Market Analysis

The Aluminum Monthly Metals Index (MMI) dropped again this month, falling by one point to 83.

All but one of the prices tracked for the index dropped this month, with India’s primary cash price showing the biggest drop at 4.4%, followed by the LME primary 3-month price (down by 3.4%).

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LME aluminum prices weakened into early August and moved sideways until early September, when prices moved toward the $1,800/mt range.

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

SHFE Aluminum Prices Gained Recently, But Momentum Looks Weak

Source: MetalMiner analysis of Fastmarkets

SHFE aluminum prices increased recently, but upward momentum still looks weak, comparatively speaking.

Overall, the price is still moving in a sideways band below the CNY 14,500/mt level where it has traded during the past year or so; however, it looks set to break through this resistance price soon.

As reported by MetalMiner’s Stuart Burns, China’s top state primary aluminum producer, Chalco, reported an 8% drop in output for the first half of the year, compared with the same period of 2018. Primary aluminum production totaled 1.89 million tons, compared to 2.06 million tons during the first six months of 2018.

Additionally, outages brought output down temporarily, including flooding at Hongqiao. As a result of the outages, exports dropped to the lowest level since February. According to Reuters, exports dropped to 466,000 tons in August, down around 10% when compared with August 2018.

Global Demand Weakness Continues

While demand in the United States remained relatively stable, demand in other regions looks weaker.

Norsk Hydro recently announced plans to close some aluminum foil production in Germany as part of restructuring efforts aimed at increasing the profitability of its rolled products business.

Novelis’ Acquisition of Aleris Under Scrutiny

The U.S. Justice Department filed a lawsuit objecting to Novelis Inc.’s purchase of Aleris Corporation on Sept. 4 due to concerns over higher future prices for automotive aluminum sheet.

According to an issued statement, competition would be hindered, with Novelis controlling 60% of projected domestic capacity.

U.S. Aluminum Premiums

The U.S. Midwest Premium remains at around $0.18/pound.

What This Means for Industrial Buyers

The sideways to bearish market for aluminum led to the index decline. Buying organizations will need to pay careful attention to short-, medium- and long-term buying signals.

Buying organizations interested in tracking industrial metals prices with ease should request a demo of the MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends should read MetalMiner’s Annual Metal Buying Outlook.

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Actual Metal Prices and Trends

European commercial 1050 sheet increased by 1.3% to $2393/mt. European 5083 plate dropped by 2.1% to $2,729/mt.

India’s primary cash price dropped by 4.4% to $1.94/kilogram.

The LME primary 3-month price dropped by 3.4% to $1,746/mt.

Korean commercial 1050 sheet, 5052 coil premium over 1050, and 3003 coil premium over 1050 all decreased by less than 1%, to $2.96, $3.12 and $3.00 per kilogram, respectively.

Chinese prices all declined by under 1%. Aluminum billet priced at $2,061/mt, while bar priced at $2,729/mt. China’s aluminum scrap price dropped the most, by 0.9%, to $1,813/mt. The primary cash price stayed essentially flat at $2,015/mt.

The Raw Steels Monthly Metals Index (MMI) dropped more significantly compared to last month’s one-point decline, this month falling by four points to 70. Global prices looked weak overall; however, U.S. futures spot prices increased, along with U.S. shredded scrap prices.

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U.S. steel price increases lost momentum in August, as prices for HRC, CRC, HDG and plate all moved more or less sideways.

Source: MetalMiner data from MetalMiner IndX(™)

U.S. capacity utilization fell below 80% recently. Capacity utilization dropped to 78.8% during the week ending Sept. 7, with 1.835 million net tons produced, compared with 1.866 million net tons the week prior. This represented a 1.7% decline compared with the same period last year, according to the American Iron and Steel Institute (AISI).

U.S. shredded scrap prices increased by 14.4% to $294/st, reflecting the shift of production methods toward electric arc furnace (EAF).

