(Editor’s note: This is the second of a two-part series. Read Part 1 here.)

The International Monetary Fund (IMF) recently lowered its 2019 growth forecast for China from 6.3% to 6.2%.

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China’s current economic slowdown shows in the FXI, a large-cap market index. After showing unexpected strength early in the year and rising through the first part of April, performance turned around and the index began to fall once more.

After falling back to nearly start-of-year values, gains managed to hold at around 40 points. This seems to coincide roughly with press reports that stimulus measures from early in the year had begun to wane.

Crude Steel Production Remains High as Prices Weaken

According to the monthly Caixin report numbers, steel production totaled 85 million metric tons, apparently the highest monthly production total on record and about 5 million metric tons higher than the previous month.

Demand from the construction sector remains robust, but Wu Jingjing, a deputy director for the China Iron and Steel Association (CISA), warned demand growth from the sector will wane during the second half of the year. CISA maintains its 2019 forecast for 1-2% demand growth. However, demand from the automobile, household appliances and energy sectors looks weaker.

CISA reported a 1% steel price drop in May and an iron ore price increase of 7%. Higher iron ore prices hurt operational profitability, with CISA’s members reporting a 19.38% year-on-year decrease in profits for the January to April period (despite an 11% increase in sales revenue).

Consolidation of the Steel Industry is Underway

According to Reuters, the Chinese government is seeking to consolidate its steel industry to some extent by 2020 in order to boost the industry’s efficiency.

If government plans to constrain production through consolidation succeed, this would support higher prices for the industry. U.S. prices would also benefit, given that China’s prices tend to lead U.S. prices by about one month.

China Baowu Steel Group, the second-largest steel producer worldwide in 2018, announced its intent to acquire a majority stake in Magang Group Holding Co Ltd, of which Maanshan Iron & Steel Co Ltd, the 16th-largest producer, is a listed entity.

Baowu Steel Group produced 67.43 million metric tons in 2018, according to the World Steel Association, while Maanshan produced 19.71 million tons in 2018.

Raw Material Inputs Continue to Face Supply Issues

Iron ore prices remain high as supplies remain tight. According to customs data, imports recovered to some extent during May, rising by 37% to 83.75 million tons. Overall, shipments dropped by 11% compared with May 2018. Imports for the first five months of the year dropped by 5.2% compared with the same period in 2018.

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According to the Xinhua News Agency, as reported by Reuters, all coke plants that do not meet special emissions standards slated to go into effect on Oct. 1 in Shanxi — China’s top coke-producing region — will be closed.

Additionally, the government is seeking to reduce capacity for 2019 by 10 million tons. The region failed to comply with similar capacity reduction goals in the recent past.

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(Editor’s note: This is the first of a two-part series examining Chinese flat-rolled steel prices. The first part examines historical steel price trends. The second part, which will be published Tuesday, will cover the economic outlook for China.)

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Chinese steel prices started to weaken in late May and continued to decline into the second week of June (after generally increasing this year).

A seasonal steel price change typically happens at the start of the summer due to the change in weather, which impacts construction and, therefore, steel demand.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the longer-term pattern since 2016, prices have dipped around the June time frame and tend to correct or show a clear change of the longer-term direction in July.

Theoretically, demand starts to pick up again as fall seasonal restocking picks up, supporting prices. However, in some years, demand may fail to pick, vis-a-vis available supply (as in 2015, when prices kept falling).

In 2018, the seasonal pickup did not last long. Prices turned down again by October, although they stayed relatively flat overall.

Source: MetalMiner data from MetalMiner IndX(™)

From a longer-term perspective, prices continued to increase overall when considering the period since mid-2015, as shown in the chart above. Considering January 2017 forward only, prices have moved sideways overall.

HRC, CRC and plate prices mildly increased in the first quarter, but the rate of increase looked weaker during 2019 than in previous years. More recently, all three prices have grown weaker; CRC for example, only increased into March and grew weaker by April.

