Articles in Category: Supply & Demand

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The breaking news this week is that Chile’s Escondida mine operator BHP has announced it looks like a strike has been averted and that a settlement plan is being put to the workers.

That is good news for a market widely expected to go into deficit this year, according to Mining.com.

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But the prospect of a strike was all that was holding up the copper price, which promptly fell 5% on the news, touching a low of $2.55 a pound ($5,622 a metric ton) in New York and down more than 20% from a nearly four-year high struck a little over two months ago, according to Mining.com.

Production in the world’s largest copper producer, Chile, has been plagued this year by a number of issues (in addition to BHP’s problems).

Competitor Antofagasta announced this week a disappointing set of first-half results. The miner reported production was down 8.5% in the first six months of the year compared to last, due to poor ore grades and infrastructure issues at its biggest mine. Revenue rose on higher prices earlier in the year, but profitability still fell 32%.

The copper price has taken a beating recently on widespread fears about global trade and political turmoil in places like Turkey, but a recent S&P Global report paints a rosy picture for producers regarding future prices, saying new discoveries are falling way below historical standards.

Producers have increasingly focused on developing their existing resources, the report states. This may be due to lack of faith in future prices — the end of the super cycle, or a more cautious post-financial-crash investment climate.

Chinese growth is slowing and producers are more inclined to maximize existing resources than bet the farm on new exploration and invest in new greenfield projects.

S&P reports Latin America hosts over half of copper discovered. Chile and Peru alone account for 83% of copper discovered in Latin America and 46% of the global total found since 1990. Of the 139.9 Mt of copper contained in the 29 discoveries made over the past 10 years, almost two-thirds is contained in the four largest deposits, S&P reports, illustrating the somewhat precarious nature of the copper supply market.

The pool of projects likely to come to market over the next decade is limited by the low level of investment and the long, up to 20-year lead in from discovery to production.

Although prices are currently under pressure from trade fears and a strong dollar, global demand has held up well so far, in the region of 2-3% annually.

Not surprisingly, miners are flagging up supply risks as a bigger issue for the copper market than lack of demand.

In the medium term, they are probably right. Despite all the noise about trade fears and tariffs, the reality is global growth and metals demand has remained robust. Contemporary developments are likely to trump medium-term supply risks in the minds of investors. As such, prices are going to remain subdued this year — if not bearish, then at least trading sideways.

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How we go next year, though, is another matter.

If trade issues can be even partially resolved and some degree of confidence restored, prices could recover; but, for the time being, it is buy as needed.

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Miner Freeport-McMoRan Inc., the world’s largest publicly traded copper producer, announced its second-quarter earnings Wednesday.

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The miner reported Q2 net income attributable to common stock of $869 million and $1.6 billion for the first six months of the calendar year. The figures compare with $268 million in Q2 2017 and $496 million for the first six months of 2017.

The miner reported copper sales of 989 million pounds in Q2 (1.982 billion pounds through the first half of the year). The miner, also a producer of gold, reported gold sales of 746,000 ounces in Q2 (1.345 million ounces through the first six months). In addition, Freeport reported sales of 24 million pounds of molybdenum (48 million pounds through the first six months).

“Our second quarter results reflect strong performance from our global operations and a continued focus on productivity, cost management and capital discipline,” President and CEO Richard C. Adkerson said. “During the first half of 2018, we generated $2.7 billion in cash flow from operations and capital expenditures totaled $0.9 billion, enabling further strengthening of our balance sheet and advancement of initiatives to build value for FCX shareholders.

“We achieved important progress during the quarter to reach a new long-term partnership structure with the Indonesian government, and we remain focused on completing negotiation and documentation of definitive agreements to restore long-term stability for our Grasberg operations.”

The miner’s share price dipped Wednesday, Bloomberg reported, as a result of operational issues at its Grasberg mine in Indonesia. After hitting $16.43 in the early part of the day, the price dropped 6.4% to $15.06 around noon. It rallied the rest of the day, closing at $15.86 (down 1.37% for the day).

In addition, the miner reported paying off $454 million in debt in April.

Copper Price Slumps

As a major copper producer, Freeport-McMoRan is eyeing the copper market’s recent slide.

The LME copper price has been falling fast since early June. After hitting $7,271.50 on June 8, the copper price proceeded to drop 17.6% and even dipping below $6,000/mt on July 17.

