Articles in Category: Non-ferrous Metals

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Before we dive into the weekend, let’s take a look back at the week in metals news:

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  • Our Stuart Burns started out the week with a piece on confirmation bias and how those in the media and metal-buying communities can sometimes let bias affect their interpretation of data.
  • What’s the diagnosis for the ailing U.K. steel industry? According to Burns, it’s a product of a lack of government support and global oversupply. A recent report showed that the U.K. steel industry has declined in monetary output value by 30% from 1990 to 2013.
  • In case you missed it, our July MMI report has long been in the books. You can download it here.
  • What did the recent G20 summit in Germany mean for India? Our Sohrab Darabshaw touched on the subject this week.
  • What’s up with oil prices? Unsurprisingly, as with the metal markets, prices are so low because there is just so much of the stuff out there. Burns dug deeper into oil price trends in a piece earlier this week.
  • What’s a Section 332? In short, it’s a fact-finding investigation by the United States International Trade Commission, which recently conducted a large-scale look into the competitive factors affecting the U.S. aluminum industry.
  • Another big story, the ongoing debate regarding a potential renegotiation of NAFTA, got an update this week when it was announced that the U.S., Canada and Mexico will come together for talks beginning Aug. 16.

Free Download: The July 2017 MMI Report

The Trump administration’s Section 232 investigations have been getting all the headlines — but let’s not forget about Section 332.

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Earlier this month, the House Ways and Means Committee released the United States International Trade Commission’s (USITC) Section 332 investigation into the competitive factors affecting the U.S. aluminum industry. (A Section 332 entails a fact-finding investigation “on any matter involving tariffs or international trade, including conditions of competition between U.S. and foreign industries.”)

The lengthy report, which checks in at just over 600 pages, details the major competitive forces at play in the global aluminum market and how those forces impact the U.S. aluminum industry. Unlike its Section 232 counterpart, the 332 report — which focuses on 2011-2015 — predates the Trump administration. The Ways and Means Committee requested the report from the USITC in February 2016.

The report offers a sweeping, macroscopic view of the U.S. aluminum industry and the global picture, too. Like the Department of Commerce’s 232 probe, China figured prominently in the findings of the USITC survey.

Among the key points in the report is China’s role as the principal driver of the aluminum market during the time frame assessed (2011-2015). During that time, China’s production skyrocketed, so  much so that it became the world’s largest aluminum producer and consumer, and ranked second behind the U.S. in secondary unwrought production.

Source: Compiled by USITC staff from CRU Group.

Aluminum associations from the U.S., Canada and the European Union praised the USITC report. In a joint release Monday, the Aluminum Association of the United States, the Aluminium Association of Canada and European Aluminium all praised the report for touching on the industry’s biggest buzzword today: oversupply.

“The study details the government-sponsored rise of Chinese aluminum production in the global market and the effect of Chinese oversupply on global prices, which fell roughly 30 percent during 2011–15,” the joint release said. “Chinese government intervention in the form of programs and subsidized loans for electricity has played a significant role in China’s aluminum expansion.”

The release also reiterated the associations’ desire to work with the Chinese government to reach a “negotiated agreement” that would “result in measurable and consequent reductions in Chinese aluminum capacity and/or growth.”

Among other findings, the USITC report noted government intervention is high worldwide  (and not just from China).

The study also found the chief determinant of competitiveness for primary aluminum producers to be electricity costs, while for secondary and wrought producers the determinants were reliable scrap supplies and proximity to end markets.

Unsurprisingly, however, the study also found that China proved to be the exception to the aforementioned expectations for competitiveness.

“Despite having a fairly new aluminum industry, relatively high electricity costs in many regions, and a less developed consumer economy than many other countries where the industry is important, China is the world’s leading aluminum producer,” the report states.

While the aluminum associations of the U.S., Canada and Europe submitted a joint statement in support of the report’s findings, the U.S. industry might have more at stake than anyone. Per the report, “U.S. primary production capacity shrank more than in any other large producing country.”

“A combination of factors, including relatively high electricity rates; limited investments in new technologies; and currency appreciation have all contributed to the United States’ loss of competitiveness in this segment in recent years,” the report goes on to state.

As such, it’s not surprising that the U.S. aluminum industry is looking to the Department of Commerce’s Section 232 investigation for relief. U.S. aluminum smelters dropped in number from 23 to five in the last two decades. Some good news did come out recently when Alcoa announced July 11 that it would be partially reopening an aluminum smelter near Evansville, Ind.

With a delay in the announcement of the Section 232 steel investigation, however, the 232 aluminum announcement will likely be pushed down the road, as well.

The Aluminum Association CEO and President Heidi Brock was clear in a letter to Secretary of Commerce Wilbur Ross regarding requests to exclude certain Chinese products from any hypothetical 232 trade remedies.

