Market Analysis

The Copper Monthly Metals Index (MMI) held at last month’s value of 73 based on November price data. 

LME copper prices took a sideways turn during November as uncertainty over the strength of the global economy continued to constrain copper prices.

Source: MetalMiner analysis of London Metal Exchange (LME) and FastMarkets.

The price continued to trade below $6,000/mt throughout November, averaging a value of $5,877/mt for the month.

SHFE copper prices continued firmly sideways

SHFE copper prices continued to move sideways once again in November, with the trading range continuing to move tightly around the CNY 47,000/mt price level.

Source: MetalMiner analysis of FastMarkets. 

Like LME prices, SHFE prices continued to look slightly stronger by remaining higher than values seen a couple of months ago.

China’s increased smelting capacity pushes 2020 TC/RCs lower

China copper smelting capacity will increase by an estimated 900,000 tons this year,  according to press reports, plus another 350,000 tons during 2020.

As a result, competition for concentrate drove down treatment charges this year. Therefore, official TC/RCs recently set for 2020 contract negotiations remain lower at $62 per ton for smelting and $0.062 cents/pound for refining.

Demand for copper in China could start to pick up in 2020

China’s manufacturing sector could be rebounding, based on positive PMI readings for November, with both the official and private Caixin/Markit readings coming in higher than expected.

The Caixin/Markit manufacturing index edged up to 51.8, from 51.7 last month.

The official PMI manufacturing reading of 50.2 also crossed 50 this month.

This brings both indexes back into expansionary territory.

Rio Tinto extends Kennecott project through 2032 with $1.5 billion investment

Rio Tinto approved a plan to invest $1.5 billion in its Kennecott copper site in the U.S. The investment will allow mining in a new area of the ore body, which will extend Kennecott operations through 2032. As a result, the company expects to mine close to one million tons of copper from 2026 through 2032.

Kennecott operations presently supply close to 20% of annual U.S. copper production, according to the company.

What this means for industrial buyers

Copper prices moved predominantly sideways of late — with prices generally holding value rather than dropping back, even with slowed Q4 demand growth. Industrial buying organizations need to stay alert for further signs of price increases, in case a pickup in manufacturing impacts prices into the new year.

Want an easier solution to tracking industrial metals prices and trade news? Request a demo of the MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term copper price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual copper prices and trends

Copper prices showed mixed movements this month, but the majority of prices in the index increased mildly.

U.S. producer copper grade 110 and grade 122 increased by 1.5%, the largest increase this month, both now at $3.47 per pound. U.S. producer copper grade 102 increased 1.4% to $3.69 per pound.

China’s copper bar prices increased by 1.0% to $6,729/mt. China’s primary cash and copper wire prices both increased, by 0.8% and 0.9% respectively, to $6,736/mt and $6,732/mt, respectively. China’s copper #2 price held nearly flat at $5460/mt.

Japan’s primary cash price fell by 1.0% – following last month’s 4.0% jump – now at $6,090/mt.

The LME primary 3-month price stayed relatively flat with a 0.5% increase, now at $5,877/mt.

Korean copper strip fell by 1.9% to $7.92 per kilogram.

Indian copper cash prices fell by 1.8% to $6.06 per kilogram.

We observed last month that the peak had passed in nickel prices and earlier suggestions from some quarters that nickel may hit $20,000 per ton were highly unlikely.

Any stainless consumers taking that on board and living hand to mouth will have seen surcharges come down and should have been able to trim stocks in line with falling input prices. Anyone who committed to bulk buys in Q3 will now be sitting on high-price stock as the nickel price — and with it stainless surcharges — continues to ease.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

MetalMiner’s Monthly Metal Buying Outlook offers more in-depth advice as to how to react to the nickel price falls and the current market (at least for those who are subscribers).

But the question on many buyers’ minds may be where is it all going from here?

It helps to better understand what has driven the price in recent months.

