CommentaryMarket Analysis

Base metals traded higher at the beginning of January. However, momentum appears to be weaker once again.

The DBB index has shown weakness since June 2018, when it started this short-term downtrend. MetalMiner has recently revised its market outlook, advising buying organizations to closely follow how the index develops.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

DBB index. Source: MetalMiner analysis of Yahoo Finance

Since 2016, the DBB base metals complex has remained in a long-term trend (see the chart below). Base metal prices have skyrocketed since then but moved lower in 2018, when concerns about the Chinese economy started to appear.

DBB index long-term trend. Source: MetalMiner analysis of Yahoo Finance

A weaker Chinese economy will move demand lower. However, 2018 closed with the six base metals in global deficit. Supply and demand has not moved; therefore prices, mostly economic expectations and trading changes have driven base metal markets.

The Drivers

The DBB index comprises three base metals: aluminum, copper and zinc.

LME aluminum prices moved higher at the beginning of January, but prices did not breach the $1,970/mt level that acted as a support for most 2018. Prices being unable to breach that support level signals weakness for the base metal complex.

LME Aluminum prices. Source: MetalMiner analysis of FastMarkets

Both LME copper and LME zinc prices started to increase slightly at the beginning of January. Similar to aluminum, prices of both base metals fell. LME copper remains below the $6,000/mt level, which has served as the psychological ceiling for copper prices.

What This Means for Industrial Buyers

The base metals complex seems seems weaker. MetalMiner recently switched the long-term uptrend to a sideways trend.

Buying organizations may want to follow price dynamics closely, as well as each specific base metal price. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner Monthly Outlook reports provide a continually updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

For more information on how to mitigate price risk year-round, request a free trial to our Monthly Metal Buying Outlook.

With the January 2019 Monthly Metals Index (MMI) report, we can close the book on 2018 and what was a wild year in the world of metals and metals price movements.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

It was a book that closed with a pessimistic chapter for metals (and commodities in general), with many posting price declines as markets feel the effect of simmering trade tensions between the U.S. and China.

In our latest MMI report, you can read about all of the latest news and trends in our 10 metals subindexes: Automotive, Construction, Rare Earths, Renewables, Aluminum, Copper, Stainless Steel, Raw Steels, GOES and Global Precious.

A few highlights from this month’s round of reports:

Want to see an Aluminum Price forecast? Take a free trial!

Read about all of the above and much more by downloading the January 2019 MMI Report below:

gui yong nian/Adobe Stock

This morning in metals news, China is eyeing improvements to its steel capacity structure, China’s 2018 aluminum exports surged and Shanghai rebar futures hit a two-month high.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

China’s Steel Structure

According to Reuters, China is looking to shift the focus of its steel industry in 2019 from one of fast growth to more optimized, high-quality development.

The report cites Yu Yong, chairman of the China Iron and Steel Association, who said a major push in 2019 will come in the form of “optimising production structure, adjusting layout of steel mills and pushing merger and acquisition.”

China’s Aluminum Exports Surge

China’s exports of unwrought aluminum and aluminum products jumped 20.9% in 2018 year over year, S&P Global Platts reported.

Per the same report, December exports were up 19.8% on a year-over-year basis.

Shanghai Rebar Price on the Rise

The Shanghai rebar price hit a two-month high Monday, Reuters reported.

Want to a see Cold Rolled price forecast? Get two monthly reports for free!

According to the report, rebar futures rose 1.6% to reach $528.44 per ton.

Andrey Kuzmin/Adobe Stack

They call it the law of unintended consequences and, broadly speaking, it was intended by the American sociologist Robert K. Merton to mean unintended consequences are outcomes that are not the ones foreseen and intended by a purposeful action — particularly actions of a government.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Well, I don’t for one minute expect President Donald Trump gave much thought to the consequences for the rest of the world of his decision last year to slap 25% import tariffs on steel products from the rest of the world.

His focus was largely on a domestic audience and if he gave thought at all for the international consequences, it was probably the impact on China. Although steel imports into the U.S. from China were not as large as from suppliers like Russia, Ukraine, Brazil and Canada, the cumulative impact of deterring those suppliers from the U.S. market has been an increase in metal looking for a home in Europe.

