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It’s that time — our latest Monthly Metals Index (MMI) report is in, covering the final month of 2017.

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So, before we move onto 2018 for good, let’s take one last look at our newest MMI report and recap some of the highlights:

    • Our January MMI saw seven of 10 sub-indexes move upward, with two holding flat and one dropping (the Construction MMI fell by one point).
    • The biggest winner of the month was the Stainless Steel MMI, which rose 9.2%. Skyrocketing LME nickel prices backed the jump. After hovering around $10,600/metric ton in October, nickel jumped near $13,000/mt last month, and continued to climb in the early days of 2018.
    • The Copper and Aluminum MMIs also went up, by 3.5% and 3.2%, respectively.
    • In the Global Precious MMI, palladium continues to outperform platinum, continuing a run that has bucked historical trends vis-a-vis the two platinum-group metals.
    • The GOES MMI also had a good month, picking up seven points via a 3.8% increase. GOES typically does not follow the price patterns of other forms of steel, but it did this past month.

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You can read about all of the aforementioned — and much more — by downloading the January MMI report below.

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It’s been great going for India’s state-owned National Aluminium Company (NALCO). Its revenues in sale of alumina are up by 30% year-over-year and it has reported a 94% jump in net profit.

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The company has now lined up some new projects.

According to reports, NALCO is said to be contemplating a high-end aluminum products plant by availing technology from foreign suppliers. The project is intended to provide for future applications of aluminum in bullet trains, aerospace and electric vehicles, all three of which are coming to India.

T.K. Chand, NALCO’s chairman and managing director, was quoted as saying that the technology for high end aluminum products plants was not available in India, so Nalco was in talks with potential suppliers in the U.S. and Russia to avail their technologies. The company had already floated an Expression of Interest (EoI) to select the technology supplier.

If successful, the proposed plant is likely to come up within the aluminum park at Angul in Odisha province.

Earlier this month, the aluminum major inaugurated three major projects at a total cost of about U.S. $94 million (Rs 660 crore). One was a bauxite mine, the second a 18.5 MW power unit at alumina refinery, Damanjodi and a nanotechnology-based defluoridation plant at Angul.

The aluminum park that Chand referred to was being developed jointly by NALCO and state-owned Odisha Industrial Infrastructure Development Corporation.

NALCO has signed a memorandum of understanding (MOU) with the Indian Defense Ministry Public Sector Unit Mishra Dhatu Nigam Ltd for the manufacture of high-end aluminum alloys.

Aluminum is not only in the weapons and aerospace sector but also in vehicles (especially electric vehicles).

In an interview with The Economic Times recently, Nalco’s CMD spoke of his plans to make the company a  1-million-ton aluminum player by 2020. He said NALCO’s capacity today was at 4.6 lakh ton, of which, this year, it would be producing around 4.2 lakh (420,000) tons. In 2018-2019, the company planned to ramp up production to 4.6 lakh (460,000) tons. The addition of a new smelter would take it to over 1 million tons for aluminum.

When asked for the reason behind NALCO’s alumina sales volume jumping by 30% year on year, Chand replied that the increase in revenue, particularly in alumina, came because of change in NALCO’s strategy. Earlier, the company would sign a long-term agreement for sale of alumina in the international markets, but it did not give much benefit in case of a rising market. Thereafter, with the market price going up, it had switched strategy of spot tenders. This was what led to the prices increasing from U.S. $280 to as high as $527.

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Growth in volume was also achieved since NALCO was able to achieve a 100% capacity utilization of aluminum refinery.

LME nickel prices hit $13,200 per ton last Wednesday, the highest level since June 2015 before investors took profits and the price fell back a touch to $12,870 per metric ton.

Prices were led higher by the ShFE, where stock have fallen to 48,920 tons from over 90,000 tons just a year ago — and consumers are worried about a supply squeeze, Reuters reports.

