Articles in Category: Non-ferrous Metals

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This morning in metals news, copper prices approached a 10-week high, trade tensions continue to rise between the U.S. and China, and an Australian coal miner boasts a $4.4 billion IPO.

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Copper Prices Hover Near 10-Week High

Even with trade tensions weighing on markets, copper prices reached nearly a 10-week high, according to Reuters, despite dropping on Monday.

The U.S. recently announced a new batch of tariffs on Chinese goods amounting to $200 billion, while China responded with $60 billion in tariffs on U.S. goods.

China Says U.S. is Acting Like a Trade Bully

As trade tensions took a big leap forward in recent weeks, China has accused the U.S. of trade bullying, according to a BBC report.

The U.S.’s $200 billion in tariffs and China’s retaliatory $60 billion in tariffs went into effect today.

Coal Miner Has $4.4B IPO

An Australian coal miner, Coronado Coal, boasted a $4.4 billion IPO listing, the highest since the mining boom, according to The Sydney Morning Herald.

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The company expects earnings before interest, taxes, depreciation and amortization (EBITDA) of $578 million for 2018, according to the report.

The aluminum market is facing much more uncertainty now than it was in February 2018 when Norsk Hydro agreed with Rio Tinto to buy the 205,000-ton-per-year capacity ISAL aluminum smelter, located in Hafnarfjörður, Iceland.

According to the Financial Times, that deal included the balance 53.3% share in the Aluchemie anode plant in the Netherlands that Hydro does not own and a 50% share in the aluminum fluoride plant in Sweden, from Rio Tinto.

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The transaction to acquire Rio’s last remaining aluminum assets in Europe was initially expected to be finalized in the second quarter of 2018 following the surprise agreement by Rio to sell its aluminum Dunkerque smelter in France to Liberty House for U.S. $500 million in June.

The announcement of sanctions on Oleg Deripaska in April this year — and by extension En+ and Rusal, the largest aluminum producer outside of China — has cast some doubts on alumina supplies for European smelters, as Rio sources some of the alumina for its ISAL plant from the Russian company’s Aughinish refinery in Ireland.

But Rio seemed quite confident it could source alumina from elsewhere and Norsk Hydro certainly has enough alumina supply options around the world that raw material supply should not be a major issue.

No, the main reason the firm pulled out seems to be the initial feedback from the E.U. competitions authority, which was raising concerns about market domination reducing competition in Europe if the deal had gone through.

Norsk Hydro makes around 2.1 million tons of primary aluminum a year and ISAL would further consolidate its position as the largest primary supplier in the European market. However, competition authorities may still have had one eye on the Rusal situation.

If, as some are now beginning to question, the sanctions are not lifted in October when the current extension expires, primary metal supply will become very tight in Europe again.

Rusal produced some 3.7 million tons last year according to its annual accounts. While a proportion is consumed domestically, some 0.9 million tons, a significant percentage is exported to the European market, usually under annual supply agreements. If that tonnage is denied the European market due to sanctions, competitions authorities may worry the remaining suppliers will have too much influence to ensure an open and competitive marketplace.

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Fortunately, Rio is making good profits out of its aluminum business, the Financial Times reports — some U.S. $1.58 billion last year — so it is hardly desperate for a sale.

Still, investors were not heartened by the news. Rio’s share price dropped $0.14 on the news, down nearly 16% from its 2018 high of $86.75 in May of this year.

In September, the Copper Monthly Metals Index (MMI) fell again by four points. The Copper MMI has continued to slide, mainly driven by weaker LME copper prices in August. The current Copper MMI stands at 73 points.

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The recent Copper MMI hit July 2017 levels, when prices breached the $5,980/mt then-resistance level and started to skyrocket.

Source: MetalMiner analysis of Fastmarkets

Copper pricing has been sliding, driven by concerns about a Chinese economic slowdown. However, fundamentals indicate the metal will remain in a deficit. Stock levels have decreased on the major exchanges.

Supply issues have eased in most Chilean mines. Workers at the Chilean Escondida mine signed a new labor agreement after the government mediated  the conflict. However, workers at the Caserones mine remains on strike.

