CommentaryMarket Analysis

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On Thursday, two tankers carrying petrochemicals, one of which was a Japanese-owned ship, came under suspected attack in the Gulf of Oman. The incidents compounded the already simmering hostilities in what’s possibly the world’s most pivotal maritime corridor and spurred a significant 4% spike in the oil price, the Washington Post reported.

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The phrase “suspected attack” takes the limits of objective reporting to an extreme — there is no doubt these incidents were attacks, particularly coming hot on the heels of four previous such incidents last month.

The question is: who was behind them?

The U.S. administration is clearly of the opinion it is Iran, by which they mean the Iranian state, the proposition being the Iranian authorities are trying to show they consider the economic pressure the U.S. is exerting to be a form of economic warfare intended to bring about regime change. That is a high-risk game with the most powerful navy in the world floating off your shores, but what is less clear is whether this is the Iranian government or a hard-line faction authorizing actions by the Iranian Revolutionary Guards, or possibly another agency at work.

Iran has denied it is behind the tanker attacks.

The U.S. argues that footage of what appears to be an IRG patrol boat removing an unexploded magnetic mine from the hull of one of the stricken tankers, the Japanese Kokuka Courageous vessel, supports the U.S.’s assertion that the IRG behind this. However, the owner of the vessel contradicted the U.S. account of how the attack occurred, the Washington Post reported.

But there are even veiled suggestions it could be Saudi Arabia trying to prompt the U.S. into an armed conflict with the Saudis’ biggest rival.

In practice, though, neither side has presented any proof as to who exactly ordered these attacks or who carried them out. There has been lots of finger pointing but no proof – yet.

Does it matter, from a metals market perspective, who is behind the attacks? Well, yes. The more likely these incidents are the direct action of the Iranian state, the more likely the U.S. will reciprocate with force, and the greater the chance of further increases in the oil price.

The IMF calculates that for every 10% increase in the oil price, advanced economies suffer a 0.4% increase in inflation and a corresponding impact on the balance of payments, as most advanced economies are net importers.

Source: The Times

As the above graph from The Times shows, Brent crude had been moderating nicely, from a consumer’s point of view, since April.

Due to headwinds from rising U.S. oil inventories, moderating demand expectations in Asia, and uncertainty as to how robustly OPEC+ would be willing and able to continue oil output constraints, the oil price had been declining steadily. That trend, however, has reversed this week; a further escalation of tensions could see the price heading back toward $70 per barrel.

Oil analysts had expected prices to remain between $60 and $70 for the rest of the year according to a report by The Guardian, but further attacks could force prices back over $70. The Strait of Hormuz handles about one-third of global seaborne oil shipments, so any disruption there will have an impact on prices. The global economy will continue to turn, even if tensions escalate further and with non-OPEC supply likely to grow from 1.9 million barrels a day to 2.3 million next year, barring an all-out war.

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The price will likely fall back sharply when this current situation is resolved – quite when and how that will be, though, remains to be seen.

Oil prices are on track for their largest monthly decline in six months, the online trade journal oilprice.com writes.

The Trump administration exacerbated the selloff with another threat of tariffs, this time against its southern neighbor Mexico if it does not stem the flow of immigrants across the border. President Donald Trump threatened to apply a gradually rising tariff, starting at 5%, on goods imported from Mexico beginning June 10.

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The threat was seen by investors as a negative move for both U.S. and wider region growth. The move was also seen as evidence, as if any were needed, that the president will continue to use his weapon of choice, tariffs, as a means to achieve his political ends — with negative consequences for growth.

Meanwhile, OPEC as a group and Saudi Arabia as its spokesman has reacted with assurance that the cartel will continue to limit output to further deplete inventories and keep the market in balance.

OPEC is desperate for oil prices to maintain the gains it has made this year and, if possible, reverse the decline seen during the last 30-40 days.

Source: Oilprice.com

OPEC sees itself in a fight with the U.S. shale industry, worried that it is losing share with limited power to substantially support the market as it was once able.