Chinese HRC, CRC Prices Move Sideways Once Again

Chinese HRC and CRC prices continued to move sideways overall in August. CRC prices once again increased, while HRC prices moved lower, although neither moved with much power. The spread between HRC and CRC prices increased once again this month after hitting a two-year low a couple of months ago.

Global Production Increases Mildly; Production Drop in China

According to the most recent data available from the World Steel Association (WSA), global production of steel totaled 156.7 million tons in July, up by 1.7% compared to last year. U.S. production totaled 7.5 million tons during July 2019, up by 1.8% compared to July 2018.

China produced 85.2 million tons of steel in July, up by 5% compared to July 2018. However, production dropped compared with June, marking the second straight month of falling production. China’s output in May — the peak for 2019 thus far — totaled 89.1 million tons.

What This Means for Industrial Buyers

While a few prices in the index increased this month, the majority of prices dropped, pulling the index down. However, key steel prices moved sideways.

Industrial buying organizations will still want to watch the market in September for typical seasonal price increases.

Buying organizations interested in tracking industrial metals prices with ease will want to request a demo of the all new MetalMiner Insights platform.

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

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Actual Raw Steel Prices and Trends

Overall, global steel prices weakened during the month of August. However, the U.S. Midwest spot price increased by 8% to $586/st. U.S. shredded scrap prices increased by 14.4% to $294/st.

Chinese prices in the index fell across the board this month. Coking coal prices fell the most — by 14% — to $238/st. Chinese iron ore prices dropped by 4%.

Chinese steel billet decreased by 9.5% to $434/st. Chinese steel slab prices dropped by 8.7% to $462/st, while Chinese HRC prices dropped by 8% to $463/st.

Korean scrap prices increased this month, somewhat reversing last month’s 8.3% decrease, up by 3.9% to $127/st. Korean pig iron fell again this month, dropping by 2.2% to $325/st.

LME billet three-month prices dropped by 9.8% $241/st.

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GDP figures may be holding up well, but metal consumption in China suggests the global slowdown and the ongoing trade war with the U.S. are taking their toll on China’s manufacturing sector.

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Reuters reported top state primary aluminum producer Chalco is quoted as filing an 8% fall in output, with primary aluminum output of 1.89 million tonnes in the first half of the year, down from 2.06 million tons compared with the first half of 2018.

Overall, revenue actually rose 15% to 94.9 billion yuan, despite a 10% drop in the primary aluminum segment, helped by rising alumina output. Alumina output increased 3.2% year-on-year to 6.82 million tons, fueling a trading revenue increase of 23%.

But higher primary metal costs and weak prices in the primary sector hit profits. In the second quarter alone, Chalco’s net profit dropped 52.7% from a year earlier, while revenue was up 11.3% year on year.

In a separate Reuters article, the news source reported exports have also been hit, falling 4.3% in August from the previous month despite a weaker yuan. Unexpected production outages at two key smelters meant there was less metal available for overseas shipments following flooding at Hongqiao’s premises earlier last month and a separate outage in Xinjiang.

Last month, China exported 466,000 tons of unwrought aluminum, including primary metal, alloy and semi-finished products. The total was the lowest since February and was also down 9.9% from August 2018.

Supporting the aluminum picture, imports of unwrought copper — including anode, refined and semi-finished copper — products into China stood at 404,000 tons last month, Reuters reported, down 3.8% from the 420,000 tonnes in July and also down 3.8% year on year. The article went on to state the decline came despite copper prices in China being mostly high enough in August for traders to make a profit by buying on the London Metal Exchange, the global price benchmark, and selling on China’s Shanghai Futures Exchange (encouraging bookings of physical copper imports into China).

The blame for the drop in demand is laid at China’s bruising trade war with the United States, driving a fourth straight month of contraction in factory output in August, according to an official survey.

China is not alone, of course.

U.S. manufacturing output has remained positive, albeit slower than a year earlier. However, early indicators, like the Institute for Supply Management survey, showed a contraction in August — the first since 2016, according to Bloomberg. That suggests at least parts of the manufacturing landscape are facing rising headwinds; we would be complacent to think the consequences of the trade war are falling solely on China.