Chinese HRC prices dropped slightly in early June after generally rising since the start of the year and into late May. Government stimulus measures have not provided price support lately, although additional support measures, especially continued fiscal stimulus measures and tax cuts aimed at providing support to the economy during the second half of 2019 and into 2020, could provide support.

CRC prices dropped again between May and early June, by 3%, to CNY 4,111/mt, down by around 5% from the short-term April high of CNY 4,331/mt. With CRC prices dropping more steeply of late, the China HRC-CRC spread narrowed to CNY 191/mt.

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

As pointed out in MetalMiner’s June Monthly Metal Buying Outlook, CRC prices suffered from a supply glut due to blast furnace restrictions that led producers to invest in downstream production, like CRC and HDG, instead of HRC.

The June 2019 Monthly Metals Index (MMI) report is in the books.

June proved to be a down month for most of the MMIs, with eight of 10 posting declines. Only the Rare Earths and Renewables MMIs posted increases this month.

Across the board, metals prices fell last month, including U.S. steel prices. A few highlights from this month’s round of MMI reports:

• The spread between U.S. and Chinese HRC narrowed this past month, down to $100/st.
• U.S. construction spending in April fell 1.2% year over year; meanwhile, architecture billings bounced back in April after a down March.
• The LME copper 3-month price fell back 9.6% on a month-over-month basis.

Read about all of the above and much more by downloading the June 2019 MMI Report below:

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

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• We wrapped up our June Monthly Metals Index (MMI) series, this week with posts on:
  • Aluminum
  • Copper
  • Rare Earths
  • Global Precious
  • Stainless
  • Raw Steels
  • Renewables
• MetalMiner’s Stuart Burns on the auto sector in the U.K. and its place in the country’s overall GDP slowdown.
• Going from four wheels to three, MetalMiner’s Sohrab Darabshaw earlier today delved into Indian firm Jindal Stainless’ intentions to enter the e-rickshaw market.

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The Renewables Monthly Metals Index (MMI) ticked up one point this month, rising to a June MMI value of 102.

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Glencore, Umicore Reach Cobalt Supply Agreement

As we reported last month, miner Glencore reached an agreement with Umicore in which it would supply the latter with cobalt from its operations in the Democratic Republic of the Congo (DRC).

Umicore is a global materials technology and recycling group based in Brussels.

“Umicore has assessed each operation as fully compliant with its sustainable procurement framework for cobalt which excludes artisanally mined cobalt from its supply chain, as well as any form of child labor,” Glencore said in a prepared statement. “The cobalt units will be shipped to Umicore’s cobalt refineries globally, including the Kokkola refinery in Finland once the ongoing acquisition process is complete.”

The agreement comes on the heels of a May 23 announcement by Umicore that it had moved to acquire Freeport Cobalt’s cobalt refining and cathode precursor activities in Kokkola, Finland.

Plate Prices Fall

As MetalMiner’s Belinda Fuller noted in the Raw Steels MMI report, plate prices last month joined other forms of steel (HRC, CRC and HDG) in their overall downward trend.

“Even plate prices dropped this month after stubbornly sticking at around $1,000/st for a lengthy stretch after rising longer term,” she wrote. “This month the price dropped by nearly 7%, from $962/st at the start of the month to $902/st in early June.”

Grain-Oriented Electrical Steel (GOES)

The GOES MMI dropped three points this month, down to a June reading of 172.

The GOES price fell 1.8% month over month to $2,368/mt as of June 1.

In other GOES news, the TEX Report reported Japanese mills are entering negotiations regarding 2H 2019 shipments of grain-oriented electrical steel sheet to the U.S. and Europe. In addition, TEX Report said China’s Baosteel raised its price for domestic grain-oriented electrical steel sheet, adding Beijing’s stimulus measures could lead to increased demand for grain-oriented electrical steel sheet in power grid improvements.

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

Actual Metal Prices and Trends

Japanese steel plate was the lone steel plate price point in the subindex to rise this past month, moving up 3.1% month over month to $796.05/mt as of June 1.

