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This afternoon in metals news, renegotiation efforts focused on the North American Free Trade Agreement (NAFTA) appear to be at a standstill, Chile’s state copper commission boosts its 2018 copper forecast and a European agency advises plane manufacturers to suspended their use of products from embattled Japanese steelmaker Kobe Steel.

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NAFTA Deadlock

The fourth round of renegotiation talks regarding the 23-year-old NAFTA concluded yesterday, but the U.S., Mexico and Canada appear to be no closer to a consensus.

According to Bloomberg, initial hopes for a quick resolution have fizzled, as talks will now be extended into 2018 (which was previously hoped to be avoided, given the scheduled elections in each country next year).

The next round of talks is scheduled for Nov. 17-21 in Mexico.

Cochilco Forecasts Copper at Nearly $3/Pound in 2018

Chile’s state copper commission, Cochilco, on Wednesday put out a forecast for 2018 including a prediction of the average global copper price hitting $2.95/pound.

The new forecast is up significantly from Cochilco’s mid-year estimate of $2.68/pound. Greater Chinese demand is cited as a supporter of the global price.

Kobe Steel Saga Continues

The fallout from the Kobe Steel data falsification scandal continues, as the European Aviation Safety Agency (EASA) advised plane manufacturers to suspend their use of products from the firm, the third-largest steelmaker in Japan, according to CNN Money.

According to the report, EASA advised those manufacturers to find alternative suppliers and conduct a “thorough review of their supply chain.”

Free Download: The October 2017 MMI Report

A number of global heavyweights use Kobe Steel products, including GM, Boeing, Ford and Toyota, according to the report.

Precious metals dynamics have looked similar to base metals during these last couple of months.

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The four precious metals (gold, silver, palladium and platinum) rallied since July, and peaked in September. In September, precious metals saw a price pullback, as did the base metals.

Gold spot prices (see graph below) reflect this movement perfectly.

After the price retracement in September, gold spot prices increased again. The gold rally that started at the beginning of 2017 appears set to continue. More movements to the upside could occur for the rest of the year.

Source: MetalMiner analysis of FastMarkets

Silver prices, however, have traded sideways, showing less of a bullish sentiment than gold. However, silver has shown the same price movements (in different price ranges) from July to October (see chart below).

Does this set the foundation for a new long-term uptrend?

Source: MetalMiner analysis of FastMarkets

As Fouad Egbaria noted: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.” Palladium prices rallied, as did gold prices, while platinum prices traded sideways, similar to silver.

Palladium prices. Source: MetalMiner analysis of FastMarkets

Platinum prices. Source: MetalMiner analysis of FastMarkets

However, both palladium and platinum showed the same price pattern since July. Those price movements may point toward an ongoing bullish market.

As reported by Reuters, the commodities outlook for Q4 looks bullish. MetalMiner also remains bullish on both commodities and base metals, and expects more movements to the upside while the U.S. dollar remains weak.

Free Download: The October 2017 MMI Report

A complete analysis of commodities and base metals for 2018 is published in our free Annual Outlook report. 

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This morning in metals news, Kobe Steel’s share price continues to plummet in the wake of its data falsification scandal, London copper hits a three-year high and palladium is having a strong 2017.

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Kobe Steel Shares Hit Lowest Price Since 2012

Kobe Steel, Japan’s third-largest steelmaker, continues to see its share price drop on the heels of its data falsification scandal.

The fallout from the scandal has already seen Kobe lose approximately $1.8 billion in market value, Reuters reported.

On Friday, Hiroya Kawasaki, Kobe’s chief executive, said about 500 companies received falsely certified products from Kobe, which was more than double a previously released number, according to the Reuters report.

LME Copper on the Rise

London copper is on the way up again, this time rising to hit a three-year high, Reuters reported.

The metal eclipsed the $7,000 mark, powered in part by good news on the Chinese economy, according to the report.

Palladium Powered by Automotive Demand

Recently, the palladium price recently eclipsed that of platinum for the first time in 16 years.

It’s been that kind of year for palladium.

Free Download: The October 2017 MMI Report

According to a CNNMoney report, 78% of palladium demand this year came from the automotive market.

If you were in India right now, someone is bound to tell you that it’s that time of the year.

He or she would be referring to the almost-three months of festivals and wedding season, which India sees starting from sometime late August and continues until early September. More specifically, just under a week remains before that “mother of all Indian festivals” — Diwali, the fest of lights.

