Articles in Category: Non-ferrous Metals

This month the Aluminum Monthly Metals Index (MMI) remained flat for this month’s index value, as the SHFE aluminum price and its LME counterpart trended sideways this past month.

October 2020 Aluminum MMI chart

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SHFE, LME prices’ behavior

The SHFE aluminum price has traded sideways since mid-July. The price is averaging CNY 14,661/mt over the past three months.

By August, the LME aluminum price started to follow the sideways trend as well, averaging $1,777/mt since then.

However, the SHFE aluminum price continued to move higher than its LME counterpart.

Throughout September, SHFE prices were approximately $370/mt higher than the LME price.

The arbitrage continues to promote imports in China, making it a net importer for a second consecutive month in August. This trade flow indicates large demand for aluminum in the Chinese market, which is well on its way to economic recovery.

The current state of trade raises the question: how much longer can China continue to export semi-finished metal if its cost base is approximately $370/mt over the LME? Are mills selling at a loss (or are they subsidized)?

Tariffs against China

China accounts for approximately 55% of global aluminum production.

Despite it being a net importer for the past few months, China is still a huge exporter of aluminum downstream products. Chinese exports caused other large markets to contemplate restrictions on Chinese aluminum imports.

Currently, India is seeking to develop policies to protect its own domestic production. India’s first measure might require every importer to obtain a license from the government for every shipment. Even though the measure applies to exports from all origins, the Federation of Indian Mineral Industries pointed out most of the country’s imports come from China.

Meanwhile, the European Commission imposed provisional anti-dumping duties on aluminum products from China, with duties reaching as high as 48%. The Commission opened an investigation in February after it suspected China of dumping aluminum extrusions.

The director general of the European Aluminium Association said the duties were not only crucial for the survival of the domestic aluminum market but also for a greener regional economy.

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There is a looming crisis in the nickel market.

Some would argue it’s a good problem to have. Demand is set to rise on the back of increasing uptake of electric and hybrid vehicles through this decade. More and more governments will mandate the production of electric vehicles (EVs) over internal combustion engine (ICE) autos. In parts of Europe, there will be outright bans on new ICE vehicles inside 10 years.

However, if nickel supply becomes constrained, consumers are going to pay the price.

Nickel market numbers

It should be said that today the problem barely registers as a price lever.

According to a recent McKinsey report, the stainless steel industry consumers 74% of nickel produced today, dwarfing the 5-8% going into batteries.

But the type of nickel required for battery production is what makes supply so sensitive in the future.

As the report explains, there are two types of nickel. Class 1 predominantly comes from the concentration, smelting and refining of sulfide ores. Meanwhile, Class 2 comes from ores, called saprolites and limonites, with higher iron and other (for batteries) levels of contaminants, such as copper.

So, whereas the stainless steel industry, to a large extent, can use a mix of Class 1 and Class 2, the battery industry draws its raw material from just Class 1, representing a more restricted 46% of the nickel supply market.

Worse, after the all the focus on the cobalt market — with its environmental, social, and corporate governance (ESG) concerns from countries like the Democratic Republic of the Congo — major consumers like Tesla are keen to establish long-term supply arrangements with nickel producers in sustainable locations with more robust ESG standards.

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steel shipment

Hor/Adobe Stock

This morning in metals news: U.S. steel prices have made significant gains in recent weeks; exports of liquefied natural gas (LNG) from two key Louisiana export terminals have resumed after Hurricane Laura; the coronavirus pandemic has impacted tin production in Bolivia.

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U.S. steel prices rise

U.S. steel prices have posted significant gains of late. HRC, for example, closed Wednesday at $589 per short ton, up 17.33% month over month.

Meanwhile, the CRC price closed Wednesday at $775 per short ton, up 15.5% month over month.

Finally, U.S. HDG closed Wednesday at $850 per short ton, up 12.73% month over month.

LNG exports resume from terminals hit by Hurricane Laura

Among other impacts, Hurricane Laura disrupted activities at two LNG export terminals in Louisiana.

However, on the heels of the hurricane, the Sabine Pass terminal resumed exports Sept. 11, per the Energy Information Administration. Sabine Pass is the largest LNG export facility in the U.S.

However, the resumption of activity at Cameron terminal did not occur until Oct. 5 due to persisting infrastructural damage at the facility.

Furthermore, the next hurricane on the way could lead to further damage.

“Currently, Hurricane Delta, a Category 4 storm in the Gulf of Mexico, is expected to make landfall in Louisiana on Friday, October 9,” the EIA reported. “Depending on the path of Hurricane Delta, Cameron and Sabine Pass may take precautionary measures and temporarily suspend operations as they did before Hurricane Laura.”

Tin output in Bolivia

The coronavirus pandemic has impacted tin production in Bolivia, the International Tin Association (ITA) reported this week.

Tin concentrate production in the first quarter of the year fell 30% year over year.

In addition, coronavirus-related closures prevented production 2,600 tonnes of refined ton in Q2, the ITA estimated.