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The Philippines’ ongoing environmental campaign has perpetuated the closure of four key nickel mines in the Zimbales region, according to Wilfredo Moncano, the director or the Philippine mines and geosciences bureau. Moncano said “no extraction, no new mining activities, what’s only allowed is hauling up ores for their stockpiles,” according to Reuters.

The supply squeeze story has been exacerbated by news that Sumitomo Corporation has suspended output from its mine in Madagascar following a cyclone.  Not surprisingly, investment funds are at increased net long positions on the NME and SHFE, with LME positions doubling from early November. LME nickel stocks are still substantial at 368,292 tons, but are down from levels above 470,000 tons in June 2015; however, they’re at double the levels seen in May 2013.

Although nickel prices have pulled back on profit-taking, many are still betting the price could move higher as the market is in deficit. Any supply-side disruption is seen as an opportunity to squeeze supply in the face of continued robust demand.

Nickel supply, however, has picked up.

Current short-term issues accepted, according to Fast Markets, Indonesia had awarded quotas for the export of over 20 million tons of nickel ore after its export ban was relaxed early last year. Only a small portion of this, however, has been shipped. The bulk of 2017 quotas are still to be exported.

The incentive for both miners and authorities is to resolve the current environmental stumbling blocks. Exports are expected to pick up. There should also be nickel pig iron smelters being established in Indonesia in 2018, creating more plentiful NPI availability in the market.

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Under the circumstances, the recent $13,200 price spike may, if not prove to be a peak, at least come to be in the upper range of what will remain a volatile market until supply concerns ease.

Sanjeev Gupta, the industrial buyer of distressed steel, aluminum and coal assets (to name just a few of the areas he has expanded into in recent years), has so far managed an uncanny knack of good timing.

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Buying steel assets just before the global steel market finally lifted even Europe out of the doldrums, and now aluminum. To be fair, Gupta is not new to aluminum.

Gupta’s Liberty Group bought the Lochaber aluminum smelter and hydro-electric power plant from Rio Tinto in 2016 in a $410 million deal when Rio was desperate to shed “non-core” assets and raise cash.

Since then, the aluminum price has risen some 30%. Now, with aluminum on a roll, Gupta is again picking over the carcass of Rio’s aluminum assets, this time putting in a $500 million offer for Europe’s biggest refinery: the Dunkerque aluminum smelter.

Lochaber was only 47,000 tons capacity, but Dunkerque is on an altogether different scale, producing 280,000 tons a year. That disparity makes it a steal with respect to purchase price per ton of capacity compared to Lochaber, and is said to be profitable at current aluminum prices.

For most aluminum producers — unless they are niche, high-purity players or have integrated downstream activities — tend to have larger concerns leveraging economies of scale and sometimes integrating upstream into alumina, and even bauxite mining, to secure their supply chains. It is rumored Gupta may have something of the same objective. He is apparently in talks with Rio for more of its aluminum assets, according to the Financial Times. Rio is also looking to sell a 205,000-ton-per-year Isal aluminum smelter near Reykjavik, Iceland, and its Pacific Aluminum business, which analysts say could fetch more than $2 billion, with Gupta rumored to be interested.

Quite how he has managed to fund his rapid acquisition spree in recent years is the subject of some speculation. With purchases of generally distressed assets in shipping, recycling, banking, commodities trading and energy, there does not appear to be an obvious theme to his empire building beyond being broadly metals-related and presumably cheap.

Turning distressed assets around, though, is a hugely intensive and time-consuming process — and not without considerable risk, as many fail.

Yet so far, Gupta’s vehicles, Liberty Group and Simec under the GFG Alliance holding company, have apparently done rather well.

The success of Dunkerque will be contingent on the French nuclear generator EDF continuing to supply electricity at viable rates. That is probably, for now, a given, since the French apparently are more concerned about maintaining employment of the 600 workers at the plant.

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Amongst a plethora of news, comment and opinion, it is often like struggling through a jungle when trying to get clarity on the commodities landscape. Sometimes, there is almost too much information.

