Market Analysis

The Aluminum MMI increased eight points from last month’s reading, reaching its highest value since September 2014.

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This rise does not come as a surprise to MetalMiner, as aluminum was the strongest performer in August, increasing by 10.73% during the month.

Aluminum has awakened  from its previous sideways trend and now continues its previous uptrend.

Source: MetalMiner analysis of Fastmarkets

Some analysts do not expect more movements to the upside, as the supply and demand equation appears unclear. Positive data and increasing demand in China have supported aluminum prices so far.

However, Morningstar forecasts a decrease in Chinese demand. Meanwhile, Indian demand may not increase quickly enough to balance global demand.

On the supply side, Chinese curtailment of capacity remains uncertain. Similar to steel, the real impact of curtailments on production remain to be seen.

“Green” aluminum appears to be a new trend  among buying organizations. The difference lies in the use of renewable energy instead of fossil fuels in the smelting process. Premium prices have risen for this type of aluminum as demand continues to rise due to pressure on buying organizations to lower their carbon footprint.

What This Means for Industrial Buyers

MetalMiner believes that aluminum has broken a ceiling that it previously could not break.

The sideways trend that started at the beginning of this year served as a pause in a bullish market, which has just restarted. Trading volumes have supported this late uptrend, which makes the uptrend stronger.

Thus, buying organizations might expect more upward movements in the upcoming months.

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Actual Aluminum Prices and Trends

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The Construction MMI jumped eight points for our September reading, rising from 83 to 91.

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According to U.S. Census Bureau data released Sept. 1 for the month of July (the most recently available data), U.S. construction spending amounted to $1,211.5 billion, down from the revised June total of $1,219.2 billion.

However, construction spending from January-July amounted to $691.2 billion, up 4.7% from the $659.9 billion for the same period in 2016.

Spending on private construction dipped 0.4% to a seasonally adjusted annual rate of $945.5 billion, down from the revised June estimate of $949.4 billion.

As for public construction, the estimated seasonally adjusted annual rate of spending was $266.0 billion, 1.4% below the revised June estimate of $269.8 billion.

As for the individual metals in this particular basket, every single one posted a price increase for the month. Chinese rebar steel, H-beam steel, and aluminum bars all posted sizable price increases. The European 1050 aluminum sheet price also rose, as did U.S. shredded scrap steel.

ABI Shows Continued Upward Trend

Although overall spending was down in July, the Architecture Billings Index (ABI) painted a positive picture for the month.

The ABI, put out by the American Institute of Architects, showed architecture firms continued to grow. All four regions included in the ABI — South, Midwest, West and Northeast — posted an uptick in architecture billings on the month. With a score of 50 indicating no movement, the South and Midwest led the way with scores of 53.8, followed by the Northeast at 53.6 and the West at 50.9.

Another major takeaway from the survey was the increased interest in 3D printing.

“Almost 30 percent of architecture firms have some experience with the applications of this technology,” the ABI report read. “About half of these have used it in-house on billable projects, while others are testing it, outsourcing it, or have design partners, subcontractors, or construction firms that are using the technology. When last surveyed on this topic a little over a year ago, about 20 percent of architecture firms had some involvement with 3D printing, so adoption seems to be increasing at a brisk pace.”

NAFTA and Section 232

The Trump administration’s Section 232 probes into steel and aluminum imports have yet to be publicly concluded. As the world’s No. 1 steel importer, imposition of tariffs (or quotas) on imports would certainly have a ripple effect across all industries, including construction.

As for the North American Free Trade Agreement (NAFTA), the second round of negotiations concluded earlier this week, with the parties having reached very little in the way of breakthroughs, according to Bloomberg.

From a metal perspective, as mentioned before, an overwhelming majority of Canadian steel exports go to the U.S. As with Section 232, if Trump follows through on numerous threats to withdraw the U.S. from the 23-year-old trilateral trade deal, supply chains would be impacted.

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The Automotive MMI jumped four points to 94, up from 90.

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Major price jumps in the basket of metals relevant to the automotive sector, particularly copper, paced a strong month for the sub-index.

LME copper jumped 6.8%, as the metal hit a three-year high in August. U.S. shredded scrap steel rose 4.5%, while U.S. hot-dip galvanized (HDG) steel jumped 1.1%. U.S. platinum and palladium bars also posted sizable price jumps.

U.S. Auto Sales

Auto sales in 2017 have trended downward, which hasn’t exactly been a surprise given the record sales figures posted in 2016. Sustaining last year’s sales totals would have been a tall task.

However, the news hasn’t been all bad.

According to Autodata Corp sales data released Sept. 1, General Motors had a good month, selling 275,326 units — a 7.4% increase from sales in August 2016. GM’s light truck sales carried the day, rising by 16.5% compared with August 2016. In the year to date, however, sales overall remain down by 2.4% compared with the same time frame last year.

Ford sold 209,029 units, down 2.1% compared with August 2016. Ford’s year-to-date sales are down 4% compared with the same time frame in 2016.

Fiat Chrysler posted a 10.6% drop in sales in August compared with the same month last year, and a 7.7% year-over-year decline.

