Articles in Category: Supply & Demand

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This morning in metals news, China’s steel sector continues to churn out more and more steel, copper prices soared to a nine-month high, and the oil price surged on falling U.S. stockpiles.

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China Steel Production

Despite a program of winter production curbs, 2018 proved to be a record year for Chinese steel production.

In the early months of 2019, that production shows no signs of abating (much to the chagrin of producers in other markets decrying the state of global overcapacity).

China’s first-quarter steel production hit 231 million tons, up 10% year over year and marking the largest Q1 output on record, Bloomberg reported.

Copper Hits 9-Month High

The copper price continues to ride a hot streak, hitting a nine-month peak Wednesday, Reuters reported.

Powering the rise was stronger-than-expected growth in the Chinese economy, according to the report, which grew 6.4% in Q1.

Oil Prices Rise to 2019 Peak

Speaking of price gains, the oil price has also shown upward momentum.

Brent crude reached $72/barrel on Wednesday, Reuters reported, partially driven by a drop in U.S. crude stocks.

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Meanwhile, the Energy Information Administration (EIA) released its Summer Fuels Outlook today, which forecasts U.S. gasoline prices will be lower this coming summer compared with summer 2018.

“Because gasoline and diesel taxes and distribution costs are generally stable across the United States, changes in U.S. retail gasoline and diesel prices are generally driven by changes in crude oil prices,” the EIA report explained. “EIA forecasts the Brent crude oil price to average $67 per barrel (b) this summer, the equivalent of $1.60/gal, compared with an average of $75/b, or $1.78/gal, last summer.”

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This morning in metals news, the price of SHFE rebar continued its rise Tuesday, the Aluminum Association released its first new material registration record in almost two decades and Brazilian steelmakers are struggling with an iron ore shortage.

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Shanghai Rebar Rises

The price of Shanghai rebar reached its highest level in over seven years amid expectations of infrastructure-related stimulus measures in China, Reuters reported.

The Shanghai rebar price closed up 1.4% Tuesday at 3,829 yuan ($570.45) per ton, according to the report.

Aluminum Association Announces Material Designation System for 3D Printing

The Aluminum Association this week released its first material designation record in almost two decades.

The designation covers so-called “purple sheets,” which cover aluminum powder used in 3D printing.

“The purple sheets are the newest addition to the Aluminum Association’s long-running ‘rainbow sheet’ series, which provides alloy designations and chemical composition limits for various types of aluminum,” the Aluminum Association said in a release. “Aluminum is the first materials industry to develop such a system specific to the 3D printing market.
“The first registration granted is for a high-strength aluminum alloy produced by HRL Laboratories, LLC. The association will grant HRL registration number 7A77.50 for the aluminum powder used to additively manufacture the alloy, and number 7A77.60L for the printed alloy.”

Iron Ore in Brazil

Brazilian steelmakers are facing a shortage of the key steelmaking ingredient iron ore in the months after Vale SA’s fatal dam breach at its Corrego do Feijao mine, Reuters reported.

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The company’s decision to halt operation at 10 of its sites in the southeastern state of Minas Gerais has disrupted supplies of iron ore pellets to steelmakers, according to the report.

According to Reuters, spot 62% grade iron ore for delivery to China recently rose 1.6% to $93 per metric ton and the most-traded May 2019 iron ore contract on the Dalian Commodity Exchange soared as much as 4.1% to 710.5 yuan ($106) per ton — the highest for the Asian benchmark since 2013.

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Such robust price performance was not a one-day spike, but was reflected across the week as the contract gained nearly 10% during the first week of April on a combination of strong steel mill buying and concerns over constrained supply from both Australia and Brazil.

Nor was the bullish sentiment confined to iron ore, as Reuters reported coking coal on Monday rose 1% to 1,258.5 yuan ($187.29) a ton, and coke rose 1.4% to 2,048.5 yuan ($304.86).