The price then bounced back slightly, moving to $6,166.50 as of July 24.

Source: LME

Adkerson referred to the slide in the copper price in tandem with the trade measures currently being undertaken by the U.S., in particular vis-a-vis China (the world’s top copper consumer).

As we sit here today, there is an anomaly between market sentiment and fundamentals in the marketplace,” Adkerson said. “We’re continuing to see real demand being very positive for our global business, including our business in China.”

Adkerson added that copper demand in the future will benefit from renewable-energy projects and electric vehicles.

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“Absent having some sort of global recession or a major setback in China, market deficits in copper appear to be inevitable,” Adkerson added.

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This morning in metals news, E.U. states have thrown their support behind measures to curb steel imports, Indian steel demand could double by 2025, and copper and zinc prices continue to drop.

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E.U. Backs Steel Import Curbing Measures

E.U. states voted to approve provisional measures to curb steel imports on the heels of the U.S.’s steel tariff, Reuters reported.

E.U. industry members have warned about the potential for steel, once destined for the U.S. market, to flood the European market after the U.S. imposed a 25% global steel import tariff (which included exemptions for a few countries).

According to the report, 25 E.U. member states voted for the provisional measures, while three abstained from the vote.

Indian Steel Demand on the Rise

Demand for steel could be set to double by 2025, according to a report by the Economic Times.

Per the report, BHP Billiton said demand in the country could hit 170 million tons (MT) by 2025.

Copper, Zinc Prices Continue to Fall

Prices of copper and zinc hit multimonth lows yesterday, Reuters reported.

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Per the report, the zinc price dropped to its lowest since June 2017, while copper fell to an 11-month low.

Rising oil prices were seen last year as a positive result of growing global growth and recovery, but a combination of factors are turning this benign view into a more sinister scenario.

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On the supply side, the combined efforts of OPEC and Russia, leaky as the agreement has been, have managed to reduce the global oil surplus in just 18 months to bring the market largely into balance. As a result, oil prices have gradually risen during the period. It’s a trend most observers have been sanguine about, believing the U.S.’s tight oil producers, encouraged by rising prices, will increase output to ensure ample supply and keep a lid on oil prices getting ahead of themselves.

But that benign view had not taken account of President Trump’s decision to rip up the Iran nuclear deal and, as a result, to reinstate sanctions, a move that will take place in two phases to give firms time to adjust.

According to The Telegraph, this will be done in two stages, on Aug. 6 and Nov. 4, allowing 90- and 180-day wind-down periods. In addition the Treasury is to re-list Iranian individuals and entities in the Specially Designated Nationals (SDN) list, thus revoking special licenses and exceptions previously granted to individuals and companies to deal with Iran, making it all but impossible for firms with a U.S. presence or needing dollar clearing to deal with them.

Lastly, Iran’s crude oil sales will be limited under the National Defense Authorization Act of 2012, as the U.S. departments of State, Energy and Treasury will allow ongoing but reduced purchases of oil from Iran, termed “significant reduction exceptions” on a country-by-country basis if they demonstrate a commitment to substantially decrease oil purchases (usually at least a 20% reduction).

As a result, Iran’s exports this year are likely to take a 500,000-barrel-per-day hit, from the country’s roughly 2,200,000 bpd current exports. The Telegraph speculates this could rise to 750,000 bpd next year as sanctions bite deeper.

Iran is not the only threat to supply. The ongoing implosion in Venezuela’s output, as spare parts run out and infrastructure collapses, also figures into the equation. So far, this has taken some 700,000 bpd out of global markets, the news source reports, with no sign of the trend slowing and no quick fix, even if a revolution overthrows the Maduro regime.

Meanwhile, the global oil industry investment collapse since 2014 following the plunge in oil prices has, like a juggernaut, taken time to impact output.

Output from conventional projects has until now been rising as projects started at the beginning of the decade have come onstream, but the cycle is turning — The Telegraph reports output will fall precipitously, by 1.5 million bpd in 2019.

So, what of all that replacement supply from the U.S. shale market?

