Market Analysis

The Stainless Steel MMI (Monthly Metals Index) jumped six points this month, with a reading of 71. This reading ran higher than November’s (70), which then dropped to 65 for December before bouncing back for our January reading.

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Skyrocketing LME nickel prices drove the Stainless Steel MMI. However, 304 and 316 Allegheny Ludlum surcharges fell slightly this month.

LME Nickel Makes Big Jump

As reported previously by MetalMiner, nickel price volatility has increased over the past few months.

Nickel prices jumped from the $10,600/metric ton level in October to almost breaching MetalMiner’s current $13,000/mt ceiling.

Source: MetalMiner analysis of FastMarkets

Trading volume remains strong, aligned with the recent popularity of nickel in the base metals complex. Besides stainless steel, nickel’s popularity has increased due to usage in batteries and electric cars. Q4 brought more activity for metals that have a direct impact on electric cars.

Nickel macro-indicators may support this latest rally.

The nickel deficit will continue this year. The International Nickel Study Group (INSG) reported a wider nickel deficit again in 2017, now up to 9,700 tons. A nickel supply deficit may add support to the nickel bullish rally and could create additional upward movements this year.

Buying organizations may want to be aware of these movements to identify opportunities to buy on the dips.

Chinese Stainless Steel

As reported by the International Stainless Steel Forum (ISSF), global stainless steel production increased by 7.4% during the first nine months of 2017. China drove the gains, with an increase in production of 8.8%. Stainless steel prices decreased around 7% in East Asian ports.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese stainless steel coil prices increased slightly this month. Chinese prices remain higher than they were in Q2. However, there has not yet been a clear uptrend that signals prices may increase soon.

Domestic Stainless Steel Market

Despite the recovery in momentum of the Stainless MMI, NAS domestic stainless steel surcharges traded sideways this month. Despite trading flat, stainless steel surcharges remain well above last year’s lows (under $0.4/pound).

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Stainless steel momentum appears in recovery, similar to all the other forms of steel.

However, due to nickel’s high price volatility, buying organizations may want to follow the market closely for opportunities to buy on the dips.

To understand how to adapt buying strategies to your specific needs on a monthly basis, take a look at our Monthly Metal Buying Outlook or you can take a free trial now. 

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President Trump is not unused to controversy — some say he even courts it.

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So, a recent proposal following an executive order signed last April to widen energy exploration should come as no surprise.

The draft Five-year Outer Continental Shelf Oil and Gas Leasing Program has been enthusiastically welcomed by the oil and gas industry but vociferously opposed by a cross-party coalition of governors, lawmakers, environmental groups and the military.

The proposal is to open up 25 out of 26 regions of the outer continental shelf in which oil and gas exploration had been banned by former President Barack Obama near the end of his term. The ban blocked drilling about 94% of the outer continental shelf, but the Department of the Interior said the new proposal would open up 25/26 regions on the Eastern seaboard, the Californian coast, the Gulf of Mexico and in the Arctic.

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After last month’s drop, the Aluminum MMI (Monthly Metals Index) index increased by three points. The current Aluminum MMI index reads 98 points, 3.2% higher than the December reading. 

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In December, MetalMiner anticipated a rise in aluminum prices … and that is exactly what happened.

Aluminum prices increased by 10.6% in December, reaching a more than two-year high.

Source: MetalMiner analysis of FastMarkets

Trading volumes appear strong and accompany the current uptrend. Moreover, aluminum’s latest peak has climbed over previous ones, signaling strength in its latest market rally. Other macroeconomic indicators, such as a weaker U.S. dollar and a stronger CRB index driven by higher oil prices, may continue to support aluminum prices.

Moreover, the Department of Commerce’s Section 232 investigation should see a report released mid-January, which will also impact prices. The U.S. Department of Commerce announced a new self-initiated anti-dumping and countervailing duty investigation on imports of Chinese common aluminum alloy sheet at the end of November. The U.S. has launched several anti-dumping campaigns for aluminum products this past year.

Crude Oil

As oil prices serve as a critical part of the CRB index, together with other base metals, buying organizations need to monitor oil price trends.