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Western Europe is also slowing fast. German manufacturing is arguably already flirting with recession as a consequence of a slowing Chinese economy.

Just as a rising tide lifts all boats, falling global GDP correspondingly depresses prospects for all.

The Renewables Monthly Metals Index (MMI) dropped two points for a September MMI value of 99.

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First Cobalt Eyes Restart of Canadian Refinery

First Cobalt Corp., a Toronto-based firm, is looking into restarting its idled cobalt refinery in Canada, Reuters reported.

First Cobalt CEO Trent Mell said the company will begin assessing the condition of the plant next week.

Last month, the Canadian firm reached an agreement with Glencore by which the latter would fund a feasibility study for the idled refinery.

“First Cobalt Corp. is pleased to announce that it has entered into a US$5 million loan facility with Glencore AG to complete advanced engineering, metallurgical testing, field work and permitting associated with a recommissioning and expansion of the First Cobalt Refinery in Canada,” First Cobalt said in a prepared statement Aug. 26. “Upon completion of a positive definitive feasibility study for a 55 tonnes per day (“tpd”) refinery expansion in Q1 2020 and subject to certain other terms and conditions and satisfaction of conditions precedent, Glencore is prepared to advance an additional US$40 million to recommission and expand the Refinery.”

As Reuters noted, once operational the refinery would become North America’s lone producer of refined cobalt for the electric vehicle sector.

Cobalt Prices Surge

Speaking of Glencore, its announcement of a planned shutdown of its Mutanda mine this year has seen cobalt prices reach six-month highs, Reuters reported.

Earlier this year, Glencore said it would halt production at the Mutanda cobalt and copper mine in the Democratic Republic of the Congo (where a majority of the world’s cobalt is mined); the site is the world’s largest cobalt mine.

LME cobalt, after reaching $95,000 per ton in March 2018, lost nearly 75% of its value over the next 16 months, falling to $25,000 as of late July. Recently, the price has picked up, rising to $34,750 per ton as of Sept. 6.

GOES Price Surges 7.4%

The MMI for grain-oriented electrical steel (GOES) jumped 14 points for a September reading of 199.

The U.S. GOES coil price rose 7.4% month over month to $2,745/mt as of Sept. 1.

German steelmaker Thyssenkrupp — a prominent producer of electrical steel — is facing a period of significant uncertainty, MetalMiner’s Stuart Burns recently explained.

Faced with financial challenges, the company is mulling its next steps, which include the possible sale of its profitable elevator business.

Evidence of its struggles, the German firm will be booted from the country’s blue-chip stock index, the DAX, later this month. Thyssen, which merged with Krupp in 1999, was a founding member of the DAX.

“For both suppliers and customers of the group, the most worrying development must be the gradual reduction in credit rating,” Burns wrote. “If suppliers cannot insure their debt, they cannot in many instances supply, thus forcing the group to diversify and fragment its supply base.

“The group has survived many trials and tribulations over the decades. It will no doubt survive the current period, but it will be a different, much reduced Thyssenkrupp that emerges in the decade ahead.”

Another giant in the elevator industry, Finland’s Kone, has hired a law firm to advise it during its planned takeover bid of Thyssenkrupp’s elevator business, Reuters reported Monday.

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Actual Metal Prices and Trends

U.S. steel plate rose 2.0% month over month to $797/st as of Sept. 1.

Chinese steel plate fell 5.6% to $577.25/mt. Korean steel plate increased 0.7% to $568.51/mt. Japanese steel plate gained 2.5% to $809.83/mt.

The Global Precious Monthly Metals Index (MMI) gained four points this month, rising for a September MMI reading of 106.

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Gold Market Subdued in India

MetalMiner’s Sohrab Darabshaw delved into the Indian gold market ahead of the festival season in the country, which includes Diwali in October.