Rig counts have predictably risen and output is up, but both U.S. tight oil and the Alberta tar sands are facing an infrastructure squeeze. Limited pipeline capacity and the failure to build new ones is holding back supply from the West Texas and Tar Sands regions. The U.S. is now becoming the world’s largest oil producer, on target to produce 12 million bpd next year by Energy Information Administration (EIA) estimates. However, that will not insulate the U.S. from higher oil prices, as the country is now exporting significant quantities of distillates and growing volumes of crude.

Saudi pledges to maintain stability in the oil markets should be taken with a pinch of salt. They have equally said they do not see any problem with a $100/barrel oil price and so are unlikely to raise their own production to ease the pain for everyone else until prices are well into triple digits.

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The Telegraph quotes Westbeck Capital, which says “We believe an oil price shock is looming as early as 2019 as several elements combine to form a ‘perfect storm’,” predicting $100 crude in short order, with $150 coming into sight, as the world faces a crunch all too reminiscent of July 2008.

Lithium batteries. konok1a/Adobe Stock

We normally associate Cornwall in England with scones and cream teas … or, if we are really metal nerds, we associate the sometimes sunny southeast country of the British Isles with mining (particularly with tin mining).

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The area dominated with igneous morphology has been mined since Roman times for tin, copper and a number of other metals.

But one metal, not surprisingly, that has never featured is lithium. I say “not surprisingly” because up to the end of the last century, it barely featured as a metal of value.

Nickel metal hydride batteries dominated the small appliance world and lead acid still served the rest. This century has seen an exponential growth in the use of lithium-ion batteries, from iPhones to electric cars to massive storage barns. The growth has been such that fears are mounting of a market shortage in the next decade, fueled in no small part by state support for electric vehicles (EVs) in Asia.

In fact, so urgent has the situation become that Chinese and Japanese battery makers are quietly buying into or buying up lithium deposits around the world to ensure they have secure supplies.  Currently, Europe consumes around 25% of the world’s lithium, but is dependent on imports from Australia, Chile, Argentina and China.

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As my colleague Fouad Egbaria wrote last week, the U.S. administration’s relaxation of the timescale for implementation of sanctions against Rusal has had the effect of taking the panic out of the market. As a result, prices have fallen for several days, not just for aluminum but for other metals that the market feared could face the same threat — most notably nickel, in which Russian oligarch Oleg Deripaska has an interest.

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But the vagaries of Washington policy aside, the underlying fundamentals for the nickel market remain firm.

Global Nickel Production and Usage Projected to Grow This Year

Reuters reports that according to the International Nickel Study Group, world stainless steel melting production rose by 5.8% last year, while projecting that global nickel production and usage is expected to rise to 2.344 million tons (MT) in 2018.

In terms of tonnage, world nickel production is expected to grow from 2.07 MT last year to 2.22 MT this year, while usage is expected to increase from 2.19 MT in 2017 to 2.34 MT in 2018.

As a perspective on fundamentals reasserts itself, the nickel price has recovered, rising back about $14,000 per ton. Demand has remained robust among stainless producers, with production forecast to rise 4% this year to over 52 million tons, while fears remain around supply.

Philippines Industry Aims to Navigate Government Land Regulations

The Philippines was top supplier to China last year, but the government of President Rodrigo Duterte is not letting up on its efforts to curb environmental damage from the extraction industry and threats remain of nickel mining being curtailed.

Nickel Asia, the Philippines’ top nickel ore producer and operator of the only two nickel smelters in the country, is quoted by Reuters as saying it intends to ship 20 million tons of ore this year — up 17% on last year.

But the government is limiting the amount of land miners can develop at any one time in a spur to rehabilitate old workings.

The limits are highly restrictive, amounting to only 100 hectares for mines producing 9 million tons or more, or 162 hectares if the project has a processing plant on site. The biggest of Nickel Asia’s mines covers 5,000 hectares and even the smallest covers 700, so it will be interesting to see if the firm manages the expansion in output it is projecting.

Indonesian Output on the Rise

Output in Indonesia is recovering following a lifting of the 2014 ban. The country has reasserted itself as the No. 1 supplier to China in the first half of this year.

The ban was lifted partly as the country looked to make up for the loss of revenue when exports collapsed and partly as firms invest in the downstream processing the ban was intended to force through.

Further increases in output, however, are limited, and investment in new reserves has been poor, while the nickel price was lower over recent years so the ability of the market to respond to predicted increases in demand from electric car and battery makers is in question.

