Market Analysis

New Steel Billet Caster in the Works

Longs producer British Steel has begun constructing a billet casting machine at its Scunthorpe works. It will be the second such machine built at the site, which lies in England’s East Midlands region.

On June 15th, the company said that the continuous caster should come on stream in late 2022. Once in operation, it will produce square billet in 140x140mm, 155x155mm, and 180x180mm sizes.

“The new caster will produce billets of an even higher standard, with much better internal and surface qualities,” said Richard Longbottom, Technical Manager of Steelmaking Development. “We’ll also have a broader product range. This enables us to become more competitive and expand our offering to customers.”

British Steel

Steel Billet Casting, 2022, Adobe Stock

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Spokespeople for the company added that Italian firm Danieli will supply the new equipment. However, they declined to say what the new casting machine’s capacity would be or how many strands it would have.

The existing eight-strand billet caster can cast an estimated 900,000 metric tons per year of semi-finished product. That includes 150x150mm and 180x180mm sizes made out of the crude steel produced on site.

The plant could originally produce about 4.5 million metric tons of crude steel per year via four on-site blast furnaces and three 300-metric ton converters. The spokesman noted, however, that the plant is no longer pouring those volumes. Billets act as a feedstock for rolling rebar, merchant bar sections as well as wire rod.

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British Steel Remains a Major Player in the Metals Market

The new caster is part of an £80 million ($98 million) upgrade project for Scunthorpe, in England’s East Midlands. Whilst the majority of that total is intended to finance the new billet caster at £48 million ($59 million), the remainder is to upgrade and reconfigure Scunthorpe’s wire rod mill.

“The product range will also offer customers considerably improved mechanical properties and enhanced options for supply condition,” the company stated. “[Examples include] normalized rolled and low-temperature rolled wire rod.”

The company also indicated that British Steel could produce up to 3 million metric tons per year of rolled long products. Besides wire rod in 5.5-17mm diameters, Scunthorpe rolls construction steels (sections) and rail. Meanwhile, the Teesside mill rolls construction steels and the Skinningrove works, which sites about 100 kilometers north of Scunthorpe, rolls special profiles.

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Other Scunthorpe Steel Capabilities

Scunthorpe can also cast blooms from a six-strand continuous caster as well as slab in 225mm- and 298mm-gauges from a two-strand casting machine. Each caster has a listed capacity of 1.2 million metric tons per year.

Billets from the new caster will also go to the British Steel’s FN Steel plant, in the Netherlands. Reports indicate that the facility can roll at least 350,000 metric tons per year of wire rod in 5.5-30mm diameters.

Applications for British Steel’s rolled wire rod include tire reinforcement, automotive spring and steels, as well as rail clips. Chinese steelmaking and chemicals conglomerate Jingye Group acquired British Steel in 2020. Greybull Capital originally formed British Steel in 2016 when it acquired the Long Products business from Tata Steel.

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The Global Precious Metals MMI dropped by nearly 3% this month. Palladium dropped the most, though silver also looked comparatively weak.

Precious Metals

Gold Prices Trends: Bullish or Bearish?

Gold has started to trade within a range formed by swing lows and highs. A break above either range will clear up the overall direction. Without a “big picture” view, the overall direction remains unclear.

Precious metals

According to a recent article, at least three gold analysts have a more bearish opinion of gold for the longer term. The analysts include James Steel, Chief Precious Metals Analyst at HSBC Securities and Suki Cooper, Executive Director of Precious Metals Research Standard Chartered. There’s also Rhona O’Connell, head of Europe and Asian market analysis at StoneX Financial Ltd. Even with an uncertain technical analysis, the group has pointed to a few factors most likely to stop gold’s bull run. The first being a strong dollar. The second is the Fed’s recent belt-tightening.

That said, gold tends to stay strong in both deflationary and stagflationary markets. Rising interest rates signify deflationary actions designed to put the brakes on price increases. However, many remain concerned that the US economy could tip to stagflation. This is a condition typified by slowed economic growth, rising prices, and higher unemployment. Were this to happen, precious metals prices will fluctuate greatly.

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Gold

Silver, by way of comparison, shares the same outlook as gold. However, the price of silver looks weaker with each prior high it takes out. As sell orders are filled, buyer strength gets depleted. Still, silver has room to rise in the short term before it reaches the major supply zone seen on HTFs. HTFs, in this case, stand for “high time frame.” You can see a clear example by looking at the chart on a daily, weekly, and monthly scale.

