Articles in Category: Premium

Here’s What Happened

  • MetalMiner’s Global Precious MMI rose 2.4% to a value of 85, breaking into a new high for 2017.
  • Our sub-index tracking gold, silver, platinum and palladium prices from around the globe last hit this level in October 2016, when it reached a value of 86.
  • That makes two straight Augusts (2016 and 2017) of strong performance for precious metals. After a lackadaisical second half of 2015 and first half of 2016, the Global Precious MMI hit a scorching 89 in August 2016 — the index’s highest peak since February 2015.

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What’s Going On in the Background?

  • Since we tend to keep a closer eye on the platinum group metals (PGMs) due to their automotive applications, the U.S. platinum price tracked by the MetalMiner IndX ticked back up 2.3%, while the U.S. palladium price continued steamrolling, rising 3.4% on the month.
  • These PGM prices increases, in addition to marginal upticks for gold and silver in the U.S., are the main drivers of the index’s gain.
  • As we reported in June, platinum companies continue to battle for profitability — one such firm being South Africa’s Lonmin. After the company reopened shafts and expanded its biggest operation a couple months ago, it’s now planning to sell excess processing capacity “of up to 500,000 platinum ounces per year, to maximize cash from processing operations and preserve cash,” according to Reuters. The tough economic environment in South Africa, as well as inflationary pressures on platinum mining in general, are to blame.

What Metal Buyers Should Look Out For

  • Certainly keep an eye on the global automotive sector, which has been motoring along lately in China especially, as the longer-term driver (HA!) here.
  • Certain rosy outlooks from firms such as Research and Markets indicate a bullishness that refuses to let up on the gas (it’s August, y’all, we’re getting those all out of our system before the fall revs up — see?!). According to my colleague Fouad Egbaria’s coverage, “advances in automobile technology and pharmaceutical applications will see a rise in demand for this subset of metals, according to the research report.”
  • The dog days of summer have shown life with a last gasp, perhaps setting the stage for a continued rise into autumn, especially if political turmoil gets any worse and any looming stock market corrections set the tone.

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Key Price Movers and Shakers

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The Renewables MMI jumped 6.9% to 77 for our August reading, as prices jumped for nearly every metal in the renewables basket sub-index.

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Of eight metals listed in this sub-index, seven posted price jumps last month. Steel plate from Japan, Korea, China and the U.S. jumped up, as did Chinese neodymium, silicon and cobalt.

The lone metal to fall this past month was U.S. grain-oriented electrical steel (GOES) coil, which fell  2.8%.

It was a much stronger July for this basket of metals than June was, when only four of the seven metals moved up in price (Chinese steel plate, neodymium, cobalt cathodes and silicon).

Cobalt Prices Have Asian Battery Makers Looking Elsewhere

As mentioned earlier this week, Reuters reported rising cobalt prices have forced battery makers in Asia to consider alternatives — namely, nickel.

According to the report, makers of lithium-ion batteries are looking to add more nickel to their battery formulas instead of the increasingly costly cobalt.

As the report notes, electric vehicle demand is set to grow significantly in the coming years. As such, automakers will be looking to cut their production costs. According to Reuters, the price of cobalt has doubled over the last year, a product of high demand and supply shortage.

Political Instability, Violence in Congo

Speaking of supply, most of the world’s cobalt is mined in the Democratic Republic of Congo, according to the United States Geological Survey (USGS). According to USGS data, an estimated 66,000 metric tons of cobalt were mined in Congo in 2016 — or 54% of the 123,000 metric tons mined worldwide. China came in second last year of cobalt mined (7,700 metric tons), followed by Canada (7,300 metric tons).

However, the unstable political situation in Congo could continue to affect supply, making the metal even pricier. Political unrest recently led to a wave of bloodshed in the country, sparking fear of a return to the civil wars of the 1990s, The Guardian reported.

This is all without even getting to the ethical concerns present in the Congolese cobalt mining world. As noted by numerous media reports, significant chunks of mining revenue tend to go missing via corruption linked to President Joseph Kabila. All in all, the rising demand in cobalt has not benefited the Congolese people. A 2015 IMF report showed the country was experiencing significant economic growth, but poverty reduction lagged behind.

