Articles in Category: Metal Pricing

The Global Precious Metals MMI (Monthly MetalMiner Index) fell a modest 0.10% this past month. As a whole, global precious metal prices continue to trade sideways. That said, there are still plenty of investors looking to turn paper currency into precious metals over fears of a recession. Indeed, this could prove to be the very reason why precious metals aren’t dropping in price as significantly as other metal types. But as the US dollar has strengthened over the recent weeks, this trend is in danger of coming to an end.

Source: Insights

Precious Metal Prices: Silver Trapped Between Support and Resistance

Silver managed to make some noticeable strides over the past couple of months. In fact, in August alone, silver came very close to breaking through the roof of resistance. Some experts even wonder if the silver index might soon catch up with gold. Despite these surges, silver remains in a downward macro trend. For the moment, the precious metal seems stuck between support and resistance.

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Precious Metal Prices

Gold Short-Term Reversal

Over the past month, gold started showing signs of a short-term reversal. Indeed, between July and August, fears of a recession caused investors to buy in on precious metals again, leading to a notable uptick in demand. However, an obvious path for gold prices still remains to be seen. As a whole, gold remains in a downward trend alongside most of its fellow commodities.

Globally, gold numbers are just as unpredictable. For instance, in China alone, gold experienced an 8% decrease in production. This was the case with many metals in China after Q2, owing to the large-scale slowdown. Meanwhile, back in the US, gold appeared weaker in August when compared with July.

Platinum Price Analysis

Platinum prices didn’t perform with the same strength as gold and silver this the past month. In fact, between July and August, platinum came quite close to breaking support. But while platinum prices did not end up wandering outside the trading range, much like gold, the overall price direction remains unclear. In general, prices appear bearish. That said, platinum could still bounce back from support levels, providing conditions favor such a move.

Global Precious Metals Biggest Price Moves:

  • US gold bullion saw a 2.2% decrease in price. Prices at the beginning of August sat at $1,766.50 per ounce.
  • Japanese gold bullion dropped in price by 3.4%. Price per gram was at $56.5 at the beginning of August.
  • Indian silver ingot/bars fell in price, but not dramatically. Prices fell 0.4%. Prices hit $734.62 per gram at the beginning of August.

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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.

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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.

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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.

The Renewables MMI (Monthly Metals Index) continued its downward trend this month, falling an additional 7.10% between July and August. However, this trend is not likely to continue if the US senate passes the so-called “surprise climate bill.” Were this to happen,  it would put fresh focus on renewable resources, likely causing the MMI adopt a much more bullish path.

Renewables August

Source: MetalMiner Insights

Renewable Resources Could Soar in Demand

The surprise climate bill, currently on the table at the US Senate, hopes to cut 40% of all of the US’ carbon emissions by 2030. If passed, the “Inflation Reduction Act” would place a heavy emphasis on renewable energy resources such as solar and wind power. Of course, this would have significant pros and cons for both the environment and the industrial metals industry.

For instance, most windmills in the US are composed of steel, copper, aluminum, and different forms of iron (outside of steel alloys). Along with this, solar panels are well known for their extensive use of silicon semiconductors. Therefore, it’s not hard to see how a reallocation of resources toward wind and solar energy could dramatically boost US demand for these metals, parts, and components.

That said, such a move could also make the US further reliant on other countries. After all, while many US wind turbines are produced by American companies like GE, most US solar panels are currently imported from Asia. If the bill does end up boosting  demand for solar panels, it would most likely ramp up US dependence on imports.

MetalMiner Insights covers various renewable resources as well as a full price range of steel, copper, and other metals. Learn more here!

Renewable Resources and Wind Power in Texas

Texas, the second largest US state, harbors over 11,000 wind turbines. This can power millions of homes and take much strain off of Texas’ power grid during the hot summer months when people are reliant on AC, leading to higher energy costs. But it’s not as straight-forward as that.

Oftentimes, these wind turbine networks become too congested to run efficiently. This keeps them from effectively supplying the power they generate to higher population areas. And while the proposed Inflation Reduction Act could prove a huge boon to wind turbine production, Texas may not benefit as much as one would think.

Renewable Resources

Wind turbines out at sea. Adobe Stock

The Heat Is On

Just last month, Texas experienced a major heat wave. As with previous waves, this put enormous strain on the state’s power grid. However, it also highlighted one of the many problems facing the states’s wind turbines: low wind speed. In fact, during the heat wave, it was estimated that Texas wind farms were operating at just 8% capacity. In short: without sufficient winds, wind power will not be able to offset the strain on Texas’ power grid.