The Outlook

We could see a growing divergence in nickel prices with standard nickel stainless melting grades remaining firm in the short to medium term, but battery Grade A, high-purity nickel premiums rising strongly if demand materializes as expected.

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Supplies of such high-purity nickel are limited, with only major producers like BHP Billiton, Norilsk Nickel, Vale and Sumitomo able to supply.

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Before we head into the weekend, let’s take a look back at the week that was with some of this week’s stories here on MetalMiner:

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  • What’s going on with steel prices? Have they neared a top? MetalMiner’s Irene Martinez Canorea offered her analysis on the subject earlier this week.
  • Also on Monday, MetalMiner’s Stuart Burns touched on aluminum prices, which have been on a wild ride the past couple of weeks with the announcement of sanctions on Russian companies and oligarchs, and then again when the U.S. Treasury opened the door to the potential easing of said sanctions (including against Russian aluminum giant Rusal).
  • India is looking east for its exports.
  • President Donald Trump and Saudi Arabia are at odds over the oil price.
  • Following up on the earlier post, Burns covered the subsequent drop in aluminum prices on the heels of the Treasury’s announcement.
  • The European Steel Association hopes the E.U.’s steel safeguard measures prevent a “surge” in imports.
  • Like aluminum, the nickel price also dropped significantly earlier this week.
  • The Aluminum Association urged President Trump to grant quota-free tariff exemptions — with respect to Section 232 — to “responsible” trading partners, calling for specific action to address Chinese overcapacity.
  • MetalMiner’s Sohrab Darabshaw offered the latest update on the bidding process for the bankrupt Indian firm Essar Steel.

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What goes up must come down, goes the old adage.

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Although that adage does not always hold true, it has for aluminum this week following a change of tone from Washington.

According to the Financial Times, the U.S. Treasury made two important announcements this week, the first being that if Oleg Deripaska sold his stake in Rusal, it could cut or lift sanctions on the firm. The second announcement was a postponement until Oct. 23 for U.S. firms and those dealing with them to wind up their affairs with the aluminum producer.

As a result the perceived tightness created by Rusal effectively being frozen out of the market has evaporated — for the time being, at least — and the price has fallen back to the high $2,200’s, some 10% above the level aluminium was at before the sanctions were announced.

The Treasury’s move is seen as an acknowledgement that it misjudged the impact on America’s own aluminum market and the damage such a disruption to the supply chain was going to cause.

Not only did prices react strongly, but primary and downstream supply became extremely problematic, with some consumers unable to access metal and smelters questioning where they would source alumina. Alumina prices reacted even more sharply than aluminum, rising as much as 80% since the sanctions were introduced.

Treasury Secretary Steven Mnuchin was at pains to explain the target was Oleg Deripaska, not Rusal per se, and is hoping the latest move will drive a wedge between him and the company, allowing U.S. consumers to continue to access Rusal metal while achieving the original objective of penalizing Putin supporters.

The FT reports Deripaska controls 48% of the company, with another 26.5% owned Viktor Vekselberg (who was also on the sanctions list) and some 8.75% in the hands of Glencore.

The Treasury’s move may negate the need for Moscow to nationalize Rusal. While not openly admitting that option was on the table, it has been rumored and may yet be an option if Deripaska decides his only option is to exit from the firm. Chinese buyers are also said to be circulating, but for such a key Russian asset the Kremlin may not be too enthusiastic about that option. Deripaska now has some five months to act, which is a long time in politics and the metal markets.

Source: Financial Times

Constraints remain, though, on the aluminium market. Both the U.S. and Europe are in deficit, and supplies from Brazil being temporarily reduced is not helping sentiment. But most would see the relaxation of tension around consumption of Rusal material as a pressure release valve that has taken the steam out price rises for now.

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Previous talk of $2,800-$3,000/ton now seem unlikely in the short term. While aluminum remains in bull territory, much of the strength is probably baked into prices at current levels.

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Higher is the simple answer. The world with the exception of China was in deficit before U.S. sanctions against Oleg Derispaska and his aluminum company Rusal.

So when the three million tons of primary metal Rusal exports outside of Russia are taken out of a market already worried by the recent partial closure of Norsk Hydro’s Alunorte alumina plant and Albras primary smelter, one should not be surprised by price increases and panic.

