Articles in Category: Non-ferrous Metals

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 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.

Rare earths have seen a surge in demand all around the world. After all, these minerals are key components of everything from solar panels to electric car batteries to defense equipment. And with Russia’s invasion of Ukraine disrupting much of the supply chain, the need for rare earths has become even more dire.

rare earths loaded on cargo ship in China

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A Rare Earths “Plan of Action”

For the first time ever, the United Kingdom (UK) Government has released a “Critical Minerals Strategy.” The policy spells out the country’s game plan for developing a more consistent, UK-based supply of rare earths. The multi-pronged strategy includes ramping up domestic production of minerals like lithium, graphite, and silicon. The UK will also conduct research and development in this field while attempting to boost reuse and recycling across the country.

The Department for Business, Energy, and Industrial Strategy (BEIS) recently posted the entire plan on its website. Some of the fine points include effort to:

  • Accelerate the growth of the UK’s domestic capabilities.
  • Collaborate with international partners.
  • Enhance international markets to make them more responsive, transparent and responsible

Currently, the UK has pockets of mineral wealth stretching from the Scottish Highlands to Cornwall. The country also has at least some expertise in material manufacturing and refining. In recent interviews, Business Secretary Kwasi Kwarteng stressed that the UK would maximize what it produces along the critical minerals value chain in a way that creates jobs and growth. However, they wish to protect communities and the natural environment at the same time.

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A New Facility to Match the New Policy

Britain today finds itself in a vulnerable position, especially given the presence of so many rising geopolitical threats. After all, the vast majority of critical minerals come from just a few countries, the main one being China. That’s why the new plan involves developing supply chains that reinforce the UK’s national security interests.

Uk and China

To that point, the country recently began work on a rare earth processing hub at the Saltend Chemicals Park in Hull, East Yorkshire. Among other things, the multi-million dollar facility will refine rare earth oxides required for magnet production. Magnets, of course, are a key component in the manufacture of EVs.

To underpin the long-term nature of this strategy, the UK will also evaluate the criticality of its minerals every year. This will be spearheaded by the new Critical Minerals Intelligence Centre (CMIC), which will, in turn, be led by the British Geological Survey (BGS).

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The Rare Earths MMI (Monthly MetalMiner Index for rare earth metals) extended its decline in July, dropping another 2.8%. This is a significant move for rare earths prices, and reinforces the subtle downtrend that began back in April. Now more than ever, countries are frantically searching for ways to separate their rare earths supply from China.

Source: MetalMiner Insights

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Rare Earth Metals: All Eyes Are on Turkey’s “Big Find”

Back on July 7th, Turkey reported that it had discovered the second largest reserve of rare earth metals in the world. The site, located in central Anatolia, is estimated to contain 694 million tons of rare earth reserves. This would put it just 106 million tons behind the Bayan Obo deposit in Northern China. If true, this would represent a supply shift that could impact rare earths prices significantly.

Of the 17 elements under the “rare earths” category, the forthcoming Anatolia site will produce ten. According to Fatih Donmez, the country’s Minister of Energy and Natural  Resources, Turkey will soon be able to process 570,000 tons of rare earths each year. Hopefully, the pilot plant will be operational by the end of 2022 and provide a significant supply of rare earth metals.

Rare earth metals

While the prospect of breaking China’s pseudo-monopoly over rare earths proves tempting, the jury is still out on the quality of the Anatolia deposit. According to Jon Hykawy, the President of Stormcrow Capital, “the old adage that ‘grade is king’ in mining still holds. If this Turkish discovery is gigantic, but of very low grade, well, we usually call material like that ‘dirt.'”

Concerns also abound as to whether or not Turkey is up to the challenges of mining and refining the minerals on a large scale. For now, the marketplace is waiting with baited breath.

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£150 Million Rare Earths Plant in the UK Draws Criticism

Earlier this month, rare earths company Pensanna broke ground on the UK’s first ever rare earths processing plant. The project began as part of an overarching strategy to reduce China’s dominance over the rare earths marketplace. According to officials behind the £150 Million facility, the movement also saw renewed interest following the Russian invasion of Ukraine.

UK Secretary of State Kwasi Kwareng took the time to remind his fellow Europeans of the need to ween themselves off the Chinese teet. “Critical minerals will become even more important as we seek to bolster our energy security and domestic industrial resilience,” he said. He later added that the strategy would also “bolster our resilience to market shocks and geopolitical events.”

mine

That said, a recent Financial Times article revealed that some industry experts are unhappy with the amount of disclosure around the project. For instance, little is known at this point about executive pay, resource quality, and the capacity of the site to meet its stated goals. As of this writing, the facility is supposed to produce 12,500 tons of separated rare earths along and 5% of global magnet metals by 2024.