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So, an analysis in the Financial Times entitled “Five things to watch as Brent crude oil nears $70” makes a refreshingly simplified but no less comprehensive summary of the key issues currently driving the oil price.

The crude oil price rise has been relentlessly rising for the last 3-4 months and while plenty of opinion has been espoused — in these columns too, I should add — about the moderating effect of U.S. shale oil on global supply (and hence, prices), the reality is so far the impact has been minimal. Prices have continued to show stubborn resistance to any such moderation.

Iran has certainly been a factor. Opinions differ as to how much impact unrest in the region has contributed to price rises. However, as the third-largest oil producer in OPEC, contributing to some 4% of global supply, civil unrest was a reminder that nothing can be taken for granted.

In practice, protests had no impact on oil output. The street protests have now subsided, but Iran remains a source of tension in the region, with an antagonistic stance towards Saudi Arabia with respect to its military intervention in Yemen providing the potential for a flare-up. Oil output in the region generally has suffered some setbacks, with output in Kurdistan dropping after Baghdad took back control of disputed oilfields in October.

Output elsewhere has remained restrained in those countries participating in the Saudi-Russian led coalition to reduce inventories, but question marks remain as to how well they will stick to the deal as the oil price remains firm in 2018. Many may believe the heavy lifting is done and treasuries now deserve replenishing.

Not so fortunate to have a choice is Venezuela, which is quietly imploding.

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The Renewable Monthly Metals Index (MMI) picked up a point for our January reading, rising from 78 to 79 (a 1.3% jump).

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Several of the heavier hitters in this basket of metals posted price increases this past month.

U.S. steel plate rose 4.0% and U.S. grain-oriented electrical steel (GOES) coil rose 3.8%. Korean steel plate also increased, rising by a whopping 8.9% for the recent monthly window.

Chinese silicon and cobalt cathodes also posted notable price jumps. Meanwhile, Chinese steel plate fell slightly, while Japanese steel plate posted a small price jump.

Continuation of Steel Plate Tariffs on the Table

U.S. Rep. Pete Visclosky (D-Merrillville, Indiana) testified before the International Trade Commission recently on the subject of extending 18-year-old duties on cut-to-length carbon-quality steel plate from India, Indonesia and South Korea, the Northwest Indiana Times reported.

Northwest Indiana, where Merrillville sits, is home to significant domestic steel industry activity, including by ArcelorMittal, which produces steel plate at its Burns Harbor Plate Mill — located in Gary, Indiana — the paper reported.

“As a representative and resident of Northwest Indiana, I am acutely aware of the challenges facing the American steel industry due to the onslaught of illegal steel imports,” the Times quoted Visclosky as saying during testimony at a hearing in Washington, D.C. “The ArcelorMittal facility at Burns Harbor in Northwest Indiana makes cut-to-length carbon-quality steel plate, and every one of those dedicated workers deserve to be able to continue to fairly compete and make the best steel to the best of their ability in our global economy.”

Of course, the issue is one of many metals-related trade issues before U.S. trade bodies (the most headline-grabbing being the Section 232 probes into steel and aluminum imports, for which a ruling is expected this month).

Like the Section 232 probes, which seek to determine whether those imports negatively impact the country’s national security, Visclosky also cited national security concerns vis-a-vis steel plate imports.

“It is essential for both our national defense and our national economy, and we cannot afford to threaten our production capabilities,” the paper quoted Visnosky as saying.

GOES Gets a Boost

As reported by our Lisa Reisman yesterday, grain-oriented electrical steel (GOES) got a boost this past month.

GOES prices, as Reisman noted, usually don’t move in tandem with other forms of steel — but it didn’t play out that way in December.

Import levels, however, are something to monitor going forward.

“In addition to prices moving in a similar direction, import levels also followed similar patterns, although GOES imports showed a dramatically higher increase whereas finished steel imports grew by 14.5% on an annualized basis according to the American Iron and Steel Institute (AISI),” Reisman added.

