The Raw Steel Monthly Metals Index (MMI) dropped 1.2% this month, down to an index reading of 80.

Weakness in the index once again came from U.S. domestic steel prices.

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U.S. prices showed weakness of late with HRC, CRC, HDG and plate prices dropping slightly again for the second month in a row.

Source: MetalMiner data from MetalMiner IndX(™)

This brings prices back down to around February levels, when these four forms of steel initially turned around from recent price declines (after reaching historical highs in April 2018).

A Comparison of U.S. and China Steel Prices

The spread between U.S. HRC and Chinese HRC narrowed between March and April, dropping to $161/st from $183/st in March.

Based on preliminary May numbers, the gap looks poised to close further, with a preliminary drop to $120/st based on early May prices.

U.S. HRC Prices and the U.S.-China Price Spread

Source: MetalMiner data from MetalMiner IndX(™)

Compared to HRC, the spread between CRC prices remains relatively flat, with a drop of just a few dollars between March and April. However, the gap looks to narrow more significantly based on early May prices, with a gap of $223/st (down from April’s $240/st price difference).

Waning Demand in Steel-Intensive Sectors

Construction and housing showed some weakness recently, according to the most recently available U.S. Census Bureau figures.

Total construction spending for March dropped below February by 0.9%, totaling around $1,228 billion. Additionally, the sector looks flat since last year, with this March’s figure coming in below last March, when expenditures on construction totaled $1,293 billion, marking a 0.8% drop.

Q1 expenditures look essentially flat compared with last year, with a 0.2% increase.

The durable goods sector has showed strength, with new orders up for four of the previous five months through March, according to the U.S. Census Bureau, with orders for transportation equipment growing the most.

Reuters reported lower auto sales for April, with the sales decline attributed to rising prices and fewer incentives offered, especially on lower-end models.

In addition, consumers turned to the used market in larger numbers this year due to higher prices, as costs of new vehicles increased this year.

What This Means for Industrial Buyers

Steel prices showed weakness lately, with the monthly index on a gentle decline during the past two months.

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Actual Raw Steel Prices and Trends

U.S. HRC futures spot and 3-month prices both declined this month, in excess of 5%, both at $654/st.

Korea’s scrap steel price, currently at $150/mt, dropped significantly after a similarly sizable increase last month, with both the increase and subsequent drop in excess of 16%.

Chinese prices showed some strength, although not across the board. Most notably, Chinese HRC prices increased by 5% to around $600/mt, while steel billet increased over 3% to $551/mt.

The Stainless Steel Monthly Metals Index (MMI) declined this month, dropping by two index points to 69. A few of the prices in the basket registered fair declines, with nickel prices showing weakness.

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LME Nickel

The LME primary nickel 3-month price decreased nearly 8% over the course of April. While prices showed strength early in the year into March, prices faltered and began to trade sideways.

Source: MetalMiner analysis of FastMarkets

More recently, however, prices appear on a declining trend, which could indicate a pricing correction, rather than a shift in trend.

Source: MetalMiner analysis of FastMarkets

However, with negative volume still high — as indicated on the weekly chart of LME nickel prices with trading volume shown along the bottom — the correction remains in progress.

China’s Economic Performance Matters for Prices

The present global economic outlook could be characterized as uncertain in the face of ongoing trade talks between the U.S. and China.

After much press early in the year over China’s slower rate of growth, with forecasts shifted downward at the start of the year, the FXI — an index of large-cap Chinese companies — surprised the market with a show of strength.

Source: MetalMiner analysis of Yahoo.com data

Chinese stimulus measures helped bolster the economy’s performance. Recently, however, the boost seemed to lose steam; meanwhile, the FXI uptrend waned.

The U.S. Economy Grew in Q1; Some Sectors Lagged Behind

Economic indicators continue to fluctuate into 2019, for both the U.S. and China.

For example, while Q1 growth appeared stronger than expected in the U.S., construction spending and new home starts showed weakness in March, while new auto sales slowed this year. China’s performance remains mixed, with auto sales also weak there.

