Articles in Category: Supply & Demand

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This morning in metals news, British Steel could have a buyer lined up, protests have disrupted copper mine activities in Peru and the American Iron and Steel Institute (AISI) released July steel import data.

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British Steel Update

According to The Guardian, a Turkish military pension fund will emerge as the preferred bidder for British Steel, which could ultimately save thousands of jobs, including around 4,000 jobs at its Scunthorpe plant.

The British steelmaker, the U.K.’s second-largest steelmaker went into liquidation earlier this year after it failed to secure a government loan, leading to a bidding process began for the firm.

Greybull Capital purchased the firm from Tata Steel for a ceremonial £1 in 2016.

Protests Disrupt Peruvian Copper

Protests have disrupted copper flows in the world’s No. 2 copper producer, Peru.

According to Reuters, anti-mining protests in the country have prevented approximately $400 million in copper exports from reaching their destinations.

U.S. Steel Import Market Share Hits 19% in July

The U.S.’s steel import market share reached 19% in July, according to the American Iron and Steel Institute this week, citing the U.S. Department of Commerce’s Steel Import Monitoring and Analysis data.

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Steel import permit applications surged in July. Applications totaled 3.57 million tons in July, up 31.0% from June and up 75.1% from June’s final total of 2.04 million tons.

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This morning in metals news, U.S. and Chinese trade negotiators resumed talks this week, Goldman Sachs is pessimistic about copper supply and smaller Chinese steel mills are shaking off anti-pollution laws in an effort to compete against larger steel firms in the country.

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Trade Talks

After trade talks fell apart in May despite significant optimism, China and the U.S. are back at the negotiating table this week.

Negotiators are meeting in Shanghai for the latest round of trade talks aimed at ending the escalation of tensions that have boiled over throughout the last year.

White House economic adviser Larry Kudlow downplayed the resumption, telling CNBC that he did not expect any “grand deal” coming out of this week’s Shanghai talks.

Copper Supply Troubles

Goldman Sachs is bearish on the copper supply market ahead, Bloomberg reported.

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According to the report, copper treatment charges in China have fallen to their lowest level in seven years, which could engender production cuts.

China’s Small Steel Mills

Smaller steel mills in China are bypassing environmental regulations aimed at stemming pollution in the country, Reuters reported.

According to the China Iron and Steel Association (CISA), smaller steel firms raised production by approximately a quarter through the first five months of the year, compared with 6.2% among CISA’s larger members.

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The International Lead and Zinc Study Group (ILZSG) released its latest report on lead and zinc today, showing supply deficits for both through the first five months of the year.

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Zinc Market at 123 KT Deficit

The zinc market was in deficit by 123,000 tons over the first five months of the year, according to the ILZSG.

January-May zinc mine production hit 5.27 million tons, up 1.4% from 5.20 million tons during the equivalent five-month period in 2018. According to the report, the increase was paced by a “substantial” increase in Australian zinc mine production, in addition to increases seen in Namibia, South Africa and Sweden.

Meanwhile, zinc mine output fell in China, India, Peru, Turkey and the United States.

Mine production in May hit 1.12 million tons, down from 1.13 million tons the previous month.

Refined zinc metal production reached 5.39 million tons, down from 5.45 million tons the previous year. May production reached 1.12 million tons, up from 1.11 million tons in April. Refined production increases in Mexico and Peru were canceled out by declines in Canada, China, India and Russia.

Zinc usage fell 0.6%, paced by declines in China and the E.U. Usage increased, however, in Brazil, India, the Republic of Korea, South Africa and the United States.

Lead Deficit Hits 42 KT

Meanwhile, the lead market deficit for the first five months of the year reached 42,000 tons.

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Lead mine production for the first five months of the year reached 1.94 million tons, up from 1.91 million tons for the same period in 2018. Canada, India, Mexico, Peru and Sweden saw increases, while production in Australia and China fell.

Lead metal production increased 2.6%, up to 4.83 million tons, up from 4.71 million tons.

Lead usage surged 2.8% during the five-month period to 4.88 million tons, powered by increases in China, India and Taiwan.

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According to the International Lead and Zinc Study Group’s (ILZSG) most recent report, the global lead and zinc markets both were in deficit through the first four months of the year.

