Articles in Category: Supply & Demand

Steven Husk/Adobe Stock

Before we head into the weekend, let’s take a look back at the week that was and some of the metals coverage here on MetalMiner, including: a natural gas transit deal between Russia and Ukraine; aluminum prices; the impact of escalating U.S.-Iran tensions on oil prices; and the copper demand picture.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

alexlmx/Adobe Stock

According to the International Lead and Zinc Study Group (ILZSG), global lead and zinc demand exceeded their respective supplies through the first 10 months of 2019.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Lead deficit reaches 81 KT

Through the first 10 month of the year, lead demand exceeded supply by 81,000 tons, according to the ILZSG.

Lead mine production during the period reached 3.9 million tons, about flat on a year-over-year basis. Production increased in Europe, Australia, India, Mexico, Peru and South Africa but declined in Bolivia, China and Kazakhstan.

Lead metal production totaled 9.61 million tons, down 0.7% from 9.68 million tons in 2018. Production rose in India, the Republic of Korea and Mexico but was more than offset by declines in Argentina, Canada, Kazakhstan and Australia. Technical issues at Nyrstar’s Port Pirie smelter in Australia led to reduced output there.

Refined lead usage fell 0.5% to 9.69 million tons, with declines seen in the U.S., Japan and Europe.

According to the report, China’s imports of lead contained in lead concentrates increased 40.4% to 781,000 tons.

The LME primary three-month lead price briefly dipped below MetalMiner’s short-term support level earlier this month before bouncing back. However, at $1,928/mt as Monday, the LME lead price was down 3.62% compared with a month ago.

Zinc deficit hits 152 KT

Meanwhile, the global zinc deficit reached 152,000 tons for the first 10 months of the year, according to the ILZSG.

Zinc mine production totaled 10.80 million tons, up 2.2% from the 10.57 million tons produced during the same period in 2018.

Despite declines in a number of countries, global mine production increased based largely on increased output in Australia and South Africa.

Refined zinc metal production totaled 11.18 million tons, up 2.1% from the 10.95 million tons produced in 2018 and paced by increases in China, Mexico and Peru.

Refined zinc usage ticked up slightly, rising 0.3% to 11.33 million tons.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Lastly, China’s imports of zinc in zinc concentrates jumped 3.2% to 1.14 million tons.

Zinc prices bounced back after approaching MetalMiner’s short-term support level earlier this month. The LME primary three-month price was about flat Monday compared with a month ago.

According to the most recent report from the International Copper Study Group (ICSG), the global copper market through the first eight months of the year posted a deficit of 330,000 tons.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Copper mine production slips

Global copper mine production dropped 0.5% on a year-over-year basis, according to the ICSG. Concentrate production was about flat, while solvent extraction-electrowinning (SX-EW) fell 1.5%.

Production in top copper producer Chile remained down, off 0.5% on a year-over-year basis due to lower copper head grades and supply disruptions.

Indonesian copper mine output dropped by 51% due to “the transition of the country’s major two mines to different ore zones leading to temporarily reduced output levels.”

In the Democratic Republic of the Congo (DRC) and Zambia, aggregate growth reached 13% in 2018 but was down 2% through the first eight months of this year due to “temporary suspensions at SX-EW mines, reductions in planned production and few operational constraints.”

On the other hand, output increased in Australia, China, Mexico, Peru and the U.S.

Elsewhere, Panama joined the ranks of copper-mining countries.

“Panama started mining copper earlier this year, with the commissioning of the Cobre de Panama mine, and is the biggest contributor to world mine production growth in the first eight months of 2019,” the ICSG said.

Refined metal production flat

On the refined metal side, output was about flat on a year-over-year basis, with primary production down 0.3% and secondary production from scrap increasing 1.8%.

Chilean output fell 32%, while Zambian output dropped 33%. Indian production was down 25%, as it continues to be impacted by the 2018 closure of Vedanta’s Tuticorin smelter (following protests by area residents).

The U.S., Japan and Peru also saw reduced refined copper output during the period.

Apparent refined usage up 0.5%

In addition, apparent refined copper usage increased by 0.5%, according to preliminary data.

China’s imports of refined copper fell 13%, but its apparent usage grew 2.4% due to higher refinery output, the ICSG said.

Global usage, ex-China, declined by 1.5%.

Copper prices dip slightly in October

On the price front, the average LME cash price in October checked in at $5,742.89 per ton, down 0.04% from September’s average of $5,745.48 per ton.

Meanwhile, the average price for the year through October, $6,007.69 per ton, marked a 7.9% decline compared with the 2018 annual average.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

As of the end of October, copper stocks at major exchanges — 431,192 tons — had increased 23% from stock levels in December 2018.

niteenrk/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 our coverage of: ArcelorMittal’s plant closure in South Africa, the oil price outlook, U.S. steel capacity utilization and steel prices, CAMMU’s call for a Section 232 sunset provision, and more.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

leszekglasner/Adobe Stock

By most accounts, nickel has had a good run this year.