Moreover, there are some base metals, such as aluminum, that are strongly influenced by oil prices.

Crude Oil prices. Source: MetalMiner analysis of Trading Economics

Oil prices have increased again this month. Current oil prices remain above our bullish level signal, meaning that we could  expect some more upward movement for oil.

Similarly, increasing oil prices will continue to provide support to base metals prices.

Aluminum Scrap

Chinese aluminum scrap prices increased sharply this month and appear in a long-term uptrend since 2016.

The latest rally in both LME and SHFE aluminum prices also results in a jump in aluminum scrap prices. Chinese scrap prices increased by 4.9% this month.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Aluminum prices jumped sharply again this month. After sharp price increases, base metal prices sometimes pull back to digest the previous gains. Aluminum prices may lack some price momentum this month, although that continues signaling bullishness for the light metal.

Therefore, adapting the “right” buying strategy becomes crucial to reduce risks by knowing when to buy.

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The Copper MMI (Monthly Metals Index) jumped five points to 88, driven by skyrocketing LME copper prices. LME copper prices increased by 6.4% in December.

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LME copper prices are back again over the $7,000/metric ton level. Moreover, copper prices breached a previous peak, signaling strength in the rally. Trading volume also remains heavy, supporting the uptrend.

Source: MetalMiner analysis of Fast Markets

Despite skyrocketing in December, copper prices fell slightly during the first few days of January. However, that does not signal any weakness for the rally yet, as prices increased for the entire previous month. Therefore, copper prices may take a little breather this month to digest previous gains.

The U.S. Dollar

Copper and the U.S. dollar have a negative correlation. This means when the the U.S. dollar appears high, copper prices tend to trade lower.

Right now, we see just the opposite.

The U.S. dollar. Source: MetalMiner analysis of Trading Economics

Some analysts believed that the U.S. dollar had turned the corner and had started to recover. Despite the Fed rate hike in December, the U.S. dollar has continued to fall. The U.S. dollar has also seen heavy selling volume, which suggests more weakness.

Typically, the U.S. dollar trades lower when commodities and base metals trade higher. Copper (Dr. if you will) tells us much about commodities because the dollar has such a great influence on its price (direction).

Therefore, buying organizations will want to follow U.S. dollar price trends closely.

Copper Scrap vs. LME Copper

The price divergence between copper scrap and LME remains wider than historical spreads; though, this month, both moved in tandem.

Chinese copper scrap prices increased by 5.76% this month, compared to the 6.4% jump in LME prices.

Although these two don’t increase by the same amount, they tend to follow a similar trend. Data from both reflects a clear uptrend that appears sustainable, at least for the short term.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

During December, buying organizations had opportunities to buy some volume. The relevance of the price jumps increases when the U.S. dollar shows weaknesses and all the base metals show strength.

Therefore, as copper prices remain bullish, buying organizations may want to “buy on the dips.”  For those who want to understand how to reduce risks, take a free trial now to MetalMiner Monthly Outlook.

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The Construction Monthly Metals Index (MMI) lost a point for our January reading, falling to 94 from 95.

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In terms of metals prices, it was a mixed bag for this group. The Chinese rebar price fell 4.8%, while Chinese H-beam steel rose 3.1%. U.S. shredded scrap steel also dropped 3.5%. European commercial 1050 aluminum sheet posted gains of 1.1%, while Chinese aluminum bar fell 6.3%.

U.S. Construction Spending

According to U.S. Census Bureau data for November (the most recently available month), total construction spending amounted to $1,257 billion, up 0.8% from the revised October estimate of $1,247.1 billion.

The November spending figure was 2.4% above the November 2016 estimate of $1,227.0 billion. In addition, through the first 11 months of 2017, construction spending amounted to $1,138.3 billion, or 4.2% above the $1,091.9 billion for the same period in 2016.

Private construction spending in November was at a seasonally adjusted annual rate of $964.3 billion, or 1.0% above the revised October estimate of $955.1 billion. Residential construction was at a seasonally adjusted annual rate of $530.8 billion in November, 1.0% above the revised October estimate of $525.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $433.5 billion in November, 0.9% above the revised October estimate of $429.7 billion.

