Articles in Category: Supply & Demand

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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India’s coal sector clearly needs some urgent initiatives from the government in order to give it a boost.

Some analysts say it’s time the government opened up commercial coal mining to the private sector. This would have a dual effect —  it would attract global coal mining companies and also bring new technology and best practices into the country.

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Despite government promises to the contrary, there’s been heavy reliance on imported coal.

Last February, the government decided to open the sector to private participation, touted as a historic move. The Cabinet Committee on Economic Affairs also approved the methodology for the auction of coal mines and coal blocks.

But there’s no been much forward movement from then.

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The January Aluminum Monthly Metals Index (MMI) fell 3.4% this month, coming in at a value of 85. The index fell 3 points from December’s reading and has returned to a low not seen since February 2017 when the index hit a value of 84.

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So far in January, LME aluminum prices have increased. LME aluminum prices fell below the $1,970/mt level, which has acted as support for most of 2018.

Source: MetalMiner analysis of Fastmarkets

LME aluminum prices seem to have found a new support at $1,795/mt. Prices have rebounded from that level and seem to have gained some momentum. The politics of trade and financial uncertainty in China, rather than supply and demand in the aluminum market have moved LME price levels in 2018.

Chinese Aluminum Scrap

The Chinese environment ministry announced restrictions of imports of scrap steel and aluminum starting July 1 of this year. Scrap steel and aluminum will be moved from an unrestricted import list of solid waste products used as raw materials, to a restricted import list.

SHFE aluminum prices also increased this month, following LME aluminum price dynamics. SHFE aluminum prices however, remain a short-term downtrend since August 2018.

Source: MetalMiner analysis of Fastmarkets

China’s Chalco (Aluminum Corporation of China Ltd.), the largest state-owned aluminum producer in the country, announced at the end of December that it would cut output as a result of falling aluminum prices. In 2017, China’s Chalco shut 470,000 tons of aluminum capacity, or 12% of their 3.93 million tons of primary aluminum capacity.

Production cuts come as a result of falling aluminum prices, ample supply in the country and weaker local demand. Chalco did not cut aluminum production due to environmental concerns, as their smelters remain outside the 28 northern Chinese cities that face special restrictions during the heating season. 

U.S. Domestic Aluminum

The current U.S. aluminum Midwest Premium has also traded sideways in January. The current price stands at $0.18/lb, the third straight month at that level. Despite the sideways trend for the premium, the current premium remains high.

Source: MetalMiner data from MetalMiner IndX(™)

Canada and the U.S. discussed tariffs on Canadian steel and aluminum this week. However, it does not seem that sanctions will be lifted for now. While the sanctions remain in place, domestic aluminum prices remain supported.

What This Means for Industrial Buyers

Despite the recent price increases, LME aluminum prices appear weaker. Tariffs, sanctions and supply concerns may act as a support to aluminum prices, both for LME aluminum and the U.S. Midwest Premium. However, the current base metals complex appears to have lost momentum. Therefore, adapting the “right” buying strategy becomes crucial to reduce risks. Only the MetalMiner Monthly Outlook reports provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

Click here for more info on how to mitigate price risk all year round — take a free trial of our Monthly Metal Buying Outlook.

Actual Aluminum Prices and Trends

LME aluminum prices fell this month, with a closing price in December of $1,849/mt. Meanwhile, Korean commercial grade 1050 sheet fell by 3.8% to $3.28/kilogram. Chinese aluminum primary cash prices fell by 2.5%, while Chinese aluminum bar prices fell by 2.4%. Chinese aluminum billet prices rose 2.2% this month, to $2,087/mt. The Indian primary cash price decreased by 6.6% to $1.85/kilogram.

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This morning in metals news, prices of Chinese steel and steelmaking ingredients were down Friday, India is in talks with the U.S. over a steel tariff exemption and Japanese crude steel output might be decline in the first quarter of 2019.

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Chinese Steel Prices Down

A number of metals are closing the year on a downward note, and Chinese steel is no exception.

Prices of Chinese steel and steelmaking ingredients were down Friday (the last Friday of the year), with the most-active SHFE rebar contract down 0.5%, according to Reuters.

India, U.S. in Talks Over Steel Tariff Exemption

The Trump administration imposed its Section 232 tariffs on imported steel and aluminum in March, but countries are still lobbying for exemptions from the 25% tariff on steel and 10% tariff on aluminum.

According to another Reuters report, India is in talks with the U.S. over the possibility of a steel tariff exemption.

