Market Analysis

The Copper Monthly Metals Index (MMI) held flat for this month’s reading.

December 2021 Copper MMI chart

After the mid-October spike, copper prices have begun to consolidate.

Any bullish technical patterns are at risk of invalidation, as prices appear to trade consistently lower. Additionally, its failure to break out of any bullish structures within smaller time frames suggests a weakness in buyer momentum.

Until the occurrence of a strong rally to continue the long-term uptrend, copper will likely become bearish, as it cannot sustain its breakthroughs of historical resistance levels.

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Fed may accelerate tapering

As inflationary pressures mount, the Federal Reserve may double the pace of its tapering of quantitative easing measures that were put in place at the onset of the pandemic. The Fed had started to reduce bond purchases from $120 billion per month in November on track to be completed by mid-2022.

Recent testimony from Fed Chair Jerome Powell indicated support for increasing tapering efforts, with expectations it may reach $30 billion per month following the upcoming Dec. 14-15 Federal Reserve board meetings.

The Consumer Price Index reached a 30-year high in October, expanding to 6.2%. In a recent blog post, the IMF encouraged such policy revisions, stating, “We see grounds for monetary policy in the United States—with gross domestic product close to pre-pandemic trends, tight labor markets, and now broad-based inflationary pressures—to place greater weight on inflation risks as compared to some other advanced economies including the euro area. It would be appropriate for the Federal Reserve to accelerate the taper of the asset purchases and bring forward the path for policy rate increase.”

Historically, copper prices have a positive correlation with inflation. Efforts to rein in inflation will likely add to bullish sentiment.

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The Aluminum Monthly Metals Index (MMI) fell for the second consecutive month, this month dropping by 3.9% as aluminum prices trended sideways.

December 2021 Aluminum MMI chart

After a sharp 7.6% drop in the early days of November, aluminum prices appeared to have found a bottom. Prices then traded sideways at summer support levels.

Currently, aluminum is in a period of volatility. Aluminum is showing patterns that suggest it may either bounce off support levels to breach newly formed resistance levels, thereby confirming a reversal, or continue with further breakdowns in price to find new, lower support levels and create a change in the long-term trend.

Does your company have an aluminum buying strategy based on current aluminum price trends?

Aluminum production to increase

An estimated 120,000 metric tons of aluminum extrusion ingot is expected annually following the completion of an aluminum recycling plant from Hydro Aluminum Metal of Norsk Hydro ASA. Construction will begin during the first half of 2022. The move is part of the company’s larger goal to double its postconsumer aluminum by 2025.

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The Construction Monthly Metals Index (MMI) fell by 6.1% for this month’s reading, as U.S. construction spending rose by 7.5% year over year in the first 10 months of the year.

December 2021 Construction MMI chart

MetalMiner is hosting its final webinar of the calendar year tomorrow — Wednesday, Dec. 8 — during which the MetalMiner team will overview price predictions for 2022. To attend, visit the MetalMiner Events page

US construction spending up in October

housing starts

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U.S. construction spending came in at a seasonally adjusted annual rate of $1,598 billion in October, up 0.2% from September, according to the Census Bureau.

Furthermore, the October spending rate increased by 8.9% compared with October 2020 spending.

Through the first 10 months of the year, U.S. construction spending totaled $1,323.1 billion, or up 7.5% year over year.

Private construction spending in October reached a seasonally adjusted annual rate of $1,245.0 billion, or down 0.2% from September. Within private construction, residential construction reached a rate of $774.7 billion in October, down 0.5% from September. Nonresidential construction rose 0.2% to $470.3 billion.

Meanwhile, public construction spending rose 1.8% to a rate of $353.0 billion. Educational construction spending rose 0.2% to $82.2 billion. Highway construction spending rose 2.4% to $102.5 billion.

Nucor to build third rebar micro mill

As we reported yesterday, Nucor Corporation on Monday announced plans to build its third rebar micro mill.

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The Automotive Monthly Metals Index (MMI) dropped by 0.7% for this month’s reading.

