Articles on: Metal Prices

The M3 GOES MMI — the sub-index tracking grain-oriented electrical steel — fell two points this past month from 189 to 187.

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The small decline in the U.S. runs counter to market price trends for Japanese GOES material. According to a recent TEX Report, Japanese producers have won price increases because of supply shortages. Moreover, Korea’s Posco scored a $300/metric ton price increase to supply India.

Meanwhile, MetalMiner sources say Chinese producers appear fickle, quickly raising prices only to lower them to accept new orders and fill capacity.

The 800-pound gorilla in the room, however, involves the Section 232 investigations.

Many are speculating that the delay will bring about a more modest set of recommendations from Department of Commerce Secretary Wilbur Ross, as the much-awaited report rumored to have been released prior to the July 4 holiday and delayed to right after the G20 summit, has still yet to be released.

MetalMiner speculated about potential outcomes in a story published nearly a month ago (and still believes that to be the most likely outcome). Meanwhile, Australia appears confident that it will be exempted from any such action. Some have suggested that Canada might also feel secure in receiving an exemption, but MetalMiner has not been able to substantiate that claim. Moreover, because Canada is such a significant supplier to the U.S. for steel products, it’s hard to conceive of how that country would receive a full exemption from whatever is recommended under Section 232.

Of course, Canada remains a critical part of the GOES supply chain, as Canada produces wound and stacked cores and exports them to the U.S.

Meanwhile, Back at the BRS Ranch…

In addition to the Section 232 investigation, David Stickler, CEO of Big River Steel (BRS), recently indicated at a steel conference that BRS would move forward with an additional study and due diligence activities on its Phase II expansion to include non-oriented electrical steel (NOES) capability.

Industry participants suggest that this could also include Phase III funding that includes GOES capability.

Last month, MetalMiner reported on growth projections for electric vehicles (which requires NOES materials to get the power from the battery to the motor) and the numbers suggest very large growth within the automotive sector. This will likely form the basis of due diligence activities and indirectly impacts GOES production, as NOES is often produced on the same lines.

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What this means for industrial buyers

It’s hard to pay close attention to the month-to-month movements of what is essentially a M3 spot market index. The Section 232 investigation outcome remains potentially the single biggest price driver for the U.S. market.

Exact GOES Coil Price This Month

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

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Indians’ love of gold is a story with which many around the globe are familiar.

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Just how deep is this love? A recent research report by one of India’s well-known equities firms said India had consumed — hold your breath — around $300 billion worth of gold in just the last decade.

The analysis by Kotak Institutional Equities said gold prices had gone up by 300% between FY 2008 and FY 2017. But the love story has not been the same in the last five financial years (FY 2013-17), when only half the gold consumption of the past decade was recorded, not to mention virtually flat gold prices.

It’s no wonder that under the new Goods and Services Tax (GST) implemented as of July 1, gold, according to some, has been given special treatment. The tax has been kept at 3%, nowhere near the 18% suggested by some experts.

GST is a uniform tax across India, doing away with almost all other forms of taxes for businesses. So high is this precious metal on an average Indian’s shopping list that even the 3% tax, up from the current 1.2%, has raised the hackles of buyers. Some have even suggested that the “high” GST (in reality, just 1.8% more) would once again lead to the smuggling of gold into the country.

A report by news agency Reuters, for example, quoted named and unnamed gold traders and buyers as saying smaller gold shops could be more inclined to sell without receipts, potentially hitting sales.

Indians have been familiar with the “black” gold economy.

Except for certain periods, gold smuggling has always been a part and parcel of India. In 2013, for example, when the government raised import duties on the metal to 10%, smuggling went up. The World Gold Council (WGC) estimated that smuggling networks had imported up to 120 tons of gold into India last year.

The Kotak Institutional Equities report opined that it was “unhappy” with the special treatment given to gold vis-à-vis GST. India’s policy on inflation management achieved remarkable success, which should reduce gold’s function as a “store of value,” the report said.