While China is often the subject of much discussion regarding a flood of imports into the U.S., when it comes to GOES, Japan is actually the leader in exports to the U.S.

Source: International Trade Administration and MetalMiner analysis

Japan owns about two-thirds of the U.S. GOES import market share, rising significantly despite a drop in overall finished steel sent to the U.S.

The explanation for that disparity?

“Increased domestic efficiency standards have led to the development of higher performance electrical steels (HB), which have taken share away from the more conventional grades produced by the sole U.S. producer,” Reisman wrote. “With no U.S. producer of these grades, the market has become more reliant on exports from Japan.”

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The Rare Earths Monthly Metals Index (MMI) held flat for the month, posting a value of 18 for our January reading. 

Reflecting the lack of movement in the MMI value, the basket of metals posted modest price fluctuations.

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Chinese yttrium rose 1.9%, while terbium oxide dropped 0.8%. Neodymium oxide fell 1.3% on the month.

Australian Miner Receives State’s EPA Approval

A $900 million Australian miner received approval from the state’s Environmental Protection Authority (EPA), mining.com reported.

According to the report, Arafura Resources received approval on Friday after a two-year process. The EPA had been considering the environmental impacts of the Nolans rare earths project, the website reported, concluding that those risks at the site could be managed.

According to the report, Arafura estimates the project would create an investment of about $900 million in central Australia.

Global Market to Reach $20 Billion by 2024

The global rare earths market is projected to hit a value of $20 billion by 2024, according to a research report by Global Market Insights, Inc.

“Growing demand for magnets in automobiles, and energy generation will majorly contribute to the growth of global rare earth metals market over the forecast period,” the Globe Newswire release states. “The demand for rare earth magnets is majorly increasing by their consumption in electric and hybrid vehicles, and wind turbines. Increasing focus on utilizing clean and renewable energy is giving a substantial pressure on the electricity providers, to generate energy through renewable sources, which in turn will show a positive impact on the growth of this market.”

Not surprisingly given China’s overwhelming dominance of the rare earths markets, prices will continue to fluctuate somewhat wildly based on Chinese supply.

As for individual metals, neodymium will continue on in its place at or near the top of the rare-earths heap.

“By revenue, neodymium had the highest market share in 2016, with a market share of over 30%,” the release states. “It will dominate the global rare earth metals market till the end of projected period. Neodymium market will grow at a CAGR of 8.2% from 2017 to 2024.”

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Here’s What Happened

  • Our Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, rose yet another three points to 90 for the January reading, a 3.4% increase.
  • We’re officially in a three-month rising trend for our precious metal sub-index. The last time we saw this buildup was back in Q3 2017, after which the index retreated. If that pattern holds, we could see a drop-off, perhaps as early as February — although seasonality and the global political and economic atmosphere in Q4 both likely had a lot to do with the outcome, which may not be replicated here in Q1 2018.
  • Palladium officially busted through the $1,000 per ounce ceiling in December, and there were no signs of a turnaround for the January reading — the PGM per-ounce held above that level for the second straight month. (More on palladium below.)
  • Meanwhile, it appears as though platinum will need to take advantage of a “Dry January.” The metal came out of the holidays very sluggish, recording only a $2 per ounce increase and beginning the new year in a rather flat state of malaise.
  • “We’ve (still) got a trend, folks!” — this is the fourth straight month in which palladium is priced at a premium to platinum, which has not been the historical norm.
  • And then there’s gold. After breaking and holding above the $1,300 per ounce threshold at the beginning of September for the first time since October 2016, the U.S. gold price is back above that benchmark after a few months off.

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What’s Going On in the Background?

