Articles in Category: Supply & Demand

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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).

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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.”

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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.

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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.

We’ve touched on conflict materials in this space before, typically in reference to cobalt. A majority of the world’s cobalt is mined in the Democratic Republic of the Congo, where conditions at so-called artisanal mines (i.e., small-scale mines) are sub-standard, according to reports by a variety of NGOs.

Among the concerns at these mines includes a lack of regulation, which in some cases leads to extremely unsafe working conditions and the use of child labor.

Amnesty International last year released a report in which a number of big-name companies came in for criticism with respect to their cobalt supply chains.

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Yesterday, we cited a recent report by the Enough Project on cobalt and murky supply chain ethics.

Meanwhile, over at MetalMiner’s sister site, SpendMatters, you can find a similar report on the supply-chain issues related to gold — that is, conflict gold passing through some big-name companies en route to the U.S. market.

The SpendMatters piece cites an October study by The Sentry, which is an initiative of the Enough Project and Not On Our Watch Now (NOOW).

Documents reviewed and interviews carried out by The Sentry, a team of policy experts and financial auditors co-founded by George Clooney, raise concerns that the corporate network controlled by Belgian tycoon Alain Goetz, director at the Belgian gold refinery Tony Goetz N.V., has refined illegally smuggled conflict gold from eastern DRC at the African Gold Refinery (AGR) in Uganda and subsequently exported it through a series of companies to the U.S. and Europe. The study lists companies like Amazon, General Electric and Sony as possibly being ones that conflict gold may have been sold to.

The Sentry’s study can be found here.

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Read the full SpendMatters piece here.

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This morning in metals news, North American aluminum associations wrote a joint letter asking for quota-free tariff exemptions for Canadian and Mexican aluminum, European automakers plan to try out new LME steel contracts launching next year, and the LME copper price has dropped ahead of the U.S. midterm elections.

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Aluminum Associations Seek Quota-Free Tariff Exemption

Earlier this year, Canada and Mexico received temporary exemptions from the U.S.’s tariffs on steel and aluminum; however, those exemptions eventually were allowed to expire.

Since then, the Aluminum Association in the U.S. has continued to petition for the imposition of quota-free tariff exemptions for the U.S.’s neighbors to the north and south.

Aluminum associations in the three countries penned a joint letter to President Trump this week reiterating the call for quota-free tariff exemptions.

“On behalf of the North American aluminum industry, we the undersigned association leaders congratulate you on reaching an initial agreement on the United States-Mexico-Canada Agreement (USMCA),” the letter states. “We support a modernized, trilateral agreement that recognizes the importance of the integrated North American supply chain and enables the aluminum industry to meet growing demand year over year.

“We are now asking that you work together expeditiously with the other North American leaders to resolve the national security concerns related to the Section 232 tariffs on aluminum products within North America, and to ensure the United States reinstates the exemptions from the aluminum tariffs for Canada and Mexico.”

MetalMiner’s Take: Aluminum-buying organizations face significant material shortages within the U.S. market. Canada and Mexico will likely keep up the pressure to advocate for quota-free imports to the U.S., particularly since all three countries have come to an agreement via the USMCA (the successor to NAFTA).

In the meantime, buying organization should expect continued tightness.

Copper Price Slides

The LME copper price has slipped ahead of the U.S. midterm elections and a Federal Reserve meeting later this week, Reuters reported.

The LME copper price fell 0.4% Tuesday, according to the report.

MetalMiner’s Take: LME copper prices have increased so far in November. Despite some analysts claiming a bearish call for LME copper prices, the base metal seems to be moving up again.

Fed interest rate rises have not impacted LME copper prices or the U.S. dollar that much. The U.S. dollar tends to react for a couple of days, only to then follow its previous pace; LME copper shows the same behavior.

The important driver for copper is Chinese demand, which has not yet softened. That could make the difference in LME copper pricing. So far, LME copper prices may continue increasing in the upcoming months.

European Automakers to Try Out LME Steel Contracts Next Year

European automakers will be looking to tap into new LME steel contracts that are scheduled to be launched early next year, Reuters reported.

According to the report, the LME is planning to launch three hot rolled coil steel futures contracts next year.

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MetalMiner’s Take: Buying organizations could get excited about new LME steel contracts if they had the support of steel producers. It has taken the CME years to build up liquidity in its HRC contract.