Domestic Stainless Steel Market

This month, the 304/304L-Coil and 316/316L-Coil NAS Surcharges dropped to $0.63 and $0.92 per pound, respectively, from $0.64/pound and $0.93/pound at the beginning of April.

What This Means for Industrial Buyers 

Downward-trending prices provide good news for industrial buyers, with stainless steel prices showing weakness this month overall.

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Actual Stainless Steel Prices and Trends

Stainless steel prices showed weakness, with price declines hitting the subindex.

In particular, LME nickel prices fell 7.9% month over month to $12,210 mt. Primary nickel prices in China and India fell by 3.5% and 5.8%, respectively, with Chinese primary nickel averaging $15,412/mt and Indian primary nickel averaging $12.49 per kilogram.

No, we’re not talking about Eddie Murphy and Dan Aykroyd (although we do love that classic film).

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The Global Precious Monthly Metals Index (MMI) has just entered a two-month downtrend, with global trade uncertainties and other economic worries serving as a backdrop. Platinum and palladium are once again taking center stage.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies decreased one point to 94 for the May reading — a 1.1% drop — driven by drops in U.S. gold, silver and platinum prices.

While both platinum and palladium prices dropped last month, in May only palladium began the month lower, while platinum bumped up a bit. This tangible — yet potentially insignificant — short-term reversal of fortune for those two platinum-group metals (PGMs) stands in stark contrast to the previous trend: a huge divide over the past year and a half or so in the platinum-palladium spread, with the latter metal holding a vast premium to the former, which continues today.

Based on MetalMiner IndX data, the U.S. palladium price fell 2.6%, down to $1,365 per ounce, for the month of May. Meanwhile, the U.S. platinum price rose 4.5%, clocking in at $886 per ounce.

Palladium still holds at nearly $100 per ounce higher than the gold price, which stood at $1,283 per ounce in the U.S. at the beginning of the month — down only a few dollars per ounce over the previous month.

Platinum and Palladium (and Gold and Silver) Perspectives

This one-month price trend reversal looks to align with the longer-term forecast as well, according to some analysts.

“Palladium will cost an average $485 an ounce more than platinum this year – a record breaking premium – but the gap will narrow in 2020 as the rally fizzles out and platinum recovers after an eight year downturn,” a Reuters poll showed, according to this article.

“The poll of 27 analysts and traders conducted this month returned a median forecast for palladium to average $1,350 this year – its highest annual average ever – and $1,275 in 2020,” the article stated. “That prediction is higher than a similar poll three months ago which forecast prices of $1,200 this year and $1,150 in 2020.”

Meanwhile, Goldman Sachs stated in a recent analyst report that “we think that lack of substitution by auto companies will lead palladium to continue to outperform platinum,” according to Kitco News.

The investment bank went on record as saying, “Palladium is also set to benefit more than platinum from tighter environmental restrictions in China,” and “as such we reopen our long palladium-versus-short platinum trade recommendation.”

Goldman is also bullish on gold and bearish on silver.

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Their analysts “are trimming their [gold] forecasts to $1,300 an ounce for three months, $1,325 for six months and $1,375 for a year from now.” For silver, they listed “three-, six and 12-month silver forecasts of $14.50, $15 and $15.50 an ounce, down from $15.50, $15.50 and $16 previously,” according to the Kitco News article.

The Rare Earths Monthly Metals Index (MMI) held flat this month for a May value of 19.

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Lynas Saga Continues in Malaysia

As we’ve noted in previous installments of the Rare Earths MMI, Australian rare earths miner Lynas Corp. continues to deal with regulatory challenges at its Malaysia operations.

Lynas, the largest miner of rare earths outside of China, is facing two conditions from the Malaysian government regarding the renewal of its license to operate in the country (which expires in September 2019).

The conditions from the Malaysian government related to disposal of two forms of industrial waste.

“We also continue to engage in ongoing discussions with the government to seek to resolve the remaining issues related to the pre-conditions for Lynas’ licence renewal, as detailed further below,” the company said in its Q1 earnings report. “We have restated our commitment to Malaysia, to being a valuable contributor to the economy and to playing a vital role in supporting the development of Malaysia’s 4.0 Industries.”