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alumina refinery line

Norsk Hydro’s Alunorte alumina refinery. Source: Norsk Hydro

This morning in metals news: global alumina production rose 2.7% year over year in August; China’s industrial profits fell through the first eight months of the year; and nickel prices have taken a dive over the last month.

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Global alumina production rises in August

Global alumina production in August reached 11,366 metric tons, the International Aluminum Institute reported.

Production of the aluminum raw material was about flat with the previous month. However, August production rose 2.7% year over year, up from 11,079 metric tons in August 2019.

Meanwhile, China’s alumina production totaled 5,910 metric tons in August.

Chinese industrial profits down 4.4%

Although China has bounced back economically in many respects, its industrial profits fell 4.4% during the first eight months of the year, the National Bureau of Statistics of China reported.

As for metals sectors, profit from the ferrous metal smelting and processing industry decreased by 23.1%. Nonferrous metal smelting and processing industry profits fell 5.6%. Non-metallic mineral products industry profits decreased by 3.8%.

Nickel price falls

After rising consistently since late March, the nickel price took a step back in September.

The LME three-month nickel price closed Monday at $14,405 per metric ton, or down 5.52% compared with a month ago.

The price surged as high as $15,671 per metric ton as of Sept. 2, the high for 2020. As for the 2020 low, the LME three-month zinc price dipped as low as $11,142 per metric ton March 23.

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aluminum ingot stacked for export

Olegs/Adobe Stock

Just the rumor that producers in the United Arab Emirates and Bahrain could win a Section 232 aluminum tariff exemption was enough to ease prices for U.S. consumers.

The Trump administration imposed the 10% tariff under Section 232 back in March 2018. Now, however, the removal ostensibly comes as a reward for the two Arab states establishing formal ties with Israel.

The benchmark U.S. Midwest physical delivery premium collapsed from $335 per ton in mid-September to $263 per metric ton on the back of the rumor, according to Reuters.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Section 232 tariff exemption for major producers

Both countries are significant aluminum producers and suppliers to the U.S. market.

Bahrain’s Alba mill produced more than 1.36 million tons of aluminum last year. The mill supplied 11%, or 150,000 metric tons of its output (mainly billets) to the U.S. market.

Of its sales last year, 44% were value-added products (or VAPs, as they are termed in the trade). Those products include rolling slab, billet, primary foundry alloy and wire rod.

Primary mills try to boost their output of VAPs over standard ingot because they earn higher returns, over and above the cost of manufacture. For their customers, VAPs avoid the need to remelt ingot and cast into those forms before they can consume the primary mill’s products, saving energy and, hence, costs.

Emirates Global Aluminium (EGA) sold a total of 2.60 million tons of cast metal in 2019, of which 87.4% was VAPs, according to Reuters. Although they declined to be specific, their U.S. value-add exports have been estimated at about 550,000 tons last year.

U.A.E., Bahrain producers could gain market share

The fall in the MW premium is good news for consumers. However, U.S. producers will not view it as positively, as they are already facing a significant resumption of Canadian imports.

Usually, when government grants an exemption — as Canadian producers enjoy — it will impose a quota to prevent a flood of metal from the newly tariff-exempted supplier.

That will likely be the case for EGA and Alba. As such, the sharp drop in the MW premium is reflecting an expectation that the two substantial producers will be in a position to use their newfound competitiveness to take market share.

If, for example, EGA has a quota set at last year’s 550,000 tons, it could export 750,000 tons and pay the 10% duty on the excess amount. As a result, it would effectively incur only a 2.7% duty overall.

If the mill felt long-term positioning would be helped by greater market share, the tradeoff may be considered acceptable.

What’s next for domestic mills?

Domestic mills, whether aluminum or steel, generally position themselves at or around the import price when the government imposes tariffs.

Generally, however, they do not seem to add more capacity to take long-term advantage of the extra margin the tariff provides. Why? Possibly because they do not expect the tariffs to exceed more than one or, at most, two cycles of administration.

They only lasted a little over a year and a half under the Bush administration from 2002 to 2003. While they have lasted two and half years under Trump, their efficacy at stimulating a resurgence of domestic production has been limited.

Last year Canada remained the U.S.’s largest external aluminum supplier in all forms, with China coming in second.

Chinese supply, however, has been falling rapidly with tariffs and duty action over recent years. As a result, the actions of third-placed U.A.E. and sixth-placed Bahrain have become progressively more important in influencing market prices. It is a role in which it looks like they just got helped to have even more impact.

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mergers and acquisitions

iQoncept/Adobe Stock

Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including: Cleveland-Cliffs’ acquisition of ArcelorMittal USA; a breakdown of the British automotive manufacturing sector’s struggles; the PSAFiat Chrysler merger; primary aluminum production; the U.S. steel capacity utilization rate; and Hurricane Laura’s impact on Gulf of Mexico crude oil production.

