Within the MetalMiner IndX(™) aluminum price basket, Korean semi-finished aluminum prices weakened the index score again this month, while the LME price fell by 0.2%.
However, semi-finished products from other regions showed more pricing strength despite flat LME prices. European commercial 1050 sheet led the basket with a 1.5% increase. Chinese aluminum billet and bar prices both increased by around 1%.
After gaining some momentum early in the year, LME aluminum prices continued to move sideways this month, ending the month of March at $1,911 compared to $1,905 on the last day of February.
Source: MetalMiner analysis of FastMarkets
LME aluminum prices continue to move sideways below the long-term resistance point of $1,970 into early April. Over the course of the year, the price seemed set to rise, then intermittent short-term sideways pricing dominated the trendline, keeping prices more or less flat since February.
Still, the pricing lows rose, and the price hit a 2019 high later in March when the closing price peaked at $1,940/mt.
Among other metals, copper will become increasingly important as electric vehicles gain market share.
As such, it’s no surprise that copper mining is heating up in many places, including the state of Nevada, according to a report by the High Country News.
The report notes a copper mine financed by a Russian oligarch is set to open this year, approximately 60 miles away from Tesla’s so-called Gigafactory.
Iron Ore Soars
Amid recent supply-side disruptions in Brazil after Vale SA’s tailings dam breach and in Australia (stemming from port damage as a result of the recent Tropical Cyclone Veronica), the iron ore price is rising fast.
According to the Hellenic Shipping News, the iron ore price rose above $92/ton this week, its highest level in over two years.
Since late February, the metal has been trading mostly sideways, but on Thursday’s session fell again on weak German manufacturing data, Reuters reported.
In addition, the situation at the Las Bambas copper mine in Peru escalated, as a judge ordered jail time for lawyers who represented indigenous villagers who blockaded the mine in protest, according to the Reuters report.
Stocks Up on U.S.-China Talks
The ongoing trade talks between the U.S. and China continued this week in Washington following last week’s sessions in Beijing; once again, markets are showing great sensitivity to any semblance of good (or bad) news out of the negotiations.
A section of an existing US-Mexico metal border wall in Arizona. Source: Adobe Stock/Yukon Charlie.
This morning in metals news, President Donald Trump threatened to close the southern border with Mexico, U.S. Steel was fined over $700,000 for air pollution violations and the LME copper price fell Tuesday.
President Trump intensified his stance on the situation at the border with Mexico, tweeting Monday that “Our detention areas are maxed out & we will take no more illegals. Next step is to close the Border!”
It remains to be seen if he will act on those words; however, such a closure would have wide-ranging ramifications, impacting both the humanitarian crisis at the border and, from a business perspective, throwing a wrench into supply chains.
Trump’s threat also comes at a time when the U.S., Canada and Mexico are in a holding pattern over approval of the United States-Mexico-Canada Agreement (meant as the successor to NAFTA). The executives of the three countries signed the deal during the G20 Summit in Buenos Aires late last year, but the trade deal must be ratified by each country’s legislature.
U.S. Steel Fined Over Emissions
U.S. Steel was hit with a fine of over $700,000 over emissions at its Clairton Coke Works facility in Pennsylvania, the Pittsburgh Post-Gazette reported.
According to the report, the company was fined $707,568 over air pollution violations at the facility during the second half of 2018, elevating the total fines levied against U.S. Steel over the last year to more than $2.3 million.
Dollar Rises, LME Copper Falls
The LME copper price dipped as the U.S. dollar gained strength, Reuters reported.
The company guidance calls for production of 420,000 tons of electrolytic copper. That total marks a 0.8% decline, or 3,200 tons, from FY 2018’s copper output.
Sumitomo notes maintenance work is scheduled for 35 days in FY 2019, which will impact copper production. The maintenance work will take place at the Toyo Smelter & Refinery in late October.
Electrolytic nickel production is expected to hit 62,600 tons, down 3.5%, or 2,300 tons, from FY 2018 production.
Ferronickel production, meanwhile, is expected to reach 13,330 tons, up 900 tons from FY 2018.
“In FY2019, we will continue to operate with two kilns and one electric furnace, the optimum production setup in terms of the current raw materials procurement environment,” Sumitomo said in its guidance statement.
