Author Archives: Nichole Bastin

The Raw Steels Monthly Metals Index (MMI) fell by 8.73% from July to August. All in all, U.S. steel prices continued their descent, leaving cold rolled coil and hot dipped galvanized prices at their lowest point since January 2021. Meanwhile, hot rolled coil prices fell well beneath the $1,000/st mark, reaching their lowest point since December 2020. However, plate prices managed to disrupt two consecutive months of decline, by rising in July.

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Correlation Declines: Record Spread Between HRC and Plate Steel Prices

Source: Chart & Correlation Analysis Tool, Insights

The spread between hot rolled coil and plate prices continues to expand. In fact, plate prices are now double that of HRC, a historic record for the two steels. Prior to October 2020, plate prices sat an average of roughly $150/st above HRC prices. Then, due to the relatively steep rise of HRC prices, the delta inverted through November 2021. Now, as plate prices continue to hold near record levels and HRC prices remain if free-fall, the delta has expanded to $931/st.

Over the last few years, diverging price trends caused a major decline in the correlation between the two steels. After all, since 2012, HRC and plate prices enjoyed an 86.61% correlation. In fact, by the end of 2020, that correlation had grown to 87.17%. Since 2020, however, the price correlation has plummeted to 55.93%.

Nucor Drops Plate Prices $120/St, Attempts to Raise HRC Prices $50/St

The growing spread triggered frustration from buyers. It even caused Nucor to lower plate prices by $120/st in late July. Then, following a month-over-month increase in July, prices began to decline again in August. They now sit at their lowest point since November of 2021. That said, they appear to have largely consolidated since last fall amid variable month-to-month price movements. It’s worth noting that the current high prices do not come alongside historically elevated mill lead times. Traditionally, this is a leading indicator of availability and demand.

Nucos also stated that additional plate capacity should come online in late 2022, which could add further downward pressure to prices. Once operating at full capacity, Nucor Brandenburg will add an additional 1 million short tons per year of steel plate.

Steel Prices: Steel Sheets Nosedive

Meanwhile, on August 8, Nucor announced a $50/st increase in sheet steel prices. Many experts feel the move was an effort to pause the uninterrupted price descent for HRC, CRC, and HDG. The three had been in a downtrend since late April, and it’s possible Nucor was hoping to shore up the bottom end of the spread between HRC and plate steel prices.

HRC

That said, even the efforts of North America’s largest steelmaker seem incapable of stopping the current declines. Indeed, HRC prices continue to deteriorate at the time of this writing. It’s also unlikely that Nucor found any buyers at their elevated rate. Rather than accepting the increase, it’s likely buyers simply leaned on inventories amid the growing weakness of the global economy.

Hot rolled coil prices now sit almost 57% beneath their all-time high and nearly 44% beneath their late-April peak. Prior to the historic ascent that began in August 2020, the average HRC price since 2012 has sat at roughly $615/st. This could indicate that prices have further to fall, as they are technically still at the top end of their historical trading range.

Ignore the noise. Spot the trend. Related article: The Art of Timing Your Buy

Higher Input Costs Eat Away at Steelmaker Margins

On top of the descending price trends and deteriorating demand outlook, North American flat rolled steel producers now face the pressure of increased input costs. In a recent conference call, Stelco CEO Alan Kestenbaum referred to the combination of factors as a “double whammy” for production margins.

“On top of deteriorating pricing and demand, our business is being challenged with strong headwinds, including inflationary pressures on some of our key inputs such as natural gas, coal and alloys,” Kestenbaum noted during the call. He also stated that large-scale demand destruction was not a leading driver of the current price downtrend. Indeed, service centers seem wary of buying ahead. Simultaneously, inventories have narrowed amid the prospect of a global economic downturn. Kestenbaum stated that he considered Nucor’s recent price increase a “good sign” for steel producers. Still, he acknowledged that the price trend has yet to bottom out.

Consumer Spending Increase

Meanwhile, consumer spending continues to show growth. While data for July awaits release, previous months reveal a rather steady increase. However, as the Wall Street Journal noted in its recent article, “Consumers Are Still Spending on Fun,” spending has shifted away from goods and towards experiences, an inversion from pandemic-year trends.

However, food and electricity spending remains elevated. So as summer turns to fall, this could lead to more widespread demand destruction. Beyond that, the National Association of Home Builders/Wells Fargo Housing Market Index fell for the eighth consecutive month in August. In fact, the index dropped by 6 points to 49, signaling a contraction.

As a leading driver of steel demand, this recent decline could indicate the beginning of a more meaningful downturn – one that steelmakers like Stelco simply have yet to see.

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices.

Biggest Shift in Raw Material and Steel Prices

  • U.S. three-month HRC futures rose by 1.47% to $895 per short ton as of August 1.
  • Meanwhile, standard Korean steel prices dropped by 28.65% month over month to $221 per metric ton.
  • Chinese slab prices fell by 10.94% to $644 per metric ton.
  • Chinese coking coal prices dropped by 10.44% to $418 per metric ton.
  • Chinese HRC prices fell by 9.78% to $596 per metric ton.

The Stainless Monthly Metals Index (MMI) dropped 8.87% from June to July. After nickel prices hit a bottom mid-July, they followed the base metal trend upward. By the beginning of August, however, the rebound had faltered, and prices resumed their descent.

Source: Insights

Both last month’s increases and this month’s declines were extremely narrow. For that reason, prices appear consolidated within their current range, leaving no clear direction for the coming month.

Indonesia Plans New Export Taxes

Indonesia continues to pursue value adds to its nickel reserves. The hope is that doing so will aid in advancing its stainless steel and battery production capacity through export taxes on raw materials. Back in 2020, Indonesia banned the export of nickel ore entirely. The aim was to pressure its mining sector to invest in processing capacity.