As Darabshaw explained in late August, the apparent slowdown in demand ahead of the usually busy gold-buying season comes amid surging gold prices. Citing a Yahoo Finance report, Darabshaw noted India’s gold imports in July fell a whopping 55% on a year-over-year basis.

“Almost everyone is waiting for a price correction, which is a far cry from the positive situation at the start of 2019,” Darabshaw wrote.

“Demand grew 9% from January-June this year, sparking hopes that consumption towards the latter half of the year would go up.

“But experts are of the opinion that if things do not improve soon, consumption could slump to a low of over 650 tons (comparable to the 2016 low).”

Gold-buying in India was also sluggish ahead of the holiday season last year.

A Gold Mine in Pakistan

Meanwhile, in Pakistan, MetalMiner’s Stuart Burns weighed in on the struggle between the Pakistani government and Tethyan Copper Co.

“The dispute is over the legality of Tethyan’s claim and rights to exploit the copper and gold reserve at Reko Diq in Pakistan’s remote southwest Balochistan province, close to the Iran border,” Burns wrote.

“Pakistan’s mining rights and practices, not to mention its infrastructure, are not fit for the purpose, as Tethyan’s story underlines all too well.”

The impasse benefits neither party, Burns opined.

“Tethyan has offered to negotiate a settlement, but with the Chinese on the sidelines bidding to extend their Belt and Road involvement in the region, conflicting loyalties and priorities are in play,” he wrote.

“A solution, though, would be very much in Pakistan’s interests.

“The resource is said to be the largest untouched deposit in the world, containing an estimated 2.2 billion metric tons of mineable ore that could yield 200,000 metric tons of copper and 250,000 troy ounces of gold annually for over half a century, Stratfor reports.”

Platinum-Palladium Spread

While palladium remains at a significant premium to platinum, the spread between the two narrowed this past month.

After a spread of $638 per ounce as of last month’s MMI, palladium fell and platinum increased to produce a spread of $539 per ounce.

According to Kitco News, platinum is possibly riding momentum generated by other precious metals — namely gold and silver — of late. The platinum price recently approached its highest level in 16 months, Kitco News reported.

Actual Metal Prices and Trends

U.S. silver ingot/bars rose 12.3% month over month to $18.23/ounce as of Sept. 1. U.S. platinum rose 6.1% to $915 per ounce, while U.S. palladium fell 3.1% to $1,454 per ounce.

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Chinese gold bullion rose 7.8% to $49.33 per gram, while U.S. gold bullion rose 8.0% to $1,527.10 per ounce.

The Rare Earths Monthly Metals Index (MMI) held flat this month, checking at an MMI value of 22.

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U.S. Looks to Australia for Rare Earths

China’s dominance of the global rare earths market is well-documented, a fact the U.S. defense sector has grappled with in light of the elements’ use in a variety of high-tech capacities (including military applications).

In that vein, the Pentagon announced late last month that it has engaged talks with Australia regarding the possibility of hosting a rare earths processing plant in the country, Reuters reported.

According to the report, China accounts for more than 80% of global processing capacity of rare earths, a list of 17 elements that includes 15 lanthanide series elements (plus yttrium and scandium).

Ellen Lord, the Pentagon’s under secretary of defense for acquisition and sustainment, was quoted as saying that the U.S. is exploring several options to expand its rare earths footprint, of which Australia presented “one of the highest potential avenues,” Reuters reported.

Given the U.S. (and the rest of the world’s) dependence on China for rare earths, the U.S. has held back on imposing tariffs on the elements, even as it has levied hundreds of billions of tariffs on Chinese industrial products and ordinary consumer goods.

Lynas Corp Signs MOU with Western Australia City

Lynas Corp, the Australia firm that holds the title of world’s largest rare earths producer outside of China, last month scored a victory when the Malaysian government opted to extend the miner’s license to operate in the country.

The decision came after many months of uncertainty regarding the prospects of renewal, as the Malaysian government expressed concerns about waste disposal at the firm’s operations.

