Market Analysis

In case you missed it, our latest round of Monthly Metals Index (MMI) reports is in the books.

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Last month was a busy one, as countries scrambled to win exemptions from the U.S.’s Section 232 steel and aluminum tariffs. South Korea, Australia, Argentina and Brazil won long-term exemptions. The E.U., Canada and Mexico, meanwhile, received 30-day extensions on their temporary exemptions, pushing the deadline for implementation vis-a-vis their exports to June 1.

In addition, the announcement of sanctions against Russian companies and their owners — including Russian aluminum giant Rusal — saw the aluminum price surge to a more than seven-year high amid concerns about supply. The price, however, came back down to earth after the U.S. Treasury extended its deadline for businesses to wind down operations with the Russian firms on their initial list and opened the door to the easing of sanctions if oligarch Oleg Deripaska steps down from his role with Rusal.

In other MMI highlights:

    • The Aluminum MMI picked up six points for a May reading of 100.
    • U.S. imports of grain-oriented electrical steel (GOES) dipped significantly in April compared with the previous month.
    • LME copper prices also continued to bounce back after a short-term downtrend in Q1.
    • Gold demand in Q1 was at its lowest level in 10 years, according to the World Gold Council.

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Read about all of the above and much more by downloading the May MMI report below.

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India has been champing at the bit ever since the United States imposed a 25% import tariff on steel and 10% on aluminum imports to protect its own industry.

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Last week, India told an informal meeting of heads of delegations at the World Trade Organization (WTO) that the U.S.’s move was an abuse of global trade provisions that could spiral into a trade war, the Economic Times reported.

India raised concerns and warned that this had a “clear risk of spiraling into a trade war” since it would prompt other countries to take retaliatory measures. The U.S. Department of Commerce in February had found that the quantities of steel and aluminum imports “threatened to impair national security.”

On March 8, the U.S. enacted the tariffs, invoking national security. (Since then, South Korea, Australia, Brazil and Argentina have won long-term exemptions, while the E.U., Canada and Mexico have temporary exemptions which are now set to expire June 1 after a 30-day extension was recently announced.) After the March announcement, several countries — China, India, the E.U., Russia and Thailand, among others — called upon the U.S. to enter into safeguard consultations.

India, specifically, said it would lodge a trade dispute against the United States at the WTO if Washington did not exempt it from the higher tariffs.

Following an outcry, U.S. President Donald Trump agreed to suspend their imposition until May 1 for Argentina, Australia, Brazil, South Korea, Canada, Mexico and the European Union — but India was not included on this list.

The U.S. had also rejected a request from India to enter into what are called safeguard consultations at the WTO.

India said it considered the U.S.’s measure to “be an emergency action/safeguard measure within the meaning of Article XIX of the General Agreement on Tariffs and Trade, 1994, (GATT 1994) and the Agreement on Safeguards.”

“As an affected member with significant export interest to the United States for the products at issue,” India said it wants “consultations with the United States pursuant to Article 12.3 and Article 8.1 of the Agreement on Safeguards and Article XIX:2 of the GATT 1994.”

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The U.S. said that under Section 232 of the Trade Expansion Act of 1962, Trump determined that tariffs were necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the U.S.

India has over-promised and under-delivered on so many fronts over the decades.

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Home of the world’s largest and, despite its young age and huge diversity, still thriving democracy, it has promised growth to rival China. Apart from brief bursts of activity, it has generally failed to live up to its plaudits expectations.

One reason often cited, apart from chromic infrastructure and the legacy of a British love of bureaucracy, is endemic corruption.

Graft had become so deeply engrained in Indian business culture that many had written the country off from delivering sustainable long-term growth for its hundreds of millions of poor. The relatively very few rich got richer while the miserably small middle class grew so painfully slowly compared to China that many thought India would never haul itself out of its emerging-market status.

But critics had not factored in Narendra Modi. While not everyone would support his Hindu-biased populism, he has brought immense progress to India, overcoming entrenched interests with a politically astute skill and dynamism.

There is still a long way to go, but a recent Economist article describes how he has taken the fight to the ruling business elites in a blitzkrieg campaign to dismantle tycoons’ practices of personalizing gains and socializing losses.

Founding shareholders of Indian companies have long made use of a loophole of Indian corporate law that prevents banks from seizing companies in default on their loans, so owners of companies can run their organizations badly or, worse, suck out funds for personal gain with little fear of losing their money-making enterprise.