Demand is at its seasonal peak as the weather warms in China and construction work begins in earnest, pushing up steel futures by more than 3% in early April. According to Reuters, the most-active construction steel rebar contract on the Shanghai Futures Exchange recently rose as much as 3.6% to 3,710 yuan ($552) a ton, its highest since Aug. 22, while hot-rolled coil jumped as much as 3.4% to 3,955 yuan a ton ($588).

Such performance suggests the steel market is roaring in China, fueled by another infrastructure spending spree, but the reality is something different.

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Japan’s Sumitomo Metal Mining Co., Ltd., the second-largest producer of copper in Japan unveiled its fiscal year 2019 production guidance on Monday (for the year beginning this month).

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The company guidance calls for production of 420,000 tons of electrolytic copper. That total marks a 0.8% decline, or 3,200 tons, from FY 2018’s copper output.

Sumitomo notes maintenance work is scheduled for 35 days in FY 2019, which will impact copper production. The maintenance work will take place at the Toyo Smelter & Refinery in late October.

Electrolytic nickel production is expected to hit 62,600 tons, down 3.5%, or 2,300 tons, from FY 2018 production.

Ferronickel production, meanwhile, is expected to reach 13,330 tons, up 900 tons from FY 2018.

“In FY2019, we will continue to operate with two kilns and one electric furnace, the optimum production setup in terms of the current raw materials procurement environment,” Sumitomo said in its guidance statement.

Like copper, the company’s ferronickel segment also has planned maintenance work this fiscal year. At its Hyuga Smelting Co., Ltd., there will be maintenance work carried out on one line for 24 days in September and for nine days in February. Work on the other line at the smelter is scheduled to take place for nine days in September and for 27 days over February and March, according to the company release.

Gold production is expected to reach 16,200 tons. Silver production guidance for FY 2019 is 217,200 tons.

In other company news, Sumitomo recently announced it had discovered a new process to “recover and recycle cobalt in addition to copper and nickel from used lithium ion secondary batteries and intermediates generated in their production.”

“The process that SMM has developed selectively recovers nickel, cobalt and copper as an alloy by using a pyrometallurgical refining process independent of the existing process to separate majority of impurities from lithium ion secondary batteries,” a Sumitomo released explained. “Then the alloy is leached and refined by a hydrometallurgical process to recycle the nickel and cobalt for use as a battery material and the copper for electrolytic copper.”

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According to the release, the company established a pilot plant for this new recycling process in the city of Niihama, where the company will assess feasibility of the process and scaling up to “production level.”

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Before we head into the weekend, let’s take a look at the week that was and some of the metals storylines here on MetalMiner:

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Oil prices have rallied this quarter, with Brent crude hitting a peak of U.S. $67.50/barrel, according to oil-price.com.

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Goldman Sachs is quoted in a note to investors as saying the resilient demand growth and supply outages could push prices up to U.S. $70/barrel in the near future.

Against a landscape of supply disruption, the surprise has been strong demand growth.

January saw demand increase by 1.55 million barrels per day year on year. Demand in China, in particular, is stronger than expected, the article noted. Despite subdued global GDP growth, consumers still see the outlook as positive — so, combined with comparatively low gasoline prices, consumption has remained robust.

On the supply side, OPEC and its non-member partners have done a remarkably good job of constraining excess supply. Following an agreement in October to trim production levels by 800,000 barrels a day through June 2019 — supported by Russia and other non-OPEC members matching a further 400,000 barrels a day — producers have managed to achieve most of the 1.2 million barrels of intended cuts.

Compliance has been high, too. MarketWatch reported the 11 OPEC members achieved 79% of their committed cuts in February, according to data from S&P Global Platts — an improvement from 76% a month earlier.

The Joint Ministerial Monitoring Committee, a production policy monitoring group, quoted even higher overall conformity with the production cut agreement last week, saying OPEC in February achieved almost 90% of its 1.2 million barrel daily reduction target. Sanctions against Iran and Venezuela have also made a significant dent to supplies, further squeezing the market.

The 800-pound gorilla is U.S. shale.