That move forced China to replace ore imports with nickel pig iron and ferro-nickel in an effort to feed its stainless steel mills. Now, Indonesia plans to add an export tax to both of those products. This should provide the funding to allow for additional investment in its steel supply chain. Since 2021, Indonesia alone accounts for roughly half of all global nickel production.

Historic Impact on Nickel Prices

Nickel Prices: 2014-2017

The first export ban on nickel ore occurred in January 2014. Following the enforcement of that ban, nickel prices rose more than 39% throughout the first five months of that year. Eventually, market dynamics pushed prices lower once again. This dramatic price increase occurred despite weak economic conditions throughout parts of the world, including parts of the EU. For Indonesia, the ban had the intended effect as numerous companies in both Indonesia and China soon announced plans to construct NPI facilities on the archipelago. Outside of Indonesia, the ban forced countries like China, Australia, and Japan to pursue other sources of the metal. Before long, companies had secured direct shipping ore (DSO) from places like the Philippines and the Solomon Islands.

Indonesia substantially eased the ban in early 2017. This was due to several factors. One was a 2016 budget deficit. Another related to just how successful the ban was – spurring the development of nine additional nickel smelters (up from two). Ultimately, this led to a nearly 19% decline in nickel prices during the first half of 2017 alone.

Future Nickel Prices and Chinese Imports

Nickel Prices

Nickel Prices: 2019-2020

Despite previously-stated intentions to reimpose the export ban in 2022, Indonesia instead expedited its resumption to January 2020. The decision aimed to bolster the domestic processing sector, which saw rapid development during that time. The move also caused China to increase NPI and stainless steel projects in Indonesia, as it dramatically limited ore imports. Chinese imports of NPI from Indonesia also surged as a result. However, the ban’s reinstatement did not trigger the same impact in terms of price trend. This was likely due to the emerging pandemic. Instead, prices remained within an overall downtrend that did not hit bottom until late March of that year.

Export Taxes on the Horizon

Nickel Prices

Nickel Prices: 2022

The most recent announcement of potential export taxes comes as a result of the increased flow of NPI exports. It was supported by the forecasted increase in the number of domestic NPI and ferro-nickel processing facilities. In fact, the current estimate predicts an increase from 16 facilities to 29 over just five years. Still, a low-value product and limited exports of NPI will incentivize foreign investment in Indonesia as countries pursue battery and stainless steel manufacturing. It would also force importers like China to seek alternate sources for their supply.

However, the announcement has yet to spark any noticeable increase in prices. Instead, nickel prices have continued downward since their most recent rally stalled back at the start of August. According to Septian Hario Seto, Deputy Coordinating Minister For Maritime and Investment Affairs, the tax could begin as early as Q3 2022. That said, no formal date has yet been announced. When it comes, the announcement alone will likely trigger a sharp uptick in Indonesian NPI exports as countries prepare to absorb the tax. Of course, any actual response from nickel prices will likely follow the decided levy date.

The best way to track monthly nickel prices is to sign up for MetalMiner’s monthly MMI reports, which come directly to your inbox. 

European Commission Launches Anti-Circumvention Investigation

On July 26, the European Commission launched a new anti-circumvention investigation. The subject was hot rolled stainless sheets and coils imported from Turkey, but which originated in Indonesia. EUROFER, the association of European steel producers, triggered the investigation over allegations that imports from Turkey violate the anti-dumping measures imposed against Indonesia. Indonesia remains home to several Chinese stainless steel manufacturers. At the moment, the case is expected to be concluded in the next nine months. Meanwhile, all imports of SSHR from Turkey will be registered with immediate effect as instructed by the EC.

Could the U.S. Be Next?

Thus far, President Biden has largely continued the protectionist approach against China set forth by his predecessor. While the outcome of the investigation and subsequent response to its findings remain undetermined, Europe’s actions could inspire the U.S. to follow suit. After all, anti-dumping has always been a politically favored agenda. Furthermore, the investigation could cause materials once destined for Europe to instead shift toward the U.S. market. If that happens, it could embolden U.S. mills to lobby for political action to protect domestic interests.

Check out MetalMiner’s stainless steel should cost models by scheduling a demo of the Insights platform.

Biggest Moves in Stainless Steel and Nickel Prices

  • Chinese primary nickel rose by 4.71% to 28,520 per metric ton as of August 1.
  • Meanwhile, the Allegheny Ludlum 304 surcharge fell by 21.2% to 1.34 per pound.
  • The Allegheny Ludlum 316 surcharge dropped by 18.62% to 1.84 per pound.
  • Chinese ferrochrome lumps decreased by 11.38% to 1,223 per metric ton.
  • Chinese ferromolybdenum lumps declined by 10.49% to $23,650 per metric ton.

The Copper Monthly Metals Index (MMI) dropped 7.33% month over month as components declined across the board. Still, copper prices seem reluctant to pick a direction.

Source: Insights

In the lead-up to August, copper prices saw notable increases. There were also several bullish indicators of note, including higher short-term highs. In short: after months of declines, prices ended up moving sideways. Yet despite this bullish price action, the macro trend still remains bearish, leaving the current market direction unclear.

Unemployment Rate Falls to 3.5%

The growing prospect of a global economic slowdown weighed heavily on commodity prices these past few months. Before the recent base metal price consolidation, which included copper, analysts seemed to be pointing out warning signals left and right. The fear was that the US and elsewhere would soon enter a recession, and it provided the momentum for sweeping downtrends.