Like copper, the company’s ferronickel segment also has planned maintenance work this fiscal year. At its Hyuga Smelting Co., Ltd., there will be maintenance work carried out on one line for 24 days in September and for nine days in February. Work on the other line at the smelter is scheduled to take place for nine days in September and for 27 days over February and March, according to the company release.
Gold production is expected to reach 16,200 tons. Silver production guidance for FY 2019 is 217,200 tons.
In other company news, Sumitomo recently announced it had discovered a new process to “recover and recycle cobalt in addition to copper and nickel from used lithium ion secondary batteries and intermediates generated in their production.”
“The process that SMM has developed selectively recovers nickel, cobalt and copper as an alloy by using a pyrometallurgical refining process independent of the existing process to separate majority of impurities from lithium ion secondary batteries,” a Sumitomo released explained. “Then the alloy is leached and refined by a hydrometallurgical process to recycle the nickel and cobalt for use as a battery material and the copper for electrolytic copper.”
According to the release, the company established a pilot plant for this new recycling process in the city of Niihama, where the company will assess feasibility of the process and scaling up to “production level.”
This morning in metals news, U.S. Treasury Secretary Steven Mnuchin tweeted Friday that this week’s round of trade talks with China were “constructive,” LME copper is on its way for its first quarterly gain since the end of 2017 and China’s imports of copper are forecast to dip this year.
This morning in metals news, the Aluminum Association called for the removal of aluminum tariffs on Canada and Mexico, Norsk Hydro offered another update on its operations one week after it was hit by a cyber attack, and Vale SA’s 4Q 2018 iron ore output increased 8.2%.
Aluminum Groups: Remove Aluminum Tariff Before Passage of USMCA
The Aluminum Association released a joint letter with the Aluminum Association of Canada and the Instituto Mexicano del Aluminio calling for the removal of the U.S.’s Section 232 aluminum tariff before ratification of the pending United States-Mexico-Canada Agreement (USMCA).
USMCA, meant as the successor to the North American Free Trade Agreement (NAFTA), was signed by the three countries’ leaders late last year, but still must be ratified by each country’s legislature. The U.S.’s Section 232 tariffs on steel and aluminum remain in effect for its neighbors to the north and south.
As such, the tariffs are a key sticking point as the parties move toward approval of the agreement.
“The new USMCA cannot work as intended without reinstating exemptions for Canada and Mexico from the 232 tariffs,” the joint statement said. “The Section 232 tariffs are limiting access for North American aluminum producers to reach their suppliers and customers – and in some cases, their own subsidiaries and facilities. This will hamper continued investment for our industry, which has experienced solid growth and significant investment in recent years.”
The letter also argued against the imposition of quotas.
“Replacing a tariff with a quota on aluminum imports in North America would be highly detrimental,” the letter continued. “If there is a quota system for aluminum trade within North America, it will be difficult to ensure that downstream manufacturers of aluminum products will have access to the aluminum inputs they need. Because primary aluminum is a traded commodity on the London Metals Exchange (LME), metal traders would be competing with mid- and downstream producers who need value-added primary aluminum with specific characteristics for their manufacturing processes. Additionally, semi-fabricated aluminum products can cross borders several times before final production.
“In a worst-case scenario, product could get stuck on one side of the border when the quota has been filled. To avoid shortages, companies may be forced to stockpile the metal, tying up capital that could be used to pay employees or upgrade equipment and exacerbating the impact of a quota system.”
Norsk Hydro Offers Updates in Wake of Cyber Attack
Norwegian aluminum maker Norsk Hydro last week was struck by a cyber attack, forcing operations to come to a halt.
A week on, the firm offered an update on its process to bring operations back online. According to a note on Hydro’s website, “most operations are running at normal capacity.”
“In the most affected business area, Extruded Solutions, production is now at 70-80%, except for the Building Systems business unit, where operations remain almost at a standstill,” the company said in a release.
The company’s primary metal sector is “running as normal, with higher degree of manual operations.”
Vale Posts Higher Iron Ore Output in 4Q
In the quarter prior to the fatal tailings dam breach at Vale SA’s Corrego do Feijao mine in Brazil, the company’s iron ore output rose 8.2%, Reuters reported.
