CommentaryMarket Analysis

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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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The press has been all over the trade war-induced falls across stock markets. The New York Times reported this week that the S&P 500 was off 2.4% on Monday, the worst day since early January.

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In all, the S&P 500 is down 4.6% so far this month, while the tech-heavy Nasdaq composite index fell 3.4% — its worst decline in 2019.

European and emerging markets have likewise fallen sharply following tit-for-tat announcements between President Donald Trump and President Xi Jinping. This all comes despite the U.S. economy doing well, expanding 3.2% annualized in the first three months of the year and with unemployment down to 3.6%, its lowest level since 1969, the paper reports.

Indeed, it is suggested it is just those healthy numbers that have encouraged the president to up the ante in the face of apparent Chinese intransigence on certain key issues.

To keep stock-market falls in perspective, though they come on the back of a 17% rise so far this year, arguably the market has already achieved a year’s gains in just four months; a correction was to be expected.

The sharp falls, though, show how complacent the markets had become trusting a deal between the U.S. and China was just weeks, if not days away.

That this escalation of trade tensions came on the back of a return to robust growth is no surprise.

It is suggested by The New York Times that both sides have been emboldened by solid domestic growth, not to mention a need to pander to their domestic audiences – in Trump’s case, in the run-up to next year’s elections. Meanwhile, Xi is cognizant of his own nationalist rhetoric of recent years, making compromises to China’s Made in China 2025 march to global pre-eminence a personal humiliation.

So with the scene set for a possibly protracted standoff, you have to wonder why Trump has opened a second front with the European Union.

Conventional wisdom suggests generals wage one war at a time, as fighting on two fronts risks aligning your opponents against you and dividing your forces.

So why has the president chosen this moment to escalate his previous rhetoric with the E.U. over trade issues, threatening again in recent days to levy tariffs on automobiles from the E.U., among other categories? Possibly because the chances of securing a really meaningful victory over China are receding. Counterbalancing that with a win against Europe would allow some face-saving in the run-up to next year’s elections, but the risks are huge.

President Trump faces a May 18 deadline to decide whether to put tariffs on up to $53 billion worth of European cars. E.U. Trade Commissioner Cecilia Malmström is quoted by CNBC as saying she hopes the Trump administration could delay the deadline as it focuses on inking a deal with China, but recent comments from the White House suggest otherwise.

Trump may judge the Europeans more likely to compromise than China, as they certainly have more to lose. Europe is facing a shaky domestic economy already battered by trade tensions with China in the fallout from U.S. action, a decline in sanctions hit Russian trade and rising energy prices (in part due to U.S. action against Iran).

Last but not least, the ink is barely dry on the revised and still to-be-ratified United States-Mexico-Canada Agreement (USMCA). Cracks are showing among the trade partners, as Canada and Mexico mull tariffs of their own in order to pressure Trump to drop his steel and aluminum tariffs.

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If there is any takeaway from the current highly uncertain political and economic outlook, it is consumers need redundancy and options in their supply chains. Well-established, multiyear supply chains are having their economic fundamentals upturned on a tweet. While companies do not want to be chopping and changing suppliers on a whim, having options at least enhances supply chain durability and may just keep production lines running.

Chinese HRC prices increased again this month, while other forms of steel stayed flat overall.

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Source: MetalMiner data from MetalMiner IndX(™)

Looking more closely at HRC — along with CRC, HDG and plate — prices generally remain lower than a year ago on a year-on-year basis, with the exception of HRC due to the recent price increases. However, they all are generally hovering at similar prices levels, with HDG showing the biggest change.

Source: MetalMiner data from MetalMiner IndX(™)

The spread between U.S. HRC and China HRC rests at $122/st, the lowest level since February 2018. However, recently the yuan weakened against the dollar, which will effectively increase the spread once more. A weaker yuan means Chinese prices will be cheaper.

China’s Economic Indicators Flattened in April

China’s Caixin Manufacturing PMI reading decreased unexpectedly for April, dropping to 50.2 from March’s eight-month high of 50.8. With the forecast value at 51.0, the drop surprised the market. Weakness came from decreased output and orders. Additionally, export sales dropped for a second straight month due to weaker overseas demand.

The FXI, an index of China’s large-cap companies, also showed flat growth recently after increasing since the start of the year.

Source: MetalMiner analysis of Yahoo.com data

Crude Steel Production Increases Continued in March

According to the World Steel Association, China produced around 80.3 million metric tons of crude steel during March, an increase of 10% compared to March 2018. For the sake of comparison, the U.S. produced 7.8 million metric tons of crude steel in March, an increase of 5.7% compared with March 2018.

In late April, China’s Iron and Steel Association once again issued a statement indicating the industry faces risks due to ongoing excess capacity, sluggish demand and increased raw material costs.

According to the association, fixed asset investment in the sector increased by 30.6% during Q1 2019. Some of the capacity increase harks back to less environmentally friendly induction furnace production, as companies looking to boost output turned to cheaper production methods. The industry organization came out in a public statement advocating that companies refrain from illicit capacity increases.

According to a recent Reuters report, the organization warned against structural issues in the industry as demand weakens. In addition, profitability suffered due to rising iron ore prices.

China’s Baoshan Iron and Steel Co Ltd (Baosteel) recently announced that profits fell during Q1, the first such drop since 2015. The company cited higher raw material costs and weaker automotive demand as the key causal factors, while demand for steel for infrastructure remained strong.

The company expects to produce 45.46 million metric tons of iron and 48.18 million metric tons of steel in 2019, with an expectation of strong infrastructure demand. Baosteel also expects sales of steel for automotive production to remain a challenge due to the EV transition and due to the impact of tariff-related policy changes.

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China’s automotive sales declined by 11.3% during the first quarter compared with the same period of 2018, according to the China Association of Automobile Manufacturers (CAAM).

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Is President Donald Trump’s latest round of tweets and the resulting global stock market selloff just a negotiating ploy or is it the first signs the much-vaunted trade deal may not be going quite as smoothly as markets had obviously been pricing in?

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The following VIX graph of volatility illustrates better than words how investors had been assuming the trade deal was a done deal in waiting. (Instead, the U.S. on Friday, May 10 raised tariffs on $200 billion in goods from China, upping the rate from 10% to 25%, to which China vowed to respond.)

Source: Bloomberg via the Financial Times

Bolstered by stronger growth in both the U.S. and China during the first quarter, both sides seem unhelpfully bullish in the closing stages of the negotiations and, as such, rowing back on some previous commitments and playing hardball on still unresolved issues.

U.S. President Donald Trump’s renewed threat — which came to fruition — to raise tariffs on Chinese imports, specifically mentioning increasing the levy on $200 billion in Chinese goods to 25% on Friday of last week, sent stock markets into paroxysms.

The U.S. S&P tumbled as much as 2.4% earlier last week, the Financial Times reported, before it clawed back some of the losses.The European FTSE Eurofirst 300 index ended last Tuesday down 1.4% — its biggest one-day drop since February — and slipped a further 0.1% on Wednesday.

Asian markets reacted similarly, resulting in the MSCI World index of global stock markets falling 1.7% last Tuesday, its second-biggest decline of 2019. Coming on the heels of the president’s suggestion that the United States could subject remaining Chinese goods exports (worth some $300 billion to $350 billion) to annual tariffs, in addition to the previously identified $200 billion, has worried investors this deal may not be the done deal they had been thinking.

According to the geopolitical advisory firm Stratfor, up to this point China has focused its concessions on directly addressing the countries’ trade imbalance by guaranteeing increased purchases of U.S. goods and opening market access, along with addressing some structural issues. But reports from the U.S. Chamber of Commerce representatives who have knowledge of the negotiations have indicated that the White House had been backing off its demands over some structural issues, including China’s industrial subsidies and cybertheft, the firm reports.

The biggest snags now appear to be over China’s resistance to U.S. demands for legal changes addressing intellectual property theft and its disagreement with the enforcement mechanisms attached to U.S. demands. It could be that Beijing, having failed to enforce intellectual property rules itself, fears agreeing with the U.S.’s dictation of the judgement and compliance of any such agreement and, by extension, any sanctions Washington decides to impose in the future into some kind of legal framework as being an unacceptable risk.

Put simply, Beijing fears it cannot police or ensure compliance at the local level within China to any agreement reached.

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Nevertheless despite the unhelpful rhetoric and the pressure both Trump and Xi are no doubt facing from their core support — in Trump’s case to wring as many concessions out of China as originally demanded and in Xi’s case to give away as little as possible yet still achieve an agreement — and must be hampering both parties, progress does seem to be happening.

With nationalism on the rise in both countries, concessions are the last move more extreme elements in both camps will accept, but some concessions are an inevitable part of negotiation.

Maybe markets were a little too sanguine earlier this year to think it was a done deal, but nor should they be frightened off by a few tweets: an eventual deal is in both parties’ interest.

It is often tough to discern fact from fiction, particularly when it comes to corporations and politicians.

Two developments this month in Europe raise questions about the relationship and balance of influence between major corporations and government. Are corporations reacting to markets or seeking to stimulate political action is often the question?

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Following President Donald Trump’s imposition of 25% import tariffs on steel products, Europe took action to protect its domestic markets against a flood of foreign steel looking to find a new home by imposing a range of measures to monitor imports and impose safeguards.

According to the Financial Times, a European Commission official claimed the E.U. has some 52 anti-dumping and anti-subsidy measures in force on steel products, saying: “The EU reacted swiftly to the US tariffs on steel and imposed safeguard measures to protect EU industry from trade diversion.”

These measures preserve the traditional levels of imports into the E.U., ensuring fair conditions for a sector struggling with overcapacity. Even so, ArcelorMittal has said the measures are “insufficient” and announced its decision to temporarily cut production at some of its plants on the continent.

According to the Financial Times, the company said that it would idle steelmaking facilities at its Krakow site in Poland and decrease output at Asturias in Spain. In addition, it will slow down a planned increase of shipments by its Italian unit.

In total, these actions will reduce its annualized crude steelmaking production by 3 million tons — equivalent to 7% of its European output last year.

Imports are not the sole reason for the firm’s decision. The group also blamed high energy costs and increased prices for carbon credits, which polluters must use to compensate for emissions under a Brussels scheme aimed at curbing climate change. Foreign suppliers, of course, do not have to pay for carbon credits, which is another gripe of the firm; the firm would like to see a “green” tax on imports, equivalent to the carbon charges E.U. producers face, to level the playing field.

The E.U. produces 170 million tons of steel a year, yet remains heavily dependent on imports, which have the effect of dragging down market prices. As such, domestic producers frequently struggle to make a profit.

So bad had the situation got for German group ThyssenKrupp that it has been working to separate its steel and capital goods divisions for the last few years. Central to this strategy was the merger of its steel division with Tata’s European operations to create what would be the second-largest steel group in Europe after ArcelorMittal.

According to the FT, Margrethe Vestager, E.U. competition commissioner, had been taking evidence from consumers, particularly in the automotive sector, who fear the reduction in competition would give the remaining steel groups too much pricing power.

But despite working on the plan since 2017, they were scrapped last week after regulatory scrutiny from the European Commission made a deal untenable.

E.U. regulators forced ArcelorMittal to make significant divestments to gain regulatory approval for its acquisition of Italian steelmaker Ilva last year and demanded further concessions from ThyssenKrupp and Tata in return for approval.

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Who wins in politically charged Brussels remains to be seen.

With the European elections due next month, there is even more intrigue and jockeying going on in the corridors of power than normal.

The Renewables Monthly Metals Index (MMI) fell two points this month for a May MMI reading of 101.

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World Bank Launches Climate-Smart Mining Facility

As the world moves toward sourcing a larger and larger share of its total energy needs from renewables, the environmental impact of mining for metals needed for renewable energy has come into focus.

In that vein, on May 1 the World Bank announced the launch of a Climate-Smart Mining Facility, dubbed as the “first-ever fund dedicated to making mining for minerals climate-smart and sustainable.”

“The Facility will support the sustainable extraction and processing of minerals and metals used in clean energy technologies, such as wind, solar power, and batteries for energy storage and electric vehicles,” the World Bank said in a release. “It focuses on helping resource-rich developing countries benefit from the increasing demand for minerals and metals, while ensuring the mining sector is managed in a way that minimizes the environmental and climate footprint.”

According to the release, the World Bank is targeting an investment of $50 million over five years toward the goals of sustainable mining.

The new Climate-Smart Mining Facility is inspired by a World Bank reported released in 2017, titled “The Growing Role of Minerals and Metals for a Low-Carbon Future,” which examines the role of mining in a future of low- or zero-carbon energy sources (the full 2017 report is available here). For example, demand for lithium, graphite and nickel is expected to skyrocket in the coming years (by 965%, 383% and 108%, respectively, by 2050).

Paradoxically, attempts to augment renewable energy usage also come with negative environmental impacts stemming from the mining of minerals needed for renewable energy installation.

“While the growing demand for minerals and metals offers an opportunity for mineral-rich developing countries, it also represents a challenge: without climate-smart mining practices, the negative impacts from mining activities will increase, affecting vulnerable communities and environment,” the World Bank said.

Rio Tinto was among the miners to express support for the initiative.

“The transition to clean energy solutions presents both a significant opportunity and responsibility for the mining industry, as it provides the materials that make these technologies possible,” Rio Tinto CEO Jean-Sebastien Jacques said.

“We want to be part of the solution on climate change and the best solutions will come from innovative partnerships across competitors, governments and institutions. Our collaboration with the World Bank and many others is aimed at making a real difference by promoting sustainable practices across our industry. We look forward to supporting the Climate-Smart Mining Facility by contributing not just funding but also expertise as a leader in sustainable mining practices.”

Glencore Reports Q1 Cobalt Production Rose 56%

Multinational miner Glencore recently released its Q1 production figures, reporting production of 10,900 tons, up 56% compared with Q1 2018.

However, elevated levels of uranium found in cobalt mined at its Katanga operation in the Democratic Republic of the Congo resulted in no cobalt sales from the mine in Q1.

“From April 2019, the export and sale of a limited quantity of cobalt, complying with appropriate regulations, was allowed to resume,” the company said in its production announcement. “Such resumption of exports remains subject to the relevant DRC export procedures, which include continued monitoring by the relevant authorities.”

Glencore’s full-year 2019 cobalt production guidance came in at 57 kt (+/- 4), up from 42.2 kt in 2018.

Grain-Oriented Electrical Steel

The GOES MMI, MetalMiner’s subindex tracking grain-oriented electrical steel, fell one point this month for a May MMI value of 175.

The GOES price fell 0.5% to $2,412/mt.

In other news, German firm Thyssenkrupp’s proposed joint venture with Tata Steel does not appear likely to receive European Commission approval (Thyssenkrupp is a GOES producer).

In September 2018, the two companies announced plans to merge their European operations, forming what would become Europe’s second-largest steelmaking entity.

In October 2018, the European Commission launched an investigation, citing concerns that the merger might lead to higher prices and fewer choices for consumers in the European market.

On Friday, Tata Steel released a statement indicating approval of the JV is unlikely.

“Based on the Statement of Objections published by the Commission, a comprehensive package of remedies was offered covering all the areas of concern highlighted by the Commission,” the firm said. “The remedies offered were developed considering the overall industrial strategy for the proposed joint venture, the integrated and complex nature of the supply chain to service customers and the need to build a sustainable business which would be able to endure the structural challenges faced by the European steel industry. However, the feedback from the Commission based on the market test it has undertaken suggests that it is unlikely to clear the proposal in spite of the significant remedies offered.”

Actual Metal Prices and Trends

Japanese steel plate picked up marginally, hitting $771.83/mt as of May 1. Korean steel plate fell 0.5% month over month to $596.95/mt. Chinese steel plate rose 0.8% to $650.01/mt. After trading flat last month, U.S. steel plate fell 3.5% to $962/st.

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The neodymium price fell 9.7% to $50,086.40/mt. Chinese silicon fell slightly to $1,528.56/mt, while cobalt cathodes fell 0.4% to $98,688.70/mt.

The Raw Steel Monthly Metals Index (MMI) dropped 1.2% this month, down to an index reading of 80.

Weakness in the index once again came from U.S. domestic steel prices.

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U.S. prices showed weakness of late with HRC, CRC, HDG and plate prices dropping slightly again for the second month in a row.

Source: MetalMiner data from MetalMiner IndX(™)

This brings prices back down to around February levels, when these four forms of steel initially turned around from recent price declines (after reaching historical highs in April 2018).

A Comparison of U.S. and China Steel Prices

The spread between U.S. HRC and Chinese HRC narrowed between March and April, dropping to $161/st from $183/st in March.

Based on preliminary May numbers, the gap looks poised to close further, with a preliminary drop to $120/st based on early May prices.

U.S. HRC Prices and the U.S.-China Price Spread

Source: MetalMiner data from MetalMiner IndX(™)

Compared to HRC, the spread between CRC prices remains relatively flat, with a drop of just a few dollars between March and April. However, the gap looks to narrow more significantly based on early May prices, with a gap of $223/st (down from April’s $240/st price difference).

Waning Demand in Steel-Intensive Sectors

Construction and housing showed some weakness recently, according to the most recently available U.S. Census Bureau figures.

Total construction spending for March dropped below February by 0.9%, totaling around $1,228 billion. Additionally, the sector looks flat since last year, with this March’s figure coming in below last March, when expenditures on construction totaled $1,293 billion, marking a 0.8% drop.

Q1 expenditures look essentially flat compared with last year, with a 0.2% increase.

The durable goods sector has showed strength, with new orders up for four of the previous five months through March, according to the U.S. Census Bureau, with orders for transportation equipment growing the most.

Reuters reported lower auto sales for April, with the sales decline attributed to rising prices and fewer incentives offered, especially on lower-end models.

In addition, consumers turned to the used market in larger numbers this year due to higher prices, as costs of new vehicles increased this year.

What This Means for Industrial Buyers

Steel prices showed weakness lately, with the monthly index on a gentle decline during the past two months.

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Actual Raw Steel Prices and Trends

U.S. HRC futures spot and 3-month prices both declined this month, in excess of 5%, both at $654/st.

Korea’s scrap steel price, currently at $150/mt, dropped significantly after a similarly sizable increase last month, with both the increase and subsequent drop in excess of 16%.

Chinese prices showed some strength, although not across the board. Most notably, Chinese HRC prices increased by 5% to around $600/mt, while steel billet increased over 3% to $551/mt.

The Stainless Steel Monthly Metals Index (MMI) declined this month, dropping by two index points to 69. A few of the prices in the basket registered fair declines, with nickel prices showing weakness.

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LME Nickel

The LME primary nickel 3-month price decreased nearly 8% over the course of April. While prices showed strength early in the year into March, prices faltered and began to trade sideways.

Source: MetalMiner analysis of FastMarkets

More recently, however, prices appear on a declining trend, which could indicate a pricing correction, rather than a shift in trend.

Source: MetalMiner analysis of FastMarkets

However, with negative volume still high — as indicated on the weekly chart of LME nickel prices with trading volume shown along the bottom — the correction remains in progress.

China’s Economic Performance Matters for Prices

The present global economic outlook could be characterized as uncertain in the face of ongoing trade talks between the U.S. and China.