India is the world’s ninth-largest steel exporter. According to the International Trade Administration, the U.S. ranked sixth as a destination for India’s steel exports, accounting for 4% of its exports, or 204,000 metric tons, through October of this year.

Japanese Steel Production to Drop in Q1?

Crude steel production in Japan might be starting 2019 with operational issues that could hamper production, according to a report by the Hellenic Shipping News citing a government ministry.

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According to the report, citing Japan’s Ministry of Economy, Trade and Industry (METI), estimated crude steel output could drop to 26.31 million tonnes during Q1 due to operational issues at various plants. That estimated production figure would mark a 0.4% drop from the same period in 2017, according to the report.

Well, that was something and nothing, wasn’t it?

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The non-event of the month was the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announcement this week of its intention to end sanctions on En+ Group plc, UC Rusal plc, and JSC EuroSibEnergo, all vehicles associated with Russian oligarch Oleg Deripaska.

Deripaska remains on the sanctions list. However, following his nominal separation from the firms, OFAC decided to end sanctions.

Deripaska is reported to have put plans in place to reduce his shareholding in holding company En+, which is currently 70% to fall to 44.95%, while a Russian bank will take title to a portion of Deripaska’s shares, according to Aluminium Insider.

The article states Deripaska will also be required under the agreement to hand over shares in En+ to charitable foundations and assign voting rights above a 35% threshold to a voting trust. Other shareholders deemed to have a familial or professional relationship will be compelled to do the same.

Once the entire plan has been executed, En+ will retain ownership of 56.88% of Rusal, with Deripaska’s stake reduced to 0.01%.

That’s good news, aluminum buyers may retort, and yes, it is in terms of finally settling a source of some disquiet that has been underlying the market since May.

But the fact that the aluminum price barely moved underlines the reality that the market had long expected this outcome — and barely reacted, accordingly.

What happens next year remains to be seen.

The whole metals complex has been at best trading sideways during the second half this year, buoyed by decent demand but depressed by worries about global growth and trade wars.

The lifting of sanctions frees up some 200,000 tons of Rusal primary metal sitting on the LME for consumption, and potentially 10 times as much sitting in off-warrant or off-market stock and finance trade storage.

The LME metal is unlikely to go anywhere fast. Currently, the LME supports rollover of maturing stock and finance trade contracts with two-year forwards at a sufficient premium to one-month forward to facilitate extension.

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As such, the market is not going to be flooded with Rusal metal that would cause a further weakening of prices. That clearly is the market’s assessment, too, otherwise prices would have fallen significantly after the announcement.

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

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  • Sohrab Darabshaw covered India’s view of the Regional Comprehensive Economic Partnership (RCEP).
  • The oil price has plunged — MetalMiner’s Stuart Burns looked into the reasons why.
  • October global crude steel production jumped 5.8% year over year, according to data in a recent World Steel Association report.
  • A recent Section 301 report by the United States Trade Representative on China’s trade practices painted a familiar picture.
  • Through the first 10 months of the year, steel imports were down 11% compared with the first 10 months of 2017.
  • There is talk of a potential merger between two Chinese steelmakers whose combined annual capacity would exceed that of the U.S. as a whole.
  • Housing starts in October were up from the previous month.
  • General Motors’ announcement this week of plant closures and a 15% workforce reduction could be a sign of cost-saving measures to come for other automotive brands.
  • Several CEOs spoke earlier this week during a panel discussion event in Washington, D.C., focusing primarily on the impact of the U.S.’s steel and aluminum tariffs.
  • Lastly, in case you missed the news earlier today, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement during the G20 summit in Buenos Aires (the trade deal still needs to be ratified by each country’s legislature).

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

The World Bureau of Metal Statistics’ (WBMS) most recent press release makes for curious reading.

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Covering as it does the first three quarters of this year, the January to September period, you could read the report and then ponder the recent price direction of metals and ask what on earth is going on.

The WBMS report analyzes all the principal base metals (aluminum, copper, lead, zinc, nickel and tin). You may be forgiven for expecting healthy surpluses in all metals if the steady demise of prices over the last quarter were a true reflection of the fundamentals — but that is not the case.

“The calculated market balance for primary aluminium for January to September was a deficit of 206 kt which follows a deficit of 1175 kt recorded for the whole of 2017,” the report states.

The copper market recorded a deficit of 6.3 kt in January to September 2018, which follows a surplus of 93.8 kt in the whole of 2017, representing a negative swing of just over 100 kt.