Tensions have picked up after comments from Malaysian Prime Minister Mahathir Mohamad last month.

“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 prime minister said.

Lynas said it had reached out to the Malaysian government for clarification regarding the prime minister’s comments.

Meanwhile, last month two groups of protestors, representing Malaysian environmental groups and Lynas workers, raised their voices on the issue.

According to a Reuters report, members from each group provided statements to government representatives, with the group representing environmental interests calling for the suspension of Lynas’ license, while Lynas workers touted the plant’s role as a source of jobs.

Actual Metal Prices and Trends

The yttrium price fell 0.4% month over month to $33.39/kilogram as of May 1. The terbium oxide price rose 0.6% to $468.21/kilogram.

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Neodymium oxide plunged 8.9% to $39,698.10/mt. Europium oxide dipped 0.4% to $38.59/kilogram. Dysprosium oxide jumped 0.6% to $220.38/kilogram.

The Copper Monthly Metal Index (MMI) dropped slightly this month, from 79 last month to an index value of 78 for May.

Mild price decreases of less than 1% hit nearly all the prices in the index, with the exception of the Japanese copper cash price (which increased by less than 0.5%).

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LME copper prices struggled to hold onto $6,500/mt during the past couple of months and recently dropped back again to trade in the $6,200/mt range.

Source: MetalMiner analysis of FastMarkets

Looking at the bright red line, the price now trades below the uptrend line drawn from the start of 2019, indicating price weakness.

At best, the price is stuck trading in a sideways band at the moment.

From a technical perspective, it appears that we may have recently seen the completion of what is called a “short-term double-top” type of formation — albeit a fairly short and flat one — which indicates further price declines (see points A and B).

Weakening Global Growth Impacted Copper Prices

Looking at recent trading volume — moderate but negative for several weeks now — prices seem likely to stay in flat territory for the foreseeable future. However, unlike some of the other industrial metals, copper managed to hold some of its price gains made this year.

Source: MetalMiner analysis of FastMarkets

Recent demand concerns have led to weakening prices. According to Codelco Chief Commercial Officer Roberto Ecclefield, demand for copper should grow by 2.3% this year, while mine production could slip by 0.5%, with smelter output flat. Therefore, he does not see this price slump lasting long.

According to Bloomberg, Codelco also forecasts a shortage in concentrate as new smelter capacity in China coming online this year increases competition for supplies, with the shortage growing during the second part of the year.

What This Means for Industrial Buyers

Copper’s bullish sheen receded of late, so now is the time to watch the market carefully for buying opportunities.

For more specific guidance, following our support and resistance price guidelines, request a free two-month trial of our Monthly Metal Buying Outlook.

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Actual Copper Prices and Trends

This month, most of the copper prices in the index fell; however, all of the price decreases were mild at under 1%.

India’s copper cash price decreased by nearly 1%, as did China’s primary cash, copper bar and copper wire, as well as the LME primary 3-month price.

The May Aluminum Monthly Metals Index (MMI) held flat at 88 for the third month running, with gains in Chinese aluminum prices negated by weak LME prices.

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LME aluminum prices trended downward throughout April, down to recent January 2019 lows. However, prices seemed to find support again around $1,800/mt in the early days of May.

Source: MetalMiner analysis of FastMarkets

The price basically retraced back to January lows, losing all of the gains made during 2019.

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SHFE Aluminum

SHFE aluminum prices continued to increase, with a higher per ton price of around $2,100/mt.

Source: MetalMiner analysis of Fastmarkets

Based on the most recent production figures from the International Aluminum Institute, although March production levels in China increased by 10% over February 2019, Chinese production levels when compared with March 2018 only increased by 1%. During Q1 in total, Chinese production registered at 8.9 million mt, versus 8.8 million mt the year prior — a 1.6% increase over 2018.

Supply Concerns Fade, but Deficit Anticipated in 2019

With global demand for aluminum outpacing supply, the LME price decline could be a temporary weakness.

Aluminum has been caught up in the general negative pricing momentum industrial metals saw during the past few weeks, as the dollar showed strength. As the dollar strengthens, metal prices tend to weaken. However, if demand conditions deteriorate, the price declines could stick, or the price could continue to move sideways on weakened demand.

