Residential Construction Spending in March

According to the U.S. Census Bureau, non-residential construction spending fell 1.2% from February to March. Overall construction spending still managed a 0.1% increase, however, as residential construction rose 1% in March. Meanwhile, public construction spending continues to move sideways, showing a modest 0.2% decline. Public construction is getting a boost from the U.S. Infrastructure Bill, which is expected to lift spending over the course of the next 5 years. While other U.S. steel prices substantially declined from last year’s peaks, the bill and its Buy American provisions have held plate prices near all-time highs. Even so, plate prices have dropped considerably over the past week.

According to the Associated General Contractors of America (AGC), a shortage of skilled workers and the disrupted supply chain have held back the construction these past few months. AGC’s Chief Economist noted, “contractors continue to report strong demand for most types of structures, with few owners canceling or postponing planned projects. But worker shortages and supply-chain problems, from lockdowns in China to the war in Ukraine, are slowing down project completions.”

Construction Sector Adds Jobs But Non-Residential Construction Employment Falls

Construction industry employment data appears to mirror industry spending trends. According to preliminary data from the U.S. Bureau of Labor Statistics, the construction sector added 2,000 jobs from March to April as the unemployment rate within the sector fell to 4.6%. However, employment for non-residential specialty trade contractors fell by 6,400 jobs. This suggests that the constraints brought on by a lack of skilled labor within non-residential construction will continue into the next month.

According to Anirban Basu, Chief Economist of the Associated Builders and Contractors (ABC), “For now, the labor market remains strong as contractors and other employers compete for scarce skill sets.” He went on to note that “many construction firms report operating at full capacity. Hiring is a mechanism to expand that capacity. But with the cost of capital, materials, and labor rising, demand for private construction services could soften next year. The risk of recession continues to rise.”

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ABI Growth Remains Strong

While concerns over future construction demand persist, the Architecture Billings Index (ABI) hit one of its highest scores since the beginning of the economic recovery. The ABI is a leading indicator of non-residential construction activity. March’s score of 58 suggests demand remains robust despite the ongoing complications of labor constraints, supply chain disruptions, and historically high inflation. Looking ahead, backlogs hit a new all-time high, averaging 7.2 months. Meanwhile, the value of new design contracts increased from a score of 55.2 in February to 60.5 in March.

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Actual Metals Prices and Trends

  • Chinese rebar steel prices fell 5.6% month over month to $746.27 per metric ton as of May 1. Chinese H-beam steel decreased by 4.1% to $753.70 per metric ton.
  • U.S. shredded scrap steel prices rose 1% to $606 per short ton.
  • Finally, European 1050 commercial aluminum sheet rose by 13.6% to $4,473.38 per metric ton.

The ascent for U.S. steel prices faltered as HRC, CRC, and HDG prices began to fall in early May. Plate prices also took a big dip.   

All in all, the Raw Steels Monthly Metals Index (MMI) fell by 8.9% from April to May.

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

Iron Ore Slumps to 4-Month Low on Demand Concerns

Iron ore prices fell to a 4-month low on mounting demand concerns due to China’s ongoing lockdowns. Meanwhile, iron ore fines fell to $131.90 on May 10, the lowest since Jan 31 and a 12.6% decline since the close of March. 

According to data from the National Bureau of Statistics (NBS), Chinese steel output dropped more than 6% year over year in March. On top of lockdowns and restrictions due to COVID outbreaks, Chinese steel production faced several other curbs in recent months. Among them were Olympics-related cuts, which expired in March, and China’s specific intentions to reduce crude steel production in 2022.

China’s property sector also remains a point of concern. Property developer Sunac missed a recent bond payment in early May, becoming the latest property developer to fall into default. According to the company, “liquidity issues” played a significant role in their missing payment. Additionally, sales were “significantly affected by the COVID-19 outbreak.” Indeed, there was a 65% drop in sales from March to April. Before Sunac’s default, Zhenro Properties attributed its own default in April to the “unforeseen scale and duration” of lockdowns in Shanghai.

