This morning in metals news: privately owned housing starts in the U.S. ticked up by 5.8%, according to the Census Bureau; new COVID-19 lockdown restrictions are impacting China’s major steel-producing region; and the primary aluminum market posted a surplus through the first 11 months of 2020.
This morning in metals news: the U.S. steel sector’s capacity utilization rate hit 76.7% last week; the London Metal Exchange has proposed permanently closing its iconic Ring trading floor; and the copper price has trended flat over the past week.
Steel capacity utilization reaches 76.7%
The U.S. steel sector’s capacity utilization rate hit 76.7% for the week ending Jan. 16, the American Iron and Steel Institute reported.
Production during the week totaled 1.74 million net tons, up 1.7% from the previous week. The total, however, marked an 8.8% year-over-year decline.
China has had a fraction of the deaths and hospitalizations from the COVID-19 pandemic that Western societies have had. Furthermore, China had an economic bounceback that saw its GDP rise 2.3% last year.
The rebound has been impressive.
Construction of new high-speed train lines to smaller provincial cities and new motorways connecting remote cities left behind in previous plans in part drove the recovery.
The housing sector has also boomed. Overseas demand has boosted manufacturing, particularly PPE and electronic goods, even as other exporters have suffered by lockdowns in those markets.
In the longer term, further debt and a swing back to manufacturing from the earlier pivot to consumption will not do the economy or China any good.
For now, however, the economy is humming. Tailwinds from both stimulus and pent-up savings should keep the economy growing strongly in the first half of 2021.
This morning in metals news: Rio Tinto’s iron ore shipments rose 2% year over year in Q4 2020; the Energy Information Administration forecast 2021 will see less power generation from natural gas this year; after rising during the first week of 2021, the LME three-month aluminum price has since been sliding.
Before we head into the weekend, let’s take a quick look back at the week that was and the metals storylines here on MetalMiner, including the release of the January 2021 MMI, a look at what might happen to the iron ore price and much more.
Inauguration Day draws near for President-elect Joe Biden, leaving metals industry groups to wonder what happens next for President Donald Trump’s signature metals policy: Section 232 tariffs on steel and aluminum imports. Whether Biden ultimately chooses to maintain those measures or do away with them remains to be seen, but metals watchers will be eyeing those developments closely.
As for metals prices, some price gains slowed down amid the festive season, but some have resumed their upward ascent in early 2021. Copper, for example, crossed the $8,100 per metric ton threshold earlier this month.
The Stainless Monthly Metals Index (MMI) increased by 6.0% this month, as ATI issued a major announcement and China ups its stainless imports from Indonesia.
ATI exits stainless steel commodity market products
Allegheny Technologies Incorporated (ATI) announced Dec. 2 that the company would exit the standard stainless sheet product market. The move reduces availability of standard 36″ and 48″ wide material.
The announcement comes as part of the company’s new business strategy. ATI will focus on investing in enhanced capabilities on higher-margin products, primarily in the aerospace and defense industries.
ATI’s departure from the stainless steel commodity portion of the market also leaves a gap for 201 series materials, which is why 201 base prices will see bigger increases than 300 or 430 series materials. Both NAS and Outokumpu announced a 201 base price increase amounting to approximately $0.0500/lb.
The Copper Monthly Metals Index (MMI) increased 3.3% this month, as copper producers have faced challenges that are impacting supply.
After a slow December, copper prices continued to increase the first week of January. Prices surpassed the $8,000/mt mark.
However, copper prices remain volatile. As the pandemic continues to develop, the U.S. dollar remains around 90, future demand is uncertain and supply is strained.
Supply constraints from copper producers
Major copper producers are experiencing supply constraints.
On Christmas Eve, MMG declared force majeure on its Las Bambas copper mine in Peru as the local community continued to block a nearby road in protest, making it impossible for the company to transport its concentrate to the port to be shipped. The blockage started Dec. 12, but production continued.
Las Bambas represents approximately 2% of global copper production.
Meanwhile, on Jan. 4 the Mongolian Government informed Rio Tinto — through the miner’s partly-owned subsidiary Turquoise HillResources — that if the Oyu Tolgoi underground expansion did not prove to be more profitable, it would terminate their 2015 agreement on fiscal terms.
The expansion would make Oyu Tolgoi the fourth-largest mine in the world by 2030. As such, a shutdown would represent a significant supply disruption.