Although the government extended Lynas’ license, the renewal came in at a term of six months, shorter than the usual renewal period. Lynas reported receipt of the operating license renewal Aug. 22.

More recently, Lynas announced Sept. 6 that it had signed a memorandum of understanding with the Western Australia city of Kangoorlie-Boulder for “the review and due diligence of potential sites” for its new cracking and leaching plant.

“We are very pleased to announce this MOU with the City of Kalgoorlie-Boulder,” Lynas CEO Amanda Lacaze said in a prepared statement. “Kalgoorlie has a rich mining history and continues to work with industry to develop the region and its communities. Lynas already employs graduates from the WA School of Mines which is located in Kalgoorlie and we look forward to continuing this partnership.

“Access to infrastructure and a skilled workforce makes it an attractive investment destination and with this MOU we can further assess the suitability of potential sites in Kalgoorlie for our Cracking & Leaching plant.”

In other Lynas news, the company announced Australian conglomerate Wesfarmers would not continue to pursue a potential takeover bid initially announced in 2018.

Wesfarmers issued a proposal to purchase Lynas for $2.25 per share in March, conditional on several factors that included the renewal of the rare earths producer’s Malaysian operating license.

However, Lynas announced Aug. 22 that Wesfarmers did not intend to progress with its proposal.

“Wesfarmers remains focused on delivering value to its shareholders through disciplined capital allocation within our divisions and when considering new investments,” Wesfarmers Managing Director Rob Scott was quoted as saying.

In April, Lynas’ board rejected a $1.1 billion takeover bid from Wesfarmers.

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Actual Metal Prices and Trends

The Chinese yttrium price fell 4.0% month over month to $31.37/kg as of Sept. 1. Terbium oxide fell 3.6% to $547.27/kg.

Neodymium oxide rose 4.6% to $45,036.70/mt.

Europium oxide dipped 4.0% to $30.68/kg. Dysprosium oxide fell 1.4% to $266.32/kg.

The Construction Monthly Metals Index (MMI) dropped one point for a September MMI reading of 77.

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U.S. Construction Spending

According to the U.S. Census Bureau, U.S. construction spending in July totaled $1,288.8 billion, up 0.1% from the revised June estimate of $1,288.1 billion.

The July spending figure, however, marked a 2.7% year-over-year decline, down from $1,324.8 billion in July 2018.

Broken down by type, spending on private construction reached a seasonally adjusted annual rate of $963.1 billion, down 0.1% from June’s $963.7 billion.

Within private construction, residential construction reached $506.7 billion in July, up 0.6% from June’s $503.5 billion. Nonresidential construction came in at $456.4 billion in July, down 0.8% from June’s $460.2 billion.

Meanwhile, in public construction, the estimated seasonally adjusted annual rate of spending was $325.7 billion, up 0.4% from the revised June estimate of $324.3 billion. Within public construction, educational construction reached $73.3 billion, an increase of 1.6% from the revised June estimate of $72.1 billion. Highway construction checked in at $97.0 billion, down 2.7% from the revised June estimate of $99.7 billion.

Architecture Billings Essentially Flat

The Architecture Billings Index, put out by the American Institute of Architects, posted another flat performance in July.

The ABI, which measures billings at architectural firms, checked in at 50.1 in July (anything greater than 50 indicates growth). The reading marked an increase from the previous month’s contractionary reading of 49.1.

Despite the nominal growth this month, the reading marks a growing trend this year.

“Business conditions at architecture firms remained essentially flat for the sixth consecutive month in July,” the ABI report states. “Although the ABI score of 50.1 for the month technically indicates growth, the score is barely above 50, which means that the share of firms that reported increasing firm billings for the month is just slightly higher than the share that reported decreasing billings. Overall, this six-month stretch is one of the longest periods of essentially flat billings since the end of the Great Recession.”

Broken down by region, the West led the way this month with a reading of 51.2, followed by the Midwest (48.9), South (48.3) and Northeast (48.3).