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Whirlpool Trims Sales Forecast as Steel Prices Dip

Domestically, Whirlpool started to see a slowdown in demand, which caused it to narrow projected sales for 2022. Following an 8.2% year-over-year drop in sales during the first quarter, the North American appliance sector stated it would remain level during 2022. This is a major change from its previous forecast of 3% growth. Industry wide, North American volumes fell 4% year over year during the first quarter, although they nonetheless stand 24% above 2019 levels.

While some see Whirlpool’s slowdown as a warning of what’s to come, U.S. demand through March appeared strong. In fact, according to the U.S. Census Bureau, new orders for manufactured durable goods saw 0.8% growth in March. Consumer spending likewise rose 1.1%. Both of these factors serve as strong economic health indicators. Manufacturing, in particular, makes up roughly 12% of the U.S. economy.

Manufacturers’ New Orders: Durable Goods

Source: U.S. Census Bureau

Arcelormittal Expects Up to 1% Drop In Global Steel Demand in 2022

ArcelorMittal SA recently lowered its estimates for global steel demand. The world’s second-largest steelmaker now expects demand to fall up to 1% in 2022. They cite the war in Ukraine and China’s zero-COVID policy, which are slowing the global economic recovery and increasing inflationary pressures. This is a big change from their forecast of 1% growth prior to the Russian invasion.

The European Steel Association (Eurofer) also narrowed its outlook for EU steel consumption in 2022. Thus far, Europe has experienced the brunt of the economic impact from the war in Ukraine. Alongside supply chain disruptions and a “worsening energy crisis,” Eurofer now expects consumption to fall 1.9% in 2022. All this after consumption rebounded by 15.2% in 2021. However, the organization remains optimistic for 2023, projecting an overall 5.1% increase.

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Steel Prices: Actual Metals Prices and Trends

  • Chinese slab prices fell by 5.03% month-over-month to $767 per metric ton as of May 1. Meanwhile, the Chinese billet price decreased by 7.96% to $699.92 per metric ton.
  • Chinese coking coal prices rose 7.63% to $535.64 per metric ton.
  • U.S. three-month HRC futures fell 24.42% to $1,145 per short ton. While the spot price increased by 4.56% to $1,405 from $1,405 per short ton. U.S. shredded scrap steel prices rose by a mere 1% to $606 per short ton.

Following a strongly inflationary metal environment in Q1, Q2 2022 is looking like a whole different ballgame. Indeed, it’s no secret that the global economy is currently facing a number of major challenges. Alone, none of these would be enough to derail us from last year’s strong rebound. When added together, however, they’re helping to shape a far-from-rosy outlook for the 2022 metals forecast.

The “Winds” of Change?

A recent Capital Economics note to clients phrases it particularly well, stating that “all three of the world’s major economic blocs are now facing significant headwinds.” In the US, the storm stems from an increasingly-hawkish Federal Reserve. Meanwhile, the euro-zone faces mounting pressure from the recent massive squeeze in real incomes which threatens to push the region into recession.

In China, the government’s immediate challenge has been quashing the continuing Omicron outbreak. Unfortunately, the country’s zero-COVID initiative has so far done little to affect the spread of the virus. What it has done is tightened restrictions across some of the country’s biggest and most economically-important cities.

The Omicron variant is by far the biggest wave of infections to hit China, a country still woefully under-protected in terms of vaccines. According to CE, the areas impacted account for some 40% of China’s GDP and 80% of China’s exports.

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China Activity in Areas with Local Outbreaks (%)

A look at how the metals forecast might be impacted by China's COVID situation.

COVID is Just the Start of China’s Worries

Even without the lockdowns, China’s outlook is challenging to say the least. Its construction sector is struggling under extreme debt. Meanwhile, fewer young buyers than ever before see any benefit to investing in the property market. To make matters worse, exports are struggling as consumption habits adjust in overseas markets.

CE points to Amazon’s Q1 results to illustrate a return to pre-COVID demand levels as services rebound. But according to Reuters, China’s factory activity slumped at the fastest pace in two years this past March. In fact, the Caixin purchasing manager’s index slid to 48.1, its lowest reading since the first pandemic wave in early 2020. The official PMI also dipped into contraction territory, slipping below 50 for the first time this year.

