China

Many metals consumers normally buy if not spot then on a three-to-six-month time horizon. Still others book up to a year out. Those that fix for longer periods often publish annual sales price lists. These companies need to fix input costs to protect margins. However, that too comes at a cost. Of course there is a price to pay for such certainty in the form of higher premiums. For those with more flexibility in sales prices or those with lower metal amounts in their cost of goods sold, then variable input costs are acceptable, if not an unwelcome, risk.

Organizations that hedge their purchases can use forecasts to set their hedging strategies. 

So news from a recent Reuters poll of analysts that base metals prices could fall later this year and more significantly in 2023, does not provide much comfort in what remains an inflationary metals price environment.

Declining base metal inventory levels

Many will look at the surge in base metals prices since the first lockdowns. They have, afterall, risen by up to 93% since 2020. Indeed, some climbed 38% over just the last year. This almost creates an  an inevitability about them.  Furthermore, the dwindling exchange inventories point to supply deficits across the metals spectrum (with the exception of lead it should be noted). Goldman Sachs maintains their position that the world stands short of base metals. In addition, the bank continues to hold firm its super-cycle position that prices have further to go.

Sign up for the weekly MetalMiner newsletter to see our outlook on price for 2022.

Last boom from rising demand from China

But the main driver of metals prices increases in this century, came from rising demand from China. Finally, after two decades of unprecedented growth over such a short period, China’s growth looks fragile. The post notes Chinese factory activity has slowed.  Both official and the Caixin purchasing managers indices slipped in January. The latter dropping to a 23-month low, according to Capital Economics, “…with Chinese demand unlikely to bounce back meaningfully this year, we continue to expect sharp falls in industrial metals prices by year-end,” the firm revealed.

That appears rather bold.

China’s weakened construction sector and energy crisis

Part of China’s weakening demand picture involves its construction sector. Evergrande the largest player along with many smaller firms, continues to struggle. Indeed, the dire state of the property market has pushed one state into losses trying to fund the winter Olympics investment. Its returns from construction have failed to meet budgets. China, however, suffers more than mere construction woes.  It also shares an energy crisis with Europe.  China’s structural over reliance on certain fuel types for energy production has contributed to energy rationing. This has impacted both metals output and demand. Coal remains the problem for China. Meanwhile natural gas shortages plague Europe. Both have resulted in reduced metals smelting and supply. In addition, both should ease with warmer weather and reduced electricity demand as spring approaches.

Aluminum, copper and tin prices

Analysts polled forecast aluminium to hold an average price in 2022 of $2780 per metric ton. Aluminum prices have already hit nearly $3100/mt so that leaves a lot of downside for later in the year. Copper seems particularly out of favor Reuters observes. The report says this year’s median forecast of $9,370 per ton is only 0.6% higher than last year’s cash average. Moreover, the price is expected to fall further to an average $8,700/mt next year. That softening of demand will likely lead to current supply deficits reversing to surpluses for some metals. Copper’s supply deficit of 37,000 tons could turn into a surplus of 286,000 tons in 2023.  Only aluminium and tin will likely remain in supply shortfall next year. Zinc will likely come in balanced. Whereas nickel and lead could both record supply surpluses.

Our free MMI monthly reports serve as an inflation index for specific metals markets

Prepare for volatility

In the short term, to the disappointment of buyers, volatility rather than lower prices will likely remain the norm.  Towards the second half of the year, and certainly into next, a recovering supply scene and cooling demand, expected by many analysts could result in a softening of prices from current levels.

Hardly a super cycle.

Chinese authorities recently presented a draft plan to reduce heavy metal emissions by 5% by 2025.

As noted previously here, the move comes after Beijing moved to stabilize surging coal prices. The government moved to increase both coal imports and domestic output.

The Dalian coking coal price surged to $694 per metric ton in late October. However, the key steelmaking input has plunged by approximately 33% since then. Coking coal this week week fell to $464 per metric ton.