Meanwhile, copper production at Codelco, Chile’s state-owned mine, increased 2% in the first six months of 2018 to 813,000 tons.

Russia seems to have moved toward developing the base metal, too. Construction has just started at the biggest undeveloped copper deposit in Russia. Udokan serves as the largest undeveloped copper deposit in Russia, with 26.7 million tons of copper (it is also one of the biggest in the world).

However, copper faces one large problem. Smelting capacity continues to grow, but the base metal availability has moved moved toward a larger deficit. Therefore, buying organizations may see decreasing treatment and refining charges next year.

Chinese Scrap Copper

LME copper prices and Chinese copper scrap prices tend to follow the same trend. Both appear to be in a long-term uptrend.

However, both LME copper and scrap copper prices fell again this month. So far in September, copper scrap prices have fallen less than LME copper prices. The spread has tightened again (the wider the spread, the higher the copper scrap consumption and, therefore, the price).

Source: MetalMiner data from MetalMiner IndX(™)

Copper scrap has come into the line of fire of the new 25% tariff imposed by China. The tariff went into effect Aug. 23. The new levies imposed by China on $16 billion of U.S. goods include U.S. scrap metals, waste paper and plastic cargoes.

In Q1 of this year, China imported 132,000 metric tons of copper scrap. The U.S. serves as the second-largest supplier of copper scrap to China, just behind Hong Kong.

What This Means for Industrial Buyers

Despite the recent dip, LME copper prices still remain strong. Buying organizations will want to understand how to react to the latest copper price movements. Adapting the right buying strategy becomes crucial to reduce risks. Only the MetalMiner monthly outlooks provide a continually updated snapshot of the market from which buying organizations can determine when and how much to buy of the underlying metal.

Click here for more info on how to mitigate price risk year-round and request your free trial to our Monthly Metal Buying Outlook.

Actual Copper Prices and Trends

In August, most of the prices comprising the Copper MMI basket decreased.

LME copper fell again, dropping 6.21% month over month as of Sept. 1. Indian copper prices decreased by 5.9%, while Chinese primary copper prices fell by 4.8%.

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Prices of U.S. copper producer grades 110 and 122 fell by 6.42%. Meanwhile, the price of U.S. copper producer grade 102 fell by 6.10%, down to $3.54/pound.

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This morning in metals news, prices of steel and raw materials in China are slumping, India is eyeing the No. 2 spot in the list of top global crude steel producers and copper jumps as the euro rises.

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Prices Drop in China

Prices of steel and raw materials in China have continued to decline, all the way down to multiweek lows, according to a Reuters report.

The tumble comes as Beijing considers output curbs, according to the report.

India Wants No. 2 Steel Producer Spot

India has aspirations to climb the global steel producer list, moving to No. 2, according to the Economic Times.

According to the report, the Indian government’s National Steel Policy 2017 set a goal for 2030 of 300 million tons of steel production per year.

Copper, Euro Rise

The copper price rose Tuesday in tandem with a rising euro, Reuters reported.

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LME three-month copper jumped 0.7%, while the most-traded copper contract on the SHFE moved up 0.5%.

As the Oct. 23 deadline approaches, the aluminum market is taking no risks on continued supply from Russia’s Rusal, Reuters reports.

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The industry traditionally gets together in Berlin this week to negotiate annual supply contracts for 2019 with billet makers, rolling mills and casting plants rubbing shoulders at a conference known, as Reuters notes, as the “mating season” … except one stag in the herd has been shut out.

European customers will avoid 2019 supply deals with Rusal. “We can’t agree a deal with Rusal on the basis that sanctions will be lifted by Oct. 23,” a Rusal customer in Europe is quoted by Reuters as saying, adding “Anyone that has a relationship with Rusal will be preparing for the sanctions to remain in place for now.”

The aluminum market has so far been relaxed about the fallout from Rusal being placed under sanctions at the beginning of April once a stay of execution was granted later in the month. The expectation has been the sanctions would be lifted in October.

But over the last week or two, doubts are being raised and the fear factor is dissuading buyers from taking the risk.

This is no small issue for the industry, although the market has since had time to adjust to the idea. The reality is the aluminum supply market is in deficit and Rusal still contributes some 6% of global supplies.