New orders are falling particularly fast, reflecting both stalled domestic demand and the disruption to overseas markets. Of course, most of these disruptions result from Russia’s “special military operation” in Ukraine. Regardless, if China’s economic growth slows and industrial and construction demand weakens, the metals forecast from the world’s largest consumer will weaken as well.

Not surprisingly, metals prices have already started slipping. After reaching a high above $10,600/mt last month, copper prices today fell below $9,500. There’s no doubt about it: the bears have returned to short the market. Aluminum has followed copper’s lead despite a March surge caused by the EU’s rejection of Russian supplies. China’s woes are a factor here, too, as the country has been ramping up primary metal output. As a result, semis exports have been rising strongly.

Weighing the Metals Forecast Against Demand

Demand is the prevailing narrative in today’s metals market. As activity in all three regions continues to slow, demand for industrial metals is likely to ease. Still, whether an improvement in global logistics delays remains a leading or lagging indicator is debatable. Either way, there’s no doubt they are gradually becoming less of an issue for metal supply. The bears may be here, but the market has yet to turn their way. Q2 and Q3 will have a lot to say in that discussion.

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MetalMiner avails itself of both Artificial Intelligence (AI) and Technical Analysis (TA) to better understand market direction. In short-term analyses, AI works particularly well. However, when looking for long-term answers, TA is far more insightful. This is particularly true when determining the best market forecast in terms of bullish, sideways, or bearish.

Charts, Forecasts, and Fundamentals

For instance, of late, much attention has been paid to the S&P 500. This is because the index appears poised for a potential shift from sideways to bearish. Some would define such a shift as a “20 percent decline,” but percentage declines have little to do with market direction. Instead, they involve an actual break in support or climb over resistance.

The following chart helps illustrate just how critical this juncture will be for the future of the S&P 500. Here, red lines indicate resistance and green lines indicate support.

Obviously, prices can go in one of two directions. Still, the “breaking of support” to lower lows would not suggest a healthy economy. Ironically, some of the latest metals charts look pretty similar to the S&P 500. Take aluminum, for example:

Aluminum Price Chart

Source: MetalMiner Insights

Though still trading at historic highs, you can clearly see that aluminum has fallen below a significant support level. Suddenly, even the best aluminum price forecast seems derivative of other indices. In fact, in the following chart, you can see that Tin is following a similar trend.

Tin price chart

Source: MetalMiner Insights

Typically commodities and the stock market do not share much – if any – price correlation with one another. Indeed, our state-of-the-art MetalMiner correlation analysis only reinforces this truth. However, a few economic tea leaves suggest that trend changes could come sooner rather than later.

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A Rising Dollar Does Not Lift All Boats

The U.S. Dollar is currently trading at 103+/-, a five-year high, and has a negative .93 correlation with commodities prices. This suggests that prices could shift trends rather abruptly. Meanwhile, a recent WSJ article indicated that “higher interest rates typically support the dollar by making U.S. assets more attractive to yield-seeking investors. Investors expect that the Fed will increase short-term rates more aggressively this year than its central-bank peers.” Such a move could, in turn, put pressure on commodities regardless of supply chain hiccups, high energy prices, etc.

At the same time, MetalMiner has had its eye on Japan, where the yen has fallen to a 20-year low against the dollar. According to that same WSJ article, the Bank of Japan has pledged to maintain low interest rates despite rising inflation. Meanwhile, the Europeans may follow the Fed’s example, but they certainly won’t lead. All in all, the mix of easy and tight monetary policy will likely keep the dollar supported.

Of course, in addition to the higher USD, China’s FXI shares have begun trending down. This suggests that the world’s second-largest economy has its own challenges to overcome in the coming months (and years). Among them are Shanghai’s lockdowns, which recently entered their 6th week with no end in sight. Currently, even the best market forecast for our China’s vast manufacturing economy looks rather bleak.

Ultimately, rising inflation, along with some signs that U.S. demand has begun to slip, could impact both market momentum and trader sentiment. But whichever direction the market takes us, MetalMiner’s analysis will help lead the way.

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It’s first-year economics: everything comes down to supply and demand. Historically, the push and pull between these two massive market forces are cyclical, and that includes steel. When you have more demand than supply, prices go up. Eventually, the prices get so high that people stop buying. After a while, the steel supply builds up, and prices plummet, leading to a surge in demand once again.