  • Can palladium keep rising? That all depends. On the one hand, the supply market is pretty tight, and it has been for a while. In fact, the palladium market has been in deficit for the last six of seven years in which data is available, according to a good Reuters piece published just after the new year. On the other hand, the primary thing driving palladium demand, and therefore prices, is mainly Chinese automotive demand. Caveat: if that slows down or even goes in reverse (car puns are just the best, aren’t they?), palladium could go with it. As we reported earlier this week, a Wall Street Journal story pointed out Chinese consumers are now starting to get into used car sales even more, which could portend the end of unmitigated new car sales growth — much like China’s GDP cooldown over the last few years. To wit, here’s a sweet graphic showing the relationship between palladium and China’s automotive sales:

Source: Thomson Reuters

  • Germans buying up some gold. Regarding that $1,300/ounce threshold we mentioned earlier that gold prices have been hovering above for a couple months straight? That has helped spot gold prices gain about 14% during 2017. Now, at least one nation — going by its recent investment activity — is hoping that upward trend continues. According to another Reuters article, Deutsche Boerse said its Xetra-Gold notes rose in demand to a record 175 tons of gold, a nearly 50% increase over 2016. Safe haven, here we come! (Ja?)

What Metal Buyers Should Look Out For

  • PGMs. While ETF Securities, an investment and intelligence firm, which we used to cover quite regularly, expects precious metals (including PGMs) to remain pretty stable for the course of 2018 in its Outlook 2018 report, as we noted last month, keep a close eye on All Things China. This is especially important as it pertains to automotive partnerships between U.S. OEMs and China and the resulting innovation, as my colleague Fouad Egbaria reported earlier this week in our Automotive Monthly Metals Index (MMI).
  • ICYMI, our own Irene Martinez Canorea drilled down into the gold markets before the end of 2017 from an analytical perspective, ultimately unlocking the reason why industrial metal buyers (especially those buying copper) should pay attention to gold.

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Key Price Movers and Shakers

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Grain-oriented electrical steel (GOES) prices do not often follow the pattern of price increases for other forms of steel. However, December’s data suggests otherwise. GOES prices increased along with HRC, CRC, plate and HDG. Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up In addition to prices moving in…

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The Raw Steels MMI (Monthly Metals Index) jumped another 1.3% this month, reaching 83 points in January.

Steel momentum seems to have recovered this month. All forms of steel prices in the U.S. increased sharply. Steel momentum typically begins during the middle of Q4, but the increase occurred later this past year. January’s numbers also look bullish.

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U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

In the U.S. market, January will prove to be a decisive month.

The U.S. Secretary of Commerce Wilbur Ross has until mid-January to conclude his Section 232 probes and release a report to the Trump administration, after which the president has 90 days to act.

Shredded Scrap

The long-term shredded scrap price uptrend appears to have turned into a short-term sideways trend. Despite steel price increases in December, January scrap prices decreased.

Source: MetalMiner data from MetalMiner IndX(™)

Decreasing domestic scrap prices do not currently support steel prices. However, steel prices appear to be on a sustainable upward trend. Therefore, scrap prices could follow steel prices this month and continue their long-term uptrend.

Chinese Prices Still Strong

Chinese steel prices and U.S. prices usually tend to move similarly. Thus, when one reveals a strong upward or downward movement, the other could follow within that month.

Chinese prices were stronger than U.S. steel prices during November and December 2017. After the latest increase in U.S. steel prices, Chinese prices also continued rising.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices have found support from the curtailment campaign in the country. Therefore, steel prices could continue increasing. Chinese Q4 GDP data, expected to show strength, also support Chinese steel prices. Chinese GDP data has come in over annual growth targets for the country.

What This Means for Industrial Buyers

As steel price dynamics showed a strong upward momentum this month, buying organizations may want to understand price movements to decide when to buy some volume. Buying organizations will want to pay close attention to Chinese price trends, lead times and whether domestic mill price hikes stick.

Buying organizations who have concerns about the Section 232 outcome and its impact on the steel industry may want to take a free trial now to our Monthly Metal Buying Outlook. Our February Monthly Outlook will include a detailed analysis of the Section 232 outcome.

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Actual Raw Steel Prices and Trends

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