The system has actively perpetuated this system with a bunged up judicial system that takes months, if not years, to hear cases and state banks’ lending to firms on the basis of personal connections rather than sound business-lending principles. This cronyism was almost encouraged by officials not wanting banks to post losses, such that state banks are kept afloat by the government yet are carrying massive debts which will never be repaid.

Modi’s government new bankruptcy code came into force in May 2016. After almost two years of preparation, the first big cases have hit the headlines last month, The Economist reports. The fate of 12 troubled large concerns amounting to 2.2 trillion rupees ($33.4 billion) of non-performing debts is due to be settled within weeks. Another 28 cases worth a further 2 trillion rupees are set to be resolved by September. Between them, these firms account for about 40% of loans that banks themselves think are unlikely to be ever be repaid. In total some 1,500 companies are said to be insolvent, according to The Economist.

A new set of dedicated courts, backed by a cadre of insolvency professionals, is on hand to help banks seize assets and sell them to fresh owners, the article states. To focus the minds of both bankers and borrowers, if no deal can be cut within nine months the firm is shut down and its equipment sold for scrap.

As a result, those looking for cheap, distressed assets are already circling for pickings from the current 12 and 28. Such turmoil on this scale will create a short-term drop in investment as firms hold off to see what becomes available. In the longer term, the process of death and renewal will probably be highly dynamic for the economy.

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It will also focus the minds of today’s Indian tycoons on running their businesses better and courting political favor less. Indian business is shifting focus from “who you know” to “what you know,” which is definitely a good thing for the health of the country in the future.

The Raw Steels Monthly Metals Index (MMI) increased one point this month, moving up to 89. Domestic steel price momentum seems slower than at the beginning of 2018, as domestic steel prices traded more sideways.

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Domestic steel prices remain at a more than seven-year high.

May 1 served as the most recent steel and aluminum tariff exemption deadline. The government announced that the country-specific exemptions would continue to remain in effect for another 30 days (until June 1). The exemptions will likely turn into quotas for several countries, following a similar trade agreement as the one reached with South Korea.

Quotas will weaken the impact of Section 232. The details of the trade agreements could come during May.

Source: MetalMiner data from MetalMiner IndX(™)

Meanwhile, Section 301 seems to have gone unnoticed by buying organizations, despite its potentially bigger effect. If applied, Section 301 contains a proposal for 25% tariffs on a list of products from China. These products include not only steel or aluminum, but also secondary products used in many industrial sectors.

The Section 301 Committee will convene a public hearing May 15. May 22 will serve as the due date for submission of post-hearing comments.

Domestic steel prices have found support. Although price momentum has slowed, steel prices have  not yet fallen.

Chinese Steel Pricing

Chinese prices have fallen since the beginning of 2018. In May, Chinese prices increased slightly. It is still too soon to see this slight increase as a change of trend. The latest price movement may have more to do with increased Chinese steel exports in April.

Source: MetalMiner data from MetalMiner IndX(™)

Despite U.S. tariffs, customs data shows higher Chinese steel imports arriving to U.S. ports. The 25% steel tariff on Chinese imports went into effect on March 23. Higher Chinese exports (and incoming imports in U.S. ports) come as a result of the divergence in U.S. and Chinese steel prices. U.S. steel prices skyrocketed, while Chinese prices fell.

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What This Means for Industrial Buyers

As steel prices remain high, buying organizations may want to closely follow price movements to decide when to commit to mid- and long-term purchases.

Buying organizations looking for more clarity on when to buy and how much to buy may want to take a free trial now to our Monthly Metal Buying Outlook.

The MetalMiner GOES Monthly Metals Index (MMI) dropped nine points this month to 179. This price drop runs counter to the wider steel market in which prices continued to increase throughout April.

The U.S. grain-oriented electrical steel (GOES) coil price fell again this month, dropping 4.7%.

Not surprisingly, import levels dropped abruptly, going from over 3,000 tons in March to not even 1,000 tons in April.

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The Section 232 tariffs and 301 investigations have spooked importers.

Source: MetalMiner analysis of ITC trade data

Last month, MetalMiner reported that no buying organization had yet to apply for an exemption to the Section 232 tariffs. That changed this month as Nachi American Incorporated filed five exclusion requests citing lack of U.S. availability.