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Not only is the market deprived of new deliveries by the sanctions, but according to Bloomberg some 36% of global stockpiles on the LME and up to one million tons of metal held in inventories outside of China supporting financing deals is currently in limbo as buyers, traders, banks and brokers refuse to handle it for fear of falling foul of sanctions.

Part of the problem is that a large percentage of Rusal’s metal is traded and resides in stock financing deals, compared to top metal from other producers like Norsk Hydro and Alcoa. This is a legacy of the flood of metal that started to swamp the global market from the 1990s onwards after the collapse of the Soviet Union.

Technically there is no legal restriction on buying metal produced and sold by Rusal before the sanctions were applied, according to Bloomberg. Even so, the products have become less desirable in the U.S. and Europe as consumers are unsure of the status.

In addition, this week the LME has banned any further deliveries into its system, raising the question of what Rusal is going to do with with the three million tons of metal it is churning out every year. There will be buyers out there, especially in Southeast Asia, but they will demand a discount to handle the brand. With restrictions of sales of its alumina, Rusal could simply cut production rather than try to dump metal into less well regulated overseas markets.

Maybe more of a risk is the fate of Rusal’s alumina production as the firm supplies other smelters than just its own, potentially depriving alternative producers from supplying an already tightening market. Alumina prices have surged to over $600/ton as the LME primary metal settlement prices have risen to over $2,500 per ton.

So where to now? Have buyers missed the boat? It’s impossible to say. There could well be a short-term correction, but Bloomberg quotes CRU analysts as saying that prices could reach $2,800-3,000/ton, levels not seen since 2008.

Alunorte’s alumina production cuts, forced following allegations of river pollution, could be resolved later this month like the resulting cuts at downstream Albras. But that would only return the primary plant from 230,000 tons to its capacity of 460,000 tons, a drop in the ocean next to Rusal’s three million tons. Brace yourselves: aluminum remains firmly in bull territory.

The Renewables Monthly Metals Index (MMI) rose seven points on the month, hitting 107 for our April reading.

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Within the basket of metals, Korean, Chinese and U.S. steel plate posted price increases, while Japanese steel plate traced back slightly. U.S. steel plate jumped significantly, posting a 13.6% increase for the month.

U.S. grain-oriented electrical steel (GOES) coil fell on the month, while neodymium picked up by 0.7%.

The always volatile cobalt price shot up significantly last month, rising 10.6%.

Tesla Strategy Places Premium on Neodymium

As we mentioned earlier this week, growing demand for neodymium from electric vehicle (EV) maker Tesla will put even more pressure on what is already a constrained market.

In short, that means rising prices for the material, reflected in this month’s activity.

Tesla is looking to neodymium for magnetic motors in its Model 3 Long Range cars, as mentioned in the Reuters report we cited Tuesday. Last year, supply fell short of demand by 3,300 tons, according to that report.

DRC Looks to Shake Up 2002 Mining Charter

When it comes to anything cobalt, the Democratic Republic of Congo is typically at the center, being the source of the majority of the world’s cobalt.

Earlier this week, MetalMiner’s Stuart Burns wrote about President Joseph Kabila’s move to readjust the nation’s 2002 mining charter to, essentially, secure a bigger piece of the pie vis-a-vis the country’s vast mineral resources.

It comes as no surprise that the multinational miners doing business in the DRC aren’t exactly thrilled by the proposition of increased royalties and levies. However, as Burns noted, value of materials like cobalt and the demand they draw, combined with their relative scarcity, means such multinationals will continue to do business there, no matter what happens with the charter.

“If the state takes a little more of the pie, it will probably be reflected in prices,” Burns wrote. “But with limited alternatives for products like cobalt, it is unlikely to dent mining companies’ enthusiasm for investing in the DRC.”

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Actual Metal Prices and Trends

Within the basket of metals, Korean, Chinese and U.S. steel plate posted price increases, while Japanese steel plate traced back slightly. Korean plate rose 6.6% to $650.16/mt. Chinese plate ticked up only slightly, by 0.1%, to $716.64/mt.

U.S. steel plate jumped significantly, posting a 13.6% increase for the month, up to $920/st.

U.S. grain-oriented electrical steel (GOES) coil fell 1.9% to $2,597 on the month, while neodymium picked up by 0.7% to $71,265.50/mt.

The always volatile cobalt price shot up significantly last month, rising 10.6% to $98,274/mt.