Korean steel plate fell 1.2% to $589.79/mt, while Chinese steel plate dropped 3.8% to $625.55/mt.

U.S. steel plate fell 6.2% to $902/st.

Chinese cobalt cathodes dropped 2.4% to $96,294.50/mt.

The Raw Steels Monthly Metals Index (MMI) came in at 76 this month, a 5% drop, after several months of sideways movement and a May reading of 80.

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U.S. steel prices formed a clear downward price trend. A mix of factors led to the weakness: sluggish demand, companies working off inventory and macroeconomic uncertainty.

Source: MetalMiner data from MetalMiner IndX(™)

Even plate prices dropped this month after stubbornly sticking at around $1,000/st for a lengthy stretch after rising longer term. This month the price dropped by nearly 7%, from $962/st at the start of the month to $902/st in early June.

Similarly, the Chinese economy has shown weakness lately in steel-intensive sectors. However, government stimulus measures still generally kept HRC prices supported, with some weakness in the other form of flat-rolled products.

Recently, the China Caixin Manufacturing PMI held flat for the May reading, but the industrial and manufacturing production readings both declined by several points.

Source: MetalMiner data from MetalMiner IndX(™)

Meanwhile, U.S. steel prices dropped more steeply than Chinese prices, which edged down slightly this month. Looking at a price comparison of U.S. and Chinese HRC prices, the price gap continues to close.

Source: MetalMiner data from MetalMiner IndX(™)

The chart above shows the spread between U.S. and Chinese prices dropped to just over $100/st. In December, the price gap held at over $300/st, so U.S. products look more affordable based on a greater price drop, while Chinese prices stayed relatively flat.

What This Means for Industrial Buyers

Plate prices finally dropped this month, joining HRC, CRC and HDG in a downward price trend.

Given the shifting price dynamic, industrial buying organizations seeking more pricing guidance should try a free two-month trial of our Monthly Metal Buying Outlook report.

Buying organizations will want to read more about our longer-term steel price trends in our free Annual Outlook.

Actual Raw Steel Prices and Trends

This month U.S. prices registered the largest price drops in the index with the U.S. Midwest HRC futures spot price down 11.3% to $580/st and the 3-month price down 10.4% to $586/st. U.S. shredded scrap prices dropped 8.1% to $295/st.

Korean standard scrap steel prices fell by 6.8% to $127/st. Korean pig iron prices fell by 1.2% to $333/st.

Chinese steel slab prices were down by 5.9% to $489/st and steel billet dropped by 3.2% to $482/st.

Chinese iron ore PB fines for both high- and low-priced 58% Indian iron ore dropped by 2.4%, both at $59 per dry short ton.

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

Chinese coking coal prices increased this month by 1.6% to $278/st, the only price in the index to increase this month.

The Stainless Steel Monthly Metals Index (MMI) dropped two points again this month, now down to 67. The index stayed relatively flat during the past few months since jumping in February from 61 to 68.

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Several prices in the index dropped significantly this month. Most prices declined more moderately, in the 1% to 3% range, with a couple of prices holding steady.

Source: MetalMiner analysis of FastMarkets

The LME nickel price declined 2.5% between May and June. During the first week of June, LME nickel prices dropped further but still managed to hold above $11,600/mt as of press time.

According to the International Stainless Steel Form (ISSF), stainless steel melt shop production increased by 5.4% to 50.7 million metric tons in 2018, up from 48.1 million metric tons in 2017. The organization forecasts continued growth in 2019.

In 2018, China accounted for 52.6% of global stainless steel production, according to ISSF. The U.S., meanwhile, accounted for 5.5% of global production. In absolute terms, the United States produced approximately 2.8 million tons of stainless steel last year, including slab and ingots.

Nickel pig iron production from China and Indonesia will increase in 2019, as it did during 2017 and 2018, which will contribute to lower prices, according to ISSF.

