Articles in Category: Supply & Demand

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.

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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.

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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.

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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.

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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.

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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?

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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.

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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.

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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.

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This morning in metals news, the Federal Reserve has cut interest rates for the third time this year, AK Steel released its third-quarter financials and 16 steel industry associations praised the work of the Global Forum on Steel Excess Capacity.

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Fed Cuts Rates Again

For the third time this year, the Federal Reserve announced a downward adjustment to its federal funds rate.

The Fed lowered its federal fund target rate range by one-quarter of a percentage point, down to 1.50-1.75%.

“Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said in a release. “Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

In a pair of tweets, President Donald Trump again criticized the Fed and its chairman, Jerome Powell.

“People are VERY disappointed in Jay Powell and the Federal Reserve,” Trump wrote. “The Fed has called it wrong from the beginning, too fast, too slow. They even tightened in the beginning. Others are running circles around them and laughing all the way to the bank. Dollar & Rates are hurting our manufacturers. We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is! We will win anyway.”

AK Steel Releases 3Q Results

Ohio-based AK Steel announced adjusted EBITDA of $86.9 million in the third quarter, down from $160.8 million in 3Q 2018.

Net sales of $1.5 billion in the third quarter marked a 12% year-over-year decrease.

“Our third quarter results were essentially in line with our expectations despite a challenging environment,” CEO Roger K. Newport said. “We continued to make solid progress in our strategy to focus on higher-value business during the quarter. As we look to 2020, we are excited about our prospects, particularly in automotive where we expect meaningful market share growth.”

Steel Associations Applaud GFSEC Members’ Work on Excess Capacity

A group of 16 steel industry associations around the world released a statement praising the work of members involved in the Global Forum on Steel Excess Capacity and asking for that work to continue.

In addition, the associations “called upon the few dissenting members to reconsider their current position as quickly as possible.”

“According to the latest OECD information, there are 440 million metric tons of steel excess capacity in the world today. This is an increase of 6.5 percent over last year,” the groups said in a joint statement. “Governments of steelmaking economies worldwide must redouble their efforts to address this persistent global excess capacity in the steel sector, eliminating the support measures that cause it, and implementing strong rules and remedies that reduce excess capacity. We call on governments to continue the work on the issue of steel excess capacity without delay.”

China has been critical of the forum, arguing that it has done enough to work toward addressing the issue of steel excess capacity, the South China Morning Post reported.

The U.S. has also been critical of the forum, claiming it has not been effective.

“The decision by a vast majority of Global Forum members to continue the work of the Forum beyond 2019 is a recognition that severe excess capacity is a continuing crisis,” the Office of the United States Trade Representative said Saturday. “The Global Forum’s policy prescriptions and information-sharing process will not alone resolve the crisis of excess capacity in the global steel sector. This will only happen when those that have created the problem take concrete steps toward true market-based reform. Participation in the Global Forum process is a signal of each member government’s commitment to adhere to principles intended to ensure market-based outcomes.”

In 2017, the USTR said the forum “has not made meaningful progress yet on the root causes of steel excess capacity.”

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The groups issuing the call for continued action were: Steel Manufacturers Association (SMA), American Iron and Steel Institute (AISI), EUROFER (the European Steel Association), Canadian Steel Producers Association (CSPA), CANACERO (the Mexican Steel Association), Alacero (the Latin American Steel Association), Brazil Steel Institute, The Japan Iron and Steel Federation (JISF), European Steel Tube Association (ESTA), Specialty Steel Industry of North America (SSINA), South African Iron and Steel Institute (SAISI), The Cold Finished Steel Bar Institute (CFSBI), Indian Steel Association, Association of Enterprises UKRMETALURGPROM (Ukraine), Russian Steel Association, and The Committee on Pipe and Tube Imports (CPTI).

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Global copper mine production through the first seven months of 2019 declined by 1.3% year over year, according to a recent report by the International Copper Study Group (ICSG).

Concentrate production fell 1.0%, while solvent extraction-electrowinning fell by 2.7% during the period, according to the ICSG.

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Protests Shake Top Copper Producer Chile

No. 1 copper producer Chile saw its production fall 2% during the aforementioned period on the back of lower copper head grades and production disruptions.

The country has been rocked by protests in the capital, Santiago, and other cities this month.

Amid the unrest, the country announced it had pulled out of hosting two upcoming major international summits — the Asia-Pacific Economic Cooperation (APEC) summit and the COP25 climate summit —  the BBC reported.

Of note, U.S. President Donald Trump and Chinese President Xi Jinping were scheduled to meet during the APEC summit to discuss a possible first-phase trade deal, according to media reports.