Gold Demand on the Rise?

A WGC report in June highlighted the potential impact of the GST on India’s gold demand. It said the new tax could have a negative impact in the short term as the industry went through a period of adjustment, but the net impact in the long term was likely to be positive. The WGC expected India’s demand for gold to be 650–750 tons in 2017 and predicted it will rise to 850–950 tons by 2020.

According to another article in the Mint newspaper, analysis of household survey data seemed to suggest that one reason why regional governments in India may have lobbied for a low tax rate on gold was because gold purchases were not exclusive to the rich.

Even though the rich tend to buy more of it, possession of gold was a universal phenomenon across income classes, according to the Household Survey on India’s Citizen Environment & Consumer Economy (ICE 360° survey) conducted by the independent not-for-profit organization, People Research on India’s Consumer Economy, which was partly financed by the WGC.

The report found that one in every two households in India had purchased gold in the last five years. The survey also revealed of 61,000 households polled in 2016, 87% of households owned some amount of gold in the country.

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This morning in metals news, Australia is relieved to have reportedly secured an exemption from protectionist measures that may come to pass as a result of the Trump administration’s Section 232 investigations into steel and aluminum imports; the bourbon industry might be subject to retaliatory measures from the EU if Section 232 hits Europe; and U.S. steel production is on the rise.

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Australia Secures Exemption from Section 232 Measures

Although Chinese steel and aluminum overcapacity have been at the center of the Trump administration’s Section 232 investigations, producers from around the world have expressed concern about being caught in the crossfire.

The EU, for example, has said that it might turn to retaliatory measures if Section 232 affects European producers.

This week, however, it was reported that Australia will be exempted from any Section 232 protectionism that might come down the pipeline.

According to The Guardian, Australian Prime Minister Malcolm Turnbull and Finance Minister Mathias Cormann lobbied President Donald Trump during the G20 this past week in Hamburg, Germany. The Guardian reports Australia “has been assured that Australia will be exempt from any trade sanctions.”

“We are an open economy, we don’t manipulate the steel market and North America has much to gain from the continued access to Australian steel,” trade minister Steven Ciobo told The Australian. “It is less than 1% market share in the North American market.”

Obviously, this is a big victory for Australian steel and aluminum, should it hold true. However, the world won’t know the true scope of the Section 232 measures until they are actually announced, which is expected to happen in the coming weeks.

Whether or not further exemptions will be carved out for other recognized market economies remains to be seen. Surely, the European Union is keeping tabs on Australia’s reported exemption and hoping to secure an exemption of its own.

Bourbon Industry Prepares for 232 Blowback

As mentioned, the EU has expressed concerns about the negative effects Section 232 measures would have on its producers. That sentiment has transformed into talk of retaliation (with some even pondering the possibility of a trade war ensuing).

One possible target of retaliatory measures, according to The Guardian, is the American bourbon industry.

European Commission President Jean-Claude Juncker said Friday at the G20 summit that if the U.S. enacted trade measures against China and Germany’s steel industries, the EU would respond with retaliatory measures within a few days, The Guardian reported.

Bourbon, a popular European import, is produced almost entirely in Kentucky. The Guardian reported that in 2016, U.S. spirit exports to the EU were valued at $654 million, 20% of which came from bourbon whiskey, according to the Distilled Spirits Council of the United States (DISCUS).

This could just be the tip of the iceberg (or ice cube) with respect to talk of retaliation against sectors of U.S. industry.

U.S. Steel Production Up 3.1% in May

Protection of American steel and aluminum producers is at the heart of the Section 232 investigations — and speaking of domestic production, U.S. steel production was on the upswing in May.

According to a American Iron and Steel Institute (AISI) report this week, U.S. steel mills shipped more than 7.66 million net tons in May, a 3.1 percent increase from the more than 7.43 million net tons shipped the previous month.