It’s a familiar dance – at least, it used to be. That was before the war in Ukraine, China’s ongoing lock downs, and global supply chain issues. Suddenly, having enough steel supply to meet even lowered demand is not a foregone conclusion. Still, economists aren’t the sort to simply throw up their hands and say, “whatever happens, happens.” Instead, they are constantly mapping out potential scenarios.

In this article, we’ll talk about some of the facts and factors at play.

Is Demand Really Dropping?

We’re one-third the way through 2022, and it seems that no global crisis is too great to completely stave off steel demand. After a year in which steel prices hit historical highs and demand grew by an unexpected 2.1%, many insiders pointed to a “return to center.”

Indeed, in April, the World Steel Association forecasted a meager 0.4% increase in global demand. However, the organization added that they expected this number to slowly increase to 2.2% in 2023. The problem?  Most of these estimates were made long before the current conflict, lockdowns, and supply chain failures.

Is demand really shrinking as much as forecasts predicted, or is the reduction in supply simply making it appear that way? It’s still too early to call. What we do know is that 2022’s supply woes are pushing up steel prices from the back end. This means that the cost relief we all expected simply isn’t coming. Of course, this raises a lot of questions about that 2.1% prediction for 2023.

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Steel Supply Remains the “X Factor”

Considering all the predictions that 2022 would be a “dead spot” for steel demand, the price action has been stunning thus far. As expected, the year kicked off, with prices quickly retreating from 2021’s historic highs. But by the time March arrived, steel prices had seen their biggest month-over-month increase ever.

This reversal mostly hinged upon Russia’s invasion of Ukraine. The WSA ranks Ukraine as the 13th largest steel producer in the world, as well as the fifth largest exporter of iron by volume. Obviously, the war has devastated the country’s ability to produce. In fact, at the time of this writing, the Azovstal Iron and Steelworks in Mariupol – once capable of putting out 5.9 million tons of product per year – is serving as a shelter for besieged Ukrainian citizens.

The effects of the war have also led to major embargos, sanctions, and boycotts on Russian energy and commodities. Russia is #5 in global steel production, and its metal and coal exports were one of the first things on the chopping block when the EU started imposing sanctions. This means less Russian steel in Europe and less Russian power for European countries to make their own steel.

This would all be bad enough news for steel supply if it weren’t for the recent reports coming out of China, which produces some 56% of the world’s crude steel. Even back in 2021, the steel demand forecast was lowered based on weak economic data. But COVID lockdowns, crowded ports, and decarbonization efforts are choking the eastern giant’s production beyond our wildest fears.

Filling Gaps in Steel Supply

Just last week, MetalMiner posted an article about how India might further establish itself on the global steel stage. After all, despite having a firm grasp on the #2 spot in global steel production, the subcontinent puts up a mere around 1/10th of China’s numbers.  In short: there’s room for improvement. And if there was ever an opportunity to grow market share, this is it.

According to representatives from the Indian steel industry, the problems plaguing Europe and Asia have put the pinch on other major producers. They also claimed that India is currently the only one of those producers stepping up to the plate. In fact, a report from the India Brand Equity Foundation (IBEF) stated that the country’s crude steel production should increase 8-9% year over year in 2022.

So far, that number has averaged closer to 6% due to the increased costs associated with production. Still, with Japan, South Korea, Germany, and other Top 10 producers reporting negative growth, India’s efforts are commendable. How far will this go in making up for the shortfall caused by Russia, Ukraine, and China? Only time will tell.

Second Tier Steel Suppliers Need to Step it Up

Obviously, there’s no timeline in place for either the war or China’s economic woes. This means that other countries will need to join the effort to replenish global steel supply. If consumer demand remains, strong, (a big if) prices could continue to remain supported, at least in theory.

Many of these countries (Taiwan, Italy, Vietnam, Mexico, and France) have their own economic and supply chain woes. Still, Brazil – arguably one of the most imperiled economies in the West – has managed a rather impressive recovery after dropping the ball at the beginning of the year. With any luck, this will help ignite a trend.

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