Offshore wind power could prove a possible solution. After all, wind is much more abundant over open waters like the Gulf of Mexico because of fewer obstacles in the way of wind streams. However, many debate the logistics of such an endeavor, especially how to secure turbines to the sea bed in such deep waters. Still, proponents maintain this could be the best solution for Texas’ wind power problems.

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The GOES/Grain-Oriented Electrical Steel MMI (Monthly Metals Index) continued its bullish trend this month. However, its rise was not as significant as in previous months – just 2.26% in total.

Grain-Oriented Electrical Steel

Source: MetalMiner IndX

Summer Electricity Woes and Surging GOES Demand

In the past month, a staggering 100 million Americans found themselves amid dangerously hot conditions. And with so many people feeling the “heat,” both figuratively and literally, US power grids have been pushed to the limit. After all, high temperatures, sometimes into the triple-digits, mean more and more homes are using AC.

This proves incredibly stressful on power grids nationwide, increasing the likelihood of black outs. In times like these, having renewable energy sources like solar and wind power certainly helps. However, these energy sources still aren’t always enough to stand up to heat so intense (or persistent).

This could be the reason why GOES prices have remained so bullish over the past 2-3 months. As more transformers are constructed to help “take the heat off,” more GOES coils are required. GOES themselves already make up around 50% of electric steel sales, but the hot weather can cause major surges in demand.

Renewables/GOES Price Changes:

  • GOES/grain-oriented electrical steel went from $4,142 per coil to $4,236 per coil
  • Chinese silicon didn’t see any price change between July and August, remaining a stable $1,519.42 per metric ton
  • Cobalt dropped 12% in price, currently sitting at $48,930.21 per metric ton

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The Automotive MMI (Monthly Metals Index) experienced another decline from June to July. After a -6.53 drop last month, the 30-day price change jumped to -7.77%. As with the previous months, the automotive industrial metal marketplace has been plagued by problems. Curiously enough, it’s supply – not demand – that can’t make any headway towards normalization. Below, we’ll discuss some of the latest news affecting the global automotive marketplace.

Industrial Metal

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Dude, Where’s Our Cars? U.S. Automotive Industrial Metal Tighter Than Ever

Recently, Cox Automotive revised their sales predictions for the rest of 2022. Though all the figures are not yet in, they set their June sales forecast at 13.8 million. This is up from the previous month’s 12.7 million units but far below what we saw in 2021. As if that weren’t bad enough, the company’s current yearly forecast for new vehicle sales remains lower than we saw in 2020.

How can a “recovering” industry fail to meet mid-pandemic numbers? Cox was quick to cite inventory as the major driver of the buying slowdown, but analysts certainly aren’t ignoring the worsening global economy. According to Cox’s Senior Economist, Charlie Chesbrough, they have demand, particularly for electric vehicles. However, the roadblocks between raw material suppliers, manufacturers, and consumers just keep multiplying.

Industrial Metal

Last month, Cox also sounded the alarm about monthly car payments, which had hit a shocking average of $712. Of course, even buyers seeking used vehicles are getting pinched by price increases. Many experts say that it’s frustrating to see so much demand and no supply. In fact, some think it’s only a matter of time before most buyers simply throw in the towel on their new car prospects.

Will this give the supply side the chance to catch up or just toss another wrench into the industry’s sputtering machine?

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Manufacturers Think the Chip Shortage May Stretch into 2023 (or 2024)

One of the main factors hamstringing global auto supply is the ongoing semiconductor shortage. Unfortunately, hopes of seeing any relief in this area were dashed yet again at the World Economic Forum this Spring. There, Intel CEO Pat Gelsinger stated that supply problems would most likely continue into at least 2023. He subsequently admitted that 2024 would be more likely.

As with most other commodities, the shortage of microchips is a multifaceted problem. During the pandemic, home electronic sales went through the roof. However, factories were also forced to slow production or shut down entirely. As the Law of Supply and Demand reared its familiar head, it wasn’t long before shortages, and price increases became the norm.

Then came the invasion of Ukraine. This drastically affected the supply of neon gas, which is essential to the conductor market. Russia, on the other hand, supplies between 25% and 30% of palladium, another semiconductor necessity. As sanctions on the country began to roll out, the palladium did the opposite.

Russia VS Ukraine

GM Removing Non-Essential Functions

Of course, Gelsinger’s announcement was only surprising to industry outsiders. Auto manufacturers have been scrambling for months, trying to find a way to build cars around the shortage. GM removed heated seats from many of the vehicles, telling customers they’d reinstall the feature as soon as chips became available. Other companies started limiting secondary non-essential functions altogether.