In the first five months of 2017, U.S. shipments amounted to 37.7 million net tons, a 3.3 percent increase from the 36.5 million net tons shopped through the first five months of 2016.

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According to the report, in May shipments of hot-rolled sheets and cold-rolled sheets were up by 4% and 3%, respectively, from the previous month.

The Renewables MMI, which tracks metals and materials going into the renewable energy industry, moved up by a single point for our July reading, up to 72 from last month’s 71.

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For just the second time this year, U.S. steel plate posted a price drop, falling 3.7% for this month’s reading. U.S. grain-oriented electrical steel (GOES) also fell, by 1.2%. GOES had alternated between price drops and rises all year until this month, when GOES dropped in price for the second month in a row.

Meanwhile, Chinese steel plate rose 1%. Chinese neodymium, cobalt cathodes and silicon also posted price increases.

Japanese and Korean steel plate both posted price drops, by 1.1% and 5.9%.

Feeling Green

The renewable metals market is potentially in for a jolt in the coming years, especially in light of the direction of the automotive industry.

Last week, Volvo announced that “every Volvo it launches from 2019 will have an electric motor, marking the historic end of cars that only have an internal combustion engine (ICE) and placing electrification at the core of its future business.” While the reviews are mixed regarding how revolutionary the announcement actually was, it is certainly a long-term boon for the metals used in electric vehicles.

In other automotive news, Tesla is preparing to debut its Tesla Model 3. According to a Reuters report Tuesday, the new sedan model is expected to increase Tesla’s sales by 500%.

While Tesla’s sales currently represent a tiny fraction of the sales of the traditional automotive heavyweights, its sales are on the rise.

According to Autodata Corp sales figures released earlier this month, Tesla’s U.S. sales in June amounted to 3,900 units, up by 25.8% from June 2016, and year-to-date sales in 2017 (23,550) were up 42.7% from the same time frame in 2016.

However, a Washington Post report earlier this week notes that electric-vehicles sales hit a wall in Hong Kong once tax breaks there expired.

In the short term, the same thing could happen as sales pick up in the U.S.

Currently, a maximum total credit of $7,500 is afforded for consumers who purchase plug-in electric vehicles. That credit, however, begins to be phased out once a manufacturer sells more than 200,000 vehicles in the U.S.

On a macroscopic scale, despite President Donald Trump’s decision to remove the U.S. from the Paris climate accord, renewable energy, in general, has picked up momentum.

While clearly a long-term goal, France announced it will ban the sale of petroleum- or diesel-fueled vehicles by 2040. Also, the U.S. Conference of Mayors voted in late June to approve a resolution to help cities establish a “community-wide target of powering their communities with 100 percent clean, renewable energy by 2035.”

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On Monday, our Irene Martinez Canorea wrote about copper prices, which have been on a bullish run. Today, Stuart Burns writes about investors’ copper positions. 

Reuters reported last week that the LME copper price reached a three-month high after a surprise rise in China’s Purchasing Managers Index (PMI).

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Investors jumped into copper after the official Chinese PMI rose for an 11th consecutive month, to 51.7 in June. Hedge funds and other investors increased long positions by 9,531 contracts to 58,816. Reuters reported that net long copper positions are now nearly double the 29,787 contracts reported back at the beginning of May and a dramatic reversal from the net short position of 47,109 contracts just a year ago.

The jump in the LME price was short-lived, dropping back as the dollar strengthened and LME data showed copper stocks gaining, but the Reuters report went on to question whether the current bullish run for copper is likely part of a longer-term recovery or a short-term case of overexuberance.

Although Chinese PMI numbers are not an exact measure of copper demand, they have been a good indicator over time. But after nearly 12 months of positive PMI numbers, many analysts are said to be expecting weaker readings in the second half of the year.

Chinese stimulus measures have boosted growth for longer than most had expected, but cracks are beginning to show in the housing market and Beijing’s tightening of credit is impacting small- to medium-size enterprises. The performance of those enterprises are not reflected in the official PMI figures, which are focused more on the large corporate sector.

