Articles in Category: MetalMiner IndX

This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.

Global steel prices tend to find a floor based on the price of Chinese steel. If Chinese prices fall, domestic U.S. prices also tend to fall. However, grain-oriented electrical steel continues to beat to its own drum, often not aligned with underlying steel prices.

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March is no exception.

Although U.S. domestic steel prices continued to rise in March, the GOES M3 price fell and fell rather significantly dropping by nearly 7%.

GOES MMI

Meanwhile, according to a couple of recent TEX Reports, GOES prices from Baosteel increased by $38/metric ton in April after increases of $168/mt from January through March. Baosteel acts as the price leader and according to a recent report, and will likely stand pat until or unless others also increase their prices. Those “others” may have a near-term opportunity to do so as a large tender from Bharat Heavy Electricals for 20,000 mt will bring in the global GOES producer community. As China tends to set the “market floor” for global steel prices, the TEX Report suggests that this tender will serve as the global price floor for GOES for the balance of 2017.

Supporting the rising price theory, TEX Report also suggests that prices have risen by $200-300 per mt in the Middle East and India.

Ironically, prices for steel rebar on the Shanghai Futures Exchange have declined by 5% according to a recent MetalMiner story on the back of declining coking coal (4%) and declining coke prices (5%), as well as falling iron ore futures. Some, including MetalMiner, believe the price declines are due to speculators unwinding bullish bets.

Chinese HRC

Source: MetalMiner Forecasting

Regardless, Chinese prices for hot-rolled coil are falling and though GOES prices often diverge from underlying steel market trends, upward price movements may be elusive.

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Copper prices continued to trade flat in March. Over this month, strikes at major mines Escondida and Cerro Verde ended while Freeport-McMoran got a temporary export permit for its Grasberg mine.

Escondida’s Strike Ends

The strike at the world’s largest copper mine, Escondida in Chile, ended in the final week of March. The strike had lasted 44 days, longer than expected.

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The mine is not rushing to ramp up back to prestrike output levels. Owner BHP Billiton has said will outline the impact of the strike on Escondida’s output in results due for release on April 26. The strike is estimated to have cost Escondida more than 200,000 metric tons in copper production.

Copper MMI

Workers at the mine voted to return to work, despite not having reached an agreement on a new pay deal with management. Instead, workers extended their existing contract by 18 months, losing out on a new signing bonus or wage increase, but they will be able to renegotiate a new deal in 2018 after a new pro-union Chilean labor law goes into into effect.

Cerro Verde Mine Resumes Operations

Cerro Verde, Peru’s largest copper mine, had been operating at 50% of capacity since workers initiated a strike on March 10. At the end of the month, workers signed an agreement as the union accepted the company’s offer to improve family health care benefits and pay workers their portion of the mine’s profits earlier than usual. The mine produced just under 500,000 mt of the red metal last year.

Grasberg Mine Gets Temporary Export Permit

Freeport-McMoran was granted a temporary permit to export copper concentrates from its Grasberg mine in Indonesia, the world’s largest gold mine which also produces copper. The new permit broke a 12-week deadlock that had cut supply to Asian smelters. The new export license will last eight months. The amnesty means the company can renew deliveries of copper concentrates in Asia after declaring force majeure in February, but longer-term discussions over the company’s rights in Indonesia have yet to be determined.

What This Means For Metal Buyers

Copper supply disruptions have lasted longer than expected. Although they seem to have come to an end, their impact on supply still need to be outlined. In addition, these strikes have set the case for wage negotiations across the industry.

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Some major contract negotiations in large mines are due in the coming months. In the meantime, copper investors might focus their analysis on macro factors such as the ongoing China-U.S. trade negotiations, the performance of the U.S. dollar and global demand for industrial metals.

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China is now home to two-thirds of the world’s solar-production capacity.

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The efficiency with which China’s solar products convert sunlight into electricity is increasingly close to that of panels made by American, German and South Korean companies. Because China also buys half of the world’s new solar panels, the country now effectively controls the panel market.

Renewables MMI

A recent New York Times article details the meteoric rise of China’s solar industry and how its dominance in growing markets complicates the Trump administration’s attempts to cut down the U.S. trade deficit with China. China’s policy shifts and business decisions now have global impact on solar prices and production, particularly of crystalline polysilicon photovoltaic panels, everywhere else in the world.

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Now that China is cutting subsidies that it offers to panel manufacturers there, the ripples are being felt by installers in the U.S. and elsewhere. China’s solar-panel makers have recently cut their prices by more than a quarter, sending global prices plummeting. The NYT reports that Western companies have found themselves unable to compete. They have cut jobs from Germany to Michigan to Texas and the account includes the case of Russell Abney, a 49-year-old equipment engineer from Perrysburg, Ohio. The American panel manufacturer he worked for laid off Abney, among others, to remain competitive after China yanked its subsidies and manufacturers there lowered domestic prices to compensate.

If China’s dominance of solar panel manufacturing remains, able to move markets and cause layoffs worldwide depending on which subsidies are continued and which are scrapped, then the solar panel silicon market is likely to remain in the low-price rut we’ve documented in the Renewables MMI since 2012.

The Renewables MMI fell one point to 54 this month.

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U.S. Mining for rare earths is rapidly falling behind China, a trend that “limits our growth, our competitiveness and our national security,” Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R.-Alaska) said recently.

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According to the U.S. Geological Survey, imports in 2016 represented more than 50% of American consumption of 50 mineral commodities, a market valued at $32.3 billion annually. Of those 50, the U.S. was 100% import-dependent on 20, representing $1.3 billion. In 2015, the U.S. was half-dependent on 47 non-fuel mineral commodities and 100% reliant on 19 commodities.

Murkowski said at a committee hearing recently that this trend exposes the U.S. to potential supply shortages and price volatility, while also reducing international leverage and attractiveness for manufacturing.

Rare Earths MMI

“Instead of lessening our dependence, we are actually increasing our dependence,” she said. “We’re not making headway on this issue. … What are we doing wrong here?”

While Senator Murkowski’s comments are no doubt welcome by U.S. manufacturers who would love to source neodymium, scandium and other elements locally, a cursory look at our Rare Earths MMI shows that the supply situation is as much to blame for the lack of U.S. production as anything else, particularly among the heavy rare earths that most Chinese companies provide. Our Rare Earths MMI increased one point to a paltry 19 this month, its HIGHEST point since August of 2015. Ever since China banned export quotas of the key battery and magnet metals there has been plentiful supply and the low prices that come along with it.

Many smaller (some illegal) Chinese producers do not have the start-up costs that any Western rare earth producer does, simply because of lax regulation in that part of the world. That is changing, but the process is a slow one. Unfortunately for any prospective U.S. producers, the start-up costs situation is even worse when facing off against the larger Chinese rare earths producers. Some are state-sponsored and even the private ones enjoy subsidies at the state and national levels that no American producer could ever hope for.

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If Senator Murkowski and her committee want to promote the work of a U.S. rare earths miner (Molycorp, Inc. was the last active one and its Mountain Pass mine is up for auction after a bankruptcy last year), they should do what was promised during the election and roll back regulations that drive up startup costs for miners. It’s unlikely that a U.S. miner will ever face an even playing field with state-sponsored Chinese miners but right now, the tilt of it is so bad that many won’t even try. How bad is it? The company that holds the most promising identified deposit in the U.S. changed its name last year to downplay the fact that it plans to mine rare earths. Texas Rare Earths, which plans to mine a deposit in rural Round Top, changed its name to Texas Mineral Resources Corp.

The new name reflects a “significantly broader scope of Round Top projected output,” the company said in its release. What’s funny is one of the “broader” elements the release notes is scandium, which is generally considered a light rare earth element. It’s used the aerospace and automotive industries, particularly in aluminum alloys. Could it be that the rare earth “brand” is so damaged by abundant Chinese supply that U.S. companies are running away from it in their quest to draw investors?

Good luck with fixing the domestic supply situation, Senator Murkowski.

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Our monthly Global Precious Metals MMI dipped down a point in April from last month, losing 1.2% to end up at 83.

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Ultimately, most gold, silver, platinum and palladium price points from the U.S., China, Japan and India dropped off for the month, which led to the sub-index’s overall decline — but there was one price point that decided to blaze its own trail upward.

The U.S. palladium bar price rose 3.4% over the past month, the third straight month of increases on the MetalMiner IndX.

What’s Going on with Palladium?