Even if sanctions are somehow avoided next month, Rusal will be without its normal quota of annual supply contracts, forcing it to sell on the spot market. Reuters suggests this will contribute to volatility next year, even if the market can access all the metal it needs.

But if Oleg Deripaska fails to sufficiently distance himself from Rusal and En+, such that sanctions are applied as currently expected, expect physical delivery premiums in Europe to rise again and for considerable disruption to the supply market next year. You cannot take nearly 4 million tons a year of metal out of an already tight market and not expect there to be casualties.

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The industry’s calm over the summer is going to be tested in coming weeks as the deadline approaches. Even if sanctions are avoided, the result of Rusal being left with only a spot market next year will in itself contribute to volatility buyers could do without.

The September Aluminum Monthly Metals Index (MMI) traded sideways this month. The Aluminum MMI index stands at 95 points.

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LME aluminum prices increased in August. However, so far in September, prices have fallen. Aluminum prices are in a sideways trend within the $1970-$2170/mt band.

Source: MetalMiner analysis of FastMarkets

Buying organizations may want to remember that the $1,970/mt level has served as a strong support level (or floor) since August 2017.

During 2017 and 2018, aluminum prices fell two times  toward that support level and rebounded from it. Aluminum prices decreased in December and April.

Therefore, buying organizations may want to follow closely how aluminum prices react to that level.

Global Aluminum

Mexico launched an anti-dumping probe against Chinese aluminum foil makers after reaching a new NAFTA deal with the U.S.  Mexico and the U.S. reached a new NAFTA agreement on Aug. 27. The U.S. and Mexico agreed to increase regional automotive content to 75% from the current 62.5% in NAFTA. The deal will be reviewed after six years. As stated by the USTR, duty-free access for agricultural products remains in place.

Meanwhile, Japanese aluminum premium offers have fallen by around 13-15% from last quarter. Current pricing indicates Japanese aluminum premiums of between $112-$115/mt. Premiums represent the regional logistical costs of moving metal from the producer to the regional exchange. (it is a cost borne by the consumer). Japan is Asia’s biggest aluminum importer.

SHFE Aluminum

Chinese SHFE aluminum prices increased in August, following the LME aluminum trend.

So far in September, prices have retraced slightly. As with LME prices, the SHFE long-term trend has become a mostly sideways trend.

Source: MetalMiner analysis of FastMarkets

U.S. Domestic Aluminum

As a result of the ongoing uncertainty in the aluminum market, U.S. Midwest aluminum premiums have skyrocketed this year.

However, the U.S. Midwest premium has fallen for the second consecutive month. The premium currently stands at $0.19/pound.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Despite the recent downtrend, the LME aluminum price trend suggests a continuation of the bull market that started last year.

Tariffs, sanctions and supply concerns will act as supports to aluminum prices, both for LME aluminum and the U.S. Midwest premium. Adapting the right buying strategy becomes crucial to reducing risks. Only the MetalMiner monthly outlooks provide a continually updated snapshot of the market from which buying organizations can determine when and how much to buy of the underlying metal.

Click here for more information from our Monthly Metal Buying Outlook on how to mitigate price risk year-round.

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Actual Aluminum Prices and Trends

LME aluminum prices increased this past month, with a closing price in August of $2,118/mt.

Meanwhile, Korean Commercial 1050 sheet fell by 3.6%, following last month’s downtrend.

Chinese aluminum primary cash prices increased by 1.12%, while Chinese aluminum bar increased by 5.03%. Chinese aluminum billet prices also decreased 5.26% this month, falling to $2,313/mt.

The Indian primary cash price fell by 0.48% to $2.06/kilogram.

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Following Russia’s military intervention in Ukraine in February 2014 — the Ukrainian crisis, as it became known as — a number of countries imposed sanctions on Russia led by the United States and Europe, but supported by many others like Canada, Australia and Japan.

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The impact on Russia’s economy was significant, but by early 2016 many countries, even within the previously united E.U., were calling for sanctions to be lifted (or at least revised).

By that stage, the Russian economy had recovered from the initial shock and, despite the restrictions, was doing rather well.