After much press early in the year over China’s slower rate of growth, with forecasts shifted downward at the start of the year, the FXI — an index of large-cap Chinese companies — surprised the market with a show of strength.

Source: MetalMiner analysis of Yahoo.com data

Chinese stimulus measures helped bolster the economy’s performance. Recently, however, the boost seemed to lose steam; meanwhile, the FXI uptrend waned.

The U.S. Economy Grew in Q1; Some Sectors Lagged Behind

Economic indicators continue to fluctuate into 2019, for both the U.S. and China.

For example, while Q1 growth appeared stronger than expected in the U.S., construction spending and new home starts showed weakness in March, while new auto sales slowed this year. China’s performance remains mixed, with auto sales also weak there.

Domestic Stainless Steel Market

This month, the 304/304L-Coil and 316/316L-Coil NAS Surcharges dropped to $0.63 and $0.92 per pound, respectively, from $0.64/pound and $0.93/pound at the beginning of April.

What This Means for Industrial Buyers 

Downward-trending prices provide good news for industrial buyers, with stainless steel prices showing weakness this month overall.

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Actual Stainless Steel Prices and Trends

Stainless steel prices showed weakness, with price declines hitting the subindex.

In particular, LME nickel prices fell 7.9% month over month to $12,210 mt. Primary nickel prices in China and India fell by 3.5% and 5.8%, respectively, with Chinese primary nickel averaging $15,412/mt and Indian primary nickel averaging $12.49 per kilogram.

No, we’re not talking about Eddie Murphy and Dan Aykroyd (although we do love that classic film).

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The Global Precious Monthly Metals Index (MMI) has just entered a two-month downtrend, with global trade uncertainties and other economic worries serving as a backdrop. Platinum and palladium are once again taking center stage.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies decreased one point to 94 for the May reading — a 1.1% drop — driven by drops in U.S. gold, silver and platinum prices.

While both platinum and palladium prices dropped last month, in May only palladium began the month lower, while platinum bumped up a bit. This tangible — yet potentially insignificant — short-term reversal of fortune for those two platinum-group metals (PGMs) stands in stark contrast to the previous trend: a huge divide over the past year and a half or so in the platinum-palladium spread, with the latter metal holding a vast premium to the former, which continues today.

Based on MetalMiner IndX data, the U.S. palladium price fell 2.6%, down to $1,365 per ounce, for the month of May. Meanwhile, the U.S. platinum price rose 4.5%, clocking in at $886 per ounce.

Palladium still holds at nearly $100 per ounce higher than the gold price, which stood at $1,283 per ounce in the U.S. at the beginning of the month — down only a few dollars per ounce over the previous month.

Platinum and Palladium (and Gold and Silver) Perspectives

This one-month price trend reversal looks to align with the longer-term forecast as well, according to some analysts.

“Palladium will cost an average $485 an ounce more than platinum this year – a record breaking premium – but the gap will narrow in 2020 as the rally fizzles out and platinum recovers after an eight year downturn,” a Reuters poll showed, according to this article.

“The poll of 27 analysts and traders conducted this month returned a median forecast for palladium to average $1,350 this year – its highest annual average ever – and $1,275 in 2020,” the article stated. “That prediction is higher than a similar poll three months ago which forecast prices of $1,200 this year and $1,150 in 2020.”

Meanwhile, Goldman Sachs stated in a recent analyst report that “we think that lack of substitution by auto companies will lead palladium to continue to outperform platinum,” according to Kitco News.

The investment bank went on record as saying, “Palladium is also set to benefit more than platinum from tighter environmental restrictions in China,” and “as such we reopen our long palladium-versus-short platinum trade recommendation.”

Goldman is also bullish on gold and bearish on silver.

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Their analysts “are trimming their [gold] forecasts to $1,300 an ounce for three months, $1,325 for six months and $1,375 for a year from now.” For silver, they listed “three-, six and 12-month silver forecasts of $14.50, $15 and $15.50 an ounce, down from $15.50, $15.50 and $16 previously,” according to the Kitco News article.