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Actual Metal Prices and Trends

Chinese rebar dropped 12.0% on a year-over-year basis, down to $507.53/mt as of Sept. 1. Chinese H-beam steel dropped 3.5% to $538.21/mt.

U.S. shredded scrap steel jumped 14.4% to $294/st.

European commercial 1050 aluminum sheet rose 1.2% to $2,393/mt.

Chinese 62% iron ore PB fines fell 4.0% to $73.20/dmt.

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The Automotive Monthly Metals Index (MMI) fell one point this month for a September MMI reading of 85.

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U.S. Auto Sales

General Motors continues to report on a quarterly basis; in July, the automaker reported its second-quarter deliveries were down 1.5% on a year-over-year basis.

Similarly, Ford Motor Co. is scheduled to announced its third-quarter earnings Oct. 23.

Fiat Chrysler has also moved to quarterly reporting, with its first quarterly report coming out Oct. 1.

Meanwhile, August proved to be a record-setting month for Honda in the U.S. Honda sales surged 17.6% on a year-over-year basis, setting four all-time monthly sales records in the process, including for its model CR-V and Passport models. Car sales were up 19.8%, while truck sales increased 16%.

Toyota Motor North America also reported a strong month, with overall sales up 11.3% on a volume basis and 7.4% on a daily selling rate basis. The Toyota division notched their best-ever August sales figure, rising 12.3% on a volume basis, while Lexus division sales increased 4.6% on a volume basis.

Nissan saw its August sales jump 13.2% compared with August 2018.

A joint forecast by J.D. Power and LMC Automotive indicated total August vehicle sales were expected to reach 1.62 million units, up 5.0% from August 2018.

“August will be a blockbuster month for the industry,” said Thomas King, senior vice president of J.D. Power’s data and analytics division. “Sales are expected to post the largest year-over-year gain since December 2016. Strong volumes coupled with higher average sales prices means that consumers will spend more purchasing new vehicles in August than any month in history.”

However, King noted that reported figures for August also include prolific Labor Day weekend sales.

“Rising manufacturer incentives are contributing to August’s strong results, but the industry sales reporting calendar is primarily behind the large gains,” he continued. “This year, the Labor Day holiday will fall within the time period manufacturers use to report August sales, unlike typical years when the Labor Day weekend falls into September sales results. Labor Day is one of the most heavily shopped periods of the year, with consumers motivated by heavy discounts on outgoing model-year vehicles and new 2020 model-year vehicles arriving in showrooms. Last year, more than 237,000 vehicles were sold during the Friday-Monday holiday period.”

United Auto Workers Members Vote to Authorize Strikes at Big 3

Earlier this week, the United Auto Workers union announced its members had voted overwhelmingly in favor of authorizing a strike, thus giving the union’s president and executive board the authority to call for a strike if contract negotiations with the Detroit Big 3 fail.

“No one goes into collective bargaining taking a strike lightly. But it is a key tool in the tool belt as our bargaining team sits across from the company,” UAW President Gary Jones said. “Ultimately, the company holds that destiny in their hands as they bargain. Clearly the UAW stood up for them in a very dark time, now that they are profitable it is time for them to stand up for all of us.”

According to the UAW, the vote percentages in favor of authorization checked in at:

  • FCA: 96%
  • Ford: 95.98%
  • General Motors: 96.4%

On Tuesday, the UAW announced it had selected General Motors to begin the negotiating process.

“Mary Barra said from the outset of these talks that we will stand up as we tackle a changing industry,” Jones said of the GM CEO. “We are ready to stand strong for our future.”

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Contracts with the Big 3 automakers expire Sept. 14.

Actual Metal Prices and Trends

U.S. HDG rose 2.8% month over month to $836/st as of Sept. 1.

LME primary three-month copper dropped 5.3% to $5,637/mt. U.S. shredded scrap steel jumped 14.4% to $294/st. Korean 5052 aluminum coil premiums fell 1.0% to $3.12/kg.