Articles in Category: MetalMiner IndX

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 still supports 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 Lopez as the head of that department. Further confirmation hearings are expected to take place in May.

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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.

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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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Editor’s note: We have restated the March Construction MMI to 80. An error in tabulation last month caused us to under-report it at 77. MetalMiner regrets the error.

U.S. developers opened up their wallets in February and construction spending increased to the highest level of spend in nearly 11 years, led by more building of homes, highways and schools.

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Our Construction MMI remained at its corrected score of 80 this month.

Construction MMI

Construction spending rose 0.8% to $1.19 trillion in February to the highest level since April 2006, after two months of declines, the Commerce Department said. New home sales remained strong despite a rather steady supply of newly constructed houses, apartments and condominiums coming onto the market.

Spending on new home building, as well as renovations, rose nearly 10% in the final three months of 2016, the most in a year.

The biggest move, though, came from government construction projects. State and local governments spent 0.9% more on construction, driven by roads, schools and recreational buildings.

The federal government actually cut construction spending for the second straight month and has cut back 9% from a year ago but that could soon change if an infrastructure plan emerges this year in Washington, D.C. President Donald Trump has pledged to boost infrastructure spending by $1 trillion over the next decade. Trump has focused on healthcare and now, apparently, tax reform.

Meanwhile, the Institute for Supply Management said its index of national factory activity fell to a reading of 57.2 last month from 57.7 in February, which was the highest since August 2014.

Any reading above 50 still indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy and construction materials such as steel framing and rebar are counted in ISM’s factory output numbers.

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17 Of the 18 manufacturing industries reported growth and no industry reported a contraction. Comments from factories were mostly upbeat, with machinery manufacturers saying that business was up 10 to 15%.

Optimism about relaxed regulation and the generally pro-business approach of the Trump administration still seems to be buoying both construction and consumer spending but if Trump cannot implement his agenda this optimism could quickly wane. An infrastructure plan that can make it through the Congress continues to be a necessary priority for metals manufacturers and the economy at large.

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Our March price trends report, which analyzes the entire month of February’s price data from the MetalMiner IndX, shows robust price increases in metals markets that are still running with the bulls.

March Price Trends

Our Stainless MMI led the pack, increasing 6.8%, but the copper, raw steels, aluminum and rare earths sub-indexes all showed strong gains, as well.

One area of concern this month is that oil prices have fallen back below $50 per barrel as U.S.
shale producers beat expectations by adding 8.2 million barrels to existing reserves. Low oil
prices would benefit metals producers by keeping energy and transportation costs lower, but
they also may drag down other commodities with them.

We don’t usually see investment metals such as platinum and gold increasing at the same time
as base metals, either, but positive sentiment about the economy had both increasing this month. So, until we see anything that points otherwise, a rising tide is still lifting all the (metals) boats.