Last week, workers at BHP’s Escondida mine — the world’s largest copper mine — held a daylong strike in solidarity with protestors, Reuters reported. On the heels of protests, which kickstarted nearly two weeks ago, the Santiago stock market has fallen approximately 9%, CNBC reported.

Elsewhere, mine production increased in No. 2 producer Peru; production also increased in Australia, China and Mexico.

Copper Deficit Hits 325K Tons

As for supply, the ICSG reported a global copper deficit of 325,000 tons through the first seven months of the year (excluding Chinese unreported/bonded stocks).

When adjusted for changes in Chinese bonded stocks, the deficit is estimated at 297,000 tons, up from a deficit of 234,000 tons during the same period in 2018.

Refined Production Flat

Meanwhile, production of refined copper during the aforementioned period was about flat compared with 2018 production levels.

For the first seven months of 2019, primary production fell 0.5%, while secondary production from scrap increased 1.5%.

Chile saw a 35% decline in refined electrolytic output “due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations.”

China’s output increased, however, as did output in Australia, Brazil, Iran and Poland.

Prices Rise in September

Copper prices in September made gains.

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The average LME cash price ticked up 0.7% in September compared with the August average, according to the ICSG.

The slight increase comes after the metal touched its 2019 low Sept. 3, falling to $5,537 per ton.

Meanwhile, through the end of September, the 2019 high for the metal was reached March 1 ($6,572 per ton).

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Amid a weakening demand picture for a number of metals, global lead and zinc demand is forecast to decline this year, according to the International Lead and Zinc Study Group (ILZSG).

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Zinc Demand Forecast to Fall in 2019, Bounce Back in 2020

According to the latest ILZSG report, global zinc demand is forecast to fall 0.1% this year to 13.67 million tons and rise by 0.9% in 2020 to 13.80 million tons.

Chinese demand is expected to bounce back after sliding for the past two years. China’s zinc demand is forecast to rise 0.6% in 2019.

“Despite a steep fall in automobile production, output in the galvanising sector increased during first seven months of 2019 compared to the same period of 2018, propelled by rises in property construction and investment in public infrastructure,” the ILZSG report stated.

Chinese demand is forecast to rise 1.2% in 2020.

Meanwhile, European demand is expected to fall 3.7% this year, on the back of declines in Germany and the U.K. The latter’s decline comes as a result of the liquidation of British Steel earlier this year; currently, the U.K.’s Official Receiver is seeking a buyer to take over the ailing firm. Talks with Ataer Holding, an arm of the Turkish military pension fund OYAK, failed to materialize a deal during a 10-week exclusivity period.

In 2020, however, European zinc usage is forecast to rise by 0.5%.

Elsewhere, demand is forecast to fall in India and Japan, with a 2020 recovery forecast for the former and a further decline for the latter.

In terms of supply, zinc mine production is forecast to rise 2% this year and by 4.7% in 2020.

“A significant rise in Australian output this year will mainly be a consequence of the commissioning of the Woodlawn tailings project in May and increased contributions from MMG’s Dugald River mine, Glencore’s Lady Loretta mine, and the tailings projects operated by New Century Resources and Hellyer that were commissioned in 2018,” the ILZSG report states.

Lead Demand Forecast to Fall 0.5%

As for lead, global demand is forecast to fall by 0.5% this year and rise by 0.8% in 2020. Lead usage is forecast to fall 1.1% in China this year; a usage decline is also forecast for both Europe and the U.S.

Lead mine supply, meanwhile, is forecast to increase 1.7% and 3.9% in 2019 and 2020, respectively.

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“The completion of expansions at Hindustan Zinc’s mines in India, combined with substantially higher Australian production, will be major influences on the forecast increase in 2019 output,” the report stated. “Rises are also expected in Mexico, Poland and South Africa. In Bolivia, Kazakhstan and the United States, production is forecast to be lower compared to 2018.”

Lead, Zinc Prices on the Rise

The LME three-month lead price is up 6.28% over the last month, rising to $2,207/mt early this week, according to MetalMiner IndX data.

Meanwhile, LME three-month zinc has surged 10.4% over the last month, up to $2,537/mt.

A recent Platts report offers a worrying picture of overcapacity in the Chinese steel market, which could have ramifications for steel prices worldwide.

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When Europe or the U.S. has an overcapacity issue, domestic producers suffer and domestic prices are depressed, but the effects rarely ripple much beyond the region’s borders.

But in part because of China’s dominance in the steel sector — producing over half the world’s steel — and in part because Chinese producers use exports to dump excess production when the country produces more than it consumes, the rest of the world feels the impact through increased exports of low-cost steel products.

China has been engaged in a multiyear program to shutter outdated, more polluting steel capacity. New additions have been authorized only on a replacement basis, but Platts’ analysis suggests plants that have been closed for some years but not pulled down have been allowed to count towards the construction of new, far more efficient steel plants.