The LME nickel price has risen 54% since the start of the year, Reuters reported, driven in large part by a perceived supply shock in the form of an accelerated ban on the export of Indonesian nickel ore (a key raw material for Chinese pig iron and stainless-steel makers).

Further support for the nickel price has come in the form of a sustained outflow of refined nickel from LME warehouses, even since September inventory has continued to leave with live warrants down to just 42,000 tons from over 200,000 tons at the start of the year.

The supply-side picture sounds supportive; however, as we wrote last month, the problem is demand.

The market continues to worry about the trade war impacting Chinese manufacturing and, hence, demand, despite the Financial Times reporting this week that Chinese manufacturing expanded at the fastest pace in three years last month. The demand backdrop, though, is one of almost unending doom; reports of high stainless-steel inventory in China are not helping price sentiment.

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The risk remains to the downside, which is not what those holders of high-price stock would want to hear. However, for the time being, the nickel price seems to be following the rest of the metals sector: at best sideways and at worst toward further weakness.

Vertical integration may play well in classic corporate HBR (Harvard Business Review) circles, but steel industry observers may have a hard time envisioning the synergies Cliffs outlined in its merger announcement and presentation Dec. 3, creating a best-in-class, EBITDA-maximizing combined Cliffs-AK Steel entity!

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

To us, the best rationale for the deal appears on slide 14, outlining AK Steel’s short-term debt position:

If you buy the notion that Cliffs can swallow AK and convert that company’s debts to its own and save on interest expense, then score one for the deal!

So why would Cliffs buy AK Steel?

A compelling reason appears on slide 11:

Despite AK Steel’s relatively improved financial performance under the leadership of CEO Roger Newport, if AK Steel represents ~30% of Cliff’s annual iron ore sales, Cliffs faces significant “customer concentration risk.” In other words, the health of AK Steel would significantly — negatively — impact Cliffs.

Forget about “renewal risk” — let’s just call it “customer risk.”

Cliffs would be hosed without a healthy AK Steel!

What about AK’s Ashland Works?

We continue to see different public announcements from AK Steel about the cost of Ashland Works. The Ashland Works facility today operates a hot-dipped galvanizing line (the blast furnace was idled nearly four years ago).

According to comments from AK Steel directly, “…the company announced it would close the ‘largely-idled’ Ashland Works facility by the end of 2019 to ‘increase utilization’ at its other U.S. operations. The plant employs 230 people and the closure would yield approximately $40 million in annual cost savings, according to the company.”

But by keeping it open, as detailed by Cliffs, the Ashland Facility, “Eliminates up to $60m of closure-related costs.” The Ashland facility will instead undergo a conversion, which it says, “Potentially provides a compelling, low-capex, high-return opportunity to be a significant merchant pig iron supplier in the Great Lakes.” (We presume U.S. Steel and ArcelorMittal will avail themselves of this compelling offering.)

So, we’re not sure if keeping Ashland Works open saves money or if closing it does.

We won’t pontificate over the “AK Steel best-in-class position in non-commoditized steel” for a variety of reasons that we have previously covered here in our GOES MMI series. (Or the fact that the rise of electric vehicles will start to make a dent in the need for the kinds of automotive exhaust grades, such as 439 and 441, produced by AK Steel.) We acknowledge AK does have a strong position in ultra-high-strength steels.

So, the real question comes down to the “synergies” outlined by Cliffs.

Does the margin Cliffs generates — approximately $30/$40 per short ton for every pellet produced and sold to AK — translate to an EBITDA jump of that same amount for steel products sold by AK, such that they leapfrog the EAF producers, as Cliffs suggests?

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Well, now isn’t that the $1.1 billion question?

The Aluminum Monthly Metals Index (MMI) held relatively flat this month, with a one-point increase to 83, as the majority of prices in the index showed mild increases.

LME aluminum prices generally moved sideways during November and were unable to generate strong upward price momentum due to slower recent economic growth rates and uncertainty over demand in early 2020.