December 2021 Automotive MMI chart

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US auto sales

Ford Motor Co. reported November U.S. sales increased by 5.9% year over year to 158,793 vehicles. Total truck sales increased by 4.6%. Meanwhile, SUV sales increased by 20.8% and electrified vehicle sales increased by 153.6%.

“Ford’s electrified vehicle sales in November grew at a rate more than three times faster than the overall electrified vehicle segment, taking Ford’s electrified vehicle share to 10 percent compared to 5.4 percent last year,” the automaker said in its November report. “This set up a record November on sales of 11,116 electrified vehicles – up 153.6 percent. New products are providing the boost, with Mustang Mach-E and F-150 Hybrid sales of 3,088 and 4,767, respectively.”

Meanwhile, Honda reported U.S. sales fell 17.1% month over month. Acura brand sales fell 21.2%, while Honda brand sales dropped 16.6%.

Hyundai reported November sales in the U.S. of 44,345 units, down 20% year over year.

“Consumer demand remains exceptionally high, and our dealers are doing a fantastic job of turning vehicles quickly and selling many before they even hit the lot,” said Randy Parker, senior vice president, national sales, Hyundai Motor America. “Lingering availability issues persisted into November, but we are optimistic that we will close the year strong.”

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Recently, MetalMiner’s Stuart Burns delved into the aluminum market deficit, one in which limited aluminum supply and elevated delivery premiums have been persistent features.

However, perhaps to some aluminum buyers’ relief, some supply is coming back online next year.

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Alcoa to restart idled smelter

Alcoa logo

Casimiro/Adobe Stock

Alcoa Corporation earlier this month announced plans to restart an aluminum smelter that had sat idle since 2009.

The firm said it will restart the joint venture Portland Aluminium smelter in Australia, which has a total annual capacity of 358,000 metric tons per year.

However, Alcoa said it plans to restart 35,000 metric tons of capacity.

“Portland Aluminium is an unincorporated joint venture with 358,000 mtpy of total capacity, and Alcoa Corporation has 197,000 mtpy of consolidated capacity,” Alcoa said. “Once the restart is complete, Portland Aluminium will operate at approximately 95 percent of total capacity and Alcoa Corporation will have approximately 186,000 mtpy of its consolidated capacity at Portland operating.”

Renewed production at the Australian smelter is slated to begin in Q3 2022.

In September, Alcoa announced plans to restart its Alumar aluminum smelter in Brazil. The smelter, which has annual capacity of 268,000 metric tons per year, has been idle since 2015.

Midwest premium eases

As Stuart Burns has explained throughout the year, rising aluminum premiums reflect market tightness.

“The aluminum market is undeniably tight, as consumers are having to wait months for metal and the Midwest Premium rises,” Burns wrote back in March. “In some locations — Europe, in particular —  consumers of rolled plate cannot secure new production space until well into Q3.

“Some mills have even pulled out of quoting for new business customers in 2021. Anti-dumping legislation on flat rolled products from China and a fire last year at a Russian rolling mill have combined dramatically restrict supply options for consumers.”

Fast forward to Q4, and inventories in LME depots have continued to dwindle, Burns explained while also covering the background of the post-financial crisis aluminum market and the history of the so-called “stock and finance” trade and the shadowy world of off-warrant stocks.

However, the Midwest aluminum premium has lost some steam over the last couple of months. according to MetalMiner Insights data.

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Lower auto sales in Europe have put West European hot rolled coil prices under pressure. However, demand from construction is nonetheless helping to support prices for the flat-rolled product.

“People want to invest their money into something,” one trader source told MetalMiner.

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Hot rolled coil prices slide

hot rolled coil steel

taitai6769/Adobe Stock

ArcelorMittal had originally sought €1,080 ($1,210) in November. While that price remains the Luxembourg group’s official one, transactions have taken place at lower levels.

Large-volume transactions have occurred in November at €980-1,000 ($1,095-1,120) per metric ton exw for delivery in January, the trader said.

Transactions for smaller volumes €1,050 ($1,175), the trader added.

Imports from Russia and Turkey have transacted at an average of about €865 ($970) per ton cfr Europe, the trader noted.

Auto registrations slow

New automobile registrations in the European Union totaled 665,000 units for October. That marked a drop of more than 30% year over year from 950,000 units, the European Automobile Manufacturers Association (ACEA) said Nov. 18.