The lead market recorded a deficit of 138 kt in January to September 2018, which is admittedly better than last year (when lead was in deficit to the tune of 393 kt for the whole of 2017).

The zinc market was in deficit by 52.3 kt during January to September 2018, which is better than last year’s deficit of 431 kt recorded over the whole year.

The nickel market was in deficit during January to September 2018, with apparent demand exceeding production by 33 kt (the deficit over the whole of 2017 was 41.3 kt).

The tin market also recorded a deficit of 9.7 kt during January to September 2018, but was the only metal to report a slight increase in stocks year on year — a paltry 2.4 kt.

All other metals reported lower inventory at the end of September compared to the end last year, as you would expect for commodities in deficit.

So why are prices drifting off?

Lack of investor appetite is the answer. Net longs have been cut for most speculative positions among the base metals, as investors take fright at a gradually slowing Chinese economy. In addition, repeated reports of trade wars and trade barriers have dampened expectations of a buoyant economic outlook for 2019.

But while investors’ short-term positions are the stuff of expectation, longer-term prices are moved by supply and demand.

The fact is, many, if not all, of these metals remain in deficit, with little sign of a sudden change in the supply landscape. Demand is what is spooking investors, but so far it has held up well and we all know China will spend on infrastructure if the economy slows too much (so demand is unlikely to collapse).

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

Prices from a fundamental perspective are therefore entering not bear territory, but bargain territory. Feeling brave?

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A recent report by the International Lead and Zinc Study Group (ILZSG) details lead and zinc supply and demand levels for the first nine months of the year.

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Lead Demand Exceeds Supply

According to the report, lead demand exceeded supply by 110,000 tons for the first nine months of the year, while reported stock levels fell by 49,000 tons.

Lead mine production dropped 0.9%, “primarily due to lower output in Australia, Kazakhstan, Peru, South Africa and the United States that more than offset increases in Europe, India and Morocco,” according to the report.

Production and usage were up on a month-to-month basis. Mine production hit 400,800 tons in September, up from 380,100 tons in August. Lead usage hits 1,043,700 tons in September, up from 987,900 tons in August.

Meanwhile, global lead usage fell 0.6%, primarily as a result of reductions in South Korea, the U.S., Japan and Mexico. European usage increased 0.3%, paced by upticks in Austria, Italy and Poland.

Zinc Market in Deficit

The global zinc market, on the other hand, was in deficit by 305,000 tons for the January-September period, while total reported inventories dropped by 46,000 tons over the same nine-month period.

“World zinc mine production rose by 1.2%, mainly influenced by increases in Australia, Peru and the United States,” the report states. “In Europe, a 3.2% rise was primarily a consequence of increases in Finland, Greece, Ireland and Macedonia, that more than offset reductions in Poland and Sweden. In Canada, China, India and Mexico, output was lower compared to the first nine months of 2017.”

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

Meanwhile, global zinc usage fell 0.3%, primarily due to decreases in China, South Africa and Taiwan. European usage increased 1.3%, led by upticks in Poland, France, Belgium and the Russian Federation.

On a month-to-month basis, mine production hit 1,084,500 tons in September, up from 1,064,200 tons in August. Zinc usage hit 1,155,500 tons, up from 1,141,600 tons in August.

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This morning in metals news, Tokyo Steel plans to raise plate prices, Rio Tinto says new aluminum capacity is needed outside of China and copper prices tick upward.

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Plate Prices Rise

Tokyo Steel plans to raise heavy plate prices by 2.5% in December, according to a Reuters report. The steelmaker had not raised heavy plate prices since January, the report noted.

MetalMiner’s Take: Plate prices have always had their own price dynamics separate from the other forms of flat rolled steel (such as HRC and CRC).

Plate prices in the U.S. have remained fairly well-supported compared to the other forms of steel, so it should come as no surprise that in markets with strong construction demand, like Japan, mills would announce price increases.

Interestingly, Chinese plate prices have started to slip, but those dynamics could change based on environmental curbs, whether the Japanese plate price increases stick and Chinese demand.

U.S. metal-buying organizations will want to pay close attention to these price dynamics in Japan and China.

Aluminum Capacity

Rio Tinto Group says the world needs new aluminum capacity outside of China in the coming years, Bloomberg reported.

Copper Price Rises

Prices of LME and SHFE copper increased Monday, Reuters reported, on the heels of positive sentiment stemming from comments made by President Donald Trump regarding tariffs on China.

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

During a press briefing Monday, Trump said the U.S. might not need to impose further tariffs on China, the world’s top copper consumer.