All the metals intelligence you need in one user-friendly platform with unlimited usage. Request a MetalMiner Insights platform demo.

China’s metals emissions plan

China map

Zerophoto/Adobe Stock

The government posted the plan on the Ministry of Ecology and Environment website, inviting the general people to comment.

The plans includes language indicating it will take efforts to eliminate obsolete and excess capacity in the heavy metals sector, Chinese tabloid the Global Times reported.

China will accelerate the transfer of professional electroplating companies to special industrial parks, the Global Times reported.

China is the world’s biggest emitter of greenhouse gases. Much of China’s emissions come from coal-fired power generation.

In October, as we noted in previous reports and the Monthly Metal Outlook (MMO), Beijing moved to stabilize the coal market amid supply fears. As a result, China increased imports and ramped up domestic output.

Long road ahead on emissions

China’s State Council, however, seems a little skeptical about the new anti-pollution targets.

A report by news agency Reuters recently said in a report that China had a long road ahead on environmental protection.

The Chinese news agency Xinhua reported that according to the State Council, while there had been some improvement in the country’s ecological situation since the launch of its anti-pollution campaign, it would be tough to tackle pollution and ensure that carbon emissions peaked in 2030. Furthermore, China has also pledged to achieve carbon neutrality by 2060.

Data by the Ministry of Ecology and Environment show that China’s emissions of heavy metals in waste water decreased from 167.8 tons in 2016 to 120.7 tons in 2019. That marked a decline of 28%, the Global Times reported.

Some of the heavy metal pollutants on China’s control and prevention list include lead and mercury. Those are largely used by the electroplating industry, the chemical manufacturing industry and the leather tanning business.

Pollution problem

Environment pollution has been troubling China for a long time. A study by a USC-led team in 2020 illustrated the severity of the problem.

The team had found that emissions from coal-fired power plants in China were “fertilizing” the North Pacific Ocean with a metal nutrient important for marine life.

“This work shows fossil fuel burning has a side effect: the release of iron and metals into the atmosphere that carry thousands of miles and deposit in the ocean where they can impact marine ecosystems,” said Seth John, lead author of the study and an assistant professor of Earth sciences at USC Dornsife. “Certain metal deposits could help some marine life thrive while harming other life.”

More MetalMiner is available on LinkedIn.

China has previously been cast in a sinister role with respect to restricting the production and export of critical rare earth metals, usually salts, used to produce a host of products. Those products include magnets for consumers electronics and electric cars, defense equipment and advanced ceramics.

But while the country deliberately created a near monopoly position in the global rare earths refining market, it created a horrendous environmental problem in the process.

Stay up to date on MetalMiner with weekly updates – without the sales pitch. Sign up now.

Rare earths consolidation and rising prices

rare earths loaded on cargo ship in China

tab62/Adobe Stock

In an effort to clean up its environmental act and to gain better control over what had become a wild west mining and refining landscape, Beijing engineered consolidation in the industry to fewer but larger entities.

However, that’s when the criticism started, as China capped exports, causing a spike in prices.

That was largely short-lived. Prices returned to earth after a spike in 2017. However, prices have been rising strongly again this year due to surging demand, both within China and without.

Prices are up between 20-50% this year alone. Surging demand has fueled a bidding war for supplies in a constrained market. With China holding some 85% of global refining capacity and the only mine to refined products supply chain, it not only has a unique position but a unique responsibility in the market.

Read more

Much is being made of Beijing’s efforts to meet its environmental emissions targets — the country states it will hit peak emissions before 2030 and carbon neutrality by 2060 — and its restricted steel and aluminium production.

But a recent Reuters post by John Kemp suggests output is being impacted more by a widening electricity crisis than by enforced shutdowns to meet environmental goals.