Some consumers are hoping rising U.S. shale output will permanently consign OPEC to history — at least in terms of engineering higher pricing.

The expectation is rising U.S. output has more than made up for the loss of Libyan, Iranian, and Venezuelan output. However, according to JP Morgan Chase, the market is finely balanced with robust demand, up 5-7% in China and Europe this first quarter, with increasingly constrained supply.

Maybe in recognition of that, Trump has so far exempted Iran from sanctions on its petrochemicals industry. OPEC’s output is currently running at 30.17 million barrels per day (bpd), its lowest level in four years. This comes despite Saudi Arabia increasing output by 200,000 bpd to partially compensate for the loss of some 400,000 bpd from Iran.

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Anyone holding off filling up their tanks in the hope prices will fall further may be disappointed.

Negative sentiment around trade is the order of the day, but supply is becoming tighter and demand has so far not reflected the wider slowing of global GDP.

The oil price is down, yes, but not out.

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Cast your mind back nearly 10 years — for those of you in the metal business at that time, the market was briefly all about rare earths. For the first time in decades, all anyone could talk about was the West’s vulnerability to the supply of this misnamed group of highly important strategic metals and their salts.

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In fact, so excited did the manufacturing sector become that it spurred a whole raft of startup specialists as consultants, analysts and research bodies as metal prices peaked in the summer of 2011 and then gradually fell back.

Not wanting to sound like the harbinger of bad news, but we could be in for a repeat performance if the significance of President Xi Jinping’s visit last week to a Chinese rare earth magnet factory in the province of Jiangxi is looked at with the seriousness Beijing intends.

China is rattling the saber ever so softly to say that it may be more exposed to general trade on a balance of payments position – China exports more to the U.S. than the U.S. exports to China — but the U.S. (and the rest of the Western world, as it happens) is uniquely exposed to China’s control of not just rare earth elements, but the whole supply chain. That supply chain includes everything from mining through refining to manufacturing of myriad components used in high-tech applications including from electric vehicles, cellphones, laptops, missiles and fighter jets.

Source: The Telegraph

An intriguing article in the subscription-only section of The Telegraph newspaper detailed the long-term risk the West has been running for years on rare earths elements (REE) and how REE could be the next flashpoint in an escalating trade war between China and the U.S.

The U.S. is nowhere near self-sufficient in REE, with even ores mined at California’s Mountain Pass shipped to China for processing and Lynas Corp’s proposed U.S.-based processing plant in Texas still years away from shipping a kilogram of refined metal. The post suggests China does not even have to announce an embargo of exports — it could close down selected parts of the U.S. supply chain by restricting supply to any number of component suppliers in China or shutting down a supplier on “environmental grounds.”

With the U.S. reliant on Chinese REE for whole components of U.S. manufacturing (examples cited range from simple car starters to chunks of aircraft), which are pre-finished in China using rare earths before shipping to the U.S.

Arguably, the military-industrial complex is even more exposed than the private sector.

F-35 Joint Strike Fighters need the thermal protection of rare earth coatings. Hellfire missiles, the Aegis Spy-1 radar and the sights of Abrams M1 tank all rely on rare earths. So do precision-guided weapons, the post’s list goes on, yet the White House and, indeed, successive U.S. administrations have been strangely sanguine about this vulnerability that covers not just the processing of ore to refined metals, but the infrastructure to use those refined metals and salts in a wide range of applications in the early stages of multiple supply chains.

Many, if not all, of those roads lead to China.

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Maybe President Donald Trump should have used some of his brief time in Japan devising solutions to this shared problem with Prime Minister Shinzō Abe rather than watching Sumo wrestling and playing golf.

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It almost sounds like an oxymoron, doesn’t it: how can an event be good for the economy but bad for the country?

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As former President Bill Clinton’s campaign strategist James Carville quipped, “it’s the economy, stupid,” meaning if the country is doing well then everyone benefits, and that that’s all voters care about.