Meanwhile, public construction spending, at $964.3 billion, was 1.3% above its October total.

Strong Growth for Architecture Firms

As tracked by the Architecture Billings Index (ABI), put out monthly by the American Institute of Architects, November proved to be a strong month for architecture billings.

Per the November ABI report, the billings ABI rose to 55 from last month’s 51.7 (a score of 50 indicates no growth).

“New project inquiries, as well as new design contracts coming into architecture firms, also signified healthy growth,” the report states. “As such, indicators broadly point to very solid business conditions at architecture firms as 2017 winds down.”

The uptick in design activity is in large part attributable to the strength of the economy, the monthly ABI report indicates: “GDP has grown at a 3 percent annualized rate through the second and third quarters this year. In the fourth quarter, our economy is likely to grow at about this same pace, and 2018 looks to see overall domestic economic gains in the 2.5 to 3.0 percent range. Strong consumer sentiment scores suggests that households are getting more comfortable with the direction of the economy as well as with their own financial situation.”

The report adds a strengthening labor market as another factor behind the rise in design activity. According to the report, there was a net gain of 228,000 payroll positions nationally in November, and annual 2017 numbers likely will hit at least a 2 million net gain for the sixth straight year. In terms of construction, specifically, there was a net gain of 24,000 construction positions in November, with 2017 gains “potentially as high as 200,000.”

By region, November was a strong month for the West, which led the four regions tracked in the ABI. The West region tallied a score of 54.8, ahead of the South and Northeast (each at 52.8) and the Midwest (50.4).

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Gold has defied interest rate rises and record equity markets to rally to its highest level in more than three months, the Financial Times reported this week.

Rising more than 6% since early December to over $1,300/ounce — its highest level, the paper reports, since September 2015.

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Gold is normally considered a safe-haven asset and a store of wealth in times of financial stress and uncertainty. So, why the surge in demand?

Performance of the U.S. Dollar

The U.S. and Europe are both expanding and emerging market growth is set to top 5% this year. One theory is the weakness of the U.S. dollar — as the dollar falls, all commodities priced in the currency become relatively cheaper and therefore more attractive to buyers in other currencies.

The dollar has been the worst performer of the G10 currencies in 2017, falling some 10% over the year. Investors also have expectations of higher inflation in the U.S. due to President Donald Trump’s tax reforms and a rising oil price, which often stokes inflation is seen by some as a risk. But while the dollar is attributed with the majority of the rise in gold, it may not be the whole story.

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The Automotive MMI posted no movement for our January reading, sticking at 97 after a four-point jump from November to December.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The January MMI reading — which tracks the sector’s December performance — has risen significantly in the last 12 months. The sub-index posted an 82 for its January 2017 reading.

Within the basket of metals, U.S. HDG steel and LME copper had big months. For the former, the metal rose 5.5% during the period in question, while Dr. Copper jumped 6.4%.

U.S. Auto Sales

It was a down month for General Motors, which saw its sales drop 3.4% year-over-year in December 2017, with 308,112 units sold, according to sales data released Jan. 3 by Autodata Corp. GM thus closed the year with sales dropping 1.4% from its 2016 total.

Ford, meanwhile, saw its December sales rise 1.3% year-over-year, with 240,910 units sold in the month. As for the year-end numbers, Ford’s sales drop was less than GM’s, with a 0.9% dip compared to 2016 sales for the company.

Further down the sales list, Fiat Chrysler‘s December sales dropped 10.7% year-over-year and were down 8.2% for the year.

Fiat Chrysler wasn’t the only one to have a rough month. Toyota‘s December sales were down 8.3% year-over-year, while Honda‘s (7.0%) and Nissan‘s (9.5%) were also down.

Volkswagen dropped 5.4% in December compared with December 2016, but came out ahead in 2017, with sales rising 6.1% at year’s end compared with the previous year.

While Mitsubishi‘s absolute sales don’t come in near the top of the list, it had a good year in the U.S. market, selling 103,686 units in 2017 — up 7.7% from 2016 sales. In December, Mitsubishi’s sales rose 15.1% compared with December 2016.