On top of all this, the conditions for Congolese cobalt miners add another ethical concern to the mix, one which big multinational brands will have to answer to with respect to their supply chains. For example, a Sky News report revealed workers as young as 4 working in the Congolese cobalt mines in deplorable conditions.

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While the status of cobalt on the marketplace is obviously not the most important takeaway from the grim situation in the DRC, cobalt production has fallen this year amid the unrest, The Guardian reported, leading to a 90% rise in the price of the metal and a peak of $61,000/ton in July.

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Global trade developments with a dose of healthy demand appear to be setting the stage for grain-oriented electrical steel (GOES) price movements for H2.

Although the big story in the U.S. involves Section 232 developments, GOES prices globally are increasing because of several measures in both China and Europe.

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According to a recent TEX Report, Japanese mills received a $100/metric ton increase for GOES shipments to India and Southeast Asia. And, because of an anti-dumping order in China, Baoshan has raised its prices six times this year.

Curiously, the European Union implemented a system by which a “price floor” has been established for GOES. This price, according to TEX Report, is higher than the international GOES price. Europe can expect to see higher-priced imports as a result.

Meanwhile, the U.S. Department of Commerce has not released any recommendations on the Section 232 investigation. Although GOES producer AK Steel — along with other steel producers —  has lobbied hard for some sort of import curb, the fact that no recommendations have been made suggests the DOC acknowledges that the Section 232 investigation contains a number of complexities across a broad range of stakeholders that have all weighed in on the findings.

The Section 232 investigation, to some extent, has slowed down annual negotiating cycles for manufacturing organizations, as several recently told MetalMiner at our 2018 Budgeting and Forecasting workshop.

Producers had likely hoped for the release of the findings to take their price cues. MetalMiner believes that without the release of the report, producers will start considering 2018 contracts in September, similar to normal annual contract cycles.

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Exact GOES Coil Price This Month

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The Raw Steel MMI jumped up four points this month to 75, increasing by 5.6% and returning  to 2015 levels, along with copper.

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Increasing Chinese steel prices have driven domestic steel prices this month. Both Chinese hot-rolled coil (HRC) and cold-rolled coil (CRC) prices have experienced an uptrend since the end of 2015. Chinese HRC prices increased 10.7% this month.

Source: MetalMiner data from MetalMiner index

Even though the degree of movement in U.S. steel prices as great as those seen in China, U.S. prices have continued to increase. While Chinese steel prices continue to increase, domestic prices may continue the same uptrend.

The Spread

Considering both U.S. domestic and Chinese HRC prices, the spread has continued to decrease this month. We would expect a drop in imports if the spread continues to decline. This would lend support to U.S. domestic HRC prices.

Source: MetalMiner data from MetalMiner index

Domestic Scrap

Meanwhile, U.S. shredded scrap prices declined 2.4% this month.

Falling  scrap prices could push domestic buyers toward scrap instead of other raw materials, and domestic steel prices could face downward price pressure.

However, the long-term trend in scrap signals rising, not falling, prices.

Source: MetalMiner data from MetalMiner index

Raw Materials

Both iron ore and coking coal prices have rallied during July.

Increasing raw material prices may create upward pressure in steel prices as production costs increase.

What This Means for Industrial Buyers

Steel momentum appears to have shifted upwards.

Buying organizations should watch commodities to analyze the signals for both the short- and long-term trends.

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Actual Raw Steel Prices and Trends

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The Rare Earths MMI continued its steady climb back up toward 2015 levels, hitting 23 for our August reading. After hitting 29 in April 2015, the sub-index fell as low as 16 last year before slowly climbing back up this year with an uptrend that began in March.

Most of the heavy hitters in the sub-index posted price increases, namely Chinese neodymium oxide, which rose a whopping 21% in July.

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Rare-earth metals continued the uptrend which began in the spring. As our Irene Martinez Canorea wrote last month, China produces 85% of rare earth metals, meaning Chinese production overwhelmingly dictates the direction of this sub-index.