All this also means an uptick in shopping, but, more specifically, gold shopping.

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Indians love their gold, and any excuse is enough to buy some more of the yellow metal. But Dusshera (a major Hindu festival preceding Diwali) and Diwali are special occasions, reserved for buying as much gold as possible. All of this makes India the second-largest gold-consuming market in the world.

This year, there was a slight damper on Indians’ demand for gold.

As part of the new tax reforms, the government included jewelers in the Prevention of Money-Laundering Act (PMLA) in August. This meant a compliance requirement on part of the buyer for any purchase above US $760 (Rs 50,000), including providing their income tax identity.

Incidentally, gold and real estate are the two investment opportunities that were often misused by hoarders of cash or those dealing in the black economy.

For some time, then, there were no “high value” deals as jewelers across the country, their associations and potential customers protested.

So, while September import figures of gold (in the month of Dusshera) were robust, they could have been even higher if the PMLA was not in effect, some associations claimed.

According to a report put out by news agency Reuters, India imported 48 metric tons, equivalent to $2 billion at today’s prices, in September. But since Dusshera fell in September instead of October this year (it follows the lunar calendar), the import figures compared to September 2016 were up, though on a month-on-month basis, it was lower, because of the uptake being down due to the PMLA.

But a decision by the government a few days back has brought back the cheer in the lives of gold consumers in India.

The PMLA has been put on hold for now, which means people can go ahead and buy gold without providing any of the previously required documents. Jewelers are hopeful the gold-buying spree, normally seen during these festive months, will at least revive in October, especially around Diwali. Imports are expected to go up to about 70 metric tons per month.

Just to give readers an idea of Indians’ love of gold, Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure reportedly surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

This year, even the Indian government wants to take advantage of the festive gold bonanza.

Showing impeccable timing, it has announced the launch of new sovereign gold bond schemes. Never before has such a scheme been announced around festival time.

Free Download: The October 2017 MMI Report

The bonds issue opened Oct. 9 and remain so until Dec. 27, covering the festivals of Diwali and Christmas.

The government has also made important changes to attract high-value investors, raising the annual investment limit per person from 500 grams to 4 kilograms. For trusts and similar entities, the limit was raised to 20 kilograms. This higher limit will make the scheme attractive for high-net-worth individuals who had not participated in earlier schemes, as they found the 500-gram limit to be too low.

Before we head into the weekend, let’s take a look back at the week that was. 

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• In case you missed it, our October MMI report is out. Make sure to check out the free PDF download for the rundown on the last month for our 10 MMI sub-indexes: Automotive, Construction, Aluminum, Copper, Renewables, Rare Earths, Raw Steels, Stainless Steels, GOES and Global Precious.
• Also, our Annual Outlook is out, too. Check it out for a comprehensive look ahead to 2018.
• Coal India Ltd. is looking to diversify beyond coal, Sohrab Darabshaw wrote earlier this week.
• Aluminum officials are in “wait-and-see mode” when it comes to the ongoing Section 232 probe vis-a-vis aluminum imports. The investigations into the national security impact of aluminum and steel imports were launched in April and have a January statutory deadline; at that point, Secretary of Commerce Wilbur Ross must present President Donald Trump with a report and recommendations.
• Glencore bet big on zinc — and won, our Stuart Burns writes.
• Although oil prices are well below 2014 numbers, supply cuts in some cases have seen the price start to climb. Are more cuts on the way, further constraining global supply and driving up prices? Burns wrote about the subject and what OPEC Secretary General Mohammad Barkindo called a “rebalancing process.”
• In big news, Kobe Steel is in hot water for a data falsification scandal, one which threatens the firm’s credibility among consumers and manufacturers. The scandal has already had major financial ramifications, as the company’s share price has been in free fall since the news hit.

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Life is full of ups and downs.

So, too, is the world of metals.

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Last month, all 10 of our MMIs saw upward movement. This month? Not so much.

Eight of 10 MMIs tracked back this month, albeit several of them fell by small amounts. The GOES MMI, meanwhile, picked up a point, while the Aluminum MMI posted no movement.

If you’ll remember, copper and aluminum had big months in August, as we detailed in last month’s MMI report. After a cooling period last month, though, so far in October copper has tracked back upward — so maybe it was just a September slump for the good Dr. Copper.

“However, market watchers can see a new rally taking place within the base metals industry,” wrote our Irene Martinez Canorea in her Copper MMI report. “Copper prices — along with lead and tin — increased sharply on heavy trading volumes. Buying organizations can expect upward movements within the bullish market.”

