The Chinese government frequently mandates steel production cuts, especially for environmental reasons. But the cuts have also aimed to cut production volume in support of maintaining higher steel prices and, therefore, a healthier domestic industry.
A recent goal of cutting 150 million metric tons of steel production capacity by 2020 was achieved by the end of 2018, according to the Chinese government. (By the way, no such purely production-focused reduction goal exists for 2019).
According to a recent Reuters article, on the other hand, in June 2018, China’s State Council banned new capacity development for steel, among so2me other primary commodity products, in some key geographic areas, such as Beijing-Tianjin-Hebei and the Yantze River Delta Regions.
The Chinese government mandated that blast furnace steel operations in Tangshan and Handan, China’s largest steelmaking cities, continue production cuts, but at a reduced rate of 20% of total capacity for April-June (compared to the 30% capacity reduction ordered for the November-March period).
These cuts target improvement in air quality by reducing the concentration of PM2.5 particulate matter by a minimum of 5% this year, when compared to 2018. Some production facilities must even leave the region as the government seeks to improve the quality of life in pollution-affected areas, such as Beijing, which is surrounded by Hebei province (the location of multiple steelmaking cities, including Tangshan and Handan).
When prices rise, however, these mandates become more difficult to enforce.
Meanwhile, the Energy Information Administration (EIA) released its Summer Fuels Outlook today, which forecasts U.S. gasoline prices will be lower this coming summer compared with summer 2018.
“Because gasoline and diesel taxes and distribution costs are generally stable across the United States, changes in U.S. retail gasoline and diesel prices are generally driven by changes in crude oil prices,” the EIA report explained. “EIA forecasts the Brent crude oil price to average $67 per barrel (b) this summer, the equivalent of $1.60/gal, compared with an average of $75/b, or $1.78/gal, last summer.”
This morning in metals news, the price of SHFE rebar continued its rise Tuesday, the Aluminum Association released its first new material registration record in almost two decades and Brazilian steelmakers are struggling with an iron ore shortage.
The designation covers so-called “purple sheets,” which cover aluminum powder used in 3D printing.
“The purple sheets are the newest addition to the Aluminum Association’s long-running ‘rainbow sheet’ series, which provides alloy designations and chemical composition limits for various types of aluminum,” the Aluminum Association said in a release. “Aluminum is the first materials industry to develop such a system specific to the 3D printing market.
“The first registration granted is for a high-strength aluminum alloy produced by HRL Laboratories, LLC. The association will grant HRL registration number 7A77.50 for the aluminum powder used to additively manufacture the alloy, and number 7A77.60L for the printed alloy.”
Iron Ore in Brazil
Brazilian steelmakers are facing a shortage of the key steelmaking ingredient iron ore in the months after Vale SA’s fatal dam breach at its Corrego do Feijao mine, Reuters reported.
This morning in metals news, miner Rio Tinto announced Monday it will commit an additional $302 million toward the Resolution Copper project in Arizona, Rusal made its first post-sanctions U.S. investment and copper prices rose Monday.
Rio Tinto Announces $302M Additional Investment
Miner Rio Tinto announced Monday it will pitch in an additional $302 million toward the Resolution Copper project.
“Resolution is one of the most significant undeveloped copper deposits in the world and this additional funding demonstrates Rio Tinto’s commitment to bring the mine into production,” Rio Tinto CEO JS Jacques said. “The comprehensive permitting process is well underway with the Environmental Impact Study on track to be completed next year according to the regulators schedule.
“The rise of electric vehicles, battery storage, new transmission technology and other green energy innovations are highly copper intensive. We need to prepare now to meet this future demand. Resolution will be well positioned to provide North American manufacturers the copper that is essential to their products.”
According to the company release, a fully operation Resolution project could supply one-fourth of U.S. copper demand.
Rusal Makes U.S. Deal
Russian aluminum giant Rusal, previously staring down U.S. sanctions, has made its first post-sanctions U.S. investment, Reuters reported.
According to the report, Rusal is partnering with U.S. manufacturer Braidy Industries to build a mill in Kentucky.