The E.U. imposed a number of policies in response to the perceived threat of increased steel imports. One was to demand that most steel (and aluminum) imports into the E.U. apply for a form of licence, called Prior Surveillance. The measure is not designed to control imports as much as to monitor the precise origin, down to the level of manufacturer, probably with the intention of applying quotas or anti-dumping action at the manufacturer level at some stage in the near future.

But in the meantime, the E.U. feels it needs more of a blanket approach. As such, the European Commission has announced it will prolong until July 16, 2021, a 25% tariff on more than 20 types of steel ranging from stainless hot-rolled and cold-rolled sheets to rebars and railway material when the shipments exceed the average over the past three years.

According to the Gulf Times, 26 types of steel will be covered by the E.U.’s definitive measures, compared with 23 product categories under the provisional system and 28 within the scope of the original probe representing some 40% of the E.U.’s annual iron and steel imports.

The E.U.’s decision has not been met with universal approval. The decision was immensely popular among steel producers who pushed for the measures; however, consumers like the automotive sector called the move unhelpful and a cause of “regret,” according to S&P Global.

The European Automobile Manufacturers’ Association (ACEA) was quoted as saying “ACEA questions the need for such trade protectionist measures. In the automotive sector, access to EU steel production is extremely tight and imports remain necessary to fill supply-chain gaps.”

ACEA points out any increase in imports is down to increased consumption, not increased market penetration by overseas mills, saying “Motor vehicle manufacturing has increased by 5 million units per year since 2014, and some increase in steel imports has been necessary to meet this higher demand.”

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

It would seem U.S. carmakers and the wider steel-consuming industry are not alone in facing higher prices going into 2019.

As GDP growth slows — recent data shows it is certainly slowing in Europe and China — manufacturers’ factory gate prices will come under pressure as this translates into lower sales. Heightened raw material inputs will therefore squeeze margins in the year ahead.

The Renewables Monthly Metals Index (MMI) held flat this month, sticking at a reading of 102.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Congo Elections

As readers know, a majority of the world’s cobalt is mined in the Democratic Republic of the Congo (DRC), where political instability has often led to significant fluctuations in the price of the metal (coveted for its application in things like electric vehicle batteries and cellphones).

The country held elections Dec. 30, which this week led to the DRC’s electoral commission announcing Felix Tshisekedi the winner.

The election will see to a successor to Joseph Kabila, who served as president for 18 years.

However, the results of the vote have been far from universally accepted. According to the BBC, defeated candidate Martin Fayulu plans to challenge the result in court.

From a metals perspective, the political situation bears monitoring; any tremors in the process of power transfer could have an impact on industry in the country, particularly the mining sector (which has already seen shakeup in the last year, with an updated mining code seeing royalties on metals like cobalt increasing from 3.5% to 10%).

Nucor to Build Midwest Steel Plate Mill

In other Renewables MMI developments, U.S. steelmaker Nucor Corporation has announced plans to build a steel plate mill in the Midwest.

According to a Nucor release, the firm has approved a $1.35 billion investment to build the new mill, which it expects to be “fully operational” by 2022 and create 400 full-time jobs. The plant is also expected to have an annual capacity of 1.2 million tons of steel plate products.

“This investment is consistent with our drive to continue delivering sustainable, profitable growth and superior returns for shareholders,” said John Ferriola, Nucor’s chairman, CEO and president. “Together with the significant share repurchases completed in 2018, the Board’s decision to fund this high-return opportunity demonstrates our commitment to balanced capital allocation. We have a strong foundation to build upon as we advance our goal of leading in every market in which we compete.”

According to the release, locations for the plant in the Midwest region of the U.S. are being evaluated. Nucor already has plants in North Carolina, Alabama and Texas.

The new plate mill will produce “cut-to-length, coiled, heat-treated, and discrete plate ranging from 60 to 160 inches wide, and in gauges from 3/16 of an inch to 14 inches in thickness,” the release states, “enabling Nucor to supply plate products that the Company does not currently offer.”

Actual Metal Prices and Trends

The price of Japanese steel plate increased 3.6% month over month, up to $784.06/mt. Korean steel plate fell 1.9% to $628.02/mt. Chinese steel plate dropped 4.7% to $607.69/mt.

