Articles in Category: MetalMiner IndX

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An article this week in Bloomberg catches the eye with a title announcing “hard-to-believe” steel shortages in China.

After years of excess supply, over-capacity and atrocious levels of resulting pollution, it would be a bit much to hear the country was short of steel — but that is what Fortescue’s CEO Nev Power is quoted as saying in an interview with Bloomberg Television in Beijing on Monday.

The gist of his claims? Closures of induction furnaces are creating a shortage of rebar, not because market demand is strong but because supply has become constrained, Power explained.

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Actually, the story is not a new one.

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Our Raw Steels sub-index score dropped by 10% from March to April, partially a result of slumping prices in China.

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That score experienced a bit of a comeback for our June reading, rising to 68 from the May reading of 66.

This time around, Chinese steels posted price increases, providing a boost after a tepid April. Chinese slab steel prices rose by 20.1% and billet steel also experienced a major bump, rising by 15.2%.

In the U.S., shredded scrap steel prices stabilized after a 7.1% drop the previous month. Shredded scrap’s June price point is the metal’s second-highest of 2017.

U.S. Steel Prices: Going Up or Down?

As we’ve previously reported, Chinese and U.S. steel price divergences usually mean one will have to move to close the gap.

So, what does that mean for U.S. steel prices?

As we noted previously, U.S. steel prices rose as Chinese prices dropped by 20%, leaving a widening price spread. Ultimately, the former may have to pull back price momentum.

And, given data in 2017 to date, a price drop for U.S. hot-rolled coil (HRC) and shredded scrap would not be surprising. The former has posted price drops every month this year, while the latter has shifted back and forth on either side of a $300/short ton baseline.

President Donald Trump and his administration’s ongoing national security probe into U.S. steel imports will continue to be something to monitor. The administration’s actions with respect to the investigation, if any, would have effects on steel prices and the interplay between U.S. and Chinese prices, in particular.

Actual Metal Prices

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The Construction MMI, tracking metals and raw materials used within the construction industry, bounced back up to 81 for our June reading after notching a 79 for May.

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Construction continues to trend positively, as evidenced by the latest U.S. Census Bureau data.

For the most recently available statistics for the month of April, total construction spending dipped from March to April, but April spending exceeded the April 2016 total by 6.7%. The Census Bureau estimates approximately $1,218.5 billion in April spending, a 1.4% decline from $1,235.5 billion in March.

Total spending (public and private) through the first four months of 2017 outpaced that of the same time frame in 2016, with $359.5 billion in spending this year, a 5.8% increase from last year. Spending on residential construction in April 2017 was up by 15.6% from April 2016. Spending on commercial and office spaces was up by 12.4%, in each case, from April 2016.

The Architecture Billings Index (ABI), put out by the American Institute of Architects, painted a similar picture. The most recent ABI report for April notes that architecture firm billings increased for the third month in a row.

With a score of 50 as a midpoint (meaning no decrease or increase), the South and Midwest regions of the U.S. came in strongest, with scores of 55.3 and 53.3, respectively. The West and Northeast regions also posted increases, with scores of 50.9 and 50.7, respectively.

U.S. Scrap Fights Way Over $300 Mark

In the United States, shredded scrap steel again surpassed $300/short ton after dipping under last month. The price for scrap saw a 1% increase. (For the exact prices in this story, log in or sign up below.)

On the bright side for buyers, steel bar fuel surcharges decreased across the U.S.

In the Gulf Coast, fuel surcharges dropped 2.8%. Midwest prices fell by 1.3%. Over in the Rocky Mountain region, prices settled in after a .07% drop on the month.

President Donald Trump’s administration’s investigation into U.S. steel imports — and any resulting policy effects of that investigation — will be something to monitor through the rest of the year and possibly into next year.

Chinese Steel Prices Get a Jolt

While many expect growth to slow in China in the second half of 2017, prices for rebar and H-beam steel increased significantly, bouncing back after a sharp drop in April.

Th rebar price spiked by about 9.5%. H-beam steel had a similarly large boost, rising by 7.6%.

Chinese aluminum bars dropped by 1.1%. Iron ore prices also rose by 1.1%.

European Aluminum Sheets in Neutral

In Europe, commercial 1050 aluminum sheets held steady, with prices ticking up by .02%.

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Here are the Exact Prices of Those Movers and Shakers

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Here’s What Happened

  • Our Rare Earths MMI, tracking 14 rare earth metal and mineral prices, ticked up to 21 for the June 1 reading, a whopping 10.5% increase from May.
  • We write “whopping” mainly because the Rare Earths MMI has held below the value threshold of 20 since August 2015 — a full 22 months ago. As we wrote last month, that’s when the stock market had its worst month in 5 years.
  • Rare earths prices on the whole, however, seem to be recovering from their 2016 lows. Terbium oxide, for example, rose 11.8% from May to June. Europium oxide, for its part, spiked up 16.7% in the same period.
  • Meanwhile, the dysprosium oxide price has fallen off slightly month-on-month.