Copper Prices Rise
According to another Reuters report, copper prices made gains Monday on positive economic data from China and lower inventory.
The April 2019 Monthly Metals Index (MMI) report is in the books.
This month was marked by the status quo, as five of 10 MMI subindexes stayed put.
The Aluminum, Automotive, Copper, Renewables and Stainless MMIs all traded flat for the April reading. Raw Steels and Global Precious were down for the month, while Construction, GOES and Rare Earths made gains.
Despite the holding pattern evinced by the MMIs, the past month proved to be a news-packed one for metals markets.
The Brazilian government announced it would file charges against miner Vale SA in connection with a fatal dam collapse at one of its mines in January. Meanwhile, Norwegian aluminum major Norsk Hydro was hit by a cyber attack that forced many of its operations to come to a halt.
In other news, supplies of the steelmaking raw material iron ore were recently disrupted as Tropical Cyclone Veronica battered Western Australia.
On the trade front, U.S. Treasury Secretary Steven Mnuchin this week said the U.S. and China had reached an agreement on the formation of trade enforcement offices, a key issue for the U.S. side.
A few other highlights from this month’s round of reports:
Australian rare earths miner Lynas Corp. — the biggest outside of China – is considering domestic processing options as it continues to face regulatory pressure in Malaysia. The miner’s license to operate in Malaysia expires in September.
While most are following the U.S.’s ongoing trade negotiations with China, President Donald Trump this week announced potential tariffs on a diverse group of goods from Europe ranging from wine to helicopters.
The Renewables Monthly Metals Index (MMI) held flat this month, sticking at an MMI reading of 103.
Cobalt in … Missouri?
The St. Louis Post Dispatch reported an EPA agreement could open the door to cobalt mining at the site of an old lead mine.
On April 3, the EPA announced it had reached an agreement with Missouri Mining Investments, LLC, to “perform a removal action at Operable Unit 2 of the Madison County Mines Superfund Site in Madison County, Missouri. Operable Unit 2 consists of the Anschutz Subsite, also known as the Madison Mine.”
“Missouri Mining Investments plans to begin cobalt mining at the mine upon completion of the cleanup,” the EPA said in a prepared statement. “Under EPA oversight, Missouri Mining Investments will conduct supplemental characterization work, prior to developing a more detailed plan to consolidate and cover mine waste and contaminated soil at the site, and remove contaminated sediments from the Metallurgical Pond and other surface water ponds and streams within the property boundary.”
As Fuller notes, 2019 could be a banner year for LME cobalt futures volume.
“The London Metal Exchange (LME) cobalt contract launched in February 2010 and the exchange recently launched a new cobalt contract tied to Fastmarkets’ standard-grade cobalt price (the go-to benchmark on cobalt pricing for industrial buyers),” she noted.
She added that after fluctuations in the early years of the LME cobalt contract, volumes spiked beginning around November 2016.
Nucor Announces $1.3B Investment for Kentucky Steel Plate Mill
In other news, steelmaker Nucor Corporation announced late last month it would make a $1.35 billion investment toward building a new steel plate mill in Brandenburg, Kentucky.
The mill is expected to have an annual capacity of 1.2 million tons, according to a company release, and is expected to be fully operational in 2022.
The GOES MMI, the index for grain-oriented electrical steel (GOES), gained eight points for an April reading of 176.
The GOES coil price rose 4.4% to $2,423/mt.
Actual Metal Prices and Trends
The price of Japanese steel plate fell marginally on a month-over-month basis to $771.64/mt as of April 1. Korean steel plate rose 2.2% to $599.87/mt. Chinese steel plate rose 0.4% to $645.03/mt.
U.S. steel plate held flat at $997/st.
The U.S. grain-oriented electrical steel (GOES) rose 3.1% to $2,432/mt.
The Chinese neodymium price fell 4.8% to $55,490.40/mt, while silicon fell 0.3% to $1,534.37/mt. Chinese cobalt cathodes dropped 0.3% to $99,063.40/mt.