However, unlike every other modern recession, the labor market continues to surpass expectations. In fact, according to the Department of Labor’s most recent monthly jobs report, the US economy added 528,000 jobs in July. Furthermore, the unemployment rate – which was already at a historic low – fell from 3.6% in June to 3.5%. This is the lowest the index has been since February of 2020. The combination of an aging population and relatively few immigrants have likely kept the labor market tight in spite of the multitude of other economic pressures.

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Reexamining the Link Between Copper Prices and Recessions

Last month, MetalMiner examined how aluminum prices behaved during past recessions. Much like aluminum, copper price downtrends do not exclusively occur within recessions. However, they do invariably and substantially decline during economic downturns. In fact, if you trace their peaks to their lowest points during the last four recessions, global copper prices fell by 20.74%, 20.94%, 64.37%, and 11.07%, respectively.

Source: St. Louis Fed

It’s important to note that, of those four recessions, only two saw price downtrends precede the onset. For instance, during the eight-month-long recession in the early 1990s, prices peaked two months after the official slowdown began. Furthermore, the downtrend continued for an additional three months following the recession before being disrupted by a 5-month uptrend.

On the other hand, during the early 2000s recession, which also lasted eight months, the copper downtrend preceded the start by six months. During that time, prices fell by 11.2%. Incidentally, they hit a bottom one month before the culmination of the downturn.

Learning from History

The Great Recession was the longest of the four, lasting a total of one year and six months. However, copper prices actually peaked four months after the recession began. That downtrend continued for eight months before prices hit a bottom and reversed. It’s also important to note that this bottom preceded the official end of the recession by six months.

Lastly, you have the two-month COVID-19 recession. In this case, copper prices began to decline two months before the slow down, dropping 6.41%. Prices then hit bottom at the end of the recession before entering a sharp uptrend that peaked in May 2021.

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Plenty More Bearish and Bullish Factors Remain

Ultimately, whether the US is in or will enter into a recession remains uncertain. And with copper prices in a short-term sideways trend, it’s hard to know what to expect. Fortunately, there are several factors that could help them find a direction.

1. Infrastructure

Both China and the US have designated infrastructure plans that specifically benefit copper, including electrification and power-related projects. In the US, spending related to the Bipartisan Infrastructure Law will take place over the next five years. Meanwhile, the latest tax, climate, and health package adds further investment into green technology like solar panels and EVs. In China, where construction sector accounts for almost half of China’s copper demand, the government’s infrastructure ambitions far exceed those planned by the US. For instance, China’s State Grid recently announced a 500 billion yuan budget for power infrastructure in 2022. This includes a 150 billion yuan ultra-high voltage power transmission line project set for construction in H2 2022.

Copper Smelter

2. China’s Property Crisis

On top of the continued downtrend of China’s property sector, the expansion of the crisis could cause China’s entire economy to spiral. Earlier this year, stalled projects and falling home prices led to a mortgage boycott that has now spread to over 90 cities. In response, hinese authorities have reportedly set up an $11.8 billion fund to help developers resume construction. However, that figure is dwarfed by the losses banks currently face due to the protests, which stand at more than $350 billion. If China’s efforts prove insufficient to contain the crisis, the entire property sector, which historically accounted for around 25% of China’s copper demand and 30% of its GDP, could collapse.

3. Chile’s New Constitution

On September 4, Chilean citizens will have the opportunity to adopt or reject a new constitution. If adopted, the new law of the land would have substantial implications on the copper market. Specifically, it could deter foreign mining investment and affect their long-term stability. Furthermore, the decentralization of government laid out in its policies could encourage widespread corruption. Chile represents roughly one-third of the global copper supply, and any limits within the region put pressure on projected supply deficits in the coming years. However, the latest polls suggest the document will be rejected.

The  MetalMiner weekly newsletter covers copper developments as well as all the latest market news you need to know.

Biggest Drops in Copper Prices

  • The LME primary three month copper price fell by 5.49% month-over-month to $7,792 per metric ton as of August 1.
  • Chinese copper scrap fell by 6.47% to $7,621 per metric ton. 
  • The Japanese primary cash copper prices declined by 7.34% to $8,066 per metric ton.
  • Meanwhile, Korean copper strip prices fell 12.69% to $9.55 per kilogram.

After seeing a short-term bullish rebound in July, aluminum prices began to modestly decline again in early August. All in all, the rebound was insufficient to suggest a bullish reversal. As such, global aluminum prices remain within a macro downtrend despite recent directional uncertainty.

Aluminum August

Source: MetalMiner Insights

The Aluminum Monthly Metals Index (MMI) dropped by 2.4% month over month. 

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Aluminum Prices Move Sideways as Energy Costs Make Production Unprofitable

Before Russian energy giant Gazprom decided to cut Nord Stream 1 gas flows to 20%, Europe had already shuttered roughly half of its aluminum smelting capacity. According to Alcoa CEO Roy Harvey, high energy prices mixed with low aluminum spot prices in June made between 10% and 20% of global aluminum smelting operations unprofitable. In China alone, smelter unprofitability extended to around 50% that month. Meanwhile, Norsk Hydro ASA CFO Kildemo estimated that more than one-third of global smelters had operated at a loss.

Now that European countries face energy rationing as energy prices continue upward, aluminum production, especially in Europe, remains pressured. According to a survey conducted by the German Aluminum Association, 9 out of 10 companies would be unable to switch energy sources should gas become unavailable. Indeed, energy shortages could cause the roughly 900,000 tons worth of production cutbacks we’ve witnessed so far this year to double moving into 2023.

Europe’s energy crisis was enough to pause the 4-month downtrend in aluminum prices, if only temporarily. Since mid-July, prices appeared to hit a bottom, reaching their lowest point since April of 2021. Soon after reaching this grim milestone, they began to move sideways. It’s true that the crisis may not be enough to reverse the price trend, especially amid a worsening global demand outlook. Still, for now, it’s enough to add some visible friction to the downward momentum.

