Steel is the world’s second-largest commodity after crude oil. It is 15 times the size of all other metals markets combined in terms of metric tons. Furthermore, it is worth twice their value.
Yet, until recently, it was an industry that saw little use for a futures market. That is primarily because major steel participants enjoyed stable long-term prices for the materials they needed.
Price material volatility
Prices for iron ore and coking coal, two of the essential raw materials for steel production, have become far more volatile in recent years. That volatility has sent price shocks rippling through the supply chain. In turn, it has created volatility in finished steel prices that consumers are desperate to contain.
Enter the major futures exchanges. For over 200 years, the London Metal Exchange (LME) has provided the trade – producers, traders and consumers – the opportunity to hedge their risk across a growing range of base metals.
However, only recently have exchanges such as the LME, the U.S.’s CME and the Shanghai Futures Exchange (SHFE) in China introduced products allowing the trade to hedge raw material and finished steel price risk.
Before we head into the weekend, let’s take a quick look back at the week that was and the metals storylines here on MetalMiner, including the release of the January 2021 MMI, a look at what might happen to the iron ore price and much more.
Inauguration Day draws near for President-elect Joe Biden, leaving metals industry groups to wonder what happens next for President Donald Trump’s signature metals policy: Section 232 tariffs on steel and aluminum imports. Whether Biden ultimately chooses to maintain those measures or do away with them remains to be seen, but metals watchers will be eyeing those developments closely.
As for metals prices, some price gains slowed down amid the festive season, but some have resumed their upward ascent in early 2021. Copper, for example, crossed the $8,100 per metric ton threshold earlier this month.
The Stainless Monthly Metals Index (MMI) increased by 6.0% this month, as ATI issued a major announcement and China ups its stainless imports from Indonesia.
ATI exits stainless steel commodity market products
Allegheny Technologies Incorporated (ATI) announced Dec. 2 that the company would exit the standard stainless sheet product market. The move reduces availability of standard 36″ and 48″ wide material.
The announcement comes as part of the company’s new business strategy. ATI will focus on investing in enhanced capabilities on higher-margin products, primarily in the aerospace and defense industries.
ATI’s departure from the stainless steel commodity portion of the market also leaves a gap for 201 series materials, which is why 201 base prices will see bigger increases than 300 or 430 series materials. Both NAS and Outokumpu announced a 201 base price increase amounting to approximately $0.0500/lb.
Meanwhile, according to data reported by the World Bureau of Metal Statistics (WBMS), Indonesia increased its stainless steel product exports by 23.1% from 2019 to 2020.
Slab exports increased from 249,600 metric tons to 973,800 metric tons. Meanwhile, coil exports decreased from 1.5 million metric tons to 1.1 million metric tons.
During 2019, Taiwan finished as the largest consumer of Indonesian stainless steel exports, followed by China.
The Raw Steels Monthly Metals Index (MMI) increased by 16.5% this month, as steel prices showed strength in December.
U.S. steel events
The American Iron and Steel Institute, the Steel Manufacturers Association, the United Steelworkers union, the Committee on Pipe and Tube Imports and the American Institute of Steel Construction sent a letter to Joe Biden urging him to keep the 25% national security tariffs on steel imports that were imposed in 2018.
The industry groups emphasized that the tariffs are essential “to ensure the viability of the domestic steel industry in the face of this massive and growing excess steel capacity.”
“Removing or weakening of these measures before major steel producing countries eliminate their overcapacity — and the subsidies and other trade-distorting policies that have fueled the steel crisis — will only invite a new surge in imports with devastating effects to domestic steel producers and their workers,” the letter continued.
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The Copper Monthly Metals Index (MMI) increased 3.3% this month, as copper producers have faced challenges that are impacting supply.
After a slow December, copper prices continued to increase the first week of January. Prices surpassed the $8,000/mt mark.
However, copper prices remain volatile. As the pandemic continues to develop, the U.S. dollar remains around 90, future demand is uncertain and supply is strained.
Supply constraints from copper producers
Major copper producers are experiencing supply constraints.
On Christmas Eve, MMG declared force majeure on its Las Bambas copper mine in Peru as the local community continued to block a nearby road in protest, making it impossible for the company to transport its concentrate to the port to be shipped. The blockage started Dec. 12, but production continued.