Price weakness in the index came from the U.S. HRC 3-month futures contract, with a 6.3% decline in price this month, while Chinese Dalian coking coal prices declined by 7.2%. The declining prices pulled the index down, in spite of the 16.2% increase in Korean scrap steel prices.
U.S.steel prices generally trended gently upward after stabilizing earlier in the year. CRC prices increased by around 3% on a month-on-month basis, while HDG increased by nearly 3%. HRC prices edged up by just over 1% while plate prices held steady month on month.
Source: MetalMiner data from MetalMiner IndX(™)
Overall, prices stayed firm, in line with seasonal supply and demand factors at work in construction, in particular. Generally stronger-than-expected industrial performance in both the U.S. and China provided price strength.
Similarly, and in line with more positive economic data than generally anticipated, Chinese steel prices increased so far this year, leading the U.S. price increase (as generally expected by technical analysis of steel prices since Chinese prices tend to move first).
Source: MetalMiner data from MetalMiner IndX(™)
Based on a basic visual comparison of Chinese steel prices with the China Manufacturing Purchasing Managers Index (PMI) trendline, as the PMI crosses the threshold over 50, steel prices tend to increase while they tended to fall during months of contractionary sub-50 readings. As we can see the PMI trending upward, we can expect steel prices to rise.
Source: Analysis of data from MetalMiner IndX(™), Yahoo.com and Investing.com
On the other hand, the comparison of trendlines between steel prices and China’s FXI, a large-cap ETF index, shows a relationship that appears weaker, with values moving in opposite directions at times (although still typically following a similar movement).
Given that China’s PMI reading increased recently, this indicates the potential for steel prices to show strength.
A Comparison of U.S. and Chinese Steel Prices
The spread between U.S. HRC and China HRC prices flattened out for the last couple readings after falling for a few months now, with a price differential in early April of $181/st.
Source: MetalMiner data from MetalMiner IndX(™)
This month, U.S. CRC prices outpaced China CRC prices. The spread once again trended slightly upward between the two after trending more or less downward since July 2018, with the current price differential of around $255/st.
Source: MetalMiner data from MetalMiner IndX(™)
Iron ore prices increased again this month, after some moderation in price increases from earlier this year. Weather issues stemming from Tropical Cyclone Veronica in Australia last month kept prices higher, in addition to a general improvement in the industrial outlook in China, which could support higher iron ore prices, and therefore higher steel prices. Coking coal prices, on the other hand, have generally fallen so far in 2019, which may exert downward pressure on steel prices.
What This Means for Industrial Buyers
Even with the lower index value this month, some forms of steel still showed upward momentum, indicating prices could be on the rise once again; that is, at least for the short term, supported by stronger-than-expected economic performance in the U.S. and China.
Like last month, plate prices continue to sit at high levels. Plate prices sit near $1,000/st, rising again after briefly falling back to $993/st in late March.
With prices still somewhat higher and other factors indicating some potential to increase further, buying organizations need to watch the market carefully for the right time to buy.
The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies dropped three points to 95 for the April reading — a 3.1% decrease — driven by a drop in palladium and platinum prices.
Even though the U.S. palladium price has cooled off a bit to begin the month of April, this marks the third month in a row it has traded higher than the gold price (even though the spread is a bit tighter).
As tracked by the MetalMiner IndX, the U.S. palladium bar price stood at $1,401 per ounce on April 1, an 8% drop from March 1.
In fact, every single constituent metal price comprising the Global Precious MMI basket — 14 in all — fell this month.
The Latest Palladium Price Outlook
According to a recent Kitco News report, BMO Capital Markets has “hiked their forecast for palladium sharply, looking for it to remain underpinned by a tight supply-demand picture and maintain a large price premium over sister metal platinum for the foreseeable future.”
The report states BMO “upped its average price forecast for palladium by 45% to $1,612.50 an ounce this year and upped its 2020 outlook by 11.3% to $1,112.50.