Source: Insights

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China is Filling Supply Gaps on Both Sides of the Sanctions

So far this year, Chinese products have increasingly filled the gaps left in the wake of the war in Ukraine. And while Western sanctions have avoided targeting Russian aluminum specifically, the downstream effects of Australia’s export bans on bauxite ore and alumina have disrupted Russian production nonetheless.

That said, China’s increased alumina production and its willingness to ship to Russia limits the effects of these shortages. These shipments have also helped turn China into a net exporter of alumina, a rank it achieved back in April. In Russian LNG exports once destined for Europe have now pivoted toward China.

In addition to alumina, China boosted both its primary aluminum production and exports. Specifically, primary unwrought aluminum exports rose by nearly 364% in the first half of the year over 2021, with a large portion of that material going to Europe.

Related article: The 5 Golden Rules for Sourcing Aluminum

Aluminum Ingots Hit Hardest, But Semis Also Impacted

While ingot production will suffer the brunt of Europe’s energy crisis, semis will also see an undeniable impact. For one, any reduction of primary metal and increase in physical delivery costs will support conversion premiums, especially if high prices are to blame. Secondly, European semis mills continue to face competition from Chinese imports.

It’s true that some Chinese-sourced products have quota restrictions and/or anti-dumping duties, but many do not. Beyond that, those duties become more easily surmountable as the cost of European-produced semi-manufactured products increases.

The return of European anti-dumping duties following a temporary suspension should stem at least some of the flow from China. Nonetheless, semis exports from the country continue to increase. Following an 18% year-over-year rise in 2021, semis exports have seen a 28% increase since the start of 2022.

Biggest Increases and Decreases in Aluminum Prices

  • The LME three-month aluminum price rose by 0.67% month over month to $2,437 per metric ton as of July 1.
  • Indian primary cash aluminum increased by 1.9% to $2.68 per kilogram.
  • Meanwhile, Chinese aluminum scrap decreased by 6.75% to $2,039 per metric ton.
  • Chinese primary cash aluminum fell by 4.59% to $2,713 per metric ton.
  • Chinese aluminum billet fell by 3.88% to $2,756 per metric ton.

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U.S. steel prices continued their decline this month alongside other steel markets. Hot rolled coil, cold rolled coil, and hot dipped galvanized prices all dropped beneath their early March bottoms. HRC prices, in particular, continue to close in on the $1,000/st mark, while plate prices saw their second consecutive month-over-month decline.The Raw Steels Monthly Metals Index (MMI) fell by 6.91% from June to July with all components of the Index showing declines. 

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

U.S. and European Hot Rolled Coil Returns to Pre-War Levels.

Global hot rolled coil prices declined to pre-war levels in early July as China’s lockdowns and the prospect of a global downturn weighed on prices. U.S. steel prices saw the most sizable bounce from Russia’s invasion of Ukraine after a 5-month downtrend inverted in early March.

From the early March bottom, prices increased nearly 44% until the descent resumed in late April. At the start of July, prices stood nearly level with the March low. However, the decidedly bearish trend continued, unbothered by that threshold. Indeed, hot rolled coil prices dropped 48% from their October all-time high at the end of the first week of July.

Prior to the invasion, European hot rolled coil prices remained within a larger uptrend. Meanwhile, U.S. hot rolled coil prices more than quadrupled from their 2020 low until their peak. However, European prices rose at a more moderate pace and skipped the trend reversal seen by their U.S. counterparts. The invasion, nonetheless, triggered a sharp 12% jump from March to April. Still, the effect of the conflict appeared short-lived, as prices began to slump during April. By June, the pre-war uptrend had reversed, erasing gains as prices prices fell to their lowest level since January.

Chinese Hot Rolled Coil and Steel Prices Dropping Significantly

Meanwhile, Chinese hot rolled coil prices peaked long before their Western counterparts. The uptrend, which began in April 2020, saw a sharp reversal by mid-May of 2021. This was after Beijing issued warnings on price speculation. Although the following year saw multi-month periods of consolidation and uptrending, gains were wiped out before prices could overtake previous highs by more substantial declines. Thus, prices remained within a macro downtrend.

Nonetheless, ahead of the invasion, Chinese hot rolled coil prices saw three months of steady increases. The invasion appeared to trigger a 7.4% jump over the course of a week in early March, but the spike soon corrected. And though prices rebounded, they failed to overtake that early March high before the impact of lockdowns began to take effect, and the downtrend resumed. Prices now sit almost 21% beneath their March peak at their lowest level since November of 2020.

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Chinese Steel Sector In Crisis, Inventories Pile Up

While global prices continue to trend downward, Chinese steel prices sit substantially lower than their Western counterparts. Even before the most recent lockdowns, China’s property sector, a leading consumer of steel, saw property sales, investment, and new construction drop for months. According to the National Bureau of Statistics of China, the first five months showed year-over-year contractions of  31.5%, 4% and 30.6%, respectively.

In fact, May marked the eleventh consecutive month of decline for house and apartment sales. These declines occurred in spite of China’s efforts to bolster the beleaguered sector during the same period. According to Chinese state-owned Sina Finance, China made almost 500 regulatory changes and stimulus measures related to the property sector during the first half of 2022.

While lockdowns and zero-COVID policies did not cause the property sector downturn, they certainly worsened it. For China’s steel sector, the impact of both has translated to a substantial supply glut. Currently, demand remains weak and prices continue to slide. According to a recent Bloomberg report, data from the China Iron & Steel Association showed that while inventories fell slightly from record-highs reached in June, they remain 23% above the previous year. Plummeting demand amid strong output caused numerous steelmakers to become unprofitable and forced numerous mills to curb output.