However, rare-earth metals can be found elsewhere, including Australia. A rare-earths mine containing dysprosium was opened in western Australia late last month, the ABC reported.

Western Australian Premier Mark McGowan told the ABC the mine was the first of its kind outside of China. Mining has already begun at the site, according to the report, and approximately 60,000 tons of ore per year are expected to be extracted during the pilot stage of the project.

South Africa is another player in the rare-earths market. Canorea wrote last month: “South Africa could play a strategic role in rare-earth metals supply.  The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths.”

But, back to China. The price of these rare-earths metals, which are used in a wide range of technologies, are expected to rise.

According to the Nikkei Asian Review, China is looking to curtail supply by focusing on enforcing environmental rules and targeting illegal mining operations.  

Also per the Nikkei Asian Review, the price of neodymium hit $65 per ton, marking the first time it had eclipsed the $60 price point in two years.

Electric vehicles are among the applications for rare-earth metals. As technology improves and more affordable electric models hit the market, the demand for these metals can only be expected to rise.

Meanwhile, in the U.S., the CEO of the only remaining rare-earths mine in the country urged the White House to nationalize the mining operations, located in Mountain Pass, California. Whether that can or will happen remains to be seen, but any effort to revive the operation faces significant challenges from China’s overwhelming dominance of the market.

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Actual Metal Prices

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The Copper MMI jumped five points to 78 for our August reading, a high not seen in more than two years (the sub-index hit 79 in January 2015).

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Copper has outperformed all the other base metals this month. LME copper prices increased by 7.8% in July.

The sharp increase in copper prices came after an announcement of a possible ban of copper scrap in China by the end of the year. The increase in copper prices was accompanied by heavy volume, which may signal a stronger uptrend.

However, volumes declined during the final days of July and the beginning of August.

Source: MetalMiner analysis of FastMarkets

The U.S. dollar has shown weakness since the start of 2017. The fall of the dollar during July coincided with an increase in copper prices. A weaker dollar commonly drives non-U.S. investment into commodities that are dollar-dominated (as copper is).

The U.S. dollar remains in a strong downtrend, touching lows not seen since May 2016.

Source: MetalMiner analysis of Trading Economics

What This Means for Industrial Buyers

Even though copper prices have increased sharply this month, a price retracement could occur  some time in August or September.

Copper price dynamics, together with volumes, will provide the signals to read the short- and long-term trend correctly.

Our Monthly Metal Buying Outlook informs buyers of the precise support/resistance levels (signals) to help decide when to shift buying strategy.

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Actual Copper Prices and Trends

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The Stainless Steel MMI jumped four points this month to 59, driven by an increase in most of the underlying metals that make up the index. That included big jumps for stainless steel coil prices in China and LME nickel prices.

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Stainless steel prices in China have recovered from previous lows last seen in May of this year. The increase in stainless steel prices coincides with increases in other forms of steel, such as hot-rolled coil (HRC) or plate.

Source: MetalMiner data

Stainless steel surcharges decreased again during July due in large part to chrome, which is negotiated quarterly, declining from $1.54/pound to $1.10/pound.

Chinese data released this month has driven positive sentiment in the steel industry.

The China steel Purchasing Managers Index (PMI) rose to a 15-month high in July, reaching a value of 54.9. The PMI increase was caused by stronger demand — mainly at the beginning of July — and reduced inventories.

Nickel prices also increased in July. Nickel prices rallied during the second part of July, together with other base metals, such as copper. Nickel prices have been driven by stronger demand from U.S. stainless steel buyers.

The current short-term uptrend appears weaker than the previous downtrend. Some additional movements may be expected to the upside, even though the commodities outlook remains bearish.

What This Means for Industrial Buyers

Steel and stainless steel prices are being driven this month by increasing Chinese prices. The Section 232 investigation, together with curtailing capacity in China, have also supported steel prices.

All forms of steel (including stainless steel) have recovered this month. However, MetalMiner remains cautious about this short-term uptrend until the overall commodity outlook becomes clearer.

U.S. stainless base prices have remained stable as the anti-dumping and countervailing duties levied against China have nullified the impact of Chinese prices into the U.S. South Korea and Vietnam have replaced China in Asian imports. For the short term, U.S. stainless buyers still have access to imports to complement the supply of U.S.-made stainless steel.