What’s Going On in the Background?

  • “The REE mining process is intensive and requires highly toxic processing, which reduces competitiveness,” according to this article. “Because of lighter restrictions on mining and—especially—processing, China remains the world’s top supplier of rare earths.” But a considerable knock-on effect on rare earths prices could be the environmental pollution curbs that China has been (at least publicly) committing itself to as a developing economy. The environmental pressure has likely filtered down to the rare earths processing industry, constricting output enough to squeeze prices upward.
  • Outside China, these exact environmental worries have hamstrung any viable production models (or at the very least, profitable ones) — and Exhibit A is the Molycorp/Mountain Pass debacle. The Mountain Pass mine in California, which used to the the Western Hemisphere’s best bet to unburden its markets from reliance on Chinese REEs, is now being buffeted about by investors battling for the scraps.

What Metal Buyers Should Look Out For

  • While we’re by no means at a market top for the rare earths sector, keep a close eye on “hot” REEs such as dysprosium, as we mentioned last month. New ventures that are getting folks’ attention, such as this one in Australia, are creating a lot of bullish narratives. As we mentioned before, however, in the short term, dysprosium does not look as strong as some of the other constituent metals and minerals, dropping in price between May 1 to June 1.

Key Price Movers and Shakers

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Last month we reported that in March, U.S. domestic steel prices generally rose while the GOES M3 price fell. This month, we can safely report the exact opposite price change. U.S. domestic steel prices fell while GOES prices rose in April.

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In our April update, MetalMiner indicated that GOES prices might find a price floor on the back of a large 20,000/mt tender from Bharat Heavy Electricals. That indeed appears to have happened. Moreover, according to a recent TEX Report, GOES prices have continued to climb in China as Baoshan Iron & Steel needs to service the domestic market due to anti-dumping cases preventing Japanese and Korean imports to that market.

The TEX Report also suggests that global inventories remain low and that many countries have come into the market all at the same time, requiring material. This could lead to higher prices, particularly from the Japanese mills for contracts awarded during the second half of the year.

The Gorilla in the Room

The real challenge for domestic GOES prices, however, rests on the results of the Section 232 steel product investigation launched by the Trump administration in late April. The results will likely not come much before January 22, 2018, assuming the Secretary of Commerce takes the allowable 270 days to present findings to the President. At its core, the investigation seeks to address the issue of

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Our Stainless MMI took another dip in April, amid a broad sell-off in industrial metals. In addition, at the beginning of May, the Philippine parliament rejected Regina Lopez’s bid to be appointedas environmental minister. In a matter of weeks, nickel’s story has shifted from a clear supply shortfall to a rather complex narrative, ruining nickel bulls’ party.

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Nickel prices on the LME fell by 5% in the next two days after the news.

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Here’s What Happened

  • The Construction MMI, tracking metals and raw materials used within the construction industry, slipped 1.3% to a value of 79 for May.
  • Chinese steel prices — for forms such as rebar and H-beam — dropped precipitously this month.
  • Based on the last few months’ values, the last time this sub-index has performed this well was the start of 2015 — back when California was the first state to pass a carbon tax and Bill Gates turned human waste into potable water.

What’s Going On in the Background?

  • We’re in the salad days for the U.S. construction sector, at least as far as 2017 is concerned. According to the Associated General Contractors’ analysis, “Construction spending is at record levels for the second straight month in March [in spite of the month’s slip] and is up 4.9% for the first three months of year compared to the same period in 2016,” as quoted by com.
  • Better days for Chinese construction markets may be coming down the pike as well. Beijing recently announced plans to build a new megacity “the size of New England,” which should result in quite the appetite for industrial-grade steel, aluminum and other materials. For example, the government approved $36 billion to build 700 miles of rail within the next three years, according to this article. More salad days for the global construction industry to come, perhaps?

What Metal Buyers Should Look Out For

  • The latest drops in Chinese steel prices may have a knock-on effect on U.S. and other Western steel, which make the latter ‘pricier,’ comparatively. This could lead to lower prices on both sides of the ocean hanging around for a while.
  • We’ll see if President Trump’s 232 investigation begins to have any medium-term effect on steel once the determinations come down on whether imports constitute a threat to national security. In the meantime, “iron ore and Chinese steel prices could recover if China cuts overcapacity later this year,” as we write in our latest Monthly Outlook Report. (Free two-month trial here.)

Key Price Movers and Shakers

  • The China rebar price plummeted, the U.S. shredded scrap price fell below a key threshold to start the month for the third time this year, and weekly U.S. bar fuel surcharges for the Midwest, Gulf Coast and Rocky Mountain regions all fell slightly from April to May. Exact numbers in the membership-only article:
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Here’s What Happened

  • The Renewables MMI spiked upwards for the month of May (but not a terribly huge spike in the scheme of things; see the bullet below), ending at a value of 71.
  • * Editor’s note: We’ve recalibrated the index to better take into account cobalt price fluctuations, hence the spike from 54 in April to 71 in May.
  • However, the Big Heavy of our sub-index that tracks metals and materials going into the renewable energy industry is the U.S. steel plate price. That price point took a 4.8% dive.