Las Bambas represents approximately 2% of global copper production.
Meanwhile, on Jan. 4 the Mongolian Government informed Rio Tinto — through the miner’s partly-owned subsidiary Turquoise HillResources — that if the Oyu Tolgoi underground expansion did not prove to be more profitable, it would terminate their 2015 agreement on fiscal terms.
The expansion would make Oyu Tolgoi the fourth-largest mine in the world by 2030. As such, a shutdown would represent a significant supply disruption.
Large disruptions mean supply constraints, which in the long term support prices even more.
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Low TC/RCs
Members of the China Smelters Purchase Team (CSPT) lowered treatment and refining charges to $53 per tonne and 5.3 cents per pound for the first quarter of 2021. These charges represented a 8.6% cut compared to the previous quarter.
Similarly, the annual TC/RC benchmark, set by Chinese smelters and Freeport-McMoRan, declined for the sixth consecutive year. The benchmark settled in at $59.50 a tonne and 5.95 cents per pound.
The TC/RC declines come as no surprise.
Mine supply remains tight (as mentioned above). Furthermore, smelting capacity continues to increase, particularly in China. This mix forced smelters to accept lower charges in order to secure raw material.
TC/RCs are a good indicator of raw material available in the market. When primary material is widely available, TCs go up. Meanwhile, when primary material is scarce, smelters lower their TCs. This can affect market sentiment and, ultimately, the price.
Copper scrap
Goldman Sachs reported 2021 could mark the beginning of a copper price supercycle due to the skyrocketing demand boost that the economic recovery might trigger.
As previously mentioned, supply might be tight in the following years. However, scrap might be able to offset supply constraints for at least a year.
ED&F Man Capital Markets’s analyst Ed Meir reported that in previous supercycles, scrap was not abundant and that this time around it will play an important role.
Currently, copper scrap represents about a third of global demand.
Actual copper prices and trends
LME copper prices increased marginally by 1.0% over the previous month to $7,757/mt.
Japan’s primary cash price increased 2.6% month over month to $8,098/mt.
U.S. producer copper grades 110 and 112 increased by 5.6%, resulting in a $0.23/lb increase to $4.36/lb. Meanwhile, copper grade 102 increased by 5.3%, resulting in a $0.23/lb increase to $4.58/lb.
Indian copper cash prices increased by 5.9% to $8.32 per kilogram.
Korean copper strip rose by 4.3% to $9.65 per kilogram.
China’s copper prices increased by 3.0% to $8,995/mt.
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This morning in metals news: Turquoise Hill Resources offered an update on the Oyu Tolgoi copper mine expansion project; renewable power generation will continue to rise this year in the U.S.; and the aluminum price has traded sideways over the last month.
The fate of the Oyu Tolgoi copper mine expansion project is up in the air, as it could face termination from the Mongolian government.
Turquoise Hill Resources, which is majority-owned by miner Rio Tinto, jointly owns the massive project with the Mongolian government. The parties reached a financing plan for the project in 2015.
However, the Mongolian government appears to be concerned about runaway costs for the project.
“In addition, the Government of Mongolia has advised Rio Tinto that it is dissatisfied with the results of the Definitive Estimate, which was completed and delivered by Rio Tinto and publicly announced by the Company on December 18, 2020, and is concerned that the significant increase in the development costs of the Oyu Tolgoi project has eroded the economic benefits it anticipated to receive therefrom,” Turquoise Hill said in a statement. “The Government of Mongolia has indicated that if the Oyu Tolgoi project is not economically beneficial to the country, it would be necessary to review and evaluate whether it can proceed.”
“According to the U.S. Energy Information Administration’s (EIA) latest inventory of electricity generators, developers and power plant owners plan for 39.7 gigawatts (GW) of new electricity generating capacity to start commercial operation in 2021,” the EIA reported. “Solar will account for the largest share of new capacity at 39%, followed by wind at 31%. About 3% of the new capacity will come from the new nuclear reactor at the Vogtle power plant in Georgia.”
Aluminum trends flat
After surging throughout most of the second half of 2020, the aluminum price has slowed down of late.
The LME three-month aluminum price is up just 0.22% over the last month. The price closed Friday at $2,032 per metric ton.