But the news isn’t all gloom and doom. McKinsey & Company recently published an article detailing how the Automotive Industry could circumvent the problem. Though they admit that there are no “short-term” solutions, the company sees the post-pandemic shortage as a chance to shore up supply lines for the future. If chip suppliers and car companies use this as a learning opportunity, it could be the last time we see scarcity on this scale.

If you want to maximize your savings on metal commodities, you need to make sure you’re following these five best practices.

Industrial Metal and Cars: The Future is Electric

Despite all the issues plaguing the Automotive marketplace and industrial metal, it’s hard to ignore the fact that we’re in the middle of a tech revolution. A new CBS poll recently found that 59% of Americans are considering buying an electric vehicle. Moreover, sales of hybrids and EVs doubled last year, setting a new record of 6.6 million units.

Electric Vehicle

An electric car charging in California

Of course, this shift was intended to created interest in new technology or a desire to live “more green.” Instead, it’s largely the result of anger and outrage over skyrocketing gas prices. In that way, it’s less like the move from horses to cars at the beginning of last century. Unless the impetus back then was a major surge in the cost of oats.

But it’s important to keep things in perspective. These types of shifts are normally good economic news, presenting opportunities for companies of all kinds to produce new, exciting products and services to support them. For instance, Sony and Honda announced a joint BEV venture. French car giant Renault wants to re-imagine their Alpine sports car with fully electric capabilities.

What’s the Verdict?

The takeaway: more and more people want off gasoline. And whether they go into the future happily or begrudgingly, they are going nonetheless. This means a lot for metals commodities, especially battery-related minerals like lithium, cobalt, and nickel. It means a lot for battery companies, who are pressured by the market to produce newer, better, and more effective products.

Lastly, it means a lot for the balance of the global economy and industrial metal. In the very near future, having oil reserves might not be the economic and international relations “blank check” it used to be. Will it be great? Will it be a disaster? It’s impossible to tell. But one thing’s for sure: it will be different. For those who aren’t enjoying 2022 very much, “different” might be good enough.

Automotive MMI: Actual Metal Prices & Trends

  • Korean aluminum experienced no price change this month per kilogram, compared to June’s slight price drop.
  • Chinese lead prices dropped further this month, falling around 1.86% per metric ton.
  • US shredded scrap steel took another hit this month as well. Priced dropped an additional 3.64% per short ton.
  • Palladium bars, like many precious metals, followed a downward trend in July. Prices fell 4.51% per ounce.
  • Platinum bars followed suit with palladium taking a price hit. The price per ounce fell 7.46% per ounce.
  • LME copper dropped a staggering 13.49% per metric ton.
  • US HDG steel took a most drastic hit, plummeting 14.55% per short ton.

The Stainless Monthly Metals Index (MMI) rose by 7.6% from February to March, as the skyrocketing nickel price prompted LME intervention Tuesday.

LME suspends trading due to short squeeze

Russia accounts for roughly 7% of global nickel supply. So, the possibility for supply disruptions, on the back of mounting sanctions from the West, adds pressure to the already tight market.

Prior to the invasion, nickel prices traded within a bullish pennant, a trading pattern that typically indicates the continuation of strong prices. The Russian invasion of Ukraine provided a catalyst, as prices spiked with tremendous bullish strength and confirmed the technical structure breakout.

nickel price

leszekglasner/Adobe Stock

By Monday, however, nickel prices at one point topped $100,000 per ton. As a result, the LME stepped in Tuesday, suspending nickel trading and canceling trades. The suspension will likely extend several days.

A short squeeze triggered the recent price spike. Short sellers, particularly China’s Tsingshan Holding Group, executed larger purchases in order to cover their short positions. The Tsingshan Holding group started to build a short position last year, according to Reuters, upon the expectation prices would fall.

As prices continued upward following Russia’s invasion, brokers began to order margin calls on short sellers. As short sellers began to lose more money than they could afford, new buyers swooped in. In addition, short sellers engaged in panic selling. along with panic selling from short sellers.

These movements triggered a chain reaction of buy orders. As a result, the nickel price skyrocketed to stunning levels.

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Dwindling LME warehouse stocks preceded the crisis

A decline in warehouse inventories does not inherently translate to rising prices.

Read more

This morning in metals news: aluminum prices have surged this week; U.S. nonfarm payroll employment rose by 199,000 in December; and, lastly, electricity prices surged throughout 2021, in large part on the back of rising natural gas prices.