What’s Going On in the Background?

  • Several stories from the solar sector have been making waves lately. “Growth has slowed in the rooftop solar industry in the past year,” writes Jessica Goodheart in this piece, “but many see the evolution of battery storage technology and vehicle electrification as promising for the long-term health of the residential solar industry.”
  • And the policy picture? “Industry leaders have been cautiously optimistic that Republicans will leave be the federal Solar Investment Tax Credit (ITC), a major policy driver of rooftop solar, in spite of Trump’s efforts to roll back the Clean Power Plan,” Goodheart notes.

What Metal Buyers Should Look Out For

  • Keep an eye out on steel plate’s raw material inputs — iron ore prices surged in April, as we reported in our May Monthly Buying Outlook, while coking coal prices swelled due to supply disruptions in Australia.

Key Price Movers and Shakers

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Industrial metals for the most part fell in April, but that wasn’t the case for aluminum. The lightweight metal outperformed its peers as aluminum is expected to be the next target of supply-side reform in China, according to Goldman Sachs.

The New Steel?

While China tries to transition from a manufacturing economy to a service-driven one, it is aiming to cut industrial overcapacity due to environmental problems. China previously indicated its strong intentions to implement supply-side reforms in the steel industry. As a result, steel prices in China rose by 70% in less than a year.

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China’s energy intensive aluminum smelters receive nearly 90% of their energy needs from coal. In addition, China has received a lot of international pressure to reduce its aluminum capacity. For these reasons, aluminum could be the new steel this year.

To start, China announced in late February that it would cut as much as 30% of its aluminum production over the winter months. As my colleague Stuart Burns put it, “Beijing has shown solid intent in this direction, already denying planning approval to 2 million tons of new capacity in China’s northwest province of Xinjiang and clamping down hard on plants elsewhere that it deems to be failing environmental standards.” In addition, industry watchers believe that this might just be the beginning as more closures are expected to come in heavily industrialized provinces.

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Our Global Precious Metals MMI inched up a point in April. However, this year the index seems to be struggling near 84 points. Let’s take a look at gold and palladium, two of the precious metals integrated in this index, to better understand the ongoing trend in precious metals.

Two-Month Trial: Metal Buying Outlook

Gold

Some analysts are saying that gold is up this year on its safe haven appeal due to rising geopolitical instability. But that’s simply not true. Otherwise, we would see it reflected in stock market indexes, which are trading at record highs. Not only the U.S. but also Europe, China and other emerging markets are seeing their stock markets hit multi-year highs. Investors are confident about the prospects for the global economy, and until something proves them wrong, gold is lacking any appeal as a safe haven.

Gold CME contract. Source: MetalMiner analysis of stockcharts.com

If you held gold this year, don’t thank rising political tensions; simply thank a weaker dollar and some dip buying. This year’s rally in gold follows a 18% price slump in Q4 of last year. But prices are back to their average and just 8% below $1,380/oz, a level that has been a ceiling to gold prices for four consecutive years. This means that investors will have to find good reasons to chase prices higher. Given the ongoing strength across global stock markets and the rather neutral picture of the dollar, we wouldn’t expect gold investors to get a good return on their money for the balance of the year.

Palladium

As I’ve written earlier on MetalMiner, “palladium prices rose to a two-year high in April, making it the biggest gainer among precious metals. Last month we outlined some of the factors contributing to the palladium price rise: a growing auto sector; a strong South African currency; a falling dollar; and bullish sentiment across industrial metals. However, as prices continue to climb, it’s time to question how high prices can go. Despite a still solid outlook, there are some reasons to believe palladium prices could be nearing their peak.”

One of them is a potential slowdown in demand for cars. U.S. car sales declined in April, following a disappointing month of March. Markets suspect that the car industry boom that has run since 2010 has now come to an end.

Meanwhile in China, car sales are still going strong, but the pace is not the same as last year. As I wrote before, “weaker sales tax incentives have put pressure on demand this year and are expected to slow down demand even more next year. Buyers of cars with engines up to 1.6 liters paid a 5% purchase tax last year, but they are now paying a 7.5% rate. Buyers are still finding incentives to rush on buying cars this year since the rate will increase to 10% in 2018.”

Palladium nears long-term resistance levels. Source: MetalMiner analysis of stockcharts.com data

Finally, as with the case of gold, palladium might need the stronger fundamentals to lure investors to chase prices higher. Historically, palladium has peaked in the range of $850-$900. Prices closed in April at $827.

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What This Means For Metal Buyers

Precious metals gained this year, but gains won’t come easily from now onwards. The opportunity to buy or invest in precious metals might have passed by.

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