Meanwhile, platinum and palladium prices are making their own moves.

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Palladium

Precious Metals Prices: Platinum and Palladium

In the case of platinum, prices have begun to shift upwards on shorter time frames. It’s as if they’re targeting newly-introduced supply zones. The introduction of supply basically resulted in newly-formed bearish “order blocks.” Designed to create an inefficiency in price or, this can contribute to stronger moves. Prices begin to correct on a small scale as each weak high gets taken out in anticipation of a “mini-rally” into bearish ranges. That said, from a technical perspective, platinum has a similar outlook to gold and silver.

Platinum

Palladium prices appear weaker overall. Certainly weaker than platinum. The metal’s failure to form any swing highs has caused bias to the downside. Weak lows need sweeping for the trend to resume. In the meantime, short-term rallies will serve as entries for short-sellers as prices continue to form lower highs. Industrial buyers will of course implement a different strategy.

Actual Metal Prices:

  • US palladium prices dropped from $$2254/oz to  $1950/oz.
  • Japanese silver prices dropped from $7.26/ten grams to $6.74/ten grams

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Over the past month in, the Rare Earths MMI (Metal Miner Index) slightly dropped by 0.64%.

Over the past few decades, the US-China relationship has evolved into more of a rivalry than anything else. This has left the United States eager to decouple from China on several critical issues. One such issue is the supply of rare earths. After all, China refines almost 90% of the world’s rare earths. Moreover, the country is responsible for more than 50% of RE mining, as per figures given by International Energy Agency.

Rare Earths

A New Initiative to Shore up RE Supply Chains With Rare Earths

The US currently relies on two nations for its rare earth needs: China and Russia. We all know where the country stands vis-à-vis Russia. Fortunately, China remains on the US’ “friendlies” list – for now. Still, the Pentagon, the State Energy Department, and other organizations are expressing concerns about what would happen to the RE supply chain if China and the US ever went to war.

The US’ national defense stockpile includes minerals like titanium, tungsten, and lithium, to name a few. However, it still relies heavily on trade with China to keep the supply of these vital minerals rolling. It’s far from an ideal situation, but a new initiative might provide some much-needed security.

Just a few days ago, the State Department announced that the US and some key partner countries had established the Minerals Security Partnership (MSP). Put simply: the MSP is an “ambitious” initiative to bolster critical mineral supply chains.

Rare Earths

2022, Adobe Stock

Incidentally, the announcement was made in Toronto, Canada, during the Prospectors and Developers Association of Canada convention. Many might recognize this as the largest such mining event in the world. This implies that the State Department planned the news release to maximize impact.

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Emission Reduction is Also Part of the Plan

The other MSP partners include Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the UK, and the European Commission. According to the State Department release, the new partnership will aim to help “catalyze investment from governments and the private sector for strategic opportunities…that adhere to the highest environmental, social, and governance standards.”

In a report by Reuters, Jose Fernandez, the Under Secretary for economic growth, energy, and the environment at the State Department, was quoted as saying huge amounts of these minerals are needed to meet the US’ emissions reduction goals.

Rare Earths

2022, Adobe Stock

While neighboring Canada sits on large nickel and cobalt deposits, the US does not. Fortunately, the newly struck MSP should help resolve the issue.

So this renewed commitment to building a “robust, responsible critical mineral supply chain” seems strategically planned. Indeed, the statement came just a few days before NATO announced plans to adopt a new “Strategic Concept” for the coming decade at its summit in Madrid later this month.

Some Cheer for the United States

Fortunately, there was some good news on the US rare earths front this week. American Rare Earths Limited announced that its recent exploration drilling at its La Paz property in Arizona had shown some encouraging results. The organization said it had dug nine exploratory holes in April this year, and a preliminary study of the samples showed rare earth mineralization in most of the excavations.

The US Department of Defense also signed a US $120 million deal with Australia’s Lynas Rare Earths. This was to build one of its first domestic heavy rare earths separation facilities. A report in the Financial Times stated that Perth-based Lynas would export heavy rare earth carbonate. The resources would be mined and refined in Australia. Then, these commodities will ship to the US. where the individual elements would be separated for commercial use.

It also just so happens that Lynas remains the world’s largest rare earths producer outside of China.

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The Renewables Monthly Metals Index (MMI) rose by 2.27%. After trending downward since March, renewable resources finally saw a price boost.