As reported by Reuters, the nickel market deficit narrowed during the first two months of the year, dropping to 5,700 metric tons from 24,400 metric tons during the same period of 2018.

However, LME and SHFE nickel stocks remain at historically low levels.

Domestic Stainless Steel Market

Source: MetalMiner data from MetalMiner IndX(™)

Stainless steel surcharges gave up some of their recent gains but still remain higher than at the start of the year.

Prices also remain higher from a longer-term perspective when compared with 2016 lows of around $0.40 per pound for 316/316L-Coil and $0.32 per pound for 304/304L-Coil. Nickel ore prices remain lower, causing the recent price weakness.

What This Means for Industrial Buyers

Like other steel prices, stainless steel prices showed weakness this month, following from weaker global demand combined with lower input prices.

For buying guidance, including resistance and support levels by metal, industrial buying organizations seeking more pricing guidance should try a free two-month trial of our Monthly Metal Buying Outlook report.

Buying organizations will want to read more about our longer-term steel price trends in our free Annual Outlook.

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

Actual Stainless Steel Prices and Trends

This month, Chinese non-ferrous FeCr lumps decreased by 12.5% to $1,644/mt, the largest drop in the index.

The 316 Allegheny Ludlum stainless surcharge fell from $0.95/pound to $0.89/pound this month, a 6.3% decrease. The 304 Allegheny Ludlum Surcharge dropped back to $0.61/pound from $0.68/pound last month, a 7.8% decrease.

Chinese primary nickel decreased by 4.9% to $14,057/mt.

China 304 CR coil dropped 3.5% to $2,158/mt.

The remaining price declines ranged between 1.0% and 3.0%.

The exceptions were Indian primary nickel, up by 0.9% to $12.52/kilogram, and Chinese non-ferrous FeMo lumps, with flat pricing this month at $17,956/mt.

Piotr Pawinski/Adobe Stock

The Global Precious Monthly Metals Index (MMI) fell one point for a June MMI reading of 93, marking the third consecutive month of decline for the MMI.

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The Platinum-Palladium Spread

Contrary to historical trends, the palladium price has soared past the platinum price for approximately a year and a half now.

Last month, however, MetalMiner’s Taras Berezowsky noted a short-term shift against that trend, as the spread between the two metals narrowed to $479 (palladium fell 2.6%, while platinum rose 4.5%). As Berezowky noted, a recent poll forecast the platinum-palladium price spread to average $485 per ounce this year.

This month, however, both platinum and palladium dipped; the spread rose in the process to $489 per ounce.

According to consultancy Metals Focus, palladium will post a supply deficit this year while platinum will be in surplus, which will continue to maintain the premium palladium has obtained over the last 18 months.

The interplay between high palladium prices and depressed platinum prices can be seen in South Africa, where miners are reaping the benefits of the former but struggling with the latter, Reuters reported. Per the report, miners in the country are faced with ore that produces twice as much platinum as palladium.

As MetalMiner’s Belinda Fuller recently explained in an analysis of palladium and platinum prices, platinum likely won’t stay this down for long.

“Platinum prices, however, remain somewhat low historically,” she wrote. “The recent performance against the DXY does not necessarily suggest the metal is undervalued. However, given that platinum can serve as a substitute, it’s doubtful the price will stay suppressed long term, as high palladium prices will drive a push toward substitution.”

Gold Star

Elsewhere in the Global Precious MMI basket, gold is outperforming other commodities, MetalMiner’s Stuart Burns noted.

“The price of gold hit a three-month high Tuesday, at $1,327.9 per troy ounce as investors continued to buy into exchange-traded and physical gold. Inflows into the world’s largest gold ETF, the SPDR Gold Trust, rose by 2% Monday,” Burns wrote last week. “That marked its biggest one-day gain since 2016, the Financial Times reported, part of a wider inflow that bought holdings in gold-backed ETFs to their highest in a year.”

Given global economic uncertainty stemming from trade, it’s no surprise investors are turning to the safe-haven asset.