According to the Energy Information Administration (EIA), shale is expected to rise further in April, with the seven largest U.S. shale producers pumping 8.592 million barrels a day.

It is the potential for U.S. shale to more than make up for supply-side tightness elsewhere that is probably capping Goldman Sachs’ predictions of price rises beyond $70 a barrel.

MarketWatch quoted Baker Hughes, which reported active rig counts fell for a fourth straight week, suggesting output growth may be stalling — at least for the time being.

Crude price rises may stimulate more drilling if the price remains elevated; too much of a surge, however, will be self-defeating if inventories rise and the price subsequently falls.

The market, therefore, is in a delicate balance.

There is little OPEC and its partners can do to squeeze the market further. Deeper cuts are unlikely to garner support, but there is the option to extend the current cuts beyond the June deadline.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

All eyes will, therefore, be on U.S. tight oil production numbers in the months ahead. The medium-term oil price is largely down to shale oil producers’ enthusiasm to increase production at current prices.

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 Annual Outlook provides 2019 buying strategies for carbon steel

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The International Lead and Zinc Study Group (ILZSG) recently released data for 2018 showing lead and zinc posted supply deficits last year.

Zinc

Zinc supply fell short of demand by 384 kt in 2018, according to the ILZSG.

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Zinc mine output “increased significantly” in Australia in 2018, while output jumped 5.9% in Europe, paced by higher output in Finland, Greece, Macedonia and the Russian Federation that offset declines in Poland and Sweden. Production was also higher in Bolivia, Brazil, Cuba, Eritrea, Kazakhstan, South Africa, Turkey and the United States, according to the report.

Global production increased by 2% compared to 2017.

Meanwhile, refined zinc metal output was flat in 2018 compared to 2017, while zinc usage fell 0.3% year over year.

China’s imports of zinc contained in zinc concentrates increased 20.1% year over year last year, while its imports of refined zinc metal surged 4.7% year over year to 693 kt.

China led the way in zinc mine production with 4.4 million tons out of a global total of 12.9 million tons (up from 12.6 million tons in 2017). Peru produced 1.5 million tons, while Australia and Europe produced 1.1 million tons apiece.

As for prices, LME zinc ranged between a low of $2,287 per ton on Sept. 17 and a high of $3,618 per ton on Feb. 16. Average cash settlement prices rose 0.9% year over year to $2,922 per ton.

LME zinc price in 2018. Source: LME

Lead

Similarly, lead also posted a supply deficit in 2018.

Demand for refined lead metal exceeded supply by 98 kt in 2018, according to the ILZSG.

Lead mine output fell 3.4% year in year in 2018, up from the 3.2% year-over-year drop the previous year. Production fell in Kazakhstan, Peru, Mexico and the U.S., but rose in Europe, Australia, Cuba, India and Turkey.

Refined lead metal usage rose 0.2% year over year last year, with a notable year-over-year increase of 8.3% in India. China’s usage jumped 0.8% year over year.

Speaking of China, its 2018 imports of refined lead metal rose 56.4% year over year. Imports of lead contained in lead concentrates fell 1.3%.

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China led the way in mine production with 2.1 million tons in 2018 out of a global total of 4.7 million tons. Australia produced 488,000 tons and Europe produced 447,000 tons.

LME lead price in 2018. Source: LME

The LME lead cash settlement price traded within a band of $1,867 on Oct. 31 and $3,021 on May 14. The cash settlement price averaged $2,245 per ton in 2018, down 3.1% from the previous year.

Two major dam disasters in three years are enough to put the frighteners on investors and get the media abuzz with talk of supply-side shortages.

Yet as small as Vale’s production loss is, the fact remains the market is relatively tight, and supply is becoming an issue again after many years of plenty.

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According to Reuters, the Corrego do Feijao mine shutdown will result in only a 1.5% production loss to Vale, hardly enough in itself to create a surge in the iron ore price to a four-and-a-half-year high of over $100 per ton last week.

The fear appears to be more about what comes next.

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Before we head into the weekend, let’s take a look back at some of the metals storylines here on MetalMiner this week:

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