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices.

Ba.5 Arrives in Shanghai, Threatens Infrastructure Push

Theoretically, China’s “all-out” infrastructure push should benefit the steel sector. However, the recent detection of the highly-transmissible Ba.5 in Shanghai, alongside rising case counts, could put those projects at risk.

During the first five months of the year, outbreaks caused numerous disruptions to construction projects. And while the National Bureau of Statistics reports that China’s infrastructure budget rose by 6.7% during that time, its construction sector remained crippled by lockdowns and restrictions.

Meanwhile, excavator production and sales, which are leading indicators for Chinese construction activity, showed continued declines throughout the previous year. In fact, the China Construction Machinery Association (CCMA) showed a 30.5% year-over-year drop in excavator production during the first five months of 2022. In April alone, domestic excavator sales dropped 61% from 2021.

Hitachi Construction Machinery likewise showed consistent monthly year-over-year drops in Chinese demand for hydraulic excavators. On top of that, the company’s average operating rates fell over 7% year over year during the first five months.

Raw Steels MMI: Actual Prices and Trends

  • Chinese slab prices fell by 10.7% month-over-month to $723 per metric ton as of July 1. Meanwhile, the Chinese billet price decreased by 7.59% to $616 per metric ton.
  • Chinese coking coal prices dropped 9.25% to $467 metric ton.
  • U.S. three-month hot rolled coil futures fell by 9.63% to $882 per short ton. While the spot price dropped 22.72% to $1,034 from $1,338 per short ton. U.S. shredded scrap steel prices fell by 3.64% to $476 per short ton.

The Stainless MMI continues its decline this month. Moreover, nickel prices continue to show weakness without any apparent bullish anticipation from market participants. As the entire industrial metals market sloped downward, nickel prices followed suit. Moreover, volumes remain lower than pre-LME shutdown levels, which will continue to foster slow price movement.

The Stainless Monthly Metals Index (MMI) dropped 9.55% from June to July.

 

Tsingshan Tycoon Caps Losses at $1 Billion After Nickel Crisis

According to a recent Bloomberg report, the man behind the historic March nickel squeeze walked away from the crisis with an estimated loss of $1 billion. To most, that figure sounds almost unimaginable. However, it’s a far cry from the more than $10 billion loss he faced when nickel prices surged past $100,000/mt. Instead, Xiang Guangda, owner of mining and steelmaking company Tsingshan Holding Group, managed to close out nearly all of his short positions almost four months later.

Guangda’s ability to withdraw with nearly all his assets intact and, for him, a manageable loss, was notably aided by a few big players. For instance, when nickel prices skyrocketed, the LME halted trading. That move allowed Guangda time to strike a deal with roughly ten banks and brokers attached to his short position. Perhaps even more crucially (and controversially), the LME canceled multiple transactions. This brought prices back to the previous day’s closing of just under $50,000. However, Guangda did not, in fact, begin closing his short positions when the exchange reopened. Instead, the deal he struck allowed him to hold off until prices dipped to more acceptable thresholds, capping his net losses and allowing him to remain very much a billionaire.

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

Damage Far-Reaching for Nickel Prices, Could Extend Months if Not Years

While Guangda appears “in the clear,” the damage of the squeeze extended far beyond the actual events. For one, the LME’s reputation seems severely, and perhaps permanently, harmed. Of course, the exchange was caught between a rock and a hard place. That said, it did choose a side. And that will always leave the other side angry.

Understandably, the exchange felt incredible pressure amid the chaos. According to the LME’s chairman, Gay Huey Evans, “had the LME not taken these decisions, the effect on the nickel market would have been intensely damaging and felt throughout the nickel value chain investment community.” Although it’s been denied, speculation persists that Beijing may have influenced LME’s parent company, Hong Kong Exchanges and Clearing Limited.

As the LME’s chosen winner walks away, the losers remain furious. On the one hand, the exchange has found itself the target of numerous lawsuits and investigations. On the other hand, the crisis triggered a retreat from the LME due to distrust and risk aversion among market participants. Open interest across the metals has trended downward since March. Its nickel contract, though still functional, stands as the most substantially damaged, with trading volumes roughly half of what they were.

Beyond the LME, the wider nickel market continues to struggle to find a fair value for trade hedges. This is largely due to low volumes harming liquidity and widening spreads. As no CME contract exists, India’s MCX and China’s SHFE stand as the only viable alternatives. Both, however, are priced in non-freely convertible currencies. The SHFE appears as the obvious beneficiary, but not necessarily to a substantial degree. Instead, the market remains shaken. In MetalMiner’s opinion, the true fallout of the nickel crisis will likely extend months, if not years.

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NAS July Fuel Surcharge Rises to 51%

North American Steel’s fuel surcharge hit a new record in July as it climbed for the second consecutive month to 51% from 50% in June. The figure has more than doubled since May of 2021 amid record energy prices. The surcharge during the first seven months of 2022 now sits over 71% higher than what it was during the same period of 2021.

Fortunately, fuel prices are projected to see some relief in the near future. In fact, oil slid 2% last week to reach a 12-week low of just under $100 a barrel. That said, the only reason for this sudden drop is increased worries about a global recession. If that looming threat comes to fruition, there may be worse things to worry about than fuel surcharges.

See the impact on stainless steel prices. Check out MetalMiner’s stainless steel should cost models by scheduling a demo of the Insights platform.

 

Actual Metals Prices and Trends

  • The Allegheny Ludlum 304 stainless surcharge fell by 6.59% to $1.70 per pound as of July 1. Meanwhile, the Allegheny Ludlum 316 surcharge dropped 7.76% to $2.26 per pound.
  • Chinese primary nickel decreased by 18.8% to $27,236 per metric ton.
  • LME three-month nickel fell by 13.49% to $The 8,245 per metric ton.
  • Indian primary nickel increased by 14.72% to $8.63 per kilogram.

 

Aluminum prices continue to display a macro downtrend. Shorter-term trading ranges are forming but also breaking quickly, signaling further bearish sentiment. Simultaneously, breakouts to the downside seem to indicate a lack of bullish strength and support.

Altogether, the Aluminum Monthly Metals Index (MMI) dropped by 8.06% month over month. 

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GDPNow Tracker Falls to -1.9% for Q2 as Recession Risk Looms

According to the GDPNow tracker, a leading gauge of economic activity, GDP will likely contract during the second quarter of 2022. Currently, this contraction is estimated at around -1.9%. Should the latest forecast ring true, this would reflect the second quarter of decline in a row. Back in Q1, the economy contracted by about 1.5%. Typically, two back-to-back quarters of decline suggest a recession. So, pending the official release of Q2 GDP figures, does this mean the U.S. is officially in a recession?

Not necessarily.

GDP, while important, stands as but one factor the National Bureau of Economic Research (NBER) considers in identifying recessions. After all, these periods generally reflect a broader economic decline. Therefore, they are best considered through the lens of “depth, diffusion, and duration.” Alongside GDP, economists also look at employment, manufacturing, income, and retail sales data when determining the macro scope of economic activity. Those data points do not appear decisively recessionary at this point. However, they have begun to move in an increasingly less optimistic direction.

A Multitude of Other Factors to Consider

According to the Commerce Department, retail sales fell by 0.3% in May. And while fuel sales jumped by 4%, spending in other sectors contracted. Meanwhile, the ISM Manufacturing PMI, while still indicating growth, began to narrow in June. Of particular note, the New Orders Index officially fell into contraction at 49.2, while the growth of Backlog of Orders Index narrowed from 58.7 to 53.2.

It’s also important to note that the Labor Department sees signs of moderation in the labor market. And while unemployment remains historically low, the economy has seen a slight rise in unemployment claims in recent weeks. On top of that, applications for U.S. unemployment insurance increased to their highest level since January.

With primary LME ingot prices falling, buyers should carefully review best practice sourcing strategies!

How a Recession Might Impact Aluminum Prices

Every recession in history has come with its own specific causes and nuances. Altogether, the U.S. has faced 12 recessions since WWII. Of those 12, unemployment saw an average 3.8% increase, while the U.S. economy saw an average decline of roughly 2.5%. As expected, when the U.S. economy contracts, so too does the demand for aluminum. Indeed, during the four most recent recessions, global aluminum prices invariably declined.

For instance, the early 1990s recession was triggered by a spike in oil prices following the Iraqi invasion of Kuwait. This surge was coupled with a restrictive monetary policy and substantial debt from the 1980s. When it hit, aluminum prices peaked two months after the onset of the official recession, and the downtrend extended nine months beyond its culmination before the next rebound. Altogether, prices fell nearly 28% from their peak in that period. 

During the early 2000s recession, largely associated with the dot-com bubble and the September 11th attacks, aluminum prices peaked two months after the recession started. However, prices didn’t hit bottom until a month before it officially ended. In total, aluminum slid almost 17% from May to October of 2001.

The Great Recession, most notably tied to the subprime mortgage bubble, saw global aluminum prices peak seven months after its onset. As with the previous recession, the downtrend inverted prior to the end of the recession. In this case, it happened a full four months ahead of time. Nonetheless, aluminum prices dropped more than 56% from their peak.

Finally, we have the COVID-19 Recession. Albeit the briefest and certainly most abnormal of the four, aluminum prices likewise saw notable price declines. Many will remember that a more significant downtrend preceded this two-month recession and shifted upward at its culmination. During those two months, however, prices fell almost 18%.

Key Takeaways on Aluminum Prices

  • Aluminum prices invariably decline amid a contraction of the U.S. economy. Aluminum often correlates with copper, and many regard copper prices as a leading indicator of a U.S. recession. That said, global price declines do not necessarily precede the onset of a recession.
  • Prices may hit “bottom” before the U.S. formally emerges from a recession. This occurred during two of the last four recessions.
  • Just as the length of each recession varies, the sharpness and extent of price declines also vary. The nuance of each downturn makes it incredibly important to stay on top of the price trend and have a strategy prepared for when the trend inevitably shifts.

Actual Aluminum Prices and Trends

  • The LME three-month aluminum price fell by 16.26% month-over-month to $2,421 per metric ton as of July 1.
  • Chinese primary cash aluminum decreased by 8.74% to $2,844 per metric ton.
  • Chinese aluminum scrap decreased by 6.49% to $2,186 per metric ton.
  • Chinese aluminum billet fell by 7.88% to $2,868 per metric ton.
  • European 1050 aluminum sheet fell by 1.51% to $4,237 per metric ton.
  • Indian primary cash dropped by 16.24% to $2.63 per kilogram.

 

The Copper Monthly Metals Index (MMI) dropped 10.69% between June and July. The copper price trend continues to go bearish.

Copper price action continues to show massive bear trends and signals further declines.  The continuous breakdown of short-term trading ranges fosters a volatile market. This leaves industrial buyers at risk of inventory value fluctuations.