According to Alcoa’s most recent quarterly report, a global aluminum deficit of aluminum in the range of 1.5 million mt to 1.9 million mt is estimated for 2019. However, the company estimate was revised down from the range of 1.7 million mt to 2.1 million mt given in the company’s prior quarterly report. This indicates the company anticipates some moderation of global growth, with its estimates revised down to the 2-3% range from 3-4%, stating lower demand growth in China, particularly lower transportation and electrical sector demand.

Midwest Aluminum Premium

The U.S. Midwest Premium continued to hold at the historic high of $0.19/pound during April.

What This Means for Industrial Buyers

LME aluminum prices weakened along with other base metals prices last month, showing downward momentum; prices remain within range of a sideways trend. Prices could hold, then continue to rise further once more or move lower from here depending on overall supply and demand factors at large. It’s also possible the sideways pricing band will continue to hold on weakened demand. Even in a sideways market, it’s important to watch the market carefully for buying opportunities in order to buy on dips.

For more specific pricing guidance related to aluminum and aluminum products, buying organizations may want to request a free trial now to our Monthly Metal Buying Outlook.

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Actual Metal Prices and Trends

Chinese aluminum prices led the index this month, with increases in the range of 2.7% to 2.8%.

The LME primary 3-month price declined by 5% (the biggest decrease in the aluminum basket).

European and Korean prices also declined, but more mildly (in the range of around 1%).

The Construction Monthly Metals Index (MMI) gained one point for a May reading of 84.

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U.S. Construction Spending

According to the U.S. Census Bureau, U.S. construction spending during March 2019 came in at an estimated seasonally adjusted annual rate of $1,282.2 billion, or down 0.9% from the revised February estimate of $1,293.3 billion.

In addition, the March spending estimate marks a 0.8% decline from the March 2018 estimate of $1,293.1 billion.

Meanwhile, Q1 construction spending reached $277.7 billion, down 0.2% compared with Q1 2018.

Under private construction, spending reached $961.5 billion, down 0.7% from February. Within private construction, residential construction hit $500.9 billion in March, down 1.8% from February. Nonresidential construction came in at $460.6 billion in March, up 0.5% from February.

As for public construction, spending in that segment hit $320.7 billion, down 1.3% from February. Educational construction spending fell 1.5% to $76.6 billion, while highway construction spending fell 1.9% to $104.5 billion.

Billings Growth Slows

According to the monthly Architecture Billings Index (ABI) put out by the American Institute of Architects, March proved to be a down month for billings growth.

The March ABI value was 47.8, down from 50.3 the previous month (anything above 50 indicates growth, while anything below 50 indicates contraction). Per the report, billings declined for the first time in over two years.

“While this score may raise concerns about the start of a period of weaker business conditions, it is important to note that it does follow on the heels of a particularly tough late winter period for much of the country, with record-setting cold, storms, and floods,” an AIA release on the report states. “In addition, many indicators of future work at firms remain positive, with both inquiries into new work and the value of new design contracts continuing to grow, although the pace of growth of design contracts has slowed in recent months. Backlogs of work at architecture firms also rose to a new high of 6.5 months in March, up from 6.3 months one year ago.”

The South was the only region out of the four tracked in the ABI to show billings growth, posting an ABI value of 54.2. The Midwest (48.7), West (47.2) and Northeast (43.5) all came in at sub-50 values.

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Actual Metal Prices and Trends

Chinese rebar increased 5.8% month over month to $606.97/mt as of May 1. Chinese H-beam steel rose 2.5% to $577.29/mt.

U.S. shredded scrap steel fell 3.3% to $321/st.

European commercial 1050 aluminum sheet fell 0.9% to $2,618/mt. Chinese aluminum bar rose 2.6% to $2,266.13/mt.

Bombardho/Adobe Stock

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

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• The International Copper Study Group released January copper production figures.
• The World Steel Association reported global crude steel production jumped 4.9% year over year in March.
• U.S. housing starts fell once again in March.
• MetalMiner’s Stuart Burns touched on rising ocean freight rates in connection with shipping lines’ efforts to meet new environmental standards.
• Glencore reported its 1Q 2019 production results.
• The United States Trade Representative unveiled its annual special Section 301 report.
• NASA announced the results of an investigation into two launch failures from 2009 and 2011.
• Sohrab Darabshaw delved into the state of Indian mining concessions.