Large disruptions mean supply constraints, which in the long term support prices even more.
Members of the China Smelters Purchase Team (CSPT) lowered treatment and refining charges to $53 per tonne and 5.3 cents per pound for the first quarter of 2021. These charges represented a 8.6% cut compared to the previous quarter.
Similarly, the annual TC/RC benchmark, set by Chinese smelters and Freeport-McMoRan, declined for the sixth consecutive year. The benchmark settled in at $59.50 a tonne and 5.95 cents per pound.
The TC/RC declines come as no surprise.
Mine supply remains tight (as mentioned above). Furthermore, smelting capacity continues to increase, particularly in China. This mix forced smelters to accept lower charges in order to secure raw material.
TC/RCs are a good indicator of raw material available in the market. When primary material is widely available, TCs go up. Meanwhile, when primary material is scarce, smelters lower their TCs. This can affect market sentiment and, ultimately, the price.
This morning in metals news: Turquoise Hill Resources offered an update on the Oyu Tolgoi copper mine expansion project; renewable power generation will continue to rise this year in the U.S.; and the aluminum price has traded sideways over the last month.
The fate of the Oyu Tolgoi copper mine expansion project is up in the air, as it could face termination from the Mongolian government.
Turquoise Hill Resources, which is majority-owned by miner Rio Tinto, jointly owns the massive project with the Mongolian government. The parties reached a financing plan for the project in 2015.
However, the Mongolian government appears to be concerned about runaway costs for the project.
“In addition, the Government of Mongolia has advised Rio Tinto that it is dissatisfied with the results of the Definitive Estimate, which was completed and delivered by Rio Tinto and publicly announced by the Company on December 18, 2020, and is concerned that the significant increase in the development costs of the Oyu Tolgoi project has eroded the economic benefits it anticipated to receive therefrom,” Turquoise Hill said in a statement. “The Government of Mongolia has indicated that if the Oyu Tolgoi project is not economically beneficial to the country, it would be necessary to review and evaluate whether it can proceed.”
“According to the U.S. Energy Information Administration’s (EIA) latest inventory of electricity generators, developers and power plant owners plan for 39.7 gigawatts (GW) of new electricity generating capacity to start commercial operation in 2021,” the EIA reported. “Solar will account for the largest share of new capacity at 39%, followed by wind at 31%. About 3% of the new capacity will come from the new nuclear reactor at the Vogtle power plant in Georgia.”
Aluminum trends flat
After surging throughout most of the second half of 2020, the aluminum price has slowed down of late.
The LME three-month aluminum price is up just 0.22% over the last month. The price closed Friday at $2,032 per metric ton.
On Dec. 23, 2020, the U.S. Department of Commerce announced the creation of the Aluminum Import Monitoring and Analysis (AIM) system.
The system, similar to the Steel Import Monitoring and Analysis (SIMA) system, will collect and publish data on aluminum imports into the U.S.
The system will allow users to track trade flows more easily to help spot trends earlier and to provide better guidance to the domestic industry and government. Likewise, better data collection and its analysis should allow domestic producers to compete on a level playing field.
The system is expected to be available on Jan. 25, 2021.
LME aluminum changes
The London Metal Exchange announced its intention to move forward with its sustainability strategy after receiving market feedback. Part of the strategy will include a spot trading platform for price research and trading of low-carbon aluminum for interested buyers and sellers.
As part of this strategy, the LMEpassport, a digital credential register, will be launched to allow greater visibility of carbon sustainability criteria.
The LME will implement it gradually over three years across its physically settled metals requiring Certificates of Analysis (CoAs) and other value-add information to facilitate disclosure under existing standards across metal brands. The service will start in 2021 and will initially focus on aluminum.
This morning in metals news: Ford Motor Co. and Mahindra announced the mutual decision to end joint venture talks; the Energy Information Administration released its quarterly coal report; and, finally, the zinc price has retraced.
A previously announced joint venture between Ford Motor Co. and Mahindra will not be going through, the companies announced recently.
The two companies had reached a deal back in October 2019, with a long-term expiration date of Dec. 31, 2020.
“According to the companies, the outcome was driven by fundamental changes in global economic and business conditions – caused, in part, by the global pandemic – over the past 15 months,” Ford said in a prepared statement. “Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities.”
Meanwhile, Ford said its independent operations in India will continue “as is.”