Among a falling commodity market, nickel has been one of only a couple of metals products that have bucked the trend and seen strong gains. Nickel has jumped some 35% this year, largely on the back of supply-side fears.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

The Indonesian minister for mines announcement of the country’s intention to ban nickel ore exports from 2020 and falling LME stocks – maybe as a result of those supply fears, maybe in tandem – further stocked fears of tight supply.

Since 2015, LME nickel stocks have fallen from some 500,000 tons to under 100,000 tons today, without any corresponding run-up in trade or off-warrant stocks.

There seems little argument that the nickel market is in deficit.

According to the International Nickel Study Group, the global nickel supply deficit is expected to ease from 144,000 metric tons in 2018 down to 79,000 tons in 2019. The deficit is expected to ease further still, down to 47,000 tons in 2020.

The easing of the deficit comes in large part because demand is slowing.

According to a post on RecyclingInternational.com, stainless steel production in Europe during the first half of 2019 declined 4.9% compared to the first half of 2018, falling to less than 3.75 million tons. The International Stainless Steel Forum also expects total stainless steel consumption in Europe/Africa to fall 5.7% in 2019 before rebounding by a modest 0.4% in 2020.

Yet at the same time, some analysts are predicting Asian demand will grow.

Macquarie Research is quoted as saying it expects Chinese stainless steel production to rise from 26.7 million tons in 2018 to 29.5 million tons in 2019, then 30.1 million tons in 2020.

All other things being equal, that combination should have seen prices continue to rise — or, at the very least, plateau at the elevated levels reached in September. However, after reaching a peak of $18,000 per ton, prices have since fallen back to below $15,000 per ton.

Is this simply a result of investors getting cold feet faced with an ongoing trade war and fears of continued growth in China?

We wrote back in Q3 that nickel prices appeared unsustainable and, as such, we expected them to fall.

But even we didn’t think we would see them back below $15,000 quite so soon.

If it offers any indication of supply-demand, LME nickel inventory has remained fairly stable during the month of November, with deliveries and load-outs reflecting more of trade demand than significant investor behavior.

Suffice it to say, for the time being the plunge in stock levels has stopped.

Producers are making noise about expected demand, particularly from electric vehicles (EVs) – remember them, the source of unsustainable demand for copper, lithium, cobalt and, yes, nickel?

The Union Bank of Switzerland predicts demand from electric vehicles will jump from 3% to 12% of global nickel demand in just three years, not least because states and governments are mandating zero-emission targets for the automotive industry (for example, California may need 1.5 million EVs in the next five years).

Such predictions, if realized, would spur very significant nickel demand.

But we have had false dawns from EVs before.

States can mandate, but they need to put in charging infrastructure and manufacturers need to achieve technological advances that extend between charge ranges before EVs are taken up by the mainstream.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Investors seem to agree the focus remains on the balance between ore and scrap supply on the one side and Chinese, if not Asian, stainless steel production on the other.

Ore and scrap supply seem steady; the knowns are known, at least.

The unknown is demand.

As is so often the case in metals markets, the focus remains very much on China and the health of its manufacturing sector in the year ahead.

phonlamaiphoto/Adobe Stock

Judging by the share price of shale oil and gas producers, you would think the industry is one from which to keep well away.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Goldman Sachs, however, is recommending clients go long on the premise that the fracking industry, while depressed now, is simply going through a down cycle.

In other words, today’s pain is tomorrow’s gain.

Rig counts are indeed down, as this graph from Oilprices.com shows:

Graph courtesy of Oilprices.com

Ample supplies have resulted in falling prices.

Natural gas inventories have surged this year, rising from a low point of 1,155 billion cubic feet (Bcf) in April to 3,724 Bcf at the end of October.

The falling rig count has reverberated down the supply chain.

The cost of consumables, like Permian frack sand, is down about 80% from its peak, Joseph Triepke, president of consultancy Infill Thinking, is quoted as saying.

Prices across the commodity spectrum have been undermined this year by a strong dollar and trade fears creating pessimistic investor sentiment. Oil and natural gas prices, however, have seen short-term support, as supply-side fears have spiked sentiment (only to fall back as fears have proved unfounded).

Having been boosted by the attacks to key Saudi Arabian production infrastructure earlier this summer, global oil prices came under further pressure as Saudi Arabia recovered rapidly in Q3, when output was back up to 10.3 million barrels per day in October.

Meanwhile, Iran announced it had discovered a giant oil field in the country’s south, Oilprices reports. The field may hold as much as 50 billion barrels of oil — almost as big as all of the reserves held in the U.S. (around 61 billion barrels).