Renewable Resources

Renewable Resources Partnership: Hydro Power and Air Battery Systems

According to an article from Renewable Energy World, Augwind, a company specializing in renewable resources and energy, has launched a collaboration with Voith Hydro. The two companies plan to install water pumps and other power systems into Augwind’s airbattery storage system. Augwind’s goal is to optimize performance levels for its energy network. With Voith Hydro’s help, the two companies could reach this solution together.

Augwind and Voith Hydro have numerous specialties. This includes, but is not limited to, hydro-energy, compressed-air batteries, and generators. With this many resources, the likelihood of the project panning out in due time remains high. However, achieving project goals could become much more difficult if renewable costs start to trend upward.

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Renewable Resources: Offshore Wind Power Makes Headway in New York

In New York, offshore wind power is getting a boost from start-ups that bring new and innovative technology resources to the table. The project aims to create a central offshore hub to add to the industry’s innovation network system. According to Equinor Wind’s President, Siri Espedal Kindem, “we are accelerating the development of the offshore wind industry in New York and beyond.”

The project launch is well-timed. Though renewable prices went up last month, MetalMiner also reported that steel prices dropped. The predominant material in most US windmill systems is, of course, steel. A drop in steel pricing could signal it’s the right time to initiate construction on the new offshore facility.

Despite this bit of kismet, offshore wind turbines still face a number of roadblocks. The first is that the industry in general faces a lack of funding. Another difficulty involves getting clearance to conduct offshore construction. However, with BP providing a staggering $250 million, the project for these renewable resources are well covered.

Grain-Oriented Electrical Steel Prices Rise by 3.53%.

In the Grain Oriented Electrical Steel/GEOS MMI index, prices continued their upward trend, rising by about 3.53%.

Renewable Resources

 

Electrical Steel Market in Europe Surpassing the US’ Electrical Steel Market

Newswire recently reported that the European electrical steel market will hit an estimated value of $16.9 billion by 2032. The article indicated that, with electrical resistivity on the rise, new research methods in electrical steel are being utilized. This trend should continue to push the use of materials like electrical steel sheets. According to Factmr, Europe’s current electrical steel market sits at an estimated $6.3 billion.

One reason for Europe’s aggressive use of electrical steel lies in electrical steel’s unique features. With magnetic properties that exceed other steel grades and forms, electrical steel boasts incredibly high permeability. Compared to other alternatives, it’s possible to get a lot more from the finished product.

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Electrical Power Amendment to the Defense Protection Act

On June 6th, the White House published an amendment to section 303 of the Defense Protection Act of 1950 to further clean energy initiatives. The amendment states that transformers and electrical power grids are critical for domestic defense and a more sustainable future. Therefore, the expansion of power grids and transformers is necessary. President Biden also noted that the country could not meet its required national defense needs without the amendment in place.

The amendment could indicate an oncoming demand for more GOES in the US. However, current US inflation rates may prevent such an outcome from coming to fruition. Rising costs will likely impact how fast the US can complete the power-grid and transformer projects.

So, while the need for transformers and GEOS certainly exists, the required funding may not.

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For US President Joe Biden, it’s a Hobson’s choice on Chinese solar panel imports. His new move to pause tariffs on imported Chinese-made silicone solar panels for two years has been either hailed or criticized.

The announcement came in the middle of an on-going investigation by the US Commerce Department. Possible trade agreement violations are being discussed, which surprised many in this sector.

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Getting the U.S. Solar Panel Market on Track

The US has been one of the slowest nations with solar energy. The latter is the fastest-growing energy source in the US. Betting on it means a faster reduction in demand for fossil fuels.

Silicone Solar Panel

2022, Adobe Stock

A US Dept. of Energy report recently pointed out that solar power has the potential to power 40% of the US’ electricity needs by 2035.

However, President Biden has a tough call to make. He could take more years to offer incentives to local manufacturers. This hesitation would mean a further delay in US solar projects. The other option would be to quickly go in for foreign manufacturers (read: largely Chinese). The maneuver would set up the required infrastructure in order to save time and get going.

Effect of Solar Panel Imports on American Manufacturers

Former President Donald Trump imposed a tariff on the import of solar panel to stop the influx of cheap goods. This consequently throttled the growth of the solar power sector. None of the follow up actions, like getting congress to appropriately fund American manufacturers have come through.

For example, President Biden has authorized the Defense Production Act (DPA) to accelerate domestic solar production. However, congress has not explicitly appropriated additional funding. As a result, the administration cannot use the DPA for solar projects.

Silicone Solar Panel

2022, Adobe Stock

The US requires a robust manufacturing capability to meet its clean energy goals. Right now, that’s not happening Biden supporters say. Manufacturing solar energy panels & other components requires the administration to offer financial incentives to US manufacturers. This helps offset higher domestic production costs, estimated to be about 40% over imports.

 

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U.S. Silicone Solar Panel Infrastructure Needs Stimulation

The US Congress continues to move in this direction, but it will take time to be implemented. For example, the house-passed Build Back Better Bill would extend the investment tax credit. The production tax credit would also encourage the production of solar panels. As a result, costs would go down down on overall production. An increase in manufacturing efficiency would also follow.

But time is something the US cannot no longer afford on green energy resources. Time constraints spurred Biden’s move to temporarily allow imports.

However, US companies and pro-US advocates are not amused and are crying foul.

This report tells a tale of caution to US solar firms. If the Commerce Dept. investigation rules that the Chinese dumped cheap goods, the US could impose retroactive tariffs up to 240%. This would drive up panel prices further. The ruling would also imperil half of planned solar projects on track for completion in the US this year.

Fluctuating Federal Policies Causing Industry Stress

A consultant with Solar Work’s Matt Smith speculated one way of avoiding Asian-related solar supply issues. One suggestion was to buy American source solar products from Canada. Another was to obtain products from a Norwegian firm distributed through Singapore.

Solar Panel

2022, Adobe Stock

US manufacturers are trying to grapple with the ever-changing federal policy. This issue being further compounded by the COVID-19 pandemic. Difficulties convince investors to finance domestic solar projects have arisen.

The new two year rule has put China in a happy place. The country was expected to add between 75 to 90 gigawatts (GW) of solar power in 2022. These numbers are higher than a record increase in capacity last year.

Wang Bohua, honorary Chairman of the China Photovoltaic Industry Association (CPIA) recently told delegates at a conference that China could add 83 – 99 GW of new capacity each year from 2022 to 2025.

With President Biden’s new diktat, this figure could climb further by the time 2022 comes to an end.

Copper prices rebounded sharply after declines in early May. While prices continue to find a bottom on a macro scale, they remain sideways in the short term. As a result, copper has been unable to establish a clear direction, either bullish or bearish.

The Copper Monthly Metals Index (MMI) fell by 2.89% month over month.

Copper prices fall 4.3% ahead of 0.75% rate hike issued by Fed

The anticipated 0.75% interest rate hike came to fruition on Wednesday. The hike marks the largest since 1994 as the Fed attempts to restrain rising, persistent inflation that hit 8.6% in May. Prior to the latest CPI data, markets expected another half-percentage-point hike followed from previous Fed meetings. In its June 15 press release, the Fed also indicated that it anticipates “ongoing increases in the target range will be appropriate.”

Ahead of its formal announcement, markets expectedly began to price in the Fed’s latest move. Copper prices saw an overall 4.3% sell-off during the week prior. Despite this, copper prices began to form a bottom on short timeframes following the press release. Nonetheless, prices sit substantially beneath their early March peak. The larger trend appears decidedly bearish. 

Ignore the noise. Spot the trend. Related article: The Art of Timing Your Metal Buy 

Indecision, division await vote on Chile’s new constitution

Chile awaits the completion of a new constitution. The constitutional assembly already voted to reject plans to nationalize key parts of its mining sector. However, if adopted, the new constitution will veer the country sharply left as it expands social rights and environmental protections. This will also create a National Health Service, include reparations related to historically Indigenous land and eliminate the Senate from the bicameral congress to create a Chamber of Regions instead.  

Copper

Adobe Stock, 2022

Revisions began on May 14 with the final draft slated for completion on July 4.  The document then enters a referendum. Chilean voters can either approve or reject the new constitution on Sep. 4 as decided by a simple majority.

While the path toward a new constitution began with 80% of the vote in the 2020 plebiscite, approval of the document remains far from certain.  According to a poll by the Center for Public Studies (CEP), respondents that would approve, reject or remain undecided stood at 25%, 27% and 37%, respectively. The remaining 11% either declined to answer or did not know. No clear path exists should voters reject the constitution come September. The poll also indicated should such a scenario play out, 42% of respondents favored a new draft, 31% favored a revision and 15% wanted the current constitution to remain unchanged. Polling reported by the Guardian, however, suggests support for such reform could wane. According to that data, 46% of respondents indicated intent to reject the latest draft while 38% approved.

All copper buying organizations need to closely follow these developments as Chile accounts for over 33% of global copper supply.

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Impact on copper

While the present draft managed to circumvent radical plans related to copper mining, the sector would see an impact should citizens approve the new constitution. Of note, article 25 requires miners to designate “resources to repair damage” to the environment from the negative effects of mining. The constitution will also include a ban on mining in glaciers and areas essential to protect Chile’s water system. 

According to an interview with Antofagasta CEO Iván Arriagada, most of the company’s current concerns relate to uncertainty of if a shift will occur come September. Depending on the final terms, adoption of the constitution could likely impact long-term investments for the company. Concern over the restriction of private water rights within the new constitution, however, remains largely overstated. The mining industry largely veered toward the use of seawater to operate facilities and will continue to move in that direction. 

The mining sector accounts for roughly 11% of Chile’s GDP. According to Chile’s Centre for Copper and Mining Studies (Cesco), a lack of exploitation of mineral resources would threaten Chile’s overall wealth by 20-25%. Although many of the social reforms remain popular among citizens, threats to mining investment could weigh down the initial widespread calls for reform. Should Chilean citizens approve the new constitution, limits to and additional price pressures on the mining industry would inevitably filter down to global copper prices.

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Actual metals prices and trends

  • The LME three-month copper price fell by 3.18% month-over-month to $9,510 per metric ton as of June 1.
  • Chinese copper bar declined by 4.18% to $10,679 per metric ton. Chinese copper scrap fell by 6.69% to $9,323 per metric ton. 
  • US copper producer grades 110 and 122 decreased by 1.85% to $5.29 per pound. Producer grade 102 fell by 1.78% to $5.51 per pound.

 

So far this year, on LME aluminum trading, inventory levels have directly correlated with price direction. Aluminum demand has outstripped supply causing falling inventory levels, and many assume prices are due to rise, except they’re not.

According to a Reuters report, LME inventories fell steadily this year with total inventory down by 479,000 metric tons in the first four months of 2022. Aluminum prices have been on a bear run since the beginning of March, coming down from a high of $3839/ton to $2577/ton. These numbers sit below the start-of-the-year level around $2813/ton. The WBMS reports that the aluminum market swung into a surplus for the January to April 2022 period of 400k tons.

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Lower Aluminum Supply with Deceptive Pricing

The headline on-warrant exchange stocks does not point to a fall in inventory. Instead, it indicates a switch from expensive on-warrant LME warehouse storage to less expensive off warrant. This is also called shadow stock. The trend points broadly downwards across both on-warrant and shadow stocks. Only a short term up blip in April for shadow stocks (which retracted back down in May) occurred.

Aluminum

Rolled aluminum products. Adobe Stock, 2022

Why didn’t the marketing respond with higher prices? If inventory continues to fall that must mean demand outstrips supply. Metals prices would go up not down.

Over the last 10-15 years the LME price failed to reflect the true market price. Not only to judge the cost to consumers but the reality of market demand. The physical delivery premium remains the measure to use.

Aluminum Premiums Rise and High-Energy Prices Induce Stress

To no surprise, the LME introduced a suite of financially settled delivery premium hedging products back in 2019. This acknowledgement indicated that only part of the story consists of traditional metals contracts.

Today aluminum physical delivery premiums sit on a near record highs of $600 per tonne over LME cash in the European market and $750 in the U.S. Midwest, effectively removing any incentive to deliver onto the market. Such eye watering premiums sit available for physical delivery. The physical delivery premiums show why exchange inventories continue to fall.

Aluminum

Aluminum scrap, Adobe Stock 2022

Aluminum and zinc smelters are closing across Europe due to record high energy prices. As a result, there’s little prospect of physical delivery premiums falling. Exchange inventories may fall further, metal prices could ease further. However, delivery premiums emerge as the only metric giving a true picture of the tightness of the market.

Does your company have an aluminum buying strategy based on current aluminum price trends? Look into MetalMiner Insights for in-depth aluminum price indexing. 

China COVID Lockdowns Ending May Effect Demand

The prevailing narrative shows demand is slowing and output is rising. The focus is on China gradually reopening after two months of COVID-19 lockdowns. However, there’s uncertainty if the Chinese economy will fully recover. SHFE price at a premium to the LME. Such exports only remain possible by the strength of the physical delivery premiums.

Continued high physical delivery premiums stands out as the likely trend. High power costs will likely sit here through 2023. If Chinese exports pick up further those delivery premiums could be at risk of a downside due to increased Chinese supply. Volumes are not sufficient enough to dent the localized metal scarcity in Europe or the USA. Demand will eventually hit recessionary forces which will reduce consumption. This will eventually lead to a softening of  sky high physical delivery premiums. This will finally bringing metal prices, delivery premiums and inventory levels into some semblance and normality.

The Construction MMI dropped by 9.41% from May into June. The decline comes amid growing optimism about the state of the industry. Even so, talk of recession continues to cast a shadow over the post-COVID economy.

Construction Metal

U.S. Construction Market Expected to Grow 3% by 2026

Despite the doom and gloom recession talk going on, industry insiders remain confident that the U.S Construction Market can trend up. In a report published by GlobeData, the $1.9 trillion industry can expect to see another 3% growth between 2023 and 2026. The organization cited new investments in renewable energy, housing, and transport to support its claims. They also clarified that the bulk of the growth comes from the residential sector, where demand remains at a boiling point.

Despite this optimistic outlook, GlobeData made it clear that output will likely remain low through 2022. They mentioned this stems from “subdued investor confidence amid a steep rise in construction costs.” While it’s true there is a light at the end of the tunnel, it’s too early to tell where the end lies.

To that point, some data suggests that housing supply and demand will soon take a back seat to cost…

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U.S. Housing Market Sees Drop in Building Permits, Rise in Commercial Projects

Reuters recently reported that building permits declined a full 3.2% back in April. Meanwhile, new home sales dropped 16.6%. Industry experts claim that soaring mortgage rates and increased costs are essentially cutting first-time buyers out of the market.

Considering that inflation upended so many industries, it’s hardly surprising that Americans are cooling on home ownership. The median home price surged 19.6% in the last year. This puts the average cost of buying a house at a whopping $450,600. It’s not exactly what you’d call “starter home” pricing, and it’s not likely to change anytime soon.

But while residential construction may be cooling off, U.S. commercial construction outlooks are  expected to soar. In fact, according to a Dodge Data and Analytics Report, a massive backlog of pre-pandemic projects waiting to break ground remains. Despite rising material prices and ongoing supply chain problems, commercial building continues looking up.

However, DD&A did qualify their prediction with a few stipulations. For instance, the company measures its start data in dollars, not the number of projects. This leaves the analysis open to misinterpretation amid rising inflation.

Still, DD&A remains adamant that the industry is “in the green.” In fact, if it weren’t for supply chain problems, they claim that we’d have a much more dramatic recovery.

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Construction MMI: China Looks to Outpace a Lackluster 2021

When it comes to the industry’s impact on the global Construction MMI, many experts look to China for answers. There’s no denying that China remains the biggest construction market in the world, worth well over $1 trillion in the U.S. However, the industry has been plagued by COVID-related issues for going on almost three years now.

A recent report published in Business Wire confirmed what a lot of people expected. First, the Chinese construction industry grew by only 2.1% in 2021, the lowest number since 2007. Fortunately, projections for 2022 are more optimistic. In fact, despite ongoing lockdowns and supply chain problems, the industry expects to expand by 4.5% by year’s end.

This is largely due to major government investments in “fixed-asset projects” in energy and transportation. Helping the report is the fact that several major projects broke ground at the end of last year. Among them are the $7.2 billion Wuhan Chow Tai Fook Financial Center and the $4.2 billion Qingdao Shenyuanhai Offshore Wind Farm.

U.K. Housing Demand Strong Amid Record Inflation

Construction economists at Arcadis recently revised their price forecasts to include inflation of up to 10%, a dramatic increase from the previous assessment of 5%-6%. The organization defended its new figures by citing how Russia’s war in Ukraine affected energy and material availability.

They went on to say that, “projects with a greater exposure to the steel market, including the logistics sector and some infrastructure sectors”, could see even higher inflation – up to 12% or 13%!

Despite all this, The Guardian cited demand for new homes surging all across the U.K. In fact, two of Britain’s biggest house builders, Crest Nicholson and Bellway, reported strong sales throughout Q1. So far, the trend has continued into Q2. Bellway expects to complete more than 11,100 homes before July despite supply bottlenecks. On top of that, the company reports that increased sale prices largely neutralized inflationary costs.

2021, Adobe Stock

In the U.S., there are indications that the housing market may start to cool off a bit. With the average cost of living soaring around the world, builders may run out of buyers. For now, the industry continues riding the wave. Still, they’re watching closely for signs of lessening momentum.

If you’re responsible for generating metal cost savings, you need to make sure you’re following these five best practices.

Construction MMI: Actual Metal Prices & Trends

  • Chinese steel rebar prices dropped 3.6% month over month, starting June off at $739 per metric ton.
  • European commercial 1050 sheet aluminum also dropped, declining 3.82% to $4,302 per metric ton.
  • H-beam steel from China registered a 4.57% decline to $720. The country’s aluminum bar prices declined 6% to just $3,112 per metric ton and continue to drop.
  • S. scrap steel fell a surprising 5.91% to just $525 a short ton.

The Automotive MMI (Monthly Metals Index) experienced a slight decline from May into June. The 30-day price change was roughly -9.55, a -6.52% drop. As with last month, multiple crises impacted the marketplace’s overall health. Among them are an ongoing microchip shortage and COVID-19 lockdowns. Below, we’ll discuss if and when we can expect normalization.

Automotive

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Inflation Causing Precious Metals to Become a Bit Less “Precious”

Gold, silver, platinum and palladium all experienced drops this month as U.S. Treasury yields soared by 3.39%. The news comes amid chronic inflation that seems to show no sign of dissipating. Indeed, as outlined in a Financial Times article, U.S. inflation clocked in at around 8.6% in May. This represents a 40-year high that could spell big trouble for the post-COVID economy.

Much of the market panic stemmed from a Wall Street Journal story predicting a 0.75 percentage point interest rate hike. In preparation for a surge in the dollar, precious metals declined across the board on June 13. In a report published in Reuters, Phillip Streible, the Chief Marketing Strategist for Blue Line Futures, said “There’s a massive correction going on, and when volatility gets that high, you can’t find safety or comfort anywhere.”

While gold and silver are largely investment commodities, palladium and platinum are key components in the automotive world. They are mostly used in catalytic converters for car exhausts, especially in newer, greener vehicles.

Last month, MetalMiner highlighted how newly imposed U.K. tariffs would affect Russia’s platinum and palladium markets. While the former is still climbing, palladium has long since erased those gains.

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The Automotive MMI revealed a 13% drop in palladium prices.

J.D Power Outlines Challenges in the Automotive Rebound

In an article from late May, J.D. Power reported that they expect new vehicle sales to drop significantly from 2021. Specifically, they projected May retail sales to reach just over 1 million units. When adjusted for the difference in selling days, that’s a 20.9% decrease from last May.

However, the company was quick to qualify its numbers, citing that demand far exceeds the available supply. Indeed, for the 12th month in a row, end-of-month retail inventories will be below one million vehicles. J.D. Power also highlighted record-breaking new-vehicle prices. The average transaction price is estimated at $44,832. This is helping to buttress the falling demand by boosting profits, even in the face of rising interest rates.

According to J.D.’s President of Data and Analytics, Thomas King, “for the balance of 2022, increased vehicle availability, higher interest rates and some cooling of used-vehicle values likely will lead to slower transaction price growth—but are unlikely to lead to declines.”

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China’s Automotive Industry Sees a Light at the End of the Tunnel

Back in April, China’s auto association projected a 48% year-over-year drop in car sales. Of course, this was during the height of the COVID-19 lockdowns. Since then, Beijing and Shanghai have loosened their restrictions while simultaneously providing cash incentives to stimulate buying.

According to a recent WSJ article, the efforts are already producing results. For example, passenger car sales rose 30% in May, from 1.04 million vehicles to 1.35 million. Though this number is down about 17% from last year, it clearly shows that things are moving in the right direction.

And while COVID continues to cast a shadow over the country’s economic recovery, the Chinese government’s efforts have largely proved successful. For instance, Beijing reduced the vehicle purchase tax to the tune of nearly $9 billion.

Meanwhile, local governments added their own incentives to the mix in an effort to produce the best possible numbers. It’s too early to tell what the rest of 2022 has in store. However, China is making a concerted effort to show the world they’re back on track.

Semiconductor Shortage Still Affecting Automotive MMI

The semiconductor shortage might be one of the biggest contributing factors to the automotive industry’s ongoing woes. In fact, industry experts at TheDrive.com estimate that lack of microchips has already cut global supply by more than 2 million cars. This estimate received a shot in the arm last month when Toyota announced it would cut its global production plan by around 100,000 vehicles.

According to an article from Reuters, this drops the overall production plan from nearly one million to only 850,000 vehicles. The automaker cited COVID-19 as a compounding factor in the decision, but stated that the chip shortage is the primary holdup. As of the announcement, the company’s promise to deliver 9.7 million vehicles by March 2023 remains intact.

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Automotive MMI: Actual Metal Prices & Trends

  • U.S. platinum bars rose 2.88% to $965. They also peaked at $994 per ounce, indicating that there’s still plenty of room for price movement.
  • Palladium bars fell a stunning 13.49% month over month and currently sit around $1,870 per ounce.
  • Both US Scap and HDG steel experienced drops this month. The former declined 5.91%, while the latter fell 8.81% to $1,736 per short ton.
  • Korean aluminum also fell around 5.59%, with first-day prices clocking in at $4.28 a kilogram.
  • Chinese lead dropped a full 4.44% to $2,255 per metric ton and has since declined even further.
  • On the LME, copper fell just 3.18%, starting the new month at $9.510 per metric ton.

 

 

U.S. steel prices continue to retreat. After consistent week-over-week declines, HRC prices now sit more than 15% beneath their late-April peak while plate prices continue to trade sideways as they remain just 6% beneath their all-time high.

Steel prices

The Raw Steels Monthly Metals Index (MMI) fell by 7.87% from May to June.

Know what to do when the market shifts. Related article: The Art of Timing Your Buy 

U.S. Manufacturing PMI climbed, Consumer sentiment plummeted

Steel pricesThe U.S. ISM Manufacturing PMI reached 56.1% in May. While the index climbed from April’s reading of 55.4, it marks the second-lowest reading since September of 2020. Domestic steel prices, particularly HRC, loosely mirrors the index trend. The index remains within a larger downtrend since it peaked in April of 2021.  

Of particular note, in spite of ongoing inflationary pressures, demand expanded as the New Orders Index grew from 53.5 in April to 55.1 in May. This data follows a 0.9% increase in consumer spending during April.

Meanwhile, according to preliminary data from the University of Michigan, consumer sentiment plunged to a record low between May and June. The index saw a 14% month-over-month decline, to hit its lowest recorded value at 50.2. June’s value compares to the low reached during the 1980 recession of 51.7 in May 1980. While overall consumer spending often diverges from sentiment, June’s consumer sentiment data may likely foreshadow a shift in spending trends toward necessities as consumers grapple with inflated prices. 

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Infrastructure funds could support steel prices in the longer term

According to the White House, states received more than $110 billion to fund projects related to the Bipartisan Infrastructure Law since the bill was signed into law 6 months ago. The released funds are earmarked for more than 4,300 specific projects, including those related to road, bridges, port and airport modernization and water infrastructure throughout the U.S. An additional $100 billion in requests for information and notices of funding availability have also been released. Spending related to the infrastructure bill will take place over the course of the next 5 years. 

In Fiscal Year 2022 alone, the U.S. Department of Transportation announced $52.5 billion in Federal Highway Apportionment and $246 million for the Appalachian Development Highway System.Steel prices

Unlike other forms of steel, plate prices remain near record highs, albeit with modest declines since late April. HRC, CRC and HDG prices declined alongside falling mill lead times. While plate did not see the same increase in production capacity as other forms of steel, mill lead times have nonetheless retraced for plate which would indicate availability constraints no longer remain a driver in persistently high prices. Infrastructure spending has and will create steady demand for plate. Due to Buy America provisions, the plate market will likewise remain substantially insulated from lower-cost imports.    

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April U.S. steel imports, production slide

U.S. steel imports and U.S. steel production started to soften. According to the U.S. Census Bureau, total U.S. imports of steel products saw an 11.68% decline from March to April. HRC, CRC, HDG and coiled plate imports saw respective 25.11%, 16.27%, 8.91% and 13.63% declines.

Meanwhile, according to the World Steel Association, crude steel production in the U.S. fell from roughly 7.0 million tons in March to 6.9 million tons in April. Further, April’s total reflects a 3.9% year-over-year decline. As steel supply both through imports and production slid on the back of continuous, across the board steel price declines (albeit modest for plate), this may likely prove to be an early indication of a downward trend for domestic steel demand in months to come. 

Actual steel prices and trends

Chinese slab prices increased by 8.11% month-over-month to $812 per metric ton as of June 1. Meanwhile, the Chinese billet price decreased by 4.71% to $667 per metric ton.

Chinese coking coal prices fell 2.23% to $524 metric ton.

U.S. three-month HRC futures fell 14.76% to $976 per short ton. While the spot price decreased by 8.92% to $1,338 from $1,469 per short ton. U.S. shredded scrap steel prices fell 5.91% to $525 per short ton.

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