Spike in COVID Cases Puts China’s Recovery in Limbo and Affects Copper Prices

The highly infectious BA.5.2 sub-variant of the coronavirus arrived in China as Beijing issued its first vaccine mandate. Meanwhile, Shanghai’s covid cases rose to their highest level since late May. The city continues to struggle with the omicron variant. Since Shanghai emerged from lockdown, China shifted toward targeted quarantines. The latest jump in cases will once again test China’s resolve for zero-COVID.

Up to this point, China has resisted another full-scale lockdown. The apparent hesitation suggests a subtle shift in China’s strategy. However, another lockdown could remain on the horizon should infection counts surpass a certain threshold. The last lockdown caused extensive damage to China’s economy. The Caixin Manufacturing Index PMI contracted to a 26-month low in April. Furthermore, a recent Bloomberg report suggests that China’s GDP likely contracted in Q2. This is contrary to any number the CCP will release.

Copper Coils

While copper prices peaked in March, muted demand from China triggered the beginning of the price downtrend. The impact of China’s lockdowns started taking effect during the second half of April. The price descent continued following a brief rebound. However, it failed to overtake its previous high as Shanghai emerged from lockdowns. However, bearish focus shifted growing fears of an economic recession in the West. China’s recovery has, thus far, failed to reverse the downward momentum. However, any backtracking could accelerate the current free fall in prices that now sit nearly 30% beneath their March 7 peak.

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Infrastructure or Bust?

As China weighs its next steps to manage COVID, it continues to look toward infrastructure to reach growth targets. According to a recent Reuters report, China will create a state infrastructure investment fund totaling nearly $75 billion in Q3.  Its latest moves follow President Xi’s late-April commitment for an “all-out” strengthening of infrastructure construction. While projects will likely be expansive, Xi emphasized “sci-tech” infrastructure. China looks toward building its digital economy as well. To fund its ambitions, China’s cabinet announced it would raise the credit quota for policy banks by $120 billion. It will also issue nearly $45 billion in financial bonds. 

Upcoming plans follow already sizable investments during the first half. According to data from the National Bureau of Statistics, infrastructure investment during the first five months of the year increased by 6.7% from 2021. Total planned investment in newly started projects rose by 23.3% during that same period.

Learn when to buy copper based on the trend, with the MetalMiner Insights platform. Request a demo.

Will China’s Infrastructure Push Halt Copper Price Fluctuations?

Source: St. Louis Fed

While China’s stimulus measures extend beyond infrastructure, infrastructure spending appears as the priority. It’s also not the first time China used this strategy. Back in 2008 amid the Great Recession, China’s State Council announced a $586 billion (CNY 4 trillion) stimulus package in November of 2008. While the package expanded the debt, it also spurred growth following a sharp dip. Copper prices likewise took note as the downtrend hit a bottom by December.

China’s efforts may not have the same effect in 2022, however. Projects announced thus far will certainly benefit copper, but it remains unclear how total spending will compare to 2008. Further, China’s debt sits much higher than it did in 2008. This, on top of its property sector and the damage already done by the zero-COVID approach, leaves China in a much weaker position. China’s current covid restrictions also pose a risk. Even if they fall short of city-wide lockdowns, they come at the expense of a larger recovery and remain disruptive to any business or project. Whether China can manage its vulnerabilities and both fund and execute enough projects to compensate for the weight of the global economic downturn appears, at this point, unlikely.

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Actual metals prices and trends

  • The LME primary three month copper price fell by 13.49% month-over-month.
  • Chinese copper bar declined by 14.06% to $9,358 per metric ton. Chinese copper scrap fell by 14.25%,
  • US copper producer grades 110 and 122 decreased by 10.96%.

Copper prices rebounded sharply after declines in early May. While prices continue to find a bottom on a macro scale, they remain sideways in the short term. As a result, copper has been unable to establish a clear direction, either bullish or bearish.

The Copper Monthly Metals Index (MMI) fell by 2.89% month over month.

Copper prices fall 4.3% ahead of 0.75% rate hike issued by Fed

The anticipated 0.75% interest rate hike came to fruition on Wednesday. The hike marks the largest since 1994 as the Fed attempts to restrain rising, persistent inflation that hit 8.6% in May. Prior to the latest CPI data, markets expected another half-percentage-point hike followed from previous Fed meetings. In its June 15 press release, the Fed also indicated that it anticipates “ongoing increases in the target range will be appropriate.”

Ahead of its formal announcement, markets expectedly began to price in the Fed’s latest move. Copper prices saw an overall 4.3% sell-off during the week prior. Despite this, copper prices began to form a bottom on short timeframes following the press release. Nonetheless, prices sit substantially beneath their early March peak. The larger trend appears decidedly bearish. 

Ignore the noise. Spot the trend. Related article: The Art of Timing Your Metal Buy 

Indecision, division await vote on Chile’s new constitution

Chile awaits the completion of a new constitution. The constitutional assembly already voted to reject plans to nationalize key parts of its mining sector. However, if adopted, the new constitution will veer the country sharply left as it expands social rights and environmental protections. This will also create a National Health Service, include reparations related to historically Indigenous land and eliminate the Senate from the bicameral congress to create a Chamber of Regions instead.  

Copper

Adobe Stock, 2022

Revisions began on May 14 with the final draft slated for completion on July 4.  The document then enters a referendum. Chilean voters can either approve or reject the new constitution on Sep. 4 as decided by a simple majority.

While the path toward a new constitution began with 80% of the vote in the 2020 plebiscite, approval of the document remains far from certain.  According to a poll by the Center for Public Studies (CEP), respondents that would approve, reject or remain undecided stood at 25%, 27% and 37%, respectively. The remaining 11% either declined to answer or did not know. No clear path exists should voters reject the constitution come September. The poll also indicated should such a scenario play out, 42% of respondents favored a new draft, 31% favored a revision and 15% wanted the current constitution to remain unchanged. Polling reported by the Guardian, however, suggests support for such reform could wane. According to that data, 46% of respondents indicated intent to reject the latest draft while 38% approved.