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Week of Sept. 28-Oct. 2 (Cleveland-Cliffs’ acquisition, primary aluminum production and more)

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Aluminum production

Alexander Chudaev/Adobe Stock

Global primary aluminum production reached 5.49 million tons in August, flat compared with the previous month, the International Aluminum Institute reported.

However, aluminum output increased on a year-over-year basis, rising from the 5.35 million tons produced in August 2019.

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Primary aluminum production flat in China from previous month

No. 1 producer China churned out 3.17 million tons of aluminum in August, flat compared with July output.

Meanwhile, Chinese production rose nearly 7% year over year from the 2.97 million tons produced in August 2019.

Elsewhere, production in Asia ex-China totaled 347,000 tons, up from 343,000 tons the previous month.

Production flat in Europe

In addition, European production held flat in August.

Western European aluminum output in August reached 280,000 tons, down from 281,000 tons in July and 286,000 tons in August 2019.

Production in eastern and central Europe held flat month over month at 349,000 tons but fell from the 356,000 tons produced in August 2019.

Elsewhere, production among the Gulf Cooperation Council (GCC) countries totaled 480,000 tons in August, down from 488,000 tons in July and 494,000 tons in August 2019.

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cars lined up

Steven Husk/Adobe Stock

This morning in metals news: U.S. automotive retails sales appear to be on the rise this month for the first time since February; U.S. steel imports are down 21%; and the zinc price has slipped nearly 4% over the past month.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Automotive retail sales forecast to gain this month

According to a forecast released jointly by LMC Automotive and J.D. Power, U.S. new-vehicle retail sales this month are expected to rise on a year-over-year basis.

The increase marks the first gain since February, according to the forecast.

“Retail sales in September are poised to post the first year-over-year gain since February, a milestone in the recovery from the disruption that COVID-19 has had on the industry,” said Thomas King, president of the data and analytics division at J.D. Power.

Steel imports down 21%

U.S. steel imports this year through August fell 21% compared with the same time frame in 2019, according to the American Iron and Steel Institute (AISI).

Meanwhile, finished steel import market share reached an estimated 17% in August. For the first eight months of the year, import market share for finished steel reached 19%.

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steel

gui yong nian/Adobe Stock

This morning in metals news: Steel Dynamics recently released its financial guidance for Q3; miner Ivanhoe Mines announced plans to double annual capacity at the Kakula copper mine; and lead prices have lost steam.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices.

Steel Dynamics releases Q3 guidance

Steel Dynamics reported it expects third-quarter earnings to fall between $0.42 and $0.46 per diluted share.

Meanwhile, the firm’s second-quarter earnings came in at $0.36 per diluted share.

“Third quarter 2020 earnings from the company’s steel operations are expected to be lower than sequential second quarter results, due to metal spread compression more than offsetting increased shipments driven by improved automotive and strong construction demand,” the company said.

Ivanhoe to double capacity at Kakula copper mine

This week, Ivanhoe Mines announced plans to double capacity at the Kakula copper mine.

Ivanhoe said the Kamoa-Kakula joint venture agreed to move forward with acquisition of a second 3.8 million-ton-per-annum concentrator module for the mine. As such, the additional module would double the mine’s capacity, bringing it to 7.6 million tonnes per annum.

“There are many smart people in the mining industry who strongly believe that copper is quickly approaching a supply and demand divergence; where the amount of copper being produced globally will be far outstripped by demand,” said Robert Friedland, co-chairman of Ivanhoe Mines.

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As copper prices have continued to rise over the last six months, copper mine production has fallen.

According to the International Copper Study Group (ICSG), copper mine production fell 1% during the first half of the year.

Furthermore, the global copper market posted a deficit of 235,000 tons during the first half of 2020, according to the ICSG.

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Mine production drops 4% in April-May

The most significant slowdown in mine production came in April and May. The ICSG estimated mine production fell 4% during the two-month period, when coronavirus-related lockdown measures affected output.

Peru, the second-largest copper producer, saw its copper output impacted by the pandemic.

“In Peru, stoppages resulting from the COVID-19 pandemic combined with operational issues/adverse weather that affected a few major mines, led to a 20% decline in mine output over the first half of 2020 including a significant decline of 38% in April-May compared to the same period of 2019,” the ICSG reported.

Mine production also fell in Australia, Canada, Mexico, Mongolia and the U.S.

Meanwhile, Chile, the top copper producer, increased its mine production by 2.6%.

Refined copper production up 1%

However, global refined copper production in the first half of the year increased by 1%.

Primary production rose 2.3%, while secondary production fell 5.2%.

“Globally, constrained scrap supply due to the COVID-19 lockdown and lower copper prices have negatively impacted world secondary refined production,” the ICSG reported.

Total refined copper output in Chile increased 12.5%.

Copper price gains

As readers of the MetalMiner Monthly Metal Outlook know, copper prices have been on the rise this year, supported by both Chinese demand and supply concerns.

The average LME cash price in August jumped 2.3% from the previous month’s average, up to $6,497 per metric ton.

The average for the year, however, remains down 4.4% compared with the 2019 annual average.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices.