Market Analysis

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Stock and currency markets have been a little perkier the last week or so as expectations rise of some form of Chinese stimulus to boost demand — and, hence, global growth.

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That optimism, though, may be somewhat misplaced.

China has limited scope of debt-fueled stimulus of the type employed in the past, so a pick-up in demand resulting from fiscal measures may be more muted than some optimists hope.

Still, hopes were raised when Premier Li Keqiang closed a briefing to the National People’s Congress with a number of announcements. Beijing intends to use tools such as lowering bank reserve requirements, according to Bloomberg.

However, a promise to reduce VAT on manufactured goods from the current 16% to 13% from April 1 gave a definite fillip to traders and cast depression among hard-pressed aluminum semis manufacturers in the region. More competitively priced Chinese aluminum semi-finished product is the last thing regional aluminum producers want on their doorstep.

The measure is expected to further boost exports, which have already been running at near-record levels in 2018-19. According to Aluminium Insider, exports have risen from 517,000 tons per month last August to 552,000 tons in January to set a new record. Primary producers, who had been meeting to negotiate capacity closures in the face of slowing demand, are reportedly now likely to reverse that decision in the hope demand will pick up.

According to Aluminium Insider, the move is expected to pump in the region of CNY 600 billion (U.S. $90 billion) into the manufacturing sector, boosting the country’s gross domestic product by 0.6%. The move comes as the latest in a series of changes to the country’s tax regime conducted by Beijing, carried out to bolster the economy after manipulations of monetary policy and further debt-based spending have become increasingly difficult avenues for effecting change.

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Optimism is supported by the widespread belief that an agreement on China’s trade war with the U.S. is just a matter of weeks away — but the much-touted trade summit between President Donald Trump and Premier Li Keqiang has been postponed yet again, and may now not take place until well into April or even May.

A successful trade deal is by no means a certainty, as much as the markets will look for any deal to be better than no deal.

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The March 2019 Monthly Metals Index (MMI) report is in the books.

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It was another month of upward movement for a majority of the MMI subindexes. After a sluggish close to 2018, six of 10 subindexes moved up for the March MMI, The Aluminum, Automotive, Copper, Global Precious, Raw Steels and Stainless MMIs all posted increases for the month, while the Renewables and GOES MMIs fell and the Construction and Rare Earths MMIs traded flat.

Meanwhile, in trade news, the U.S. continued trade talks with China, with some optimistic reports suggesting a deal could be imminent. However, previous deal attempts have failed in late stages, so it remains to be seen whether this time will prove any different. The negotiations come as the U.S. Census Bureau recently released data showing the U.S. posted a record trade deficit in 2018, including a deficit of $419.2 billion, up from $375.6 billion in 2017.

As for trade news in the U.S.’s neck of the woods, the United States-Mexico-Canada Agreement — which would supersede the North American Free Trade Agreement (NAFTA), approved in 1994 — remains in legislative limbo. The legislatures of the three countries must approve the deal before it can go into effect. The status of the extant Section 232 tariffs on steel and aluminum from Canada and Mexico remains a sticking point.

A few highlights from this month’s MMI series:

Read about all of the above and much more by downloading the March 2019 MMI Report below:

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The Renewables Monthly Metals Index (MMI) fell one point this month for an MMI reading of 103.

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The Hunt for Cobalt

As noted routinely in this installment of the MMI series, cobalt is a coveted material for its use in a wide variety of high-tech applications, from cellphones to laptops and much more.

A majority of the world’s cobalt is mined in the Democratic Republic of the Congo, where political instability and the government’s revision of its mining code (increasing royalty rates for cobalt and other materials) have posed business challenges to miners.

As such, it’s not surprising that some are looking for new sources of cobalt.

According to a Bloomberg report, a new startup powered by a coalition of billionaires, including Bill Gates, is seeking to do just that.

The startup, KoBold Metals, aims to create a “Google Maps for the Earth’s crust,” according to the report, in an effort to locate new sources of cobalt.

“KoBold Metals applies statistical modeling, big data aggregation, and basic science to materially improve the pace and efficacy of natural resources exploration,” KoBold’s website states. “We are applying our proprietary platform, Machine Prospector, to explore for new sources of ethical cobalt from reliable jurisdictions.”

The approach would also offer more specific focus to cobalt, as opposed to mining of the material as a byproduct of copper or nickel, as is typically the case.

“People just haven’t looked for the stuff,” KoBold CEO Kurt House told Bloomberg. “There’s very limited history of exploration at all outside of piggybacking on nickel and copper deposits.”

Cobalt Price Slides

Sticking with the cobalt theme, the price of the coveted material plunged throughout the second half of 2018 — and a recovery is not expected in the near term.

According to Reuters, the cobalt price fell to a two-year low of $32,000 per ton, down from $100,000 per ton in the first half of 2018.

What contributed to the plunge? According to the report, high prices led to an uptick in supply. However, cobalt demand is expected to exceed supply in the long term, according to the report.

GOES Prices Fall

The price of grain-oriented electrical steel (GOES) fell 4.1% month over month to $2,360/mt as of March 1.

The GOES MMI fell 8.2% for a March value of 168.

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Actual Metal Prices and Trends

Japanese steel plate fell 2.3% month over month to $772.30/mt as of March 1. Korean steel plate rose 1.9% to $586.67/mt. Chinese steel plate increased 3.8% to $642.72/mt.

U.S. steel plate fell 1.8% to $997/st.

The Chinese neodymium price fell 1.8% to $58,29.10/mt. Chinese silicon rose 0.2% to $1,539.54/mt, while Chinese cobalt cathodes jumped 0.2% to $99,397.20/mt.

Well, some folks have been talking about it for a while, but figures this week suggest the long-anticipated slowdown has arrived.

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Negative numbers out of China have been reported for some months now, particularly falling PMI figures suggesting a steadily deteriorating outlook. Beijing has set a target of GDP growth range of 6.0-6.5% this year, according to The Telegraph, down from a hard target of 6.5% over the last two years, and blamed the trade war.

It’s debatable whether China will even manage 6% this year. While the trade war with the U.S. has exacerbated problems, the slowdown started before President Donald Trump’s Section 232 and Section 301 actions.

Nevertheless, the trade war is certainly making matters worse.

Another article in The Telegraph reports a sharp fall in Chinese shipments. Imports and exports are both falling, while Premier Li Keqiang is quoted as saying this week that “Instability and uncertainty are visibly increasing and externally generated risks are on the rise, downward pressure on the Chinese economy continues to increase, growth in consumption is slowing, and growth in effective investment lacks momentum.”

Until now, a sluggish Europe and a slowing China were being counterbalanced by a robust U.S. economy and decent growth in other emerging markets.

But last week, shock jobs data suggests U.S. growth is not a given.

The 20.7% slump in February was four times greater than predictions of a 5% decline, with just 20,000 workers added to payrolls — some 160,000 fewer than expected.

Some are attributing the sharp slowdown to the impact of tariffs and negative investment sentiment, mounting pressure on the president to reach a deal with the China this month. The tariffs were promoted as a solution to the growing trade deficit, but so far at least the opposite has prevailed.

The U.S. Department of Commerce is quoted as saying last week that a 12.4% jump in December contributed to the record $891.3 billion goods trade shortfall last year. The overall trade deficit surged 12.5% to $621.0 billion, the largest since 2008, effectively junking suggestions that the U.S. could tariff its way out of the deficit.

The situation may not have been helped by the president’s tax giveaway that has in part been spent on the import of luxury goods, such as autos. The impact of higher domestic prices, though, seems as much psychological as actual, with consumers postponing purchases in the face of rising prices.

Salaries are rising, unemployment is low, consumers are not fearful of their future in the way they are in a recession, but they may be deferring buying in the hope of a trade deal and a reduction in costs later in the year or next.

The danger is by then we really may be in a recession if the economy, both in the U.S. and globally, does not get back on track this year.

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Negative sentiment has a tendency to be self-fulfilling.

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This morning in metals news, the Canadian government announced it is rolling out $100 million in funding for its domestic steel and aluminum industries, copper moves toward a seven-month high, and Vietnam’s steel exports to the U.S. increased in 2018.

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Canadian Steel, Aluminum Get a Boost

The Canadian government has announced it will offer $100 million in funding to small- and medium-sized aluminum and steel firms in the country, the CBC reported.

The U.S.’s Section 232 tariffs on steel and aluminum remain in place for NAFTA partners Canada and Mexico. Those tariffs are the primary point of contention as the successor to NAFTA — the United States-Mexico-Canada Agreement (USMCA) — still needs to be ratified by the three countries’ legislatures.

Copper Continues Hot Streak

The copper price moved toward a seven-month high on Tuesday, Reuters reported.

LME copper jumped 1% to $6,472.50 per ton, according to the report.

Vietnam Steel Sector Grows

Despite the U.S.’s aforementioned Section 232 tariffs, one southeast Asian country saw its steel exports to the U.S. rise last year.

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According to an S&P Global Platts report, Vietnam’s finished steel exports to the U.S. surged 48% in 2018 compared to 2017.

The Copper Monthly Metals Index (MMI) increased by 3.9% this month, reaching an MMI value of 79.

With a seven-week sustained increase in prices, the rally may be over for the metal.

Trading volume dropped off in late February and the price moved sideways once again in early March.

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With week-on-week price gains for seven straight weeks, LME copper prices reached a high of around $6,500/mt before retreating back to $6,477/mt in early March trading, finally exceeding the $6,380/mt price point around which it oscillated since July.

While higher prices indicate bullishness, falling trade volumes appear as bearish; therefore, with mixed signals, the price has begun to move sideways overall.

LME copper prices. Source: MetalMiner analysis of Fastmarkets

From a longer-term perspective, LME copper prices remain within their historical trading range.

In 2011, copper reached $10,000/mt and higher prior to a long-term downtrend. The market bottomed out in 2016 around $4,600/mt before retracing and oscillating at around $6,000/mt during the first half of 2017.

LME weekly copper prices and volume. Source: MetalMiner analysis of FastMarkets

We can see that a previous eight-week rally preceded a longer-term sustained price uptrend during 2017. On this basis, perhaps we could see more pricing upside, but the rally appears to have softened as of press time, turning around at $6,500/mt. The price has no soared quite as high as it did previously.

Here is a one-year analysis of LME copper trading volume and open interest:

Source: MetalMiner analysis of FastMarkets

Based on current mixed signals, as monthly open interest dropped in February and monthly volume only edged up very slightly, there may not be as much upward momentum as might otherwise be expected for copper prices.

Chinese Copper Scrap vs. LME Copper

Source: MetalMiner data from MetalMiner IndX(™)

While LME copper and Chinese copper scrap prices both increased in February, the latter increased only slightly. The price differential increased as LME price increases outpaced copper scrap price increases.

LME warehouse stocks trended downward throughout the year, supportive of higher copper prices. According to Reuters, LME-registered warehouse stocks fell to 21,600 tons and remain at their lowest point since 2005. However, some of this decline may be attributable to new LME warehouse rules that make it more difficult to generate a return; therefore, excess available stocks might not get deposited into LME warehouses.

Additionally, stocks of the metal in SHFE warehouses hit 227,049 tons in late February, following cyclical restocking at the start of the year, which more than doubled the volume available following a recent low of around 100,000 tons in late 2018.

According to the International Copper Study Group (ICSG), refined copper production has fallen short of demand for multiple years now. Supply shortages are bullish for prices, which may have also pushed LME copper prices higher in early 2019.

What This Means for Industrial Buyers

Following the recent seven-week price rally, copper prices finally breached the $6,380/mt level, signaling that copper could be heading back into higher pricing territory.

On the other hand, lower trading volumes signal bearishness. It’s possible that significant LME shadow stocks, buoyant Chinese supplies of the metal and weak domestic demand in that country may act as price moderators, keeping prices in check.

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Actual Copper Prices and Trends

In February, like January, the Copper MMI basket increased, with the sole exception of Korean copper strip, which fell by 3%.

India’s copper cash price saw the biggest gain at 6.5%, closely followed by Japan’s primary cash price, which increased 6%. Most of the remaining metals in the basket increased in the 4-5% range, with the exception of China’s copper #2 scrap price, which was up 0.47%.

The Stainless Steel Monthly Metals Index (MMI) increased again this month by 4.3% to 71, up again after last month’s 11.7% gain.

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Once again, nickel price increases provided an impetus for rising prices. This month, prices increased for all the metals in the stainless steel basket across the board, ranging from 0.2-10%. U.S. stainless steel surcharges increased slightly.

LME Nickel

LME nickel prices. Source: MetalMiner analysis of FastMarkets

LME nickel prices started to rise again following a brief downward trend in the first part of February; however, uptrend volumes are weaker than during recent price increases.

Despite weaker volume, prices finally surpassed the $13,300/mt price point, surging past $13,600 in a single day of trading and potentially signaling an underlying bullishness in the nickel market.

However, the price retraced once more toward the well-trodden $13,300/mt level in the days following the price surge.

Domestic Stainless Steel Market

This month the 304/304L-Coil and 316/316L-Coil NAS surcharges increased by 0.3% and 1.96%, respectively, reversing the previous downward trend dating back to July 2018.

Source: MetalMiner data from MetalMiner IndX(™)

It remains to be seen whether this is a seasonal adjustment or a reversal in trend as we move into the last month of Q1, which is when prices tend to cyclically rise.

What This Means for Industrial Buyers

Stainless steel prices are rising — but is this a new change in direction or a temporary price increase based on the annual cyclical business cycle?

With some weakness reported in the global economy by the OECD last week, it will be interesting to see whether this is the start of a new trend in higher prices or just a flattening out from previous price declines.

Actual Stainless Steel Prices and Trends

All of the metals included in the Stainless MMI increased in price this month.

Chinese Ferro Alloys FeMo Lumps registered the greatest increase at 10.14%, while Chinese Ferro Alloy FeCr Lumps increased 0.2%.

Korean stainless steel coil (430 CR 2B) increased in price by 5.92%.

The three nickel prices included in the MetalMiner IndX(™) also increased across the board again this month, with increases ranging from 4.5–5.5% for LME, Chinese, and Indian prices. However, the increase this month dropped from high rates of change last month, which were in the 14.76-17.39% range.

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Chinese stainless steel 304 and 316 scrap prices registered increases of 0.2%.

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The Rare Earths Monthly Metals Index (MMI) held flat this month, holding for a reading of 18.

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Auditors Cite Material Risk for Lynas Corp

According to mining.com, auditors have flagged a material risk for Australian miner Lynas Corp’s Malaysian operations.

The rare earths miner, one of the biggest outside of China, has been navigating new regulatory standards imposed by the Malaysian government.

“As noted in the report for the quarter ending 31 December 2018, during the half year the Malaysian government appointed a Review Committee to evaluate Lynas Malaysia’s operations,” the miner noted in its quarterly earnings announcement. “The Review Committee’s report was released on 4 December 2018 and found Lynas Malaysia’s operations are low risk and Lynas Malaysia is compliant with applicable laws. Separately, on 4 December 2018, the Atomic Energy Licensing Board (AELB) issued a letter containing two new pre-conditions for Lynas’ licence renewal on 2 September 2019. These conditions relate to the management of the 2 residues produced by Lynas operations in Malaysia.”

According to the release, Lynas has appealed one of the conditions concerning the disposal of water leached purification (WLP) residue, one of the residues cited by the Malaysian government.

The miner’s license to operate in the country is up for renewal in September.

“The regulatory environment in Malaysia was very challenging through the half year, Lynas CEO and Managing Director Amanda Lacaze said in the release. “Despite this, we remained focused on business fundamentals, meeting the needs of our key customers and laying the foundations for further growth in our business.”

Greener Rare Earths Extraction?

According to a report by Forbes, researchers may have found a greener way to extract rare earths, which are coveted for a number of high-tech applications, including ever-more-sophisticated smartphones.

As the article by Dr. Anna Powers notes, mining rare earths is a difficult business — even where deposits exist, they may not be economically viable. In addition, the mining of rare earths elements poses negative environmental impacts.

However, as Powers explained, scientists may have found a more environmentally friendly method by which to extract rare earths elements: bio-acids.

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“Scientists used synthetic phosphogypsum which was produced in lab and had a controlled composition, and used various acids to understand which acid was best at separating rare-earths most efficiently,” she explained. “Surprisingly, bio-acids did the best job! The next step of this research would be to apply industrial grade phosphogypsum found as a by product to refine the results of this study as well as understand how different compositions of phosphogypsum affects the ability of rare-earth metals to be extracted.”

Actual Metal Prices and Trends

The yttrium price ticked up 0.2% month over month to $33.63/kilogram as of March 1. Terbium oxide moved up 1.6% to $444.67/kilogram.

Neodymium oxide fell 1.1% to $45,961.90/mt. Europium oxide ticked up 0.2% to $38.86/kilogram and dysprosium oxide rose 5.2% to $189.83/kilogram.

If you’re in the midwestern U.S., chances are your March has gotten off to a more-frigid-than-normal start.

