Articles in Category: Supply & Demand


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A relatively swift exit from pandemic lockdowns and the impact of stimulus-led infrastructure investment have powered China’s metals rebound. Furthermore, the Shanghai Futures Exchange has continued its summer disconnect from the London Metal Exchange aluminum price, which started in April of this year.

The resulting arbitrage window has sucked in imports of aluminum primary and remelt alloy casting ingot. As a result, China’s imports are at levels not seen since the aftermath of the financial crisis in 2009.

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China leads the metals rebound as aluminum imports surge

Combined imports of primary metal and unwrought alloy totaled 393,000 tonnes, just shy of the previous record of 394,000 tonnes in April 2009, according to Reuters. Furthermore, cumulative net imports reached 653,000 tonnes so far.

Alloy imports should be seen as in part as a replacement for lower scrap imports. However, even so, the disconnect has continued through the third quarter. Although that disconnect is expected to narrow in the run-up to year’s end, it underlines the current two-speed nature of the global manufacturing economy.

Meaning, there’s China and then there’s the rest of the world.

China tightened up on scrap grade import controls last year and precipitated a switch to imports of refined remelt alloy over scrap, even before the pandemic took hold.

Southeast Asian regional remelters have taken in the displaced scrap and exported alloy ingot to China. A similar trend is taking place with copper scrap and alloy ingot, possibly suggesting a structural shift that is here to stay.

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This morning in metals news: steel prices have been making gains; the WTI crude price moved up; and Vale plans to increase its iron ore output.

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Steel prices rise

U.S. steel prices are on the rise, but that rise can be attributed more toward the supply side of the ledger than the demand side, according to Bloomberg.

U.S. Steel, for example, this week hiked its prices. The company raises prices on flat-rolled steel products by at least $60 per ton, according to the report.

WTI ticks up

In other commodities news, the WTI crude oil price closed Thursday $40.97 per barrel, per the Energy Information Administration.

Thursday closing price marked an increase of $3.97 from the prior week. However, the price was down $17.14 from the same point in 2019.

Vale eyes iron ore output target of 400M

Brazilian miner Vale hopes to produce 400 million tons of iron ore annual, reported.

Currently, Vale has capacity to produce to 318 million tons per year.

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copper mine

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A fair part of the bull story for copper this year has been supply-side fears.

The world’s largest mines are in South America, which has suffered from catastrophic levels of coronavirus infections. True, China’s recovery has played a role in the booster’s case. So have the role of copper in the growing electric vehicle (EV) market and the weakening U.S. dollar, which has lifted all commodities.

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Copper outperforms other metals, including aluminum

But just comparing copper to aluminum, the latter lifted only in proportion to the weakening dollar. Meanwhile, copper has risen from March lows much more.

From April to date, aluminum has jumped some 20%, largely as a result of a weakening dollar and recovering Chinese demand sucking in imports.

But copper has risen some 33%, driven by the same dynamics but with the added anxiety of supply-side risks from major suppliers in South America.

Coronavirus crisis in Peru, world’s No. 2 copper producer

Adjusting for population size, two of the countries hardest hit my infections in the world have been Peru and Ecuador. Both countries have seen more than 1,000 excess deaths per million inhabitants.

The two Latin American countries also have the highest excess percentage — excess deaths expressed as a share of normal deaths for the same period — suggesting the impact on their economies, health care systems and working practices may be even more severe than the official statistics suggest.

Developing economies like Peru cannot afford prolonged or repeated lockdowns. Like India, South Africa and many other countries, containment is at best local and at worst nonexistent.

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The global lead and zinc markets posted supply surpluses during the first half of the year, the International Lead and Zinc Study Group (ILZSG) reported late last week.

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Lead supply exceeds demand by 78kt

The global lead market posted a surplus of 78 kt during the first six months of the year, according to the ILZSG.

Meanwhile, lead stocks declined by 20 kt during the period.

Lead mine production fell 5.5% during the period. Production fell in Bolivia, Canada, India, Kazakhstan, Peru and South Africa.

Furthermore, global lead metal production dropped 4.3%. Lead metal output fell in China, the U.S., Europe and India, according to the ILZSG.

Refined lead metal usage fell 5.9% year over year.

Lastly, despite an uptick in imports of a variety of metals in July — namely, copper and aluminum — China’s imports of lead contained in lead concentrates dropped 24.5% during the period.

Zinc surplus totals 205 kt

As for zinc, the global zinc market posted an H1 2020 surplus of 205 kt.

Zinc mine production fell 7.5% during the period. Mine output fell in Bolivia, China, Mexico, Namibia, Peru and the U.S.

Refined zinc metal production increased by 0.7%. Output rose in China but fell in India, Japan, Mexico, Namibia and Peru.

Refined zinc metal usage dropped 3.7%. Among the countries contributing to the decline were India, South Korea, Japan and the U.S., in addition to the E.U.

Unlike lead, China’s imports of zinc contained in zinc concentrates surged by 44%. However, China’s net imports of zinc metal fell 38%.

Lead, zinc prices surge

Despite the surpluses in H1, both lead and zinc prices have found support of late.

The LME three-month lead price closed Friday at $1,985/mt, or up 9.0% month over month.

Meanwhile, the LME three-month zinc price closed Friday at $2,474/mt, or up 11.79% month over month.

As MetalMiner’s Stuart Burns explained last week, supply-side fears have powered the recent rise in zinc and lead prices.

“Both copper and zinc rely heavily on mines in Chile and Peru for ore supplies,” Burns wrote.

“That reality is a fact highlighted in a recent report, which warned that mining companies operating in Peru are being forced to keep operations suspended.

“In addition, companies are halting new operations as confirmed coronavirus cases in the country surged past 300,000, with several of the new infections happening in the copper sector.

“Supply-side concerns have also provided support for lead (often co-mined with zinc). This is despite a massive surge in LME inventory arriving in last July, nearly doubling stock levels to 119,000 metric tons.”

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This week, we wrapped up our Monthly Metals Index (MMI) series for the month, including coverage of the renewables sector, stainless steel surcharges and steel demand in China.

Furthermore, MetalMiner’s Stuart Burns delved into supply-side impacts on lead, copper and zinc.

In other economic indicators, U.S. housing starts surged in July — a bright spot in what has been a challenging year for the U.S. economy.

Stop obsessing about actual forecasted metals prices. It’s more important to spot the trend. See why.

Week in Review, Aug. 17-21

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Zinc and lead are co-mined metals, often assessed in tandem. Zinc and copper, however, are less likely to be viewed as driven by the same fundamentals.

Sentiment, yes. All the base metals can be influenced by the same narrative, such as currency strength or China demand. It is true to say both price drivers have been at work in recent weeks across the whole metals spectrum.

But one additional factor at play this summer has been ongoing supply-side anxiety due to rising COVID-19 virus infection rates in South America.

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Rising infection rates in South America impact mining sector

Both copper and zinc rely heavily on mines in Chile and Peru for ore supplies.

That reality is a fact highlighted in a recent report, which warned that mining companies operating in Peru are being forced to keep operations suspended.

In addition, companies are halting new operations as confirmed coronavirus cases in the country surged past 300,000, with several of the new infections happening in the copper sector.

Supply-side concerns have also provided support for lead (often co-mined with zinc). This is despite a massive surge in LME inventory arriving in last July, nearly doubling stock levels to 119,000 metric tons.

Chinese demand rising as supply worries mount

Chinese investors, in particular, are seeing a convergence of rising Chinese demand and rising supply-side anxiety.

A simultaneous fall in SHFE inventory and a rise in refined metal imports supports the rapid recovery story in China.

According to Reuters, SHFE zinc stocks currently stand at 89,188 metric tons. The stock level fell by 81,000 tons from the March highs at the height of China’s coronavirus-related lockdowns.

The flow of Beijing’s stimulus funds is, to a great extent, driving sentiment. Zinc ticks the construction and infrastructure boxes in the form of galvanized steel.

Despite a fall in automotive demand last year, the sector appears to be experiencing its own sharp recovery. Sales rose 11.6% in June on the back of strong demand for trucks and commercial vehicles.

