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.
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.
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.”
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.”
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.
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.
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
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%.
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.
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.
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.
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.
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.
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.