Well, automotive sector demand for palladium, at least on a spot or short-term basis, would be a hard case to make.

As my colleague, Jeff Yoders, reported earlier this week, U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam.

Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

For example, Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

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According to a recent Seeking Alpha article, “going into 2017 the market was considering limited supply to be the primary factor supporting palladium prices,” with limited sector growth expected from the U.S. and European markets, and China being the only auto market to be counted on for buoyed sales.

The above has generally held true, while seasonality and investor interest in ETFs seemed to have been playing into palladium’s rise. This could well be the high point for palladium prices this first half of the year.

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Our Stainless MMI lost 3 points in March, essentially losing what it gained in February.

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Industrial metals continued their rally during the first quarter but nickel didn’t fare as well. Prices are still significantly higher than they were one year ago, but investors are now finding little reason to be any more bullish than bearish due to a complex supply narrative.

The Philippines

On March 13, The Philippines’ president Rodrigo Duterte, threatened to stop all mining in the country. Despite the potential for more closures, investors doubted that Duterte would enforce such strict regulations. Duterte reiterated his support for Department of the Environment and Natural Resources Secretary Regina Lopez. The Philippines’ mining industry hoped for the Commission on Appointments (CA) to reject Lopez as the Environment secretary in March.

However, Lawmakers opted to postpone a decision to confirm or reject the ardent environmentalist as the head of the department. Further confirmation hearings are expected to take place in May.

This will be an important thing to watch over the next weeks. A rejection would give miners a key win in the battle against environmentalists, potentially adding pressure to nickel prices.

Indonesia

According to an Indonesian Mining Ministry official, the ministry has issued export recommendations for state-controlled miner PT Aneka Tambang (Antam) to allow the company export 2.7 million metric tons of nickel ore over the next 12 months. The recommendation has yet to be officially issued by the mining ministry. Antam said in February that it had stockpiles of an estimated 5 million wet metric tons of low-grade nickel ore that was ready to ship.

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Indonesia was the world’s top nickel ore exporter before it imposed a ban on unprocessed nickel ore exports in 2014. This year, prices have felt downward pressure on reports that Indonesia’s partial lift of the export ban, announced in January, may result in higher volumes of ore hitting the market. Also in March, Hong Kong-listed China Hanking Holdings announced its intention to restart a low-grade nickel mine it closed in 2014. The restart is at a relatively small scale, but it rises concerns of further supply hitting the market.

What This Means For Metal Buyers

Nickel prices are struggling to make headway this year. Nickel’s supply narrative is rather complex and it’s exposed to significant changes depending on what policy makers in Indonesia and The Philippines do next. On the other hand, stainless buyers should continue to monitor their price risk exposure. Investors’ sentiment on industrial metals remains bullish and that could still trigger unexpected prices swings on the upside.

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Our Aluminum MMI rose again in March. London Metal Exchange prices rose above $1,950 per metric ton and, given the bullish sentiment among investors, aluminum might soon reach the $2,000/mt milestone.

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Prices were buoyed by confidence that China will implement their agreed-upon cuts. The world’s largest nation-producer of the metal will force about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi to be shut down over the winter season, which runs from the middle of November through the middle of March, putting at risk about 1.3 million mt of production.

Aluminum MMI

It would be normal to see these producers to simply ramp up production ahead of the winter season to make up for lower output during the winter months. However, that won’t be the case.

China’s environmental crackdown is already affecting producers as inspection teams visit aluminum smelters on a regular basis to keep production in check. We suspect that China’s strategy to curb pollution will offer further support to prices.

Global Political Heat

While China tackles overcapacity in the form of an environmental clampdown, international pressure on China is rising. In March, global aluminum associations released a joint letter in advance of the upcoming G20 summit calling for the creation of a Global Forum to address aluminum overcapacity.

This is the first time that a global coalition of aluminum producers has called for such an effort to address Chinese overcapacity in the marketplace. In addition, earlier last month, The Aluminum Association (a trade organization that represents North American producers) filed a petition seeking anti-dumping duties on aluminum foil.

China Hongqiao in Trouble

The world’s biggest aluminum smelter was recently suspended from the Hong Kong Stock Exchange as the company is being forced to defend itself against allegations that it has inflated its profit.

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As my colleague Stuart Burns explains, part of the problem seems to be how China Hongqiao has been reporting its profits and handling internal transfer pricing. Like many of the new breed of Chinese aluminum producers, China Hongqiao has captive power production but, since 2010, the firms profit margins have diverged from most of its peers, maintaining in excess of an 8% margin even when many of its domestic competitors fell into periods of loss.

Even during periods when the coal price rose the reported cost of power produced by China Hongqiao dropped suggesting the firm was trapping profits in the smelting division while hiding losses in power generation. Likewise it has been suggested that China Hongqiao has declared transfer prices from its alumina production division roughly 20% below those of similar companies operating in the same provinces.

Ernst & Young will announce the results of the audit next month. Not just investors but the whole aluminum industry will be keen for a a peek behind-the-scenes into the sometimes murky world of Chinese aluminum producers. Proof of bad reporting would add more tensions to the global aluminum market.

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Our Raw Steels Index rose 4.3% in March. Steel prices in the U.S. resumed their upward trend, with products like cold-rolled coil hitting a five-year high. However, not everything was bullish in March. Prices in China fell sharply. Let’s look into this U.S.-China price divergence:

Trump’s Rally

U.S. steel prices have been on a joyride since Donald Trump won the U.S. presidential election. Markets’ reaction to the election results wasn’t really surprising given the president’s stance on curbing imports and boosting domestic infrastructure.

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The Trump effect wasn’t the only factor driving this rally but it definitely helped prices to accelerate. However, markets now wonder if Trump can deliver what he pledged.

Raw Steels MMI

In March, officials said an executive order approving two pipeline projects and mandating the use of American-made steel won’t apply to the construction of the Keystone XL oil pipeline, contradicting prior statements by Trump that it would. A spokesperson for the administration said Keystone XL was grandfathered even though almost all of it has yet to even begin pre-construction.

In addition, Trump has so far failed to get his healthcare bill through Congress. After the healthcare failure, markets now question if Trump will get Congress to approve spending of large sums on the infrastructure sector, too.

China’s Prices Fall

In our view, falling Chinese steel prices are a bigger risk for U.S. steelmakers compared to the concerns over President Trump’s proposed infrastructure investments. Currently, China isn’t a major exporter to the U.S., but Chinese steel prices impact steel prices all over the world, as they put a floor under international steel prices.

Chinese hot-rolled coil (HRC) prices have fallen almost 15% since their February 2017 highs. March’s divergence has made U.S. prices expensive again relative to Chinese prices. In the case of cold-rolled coil, the price spread has now widened to $350 per ton, which is high compared to historical levels.

The conclusion is that for this rally in U.S. steel prices to continue, we would need to see rising prices in China as well. This is something we’ll be monitoring closely in the next few weeks. The biggest risk for the U.S. steel industry could be a further slide in Chinese steel prices. Even infrastructure spending may not be of much help in that case.

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U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam. Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

Industry consultant Autodata put industry Seasonally Adjusted Annual Rate at 16.62 million cars, trucks and SUVs for March.

That was below the 17.3 million analysts polled by Reuters had expected, and the first time since August that the SAAR – a crucial industry metric – had fallen below 17 million.

General Motors had the best month, reporting a 2% increase in sales to just over 256,000 vehicles, with sales of its Tahoe and Suburban SUV models seeing their best sales month since 2008.

Sales at Ford Motor Co. fell the aforementioned 7+% to 236,000 vehicles, with fleet sales to rental agencies, businesses and government entities down nearly 17% on the year. Sales of Ford’s F-Series pickup trucks rose 10% but that simply could not offset the losses elsewhere. Sales at Fiat-Chrysler Automobiles fell 5% in March. Automotive sales in the U.S. risen since end of the 2008 recession and hit a record last year of 17.55 million last year. Toyota Motor Corp. and Honda Motor Co. reported smaller losses.

The fall in new car sales is even more curious considering that consumer confidence is at its highest level since 2000. Could the level of vehicle replacement that had driven sales since 2008 finally be falling? Vehicle inventories at dealerships have risen to the highest point since 2004, according to Edmunds.com.

If auto sales have, indeed, plateaued, then prices for automotive steel and aluminum could as well, at least in the expansive U.S. market. Our Automotive MMI remained flat this month at 88.

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