Articles in Category: MetalMiner IndX

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.

FREE REPORT: How Circumvention Impacts Both Downstream, Value-Added Manufacturing

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.

Read more

Our Copper MMI fell by two points in April, dragged down by a sell-off in industrial metals. In addition, supply concerns have eased as strikes at some mines ended.

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The strike at Escondida in Chile, the world’s largest copper mine, ended in late March. Soon after, a 18-day strike at the Cerro Verde mine in Peru also came to an end. A new strike at the mining company Southern Copper Corp. in Peru took place in April, but it lasted only two weeks, leaving no significant effect on production.

Meanwhile, Freeport McMoRan finally obtained a permit to export material from its Grasberg mine, the second largest copper mine in the world. The new permit will allow the company to export 1.1 million tons of copper concentrate through February of next year.

However, Freeport now has a new problem on its hands. Workers have threatened a one-month strike starting in May. The company had laid off about 10% of its workers, saying that there may be more layoffs in the future to stem losses. Moreover, the company is still confronting Indonesia over rights to the mine. With this problematic combination of protests from workers and tensions with the Indonesian government, it’s no wonder that investors are concerned about further supply disruptions this year.

What This Means For Metal Buyers

Although supply disruptions eased in March and April, there is overall plenty of potential for further disruptions this year. Prices took a dip in April, but that seems to be a normal price action given that most industrial metals fell in the same month.

Free Sample Report: Our Annual Metal Buying Outlook

After a spectacular rally in Q4 of last year, prices are now consolidating in the price range of $5,500-$6,100/mt. Bulls seems still in control but they probably need another bullish development to chase prices above this price range. That development could come in the for of additional supply disruptions this year. We will be watching closely the developments at the Grasberg mine in the coming week in addition to the several mines that have contract negotiations due to this year.

Actual Copper Prices and Trends

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Here’s What Happened

  • The Automotive MMI, our sub-index of industrial metals and materials used by the automotive sector, dropped by one point for a May reading of 8, a 1.1% drop.
  • This is the third straight month of declines for this index. Back in February 2017, the Automotive MMI hit 92 — its highest level since November 2014. But now, flagging HDG steel, copper and shredded scrap prices are dragging on the rest of the index.

What’s Going On in the Background?

  • The U.S. auto market is officially slowing. Car sales dropped 4.7% to 1.43 million units, according to Autodata Corp. That is a bigger drop than forecasted by both Edmunds and Kelly Blue Book, according to several news outlets.
  • Meanwhile in China, the first quarter of 2017 saw a 7% overall increase in car sales. As we reported in our Monthly Metal Buying Outlook (free trial here), that was the strongest showing since 2014. The Chinese government has extended tax cuts for small vehicles, which should keep citizens buying cars through the year.

What Metal Buyers Should Look Out For

  • Many factors coming down the line — including increased construction projects in China — portend longer-term support for key automotive constituent metals such as HDG steel.
  • Even though HDG has slipped a bit this month, prices for that metal form in China could see room for improvement.

Key Price Movers and Shakers

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Our Raw Steels MMI fell seven points* due to the slump in China’s steel prices in April.

Raw Steels MMI

(*Note: We changed one of the data elements of our index to map the underlying market more effectively. That change contributed to a lower number this month.)

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Since their peak in February, China’s steel prices have fallen by more than 20%, while U.S. prices have continued to climb. But guess what, things changed towards the end of April. Prices in China started to recover (see how we predicted that) while U.S. prices fell (yes, we predicted that too). In this post, I’ll analyze what this price divergence means and how you — assuming you buy or invest in steel — can take advantage of it.

China HRC price. Source:MetalMiner IndX

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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.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

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.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

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.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

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.

Two-Month Trial: Metal Buying Outlook

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.

Two-Month Trial: Metal Buying Outlook

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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