U.S. steel plate fell 2.7% to $994/st. The U.S. grain-oriented electrical steel (GOES) coil price remained flat, moving slightly from $2,462/mt to $2,465/mt.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Chinese neodymium fell 0.4% to $58,224.99/mt, while silicon increased marginally to $1,497.42/mt. Chinese cobalt cathodes also increased marginally, ticking up to $96,678.20/mt.

The partial government shutdown has meant large power equipment manufacturers and their suppliers can submit exclusion requests and comments, but the government’s main site that tracks such requests, regulations.gov, has not been updated since the shutdown began Dec. 22.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Meanwhile, large power equipment manufacturers have negotiated for their 2019 contract requirements.

AK Steel did achieve some price increases, according to an industry source, likely due to the Section 232 tariffs. However, buying organizations still have the flexibility to shift production of wound cores to other locations, particularly Canada and Mexico.

Grain-oriented electrical steel (GOES) remains subject to both Section 301 and Section 232 tariffs.

Europe Set to Limit Steel Imports, Too

To stem the flood of imports that can no longer readily come to the U.S., the European Commission will vote on a measure next week to set quotas for 23 steel products, a list which includes GOES.

Similar to how the U.S. determines quota levels, the E.U. will take the average of the prior three years plus 5% and set a cap in which any volume above the cap will receive a 25% import duty, according to Reuters.

Interestingly, and different from how the U.S. sets quotas, the E.U. will set the quotas in three-month increments to prevent stockpiling.

China, however, has not served as a large exporter of GOES to the U.S. market:

Source: MetalMiner analysis of ITC data

MetalMiner does not see the European safeguard measure as having much impact on GOES prices. The measures will, however, help support European prices for other forms of steel.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) M3 coil price remained flat moving slightly from $2,462/mt to $2,465/mt. The GOES Monthly Metals Index (MMI) moved up one point to 179.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

The Stainless Steel Monthly Metals Index (MMI) dropped five points this month, losing 7.6% and currently standing at a value of 61. The current index sits just above the August 2017 level of 59 points, when LME nickel prices touched support and rebounded. The drop came as a result of lower LME nickel prices and lower U.S. stainless steel surcharges.

Need buying strategies for steel in 2019? MetalMiner’s Annual Outlook has what you need

LME Nickel

LME nickel prices decreased in December, following a short-term downtrend that started in June 2018. Nickel prices have increased slightly so far in January, showing some recovered momentum along with other LME base metals. However, given the current commodity outlook, price increases need careful monitoring.

Source: MetalMiner analysis of Fastmarkets

Domestic Stainless Steel Market

Domestic stainless steel surcharges fell again. This is the sixth consecutive monthly drop in stainless steel surcharges this year, starting in July 2018, after surcharges peaked. The 316/316L-coil NAS surcharge fell to $0.80/pound, while the 304/304L surcharge fell to $0.53/pound.

Source: MetalMiner data from MetalMiner IndX(™). Note: Y-axis values represent $/lb.

The stainless steel surcharge has started a short-term downtrend, driven by the general price slowdown for steel and stainless steel markets. Stainless steel surcharges now appear to be moving toward 2015/2016 lows.

What This Means for Industrial Buyers

Stainless steel price momentum slowed down again this month, similar to carbon steel. Nickel prices also appear weaker, following slower momentum in commodities markets and in industrial metals markets. Buying organizations may want to follow the market closely for opportunities to buy on the dips.

To understand how to adapt buying strategies to your specific needs on a monthly basis, sign up for a free trial of our Monthly Outlook now.

Actual Stainless Steel Prices and Trends

Chinese 304 stainless steel coil decreased by 1.9%, while Chinese 316 stainless steel coil prices slid this month by 10.8%. Meanwhile, Chinese Ferrochrome prices fell by 3.9%, to $1,780/mt. Meanwhile, FerroMolybdenum lumps prices fell 13%, moving to $16,282/mt. Nickel prices also fell this month by 4.9% to $10,725/mt.

The January Aluminum Monthly Metals Index (MMI) fell 3.4% this month, coming in at a value of 85. The index fell 3 points from December’s reading and has returned to a low not seen since February 2017 when the index hit a value of 84.