Where better to focus solely on the economy than the second-most populous country in the world that is still ranked only No. 124 on the list of wealthiest countries by Global Finance?

Narendra Modi’s Bharatiya Janata Party (BJP) has its critics, even regarding the economy. While there have been failings, there have also been significant gains, some of them not so readily reflected in GDP figures.

Anyone accustomed to dealing in India will attest to the transformation in business attitudes and practices over Modi’s first term. Corruption has been tackled head-on; further work needs to be done, but the landscape is changing fast to the benefit of both domestic consumers and foreign firms trying to do business there.

Decision-making in a notoriously bureaucratic country has also significantly improved. Middle-ranking officials still prevaricate, a national pastime only exacerbated by the clampdown on corruption as lesser officials fear to make decisions on their own. But the more dynamic individuals, both in private and public office, have risen faster and meritocracy is overtaking political connections, with the cream rising to the top as a result.

So, more of the same should be good, right?

Well, India still faces considerable challenges, as Edward Luce recently wrote in his Financial Times Swamp Notes.

India is facing serious economic challenges, including slowing growth, a persistently high fiscal deficit, tepid private investment, and weakness and instability in the financial system.

Modi achieved some gains in his first term, such as introducing universal GST in place of state taxes and the aforementioned clampdown on corruption. However, he remains widely criticized for not doing more to tackle long-standing challenges, such as selling unprofitable state enterprises, relaxing restrictive labour laws, modernizing the land market or tackling the state-dominated banking system.

Such moves, if he had the courage to tackle them, could begin to unlock long-term growth in an economy that has brief spurts of growth, but in the medium to longer term disappoints repeatedly.

It remains to be seen, with a single-party majority, if Modi has the vision and courage to effect real change in these areas.

He has a mandate for change — even 15% of Muslims are said to have voted for the BJP despite its overtly Hindu overtones.

What is worrying is that running as an undercurrent, not just to the election but increasingly throughout the first term, is a progressively more nationalistic, Hindu- centered philosophy that, according to the Financial Times, breaks ranks with the vision laid out by anti-colonial leader Mahatma Gandhi and his political heir Jawaharlal Nehru, the country’s first post-independence prime minister. They believed India’s interests were best secured by a secular state, governing a religiously and linguistically diverse society whose members all had an equal claim as citizens.

The BJP and its close cousin, the right-wing Rashtriya Swayamsewak Sangh, clearly stand for something different.

The RSS was founded in 1925 and is based on the belief India should primarily be a Hindu nation, where the rights of the Hindu majority should trump those of Muslims and Christians, seen as alien religions that pose existential threats to Hindu society, the Financial Times asserts. Modi himself may not be a signed-up member, but BJP President Amit Shah is — and so are many other party leaders.

Much like populist parties elsewhere, the BJP is not averse to bending the truth to present the message it would like its voters to hear.

India’s swift and decisive response to Pakistan’s killing of scores of Indian military personnel earlier this year clearly contributed to Modi’s popularity at the polls, despite the fabrication of the news to suggest terrorist camps had been struck when in reality all the air force managed was to lose a plane and leave two craters in a field.

To be fair to the BJP, such tactics are regularly used, even in the U.S., with “fake news” fighting real news for credibility. However, the extensive use of social media to spread influence has sinister undertones, particularly as it is used as much for promoting a Hindu nationalist agenda as it is simply boosting the party’s standing.

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Modi’s majority could be either a great opportunity to force through real economic and structural change, or it could allow the BJP/RSS to push society further toward nationalism and the ostracization of minorities.

Let’s hope common sense prevails. Despite — or rather, because of — the landslide victory, the country has testing times ahead, in more ways than one.

If you ask 100 procurement professionals whether or not the Section 232 steel and aluminum tariffs have helped or harmed them, 100% will say the tariffs harmed them.

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After fielding hundreds of calls from metal-buying organizations this past year, we here at MetalMiner can definitely say that metal-buying organizations have felt “tariff pain.”

But at the same time — and there is a big but — many companies mitigated much, if not all, of that price risk by deploying effective sourcing strategies.

The recent press attention given to the alleged “harmful effects” of Section 232 tariffs on aluminum and steel on consumers and businesses appears to be ill-informed.

Before we dive into the details, let’s set the record straight on where steel and aluminum prices appear today, where they were when tariffs went into effect and where they were before tariffs.

Let’s start with hot-rolled coil (HRC):

Source: MetalMiner IndX(SM)

Wait a Second, Rewind…

Two points if you said “wow, it looks like steel prices reached similar highs in 2011.”

To be fair, tariffs did lift steel prices in 2018 to 10-year highs, but prices have declined steadily since last July (four months after tariffs went into effect).

Today’s price levels now appear within the same range in which they traded back in 2011-2015. It’s hard to see how the consumer faces a hefty bill for HRC prices due to tariffs now or for any prior extended length of time.

A similar price dynamic applies to cold-rolled coil (CRC), with a little twist:

Source: MetalMiner IndX(SM)

What’s the twist, you might ask?

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Not content with putting the squeeze on Iran’s oil industry, President Donald Trump signed a new executive order last week extending existing sanctions to include Iran’s metal industry.

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According to the Financial Times, much of Iran’s non-oil income comes from metal exports, including $4.2 billion from the sale of steel and a further $917 million from copper and its downstream products.

Much of Iran’s metals industry is in the hands of its Revolutionary Guards — not ones to miss a profit, the country has ambitious plans to grow its steel and aluminum manufacturing capacity.

The country’s 2025 vision plan seeks to make Iran the world’s sixth-largest steelmaker by increasing production capacity from 31 million metric tons in 2017 to 55 million metric tons by 2025. The Financial Times goes on to say Iran has three greenfield primary aluminum smelters either under construction or recently completed.

The Salco smelter in Asaluyeh is due to come on stream this year with a capacity of 300,000 tons and is being funded by the China Nonferrous Metal Industry’s Foreign Engineering and Construction Company, a state enterprise.

Historically, Iran has not been a net exporter of aluminum, but the new smelters will change all that. Currently, the lion’s share of industrial metal exports come from the steel industry, with almost 79% total exports by value. Copper is second with 12%, but aluminum is set to grow dramatically from the turn of the decade.

Some immediate sources explain the enhanced sanctions in connection with steel, aluminum and copper used in the production of ballistic missiles and uranium enrichment centrifuges. In reality, the sanctions are all about squeezing Iran financially in an attempt to drive it to the negotiating table with a view to curtailing the country’s regional role in fermenting unrest. According to intellinews.com, the sanctions have thrown Iran back into recession while causing a collapse in the value of the Iranian rial and driving up inflation.

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How successful this latest escalation of sanctions proves to be remains to be seen, but the results could be a long time coming. Previous sanctions took years to drive Iran to the negotiating table and were better supported by the global community.

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In recent weeks, the Chinese yuan (CNY) has weakened against the U.S. dollar (USD). A weaker yuan makes imports cheaper, all other things holding equal.

As we can see in this chart, during the past couple of weeks the yuan weakened back to roughly December levels.

Will this currency change result in surging steel imports due to the increased attractiveness of Chinese steel prices?

Source: MetalMiner analysis of Yahoo.com data

The Price Spread Still Remains Fairly High, Apples to Apples

The chart below shows the spread between U.S. and Chinese CRC prices since January 2018.

Source: MetalMiner data from MetalMiner IndX(™)

Around the time the U.S. tariffs took effect, U.S. prices increased, while Chinese prices started to move lower.

Fast forward to mid-May 2019 and the differential still remains higher than during the pre-tariff period. The differential is down to just over $200/st — from around $400/st, the 2018 peak — as shown by the spread line in purple, which measures the straight arithmetic difference between the two prices.

Why should we look at Chinese prices? It’s certainly not because China serves a major trading partner for steel. Looking at the statistics, in fact, only around 1% of China’s steel exports come to the U.S.

The reason to study Chinese steel prices owes to the fact that China drives global production, with over 50% of global steel produced in China. In pure price trend analysis, we know it remains a key to future pricing for the U.S., as it will be for all country-level analyses.

As such, examining the Chinese CRC price offers value, regardless of whether or not an organization plans to actually import from China.

A Tactical Examination of the CRC Price Differential

In terms of a more hands-on assessment for buyers looking at importing steel from China, a second look at the spread below takes into account the 25% tariff and $90 per ton in estimated import charges (e.g., freight, trader margin, etc.).

Source: MetalMiner data from MetalMiner IndX(™)

The chart above depicts $90 in importing costs added to the Chinese CRC price only, plus the 25% tariff rate, with the extra 25% added on top only after March 23, 2018.

Adding the import tariff decreases the spread, as shown by the purple line. Subsequently, the tariff triggered a drop in the spread.

At the arrows, we see the differential shift after March 23, 2018, when Chinese prices effectively rose to around $900/st. At that point, the spread dropped significantly, as expected, as shown by the sudden drop in the purple line.

While a spread in China’s favor still remained throughout 2018, into 2019 one could say tariffs leveled the relative price difference. Additionally, U.S. steel prices dropped in line with Chinese prices (plus the tariff and import costs).

With the spread essentially flat, tariffs look to essentially “level the playing field,” as prescribed by their use.

What Does This Mean for Industrial Buyers?

With the Chinese currency weakening once more against the U.S. dollar, MetalMiner expects Chinese imports will start to look increasingly attractive to would-be U.S.-based importers.

However, once we account for the tariffs and import costs, the spread between U.S. and Chinese prices looks effectively negligible.

The fact that U.S. prices for CRC dropped very recently also offset some of the would-be increase in the spread following the weakening of the yuan against the dollar.

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Given that Chinese imports only account for a small percentage of U.S. steel imports at this time, and given the flattening of the spread, the Chinese yuan must depreciate more significantly or U.S. prices must begin to rise once more before we can expect to see a major uptick in imports of Chinese CRC steel.

According to the BBC last week, British Steel, the U.K.’s second-largest steel producer, is knocking on the door of the British government for the second time in as many months looking for support.

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In April, the firm borrowed £120 million from the government to pay an E.U. carbon bill so it could avoid a steep fine, arising when the E.U. arbitrarily withdrew the carbon credits the firm would previously have used to offset such fines. However, the E.U. decided to suspend U.K. firms’ access to such free carbon permits until a Brexit withdrawal deal is ratified.

Having survived that, the firm is apparently now back on the brink of administration and asking for £75 million to help it cope with Brexit-related issues, the news channel says. The firm cites uncertainty over the U.K.’s future trading relationship with the E.U. as a deterrent to European clients to place business with the British steel company.

That may be so, but all European steel producers have been hit with a weak market.

Prices have fallen 16% this year, according to Platts, due to rising competition from eastern Europe and China, in addition to rising costs due to iron ore, electricity and environmental compliance costs.

So far, British Steel looks like a victim of bad fortune.

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President Donald Trump announced today the removal of the U.S.’s Section 232 tariffs on steel and aluminum with resect to NAFTA partners Canada and Mexico.

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The tariffs had remained in place since June 1, 2018, when temporary exemptions for Canada, Mexico and the E.U. were allowed to expire.

Trade officials from the three countries had expressed optimism earlier this week that a deal was near to remove the 25% steel tariff and 10% aluminum tariff.

The move marks a major step toward approval of the United States-Mexico-Canada Agreement (USMCA), meant as the successor to NAFTA.

“I’m pleased to announce that we’ve just reached an agreement with Canada and Mexico and we’ll be selling our products into those countries without the imposition of tariffs, or major tariffs,” Trump told the National Association of Realtors, as reported by USA Today. “Big difference.”

President Donald Trump, Canadian Prime Minister Justin Trudeau and then-Mexican President Enrique Peña Nieto signed the USMCA during the G20 Summit in Buenos Aires late last year. However the three countries’ legislatures must ratify the deal before it can go into effect.

As such, both Mexico and Canada in recent months have indicated that they would be unlikely to approve a deal without removal of the tariffs. Likewise, members of the U.S. Congress, both Republicans and Democrats, also indicated a deal would not be approved unless the tariffs are removed vis-a-vis imports of steel and aluminum from Canada and Mexico.

U.S. Rep. Kevin Brady, the top Republican on the House Ways and Means Committee, lauded the move.

“Canada and Mexico are strong allies and have taken significant steps to assure that trade-distorting and subsidized steel and aluminum from third countries will not surge into the U.S. market,” Brady said.

“With this crucial issue resolved, now is the time for Congress to advance USMCA – delay means the United States continues to lose out on more jobs, more customers for Made-in-America goods, and a stronger economy.  Congress should take up this updated and modernized agreement, which will produce strong wins for America.”

David MacNaughton, Canada’s ambassador to the U.S., hailed the agreement to remove the tariffs.

“This is a victory for both our countries and our highly integrated steel and aluminum industries,” he said in a tweet Friday.

According to a joint statement issued by Canada and the United States, in addition to removal of the tariffs the countries will implement measures to “prevent the importation of aluminum and steel that is unfairly subsidized and/or sold at dumped prices” and “prevent the transshipment of aluminum and steel made outside of Canada or the United States to the other country.”

The joint statement also addresses situations in which imports levels surge.: “In the event that imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share, the importing country may request consultations with the exporting country. After such consultations, the importing party may impose duties of 25 percent for steel and 10 percent for aluminum in respect to the individual product(s) where the surge took place (on the basis of the individual product categories set forth in the attached chart). If the importing party takes such action, the exporting country agrees to retaliate only in the affected sector (i.e., aluminum and aluminum-containing products or steel).”

Canada will also rescind retaliatory tariffs on U.S. products imposed last summer. In addition to a variety of steel and aluminum products, the list of items targeted for retaliatory duties included coffee, yogurt and orange juice.

From the Analysts: Price Impacts of Removal of Section 232 Steel and Aluminum Tariffs for Canada and Mexico

With the removal of tariffs on imports of aluminum from Canada and Mexico, announced today by the U.S. government, MetalMiner anticipates the aluminum U.S. Midwest Premium may finally drop from the current level of around $0.19 per pound due to the easing of restrictions on the flow of prime material cross-border.

Source: MetalMiner data from MetalMiner IndX(™)

As of now, the LME aluminum price does not appear to show any impact from the news, with the price still sitting close to yesterday’s closing value.

Source: FastMarkets

Given the lack of major producers of semi-finished materials in both Mexico and Canada, MetalMiner does not anticipate a flood of materials to hit the U.S. market; therefore, buying organizations can continue to expect tightness for semi-finished aluminum commercial grade sheet and coil. Buying organizations will likely not see large price drops for semi-finished sheet and coil products.

On the other hand, given that the 25% tariff on steel effectively deterred imports of that metal to the U.S., MetalMiner does expect to see an impact on steel prices as imports of steel increase.

Canada serves as the largest exporter of flat rolled steel products, as well as long products, with Mexico taking the No. 3 position. For tubular products, Canada and Mexico take the No. 2 and 3 positions. For stainless steel, Mexico serves as the fourth-largest exporter to the U.S. and Canada does not export stainless to the U.S. in a major way.

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MetalMiner does not expect to see any major changes in domestic stainless steel prices, as most of the global suppliers of stainless steel still face the 25% Section 232 tariff.

While industrial metals started 2019 in an upward trend, the complex showed weakness as 2019 progressed.

In fact, all of the industrial metals hit down around current support levels — and lower at times — during the past few weeks.

