Market Analysis

Buyers sourcing product from Europe know that the manufacturing sector there has faced unprecedented levels of disruption and cost increases.

The fact that European producers are facing major constraints to production, to supply chains and raising costs that are being passed along the supply chain is probably a widespread experience for U.S. consumers.

But hopes that the situation would ease after the initial pandemic bounce-back are looking increasingly forlorn.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

European manufacturing sector struggles

E.U. flag

Andrey Kuzmin/Adobe Stack

According to IHS Markit, the European manufacturing sector reported a 13th successive month of output growth in June. However, the rate of expansion slipped to its lowest since February.

In many cases, notably in Germany, shortages of inputs constrained output. Supplier delivery times continued to lengthen at one of the sharpest rates ever recorded by the eurozone PMI survey.

Not surprisingly, in such a constrained market supply chain delays have pushed up costs. Those have then fed through into another near-record increase in average selling prices for goods and services.

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It is reassuring to see a metal price driven by good old fundamentals.

With so much buzz around supercycles and electrification, the impact of the speculative element in pricing has been much in evidence this year for products like copper and oil.

But according to a recent Reuters post, solid supply and demand fundamentals are driving nickel.

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Supply and demand fundamentals pushing nickel prices

stainless steel background

Oksana Kuzmina/Adobe Stock

A strong rise in the nickel price early this year resulted in the three-month LME quotation hitting a seven-year high of over $20,000 per ton before crashing back to $15,665 during the first half of March. Announcements by Tangshan Stainless in Indonesia that it would switch production of its refined nickel output to an EV cathode battery chemistry undermined the presumption of a looming shortfall in battery quality metal.

The narrative has since moved from nickel being a tight battery grade metal market to simply a tight refined metal market.

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As if aluminum buyers didn’t have enough to contend with, including long mill lead times and rising conversion premiums, they are also dealing with a rising Midwest premium.

Furthermore, Russia’s move to impose a 15% export tax on unwrought aluminum has had a profound impact on the Midwest delivery premium.

Are you ready for your annual aluminum contract negotiations? Be sure to check out our five best practices.

Midwest premium continues to soar

aluminum ingot stacked for export

Olegs/Adobe Stock

A recent Reuters article reports that the CME Midwest premium has jumped to a record high of $660 per ton ($0.30/lb). As a result, product manufacturers and their end users are facing an all-in price for unwrought raw material in excess of $3,000 per metric ton, even before conversion to product premiums are added in.

But the post goes on to explain that Russia’s export tax is not the sole reason for seriously elevated physical delivery premiums.

Over the last few years, the shift in exchange and off-market global inventory has been from North American and European markets toward Asia.

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The past year since the last MetalMiner Forecasting Workshop has been a turbulent one for metals markets.

The onset of the COVID-19 pandemic, plummeting demand, plant idlings, fast-recovering demand in certain sectors, bullwhip effects, material shortages, rising prices, rising delivery premiums — on and on and on. For metals buyers, planning out metals spend — let alone getting any material at all — proved to be a challenging proposition.

But now, well over a year into the pandemic, economic conditions are improving, broadly, in the United States.

It’s time to take a look at the year ahead.

As MetalMiner CEO Lisa Reisman and Don Hauser, vice president, business solutions, noted during a recent ROTH Capital Partners webinar that we remain in a bull market for metals, even as some have recently shown signs of consolidation. Copper, for example, has fallen off after reaching an all-time high in May. Steel prices continue to rise, but at a less frenetic pace than previously.

So, what does it all mean for metals buyers planning out their spend for the year ahead?

MetalMiner 2022 Forecasting Workshop

MetalMiner Forecasting Workshop details

Industrial buying organizations can get a leg up on their budgeting and forecasting for the year ahead during this year’s virtual MetalMiner 2022 Forecasting Workshop, scheduled for 10 a.m.-1 p.m. CST, Aug. 25, 2021.

MetalMiner experts Reisman, Hauser, Editor-at-large Stuart Burns, Senior Forecast Analyst Maria Rosa Gobitz and Principal Data Analyst Marcos Briones Álvarez will lead the three-hour workshop.

Participants will gain insights into, among other things:

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MetalMiner experts recently joined ROTH Capital Partners for a webinar that covered a wide range of metals topics, including oil prices, macroeconomic trends, and insights into the aluminum, steel and copper markets.

bull market

phive2015/Adobe Stock

The webinar, which took place July 14, followed up on a previous MetalMiner-Roth webinar on May 20, 10 days after metals surged to record highs. Copper, for example, reached an all-time on May 10. MetalMiner CEO Lisa Reisman and Vice President of Business Solutions Don Hauser joined to share their insights on various markets, recapping metals movements in the two months since that peak.

If you missed it live, register here to receive a copy of the webinar recording to hear all of Reisman and Hauser’s insights from the hourlong webinar.

On July 28, get a sneak peek of the MetalMiner annual budgeting and forecasting workshop (a three-hour virtual event that will take place in August 2021). Get ready to plan for 2022. 

Bull market

While prices have come off of the record highs seen in May, they remain elevated. In short, we remain in a bull market.

“We are still in a bull market,” Reisman said. “The nonferrous metals are taking a pause but unless we see them start to fall off toward support levels … they’re still in a bull market.”

However, in terms of the “supercycle” narrative — which we have covered in this space previously — MetalMiner remains skeptical.

“The reason we’re struggling with the big supercycle narrative is that we would expect to see a decade, 1o years, of sustained, upward demand,” she said. “We don’t quite see that.”

With that said, metals demand currently is strong across a range of industries.