According to the ICSG report, world mine production increased by an estimated 2.3% in 2018.
“The increase in world mine production of about 460,000 t copper was principally due to constrained output in 2017 (mainly in Chile, Indonesia and the DRC) and to an unusually low rate of overall supply disruptions in 2018,” the report stated. “Besides the restart of Katanga’s 300,000 tpy copper mine in the DRC no major new copper mine started in 2018.”
Similarly, production in Chile also increased after a 2017 strike impacted the country’s Escondida mine. Mine output in Canada and the U.S., however, was down 10% and 3%, respectively.
In addition, refined production is estimated to have increased 1.5% in 2018, according to the report.
Despite growth overall being constrained by an “unusually high frequency of smelter disruptions and temporary shutdowns for technical upgrades/modernizations,” China led the way with an expansion of capacity. Chilean production was up 1.3% after a down 2017 — in which the sector saw several smelter shutdowns — but was down 6% from 2016.
Japanese refined output rose 7% in 2018, while increased electrowinning output in the DRC and Zambia also contributed to global refined growth.
In terms of negative impacts, Vedanta’s Tuticorin smelter loomed large, seeing to a 34% decline in Indian production. The Sterlite copper smelter in Tuticonin was ordered shuttered last year after police fired on locals protesting the state of pollution from the plant; the incident ultimately left 13 dead, according to media reports.
In addition to India, Germany, the Philippines and Poland saw a decline in refined production.
On the usage side, China’s apparent usage increased 5%, powered by a 20% increase in net imports that is possibly due to a shortage of scrap in China, according to the report.
As for dollars and cents, the average LME cash price for copper in February was $6,278.20 per ton, up 5.8% from January’s average of $5,932.02 per ton.
For the year through the end of February, the LME cash price high was $6,546 per ton (reached Feb. 25), with a low of $5,811 per ton coming Jan. 3. The average cash price for the first two months was $6,096.87 per ton, marking a 7% decline from the 2018 annual average.
The metal’s price hit an eight-month high this month, helped over the line by the Federal Reserve dropping plans for further interest rate hikes this year.
But much of the rise seems to be on the back of positive investor sentiment over falling LME inventory and the expectation the rise of electric car demand will strain copper supply.
Firstly, those inventories.
Apart from a large delivery earlier this month, copper has been on a steady decline, as the below graph from Kitco illustrates.
Inventory on the CME and SHFE has similarly run down, not surprisingly as the market has been in deficit to the tune of 265,000 tons per annum in 2017 and 387,000 tons last year according to the International Copper Study Group as cited by Reuters.
The World Bureau of Metal Statistics disagrees, however, saying the copper market recorded a surplus of 496,000 tons in January-December 2018, which followed a surplus of 138,000 tons for the whole of 2017.
It just goes to show, statistics are not always the precise game statisticians would have us believe.
Copper’s strength is somewhat harder to fathom when set against the backdrop of generally poor forward indicators.
PMI numbers in the world’s largest consumer, China, fell below 50 into contraction territory in December and stayed there in January, according to Reuters, with those of Germany not looking much better. Both picked up a little in February, but were hardly bullish.
Citibank, though, remains in the bull camp, according to Reuters, espousing the tight market and rising demand for electric vehicles and the infrastructure to support them (notably in China).
The argument goes the introduction of far stricter carbon dioxide emissions limits that will kick in next year in Europe — coming on the heels of consumers turning away from diesel after Volkswagen’s pollution-cheating Dieselgate scandal, which has hit demand for diesel-powered vehicles — means manufacturers have no alternative other than to move into electric cars en masse.
The emission standards alone require manufacturers to reduce emissions the average from 130 grams of carbon dioxide per kilometer to 95 grams of carbon dioxide per kilometer from 2020.
According to Ferdinand Dudenhoffer, head of the Center Automotive Research in Germany, until recently carmakers turned primarily to diesel to bring down their emissions averages, but “there is no going back to diesel, so they have no other choice but to speed into the electrical era.”
Investor sentiment does not have to be accurate to move markets — you just need enough people believing the market is heading in a certain direction to make it move.
Whether copper investors are right about the demand from electric vehicles remains to be seen, as there have been false dawns before.