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

China’s energy crisis

coal barge in China

ymgerman/Adobe Stock

Kemp explains that China is in the grip of a severe shortage of both coal and electricity. Coal output has not kept up with rising electricity demands from a rapidly recovering economy.

China’s electricity generation increased by 616 Terawatt-hours (13%) in the first eight months of 2021 compared with the same period last year. The largest rises came from the service sector and primary industries.

However, most of the increase has been supplied by thermal generators, principally coal-fired power stations, Kemp explains. Those generators increased output by 465 TWh (14%) in the first eight months.

Other power sources, such as hydro-electric output, have actually fallen slightly this year due to water shortages. Unfortunately, nuclear in China is a tiny fraction of power generation, dwarfed even by renewables like wind and solar.

Read more

While the rest of the world is trying to com to grips with the European Union’s proposed carbon border adjustment mechanism (CBAM) – which calls for the levying of charges on non-E.U. products in relation to their embedded carbon footprint — China, on the other hand, is currently grappling with a slightly different energy-related issue.

A massive heat wave in some parts of the country coupled with a shortage of coal because of China’s spat with chief supplier Australia has sent coal prices soaring.

Want more from MetalMiner? We offer exclusive analyst commentary in our weekly updates – all metals, no sales fluff. Sign up here.

China to ramp up coal production

coal pile

ShiningBlack/Adobe Stock

Now, China, the world’s biggest consumer of coal, plans to add almost 110 million tons (MT) per year of advanced production capacity in the second half of this year to meet the rising demand of coal.

This Economic Times reported China’s National Development and Reform Commission (NDRC) said that around 400 MT of coal mining capacity is under review for the government’s approval. Another 70 MT capacity is also under construction, and would be launched in a phased manner.

What’s more, China’s state planner has asked power plants to build their coal inventory to the equivalent of at least seven days of consumption by July 21. News agency Reuters said the Chinese government was trying its best to ensure electric supply to the coal-fired plants amid surging power consumption from industrial and residential users.

In the first half of 2021, China has already added over 140 MT of coal mining capacity.

Eleven provinces registered record-breaking power load a few days ago, the Economic Times reported, as the heat wave led to higher use of electricity. In the first six months of 2021, power consumption rose by 16% from a year earlier, the report added.

Old coal

While simultaneously augmenting coal capacity, the NDRC has come down on outdated coal capacity. Where once there were 10,000 coal mines in China in 2015, now there are about 5,000. The NDRC has been urging coal miners to set up advanced mining capacity and ramp up output.

China’s average daily coal consumption has gone up to over 2.2 MT at key power plants in at least eight provinces in China as of July 15, Reuters reported.

Meanwhile, the South China Morning Post quoted the NDRC, which said China will release over 10 MT of coal from its state reserves.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

China’s efforts to curb carbon emissions from the steel manufacturing process have slowed down its steel production.

But only to a degree.

However, a new report now shows that almost all the major steel mills in its steelmaking hub, Tangshan in Hebei province are back online.

A report by industry portal mysteel.com, citing its field survey, said the furnaces were firing again — albeit at 70% — according to this news report.

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

Tangshan steel mills come back online

Tangshan steel plant

junrong/Adobe Stock

In fact, Tangshan’s mills contribute about 14% of China’s raw steel output. Furnaces are running at a lower rate because of China’s stringent new emission standards. Only those mills meeting these conditions are going full blast, according to the news report.

China remains the world’s No. 1 steel producer with over 1 billion tons of crude steel production. However, Beijing has been trying to cut greenhouse gas emissions to meet the country’s pledge to bring its emissions to a peak before 2030.

In the first five months of this year, the country’s crude steel output reached 473.1 million tons, the World Steel Association reported. The five-month output total marked an increase of 13.9% year over year.

Read more

China’s steel and aluminum market is undergoing a quiet revolution.

It’s not a revolution of investment or innovation.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Peak aluminum, steel in China?