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Bombardho/Adobe Stock

This morning in metals news, the copper price got a boost from optimism stemming from the resumption of trade discussions between the world’s top two economies, the CEO of Australia’s Fortescue was bullish about the Chinese steel sector and British Steel received a £100 million government loan.

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Copper Price Picks Up

As it has been wont to do throughout the U.S.-China trade talk saga, the copper price was supported by Wednesday’s restart of trade talks in Beijing between the two economic superpowers.

Three-month LME copper moved up 0.2% Wednesday to $6,426 per ton, Reuters reported.

Fortescue CEO Optimistic About Chinese Steel Production

While some economic indicators suggest the Chinese economy is slowing down, China’s steel sector does not appear to be following that trend, according to Fortescue CEO Elizabeth Gaines.

Fortescue is one of the world’s largest iron ore producers. In 2018, China posted a record 928.3 million tons of crude steel production.

“When it comes to China, what we’ve really seen, particularly in that first quarter, is strong growth in steel production,” Gaines said while appearing on CNBC’s “Capital Connection.”

Gaines added that based on conversations with customers in China, she expects steel production growth in China to come in at 3-4% this year.

British Steel Gets £100M Loan

The BBC reported British Steel has secured a £100 million loan from the government to pay off its E.U. carbon bill.

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As the report notes, amid Brexit uncertainty, the European Commission last year opted to suspend U.K. firms’ access to free carbon permits — which can be used to pay for emissions bill or can be traded to raise money — under the E.U. emissions trading system.

ronniechua/Adobe Stock

This morning in metals news, Mexico’s Senate approved changes to the country’s labor laws, Chinese iron ore futures notched their fifth consecutive monthly gain and U.S. steelmaker AK Steel reported its first-quarter earnings.

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Mexico Passes New Labor Laws

As NAFTA partners Canada, Mexico and the U.S. work toward approval of the United States-Mexico-Canada Agreement (USMCA), billed as the successor to NAFTA, Mexico’s Senate approved revisions to the country’s labor laws that addressed some of the U.S.’s complaints vis-a-vis low pay rates in the country.

Bloomberg reported the Mexican government passed the changes Monday, including granting workers the right to vote on unions and labor contracts via secret ballots.

United States Trade Representative Robert Lighthizer applauded the move by the Mexican government.

“The USMCA includes the strongest, most advanced, and most comprehensive labor obligations of any U.S. trade agreement,” he said in a prepared statement. “I commend the Mexican Congress and President Lopez Obrador for passing historic labor reforms as part of this agreement and thank President Trump for making strong labor commitments in the USMCA a top priority. These reforms will greatly improve Mexico’s system of labor justice and are exactly what labor leaders in the United States and Mexico have sought for decades. As we move forward with the ratification of USMCA, the Trump Administration will work closely with members of the United States Congress and the Mexican government to ensure these reforms are implemented and enforced.”

Article 23.3 of the UMSCA text addresses labor rights, including “freedom of association and the effective recognition of the right to collective bargaining.”

The legislatures of the three countries must approve the USMCA before it can go into effect.

Chinese Iron Ore Futures Rise

Iron ore prices have been riding a hot streak so far this year, aided by supply-side disruptions in Australia and Brazil.

In addition, Chinese iron ore futures have picked up steam, too, notching their fifth straight month of gains this month, Reuters reported.

According to the report, the most-traded iron ore contract on the SHFE jumped 2.1% to 639 yuan ($94.84) per ton.

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AK Steel Reports 1Q 2019 Earnings

Ohio-based AK Steel unveiled its first-quarter earnings this week, reporting adjusted EBITDA of $160.9 million, up 36% year over year.

Including a $77.4 million charge associated with the firm’s closure of its Ashland Works, AK Steel posted a net loss of $4.5 million in the country, and an adjusted net income of $72.9 million when excluding the Ashland Works special item.