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Actual Stainless Steel Prices and Trends

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The Construction MMI picked up two points, rising 2.5% to 83 for our August reading.

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According to U.S. Census Bureau data released Aug. 1, total construction spending in June is estimated at $1,205.8 billion, down from the revised total of $1,221.6 billion in May.

However, the June spending figure is 1.6% above the June 2016 estimate of $1,186.4 billion. In the first six months of this year, construction spending amounted to $577.0 billion, or 4.8% percent above the $550.5 billion for the same period in 2016.

Private construction spending amounted to $940.7 billion, 0.1 percent below the May total of $941.3 billion.

Meanwhile, public construction spending amounted to $265.1 billion, or 5.4% below the revised May estimate of $280.3 billion. Included within public spending was: educational construction ($67.5 billion), 5.5% below the revised May estimate of $71.4 billion, and highway construction ($82.4 billion), 6.6% below the revised May estimate of $88.2 billion.

Last month’s MMI report covered concerns from builders regarding rising materials costs. A couple of the heavy hitters in this basket of metals, Chinese rebar and H-beam steel, posted price increases.

Should the Section 232 investigation yield tariffs or quotas on steel imports, that could drastically impact how construction firms do business. Of course, if President Trump’s comments to the Wall Street Journal last week are any indication, we could all be waiting for a while before any Section 232 verdicts are handed down.

Construction Firms Grow

The Architecture Billings Index (ABI) released monthly by the American Institute of Architects also reports good news for the construction industry.

The ABI rose from 53.0 in May to 54.2 for June (anything over 50 equates to billings growth).

“Despite growth in inquiries into new projects and the value of new design contracts dipping slightly in June, firms continue to report robust backlogs averaging 5.9 months and indicate a steady supply of work in the pipeline,” the June ABI report states.

According to the ABI, Northeast firms reported billings growth for the first time in three months. By region, the South led the way with an ABI score of 54.8, followed by the West (53.1), Midwest (51.9) and Northeast (51.5).

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By sector, residential construction led the way (57.1), followed by institutional (52.6) and commercial/industrial (52.1).

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The Automotive MMI hit the gas in July, rising three points to 90, a 3.4% leap.

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The sub-index reached the 90-plus threshold for the first time since the February reading, when it jumped to 92.

Although automotive sales have fallen off the record pace seen in 2016, the basket of metals in this sub-index posted strong price gains throughout July. U.S. hot-dip galvanized (HDG) steel rose 1.3%, while U.S. platinum and palladium bars posted increases of 2.3% and 3.4%, respectively.

U.S. Automotive Sales Down From 2016 Figures

General Motors sales fell 15.5% in July compared with July 2016, according to Autodata Corp sales data released Tuesday. In the year to date, GM’s sales are down 3.9% compared with the same time frame in 2016.

GM is not the only automotive brand to see lagging U.S. sales this year.

Ford‘s July sales were down 7.4% in July compared with July 2016, and down 4.3% in the year to date compared with the same time frame in 2016. Fiat Chrysler sales were down 10.5% in July compared with July 2016, and 7.2% in the year to date.

Even Tesla, riding high off the hype from the forthcoming Model 3, saw its July sales fall 5.2% below its July 2016 figures. Even so, Tesla’s year-to-date sales are 34.7% higher than its sales for January-July 2016.

Honda also posted sales drops in July (1.2%) and in the year to date (0.2%). Volkswagen, still dealing with the PR quagmire of Dieselgate, saw its July sales fall 2.6%, although its sales are up 5.9% for the year to date.

Several automakers down the sales list did post sales jumps in July compared with July 2016. Subaru (6.9%), Toyota (3.6%) and Mitsubishi (1.7%) posted sales increases, while luxury vehicle brands Ferrari (20.7%) and Maserati (31.1%) also saw increases (albeit on relatively small volumes).

Meanwhile, in China, auto sales were up in June year-over-year by 4.6%, according to Reuters. In July, the Nikkei Asian Review reported surges in Chinese sales for Honda and Toyota. Riding a wave of interest in smaller models, Honda and Toyota year-over-year sales rose 11.6% and 11.4%, respectively.