“As the premium over platinum continues to hit new records, there can be no doubt palladium is in a heavy market deficit at present amid stagnant supply and higher catalyst loadings for gasoline vehicles,” said BMO, as quoted by Allen Sykora of Kitco News. “And with substitution being a slow burn rather than an immediate fix, there remains decent potential for further upside. Qualifying a new catalyst is an expensive and time-consuming process, and we would expect this to occur only when the next range of vehicle models emerges.”
Sykora goes on to report “the bank figures that substitution to platinum will eventually occur, thus 2019 will be the peak for palladium prices.”
How tight is the supply market for palladium? Still as tight as we reported last month.
“‘The market is still fundamentally tight,” said Philip Newman, of the Metals Focus consultancy, as quoted by Reuters. In addition, the consultancy forecasts a 789,000-ounce shortfall this year in the 10 million ounce-a-year palladium market — and deficits of a similar size for several years after that, Reuters reported.
“Once the dust settles [on this latest downward blip for palladium], prices will start to recover,” he is quoted as saying.
Lynas Considers Initial Ore Processing at Home Amid Pressure in Malaysia
Australian rare-earths miner Lynas Corp., as we’ve noted in previous Rare Earths MMI reports, has been facing regulatory pressure in Malaysia of late.
The Malaysian government has issued two conditions for renewal of the miner’s license in the country, which expires in September, related to disposal of two types of waste. Last month, Lynas appealed one of the conditions put forth by the government related to disposal of water leached purification residue.
“We have been giving great consideration to … our future industrial footprint,” CEO Amanda Lacaze was quoted as saying during an analyst and investor call. “We remain confident that we can agree a path forward with the Malaysian government which is good for Malaysia and good for our business.”
Lynas is the biggest miner of rare earths outside of China.
“We see value in operating alternative cracking and leaching processing close to our resource, and therefore the primary locations that we have been considering for growth are in Western Australia,” the miner said in a statement posted to its website. “Part of this planning has been to scope our future industrial footprint. Our preference has always been to add to our Malaysian capability, not replace it. Our Malaysian cracking and leaching operations are performing very well as a result of the IP our Malaysian team has developed and owned – IP which others cannot use – and the hard work of all the Lynas team. We remain committed to supporting the Malaysian economy and protecting our people’s jobs. However, this same work means we are well placed to deal with any change in Malaysian government policy.”
The company received a shock last Friday following comments by Malaysian Prime Minister Mahathir Mohamad, who indicated the miner’s Malaysian operations were being put up for buyers who can make good on cleanup of the radioactive waste.
“With regard to Lynas, we have imposed an extra condition, that is they must take away the waste,” Mohamad said. “But they want to take away the waste to where? They want to take it to Australia, but Australia doesn’t want to accept it, so they can’t do it anyway.
“So what we have done is we have opened up the business to other people, and there are other companies willing to buy up or somehow or other acquire Lynas, they have given us a promise that in future before sending the raw material to Malaysia they will clean it up first, they will crack it and decontaminate it in some way with regard to radioactivity, so that when the raw material comes here, the volume is less and the waste from that raw material is not dangerous to anybody.”
The comments came just over a week after Lynas rejected a $1.5 billion takeover bid from Australian conglomerate Wesfarmers.
Meanwhile, in perhaps promising news for Lynas, the Sydney Morning Herald reported the government of Western Australia has indicated it would consider offering assistance if the company should decide to build a new processing plant in the state.
China Becomes Top Rare Earths Importer
Speaking of China, the country exerts an overwhelming dominance in the rare earths market, which includes materials used in a wide variety of high-tech capacities, from smartphones to laptops and more.
Citing data from consultancy Adamas Intelligence, China’s imports of rare earths surged 167% last year. In addition, China became a net importer of at least seven rare earths, including praseodymium and yttrium, for the first time in more than 30 years.
Actual Metal Prices and Trends
The yttrium price fell 0.3% month over month as of April 1, down to $33.52/kg. Terbium oxide rose 4.7% to $465.52/kg.
Neodymium oxide dropped 5.2% to $43,573/mt.
Europium oxide fell 0.3% to $38.73/kg. Dysprosium oxide jumped 15.4% to $218.98/kg.