All copper buying organizations need to closely follow these developments as Chile accounts for over 33% of global copper supply.

The  MetalMiner weekly newsletter covers copper developments.

Impact on copper

While the present draft managed to circumvent radical plans related to copper mining, the sector would see an impact should citizens approve the new constitution. Of note, article 25 requires miners to designate “resources to repair damage” to the environment from the negative effects of mining. The constitution will also include a ban on mining in glaciers and areas essential to protect Chile’s water system. 

According to an interview with Antofagasta CEO Iván Arriagada, most of the company’s current concerns relate to uncertainty of if a shift will occur come September. Depending on the final terms, adoption of the constitution could likely impact long-term investments for the company. Concern over the restriction of private water rights within the new constitution, however, remains largely overstated. The mining industry largely veered toward the use of seawater to operate facilities and will continue to move in that direction. 

The mining sector accounts for roughly 11% of Chile’s GDP. According to Chile’s Centre for Copper and Mining Studies (Cesco), a lack of exploitation of mineral resources would threaten Chile’s overall wealth by 20-25%. Although many of the social reforms remain popular among citizens, threats to mining investment could weigh down the initial widespread calls for reform. Should Chilean citizens approve the new constitution, limits to and additional price pressures on the mining industry would inevitably filter down to global copper prices.

Learn when to buy copper based on the trend, with the MetalMiner Insights platform. Request a demo.

Actual metals prices and trends

  • The LME three-month copper price fell by 3.18% month-over-month to $9,510 per metric ton as of June 1.
  • Chinese copper bar declined by 4.18% to $10,679 per metric ton. Chinese copper scrap fell by 6.69% to $9,323 per metric ton. 
  • US copper producer grades 110 and 122 decreased by 1.85% to $5.29 per pound. Producer grade 102 fell by 1.78% to $5.51 per pound.

 

U.S. steel prices continue to retreat. After consistent week-over-week declines, HRC prices now sit more than 15% beneath their late-April peak while plate prices continue to trade sideways as they remain just 6% beneath their all-time high.

Steel prices

The Raw Steels Monthly Metals Index (MMI) fell by 7.87% from May to June.

Know what to do when the market shifts. Related article: The Art of Timing Your Buy 

U.S. Manufacturing PMI climbed, Consumer sentiment plummeted

Steel pricesThe U.S. ISM Manufacturing PMI reached 56.1% in May. While the index climbed from April’s reading of 55.4, it marks the second-lowest reading since September of 2020. Domestic steel prices, particularly HRC, loosely mirrors the index trend. The index remains within a larger downtrend since it peaked in April of 2021.  

Of particular note, in spite of ongoing inflationary pressures, demand expanded as the New Orders Index grew from 53.5 in April to 55.1 in May. This data follows a 0.9% increase in consumer spending during April.

Meanwhile, according to preliminary data from the University of Michigan, consumer sentiment plunged to a record low between May and June. The index saw a 14% month-over-month decline, to hit its lowest recorded value at 50.2. June’s value compares to the low reached during the 1980 recession of 51.7 in May 1980. While overall consumer spending often diverges from sentiment, June’s consumer sentiment data may likely foreshadow a shift in spending trends toward necessities as consumers grapple with inflated prices. 

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Infrastructure funds could support steel prices in the longer term

According to the White House, states received more than $110 billion to fund projects related to the Bipartisan Infrastructure Law since the bill was signed into law 6 months ago. The released funds are earmarked for more than 4,300 specific projects, including those related to road, bridges, port and airport modernization and water infrastructure throughout the U.S. An additional $100 billion in requests for information and notices of funding availability have also been released. Spending related to the infrastructure bill will take place over the course of the next 5 years. 

In Fiscal Year 2022 alone, the U.S. Department of Transportation announced $52.5 billion in Federal Highway Apportionment and $246 million for the Appalachian Development Highway System.Steel prices

Unlike other forms of steel, plate prices remain near record highs, albeit with modest declines since late April. HRC, CRC and HDG prices declined alongside falling mill lead times. While plate did not see the same increase in production capacity as other forms of steel, mill lead times have nonetheless retraced for plate which would indicate availability constraints no longer remain a driver in persistently high prices. Infrastructure spending has and will create steady demand for plate. Due to Buy America provisions, the plate market will likewise remain substantially insulated from lower-cost imports.    

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices.

April U.S. steel imports, production slide

U.S. steel imports and U.S. steel production started to soften. According to the U.S. Census Bureau, total U.S. imports of steel products saw an 11.68% decline from March to April. HRC, CRC, HDG and coiled plate imports saw respective 25.11%, 16.27%, 8.91% and 13.63% declines.

Meanwhile, according to the World Steel Association, crude steel production in the U.S. fell from roughly 7.0 million tons in March to 6.9 million tons in April. Further, April’s total reflects a 3.9% year-over-year decline. As steel supply both through imports and production slid on the back of continuous, across the board steel price declines (albeit modest for plate), this may likely prove to be an early indication of a downward trend for domestic steel demand in months to come. 

Actual steel prices and trends

Chinese slab prices increased by 8.11% month-over-month to $812 per metric ton as of June 1. Meanwhile, the Chinese billet price decreased by 4.71% to $667 per metric ton.

Chinese coking coal prices fell 2.23% to $524 metric ton.

U.S. three-month HRC futures fell 14.76% to $976 per short ton. While the spot price decreased by 8.92% to $1,338 from $1,469 per short ton. U.S. shredded scrap steel prices fell 5.91% to $525 per short ton.

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