But this time last year, it all began to go downhill (again, this despite a very pro-Putin president being in the White House).

Initiated by President Barack Obama, Congress passed the Countering America’s Adversaries Through Sanctions Act, which imposed new sanctions on Russia for interference in the 2016 elections and its involvement in Ukraine and Syria.

Then, in March of this year, President Donald Trump imposed financial sanctions under the Act on the 13 Russian government hackers and front organizations that had been indicted by Mueller’s investigation into Russian interference in the 2016 U.S. elections.

This was followed in April by further economic sanctions on seven Russian oligarchs and 12 companies under their control. Among these was Oleg Deripaska, a move that sent such severe shock waves through the aluminum market that the administration hastily backpedaled and gave a stay of imposition until October “to allow the market to adjust.”

Many expected a permanent exception to be made for Rusal or for some fudge of ownership to be manufactured such that Deripaska was no longer deemed to be the controlling entity in holding company En+ or Rusal.

But as the date looms ever closer, questions are being raised about whether this will be how it plays out in practice.

More, rather than fewer, sanctions keep getting added to the list. A recent Economist article reports that in August alone, the U.S. has: slapped penalties on Russian shipping firms accused of trading oil with North Korea; imposed restrictions on the arms trade in connection with the poisoning of ex-Russian spy Sergei Skripal in Salisbury; and began congressional hearings on the two new pieces of legislation designed to punish Russia for its interference in elections.

The Economist report goes on to say the greatest threat to Russia’s economy comes from two proposed bills: the Defending Elections from Threats by Establishing Redlines Act of 2018 (DETER) and the Defending American Security from Kremlin Aggression Act (DASKA).

Sen. Lindsey Graham, one of DASKA’s six bipartisan co-sponsors, is quoted as saying it is the “sanctions bill from Hell.” When details of its contents made their way into the Russian press in early August, the rouble slid to two-year lows and the share prices of Russian state banks began falling, according to the Economist reported.

Source: Thomson Reuters

Russia has been taking active steps to mitigate the effects, funneling rising oil revenues into its National Welfare Fund and building up reserves.

However, despite a weaker rouble helping exporters, the economy is suffering.

The uncertainty around sanctions, their impact and the possibility of further measures is having a dire impact on inward investment. Compared with a year earlier, foreign direct investment fell by more than 50% in the first half of 2018, The Economist reported.

Coming as they do on top of the 10% U.S. import tariff on foreign-sourced aluminum, we will see considerable volatility and disruption to the aluminum markets this autumn if sanctions are applied to Deripaska, not to mention other oligarchs on the sanctions list. Shipments out of Russia for any metals – steel, aluminum, and other base and specialty metals – are already being severely delayed as banks scrabble to run compliance checks on the shareholdings and involvement of already sanctioned parties in those producers.

Delays of a month in paying bills normally processed in an hour are now common, which is disrupting supply chains and work flow. For the first time, the market is asking what will be the impact of a total ban on Russian metal supplies (never mind just Rusal’s aluminum).

Your supplier may not be Rusal, but your supplier’s supplier may be (or even his or her supplier’s supplier). The elevated conversion premiums we have seen this summer among European extruders is a reflection of this anxiety and will only get worse if further sanctions disruption ensues.

This uncertainty should be prompting all U.S. metal importers to explore the supply chain of their suppliers in order to understand the potential risks they face and, if necessary, take appropriate steps to safeguard supplies.

For those consumers thinking they only buy domestically and are therefore not affected — think again. You may be buying foreign made metal via a distributor and are potentially still exposed. Even if you are not, domestic prices will rise if there is any significant disruption to foreign supplies.

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As we saw with the 25% tariff on steel and 10% on aluminum, tariffs cause domestic producers to move swiftly to capitalize on competitors’ cost increases by raising their own prices.

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This morning in metals news, Argentina sets exports tariffs, LME copper drops and China’s biggest aluminum-producing city is getting set to roll out high-end aluminum projects.

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Argentina Slaps Exports with Tariffs

Argentina added export tariffs to all products, including steel, according to S&P Global Platts.

According to the report, the country’s steel exports to the U.S. in the year to date are down 11.9%.