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With industrial metals down across the board, are we moving into bear market territory? Or have we witnessed a temporary blip resulting from less certain macroeconomic conditions?

To examine the situation in more detail, let’s have a look at some of the key industrial metals and recent prices.

The DBB Trended Back Down to Mid-January 2019 Values

After a bullish start to the year, the DBB peaked on a short-term basis in early April, then trended back down once more.

Compared with July 2018’s larger drop, this one appears milder, but the short-term downward trend remains.

Source: MetalMiner analysis of NASDAQ.com data

The DBB tracks three key industrial metals: aluminum, copper and zinc. Let’s take a look at each metal to assess price performance using the LME 3-month futures price.

LME Aluminum

Looking at weekly trading volume, it looks like the downtrend in price is played out (based on recent positive trading volume). Also, both positive and negative weekly volumes looked weak recently, with a lack of momentum in prices.

Source: MetalMiner analysis of Fastmarkets.com

This indicates continued sideways movement on the LME aluminum price.

Given that the aluminum market moved largely sideways during the course of 2019, the Moving Average Convergence/Divergence (MACD) can also indicate where the market is at this time.

The MACD tracks the difference between two exponential smoothed moving averages (using the 12- and 26-day averages); it’s the black line in the graph below, which sits along the bottom edge below the price line. The red line, or signal line, uses the nine-day exponentially smoothed average of the MACD.

Source: MetalMiner analysis of Fastmarkets.com

When the values hold above zero, this indicates the market is overbought. When they are below zero, this indicates the market is oversold. If the lines continue to trend downward, then the downtrend is still in process.

By this indicator, the aluminum market looks oversold and a buy signal emerged recently when the longer-term line turned up after a couple of days of upward market momentum and edged past the signal line. The signal line followed a day later, indicating the downtrend lost steam.

Based on this analysis, aluminum prices may have already hit bottom and turned around; therefore, the aluminum market itself does not look bearish at present.

LME Copper

LME copper prices lately have showed clear weakness. However, they found support again recently in daily trading, stopping a further slide in price.

With negative trading volume still registering on a weekly basis, the price dynamic for copper still looks weak.

Source: MetalMiner analysis of Fastmarkets.com

Looking at volume on a weekly basis, we can see that it trended up again last week. Through the first few days of this week, volume registered as negative on the partial week’s data.

Copper prices still look weak.

LME Zinc

Like the other industrial metals, LME zinc prices trended downward in April.

Looking at weekly volumes for zinc, the price action looks mixed. (Note that the last bar shows only partial data for the week in progress.)

Source: MetalMiner analysis of Fastmarkets.com

Given the clearer trend when looking at LME zinc prices, we can use the 4-9-18 day moving average analysis to assess the state of the current downtrend. The result of the analysis shows the downtrend remains in process as the moving averages queue in the expected order, with the 18-day average on top (blue line), followed by the nine-day (purple line), then the four-day average (red line).

Source: MetalMiner analysis of Fastmarkets.com

Therefore, in the case of LME zinc (using this method) the downward trend continues. The red line, however, the shortest average and therefore most sensitive, has recently shown signs of turning back up.

Source: MetalMiner analysis of Fastmarkets.com

Looking at a MACD analysis, based on the 12-, 26-, and nine-day periods, the downtrend continues with the signal line in red sitting above the MACD line in black, while both continue in a downward trend below the zero point of the MACD indicator bar.

Readings below zero on the indicator show bullishness in the sense that prices may turn around. However, in this case the lines continue moving in a downward trend, so we may not have seen the bottom of zinc prices just yet.

What this Means for Industrial Buyers

During recent weeks, the main industrial metals tracked by MetalMiner showed weakness. Will this be temporary or are we looking at a more cyclical movement into bear market territory?

While aluminum prices look relatively stable, copper and zinc prices appear weaker, with no clear signal given that the downturn has passed.

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Therefore, while it’s too soon to call a bear market, it’s also too soon to say we’ve avoided one.

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