“… we respectfully request that the Commerce Department recommend actions to the President under Section 232 to address China’s massive and growing overcapacity, without allowing for broad exclusions (with the exception of aluminum powder, as addressed previously by the Aluminum Association), and while protecting existing trading relationships with Canada and Europe,” Brock wrote in the letter dated July 18.

The letter came in response to a request from the Can Manufacturers Institute (CMI), which asked Ross to exclude aluminum can sheets and aluminum ingot — used for beverage cans — from tariffs or other trade protections that could result from 232.

Free Download: The July 2017 MMI Report

It might be a while before the Section 232 aluminum probe comes to a conclusion and policy recommendations are drafted. Whatever happens, it will be interesting to watch the dynamic between primary and downstream producers, who approach this debate with very different business needs. Similarly, the CMI request is just one of its kind — there will surely be others. How will the administration deal with these requests? Will it allow industry sub-groups, like the beverage lobby, to carve out exceptions?

Or, will the hypothetical trade response include a blanket measure against all Chinese products, regardless of type?

That remains to be seen. What is still certain, however, is that many in the U.S. aluminum industry are looking for help from Section 232.

Whether they’ll get it also remains to be seen.

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This morning in metals news, the EU is planning to impose heavy duties on steel from several countries, copper is down on gains by the U.S. dollar and June was a good month for U.S. service center  shipments of steel and aluminum.

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EU Gets Defensive on Steel

In the world of trade measures, most eyes are on the U.S.’s Section 232 investigations into steel and aluminum imports. However, the U.S. is certainly not the only entity looking to protect its products.

The European Union plans to impose heavy duties on hot-rolled coil steel from Russia, Ukraine, Iran and Brazil, a measure to counter what it sees as unfairly low prices, Reuters reported Wednesday.

According to documents seen by Reuters, the EU plans on imposing duties of up to 33%. Just last month, the EU imposed duties of 35.9% on Chinese steel, according to the report.

Dollar Up, Copper Down

Copper had a strong start to the week, hitting its highest price since early May, but that optimism has started to temper.

Prices of the metals trended downward Wednesday after the U.S. dollar rose, Reuters reported.

The metal struggled to hold onto gains above $6,000, even with good news regarding Chinese demand, Danske Bank analyst Jens Pedersen told Reuters.

Steel, Aluminum Shipments Up in June

U.S. steel shipments were up in June, according to a Metals Service Center Institute report released Tuesday.

Shipments in June 2017 increased by 1.1% from June 2016. In addition, steel product inventories decreased 4.9% from June a year ago.

Free Download: The July 2017 MMI Report

Aluminum shipments were also up compared with the same month last year. Shipments of aluminum products increased by 10.3% from the same month in 2016. Inventories of aluminum products increased 0.2% from June a year ago.

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This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

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According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

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Aluminum prices have been in the spotlight since the beginning of the year.

Since June 2016, aluminum prices have risen. However, for the past three months, they have traded somewhat sideways.

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Source: MetalMiner analysis of fastmarkets.com data

From a technical perspective, aluminum prices are trading in what is called a wedge formation, with prices fluctuating between the two main blue lines drawn in the chart above. Because the top line descends from a previous uptrend, which characterizes a bull market, this movement could suggest a market top. By observing aluminum prices this month, the market will show us whether aluminum has reached the top of its bull run and will fall, or if it will continue to rise.

If prices fall below the bottom blue line, it will signal to us that a major trend reversal has started. We would also expect to see heavier trading volumes for any shifts in trend. If not, prices will likely continue to move in a sideways direction. This statements works for both the upper and lower limits.

These types of triangle trading patterns show us when to buy on the dips when prices appear in their lower limit. Aluminum has counted two buying dips since prices began to fluctuate in May and June. As prices fluctuate between the triangle limits, a potential third dip could appear if prices retrace to $1,865.

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What This Means for Industrial Buyers

Although industrial metals remain bullish, commodities have shown a recent downtrend revealing price weakness.

Buying organizations that need to make aluminum purchases would do well by monitoring aluminum prices closely and taking action if prices break move outside the blue lines, as discussed in detail in our Monthly Metal Buying Outlook.

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On Monday, our Irene Martinez Canorea wrote about copper prices, which have been on a bullish run. Today, Stuart Burns writes about investors’ copper positions. 

Reuters reported last week that the LME copper price reached a three-month high after a surprise rise in China’s Purchasing Managers Index (PMI).

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Investors jumped into copper after the official Chinese PMI rose for an 11th consecutive month, to 51.7 in June. Hedge funds and other investors increased long positions by 9,531 contracts to 58,816. Reuters reported that net long copper positions are now nearly double the 29,787 contracts reported back at the beginning of May and a dramatic reversal from the net short position of 47,109 contracts just a year ago.