China aluminum

Grispb/Adobe Stock

According to Reuters, Beijing’s target of peak coal use by 2030 is asserting a dampening effect on new steel mill and aluminum smelter investment.

As such, the country could be at or near peak production. As Reuters’ Andy Home notes, the country’s rising output over the years as had a dampening effect on prices. That trend has led some Western producers to cease operations.

But a combination of harsher environmental legislation resulting in Beijing dissuading investment in new coal fired power projects, combined with Western markets’ meaningful action — after years of simply complaining — to block out Chinese exports of aluminum and steel products suggests the Chinese impetus to build capacity and the rest of the world’s willingness to buy product are both going through a transformational change.

Read more

China aluminum

Grispb/Adobe Stock

When the largest aluminum producer on earth keeps reporting high import figures, the world sits up and takes note.

According to figures released by the Chinese General Administration of Customs a few days ago, China recorded a new high for aluminum imports in March 2021.

Stop obsessing about the actual forecasted aluminum price. It’s more important to spot the trend

China aluminum imports surge in March

Imports went up 40.8% from February 2021, taking first quarter imports to a total of 661,517 tons. The quarterly total marked an increase of 118.8% from the same period in 2020.

China has been on this aluminum importing spree since July 2020. China’s aluminum imports last year, including primary aluminum and unwrought alloy, surpassed the previous annual record set in 2009.

What’s more, Shanghai aluminum prices last week were at their highest since 2010. China had bought in record volumes of the metal in 2020, riding on an uptick in domestic demand. Strong demand pushed the Shanghai prices higher than London prices, opening an arbitrage window for cheaper overseas metal.

Read more

China aluminum

Grispb/Adobe Stock

China — and, indeed, Asia as a whole — has a serious issue evolving that few would have seen coming five years ago.

Back then, the carbon content of aluminium was a well-known fact. However, its light weight and high recyclability seemed to outweigh the CO2 emissions inherent in its production.

Not so now.

Grab your coffee and hear MetalMiner’s latest forecast for aluminum, copper, stainless and carbon steel on Wednesday, March 24 at 10 a.m. CDT:  https://zoom.us/webinar/register/WN_6J8wAyYySfihVk3ZUH9yMA.

China aluminum sector and emissions

Government’s ambitions to reduce atmospheric pollution and consumers’ increasing desire for low or net-zero emission products is driving a rapid transformation in issues around aluminum smelter power supply.

Nowhere is this likely manifesting itself as dramatically as in China. Environmental pollution is one of few issues Beijing actually feels vulnerable about as a source of public unrest. The government’s latest five-year plan calls for dramatic reductions in emissions. The news has already hastened a move to hydro-rich Yunnan province, Reuters reported. The government effort against pollution could herald the closure of capacity elsewhere.

Coal problem

The challenge for China is that so much of its aluminum smelting uses coal-fired power production.

Read more

stainless steel

Maksym Yemelyanov/Adobe Stock

Stainless steel prices in Asia have plateaued for now.

But most suggest this is a temporary slowdown in advance of the Chinese New Year holidays.

Thereafter, the market is likely to continue its relentless rise of the last two years.

China stainless steel market ramps up output

According to ArgusMedia, China’s production, imports and consumption of stainless steel all rose in 2020. China produced 30.14 million tons of crude stainless steel in 2020, up by 2.51% from 2019.

Despite significantly higher nickel prices, output increases favored nickel bearing 300 & 400 series and even duplex stainless steel with only non-nickel-containing 200 series declining.

Meanwhile, imports surged to 1.81 million tons, up 61.33%. Much of those imports came from Indonesia, where Chinese firm Tsingshan Holding Group has a new mill. As such, imports from Indonesia rose 24.3% year over year to 1.1 million tonnes in the first nine months of 2020.

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

Declining exports

Exports, on the other hand, declined. Trade disputes between China and the United States, the European Union, Japan and South Korea led to the imposition of duties on shipments.

Read more

1 2 3 4 147