Assuming the LME has identified multiple European steel producers willing to participate (a big question), then buying organizations will have another regionalized solution to mitigate steel-price volatility.

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This morning in metals news, the LME copper price fell Thursday, miner Antofagasta downgraded its 2018 copper production guidance and Norsk Hydro says the global aluminum market is moving toward a deficit.

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Copper Price Slides

The LME copper price dropped to a two-week low Thursday, Reuters reported.

MetalMiner’s Take: Despite the three-week downtrend in copper prices, LME copper prices remain over the $6,000/mt mark, which acted as a psychological ceiling for most of 2017.

The downtrend does not appear sharp. In fact, copper prices have traded sideways since the beginning of the month. Fundamentals support an increase in LME copper prices, as global stocks are decreasing and copper premiums are increasing globally.

The copper supply and demand balance calls for a deficit in both 2018 and 2019. In fact, copper ore grade is starting to deteriorate in some big mines, such as Codelco, creating expectations of shortages over the following years.

Up and Down

Chilean miner Antofagasta announced downgraded cooper production guidance for 2018 but forecast an increase in production for 2019.

“The physical copper market continues to look tight and the outlook for next year remains positive despite ongoing fears about disruptions to global trade,” Antofagasta plc CEO Iván Arriagada said in a release. “We have narrowed our copper production guidance for the full year to 705-725,000 tonnes and looking ahead we expect production in 2019 to increase to 750-790,000 tonnes, driven by higher average grades at Centinela Concentrates and Zaldívar.”

Aluminum at Deficit?

According to Norwegian firm Norsk Hydro, the global aluminum market is moving towards a deficit.

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“The third quarter reflected our continued challenges at Alunorte and increased raw material costs, while higher aluminium and alumina prices, as well as strong Energy results, contributed positively. The market for aluminium is tightening, and we expect the 2018 global primary market in deficit,” President and CEO Svein Richard Brandtzæg said in a release announcing the aluminum and renewable energy firms third-quarter financial results.

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The International Lead and Zinc Study Group (ILZSG) convened its 63rd session earlier this month in Lisbon, Portugal, during which it reviewed global demand forecasts for this year and next with respect to zinc and lead.

Global Zinc Picture

According to ILZSG, global zinc demand is set to rise by 0.4% in 2018 to 13.74 million tons (MT) and by 1.1% in 2019 (up to 13.88 MT).

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In China, zinc demand is projected to fall 0.5% this year, while increasing just 0.8% in 2019.

Apparent zinc usage in the U.S. is projected to increase 2.1% this year and 0.9% in 2019. Elsewhere, demand is expected to rise in Europe by 1.6% this year and 1.0% in 2019. It’s also projected to rise in India, and remain stable in Japan and South Korea.

On the supply side, zinc mine production is projected to rise 2% in 2018 and 6.4% in 2019.

The global zinc market is projected to be in deficit both this year and next. According to the report, demand will exceed supply by 322kt in 2018, and by 72kt in 2019.

Lead Market

Lead demand growth is on the more modest size, projected to hit 0.2% in 2018 and 0.7% in 2019.

China’s lead usage is projected to fall this year and next.

“In 2018, Chinese apparent usage is expected to fall by 0.6% influenced by a combination of reductions in the motorcycle and e-bike sectors as consequence of increased penetration by lithium-ion batteries and a slower growth in the automotive sector,” the ILZSG report states. “Increases in the e-trike production are not expected to be sufficient to offset this declining trend. A further 1.3% fall in apparent usage in China is anticipated in 2019.”

European lead usage is forecast to rise 1.4% and 1.8% in 2018 and 2019, respectively. Meanwhile, U.S. usage is forecast to decline this year by 0.6% and rise 2.5% in 2019.

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On the supply side, global lead mine supply is forecast to fall by 0.4% this year and rise by 4.1% in 2019.

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Some commentators were calling the imminent collapse of the aluminum price last month — certainly, it tested the bottom of its recent range, at just below $2,000 per metric ton on the LME.

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But the price has since rallied and is currently range bound between $2,000-$2,075, seemingly suppressed by a strong dollar and the general depression of commodity prices by fears of a trade war. Yet, it is supported by the net deficit position the Western world’s aluminum market has been in last year and this year.

One dynamic that has not featured greatly — but is fast becoming a major concern — is the alumina price.

Read more

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