Meanwhile, as for aluminum, the flat month is actually an encouraging sign for the metal’s strength.

“Aluminum traded sideways in September,” Martinez Canorea wrote. “This trading pattern suggests resilience, as aluminum prices digest price gains and become strong again to continue the uptrend. Trading volumes continue to support the current rally, driving aluminum prices to a five-year-high in September.”

The aforementioned represents a small snippet of the analysis available in this month’s report.

You can read about all of the aforementioned — and much more — by downloading the October MMI report below.

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This morning in metals news, the world’s top copper producer expects a moderate rise in the metal’s price going forward, the Aluminum Association announces new leadership and Kobe Steel continues to reel from its data falsification scandal.

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Copper on the Rise

The price of copper is set to experience moderate increases, according to the mining minister of Chile, Reuters reported.

Aurora Williams, the mining minister of Chile (the world’s top copper producer), said Wednesday that there will be moderate increases in the metal’s price, but not enough to push it above $3/pound for the year.

According to the Reuters report, copper exports reached $3.18 billion in September, their highest level in nearly three years.

Changing of the Guard

The Aluminum Association announced new leadership on Wednesday.

Michelle O’Neill, senior vice president of senior vice president of global government affairs and sustainability at Alcoa, was elected as Aluminum Association Chair, becoming the first woman in the association’s 84-year history to hold the position. She replaced Garney Scott, president and CEO of Scepter, Inc., following a two-year term.

Kobe Steel Data Scandal Continues

It’s difficult to quantify lost trust, but it’s a problem Kobe Steel, Japan’s third-biggest steelmaker, is dealing with now on the heels of a data falsification scandal.

Now, the chief executive of the company is admitting the scandal is a serious hit on the company’s image, one that leaves it with “zero credibility,” The Guardian reported.

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According to The Guardian’s report, General Motors is the latest manufacturer to check whether its cars contain falsely certified parts or components sourced from Kobe Steel.

There are reasons why miners — indeed, all producers across industries — seek to dominate market share.

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The biggest reason? Being able to influence the market.

Yes, economies of scale come with size and in the case of mines to metal integrated trader Glencore that dominance in the zinc market gives them influence over not just mine output but concentrates, tolling and refining in a way that is not rivaled by any other firm.

Nor is the firm too kind to do things by halves — when they decide on an acquisition, on a market move, on a position, they do it decisively and with conviction.

In October 2015, Glencore sent shock waves through the market by cutting a third of its output, some half a million tons, to address what was widely seen as an oversupplied market and to stabilize prices. It worked — in just two years, the price has risen from $2,000/ton at the start of 2015 to $3,300/ton today.

LME zinc price, from October 2015 to October 2017. Source: LME

A Financial Times article states Glencore’s Australian Mount Isa and McArthur River operations took the brunt of the 2015 supply cuts, with output reduced by 380,000 tons. In total, the Glencore shutdowns removed 3.5% of global mine production, as the miner curtailed output from mines in Australia, Peru and Kazakhstan. In the meantime, end-of-life closures at Century in Australia and Lisheen in Ireland helped tighten the market.

Arguably Glenore’s action, while painful for zinc consumers, have in the long run done the zinc market a favor.

The rise in prices has supported the case for investment in new mines, such as Gamsberg and Duglad, due to come online towards the end of the decade. But even miners recognize you can have too much of a good thing, and limiting further price rises would not only help consumers but would help mitigate the demand destruction that comes from prices rising too fast and too far.

With that in mind, will Glencore look to bring back some, or all, of its idled capacity in 2018?

The firm continues to bet big on zinc, announcing last week its plans to increase its stake in Peru’s Volcan Cia Minera SAA, Bloomberg reports. With new mines due to come on stream in 2019 and 2020, supply constraints to the zinc market will eventually ease somewhat. Doubts remain, however, whether they will be enough to see the market in surplus.

Deshnee Naidoo, chief executive officer of Vedanta’s zinc unit, said a more sustainable zinc price would be $2,500-2,800 per metric ton. Others may argue with her, but Glencore has shown it can move markets and has the means — like Saudi Arabia did in the 1990s and 2000s with oil — be the swing producer, stabilizing a market for the benefit of both producers and consumers.