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Prices for hot rolled coil in Western Europe have started to slow on subdued demand, due to the summer season and competitive import offers, market participants told MetalMiner.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Hot rolled coil prices slow

hot-rolled coil steel

taitai6769/Adobe Stock

The flat rolled product has transacted in the past week at closer to €1,200 ($1,415) per metric ton exw for November delivery. That compares with a price range of €1,150-1,200 in late June, sources said.

Producers sought to push HRC prices up to €1,250 ($1,475), one trading source told MetalMiner. End users, however, did not accept the increase.

Severe flooding late last week in the Netherlands, Belgium and Germany’s North Rhine-Westphalia state, however, have created logistics disruptions in those areas. This prompted ThyssenKrupp Steel to declare on Friday a force majeure on its deliveries, a spokeswoman for the German group told MetalMiner.

“That doesn’t help the supply for sure” as it could tighten the market and mitigate any price declines, the analyst warned.

Higher temperatures in the European summer as well as workers and businesses taking holidays in July and August, resulting in lower activity, are now putting pressure on prices for the flat rolled products.

The import market is also adding pressure to local prices, however, sources noted.

Offers on HRC from mills in Japan, Indonesia and Taiwan are about $1,170-1,200 per ton CFR European ports for September/October delivery.

“I think that it is fair to say that import activity will pick up,” one analyst said.

Lead times on the domestic market are in some cases as far out as Q1 of 2022, he added.

Uncertainty over imports

The analyst warned, however, that it is for now uncertain what kind of impact Russia’s planned introduction of a 15% export tax from Aug. 1 on all steel products – semis and finished – would have on import markets into Europe.

China is also weighing the introduction of an export tax on its steel exports in order to cool its domestic market, one source said, after canceling in May the export rebate on the 13% value-added tax failed to bring the desired effect, sources noted.

Meanwhile, the European Commission, the European Union’s executive arm, opened up an antidumping investigation in June on hot dipped galvanized coil imports from Russia and Turkey. That prompted producers in those two countries to increase offer volumes, the trader said.

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The Renewables Monthly Metals Index (MMI) dropped by 0.8% for this month’s reading.

July 2021 Renewables MMI chart

(Editor’s note: This report also includes the MMI for grain-oriented electrical steel, or GOES.)

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Cobalt price bounces back

Last month, we noted a plunge in the cobalt price through the first two months of the second quarter.

In June, however, the cobalt price bounced back.

According to pricing information on the LME website, the LME cobalt price fell as low as $42,500 per metric ton in June before recovering. The price has settled in around $50,500 per metric ton over the last week.

Among other materials, cobalt goes into electric vehicle batteries, making it an object of increasingly higher demand. As automakers augment their electric vehicle offerings and announce long-term emissions targets, cobalt demand will increase.

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The Global Precious Monthly Metals Index (MMI) fell by 5.2% for this month’s reading, as gold prices dipped throughout June.

July 2021 Global Precious MMI chart

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Gold price slides in June

gold price

Olivier Le Moal/Adobe Stock

The gold price lost steam in June.

The price opened the month at around $1,870 per ounce before closing at just over $1,800 per ounce.

However, the price has showed some signs of recovery in early July. Gold neared $1,830 per ounce as of Wednesday.

Meanwhile, the U.S. dollar gained strength throughout June. (Gold and the dollar are typically inversely correlated.)

The U.S. dollar index opened June at just under 90 before closing the month at 92.44.

Elsewhere, 30-year treasury yields have dipped below 2% for the first time since February.

The 30-year yield opened June at 2.30% before closing the month at 2.06%. The 30-year yield then fell to 1.91% to July 8.

The 10-year yield opened June at 1.62% and closed the month at 1.45%.

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Shanghai steel futures extended gains to hit an eight-week high on Monday, according to a post on Nasdaq.com. Futures made further gains overnight, according to MetalMiner’s Insights platform.

Rebar and hot rolled coil both hit peaks last seen on May 19, when the market last spiked only to crash after dire warnings from Beijing about speculative activity and the threat of action against excessive rises in commodity prices.

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Chinese steel price fall off, then bounce back

China steel plant

gui yong nian/Adobe Stock

Since prices came off they have been making a steady recovery. Beijing’s pressure to curb excess production capacity as part of wider environmental targets raises the prospect of material shortages in the face of still robust demand.

 

Late last week, the People’s Bank of China announced it would cut the bank’s reserve requirement ratio by 50 basis points, effective from July 15. It would release around 1 trillion yuan to underpin an economic recovery that Nasdaq reports is starting to lose momentum.

The move supported further price rises. However, in reality, it would take months for the PBOC’s relaxation of reserve requirements to filter though into any increase in construction activity and, hence, demand.

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The Raw Steels Monthly Metals Index (MMI) rose by 6.6%, as U.S. steel prices continued their rally.

July 2021 Raw Steels MMI chart

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Production, capability utilization rise

According to the World Steel Association, global crude steel production increased by 14.5% year over year for the first five months of 2021. North American steel production rose by 11.3% during that period, with a sharp 47.7% increase in May alone.

For the week of July 3, the American Iron and Steel Institute reported that domestic raw steel production totaled 1,842,000 net tons. The capability utilization rate reached 83.0%. There has been a slow but continuous increase since the week of Jan. 2, when the institute reported steel production was 1,650,000 net tons at a capability utilization rate of 74.6%.

Despite this increase, all forms of steel prices remain at an all-time high.

U.S. imports increase

The latest data from the Steel Import Monitoring and Analysis (SIMA) showed steel import permit applications for June increased by 12.4% compared to the previous month. Imports totaled 2,965,000 net tons.

Import permit tonnage for finished steel in June increased by 6.8% month over month to 1,982,000 net tons.

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