The jump in the LME price was short-lived, dropping back as the dollar strengthened and LME data showed copper stocks gaining, but the Reuters report went on to question whether the current bullish run for copper is likely part of a longer-term recovery or a short-term case of overexuberance.

Although Chinese PMI numbers are not an exact measure of copper demand, they have been a good indicator over time. But after nearly 12 months of positive PMI numbers, many analysts are said to be expecting weaker readings in the second half of the year.

Chinese stimulus measures have boosted growth for longer than most had expected, but cracks are beginning to show in the housing market and Beijing’s tightening of credit is impacting small- to medium-size enterprises. The performance of those enterprises are not reflected in the official PMI figures, which are focused more on the large corporate sector.

Smaller businesses are measured by the Caixin PMI, which fell to its lowest level this year in June and is now hovering around the break-even point between contraction and expansion.

With the impact of stimulus measures beginning to decline and global stocks of copper remaining plentiful, it’s hard to see a case for copper’s continued strength in the second half of the year, despite the bullish bets indicated by the increasing long positions.

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If Reuters’ analysis is correct, we can probably expect an easing of copper prices, if not during the summer then into the fall.

The Aluminum MMI dropped one point for our July reading, falling back to 87 after May and June saw the sub-index check in at 88.

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The sub-index has been in somewhat of a holding pattern since April, when President Donald Trump’s investigation announced it was opening investigations into steel and aluminum imports, invoking the little-used Section 232 of the Trade Expansion Act.

The Commerce Department held a public hearing June 22, during which industry executives offered their opinions on the challenges facing U.S. aluminum and whether protectionist actions should be taken. While primary manufacturers welcomed tariffs or quotas, downstream manufacturers weren’t as keen on the idea.

More recently, the International Trade Commission (ITC)  released its own report on the competitive conditions affecting the U.S. aluminum industry. The report’s executive summary zeroed in on five factors: the global aluminum industry is widely affected by government intervention through policies and programs that principally impact primary aluminum production costs; the chief determinants of competitiveness vary among industry segments; as of 2015, China was the world’s largest aluminum producer and consumer; competitiveness of the U.S. industry varied across segments; and the global aluminum market experienced price declines of roughly 30% during 2011–15 due to oversupply.

U.S. imports rose by 41% during the period from 2011–2016, to nearly 1.7 million metric tons, according to the ITC report. In terms of wrought aluminum imports, in 2016 the U.S. took in the most product from China (531,000 metric tons), with Canada coming in second (452,000 mt).

There was an uptick in optimism from the metals industry after the election of President Donald Trump, given his campaign promises regarding infrastructure building projects. Those campaign promises have yet to gain traction, and that initial excitement has leveled out — in short, many are in wait-and-see mode.

Per Section 232, the Commerce Secretary has 270 days to present the president with a report and recommendations. Many expect those investigation results to be announced sometime this month, although no official word has been given.

In an emailed statement Friday, Heidi Brock, president and CEO of The Aluminum Association, wrote: “Regarding the Section 232 investigation on aluminum imports and national security, we continue to engage the Administration and Capitol Hill to promote our three principles of 1) focus on the problem of Chinese subsidized aluminum overcapacity, 2) exempt Canadian imports and other foreign producers such as the European Union who trade fairly and have not contributed to rising global overcapacity, and 3) consider the effects of overcapacity on both primary and downstream producers.”

Actual Metal Prices

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The Copper MMI inched two points higher in July, driven by the recovery of the LME Copper 3-month price, which has been bounced off its previous lows and has increased by 4.98%. The copper MMI is back to April’s levels.

Analysis of supply and demand might suggest quite a bullish outlook for copper. Supply and demand has indeed driven copper prices in June.

During this past month, strikes have eased and production ramped up again. Even the strike at Freeport mine in Indonesia, the world’s second-largest copper mine, is set to continue and production will likely remain the same.

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On July 4, mining company Antofagasta announced it, too, might face a strike. This strike could impact two copper mines: Zaldivar and Centinela. The decision will be made at the end of this week. Chilean mining company Antofagasta Minerals is one of the largest global copper producers, with a combined annual production at both mines of 160,000 tons.

The International Copper Study Group (ICSG) has announced a possible supply deficit for this year. This is based on June’s released data on copper world mine production, which is estimated to have decreased by 3.5%, and world refined production, which is estimated to remain unchanged.

However, LME copper prices have started July with a five consecutive days of drops. Although June suggested a slight uptrend for copper, MetalMiner does not believe the uptrend is sustainable, as I reported in last Monday’s copper article

Source: MetalMiner analysis of FastMarkets

The LME copper price has not been able to break its psychological ceiling of $6,0000/metric ton. Moreover, recent weakness at the beginning of July, combined with poor trading volumes, suggests further weakness. Unless trading volumes shift, they are not supportive of copper prices.