Smaller businesses are measured by the Caixin PMI, which fell to its lowest level this year in June and is now hovering around the break-even point between contraction and expansion.

With the impact of stimulus measures beginning to decline and global stocks of copper remaining plentiful, it’s hard to see a case for copper’s continued strength in the second half of the year, despite the bullish bets indicated by the increasing long positions.

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If Reuters’ analysis is correct, we can probably expect an easing of copper prices, if not during the summer then into the fall.

The Raw Steel MMI inched three points higher in June, increasing by 4.4%. The index hit 70-plus for just the second time this year (the first coming with March’s 70).

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The Chinese steel industry generally drives steel prices. Steel prices in China have increased during June, caused by the 23.3% jump in coking coal prices. However, this month’s uptrend counters the short-term downtrend that coal has experienced since February, which has largely driven steel prices down.

Source: MetalMiner analysis of TradingEconomics data

This downtrend in raw materials applies to both coal and iron ore. Although iron ore prices increased a bit this month, iron ore remains in a downtrend. Therefore, steel prices are at risk of following that downtrend.

Source: MetalMiner analysis of TradingEconomics data

The spread

The spread between Chinese hot-rolled coil (HRC) and domestic HRC prices has also narrowed this month.

The spread has continued to drop despite rising domestic HRC prices because Chinese HRC prices have also increased. A rising Chinese HRC price would lower U.S. steel imports, although imports have reached their highest levels since 2014.

If Chinese HRC prices increase, U.S. steel imports will decrease and lend support to domestic HRC prices.

Source: MetalMiner analysis of MetalMiner IndX data

Political uncertainty, the Trump administration’s Section 232 investigation recommendations and the recent G20 summit have only fueled price uncertainty. The outcome of these events will possibly have an effect on steel prices.

MetalMiner believes the delay in the release of the 232 recommendations — which were previously expected to be announced by the end of June — could cause U.S. steel prices to reverse this last month’s upward trend.

What This Means for Industrial Buyers

Though the Raw Steels MMI inched up this past month, scrap prices may be trading flat to slightly up from last month. However, the underlying trends do not suggest rising prices. The Section 232 investigations will yield additional clues.

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Actual Raw Steel Prices, Trends

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This morning in metals news, the LME launched a bid to acquire a piece of the over-the-counter gold market, Chilean miners are set to go on strike and the Liberty House group has purchased two more steel mills from Indian firm Tata.

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LME Launches Gold Contract

The LME’s new LMEprecious spot contract saw more than two tons of gold traded in its first day, Reuters reported.

According to Reuters, the suite of gold and silver contracts was formed via a group of backers, including big banks. The contracts launched at 0000 GMT Monday.

By the close of business Monday, approximately $91.3 million in gold had been traded on the LMEprecious spot contract, according to exchange data cited by Reuters.

“LMEprecious has been developed in response to market demand and in close consultation with key precious metals stakeholders,” the LMEprecious page on LME’s website reads. “Offering daily and monthly futures for both gold and silver, LMEprecious delivers greater choice for market participants, modernising the gold and silver markets to better reflect the needs of global players in precious metals markets.”

Strikes Pave Way for Higher Prices

With Chilean miners’ recent vote to go on strike, the price of copper will get a boost upward.

According to Reuters, a buildup of inventories since late June came to a stop and miners voted to strike on Tuesday, both factors which contributed to a rise in the price of copper.

LME copper was up 0.4% to $5,845.50, according to the report. However, an expected slowdown in Chinese economic growth and the strengthening of the U.S. dollar are factors behind why many analysts think the copper price will fall.

“Our forecasts suggest that most prices will fall from here,” Caroline Bain, a Capital Economics analyst, told Reuters.

Tata Deals Hartlepool Steel Mills

The Liberty House group purchased two of Indian company Tata’s steel mills, according to a report in The Telegraph.