The exclusions covered:

  • 37mm X 600mm X 1830mm Hot Rolled M2 High Speed Steel Sheet
  • 14mm X 600mm X 1800mm Hot Rolled M2 High Speed Steel Sheet
  • 22mm X 350mm X 1500mm Hot Rolled M2 High Speed Steel Sheet (Cut Length)
  • 30mm x 406.40 x 2250mm M42 High Speed Steel Flat Bar
  • 69mm X 508mm X 1500mm Hot Rolled M2 High Speed Steel Sheet

The M42 falls under the tool steel category. Nachi American Incorporated imports these five grades from its parent company, Nachi-Fujikoshi Corp. of Japan. All five of the exclusion requests appear to cover products made in the U.S. However, the only U.S. producer of the M2 grades can only produce widths up to 920mm., according to published data.

What About the Section 301 Investigation?

The 301 investigation includes a number of grain-oriented electrical steel (GOES) products including those with HTS Codes: 72261110, 72261190, 72261910 and 72261990, basically “alloy silicon electrical steel (grain-oriented) of various widths.”

However, the 301 investigation does not include either transformer parts (8504.90.9546) or wound cores (8504.90.9542) both of which could come into the U.S. under current the prevailing market treatment.

No additional information has been released with regard to this investigation since our last monthly GOES article.

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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.

In May, the Stainless Steel Monthly Metals Index (MMI) once again inched one point higher. The current reading stands at 77 points.

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The subindex inched higher driven by increasing LME nickel prices. Meanwhile, other related metals in the stainless steel basket traded flat. Chinese ferrochrome alloy decreased for the second consecutive month, this month by 3.2%.

LME Nickel

In April, LME nickel prices increased sharply, following some of the other base metals uptrends (such as aluminum and copper).

LME nickel prices went up to $16,685/mt and then corrected. LME nickel prices in May remain in an uptrend, with current prices around $13,900/mt.

Source: MetalMiner analysis of FastMarkets

LME nickel prices remain in a long-term uptrend that started back in June 2017, when LME nickel prices hovered around $8,900/mt.

However, nickel price momentum seems slower now than it was back in 2017.

Since February, LME nickel prices have traded more sideways. Buying trading volume still supports the uptrend, which may result in increasing nickel prices in the coming months.

Domestic Stainless Steel Market

Following the recovery in stainless steel price momentum, domestic stainless steel surcharges increased again this month. The 316/316L-coil NAS surcharge reached $1.01/pound, while the 304/304L-coil NAS surcharge increased to $0.71/pound.

Source: MetalMiner data from MetalMiner IndX(™)

After last month’s sideways trend for NAS stainless steel surcharges, the uptrend has started again. The 316/316L-coil NAS surcharge is currently moving toward the January 2013 peak of $1.12/pound. The surcharge has breached previous high peaks already.

China Stainless Steel Market

An abundance of stainless steel in China came as a result of new production in Indonesia. The Chinese-owned stainless company Tsingshan started production last August in Indonesia, with an annual capacity of around 3 million tons by the end of 2018. This annual capacity equates to 6% of last year’s global stainless steel capacity.

Due to this increased production, China became a net importer of hot-rolled stainless coil already in December 2017 for the first time in more than seven years, according to the International Steel Statistics Bureau. Chinese stainless steel stocks have risen, while Chinese stainless steel prices have not. In fact, Chinese stainless steel price currently trade sideways.

The current divergence between increasing LME nickel prices and Chinese stainless steel prices, plus increasing stainless steel stocks, may drive some mills to cut production. 

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

What This Means for Industrial Buyers

Stainless steel price momentum appears to be strong this month, as stainless steel surcharges increased sharply.

With nickel in a bull market, buying organizations may want to follow the market closely for opportunities to buy on the dips. Hedging nickel may result in potential savings opportunities for buying organizations.

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

The May Aluminum Monthly Metals Index (MMI) increased six points. Skyrocketing LME aluminum prices drove the subindex value increase. The current Aluminum MMI subindex stands at 100 points, 6.4% higher than in April.

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LME aluminum price momentum recovered strongly in April. LME aluminum prices reached a more than seven-year high.

Source: MetalMiner analysis of FastMarkets

LME aluminum prices fell slightly at the end of the month. However, this movement appears as a price correction from previous highs. LME aluminum prices increased again at the beginning of May, showing a strong uptrend.

The Reasons for Aluminum Volatility

LME aluminum price volatility came as a result of U.S. sanctions levied April 6 on Russian companies and their owners.

Russia is the world’s second-largest aluminum producer (accounting for 6% of world production). Therefore, the sanctions created the alarm of supply shortages in the U.S., along with all international markets outside China.

However, the U.S.Treasury Department delayed the first due date for the sanctions until Oct. 23, at which point investors must divest or transfer debt and equity and industrial metal buyers must wind down pre-existing long-term contracts.

The delay in the aluminum sanctions eased LME aluminum prices; however, the market has tightened significantly.

SHFE Aluminum

Given the current alarm bell around aluminum and aluminum product shortages outside China, the country may see increased exports, despite U.S. tariffs. Therefore, market observers will want to follow SHFE aluminum prices closely.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese SHFE prices traded similarly to LME prices. However, the degree of the SHFE price increase appears to be less sharp.

Chinese SHFE stocks fell for the first time in nine months (since June 2017) to 970,233 mt, according to exchange data.

U.S. Domestic Aluminum

As a result of the ongoing uncertainty in the aluminum market, U.S. aluminum Midwest premiums increased again to $0.19/pound, climbing to a more than three-year high.

At the end of April, the country-specific aluminum (and steel) tariff exemptions for the E.U., Canada and Mexico were extended until June 1. The decision came  just hours before the temporary exemptions from the tariffs expired.

The final agreements have not yet been released, but the government suggested that quotas will replace tariffs. This action could ease U.S. Midwest premiums.

What This Means for Industrial Buyers

The LME aluminum price retracement in April presented buying organizations with a good opportunity to buy some volume, as prices increased again later in the month.

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

Adapting the right buying strategy becomes crucial to reduce risks. Given the ongoing uncertainty around aluminum and aluminum products, buying organizations may want to take a free trial now to our Monthly Metal Buying Outlook.

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The Rare Earths Monthly Metals Index (MMI) lost one point this month, dropping to 20 for our May reading.

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Within this basket of metals, yttrium dropped slightly, while terbium oxide fell 7.8%. Neodymium oxide dropped 7.9%.

Europium oxide fell 0.9%. Dysprosium oxide fell 4.2%.

A New Source?

As those who follow the rare earths metals market know, China has long boasted dominance in the sphere.

However, a recent discovery in Japan could lessen China’s dominance in the market down the road.

According to a CNBC report, a study last month said a “semi-infinite” supply of rare earths has been discovered under Japanese waters.

According to the study, the seabed area where the rare earths were discovered “contains more than 16 million tons of rare-earth oxides.”

Rare earths are coveted for their application in high-tech products, like cellphones and computers. As such, the materials are vital for Japan, which is a major player in the tech industry.

As Reuters reported in 2014, Japan sought to lessen its dependence on Chinese rare earths, looking to secure 60% of the materials from outside China.

What Does the Discovery Really Mean?

The aforementioned discovery made a big splash last month in global headlines, but how immediate could returns from the discovery be?

According to a rare earths primer published by the Nikkei Asian Review, those returns won’t exactly come any time soon.

“One major problem, though, is the depth,” the Nikkei Asian Review reported. “The metals are buried beneath waters as deep as 5,600 meters — too deep to extract with existing technology. The next step for researchers and companies will be to figure out how to reach them.”

The news source goes on to note that given the cost-prohibitive nature of rare earths, many companies are looking for alternative materials for their high-tech products. As such, the basket of metals could become gradually less coveted over time.

For now, however, any discovery of a potential new supply source in the rare earths sphere is inevitably going to be a cause for celebration, even if extraction is not currently possible.

Tesla and Cobalt

It has been a turbulent couple of months for electric carmaker Tesla, which has taken a beating in headlines lately, particularly on the heels of what many deemed a dismissive performance from Elon Musk vis-a-vis analysts’ questions during last week’s quarterly earnings call.

However, in supply news, Musk offered insight into the company’s stance on cobalt, used in electric vehicle batteries.

As mining.com reported, Musk last week said Tesla’s nickel-cobalt-aluminum batteries contain less cobalt than other electric car batteries on the market, noting their battery “is already lower than next-generation cathodes that will be made by other cell producers with a nickel-manganese-cobalt ratio of 8:1:1.”

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Cobalt is coveted by the electric vehicle industry for its application in batteries, but it is notorious for significant price swings. A majority of the world’s cobalt is mined in the Democratic Republic of the Congo, where political instability often impacts the metal’s price.

The Copper MMI (Monthly Metals Index) increased one point in May. Stronger LME copper prices led the increase.