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Zinc Deficit Hit 97,000 Tons

Global refined zinc supply fell short of demand by by 97,000 tons over the first four months of the year, according to the ILZSG.

World zinc mine production jumped by 1.5% during the four-month period to 4.12 million tons, paced largely by an increase in Australia, in addition to smaller increases in Europe, Namibia and South Africa. Meanwhile, zinc mine production fell in China, India, Mexico, Peru and the United States.

Meanwhile, refined zinc metal production fell during the first four months of the year to 4.25 million tons, down from 4.35 million tons during the equivalent period in 2018. According to ILZSG, refined zinc metal production increased in Mexico and Peru but fell in China, India and Russia.

Zinc usage, meanwhile, fell 1.3% to 4.35 million tons through the first four months of the year, depressed by a fall in apparent demand in China. Usage in the U.S., India, Japan and Europe remained flat.

Lead Deficit Reaches 39,000 Tons

The lead metal deficit for the first four months of the year hit 39,000 tons, according to the ILZSG.

Lead mine production ticked up 0.7% to 1.54 million tons, paced by increases in Sweden, India and Peru but partially offset by a decline in China.

Lead metal production also picked up during the four-month period, rising 2.3% to 3.87 million tons, paced by higher output in China, India and South Korea.

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Lead metal usage also increased 2.3%, up to 3.90 million tons for the four-month period.

According to ILZSG, China’s imports of lead contained in lead concentrates increased by 30.7% to 260,000 tons, while its net imports hit 67,000 tons compared with 13,000 tons of net exports during the same period in 2018.

According to the latest joint report from the U.S. Census Bureau and the Department of Housing and Urban Development, U.S. housing starts in April fell 2.5% compared with April 2018.

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However, April starts ticked up 5.7% from the previous month.

April housing starts reached a seasonally adjusted rate of 1,235,000, up from 1,168,000 in March but down from 1,267,000 in April 2018.

Drilling down further, single‐family housing starts in April came in at a rate of 854,000, marking an increase of 6.2% from the revised March total of 804,000. Meanwhile, the April rate for units in buildings with five units came in at 359,000, the joint report showed.

Privately owned housing completions in April fell 1.4% from the previous month, coming in at a seasonally adjusted annual rate of 1,312,000.  The April completions total, however, increased 5.5% on a year-over-year basis (April 2018 completions reached 1,244,000).

Single‐family housing completions in April came in at a rate of 918,000, down 4.1% from the revised March rate of 957,000. Meanwhile, April rate for units in buildings with five units or more was 381,000, up from 364,000 in March.

In terms of housing permits, privately owned housing units authorized by building permits in April hit a seasonally adjusted annual rate of 1,296,000, up 0.6% from the revised March rate of 1,288,000. However, the April figure marked a 5.0% decline from the April 2018 rate of 1,364,000.

Single‐family authorizations in April reached 782,000, down 4.2% from the revised March figure of 816,000.

Authorizations of units in buildings with five units or more were at a rate of 467,000 in April, up from 425,000 in March.

Lawrence Yun, chief economist for the National Association of Realtors® (NAR), recently delivered his mid-year home sales forecast.

“Home sales should be much stronger based on the economic fundamentals of jobs, interest rates, population and consumer confidence,” Yun was quoted as saying in an NAR release.

Yun added, however, there could be a rise in relocation of people and companies seeking more affordable markets.

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“While affordability has been sliding, it is still better than we saw in the year 2000,” Yun said. “This is due to much lower mortgage interest rates today.”

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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 storylines here on MetalMiner:

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  • MetalMiner’s Belinda Fuller’s Raw Steels MMI report runs down the month in the raw steels sector.
  • The World Bank recently launched a new fund targeting the development of sustainable mining practices to support renewable energy installation.
  • Stuart Burns on steelmaker ArcelorMittal’s decision to idle production at a number of its European facilities.
  • U.S.-China trade talks took a turn over the last week.
  • Fuller on rising China HRC prices.
  • Stocks markets have felt the pain on the heels of the latest chapter in the ongoing U.S.-China trade war saga.
  • What’s next for Tata Steel after its planned joint venture with German firm Thyssenkrupp fell apart amid regulatory scrutiny?
  • The International Lead and Zinc Study Group forecast a global surplus for lead this year and a zinc deficit.