Source: MetalMiner analysis of London Metal Exchange (LME) and FastMarkets

While prices have not gained as much value recently — even compared to early November highs — prices have not dropped as low either.

During the past month, prices dropped back below the $1,800/mt level after trading above that level during the first week or so of November, but still found support firmly above the $1,700/mt level.

Overall macroeconomic conditions continued to restrain price increases.

SHFE aluminum prices continue sideways

SHFE aluminum prices continued to move firmly sideways during the past month.

Source: MetalMiner analysis of Fastmarkets

Since March, prices traded in a firm band between CNY 13,500/mt and CNY 14,500/mt.

The sideways trend looks set to continue. However, prices recently hit some progressive lows, (although the drops look mild):

Source: MetalMiner analysis of Fastmarkets

Aluminum production in China will most likely continue to grow much faster than demand, according to a webinar by analysts at Shanghai Metals Market (SMM).

In 2020, China’s output of primary aluminum looks set to increase by 2.5% to 36.44 million metric tons (after contracting by 1.51% this year).

This year, capacity totaled around 40.69 million tons, with actual production of around 35.1 million tons on an annualized basis.

Aluminum consumption in China will increase by 0.3% next year to 36.19 million metric tons, after declining by 1.48% this year.

Increased use of aluminum in autos will not be enough to absorb China’s rising production

According to a report prepared for the International Aluminum Institute on long-term automotive use in China earlier this year, aluminum demand for use specifically within the sector in China will increase from an estimated 3.8 million tons in 2018 to 10.7 million tons by 2030, based on a compound annual growth rate of 8.9%.

Let’s put that in perspective.

This past October, Chinese production totaled just around 3.0 million tons.

High production levels likely to constrain price increases into early 2020

Surplus production could continue to weigh on prices next year, resulting in a price drop below $1,700/mt, particularly early in the year.

Once prices drop further, the rate of smelter closures will likely increase, thus relieving downward price pressure.

However, at this time prices continue to trade near break-even levels, likely delaying announcements of production closures into Q1 2020.

What this means for industrial buyers

Aluminum price momentum remained stalled overall this month, with most index prices holding sideways or making only mild gains.

A return of price momentum cannot be ruled out for Q1 2020, especially if both the automotive and manufacturing sectors see a strong global recovery.

Buying organizations interested in tracking industrial metals prices with ease, including embedded forecasting, will want to request a demo of the MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term aluminum price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual metal prices and trends

This month, China aluminum scrap prices increased once again, rising by 2.4% to $1,849/mt. Chinese aluminum primary cash prices also increased again, by 1% to $1,994/mt. Chinese aluminum billet and bar prices saw increases of around 0.4%, to $2,049/mt and $2,144/mt, respectively.

Korean prices dropped back this month by around 3%. Korean commercial 1050 sheet came in at $2.95/kilogram. The 5052 coil premium over 1050 was $3.12/kilogram and the 3003 coil premium over 1050 was $2.92/kilogram.

The LME primary three-month price increased by 0.8% to $1,761/mt.

European commercial 1050 sheet and 5083 plate both increased mildly again this month, by 0.3% and 0.9%, respectively, to $2,482/mt and $2,862/mt.

India’s primary cash price increased by 0.5% to $1.87 per kilogram. 

Conventional wisdom has suggested we are headed for a significant oil surplus next year, with some commentators talking about a glut.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Even respected industry publications like OilPrice.com headlined “IEA Warns Of A Looming Oil Glut Ahead Of OPEC Meeting” this past week, as global oil demand growth has slowed due to weakening economic growth and the continued trade dispute between the United States and China.

The suggestion is OPEC and its partners, principally Russia, are going to have to do more than just rein in a few transgressors of previous quotas like Nigeria and Iraq if they are to keep supply roughly balanced and avoid significant price falls, CNBC reported.

The International Energy Agency’s (IEA) position is premised on projections that non-OPEC supply will rise faster than recovering demand. The IEA sees non-OPEC countries adding another 2.3 million barrels per day (bpd) to their supply in 2020, while global oil demand growth is expected to be around 1.2 million bpd.

Of that amount, the U.S. is predicted by the IEA to add 1.2 million b/d to current levels in 2020.

But is that realistic?

Rig count is a fair measure of likely production growth, although not all wells need to be instantly brought onstream once they have been completed. Cost constraints, however, mean fracking firms rarely plug and store vast numbers of drilled wells.

There is a correlation between rig numbers as a measure of drilling activity and future production – particularly as shale oil wells have a limited life.

Those rig numbers have been falling — see the below graph from Oilprice.com — as we reported earlier this month:

Source: Oilprice.com

That comes partly as the investment market has been turning its back on the fracking industry. In general, the industry is struggling to access credit as easily as it did last year.

In 2018, the shale industry added about 2 million bpd. This year, it has added just a few hundred thousand in the first eight months of this year.

Finance is not expected to improve. Shale is not the hot topic it was – not least because of dire warnings of an oil glut (as demonstrated by the chart above).

In that respect, the U.S. shale industry is remarkably self-regulating. Activity and output, plus demand and supply, move in yearly cycles, rather than the decades of deep ocean or tar sands.

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Front-priced premiums have already begun to increase, suggesting a tightening market.

However, that doesn’t mean we are facing oil price rises. It may mean the price falls some in the industry fear may not be as likely or as deep as the IEA report suggests.

misunseo/Adobe Stock

Gold prices surged this year due to greater uncertainty in the global macroeconomic environment.

By August, the price briefly regained the $1,500/ounce price point and stood at $1,460/ounce in late November.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Over the longer term, gold prices and the dollar tend to move in an inverse relationship, as demonstrated by this chart, which shows prices from July 2012 through early November 2019:

Source: MetalMiner data from MetalMiner IndX(™)

However, the relationship does not always hold true.

More recently, we’ve once again seen a break in the relationship, which started late last year (the vertical blue dotted line above) and picked up steam around June.

Source: MetalMiner data from MetalMiner IndX(™)

Both gold and the dollar trended up in value overall, especially from July until September. However, gold prices gained greater momentum and increased by a greater measure than the dollar. Then, both values fell in September and October.

The relationship appeared to switch back to an inverse pattern in November.

Gold prices and the dollar-yuan exchange rate

Source: MetalMiner data from MetalMiner IndX(™)

Because the value of the yuan is set by the central government, the graph above using the CNY/$ exchange rate serves as a proxy to examine the relationship between the currency and gold prices.

Keeping in mind that a higher value on the right axis means a weaker yuan, we should expect to see these two prices moving together.

As the yuan weakens against the dollar, gold prices weaken. As the yuan rises in value, gold prices rise in value.

In real life, the relationship gets impacted by multiple variables. The yuan and the dollar do not have to move in an inverse pattern; the yuan is not a commodity but a currency (the same is true for gold).

However, in recent months, the gold price appeared to more tightly follow the CNY/$ exchange rate in a predictive fashion, rather than holding to its longer-term inverse dollar relationship.

This type of pattern emerged during 2016, as well.

Will quantitative easing by the Fed send gold prices up in Q4?

Monetary policy is known to impact commodity prices.

Quantitative easing is a form of monetary policy; therefore, we can expect any such actions in this direction to impact gold prices.

Quantitative easing can be used when interest rates are already quite low. In effect, it increases liquidity in the system, thus spurring growth.

U.S. Federal Reserve balance sheet since 2008

Source: Board of Governors of the Federal Reserve System

Quantitative easing occurs when the government purchases certain financial assets, which in turn raises the value of the assets but lowers their yield.

Basically, easing targets asset classes that are performing poorly, thus correcting losses for financial institutions. This, in turn, allows financial institutions to lower borrowing rates, creating more liquidity in the system.

The ease of access to funds by businesses and individuals then stimulates economic growth.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

What this means for industrial buying organizations

With the overall macroeconomic environment characterized as unstable, gold prices may generally continue to trend higher in the short term, as gold gets used as a hedge.

However, over a longer period, current monetary policies could weaken prices once more — assuming they take effect as intended.

Global aluminum production in October totaled 5.39 million tons, according to a recent report by the International Aluminum Institute.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Global production through the first 10 months of the year reached 53.04 million tons, down 0.9% from the 53.51 million tons produced during the first 10 months of 2018.

Of that total, China produced 3.01 million tons, which marked a decline from the 3.13 million tons produced in October 2018. However, China’s October production jumped compared with September’s 2.92 million tons.

Elsewhere, production in the Gulf Cooperation Council (GCC) countries totaled 494,000 tons in October, up from the 478,000 tons in September and the 450,000 tons produced in October 2018.

North American production totaled 316,000 tons, up 1.9% from the 310,000 produced in September but down from 323,000 tons in October 2018.

Western European production totaled 286,000 tons in October, up from 276,000 tons the previous month and down from 321,000 tons in October 2018.

Production in east and central Europe totaled 356,000 tons in October, up form 344,000 tons in September and 343,000 tons in October 2018.

MetalMiner’s Stuart Burns weighed in on aluminum demand and prices last month.

“China’s gross domestic product growth slowed again to 6.0% year over year in the third quarter, its weakest pace in almost three decades, Aluminium Insider reports,” Burns wrote. “Citing a Reuters poll, the report notes industrial activity is expected to have shrunk for the sixth month in October, quoting a Reuters poll, suggesting hardly any relief from slowing global demand and the trade war.

“The latest economic data from the E.U. and the U.S. also indicate slowing growth, with Germany flirting with a recession in the manufacturing sector. Although the aluminum market was estimated to be in deficit last year and this, a Reuters poll suggests it is likely to flip into a surplus of 304,000 metric tons next year — almost a 1 million ton turnaround from the 658,500-ton estimate for this year.”

Despite slowing growth and lagging demand around the world, aluminum prices had previously shown signs of upward momentum, surging past the $1,800/mt threshold in the first half of November.

However, since hitting $1,820/mt as of Nov. 8, the LME three-month aluminum price has lost some steam. The LME three-month aluminum price dropped to $1,738/mt in the run-up to Thanksgiving, according to MetalMiner IndX data.

Alumina production

Meanwhile, the International Aluminum Institute also released alumina production figures Nov. 26.

China’s estimated production of alumina — a key aluminum making material — totaled 6.08 million tons in October, up from 5.88 million tons in September but down from the 6.16 million tons produced in October 2018.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Global alumina production totaled 110.3 million tons through the first 10 months of 2019, up 1.9% from 108.2 million tons produced during the equivalent period in 2018.

You could be excused in the U.S. for overlooking the fact that the U.K. is going through a snap election campaign.

Any such coverage of the U.K.’s upcoming election is being drowned out by the U.S. media’s hourly reporting of the varying prospects for the numerous Democratic contenders and the daily tussles between lawmakers and the current incumbent in the White House – all this before the 2020 presidential election year has even started.

British general elections rarely raise much interest outside the country, although Britain’s “first past the post” election system means the country has only experienced one peacetime coalition (2010–2015) since the Lloyd George ministry ended in 1922.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Yet even with the potential such a system holds for more extremist parties to take power, the Brits have rarely voted in parties radical enough to cause ripples outside their own borders.

Dec. 12, however, may be a different matter.

Read more

According to the most recent report from the International Copper Study Group (ICSG), the global copper market through the first eight months of the year posted a deficit of 330,000 tons.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Copper mine production slips

Global copper mine production dropped 0.5% on a year-over-year basis, according to the ICSG. Concentrate production was about flat, while solvent extraction-electrowinning (SX-EW) fell 1.5%.