U.S. construction spending reached a seasonally adjusted annual rate of $1,459.4 billion in November, the Census Bureau reported this week.
The November rate marked a 0.9% increase from the previous month. Furthermore, the rate increased 3.8% year over year.
Meanwhile, construction spending through the first 11 months of 2020 totaled $1,314.1 billion, up 4.4% compared with the first 11 months of 2019.
Meanwhile, private construction reached a rate of $1,111.8 billion, or up 1.2% from October. Under the umbrella of private construction, residential construction reached $658.1 billion in November, or up 2.7%. Nonresidential construction dipped 0.8% to $453.8 billion.
Public construction fell 0.2% to an estimated seasonally adjusted annual rate of $347.6 billion. Under public construction, educational construction rose 0.3% to $86.7 billion. Highway construction reached a rate of $97.5 billion, or up 1.8% from October.
ABI: billings fall for ninth consecutive month
Aside from construction spending, the Architecture Billings Index (ABI), released monthly by the American Institute of Architects, posted an index value of 46.5 in November.
This month the Aluminum Monthly Metals Index (MMI) remained flat, as the Department of Commerce announced the creation of a new Aluminum Import Monitoring and Analysis system.
On Dec. 23, 2020, the U.S. Department of Commerce announced the creation of the Aluminum Import Monitoring and Analysis (AIM) system.
The system, similar to the Steel Import Monitoring and Analysis (SIMA) system, will collect and publish data on aluminum imports into the U.S.
The system will allow users to track trade flows more easily to help spot trends earlier and to provide better guidance to the domestic industry and government. Likewise, better data collection and its analysis should allow domestic producers to compete on a level playing field.
The system is expected to be available on Jan. 25, 2021.
LME aluminum changes
The London Metal Exchange announced its intention to move forward with its sustainability strategy after receiving market feedback. Part of the strategy will include a spot trading platform for price research and trading of low-carbon aluminum for interested buyers and sellers.
As part of this strategy, the LMEpassport, a digital credential register, will be launched to allow greater visibility of carbon sustainability criteria.
The LME will implement it gradually over three years across its physically settled metals requiring Certificates of Analysis (CoAs) and other value-add information to facilitate disclosure under existing standards across metal brands. The service will start in 2021 and will initially focus on aluminum.
This morning in metals news: the American Iron and Steel Institute released its first report on U.S. raw steel production for 2021; Nippon Steel eyes its net-zero emissions goals; and, lastly, the U.S. hot-rolled coil price continues to surge.
AISI releases first raw steel production data of 2021
For the week ending Jan. 2, the U.S.’s raw steel production totaled 1.65 million net tons, AISI reported Monday afternoon.
Steel output for the week came at a capacity utilization rate of 74.6%. The rate jumped from 72.3% the previous week.
Nippon strives toward net-zero future
Aside from U.S. raw steel production, in a question-and-answer session with Nikkei Asia, Nippon Steel President Eiji Hashimoto discussed the company’s efforts toward reaching net-zero emissions.
Hashimoto told Nikkei the company aims to reach net-zero in the steelmaking process by 2050.
HRC continues rise
Speaking of steel production, U.S. HRC price shows no signs of slowing down, closing Monday at $983 per short ton.
Furthermore, the price is up 27.5% over the past month. The HRC price has more than doubled since mid-Q2 2020, when it fell to around $460 per short ton.
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Buyers should make sure to equip themselves with the knowledge to source smartly after what was a volatile 2020.
In that vein, the MetalMiner Monthly Metal Outlook (MMO) report for the month of January is now available. In addition, readers will find news, analysis and much more covering copper, aluminum, nickel/stainless, tin, lead, zinc, HRC, CRC, HDG and plate.
The January report closes the book on 2020, recapping price trends and relevant metals sector developments in December. Furthermore, subscribers have access to industrial buying strategies and support and resistance levels for each of the aforementioned metals.
However, the report is only available to subscribers. Don’t miss out on the MMO report’s invaluable insights — visit the MMO landing page for more information.
Before we head into the weekend, let’s take a quick look back at the week that was and the metals storylines here on MetalMiner, including the release of the January 2021 MMI, a look at what might happen to the iron ore price and much more.
We have officially turned the page on 2020.