However, Pensana’s plan hinges on sourcing rare earth oxides from its Longonjo site in Angola, which has only just broken ground. This fact is compounded by fears that processing the Angolan ore will generate high amounts of thorium, which is radioactive. In short: the market is crossing its fingers, but not exactly optimistic.

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North America Continues Strides Toward Rare Earth Independence

Last month, we reported extensively on the US’ dependence on Chinese rare earth supplies. A month earlier, we touched on the rare earth manufacturing facility set to be built in Stillwater, Oklahoma. At the time, the $100 million facility was primed to create 100+ jobs and help move the US towards a point of self-sufficiency. However, that plant isn’t scheduled to come online until 2023. And depending on who you ask, that amount of time could prove to be an eternity.

In the meantime, there’s good news coming out of Canada. Vital Metals, who owns the rare earths extraction facility in Saskatchewan, recently announced some promising test results. It seems the first feed of the DMS (dense media separation) unit at the site has revealed capabilities comparable to TREO grades seen in lab test work.

Global trade

TREO Grade refers to “total rare earth oxide.” Essentially, Vital Metals’ plant is operating at an extraction efficiency (43.7%) very close to those achieved in lab conditions (44.6%). On top of that, the unit achieved 75.2% recovery during the test. This bodes very well for the site’s capacity estimates and for its ability to produce high-quality product.

According to Managing Director Geoff Atkins, “the fact that on the first run we hit the laboratory test grades for total rare earths with 75% recovery with low-grade feed material is above expectations.” Of course, the site plans to continue optimizing its processes.  Still, these results represent a real shot in the arm for the facility’s overall potential.

Rare Earths Price Changes

  • Neodymium dropped a staggering 11.2%. Compared to July’s price of $174,572.15 per metric ton, its current price sits at $154,945.66 per metric ton.
  • Dysprosium oxide dropped in price as well. In July, prices sat at $367.23 per kilogram. As of August, prices sit at $344.74 per kilogram, resulting in a 6.14% price drop.
  • Terbium oxide, in comparison, only dropped slightly, about 0.19%. Prices fell from $2,057.55 per kilogram to $2,053.59 per kilogram.

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Precious metals like gold, silver, and palladium are fighting back hard against the global trend of dropping metal prices. Last month, MetalMiner reported that the global precious metals index fell 3.77% between June and July. On July 20th, however, gold bullion prices began to rise steadily. Shortly after that, silver bullion prices also started an upward trend.

Last month, the Fed’s interest rate hikes managed to slightly impact rising inflation, though inflation continues to pose significant challenges. This week, the Fed hiked those rates an additional 0.75. Though it’s a little early to know how investors will react, there are several compelling predictions.

For instance, some experts feel investors might start to view gold, silver, and the like as “insurance.” Others predict they’ll treat them as an investment opportunity – a chance to turn currency into something which will gain value down the line.

Precious Metals

Precious Metals: GDP Numbers Not Favorable

After the release of some less-than-savory GDP numbers documenting Q2, precious metal prices rose slightly. As one recent article notes, part of this upward trend came as a result of the Fed’s interest rate hikes. In times of hardship such as recessions, investors often turn to precious metals to get rid of their inflating currency. In their view, precious metals have the opportunity to gain more value in the long run. So, technically speaking, precious metals can serve as a type of “oasis” where investors can escape inflating costs.

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It’s Getting Harder to Predict a Long-Term Trend for Precious Metals

Despite this brief bullish trend, precious metals prices are still dropping along with most other metals. The real question is whether or not precious metals can withstand such intense inflation. Fortunately, many in the investing world are staying hopeful. As previously mentioned, recessions have historically proven invaluable to precious metal investors.

Still, even with this optimism, the upwards trend could prove to be little more than a temporary reaction to yet another Fed interest rate hike. After all, precious metals as a whole have remained in a downtrend since April. Looking at July’s charts, prices seem unable to decide whether they want to take a bullish or bearish path.

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Will Silver Pull Ahead of Gold?

Traditionally, gold has been the pick of the litter in the precious metals market, but silver has been catching up. Of course, silver markets are historically much more volatile than gold. Still, there’s currently a higher global demand for silver due to its growing range of uses. For instance, the precious metal has applications for everything from water filtration systems and solar panels to x-ray films and medical tools. This gives silver an edge over gold in terms of demand.

That said, there’s no evidence that silver will indeed outrun gold in price, even with July’s precious metals bull trend. On Wednesday, the gold-to-silver ratio hit its highest point since 1990. True to color, the US was also facing recession that year.