Record Sales in 2017 for Tesla, But Struggles with Deliveries

Meanwhile, Tesla’s year was a two-sided tale.

As Business Insider UK reported, the electric vehicle (EV) maker hit record sales in 2017, but struggled with deliveries of its new Model 3.

The challenge for Tesla, of course, is transforming from a still relatively niche brand — catering to those who check the boxes of environmental mindfulness and being financially well off — to a mainstream automotive manufacturer capable of meeting demand with consistency.

It’s still unclear whether Tesla can do that, but EVs aren’t going away either way. Of course, Tesla isn’t the only player in the game, and competition in the EVs sector will only continue to grow in 2018 and beyond.

Eyes on China

A big year is ahead for automotive sales in China.

And it’s not just about this year — according to William C. Ford Jr., executive chairman of Ford, the future of EVs will be led by China.

“When I think of where E.V.s are going, it’s clearly the case that China will lead the world in E.V. development,” he told The New York Times.

Speaking of Ford, last month the automaker announced plans to collaborate with e-commerce conglomerate Alibaba. 

“Under the three-year agreement, both companies will jointly explore areas of cooperation that are re-shaping the automotive industry in China and around the world,” a Dec. 7 Ford news release states. “Ford will cooperate with Alibaba’s four business units in operation system, cloud computing, digital marketing and online retail respectively – namely AliOS, Alibaba Cloud, Alimama and Tmall – and jointly explore a variety of areas of cooperation including mobility services, connectivity, cloud computing, artificial intelligence and digital marketing.”

Ford President and CEO Jim Hackett also underscored the importance of China.

“China is one of the world’s largest and most dynamic digital markets, thriving on innovation with customers’ online and offline experiences converging rapidly,” he said in the release. “Collaborating with leading technology players builds on our vision for smart vehicles in a smart world to reimagine and revolutionize consumers’ mobility experiences.”

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After hitting a low of below $43/barrel in mid-2017, the oil price has risen inexorably to its highest level since 2015, according to the Financial Times. Rising some 35% since July, Brent crude hit over $67/barrel as hedge funds heap long positions despite the market, by most accounts, still being in surplus.

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OPEC’s alliance with Russia and a few other non-OPEC producers has certainly restricted supply (and the market is tighter as a result). However, the U.S. Energy Information Administration forecast in December that U.S. oil production would rise by 780,000 barrels a day in 2018, as prices continue to increase.

But for the first time in several years, the talk is more about demand and geopolitical risk than about excess supply.

Venezuela is rapidly imploding with output from the world’s second largest proven oil reserves failing steadily. Iranian unrest has added further anxiety for fear the protests could continue and possibly begin to impact output. Meanwhile, one-off crises like cracks found in a major North Sea pipeline and a fire in Austria have added a sense of vulnerability to the market that wasn’t there just a few months ago.

“Geopolitical risks are clearly back on the crude oil agenda after having been absent almost entirely since the oil market ran into a surplus in the second half of 2014,” the FT quotes Bjarne Schieldrop, chief commodities analyst at SEB.

Meanwhile, though, the elephant in the room is stirring.

U.S. shale production is on the rise and U.S. exports are also increasing sharply, offering the potential to undermine global markets. Platts estimates in its December 2017 Insight report U.S. crude exports could average 2 million b/d by 2019, having already nearly breached this figure in late September. The capacity is in place to export 3 million b/d now and will be closer to 4 million b/d during 2018, Platts reports.

Source Platts

Nor is rising supply from U.S. shale the only source of supply-side excess.

New projects in Brazil and Canada could add as much as rising U.S. exports matching rising global demand and leaving the market at best in a balanced state. For now, the bulls have the market by the horns — to muddle my metaphors — but 2018 will see a fascinating tussle between OPEC-led cutbacks and growing supply from the Americas.

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On the plus side, strong global growth, both among mature and emerging markets, is lifting demand. For the time being, the bulls are in the ascendancy and it would be a brave wager to bet against them in the short term.

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Tata Steel has a couple of things going for it in the new year — but before we get into that, 2017 was a bit kinder to it than the preceding two years.