If and when oil from Iran’s new field ever reaches world markets, however, is another matter.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Indeed, Goldman’s advice appears to be for the long term.

Prices are not expected to recover anytime soon, with the bank suggesting it could be a year or two before falling output brings the market back into sufficient balance for prices to rise.

The normally pragmatic Netherlands has been strangely agitated recently, as both the construction and agricultural industry have protested on the streets of the capital, the Hague, against the government’s measures for combating nitrogen and PFAS-based pollution.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

In itself this would barely be newsworthy for MetalMiner if it weren’t for the impact it is having on an already subdued metals industry.

Even before the widespread disruption to the Dutch construction industry, demand for steel and aluminum was suffering from depressed German industrial consumption, largely due to a downturn in the automotive market.

But in the Netherlands, the government is struggling to resolve an issue with nitrogen emissions permitting, which Reuters reports are four times the E.U. average per capita in the small and densely populated Netherlands.

Although 61% of emissions are coming from agriculture, a sizable portion also comes from the construction industry – a big consumer of aluminum and steel products.

The impact is particularly damaging, as the country has been enjoying a boom in infrastructure and housing investment of late.

As a result of a fiasco over how permits are assessed, a review is underway and, in the meantime, new permits have been withheld, leading to delays and project uncertainty.

Aluminum extruders estimate the European market is down at least 20% from last year as a result. With steel prices also waning, participants across the supply chain are reducing inventories, adding further to the fall in demand being experienced by producers.

Lead times have come in and order books are weak, as many in the steel and aluminum supply chains find themselves overstocked relative to ongoing demand. The double whammy of weak automotive demand now being exacerbated by a fall in construction activity has caught many by surprise.

Want to see an Aluminum Price forecast? Take a free trial!

The government in the Netherlands will no doubt resolve its permitting issues. However, a return to last year’s robust level of activity is unlikely to bounce back quickly and producers remain pessimistic about demand next year.

In the meantime, prices are likely to remain under pressure and lead times will remain short into 2020.

The Renewables Monthly Metals Index (MMI) fell one point for a November MMI reading of 97.

Slowing Cobalt Mine Output

According to research group Antaike, global cobalt output growth is expected to slow in 2020, Reuters reported.

The report cites Antaike nickel analyst Joy Kong, who said cobalt production is expected to rise by 5,000 tons in 2020.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

The cobalt price has suffered over the last 18 months. On the LME, cobalt has plunged from around $95,000 per ton as of March 2018 to as low as $25,000 per ton earlier this year.

Cobalt is coveted for, among other applications, its use in electric vehicle (EV) batteries, which will be expected to drive demand for several metals as EV demand rises.

However, plunging prices have proved to be a challenge for miners, even mining giant Glencore.

Earlier this year, Glencore announced it would idle production at its Mutanda copper and cobalt mine — the world’s largest cobalt mine — in the Democratic Republic of the Congo by the end of the year.

MetalMiner’s Stuart Burns earlier this year weighed in on the miner’s decision.

“Glencore has a record of taking the hard decisions early and shuttering mines that are loss-making,” he wrote.

“The miner closed zinc mines in 2015 in response to low global prices; its actions are credited with helping the zinc market recover as a result.

“Cobalt demand has traditionally been driven by its use as an alloying element, but it is increasingly being seen as part of the lithium battery demand story because of its role in production of advanced batteries. The electric vehicle (EV) market, though, has failed to match up to its hype this decade. Although both lithium and cobalt prices have risen as a result of battery makers securing their supply chain, the reality is supply is perfectly adequate.”

In fact, LME cobalt has had some upward momentum in recent months, reaching $35,000 per ton this week.

Furthermore, Burns added the fundamentals for the much-coveted cobalt remain strong.

“In the longer term, though the fundamentals remain solid, EV sales will rise over the next decade as prices become more affordable, ranges extend and charging infrastructure improves,” Burns explained. “Glencore is putting Mutanda on care and maintenance for the next two years, after which it will review its options.

“Taking some 20% of global supply out of the market will put a floor under prices and shorten the timeframe over which prices will recover.”

Trafigura’s Bet on Cobalt

Sticking with the cobalt theme, Burns delved into trader Trafigura’s bet on cobalt amid its price resurgence in recent months.

“According to the Financial Times, Trafigura is betting that the Mutoshi mine, which is owned by DRC-based company Chemaf, can become a competitive producer, just as demand starts to rise on the back of a global rise in EV sales,” Burns wrote.

“Trafigura is looking to contribute financing in return for marketing rights on the cobalt. Mutoshi hopes to produce 16,000 tons of cobalt annually by the end of next year, should financing be put in place.”

GOES

The GOES Monthly Metals Index (MMI), which tracks grain-oriented electrical steel, dropped five points for a November reading of 181.