But how much further can the gold price go? Can it surge past the $1,400 per troy ounce threshold?

Pump the brakes on that thought — at least for now, Burns argues.

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“Global political and economic developments would have to take a dire turning for the worse to stimulate a rise above the mid $1,300s,” Burns argues.

Actual Metal Prices and Trends

The U.S. silver price fell from $14.93/ounce to $14.77/ounce as of June 1.

The U.S. platinum price fell 7.4% month over month to $820/ounce, while the U.S. palladium price fell 4.1% to $1,309/ounce.

Chinese gold bullion rose 3.1% to $42.92/gram. U.S. gold bullion rose 3.2% to $1,324.80/ounce.

The Rare Earths Monthly Metals Index (MMI) picked up three points, rising to a June MMI value of 22.

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China’s Rare Earths

In light of last month’s developments in the long-running U.S.-China trade talks, MetalMiner’s Stuart Burns delved into what could be a big play for China.

Last year, the U.S. left rare earths off a wide-ranging list of Chinese imports to be targeted by tariffs (as part of the U.S.’s Section 301 probe), as the U.S. — and the rest of the world — depends on China for rare earths.

Last month, the U.S. raised tariffs on $200 billion in imports from China and China responded with retaliatory tariffs. On the heels of the tit-for-tat and President Xi Jinping’s recent visit to a rare earth magnet facility, some commentators are wondering if China could put the squeeze on the rare earths market.

“China is rattling the saber ever so softly to say that it may be more exposed to general trade on a balance of payments position – China exports more to the U.S. than the U.S. exports to China — but the U.S. (and the rest of the Western world, as it happens) is uniquely exposed to China’s control of not just rare earth elements, but the whole supply chain,” Burns wrote. “That supply chain includes everything from mining through refining to manufacturing of myriad components used in high-tech applications including from electric vehicles, cellphones, laptops, missiles and fighter jets.”

According to CNBC, China’s exports of rare earths dropped in May to 3,639.5 metric tons, down from 4,329 metric tons in April.

The rare earths market is notorious for its volatility; as such, it remains to be seen if the drop in exports is a calculated move or a one-off blip. As trade talks between the U.S. and China continue to take shape, market watchers will want to keep an eye on China’s export levels.

Malaysia PM: ‘We’ll Have to Renew’ Lynas License

On May 30, Malaysian Prime Minister Mahathir Mohamad told reporters, with respect to the ongoing discussions regarding Australian rare earths miner Lynas Corp’s license to operate in the country, “We think we’ll have to renew the license,” according to a report in the Straits Times.

Lynas, the largest rare earths miner outside of China, has battled regulatory challenges in Malaysia related to waste disposal. Disposal of two forms of waste at the miner’s Malaysian facility has been the focus of the ongoing saga, as the miner’s license to operate in the country expires in September.

The miner has previously said it would not be able to comply with the government’s conditions vis-a-vis waste disposal in the required time frame.

“We welcome the Prime Minister’s comments acknowledging the importance of the continuation of the Lynas operations in Malaysia,” Lynas said in a prepared statement May 31. “We will update the market as we receive further clarification from the Malaysian government.”

Actual Metal Prices and Trends

Chinese yttrium fell 2.4% month over month to $32.58/kilogram as of June 1. Terbium oxide rose 1.3% to $529.26/kilogram. Neodymium oxide skyrocketed this past month, jumping 27.7% to $50,681.30/mt.

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

Europium oxide fell 13.7% to $33.30/kilogram. Dysprosium oxide rose 29.8% to $285.99/kilogram.

Lithium batteries. konok1a/Adobe Stock.

This morning in metals, the London Metal Exchange announced a new partnership that aims to promote “market uptake of a transparent and representative global lithium price,” President Donald Trump backs off imposing a 5% tariff on all imports from Mexico and China’s May copper imports dropped. 

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LME Announces New Partnership

The LME announced its latest steps toward creation of an LME lithium contract.