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Not so for the Global Precious Monthly Metals Index (MMI), which has gotten even hotter.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four more points to hit 98 for the March reading — a 4.3% increase — driven by a still-scorching palladium price that began its second month in a row higher than the gold price.

In fact, the U.S. palladium bar price, as tracked by the MetalMiner IndX, hit $1,522 per ounce on March 1. That level has never been seen in the history of the MMI series, which began in January 2012.

Forget your road salt or other de-icer — just throw some palladium on your slippery sidewalk, it should melt the ice in no time!

All of this is to say that the Global Precious MMI is now in a six-month uptrend.

Meanwhile, the U.S. platinum bar price rose slightly, but not nearly enough to eat into the spread with its sister platinum-group metal (PGM). The U.S. gold price faltered a bit, beginning the month at $1,312 per ounce (about $8 per ounce lower than last month). Silver prices also dropped across the four tracked geographies.

Palladium Market News and Notes

Last month, we reported that the global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next as estimated by researchers Refinitiv GFMS, according to Reuters.

It looks as though Norilsk Nickel is getting on that forecast bandwagon as well.

Norilsk (also known as Nornickel), which produces 40% of the world’s nickel, said “in 2019 the global palladium market deficit is forecast at 800,000 ounces compared with 600,000 ounces in 2018, with consumption up by 500,000 ounces to 11.2 million ounces due to strong demand from autocatalyst producers,” according to a recent Reuters report.

“(The) spot palladium market practically dried out” in 2018, Nornickel is quoted as saying. According to the Reuters report, the company said the “supply tightness was partly eased by the release of stocks from palladium ETFs (exchange-traded funds), which fell below 1 million ounces for the first time since 2009, and from Nornickel’s Global Palladium Fund.”

Meanwhile, the World Platinum Investment Council said the global platinum market will see a surplus of 680,000 ounces in 2019 (after a surplus of 645,000 ounces in 2018), resulting from supply growth of 5%, which exceeds demand growth, according to a press release.

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All of this conspires to keep the platinum-palladium spread wider than ever.

The Raw Steels Monthly Metals Index (MMI) increased slightly again this month, moving to an MMI reading of 82, an increase of 2.5% month on month.

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This month, U.S. raw steel prices stopped their multimonth decline off peak highs and began moving sideways overall. Typically, steel prices tend to trend upward through Q1, but that is not a hard and fast rule (supply and demand factors and general macroeconomic conditions play a role).

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices seemed to finally hit a point of price resistance this month and fell back to $997/st. Even at this price, plate prices remain at a historic high. Typically, HDG prices trend higher than plate. However, the plate price exceeded the HDG price this fall and continues to ride higher than HDG.

Source: MetalMiner data from MetalMiner IndX(™)

The HDG price has dropped from the 2018 price surge and now appears back at levels typical of 2016-17 when the price oscillated around the $900/st mark, which served as a historically significant resistance point during 2014 (prior to steep HDG price decreases in 2015).

Iron ore prices increased during February based on continuing supply concerns, but supply issues will likely ease as the year progresses.

Based on a better-than-expected China manufacturing PMI release in February, iron ore, coking coal and coke futures prices increased in late February on a four-day rally based on optimism over the steel sector’s 2019 performance. In early March, however, prices appear to have moderated on demand concerns.

What This Means for Industrial Buyers

Plate prices may have peaked but they remain historically high, oscillating around the $1,000/st mark after reaching $1,022/st in December.

HRC, CRC and HDG prices moved sideways during the month, a shift from the recent downward trend in prices.

Given the shift in trend to sideways for raw steels, buying organizations will want to watch the market carefully for opportunities to buy.

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Actual Raw Steel Prices and Trends

U.S. shredded scrap prices registered a month-over-month price increase of 5.73%, rising to $332/st, reversing last month’s 11% price decrease.

LME scrap prices also increased. The primary one-month futures price increased by 9.58%, while the LME primary three-month price registered an increase of 2.78% since the beginning of February.

Korean standard scrap steel prices fell by 11.28%, reversing the price increase during the past few months, and ended at $155.56/mt (down from the October high of $193.69/mt).

Chinese coking coal prices increased this month by 2.34% — flattening out somewhat after recent monthly double-digit increases — to $322.56/mt at the start of March.

Chinese iron ore prices were flat month on month. The Chinese pig iron price fell 9.5%.