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The International Maritime Organization’s (IMO) Jan. 1, 2020 deadline for shipping companies to use low-sulfur (0.5% max) fuel has been on and off in the news for months, but without much interest from those outside the industry or the environmental organizations that lobbied for its introduction.

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But now, with the deadline just months away, the implications are becoming more apparent.  Shipping lines are scrambling to fit scrubbers, but some are finding they have left it too late.

It currently takes some six weeks to retrofit a scrubber. With the surge in demand for scrubber equipment and a shortage of qualified engineers, yards are full of work over the next 12 months. Some 4.4 million twenty-foot equivalent units (TEU) in container ship capacity is taken out of service this year, according to JOC. That amounts to about 380 container ships and is already contributing to the worst on-time performance by carriers on the Asia-U.S. trades since 2012, the article reports.

In total some 550 box ships, totaling 6 million TEU, are due to be equipped with scrubbers — at a rate of about 30 vessels a month, consequently squeezing capacity.

Not all vessels are going for scrubbers, despite the current cost advantage.

The majority of vessels will opt to burn low-sulfur fuel oil, for which the premium is between U.S. $170 and $320 per metric ton over 3.5% sulfur fuel (apart from South America, where low-sulfur fuels already predominate and the premium is only $40/ton).

It costs between U.S. $5 million and $10 million for a scrubber system depending on the vessel and where it is fitted, plus greater maintenance and the downtime required for installation. But the price difference between low-sulfur fuel oil and heavy fuel oil can add U.S. $1 million to an Asia-Europe round trip for a ULVC.

Those opting not to fit scrubbers but pay the fuel premium are either biding their time by waiting for an installation slot or hoping the fuel premiums will fall. The change will likely also hasten the scrapping of older vessels deemed uneconomic to retrofit or operate at the higher fuel costs.

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As a result, shippers can expect rates to rise this year and next — either as a result of reduced capacity or lines paying higher bunker premiums (or both).

After a chilly February for U.S. housing starts, starts were down again in March.

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According to a monthly report released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, privately owned housing starts in March were at a seasonally adjusted annual rate of 1,139,000.  March starts were down 0.3% from the revised February estimate of 1,142,000. Furthermore, March starts were down 14.2% from the March 2018 rate of 1,327,000.

According to the report, single‐family housing starts in March reached 785,000, down 0.4% from February’s 788,000. Meanwhile, the March rate for units in buildings with five units or more was 337,000.

On the other hand, the decline in housing starts moderated significantly from February. February housing starts plunged 8.7% compared with January. Winter weather is always factor to consider when assessing housing starts early in the year; however, it remains to be seen if the recent declines are part of a growing trend, or if starts will pick up as weather conditions become more amenable to construction.

On the other hand, U.S. housing starts increased from February to March in both 2017 and 2018.

Privately‐owned housing units authorized by building permits in March reached a seasonally adjusted annual rate of 1,269,000, marking a 1.7% decrease from the revised February rate of 1,291,000. March permits were down 7.8% from the March 2018 rate of 1,377,000.

Single‐family authorizations reached 808,000, down 1.1% from the revised February figure of 817,000. Meanwhile, authorizations of units in buildings with five units or more hit a rate of 425,000 in March.

As for completions, privately‐owned housing completions in March reached a seasonally adjusted annual rate of 1,313,000, down 1.9% from the revised February estimate of 1,338,000. However, March proved to be a more productive month on a year-over-year basis, as completions increased 6.8% compared with March 2018’s rate of 1,229,000.

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Single‐family housing completions in March reached 938,000, up 11.9% from the revised February rate of 838,000. For units in buildings with five units or more, the March rate reached 364,000.

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The World Steel Association released its March global crude steel production report, detailing global crude steel production rose 4.9% year over year.

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March 2019 production reached 155.0 million tons. For the first three months of the year, production reached 444.1 million tons, up 4.5% compared with the first quarter of 2018.

Asia produced 312.9 million tons of crude steel, marking a 7.0% increase over the first quarter of 2018. Elsewhere, E.U. production reached 42.3 million tons of crude steel in the first quarter of 2019, marking a 2.0% decrease. North American crude steel production in Q1 reached 30.7 million tons, up 4.0% year over year.