Buying Aluminum in 2019? Download MetalMiner’s free annual price outlook

So far in January, LME aluminum prices have increased. LME aluminum prices fell below the $1,970/mt level, which has acted as support for most of 2018.

Source: MetalMiner analysis of Fastmarkets

LME aluminum prices seem to have found a new support at $1,795/mt. Prices have rebounded from that level and seem to have gained some momentum. The politics of trade and financial uncertainty in China, rather than supply and demand in the aluminum market have moved LME price levels in 2018.

Chinese Aluminum Scrap

The Chinese environment ministry announced restrictions of imports of scrap steel and aluminum starting July 1 of this year. Scrap steel and aluminum will be moved from an unrestricted import list of solid waste products used as raw materials, to a restricted import list.

SHFE aluminum prices also increased this month, following LME aluminum price dynamics. SHFE aluminum prices however, remain a short-term downtrend since August 2018.

Source: MetalMiner analysis of Fastmarkets

China’s Chalco (Aluminum Corporation of China Ltd.), the largest state-owned aluminum producer in the country, announced at the end of December that it would cut output as a result of falling aluminum prices. In 2017, China’s Chalco shut 470,000 tons of aluminum capacity, or 12% of their 3.93 million tons of primary aluminum capacity.

Production cuts come as a result of falling aluminum prices, ample supply in the country and weaker local demand. Chalco did not cut aluminum production due to environmental concerns, as their smelters remain outside the 28 northern Chinese cities that face special restrictions during the heating season. 

U.S. Domestic Aluminum

The current U.S. aluminum Midwest Premium has also traded sideways in January. The current price stands at $0.18/lb, the third straight month at that level. Despite the sideways trend for the premium, the current premium remains high.

Source: MetalMiner data from MetalMiner IndX(™)

Canada and the U.S. discussed tariffs on Canadian steel and aluminum this week. However, it does not seem that sanctions will be lifted for now. While the sanctions remain in place, domestic aluminum prices remain supported.

What This Means for Industrial Buyers

Despite the recent price increases, LME aluminum prices appear weaker. Tariffs, sanctions and supply concerns may act as a support to aluminum prices, both for LME aluminum and the U.S. Midwest Premium. However, the current base metals complex appears to have lost momentum. Therefore, adapting the “right” buying strategy becomes crucial to reduce risks. Only the MetalMiner Monthly Outlook reports provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

Click here for more info on how to mitigate price risk all year round — take a free trial of our Monthly Metal Buying Outlook.

Actual Aluminum Prices and Trends

LME aluminum prices fell this month, with a closing price in December of $1,849/mt. Meanwhile, Korean commercial grade 1050 sheet fell by 3.8% to $3.28/kilogram. Chinese aluminum primary cash prices fell by 2.5%, while Chinese aluminum bar prices fell by 2.4%. Chinese aluminum billet prices rose 2.2% this month, to $2,087/mt. The Indian primary cash price decreased by 6.6% to $1.85/kilogram.

The Raw Steels Monthly Metals Index (MMI) fell again this month, dropping to 79 points. The current MMI index has fallen toward October 2017 levels of 79, before global steel prices started to rise sharply.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

The recent slowdown in domestic steel price momentum led to the decline. Domestic steel prices recently fell fairly sharply, driven by slower Chinese demand and ample steel availability.

Domestic steel prices have showed slowing momentum since June 2018. They increased sharply at the beginning of the year, driven by a bullish market in commodities and industrial metals, as well as by the Section 232 tariffs. During most of 2018, domestic steel prices remained at seven-year highs.

Source: MetalMiner data from MetalMiner IndX(™)

However, steel prices have showed slower momentum recently and prices appear to have started a sharp downtrend. MetalMiner does not expect prices to increase in the short term, although mills may try to shore up prices with price increase announcements.

Meanwhile, plate prices have decreased at a slower pace. Plate price movements are commonly sharper. In other words, plate prices tend to move in one direction and then change sharply. Lower availability has kept domestic plate prices from falling too far, but domestic prices fell in December.

Source: MetalMiner data from MetalMiner IndX(™)

Historically, steel prices in general tend to drift lower during the beginning of Q4 and then rise. In 2017, HRC domestic prices started to increase in December, then skyrocketed during the first quarter of 2018. In 2018, prices did not increase in Q4. MetalMiner does not expect domestic steel prices to increase in the short term.