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Aluminum prices surge

aluminum price

Grispb/Adobe Stock

Aluminum prices are on the ascent once again.

The LME three-month aluminum price peaked back in October, reaching as high as $3,200 per metric ton, according to MetalMiner Insights data.

After falling to just over $2,500 per metric ton in early November, aluminum prices traded largely sideways for the next month.

Since mid-December, however, aluminum prices have surged. LME three-month aluminum closed Wednesday at $2,923 per metric ton, its highest in over two months. The price is up 13.05% month over month.

US adds 199K jobs

U.S. nonfarm payroll employment rose by 199,000 in December, the Bureau of Labor Statistics reported.

Read more

A timely post by the Financial Times covers the threat to the global auto industry as a result of the power crisis in China limiting supplies of key components used across a range of industries.

But specific to the post is the making of aluminum alloys. Almost 90% of the world’s magnesium production comes from China, the Financial Times reports. The Chinese government ordered roughly 35 of its 50 magnesium smelters to close until the end of the year due to power shortages.

magnesium periodic table image

Aleksander/Adobe Stock

The report quotes Barclays analyst Amos Fletcher, who said: “Thirty-five percent of downstream demand for magnesium is auto sheet — so if magnesium supply stops, the entire auto industry will potentially be forced to stop.”

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Rising aluminum alloy costs

 

The threat is real enough. Unfortunately, as we wrote recently on this issue, flagging up the risk to supply contracts and the potential for cost pass-throughs by aluminum mills, it is not confined to magnesium.

Since our last post, MetalMiner has seen first-hand examples of mills seeking to renegotiate extrusion contracts due to rapidly escalating raw material costs – specifically silicon, manganese and magnesium. All of those rely on high power consumption smelting or refining processes. Furthermore, the world has become dangerously reliant on China for these materials.

Read more

mine mining

AdobeStock

Industrial metals have done rather well in bouncing back from the coronavirus pandemic lockdowns.

Classic fundamentals have been supported by rising sentiment to boost prices across the board. Mine supply has been constrained by governments forcing companies to close mine sites and refineries in a bid to contain the spread of the virus resulting in a hit to raw material and refined metal output in a number of countries.

Do you know the five best practices of sourcing metals, including aluminum?

According to Capital Economics, nickel, tin and zinc have been hit the most, each down 8% to 11% for the first three quarters of 2020 over 2019.

On the other side of the fundamentals, equation demand in top consumer China came roaring back during Q2 and Q3, fueled by infrastructure spending that is seeing positive PMI numbers across all sectors — consumption, retail, construction, manufacturing and exports.

GDP in China has recovered to finish the year above last, and there seems little sign that demand is likely to tail off anytime soon. While the rest of the world’s demand has been initially badly hit by lockdowns, it was maintained for electronics and PPE equipment, both dominated by Chinese manufacturers, which have more than made up for losses in more conventional areas.

Prospects for industrial metals next year

Will this buoyant backdrop persevere into 2021, consumers are asking themselves, should I be factoring in continually rising prices through next year?

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There is a looming crisis in the nickel market.

Some would argue it’s a good problem to have. Demand is set to rise on the back of increasing uptake of electric and hybrid vehicles through this decade. More and more governments will mandate the production of electric vehicles (EVs) over internal combustion engine (ICE) autos. In parts of Europe, there will be outright bans on new ICE vehicles inside 10 years.

However, if nickel supply becomes constrained, consumers are going to pay the price.

Nickel market numbers

It should be said that today the problem barely registers as a price lever.

According to a recent McKinsey report, the stainless steel industry consumers 74% of nickel produced today, dwarfing the 5-8% going into batteries.

But the type of nickel required for battery production is what makes supply so sensitive in the future.

As the report explains, there are two types of nickel. Class 1 predominantly comes from the concentration, smelting and refining of sulfide ores. Meanwhile, Class 2 comes from ores, called saprolites and limonites, with higher iron and other (for batteries) levels of contaminants, such as copper.

So, whereas the stainless steel industry, to a large extent, can use a mix of Class 1 and Class 2, the battery industry draws its raw material from just Class 1, representing a more restricted 46% of the nickel supply market.

Worse, after the all the focus on the cobalt market — with its environmental, social, and corporate governance (ESG) concerns from countries like the Democratic Republic of the Congo — major consumers like Tesla are keen to establish long-term supply arrangements with nickel producers in sustainable locations with more robust ESG standards.

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