China’s crude steel production for March 2019 hit 80.3 million tons, up 10.0% year over year. China’s program of winter production cuts ran from November through March, but Reuters earlier this month reported the country’s top two steelmaking cities, Tangshan and Handan, announced they would extend the production cuts.

India produced 9.4 million tons of crude steel in March 2019, falling 1.0% from March 2018. Japan’s production hit 9.1 million tons, holding flat from March 2018. South Korea’s production rose 2.8% to 6.3 million tons.

In Europe, Italy’s crude steel production fell 0.3% to 2.3 million tons, while France’s rose 2.3% to 1.4 million tons. Spain also produced 1.4 million tons, good for an increase of 5.9%.

The U.S. produced 7.8 million tons of crude steel in March 2019, marking a 5.7% year-over-year increase. According to the American Iron and Steel Institute (AISI), the U.S.’s adjusted year-to-date production through April 20 hit 29.95 million net tons, at a capability utilization rate of 81.9%. Production during that aforementioned period was up 6.9% from the equivalent period in 2018, during which the capability utilization rate was 76.4%.

Ukraine’s production spiked 15%, up to 2.0 million tons, while Brazil’s fell 8.6% to 2.8 million tons.

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Turkey’s production continued to decline, falling 11.7% in March down to 3.0 million tons. Turkey has struggled with shrinking export markets in the face of the U.S.’s Section 232 tariffs and the E.U.’s steel safeguard measures passed earlier this year.

According to a release on the China Iron and Steel Association website, the president of the Turkish Steel Exporters’ Association Adnan Aslan recently said Turkish steel exports could decline to 15-16 million metric tons in 2019, down from 21.4 million metric tons in 2018. In addition, Aslan highlighted the importance of tapping into new markets for the Turkish steel sector, including Southeast Asia, West Africa and Latin America.

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What a difference a month makes in commodity markets.

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Just a month back, we reviewed the delicate balance OPEC was facing in trying to drive prices higher without having to make further cuts in output.

It seemed every time they squeezed the market higher, greater U.S. shale output slowed the advance, yet OPEC lost market share.

But now the U.S. seems to be coming to OPEC’s aid.

The market was finely balanced after a loss of output from Libya, where a civil war is raging, and Venezuela, where state bankruptcy and U.S. sanctions have put output into what appears to be, if not terminal decline, then a fall that could take many years of investment before it can recover.

The Financial Times and the Times both reported this week that moves by the Trump administration to remove waivers previously granted to key oil-consuming countries has taken the market by surprise. The news caused oil prices to spike in anticipation of the market being deprived of Iranian production.

Japan, South Korea, Turkey, India and China will, according to the Financial Times, face pressure to cancel Iranian oil imports as the U.S. seeks to increase pressure on Tehran over what it sees as its role in state-sponsored regional terrorism.

Source: Refinitiv

The oil price has already risen sharply this year. Brent crude climbed 2.6% on Monday to $73.80 a barrel, after hitting a high of $74.31 in early Asia trading following the announcement by a U.S. official. West Texas Intermediate, the U.S. marker, rose as much as 1.2% to a high of $64.74, the highest intraday level in two weeks, the Financial Times reported.

According to the Financial Times, the U.S. hopes its traditional oil-producing allies will raise output to offset further falls in Iranian supply — as they did last year — but this decision is not without complications.

Saudi Arabia and OPEC are in conflict with the U.S. in wanting higher oil prices and a balanced market, yet the U.S. is making no efforts to restrict its own shale oil output, expecting OPEC to raise or lower its supply to keep prices stable.

The latest forecasts from major agencies, including OPEC and the U.S. Energy Information Administration, see the market in a deficit of up to 500,000 barrels a day this year, before more supplies from Iran — and possibly Venezuela and Libya — are lost, the Financial Times reports.

A tighter oil market will increase gasoline prices, contrary to a campaign pledge from the president to lower them. The U.S. still imports at least one-third of its oil supply and remains exposed to global oil prices, despite being the largest producer in the world this year.

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It would appear prices could rise further as the removal of waivers begins to bite and major consumers switch to other supply sources. Despite slower global growth, energy and transport costs look set to continue to rise. (We will be covering a development in marine transport next week that predicts higher container rates in 2019-20 and suggests supply chain managers should be factoring in higher costs later this year and next.)