Gold Bullions

Gold Bullions, Adobe Stock

Ultimately, only time will tell if precious metals will prove to be the safe haven investors are looking for. Of course, there needs to be a storm before we can judge the quality of the shelter. Until a recession is confirmed, all we can do is speculate and hope.

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With the surge in demand for electric vehicles, the need for EV batteries and battery metals such as cobalt and lithium has risen dramatically. However, can the US (along with other nations) keep up with this rising battery metal demand while maintaining recycling efficiency?  It’s a good question, but it doesn’t have a simple answer.

Battery Metals

Battery Metals Pose a Serious Health Hazard if Not Handled Properly

Lithium-ion batteries are used in most electric vehicles. As the name implies, these are derived from metals like lithium and cobalt. According to the EPA, lithium-ion batteries are a severe fire hazard if not recycled properly. Prolonged exposure to metals like cobalt, on the other hand, can also cause harm to the human body over time.

When lithium-ion batteries are not appropriately recycled, they end up in places like landfills. Here, the chances that they’ll be crushed or damaged increases. In turn, this makes it more and more likely that the batteries will end up leaking into the ground or making their way into an area’s water supply.

Biohazard

This poses a risk with very real consequences. As demand for EV vehicles and the batteries that power them go up, it’s crucial that we don’t overlook proper battery recycling standards. Unfortunately, according to a recent article, the US recycling efforts are unlikely to be able to keep up with the oncoming influx of EV batteries being disposed of.

Currently, no federal recycling mandate in the US for lithium-ion batteries. This leaves the “back door” wide open for various companies to start embracing unsafe disposal methods to meet increasing needs.

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Europe is Setting Regulations for End-of-Life EV Battery Metals

In the EU, lawmakers are considering implementing a number of regulations related to EV battery disposal. These rules would require that 70% of every single EV battery be recycled. They would also mandate that all metals within the battery be recovered upon disposal. So far, both manufacturers and recycling firms are on board with the regulations, which will likely pass by the end of the year.

Along with the US, Europe has recently experienced a significant push for electric vehicles. This led to surging demand for cobalt and lithium all across the EU. In fact, experts predict that lithium demand will hit a staggering three to four million metric tons by 2030. While other countries are slower, they can expect similar jumps in battery metal demand.

Responsibilities of EV Battery Manufacturers

By 2040, EV vehicles are expected to make up 70% of all vehicles in Europe. However, there remains no standardized method for recycling EV batteries. On top of this, recycling EV batteries has proven a tricky process.

One proposed method, for instance, would melt lithium-ion batteries in furnaces at high temperatures. Unfortunately, this process could result in noxious gases being created. Another technique would remove each component of the batteries and separate them accordingly. However, the method has yet to catch on due to the time involved.

EV Battery

Fortunately, more possible solutions are coming to light. For instance, recycled lithium-ion battery materials could be repurposed to aid in energy storage. If proven successful, old batteries could end up being part of a larger global shift towards self-sufficient homes.

Part of the issue with the complications and limitations behind lithium-ion recycling comes from the structure of the battery itself. Lithium-ion batteries are fairly complex in material and structure. For this reason, recycling consists of several different separation processes, all of which remain quite tedious.

All things considered, demand for EV batteries will likely outrun the methods most countries currently have in place to dispose of them safely. And while some believe that the responsibility of safely recycling these batteries should go to the battery manufacturer itself, this thinking is far from widespread adoption.

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A curious tug of war continues in the Aluminum industry. It remains focused on likely demand destruction due to recessionary forces, generally blamed on central banks’ rapid raising of interest rates. Of course, we’ve all watched base metals come off sharply since the end of Q1, and Aluminum has been no exception. Indeed, after peaking at more than $4,000 per ton in late March, Aluminum prices now hover in a range of $2350 to $2450.

On the other hand, supply shows increasingly showing signs of distress. This remains most noticeable in Europe, where a string of primary Aluminum smelters and alumina refineries have been partially or fully closed due to massive rises in power costs. It’s worth noting that high power costs are usually supportive of aluminum prices. However, due to the market anticipating further supply disruption as power costs undermine smelter economics, the recent power cost surge hurt Aluminum markets globally. According to the FT, power costs are expected to remain high at least into 2024. The organization recently confirmed this prediction by citing the levels at which consumers are fixing forward prices for natural gas.

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Eu Gas Prices

Russia’s War Lies at the Heart of European Anxieties

The Financial Times post also reveals that the price of gas being delivered to Europe at this time of year in 2023 and 2024 neared its highest level on record. Currently, the projections are at €134 and €82 per megawatt hour. This represented a stark change when compared to the last decade when European gas prices traded consistently below €40 per MWh.