Production in top copper producer Chile remained down, off 0.5% on a year-over-year basis due to lower copper head grades and supply disruptions.

Indonesian copper mine output dropped by 51% due to “the transition of the country’s major two mines to different ore zones leading to temporarily reduced output levels.”

In the Democratic Republic of the Congo (DRC) and Zambia, aggregate growth reached 13% in 2018 but was down 2% through the first eight months of this year due to “temporary suspensions at SX-EW mines, reductions in planned production and few operational constraints.”

On the other hand, output increased in Australia, China, Mexico, Peru and the U.S.

Elsewhere, Panama joined the ranks of copper-mining countries.

“Panama started mining copper earlier this year, with the commissioning of the Cobre de Panama mine, and is the biggest contributor to world mine production growth in the first eight months of 2019,” the ICSG said.

Refined metal production flat

On the refined metal side, output was about flat on a year-over-year basis, with primary production down 0.3% and secondary production from scrap increasing 1.8%.

Chilean output fell 32%, while Zambian output dropped 33%. Indian production was down 25%, as it continues to be impacted by the 2018 closure of Vedanta’s Tuticorin smelter (following protests by area residents).

The U.S., Japan and Peru also saw reduced refined copper output during the period.

Apparent refined usage up 0.5%

In addition, apparent refined copper usage increased by 0.5%, according to preliminary data.

China’s imports of refined copper fell 13%, but its apparent usage grew 2.4% due to higher refinery output, the ICSG said.

Global usage, ex-China, declined by 1.5%.

Copper prices dip slightly in October

On the price front, the average LME cash price in October checked in at $5,742.89 per ton, down 0.04% from September’s average of $5,745.48 per ton.

Meanwhile, the average price for the year through October, $6,007.69 per ton, marked a 7.9% decline compared with the 2018 annual average.

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As of the end of October, copper stocks at major exchanges — 431,192 tons — had increased 23% from stock levels in December 2018.

You could be excused for thinking gold has been eclipsed this year — bought in record amounts by central banks in the first half of this year — as the price rose strongly through the late summer but has since drifted off.

A recent report suggests, at least for some investors, gold has been sidelined in favor of a metal with stronger industrial applications, in addition to demand for jewelry and as an investment product.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

In the World Platinum Investment Council’s (WPIC) latest Platinum Quarterly report, the WPIC states that from a surplus of 345,000 ounces for 2019, investment demand in particular has been so strong that platinum is estimated to come out with a deficit of 30,000 ounces for the full year.

A 12% increase in total demand has been driven by a substantial surge in ETF buying, such that overall consumption is still up despite a 5% fall in automotive demand, a 6% fall in jewelry and a 1% fall in industrial demand.

ETF buying was particularly strong in the first half of 2019, the WIPC reports, but has carried on into the second half with the increase in holdings of nearly 1 million ounces. Much of the buying has been by large institutional investors looking to diversify from negative yielding debt equity increasing their holdings of gold and platinum. Such buyers typically work on a two- to three-year timeframe and, as such, are judging platinum has medium-term strength (despite weaker automotive demand).

Automakers have seen a collapse in diesel car sales, particularly in Europe (diesel cars’ top market). As a result, platinum has and will continue to suffer.

Palladium, on the other hand, is more efficient for petrol engine catalytic converters and has, as a result, done relatively well out of the swing in engine type demand. But at some price point, generally taken when palladium is double that of platinum, the latter can be used in place of palladium – its relative lack of efficiency meaning you have to use more platinum to achieve the same level of gas detoxification as you do with palladium.

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Platinum demand has been strong but prices have not fared as well as the other PGMs, such as palladium and rhodium, which have relatively done much better.

Even the upbeat WPIC recognizes the platinum market will be in surplus next year and above-ground inventory is expected to rise as a result of lower investment demand.

In the near term, that may mean there is a cap to prices at least in 2020, but clearly investors are betting on an upturn in the first few years of the next decade.