The U.S. dollar and Chinese PMI indicators have historically shown correlation with copper prices. Even the U.S. dollar has shown a little uptrend during June, but its downtrend may continue, which would negatively impact copper prices. The short uptrend that has boosted copper prices during May and June has been caused by supply concerns.

U.S. Dollar. Source: MetalMiner analysis of StockCharts

The Chinese Manufacturing PMI rose unexpectedly to 50.4 in June. But this small increase may just be a blip. Current sentiment suggests Chinese demand may once again fall, as authorities are still working to curb financial risks.

In addition, the construction sector has fallen during the first quarter of 2017 by 83% (measured by value).  

What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point increase and the supply-and-demand narrative suggests a bullish outlook, we would like to see a stronger uptrend and increasing trading volumes to support a more bullish narrative.

Actual Copper Prices and Trends

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This morning in metals news, European steel association Eurofer predicted increased steel demand in its Monday forecast, but also sounded a cautionary note regarding the U.S. potentially imposing steel tariffs (as a product of the Department of Commerce’s Section 232 investigation); Norwegian metals company Norsk Hydro inks a $3.2 billion deal to buy a 50% stake in aluminum products maker Sapa; and LME copper stabilized Monday after U.S. jobs report news.

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Demand To Go Up … But Eurofer Wary of Section 232 Tariffs

Eurofer, the European steel association, offered a mix bag of news in its Monday steel forecast.

On the one hand, it predicted an uptick in demand for steel, according to Reuters. According to the report, the forecast predicts a 1.9% rise in apparent EU steel demand, to 159 million tons, up from a previously forecasted 1.3%.

On the other hand, Eurofer sounded a warning note regarding the potential for “market distortions,” including tariffs, like the ones the U.S. Commerce Department may impose on steel and aluminum imports at the conclusion of its Section 232 investigations.

“In particular, measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions,” Eurofer director general Axel Eggert said in a statement quoted by Reuters.

Norsk Hydro Buys Aluminum Products Maker Sapa

Norwegian metals firm Norsk Hydro, in a deal worth $3.2 billion, bought a 50% stake in aluminum products maker Sapa, Reuters reported Monday.

Norsk Hydro’s acquisition allows it to spread its business across the value chain — the Norwegian firm makes primary aluminum from scratch, while Sapa presses, cuts and shapes it, according to the report.

Sapa, which has 22,400 employees and in 2016 recorded sales of 53 billion crowns ($6.84 billion), has been jointly owned by Orkla and Hydro since 2013, according to Reuters.

LME Copper Steadies

Copper prices stabilized Monday after news of a solid U.S. jobs report inspired optimism in a U.S. economic recovery, Reuters reported Monday.

This follows June’s news of expansion in Chinese manufacturing, which also buoyed prices by virtue of increased demand for the metal.

Since late June, copper prices have been consolidating in the range of $5,800-$5,965, according to the report.

For more on copper, come back to check out Irene Martinez Canorea’s Copper MMI piece this afternoon, which will survey the month that was and market trends for the metal.

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Copper is commonly considered to be a proxy for the general economy by metal analysts — hence the name “Dr. Copper.”

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During this last year, both political and supply and demand concerns have driven LME copper prices up. Despite a small price dip in May, those prices continued to increase in June.

Source: MetalMiner analysis of FastMarkets

After Donald Trump won the presidential election, copper rallied and surpassed its previous psychological price ceiling of $6,000/metric ton.

However, copper has failed to continue that initial uptrend.

Although copper supply concerns during the first quarter helped sustain price momentum, these same supply concerns eased in April and slowed copper’s price rise.

Most copper analysts believe copper prices will likely increase on the basis of fundamentals like  supply and demand only. Alternatively, MetalMiner sees copper prices declining, not as a result of fundamentals, per se, but as a result of a rising U.S. dollar index (USD) and a falling commodities index (placing the historical inverse relationship between the USD index and commodities back in play).

Chinese demand has improved during June, and, consequently, prices increased this month. However, current economic indicators suggest this demand may fall, which would cause copper prices to slip.

Automotive sales within China have risen from April to May, which may have provided a short-term lift in copper prices. However, if analyzing automotive sales compared to last year’s data, sales have only held steady; therefore, we do not see a growing automotive sector or increased demand for copper and the subsequent lift in copper prices.

Free Download: The June 2017 MMI Report

It should come as no surprise then that even  “Dr. Copper” has reflected a price uptrend this June — but future prices may not be as bright as expected for copper traders.

Buying organizations will want to evaluate indicators this month and follow the detailed analysis in our monthly forecast reports.