Some might remember how natural gas prices started rising last year. Most of this was due to Russia restricting supplies over “depleted inventories” and “maintenance issues.” In hindsight, it’s clear the move was a prelude to the invasion of Ukraine. The intention was most likely to run European inventory levels down and heighten the sense of panic in European capitals. Of course, that’s exactly how it has played out.

EU Gas

Meanwhile, Germany is leading the EU in proposing the rationing of natural gas to industrial users. However, the country has experienced a lot of push back from states like Spain and Portugal. These countries are not so dependent on Russian gas, and they feel they’re being asked to make sacrifices for the sake of those who allowed themselves to become so dependent on cheap Moscow oil supplies.

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Aluminum Prices, Energy Woes, and Europe’s United Front

The US has had its fair share of metal supply issues. However, the resumption of production at Canadian smelters has put the Americas in a relatively more stable supply position. Back in Europe, the tightness of natural gas supply and government threats of rationing remain an existential threat to consumers relying on pricing and metal supply this winter.

Aluminum prices

In fact, Europe’s anxiety over gas supplies remains so high that it’s already beginning to unravel the previously robust and unified response to the war in Ukraine. As self-interest begins to overcome outrage at Russia’s unprovoked attack, differences in opinion are starting to wedge gaps between states.

Of course, Italy’s political meltdown following the resignation of Mario Draghi this month was not a direct result of the conflict. Still, how the EU’s third-largest economy will respond to threats of gas rationing does not bode well for Europe’s unified front. This will prove especially true if the country embraces more right-wing politics in the next round of elections as expected.

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It is not an idle question. For the last two decades, China’s infrastructure spending has been the engine of demand growth for steel, copper, and aluminum prices. So when the South China Morning Post reported that local governments sold 1.94 trillion yuan (US$289 billion) worth of bonds in June to fund infrastructure spending and boost economic growth, markets took note.

China aluminum

Grispb/Adobe Stock

The Chinese Government Remains Focused on Infrastructure

This news came on the heels of last month’s announcement from the top of China’s State Council. At that time, they said state banks would increase their credit lines to provide 800 billion yuan of funding for infrastructure projects.

Issuance so far this year has come to more than Rmb5tn, the SCMP reports. The majority, some Rmb3.4tn of this amount, came from special-purpose bonds specifically to fund infrastructure. Still, the figure represents 93% of the central government’s annual quota for such bonds. That seems to suggest that the second half of the year will see a sharp drop off.

However, a Financial Times Unhedged post quotes Bloomberg’s report that China’s Ministry of Finance is considering allowing local governments to sell Rmb1.5tn ($220bn) of special bonds in the second half of this year. This suggests that funding quotas will be exceeded this year as a whole.

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Copper and Aluminum Prices Could See a Boost

Setting aside the record infrastructure bond sales already completed, the projected above-quota infrastructure bond sales, the development banks’ infrastructure fund, and Unhedged estimates that those banks’ increased lending quotas come to Rmb2.6tn. That’s more than 2% of gross domestic product and enough to push the market bullish for metals.

On top of that, early indications suggest funds are not primarily intended for China’s beleaguered housing sector. Instead, they may go towards public works. In that case, rail electrification and power could be particularly beneficial for copper and aluminum prices.

Share prices among Indian aluminum and steel producers all rose last week on the news. In fact, they’re up over 5% in most cases as investors see the increased funding as positive for India’s metal exporters. But whether news stimulates metals prices or buoys share prices elsewhere remains to be seen. According to most experts, this will largely depend on whether the lift provided by the increased infrastructure spending is depressed by woes elsewhere.

China’s Economy Still Has Challenges to Face

China has been suffering rolling COVID lockdowns, and anecdotal evidence provided to MetalMiner suggests unemployment is becoming a serious issue. Against this unstable domestic backdrop, and with developed markets facing rising interest rates and the threat of recession, there are counterbalancing negatives at home and abroad.

Most metals markets were assessed as being in surplus during the first half of this year. In fact, aluminum moved from a deficit last year to a surplus this year despite historically low exchange inventory levels.

China has been an exporter of many metals despite tariff barriers dissuading energy-intensive aluminum and zinc exports. So if demand were to pick up in China, it wouldn’t take much for those exports to stop. Were that to happen, an inventory-starved market outside of China would feel a sharp pinch, despite recessionary limits to demand.

It is too early to call, but China’s recent moves suggest we should not count out their boosting growth by pumping money into the construction sector. If it happens, it may serve to support metals prices in the second half of the year and next.

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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.

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

 

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. 

The MetalMiner Insights platform includes global aluminum prices, premiums, forecasts, and specific monthly buying strategies. Request a 30-minute demo of the MetalMiner Insights platform now.

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.

 

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