The GOES price fell to 2.6% month over month to $2,499/mt as of Nov. 1.

AK Steel, the only U.S. producer of electrical steel, recently reported its third-quarter financial results. In the third quarter, the company’s stainless/electrical segment saw shipments of 187,900 tons, down from 206,600 tons in Q3 2018.

Meanwhile, for the nine months ending Sept. 30, AK Steel’s stainless/electrical segment saw shipments of 592,900 tons, down from 628,800 tons during the same timeframe in 2018.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Actual Metal Prices and Trends

The U.S. steel plate price fell 7.1% month over month to $684/st as of Nov. 1.

Chinese steel plate fell marginally to $572.71/mt. Korean steel plate jumped 1.3% to $555.83/mt. Japanese steel plate fell 0.2% to $796.27/mt.

The Chinese silicon price increased 1.6% to $1,463.76/mt.

buhanovskiy/AdobeStock

Editor’s Note: This article has been corrected to reflect the most recent AISI capacity utilization rates and the price delta between the ROW and the US.

Judging by the plunging share price of steel producers and the collapse in steel prices from $1,006 per ton just over two years ago to $557 now, it would seem that Steelmageddon — the term famously coined by Bank of America Merrill Lynch — is upon us.

Or is it?

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

A recent Fortune article puts steel producers at fault for rushing to restart idled capacity and even investing in new facilities following President Donald Trump’s imposition of a 25% import duty in 2018.

The measure did meet its objective of lifting capacity utilization from 73% to 80%, as domestic steel mills became more competitive behind the tariff barrier. Though utilization rates dipped in late August through mid-October, they have since come back above 80%.

If that were the end of the story, it is possible steel producers would still be able to play the market by maximizing sales with their 25% buffer against imported steel.

As exemptions have been granted to major trading partners such as Canada and Mexico, that has minimized the benefits of the tariffs for domestic producers. Initially, U.S. producers were at best only 1-2% below the price of imported steel, taking the majority of the 25% as increased profit.

But today, the price delta between the ROW and the U.S. is virtually nonexistent.

Some would argue a global trade war waged by the president, specifically but not exclusively with China, has also contributed to a slowing of steel demand. The counter-argument suggests that while we have seen a drop from 2018, the reality is that we might be at the end of a long-running expansionary business cycle that would have seen slower demand anyway.

The article argues the rise in domestic steel prices has made some U.S. manufacturers less competitive for both domestic sales and their exports. But our own data suggests that 12 out of 18 manufacturing sectors in 2018 had record profits, despite tariffs.

Now, steel plants are being idled again as oversupply is depressing prices below the level seen even before the imposition of the 25% import tariff.

CNN reported U.S. Steel recently announced it would temporarily shut down a blast furnace at its venerable Gary, Indiana facility, another at a facility near Detroit and idle a third plant in Europe due to weak demand and oversupply.

Steel producers’ earnings have headed south in lockstep with falling demand.

Fortune states the combined earnings of U.S. Steel, AK Steel, Steel Dynamics and Nucor tumbled more than 50% in the first two quarters of this year. Capacity utilization dipped back below the 80% target primarily in September and October but has since recovered to 81.6% according to the latest AISI data for the week ending Nov. 2 and year-to-date capacity utilization reached 80.3% compared with 77.5% from a year ago.

The basis of the Section 232 justification was that the U.S. needed to maintain a level of investment and capability in the steel industry as a matter of national security, that certain steels were critical for military and strategic requirements.

Although the defense secretary at the time, James Mattis, said the military needed just 3% of U.S. production of steel and aluminum and that imports didn’t hinder its ability to protect the nation, there are some countries – the U.K. is an example — where the domestic steel industry has been allowed to wither so significantly that it now relies on imports of critical defense materials, like steel, for the hulls of its nuclear submarines.

A better counter would be to question whether tariffs were and remain the best way to protect investment and capability in those strategic areas of production.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Either way, a global slowdown, coupled with a rush to return capacity to production, has created an oversupplied market in which steelmakers have suffered.

Nor will demand return anytime soon if the World Steel Association is correct.

The association forecast U.S. steel demand will slow to 1% in 2019 (from 2.1% growth last year). In 2020, growth is expected to crawl to just 0.4%, quite possibly prompting the closure of yet more mills and a return to pre-tariff levels of profitability and capacity utilization.

That’s not what the market or the industry wanted. However, to answer the headline, until we see a crash in the steel capacity utilization rate, it’s hard to argue Steelmageddon has arrived.

bas121/Adobe Stock

Before we head into the weekend, let’s take a look back at the week that was and some of the metals coverage here on MetalMiner, which included a PwC report on mining and metal deals, global steel production, lead and zinc forecasts, and an automotive merger of PSA Groupe and Fiat Chrysler.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!