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Well, so far, the simple answer to the question posed in the headline is “no.”

On Tuesday, the White House announced the Department of Energy will “make available releases of 50 million barrels of oil from the Strategic Petroleum Reserve to lower prices for Americans and address the mismatch between demand exiting the pandemic and supply.”

Brent crude oil price chart

SodelVladyslav/Adobe Stock

Talk of a strategic reserve release did have a calming effect on markets in previous weeks. However, when it came to it 50 million, was too little and over too long a time frame to have any impact.

Prices actually rose, with the international benchmark Brent settling up 3.3% at $82.31 a barrel on Tuesday, the Financial Times reported.

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Oil reserve delay

In part, the aforementioned result is due to not just the limited size of the release — made in concert with the U.K., India, South Korea and China — but the delay.

About 32 million barrels will be delivered between mid-December and the end of April 2022 in a swap with oil companies, which then must return an equivalent volume by 2024. The other 18 million barrels accelerate sales that Congress had already authorized, and so have no net impact.

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Yesterday, MetalMiner’s Stuart Burns touched on the aluminum market and plummeting inventories, a trend in stark contrast to former times of plenty.

Meanwhile, in the steel market, global crude steel production totaled 145.7 million metric tons in October, the World Steel Association reported.

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Steel production slides

steel production

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The October steel total marked a decline of 10.6% on a year-over-year basis. Meanwhile, output increased by 0.4% compared with the previous month.

In China, the world’s top steel producer, output peaked this year at 99.5 million tons in May. Since then, China’s output has declined each month, according to the World Steel Association.

The country’s October steel production totaled 71.6 million tons, down from 73.8 million tons in September.

The pace of GDP growth in China slowed to 4.9% in Q3, according to National Bureau of Statistics data. GDP had increased by 7.9% year over year in Q2 2021.

For the year to date, China’s output of 877.1 million tons marks a year-over-year decline of 0.7%.

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Longtime readers of MetalMiner may recall a number of aluminum posts we have put out over the years since the financial crisis that explore shadow stocks or the “stock and finance trade” inventory that have referred to the murky world of “off-warrant,” or non-exchange, reserves of aluminum. Those reserves are often hard to determine in terms of location, volume or ownership.

They have remained an enduring feature of the global aluminum market. The market’s perception of their size and the possibility of their delivery back into circulation have been persistent influences on the market price.

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

Aluminum after the financial crisis

aluminum ingot

WestPic/Adobe Stock

The stock grew in the immediate aftermath of the 2008 financial crisis, as the world went into a form of financial lockdown. All manner of downstream activities from automotive to household goods stopped consuming aluminum.

Recovery took many months, indeed stretched in 2010 before Chinese stimulus measures rippled out into the world, stimulating demand and facilitating a return to strong growth.

But primary aluminum mills — partially protected by power and alumina supply contracts linked to the ingot price and mindful of the huge cost to capital of shutting down major smelters — kept churning out the metal.

Stock and finance

Seeing an opportunity, traders and banks piled into the market.

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This morning in metals news: Nucor Corporation announced it is adding a blast and plate line at its under-construction Kentucky plate mill; aluminum prices have stabilized somewhat after plunging in late October and early November; and, lastly, job openings rates decreased in 12 states in November.

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Nucor adds line at Kentucky plate mill

Nucor logo

Postmodern Studio/Adobe Stock

Nucor announced late last week that it is adding a blast and prime line at its plate mill in Brandenburg, Kentucky. The mill is currently under construction.

The line will have an annual capacity of approximately 120,000 tons.

“By adding a blast and prime line to our state-of-the-art plate mill, we will be able to better serve customers in key markets, including our Nation’s military, infrastructure, heavy equipment, offshore wind and other energy products,” said Johnny Jacobs, vice president and general manager of Nucor Steel Brandenburg.

Nucor is investing $1.7 billion in the Brandenburg mill.

Aluminum prices stabilize

Aluminum prices plunged in late October and early November, falling from a peak of around $3,200 per metric ton to as low as $2,500 per metric ton, according to MetalMiner Insights data.

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