Section 232 Hits the Brakes

The automotive market is just one industry sector that could be affected by trade measures that could come about as a result of the U.S. Department of Commerce’s Section 232 investigations into steel and aluminum imports.

Of course, those investigations have yet to reach a resolution.

Last week, President Donald Trump told the Wall Street Journal that “we don’t want to do it at this moment,” in reference to trade actions involving steel imports.

So, for now, that policy track seems to be stuck in park. With January deadlines for both the steel and aluminum investigations — per requirements set forth in Section 232 of the Trade Expansion Act — the steel and aluminum markets could remain in limbo for several additional months.

Feeling the Electricity

As electric car technology continues to advance, so, too, is consumer interest.

One model drawing consumer interest in the forthcoming Tesla Model 3. According to a report in CNNMoney, the Model 3, billed as a more affordable electric vehicle option, is garnering more than 1,800 net reservations each day. Tesla CEO Elon Musk told analysts Wednesday that the total reservations for the new model had reached around 455,000, including cancellations.

The base Model 3, without add-ons, is listed at $35,000 and has a range of 220 miles, according to the Tesla website.

Automated Transport Trucks On Hold

In addition to electric-powered vehicles, automation is also considered the wave of the future.

But what about automated trucks delivering goods across the highways of America?

According to a report in Material Handling & Logistics, that possibility might be a reality down the road, but not necessarily in the near future.

The report states that in a recent ABI Research survey, 44% of respondents were not aware of the use of automated vehicles for transport.

That doesn’t mean automation isn’t picking up steam overall. The study notes that 30% of all U.S. companies plan to incorporate robotics into their operations next year.

Actual Metal Prices

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The Aluminum MMI inched two points higher in July, returning to 2015 levels.

The Aluminum MMI increase was driven by a  5% increase in Chinese primary aluminum. The LME price inched up by 1%, contrary to other base metals that have experienced higher price increases this month.

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Analysis of supply and demand might suggest quite a bullish outlook for aluminum. According to a recent Hydro aluminum quarterly report, global primary aluminum production through Q2 of this year saw a .492 million metric ton deficit. However this deficit needs to be weighed against increased Chinese aluminum smelting capacity of up to 2.39 million metric tons this year, according to a recent article in Hellenic Shipping News.

Thus, we could see an oversupply situation.

However, going back to an earlier article on aluminum price direction, as expected prices have stayed between the two limits of what is called a wedge formation. Aluminum prices have traded  in a sideways trend since April. As stated above, aluminum prices, contrary to other base metals, have not jumped in July.

Aluminum prices tried to climb but instead, retraced back again with heavy selling volume, which commonly signals price weakness.

Source: MetalMiner analysis of FastMarkets

We would expect to see aluminum prices climb and remain in a bullish market.

The Gasoline-Aluminum Correlation

Buying organizations have told MetalMiner gasoline prices are correlated with aluminum prices.

Source: MetalMiner analysis of Fastmarkets and Trading Economics

Analysis of the two charts together suggest indeed the general trends move in tandem. Aluminum prices rose at the end of 2016, as did gasoline prices. It should not come as a surprise to MetalMiner readers that the two prices are correlated.

MetalMiner carefully considers overall commodity price trends for individual metal market analyses, of which oil is an important element for commodity analysis. When oil — and, therefore, gasoline — prices go down, aluminum prices tend to follow the same trend.

The longer-term analysis of gasoline prices reveals a sideways trend, which began during the spring of 2016.  What did the trend for aluminum look like compared to gasoline for the same time period? It looks the same!

The conclusion: Gasoline prices and aluminum prices are correlated.

However, when looking at shorter time periods, the degree of the price movements may be dissimilar. One can see that in the chart below. Gasoline looks like a good barometer for longer term correlation with aluminum but less so for short-term fluctuations:

What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point MMI increase suggests a bullish outlook, we would like to see aluminum ingot prices break out of a sideways trend with increased trading volumes before claiming a bullish market.

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Actual Aluminum Prices and Trends

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