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And we are not saying that, but the CEO and MD of Tata Steel, T.V. Narendran himself, told a gathering of employees and some reporters here recently that 2017 was somewhat better than the previous two years for the company.

Looking Back: A Recovery in Steel Demand, Prices

In 2014, Tata Steel dealt with some of the challenges relating to the closure of its mines because of changes in regulations. The next year, it dealt with the challenge posed by neighboring China, which had increased its export volumes globally (including to India). Tata Steel continued to perform and grow in these two years, Narendran said.

According to him, 2017 saw “a recovery in global steel demand, prices and trade,” leading to better-than-expected performance by India’s steel sector. The year, he added, not only saw India becoming the third-largest steel producer in the world, it managed to successfully reverse the trend of increasing imports, as it became a net exporter.

Narendran was also positive on India’s National Steel Policy 2017, which draws up a long-term road map for steel.

Another point which went in favor of the steel sector, Narendran pointed out, was the rollout of the Goods and Services Tax (GST), which had positive implications across the company’s value chain in India.

The Year Ahead

Tata Steel has big plans for 2018.

Its board recently approved an expansion from 3 million tons (MT) per annum of its Kalinganagar plant in Odisha province to 8 MT. The plant’s expansion will be completed in four years and is expected to meet demand in automotive, general engineering and other valued-added segments. The project will be funded through a mix of both debt and equity, according to the board.

Meanwhile, Tata Steel Ltd has initiated the process of raising U.S. $2.15 billion in six-year syndicated loans as part of its $5.1 billion loan program to refinance its existing debt. It has already appointed a domestic investment bank to manage the issue. The Indian steelmaker is seeking $2.15 billion in six-year syndicated facility to refinance loans in the books of TS Global Holdings Pte and NatSteel Asia Pte on an immediate basis.

Analysts, too, seem positive regarding Tata Steel’s performance in the coming years. Credit Suisse, for example, has maintained an “Outperform” rating for the company.

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Citigroup has said Tata Steel Ltd notes that management had indicated plans to double capacity in five years. Tata Steel’s plans to double capacity in five years providing growth visibility, while attractive M&A and the Tata-Thyssen joint venture could take the stock higher. Strong spreads, captive India iron ore, improving leverage and reasonable valuations should benefit the company, said its analysts.

Everyone loves a forecast, a prediction, even a few ideas on what the future holds, and we become particularly obsessed with such ideas at the start of a new year.

So, we thought it would be fun to review a few sources’ suggestions on what 2018 may hold, some as specific predictions like those in the Financial Times, and some as possible standout black swan events that could catch us off guard, such as those in The Telegraph newspaper.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Firstly, some of the Financial Times’s suggestions. They came up with 20 of them, but many are political and somewhat niche for our readership, like whether or not Britain’s Prime Minister Theresa May still be in power by the end of 2018. It’s a topic only the Brits are obsessed with and as it’s not exactly going to roil international markets one way or the other, we will ignore it here, as will non metal-market issues, like whether the AT&T-Time Warner merger will go through without big changes to both.

However, of more interest are questions like “Will Trump trigger a trade war with China?” Yes, in the FT’s opinion. The paper believes Trump will deliver on his protectionist campaign rhetoric and take punitive actions against China in 2018, resulting in China either imposing retaliatory measures or taking America to the World Trade Organization (WTO). (While on the Trump train of thought, another ditty from the FT is “Will the president will be impeached in 2018?” — or, at least, whether or not proceedings will be brought against him by the end of the year.)

Back to China, the driver for metal markets will be Chinese demand and Chinese GDP growth. At least officially, growth will continue to headline at 6.5% throughout 2018, the FT believes, although it clearly does not believe the official figures and makes the point real growth will be somewhat lower. Emerging market growth overall is expected to rise above 5% through 2018 despite the U.S. Federal Reserve increasing rates, which could spark taper tantrum spoilers (as in 2013). Even so, emerging market growth is expected to remain robust, aided by ongoing strong growth in the U.S. and Europe.

Political Turmoil Shakes Things Up Worldwide

Politically, 2018 could be an interesting year.

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