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LME copper prices recovered previous price momentum and increased in April. At the beginning of last month, LME copper prices fell. At this point, buying organizations had an opportunity to buy some volume.

LME copper prices then recovered and moved toward the $7,000/mt level. LME copper prices have also risen so far this month.

Source: MetalMiner analysis of FastMarkets

Despite a falling copper short-term trend at the beginning of 2018, LME copper prices remain in a long-term uptrend. Therefore, buying organizations can expect further copper price increases.

In May, most of the prices that comprise the Copper MMI basket increased. LME copper rose by 1.5% this month. Indian copper prices increased by 1.33%, while Chinese primary copper prices increased further by 2.03%. Prices of U.S. copper producer grades 110 and 122 rose by 1.06%. Meanwhile, the price of U.S. copper producer grade 102 increased by 1.01%.

Copper Bullish Narrative

The fundamentals also support LME copper prices. Forecasts suggest copper demand will grow this year, while copper mine supply appears unsecured. Therefore, the balance for demand and supply in 2018 could result in a deficit, as it previously did in 2017.

Mitsubishi Materials Corp., Japan’s third-biggest copper smelter, might increase refined copper production by 7% in the April-September period this year. Production in this period will reach 187,374 tons. The increased production comes as a result of stronger domestic copper demand, mainly in the automobile and semiconductor sectors (where copper is used).

The pace of copper demand growth will likely increase and  continue until 2020 due to  construction in anticipation of the Olympic games.

India’s copper consumption has increased over the last few years. Local demand has grown  at a 7-8% rate per year. If the country’s consumption rate increased, India will become a net importer of copper by the end of March 2020.

In April, Vedanta Resources Plc, one of India’s biggest copper smelters, had its renewal of consent to operate its copper smelting plant rejected. The plant remains closed due to scheduled maintenance. The company planned to double capacity at the smelter to 800,000 tons per year. This closure may create more copper imports over the next few months.

Has the EV Boom Lost Its Relevance?

Despite the EV boom that pushed some base metal prices up in 2017, copper demand corresponding to this electric-vehicle sector does not appear strong enough.

Copper demand for the EV sector could reach 1.5% of global copper consumption in 2018. The EV demand for copper will likely increase up to 3% in five years.

Chinese Scrap Copper

Since the announcement of the ban on copper scrap in China last summer, MetalMiner has followed Chinese copper scrap prices closely.

Source: MetalMiner data from MetalMiner IndX(™)

LME copper prices and Chinese copper scrap prices follow the same trend. Both appear to be in a long-term uptrend. However, the latest LME copper price increase appears sharper than Chinese copper scrap prices.

In addition, the spread between Chinese copper scrap prices and LME copper prices appears wider. The wider the spread, the higher the copper scrap consumption — and, therefore, the price. However, this equation may not play out as formulated here, depending on the U.S. Section 301 investigation. The investigation could lead to an additional 25% tariff to copper electric conductors and copper winding wire. Chinese copper products and buying organizations purchasing those could see price increases.

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What This Means for Industrial Buyers

LME copper prices recovered from their previous lows and increased in April, remaining in a long-term uptrend. Therefore, buying organizations could expect further copper price increases.

Buying organizations reading the Monthly Metal Outlook had the opportunity to identify the buying signal at the beginning of April and reduce price risks by purchasing some volume.

For those who want to understand how to reduce risks, take a free trial now to MetalMiner’s Monthly Outlook.

Lithium batteries. konok1a/Adobe Stock

We normally associate Cornwall in England with scones and cream teas … or, if we are really metal nerds, we associate the sometimes sunny southeast country of the British Isles with mining (particularly with tin mining).

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The area dominated with igneous morphology has been mined since Roman times for tin, copper and a number of other metals.

But one metal, not surprisingly, that has never featured is lithium. I say “not surprisingly” because up to the end of the last century, it barely featured as a metal of value.

Nickel metal hydride batteries dominated the small appliance world and lead acid still served the rest. This century has seen an exponential growth in the use of lithium-ion batteries, from iPhones to electric cars to massive storage barns. The growth has been such that fears are mounting of a market shortage in the next decade, fueled in no small part by state support for electric vehicles (EVs) in Asia.

In fact, so urgent has the situation become that Chinese and Japanese battery makers are quietly buying into or buying up lithium deposits around the world to ensure they have secure supplies.  Currently, Europe consumes around 25% of the world’s lithium, but is dependent on imports from Australia, Chile, Argentina and China.

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