According to the report, Liberty House signed a provisional deal to purchase the mills, located in Hartlepool, England, which produce heavy-duty 42-inch and 84-inch steel pipes used in the oil and gas industries.

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According to the report, Tata will retain a third Hartlepool mill, where 270 are employed and make 20-inch tubes.

Last March, Liberty House bought two Scottish steel mills Tata was preparing to shutter.

A major shake-up in the global aluminum industry as Norwegian firm Norsk Hydro will fully own aluminum products maker Sapa after buying a 50% stake from conglomerate Orkla.

According to a recent report from Reuters, this transaction values Sapa at $3.24 billion on a debt-free basis.

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Hydro produces primary aluminum from scratch, but by combining with Sapa, enhances its capabilities to become an integral supplier for automotive firms, aircraft makers and the construction sector.

“Sapa will enable us to assume global leadership, establish a platform for growth, and provide responsible operations and sustainable solutions for the future low-carbon economy,” Hydro Chief Executive Svein Richard Brandtzaeg told the news source.

He added: “The combination will make Hydro the only global company in the aluminum industry that is fully integrated across the value chain and markets.”

Automotive MMI Grows in June

The aluminum component remains a significant one for the automotive industry. According to recent analysis from our own Fouad Egbaria, the Automotive Monthly Metals Index rebounded from a reverse in May to move forward in June.

Egbaria wrote: “Although the increase was small, the one-point jump is an encouraging sign, as it marked the first increase for the sub-index since early this year, when it jumped from 82 to the February reading of 92. After that 92 mark, the sub-index posted four straight months of decreases.”

How will aluminum and base metals fare in 2017? You can find a more in-depth aluminum price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

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The Aluminum MMI dropped one point for our July reading, falling back to 87 after May and June saw the sub-index check in at 88.

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The sub-index has been in somewhat of a holding pattern since April, when President Donald Trump’s investigation announced it was opening investigations into steel and aluminum imports, invoking the little-used Section 232 of the Trade Expansion Act.

The Commerce Department held a public hearing June 22, during which industry executives offered their opinions on the challenges facing U.S. aluminum and whether protectionist actions should be taken. While primary manufacturers welcomed tariffs or quotas, downstream manufacturers weren’t as keen on the idea.

More recently, the International Trade Commission (ITC)  released its own report on the competitive conditions affecting the U.S. aluminum industry. The report’s executive summary zeroed in on five factors: the global aluminum industry is widely affected by government intervention through policies and programs that principally impact primary aluminum production costs; the chief determinants of competitiveness vary among industry segments; as of 2015, China was the world’s largest aluminum producer and consumer; competitiveness of the U.S. industry varied across segments; and the global aluminum market experienced price declines of roughly 30% during 2011–15 due to oversupply.

U.S. imports rose by 41% during the period from 2011–2016, to nearly 1.7 million metric tons, according to the ITC report. In terms of wrought aluminum imports, in 2016 the U.S. took in the most product from China (531,000 metric tons), with Canada coming in second (452,000 mt).

There was an uptick in optimism from the metals industry after the election of President Donald Trump, given his campaign promises regarding infrastructure building projects. Those campaign promises have yet to gain traction, and that initial excitement has leveled out — in short, many are in wait-and-see mode.

Per Section 232, the Commerce Secretary has 270 days to present the president with a report and recommendations. Many expect those investigation results to be announced sometime this month, although no official word has been given.

In an emailed statement Friday, Heidi Brock, president and CEO of The Aluminum Association, wrote: “Regarding the Section 232 investigation on aluminum imports and national security, we continue to engage the Administration and Capitol Hill to promote our three principles of 1) focus on the problem of Chinese subsidized aluminum overcapacity, 2) exempt Canadian imports and other foreign producers such as the European Union who trade fairly and have not contributed to rising global overcapacity, and 3) consider the effects of overcapacity on both primary and downstream producers.”

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