Traders often get a bad press for short-termism and the blind pursuit of profit, but Glencore has shown it acts in the longer term, too, and is capable of taking a strategic view of the market, of taking short-term losses in the pursuit of longer-term gains. The firm is uniquely positioned in the zinc market to act as a benign stabilizing element, keeping prices at a profitable but not demand-destructive level.

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It is clearly not as simple to regulate mine supply as it was oil supply for Saudi Arabia. You cannot turn off a mine like you can the spigot of a pump.

But with so many diverse zinc resources, Glencore is in a better position that any to smooth out the dips and peaks, for the sake of its shareholders and for the market as a whole.

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Here’s What Happened

• MetalMiner’s Global Precious MMI, tracking a basket of precious metals from across the globe, cooled off considerably after a sharp rise last month. For October, the sub-index dropped 3.4% to hit 86. That’s nearly back to the August 2017 level.
• Palladium held steady for a month, but still continues a measurable march upwards. The platinum group metal held above the $900 per ounce level for the second straight month.
• Platinum did lose a bit of its luster, however, falling back toward the $900 per ounce level and receding from its most recent high of March 2017 (when it landed above $1,000 per ounce). What does that mean? Something quite historic (see the section below)
• After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price retraced its steps as well, diving back under that level for the beginning of October.

What’s Going On in the Background?

• We have quite the record to report. ICYMI, my colleague Fouad Egbaria noted recently that the platinum-palladium relationship reached a milestone: “As of Oct. 1, palladium closed higher than platinum. The last time that happened? Sixteen years ago.”
• According to a research note from commodities broker SP Angel quoted within a report by Kitco News, “Palladium is benefitting from its inclusion in catalytic converters in gasoline-powered vehicles, which is expecting robust growth from the shift from diesel engines following the 2015 Volkswagen emissions-rigging scandal, and hybrid electric vehicle demand.”

What Metal Buyers Should Look Out For

• Other analysts have thoughts on platinum/palladium outlook as well. “In the short term, we think platinum is undervalued for a whole host of reasons. Therefore, we think there is scope for platinum to move back to a slight premium in the short to medium term,” Robin Bhar, metals analyst at Societe Generale, was quoted as saying in the Kitco News report. “We don’t see a sustainable premium of palladium over platinum…until about 2020 or 2021.”
• Overall, however, investors have been seeing nice returns, according to International Banker. The article notes a Reuters poll “of 26 analysts and traders conducted in July, [in which] the average palladium price for 2017 [was] being predicted at $811 per ounce for this year, which is 5 percent above the previous poll conducted in April…[and] the highest annual average price on record, going back three decades.” Well, now we’ve broken $900 per ounce.
• That makes Standard Chartered rosy as well. “We remain constructive on palladium’s outlook,” according to the bank’s analyst, Suki Cooper. “Not only is the market set to deliver a deficit this year, but it looks set to be undersupplied over the coming years.”

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Key Price Movers and Shakers

The October GOES M3 moved up by one point to 194. Meanwhile, as MetalMiner reported last month, imports have increased throughout 2017, largely due to higher Japanese import levels.

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This trend continued in September with a noted overall import increase of nearly 11.5% from August import levels while Japanese import levels increased by nearly 18%, according to the latest International Trade Administration data.

Last month, this publication noted that Japanese imports accounted for 55% of total monthly GOES imports. However, this number jumped in September to nearly 70% of total imports. Japanese mills primarily produce the higher grades of grain oriented electrical steel, including H1-B, as well as laser quality materials.

According to a recent TEX Report, Japanese mills will likely begin negotiations within the next week or two for 1H 2018 volumes. Many producers of these H1-B and laser quality materials have obtained price increases but at the same time, the price spread between conventional grades and high-grades has increased.

Whenever the market creates a spread wider than the historical average, buying (and selling) organizations can take advantage of arbitrage opportunities. Though we tend to see these types of trends more typically in other steel markets, such as hot-rolled coil or cold-rolled coil, market anomalies for GOES create buying opportunities.

Therefore, we could expect the Japanese mills to pay very careful attention to price levels so as not to exacerbate the current price spread between the two types of materials and to prevent buying organizations from considering alternatives.

From a U.S. import perspective, we can see that average prices from Japan have increased to the U.S.

Source: International Trade Administration

When ATI left the GOES market here in the U.S., the industry needed to reconfigure its supply chains for standard or conventional materials. Power equipment manufacturers moved production elsewhere and/or secured new sources of supply offshore.

Clearly, the demand for high-grade materials continues to rise.

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Exact GOES Coil Price This Month