Specifically, the report states China’s net crude steel capacity expansion will total 37.65 million mt per year over 2019-23, of which 34.88 million mt per year is due to come online in 2019. This will take China’s total crude steel capacity to around 1.2 billion mt per year by the end of this year.

In the September-October period of this year alone, China approved eight steel capacity replacement projects, Platts reports, which will see 17.18 million mt per year of pig iron and 13.56 million mt per year of crude steel capacity commissioned in the next 3-4 years.

The new projects are predicated on closures of 19.52 million mt per year of pig iron and 15.21 million mt per year of crude steel capacity (5.18 million mt per year of pig iron and 2.16 million mt per year of crude steel capacity were already closed before the end of 2018).

This means there will be just 14.39 million mt per year of pig iron and 13.04 million mt per year of crude steel capacity closed during 2020-23, resulting in a net increase of 2.79 million mt per year of pig iron and 0.51 million mt per year of crude steel capacity over the period.

The problem is further exacerbated by actual output from new facilities being even higher than headline capacity, Platts reports. The new facilities can produce up to 20% more than the stated installed capacity, possible through improved production technologies — by adding more scrap into the iron and steelmaking process — and by using higher-grade iron ore, the article states.

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Steel demand in China, at least from the construction sector, has been robust this year.

But worrying signs are appearing that supply is exceeding demand.

Rebar margins have fallen to just $29/mt during July-September from $159/mt in the same period last year.

Manufacturing is depressed, particularly in the automotive sector. The property sector is expected to weaken next year as new plants come onstream looking to run at 100% capacity to recoup investment; increased exports may be the inevitable result.

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U.S. housing starts in September dropped 9.4% compared with the previous month, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

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According to the joint report, housing starts in September reached a seasonally adjusted annual rate of 1.26 million, down from August’s 1.39 million. The September rate, however, was up 1.6% on a year-over-year basis.

Single‐family housing starts in September were at a rate of 918,000, marking a 0.3% increase from the previous month. Meanwhile, for units in buildings with five units or more, the September rate reached 327,000.

As for building permits, housing units authorized in September reached a seasonally adjusted annual rate of 1.39 million, down 2.9% from August but up 7.7% on a year-over-year basis. Single‐family authorizations in September checked in at at a rate of 882,000, marking a 0.8% increase from August, while authorizations of units in buildings with five units or more came in at a rate of 470,000.

Privately owned housing completions checked in at a rate of 1.14 million in September, which marked a 9.7% decrease from August and a 1.0% decrease from September 2018.

Single‐family housing completions were down 8.6% in September compared with the previous month, while completions for units in building in five units or more reached a rate of 285,000.

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Late last month, the National Association of Realtors reported pending home sales increased 1.6% in August.

“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, the association’s chief economist. “The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply.”

The NAR’s Pending Home Sales Index jumped to 107.3 in August, with an index reading of 100 indicating average contract activity.

A growing copper supply is not exactly what copper producers wanted to hear, as a new mine with a 100-year life span has been announced.

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Prices have been depressed all year, with worries about deteriorating trade and surplus supply weighing on sentiment.

Anglo American’s $5 billion copper project at Quellaveco in Peru could potentially hold enough reserves to supply a century of production, according to company CEO Mark Cutifani, as reported by the Financial Times.

The article reports the extensive ore body has so far only been defined to a depth of 400 meters. However, with ore grades at over 1%, the mine’s economics are solid.

Further drilling will be required to map the full extent, but preliminary sampling suggests mineralization could extend to 1,000 meters, the company says.

Quellaveco is due to start production in 2022. Once it reaches full capacity, it will produce an average 330,000 tons a year of copper in its first five years; in the company’s words, it will be a license to print money, the Financial Times reported.

Two adjacent mines in the same area have been in production for more than four decades at much greater depths than Quellaveco’s current boundaries, suggesting mineralization is far more extensive than current sampling has identified.

Copper demand is widely expected to rise in the coming decade due to the electrification of cars and the expansion of renewable energy. Currently, however, the market is oversupplied, with RC/TC charges at smelters depressed and little to support prices.

A recent upturn has reversed, as Antofagasta averted a labor strike, reaching a labor agreement with the union at its Los Pelambres mine. Prices subsequently resumed their weak showing, as supply fears quickly eased.

Supply from Quellaveco will not hit the market for some years, even assuming Anglo American manages to bring its project to production on time, which is by no means certain. One of its other major projects, its iron ore mine at Minas Rio, was severely delayed and horribly over budget, for example.

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The company has performed better under Cutifani. The timing for Quellaveco to reach full production in the early to mid-part of the next decade may indeed significantly improve the firm’s prospects if, as widely expected, copper prices have recovered by then.