Chinese Steel Prices

So far in January, prices for all forms of Chinese steel have also fallen. Chinese domestic steel prices started to decrease at the end of October, driven by the start of the winter season.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel domestic demand appears weaker, and a slower Chinese economy has driven the recent price decline.

The yuan traded sideways this month. However, current levels are back at 2016 levels, or 0.14 U.S. dollar/yuan. A weaker yuan makes Chinese goods more appealing, despite the U.S. tariffs. Meanwhile, the Chinese stock market (FXI Shares) fell again this month. The Chinese stock market has fallen during most of 2018 after reaching a peak at the beginning of the year. The new downtrend comes as a result of a slowdown in China.

What This Means for Industrial Buyers

Current domestic steel prices appear in a downtrend. Adapting the “right” buying strategy becomes crucial to reduce risks. Only the MetalMiner monthly outlooks provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

Click here for more info on how to mitigate price risk all year round – and take a free trial of our Monthly Metal Buying Outlook.

Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell again this month by 6.31%, moving to $712/st. Chinese steel billet prices fell this month by 3%, while Chinese slab prices fell by 1.27% to $529/mt. The U.S. shredded scrap price closed the month at $353/st, dropping by 1.4% from last month.

In January, the Copper Monthly Metals Index (MMI) dropped 3.9%, falling back 3 points to the November 2018 level of 74. Lower LME copper prices drove the index lower.

Need buying strategies for copper? Request your two-month free trial of MetalMiner’s Outlook

Similar to other base metals, LME copper prices fell in December. LME copper prices fell below the $6,000/mt level, which served as a stiff resistance level for most of 2017. Prices over this level indicate a bullish copper market, while prices below that level signal a more bearish trend. This level has represented a psychological signal for “Doctor Copper” since 2017.  

LME Copper prices. Source: MetalMiner analysis of Fastmarkets

So far in January, LME copper prices have increased. However, current levels remain below that $6,000/mt psychological ceiling. Trading volume also appears weaker, which does not support a sharp uptrend.

Global Copper Outlook

According to data released in January, Chilean copper production reached 540,720 tons in November, the highest level in 13 years. The increase was driven by higher ore grades and more efficient processes. As reported by Chile’s national statistics agency INE, copper production increased 7% in November versus October. Production reached its highest levels  since December 2005.

Anglo American announced that overall production will increase more than expected between 2018-2021. Forecasts suggest 2018 production increased by 2%, driven by increases in copper output. 2019 production could increase by another 3%, and 2020-2021 production by an additional 5%.

Despite this forecast by Anglo American, the International Copper Study Group (ICSG) announced a wider deficit in September. The global refined copper deficit increased to 168,000 tons in September from the previous 43,000 tons in August. For the first nine months of 2018, the market saw a 595,000-ton deficit versus the previous year’s deficit of 226,000 tons.

Chinese Scrap Copper

LME copper prices and Chinese copper scrap prices tend to follow the same trend. However, this month they traded differently. LME copper prices fell while Chinese copper scrap prices increased. The divergence between LME copper prices and Chinese copper scrap has become more notable recently, driven by lower scrap availability in China.

Source: MetalMiner data from MetalMiner IndX(™)

The spread has become smaller this month. The wider the spread, the higher the copper scrap consumption, and therefore, the price.

What This Means for Industrial Buyers

LME copper prices fell this month, moving below the $6,000/mt level. Buying organizations will want to understand how to react to the latest copper price movements. Adapting the “right” buying strategy becomes crucial to reduce risks. Only MetalMiner’s Monthly Outlook reports provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

Click here for more info on how to mitigate price risk all year round — and get a free 2-month trial to our Monthly Metal Buying Outlook.

Actual Copper Prices and Trends

In December, most of the prices that comprise the Copper MMI basket fell. LME copper decreased by 4.87% this month. Indian copper prices also fell by 5.91%, while Chinese cash primary copper prices decreased by 3.83%. Prices of U.S. copper producer grades 110 and 122 fell by 3.36%. Meanwhile, the price of U.S. copper producer grade 102 decreased by 3.2%, to $3.64/pound.