Not surprisingly, China’s refined zinc imports have started picking up over the last two months.  June imports totaled 64,700 metric tons, the highest monthly total since August 2019. Imports of zinc concentrates, by contrast, fell 40% month over month to 213,000 tons. Dropping concentrate imports supports the narrative of lower availability from countries such as Peru, where production has been hit hard by quarantine measures.

LME inventory on the rise

While net long positions on the LME are modest at just over 6,000 tons, it should be said that until recently, the story outside of China was more cautious.

LME inventory has been rising to nearly 200,000 metric tons — the highest since October 2018.

Rising inventory suggests demand outside of China remains subdued.

The World Bureau of Metal Statistics reported last month the zinc market was in surplus by 126,000 tons during the January-May 2020 period. Meanwhile, the market recorded a deficit of 63,000 tons in the whole of the previous year.

Reuters quotes the International Lead and Zinc Study Group (ILZSG) estimate that the global refined zinc market registered a supply surplus of 241,000 tons in the January-May period alone. Meanwhile, CRU is forecasting a 485,000-ton surplus over the course of the year. The median forecast in a Reuters poll of analysts in July suggested a surplus of 403,000 tons.

Whether China can soak up that kind of surplus remains to be seen. While much uncertainty remains about the ongoing impact on supply, the case for scarcity and, therefore, support for prices seems stronger for copper than for zinc and lead, despite all of them benefiting from supply-side worries.

Stop obsessing about the actual forecasted copper, zinc or lead price. It’s more important to spot the trend. See why.

hot rolled steel

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The Raw Steels Monthly Metals Index (MMI) increased 1.5% for this month’s MMI value. 

August 2020 Raw Steels MMI chart

Learn when you should use a steel scrap cap collar contract versus a finished price index.

Chinese demand on the rise

In the past few months, Chinese HRC and CRC prices have increased over 20%. Meanwhile, their U.S. counterparts have followed the opposite trend. This is due to weaker U.S. demand and stronger-than-expected Chinese demand.

China produced a record amount of crude steel in July as the government boosted infrastructure spending. In addition, the manufacturing sector rebounded as the government lifted lockdown restrictions.

China produced 93.36 million tons of crude steel in July, up 1.9% higher from June. The July total marked a 9.1% increase from July 2019, according to the National Bureau of Statistics of China.

Most of China’s steel production comes from integrated mills. As a result, iron ore prices continue to increase as China’s demand remains strong.

China continued to increase its iron ore imports. In the first half of 2020, China imported 546.91 million tons of iron ore, or a 9.6% year-over-year increase.

Typically, the U.S. market lags the Chinese market by a month or two. Market watchers should monitor if the U.S. steel market to see if it follows a similar price trend to China in the following months.

U.S. steel market

Another factor contributing to the slow recovery of U.S. steel prices may come down to  the rapid recovery of mills’ capability utilization rate.

According to the American Iron and Steel Institute (AISI), the U.S. steel sector’s capacity utilization rate rose to 60.4% for the week ending Aug. 8.

While the rate is lower than the same period in 2019, when it reached 79.1%, the rate has increased steadily over the past few weeks despite low steel demand.

Similarly, steel production increased to 1.35 million tons — up from the previous week but still 26.5% below the same period in 2019.

Nonetheless, the rise of capability utilization rate at mills could mean quite the opposite for scrap.

As U.S. steel production and the capability utilization rate continues to increase, so could demand for scrap. Consequently, scrap prices might increase.

Steel in the rest of the world

The European Steel Association (EUROFER) reported steel consumption in the European Union slid by 12% year over year in the first quarter of 2020.

Furthermore, EUROFER anticipated consumption might dip lower in the second quarter due to lockdown measures.

The association expects the construction industry to perform better than other sectors. However, that still means construction output is forecast to decline by 5.3% in 2020. However, EUROFER forecast a 4% increase in 2021.

Meanwhile, Junichi Akagi, general manager of JFE Steel in Japan, said steel demand should pick up throughout the third and fourth quarters. However, Akagi does not expect demand to recover to pre-pandemic levels until March 2021.

The Japan Iron and Steel Federation reported orders of steel from automakers, which represent approximately 20% of steel demand, declined by 58% during the second quarter of 2020.