Copper Falls

LME copper reached a nearly two-week low Tuesday, Reuters reported.

However, the metal stabilized, ultimately trading flat on Tuesday, according to the report, while SHFE copper fell 0.4%.

High-End Aluminum

The Chinese city of Binzhou, home to aluminum major China Hongqiao Group, is planning projects to encourage growth in high-end aluminum production, according to a Reuters report citing a local government document.

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One of the projects includes an aluminum alloy plant of 10,000 tons per year, according to the report.

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Like a sudden and overwhelming springtime rainstorm, aluminum prices, as many are no doubt aware, received a shock in April.

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On the news of U.S. sanctions targeting Russian companies and their owners — including Russian aluminum giant Rusal, the second-biggest aluminum producer in the world — prices spiked on fears of Rusal’s supply being pulled from the market.

LME aluminum shot up to $2,597.50 per ton on April 19, marking its highest point since late July 2011.

However, the U.S. Treasury announced an extension, allowing businesses until Oct. 23 to unwind their business activities with Rusal (among others).

As a result, the price has come steadily down since then.

Source: LME

Since that April peak, the price has dropped 22.2% as of Aug. 23.

Exemptions and Escalations

As we noted last week, Turkey has sought consultations with the U.S., via the WTO’s dispute settlement system, in response to the U.S.’s doubling of both the steel and aluminum tariffs against Turkey (bringing them to 50% and 20%, respectively).

Turkey has argued the escalation goes against provisions of the Agreement on Safeguards and the General Agreement on Tariffs and Trade (GATT) 1994.

Meanwhile, according to a Haaretz report, Israel has decided to drop its attempts to win an exemption from the U.S. aluminum tariff.

According to the report, countries that have so far won exemptions from the tariff were able to do so on the condition that they will limit their exports to the U.S., which goes against Israeli export policy.

Israeli aluminum exports are valued at $25 million annually, according to the report.

Companies on the Tariff Effect

Unsurprisingly, a number of U.S. companies have noted the effect of the tariff on their bottom lines.

According to USA Today, Coca-Cola cited the tariff as the basis for its decision to raise prices on its soft drinks.

“Clearly, it’s disruptive for us. It’s disruptive for our customers,” CEO James Quincey was quoted as saying during the company’s Q2 earnings call. “But I think the conversations have been about how is this going to work for each and every customer.”

Meanwhile, automakers have also cited the tariffs’ impact on their bottom line.

However, during its FY 2018 Q1 — the three-month period ending June 30 — earnings call in July, Nissan Corporate Vice President Joji Tagawa said the Section 232 tariffs had a limited impact during Q1; going forward, the impact will depend on how much the tariffs will continue, citing the uncertainty of the situation.

He added the company will be operating under the mindset of localization.

“Globally, we have been promoting localization,” said Tagawa, adding they would like to “pursue localization [and] increase local content.”

Commerce Secretary Visits Century Aluminum

Bolstering the domestic steel and aluminum industries, particularly in light of rising imports, has been a stated goal of the Trump administration even since launching a Section 232 investigation on the matter back in April 2017.

In this vein, U.S. Steel’s twin announcements this year regarding the restarting of blast furnaces at its steelworks in Granite City, Illinois, was touted as a victory for the administration.

On the aluminum side, Century Aluminum’s recent announcement that it would invest $150 million to double its output was also seized upon by the administration as a victory, an affirmation of its tariff strategy.

Secretary of Commerce Wilbur Ross visited the company’s plant in Hawesville, Kentucky, last Wednesday.

“And while U.S. production has steadily declined since 2000, China’s output of aluminum has increased by 1,390 percent, from 2.4 million metric tons in 2000 to a whopping 36.2 million metric tons in 2017,” Ross said during an event celebrating the restarting of a smelter. “China’s output last year was 49 times higher than U.S. production, and almost all of it was sub-standard, and subsidized — produced by state-owned enterprises.

“For the first time in decades, we are changing the trajectory of the industry. Many have painted our efforts to create a level playing field and ensure the continued viability of the aluminum industry as the starting of a trade war. But you have been engaged in this fight for a long time.”

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The company aims to return to 100% capacity by early next year and add 300 jobs in the process.