This makes it clear that these large steel-producing countries do not expect to recover their steel demand until early 2021.

Actual metals prices and trends

The Chinese slab price rose 3.2% month over month to $538.87/mt as of Aug. 1. Meanwhile, the Chinese billet price rose 2.5% to $487.27/mt.

Chinese coking coal increased 9.7% to $289.35/mt.

U.S. three-month HRC fell 1.5% to $518/st. U.S. shredded scrap steel fell 8.1% to $238/st.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy. 

Aluminum production

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The Aluminum Monthly Metals Index (MMI) increased by 5% for this month’s MMI value.

August 2020 Aluminum MMI chart

SHFE prices stronger than LME prices

LME and SHFE aluminum prices continued to trade up.

The LME price reached $1,783/mt on Aug. 10, a six-month high. Meanwhile, the SHFE price reached CNY 14,820/mt on Aug. 3, a year-to-date high.

However, the SHFE aluminum price has continued to diverge from LME aluminum prices since April, with the SHFE being higher than the LME.

As a consequence, LME warehouse stocks have remained above 1.6 million tons since mid-June. These are the highest levels seen since May 2017.

The elevated stock level is due to a combination of low raw material prices and the high cost of shutting down primary smelters. This is in line with the estimated market surplus for January to May of 908,000 tons, as reported by the World Bureau of Metal Statistics.

Record imports amid strong Chinese aluminum demand

The price arbitrage between the LME and the SHFE, along with the strong Chinese demand, have incentivized traders to purchase aluminum at the discounted price overseas.

As a consequence, China imported 816,592 metric tons of aluminum, up 219.2% year on year for the first half of the 2020. In June alone, China imported 490% more than a year ago, reaching an 11-year high.

Reuters reported that Antaike, the China Nonferrous Metal Industry Association’s research department, revised its 2020 aluminum consumption by 1.7%. Antaike’s new estimate is 36 million tons, compared to the previous estimate of 36.6 million tons.

Since China’s demand for aluminum does not seem to be declining, it is set to be a net importer of primary aluminum this year, closing at 400,000 tons.

Last year, China was a net exporter at 1,000 tons.

Trump reinstates tariff on some Canadian aluminum

On Aug. 6, President Donald Trump reimposed a 10% tariff on some Canadian aluminum products to protect U.S. industry from excessive imports. The tariff applies to raw, unalloyed aluminum produced at smelters. The tariffs do not apply to downstream aluminum products.

However, data released Aug. 5 by the U.S. Census Bureau showed overall primary aluminum imports from the U.S. to Canada declined about 2.6% from May to June. In short, that means imports are below levels seen as recently as 2017.

As a result, the U.S. market might see an increase in the MW premium, which will feed through to higher semi-finished prices. The MW aluminum premium is currently $0.12/lb.

After the tariff announcement, Canada pledged to impose retaliatory tariffs on C$3.6 billion (U.S. $2.7 billion) worth of U.S. aluminum products. During a news conference, Deputy Prime Minister Chrystia Freeland said the countermeasures would be put in place by Sept. 16 to allow for consultations with industry.

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Actual metals prices and trends

The Chinese aluminum scrap price rose 7.6% month over month to $1,963.42/mt as of Aug. 1. LME primary three-month aluminum rose 6.2% to $1,722/mt.

Korean commercial 1050 aluminum sheet fell 3.7% to $2.79/kg, while its European equivalent rose 5.2% to $2,449.43/mt.

Chinese aluminum billet rose 6.5% to $2,144/mt. The price of Chinese aluminum bar rose 6.3% to $2,240.02/mt.

Chinese primary cash aluminum rose 4.6% to $2,132.53/mt. Indian primary cash aluminum increased 2.7% to $1.88/kg.

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All the base metals have been on the up recently.

Nonetheless, it would be naïve to put all such resilience down to a weakening U.S. dollar (supportive as that is for metals prices).

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This morning in metals news: the United States International Trade Commission asked for an additional $2.75 million in its budget to help it toward implementation of the United States-Mexico-Canada Agreement (USMCA); the World Gold Council released its H1 2020 report; and U.S. beverage makers are grappling with an aluminum can shortage.

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