Tesla, meanwhile, albeit in much smaller volumes, posted a 6.8% sales jump in August compared with August 2016, selling 227,625 units last month. Year-over-year, however, sales are down 1.3%.

Meanwhile, down the sales list, it continues to be a good year for Subaru (8.1% year-to-date increase) and Mitsubishi (5.4% year-to-date increase).

Automakers See Sales Growth in China

Meanwhile, automakers had a strong month in the massive Chinese market, continuing a solid multimonth sales run.

According to Reuters, GM’s sales in China were up 12% in August compared with August 2016, and its January-August sales (2.38 million vehicles) are up 0.3% compared with the same period last year.

August was also a good month for Toyota and and Honda. Honda’s August sales in China jumped 20.6% and Toyota’s jumped 13.2%, according to the report.

Impact of Hurricane Harvey

In addition to the large-scale humanitarian crisis inflicted by Hurricane Harvey in southeast Texas and southwest Louisiana, the storm also will have an impact on the automotive market.

As our Stuart Burns wrote earlier this week, many in the regions impacted by the storm will, eventually, need to replace their damaged vehicles — or, in some cases, some might be looking to go with models more capable of traversing through high levels of standing water.

Unfortunately, there is precedent for just this sort of sales spike on the heels of a natural disaster.

Burns wrote: “By way of a comparison, Reuters cites the experience of auto sales in New York following Hurricane Sandy in October 2012. The following month, auto sales rose 49% compared to the previous year, with all the replacement sales caused by the widespread flooding of the New York metropolitan area arising in the few months following the disaster.”

An uptick in sales in the Houston market, already one of the most robust auto markets in the country, is expected.

Actual Metal Prices

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Commodities and industrial metals have historically moved in tandem.

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However, recent market dynamics highlight that this correlation has started to change.

Commodities have not moved past resistance levels, and instead have continued on a downtrend. Industrial metals traded sideways at the beginning of 2017, but have shown recent strength with the latest rally.

In the graph below, the green line represents the DBB index and the blue line represents the CRB index. The analysis at the bottom is the correlation between CRB and DBB index. It should be noticed that historically it has been positive.

Source: MetalMiner Analysis of FastMarkets

Why the Divergence?

First, readers should understand what exactly the CRB index contains.

Energy accounts for 39% of the CRB index, while agriculture is 41%. Base and industrial metals make up only 13% of the mix.

Thus, oil prices (what we actually look at as a critical indicator) have an outsized impact on the CRB index. Oil prices have been down since the beginning of 2017, as have commodities.

Oil prices. Source: MetalMiner Analysis of TradingEconomics

In terms of  industrial metals, most of the base metals have rallied this month. Aluminum, copper and zinc, particularly, were the best performers of the month. Prices have increased steadily and show strength to continue rising.

Steel forms seem to have lost a little steam, but prices are still increasing. Steel prices have been in an uptrend since November 2016.

Source: MetalMiner Index

Both steel and base metals price increases have contributed to the uptrend in industrial metals, which now appears to have taken off like a rocket.

What Can Buying Organizations Expect?

Even if the source of the current lack of correlation is clear, MetalMiner believes that one of the two (commodities or industrial metals) may show a change of trend at some point soon.

One can move the other, and that is why buying organizations should track price movements in each.

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To better understand how to adapt industrial metal buying strategies based on these dynamics, take a look at our Monthly Metal Buying Outlooks.

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Steel Market Update’s 2017 Steel Summit kicked off in Atlanta this week and the topic on everyone’s minds was Hurricane Harvey and the far-reaching impact it will have on the Houston region.

The humanitarian impact of Harvey cannot be overstated, but the economic impact on Houston, an industrial hub in the southern United States, will be felt in both the short- and long-term, with freight transportation at a virtual standstill (Port Houston operations resumed today, according to an alert on the Port Houston website).

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

According to SMU, FTR Transportation Intelligence reports up to 10% of U.S. truck capacity will be disrupted in the next two weeks.

“Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region, Noel Perry, partner at FTR, told SMU. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”

Gas Prices Surge

In response to fuel supply disruptions from Hurricane Harvey, average national gasoline prices grew to $2.37 per gallon earlier this week, and continued to surge to $2.51 Friday morning, according to the AAA website.

“It’s still really early to tell what this is going to mean for long-term supply,” Denton Cinquegrana, chief oil analyst at Oil Price Information Service, told SMU. “If some of these refineries are flooded, it’s going to take weeks to get the water out of there and then get into damage assessment.”

How will steel and base metals fare in 2017? You can find a more in-depth steel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

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Australia is sometimes called “the lucky country.”

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Although the phrase is usually meant positively to reflect its bountiful natural resources (and sometimes to its isolation from conflict and strife elsewhere in the world), the original meaning was not so complimentary.

At the start of the last chapter of Donald Horne’s book “The Lucky Country,” a passage reads  “Australia is a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise.”

Personally, my experience of Australians has been very favorable: there is no one we like better beating at sports, they have a good sense of humor and are one of the few societies that have maintained a reasonable work-life balance.

But maybe part of that comes from those bountiful natural resources, much like Norway and a few other mature but resource-rich economies. The country is partially supported by exports of commodities they have in abundance. The Reserve Bank of Australia estimated in 2014 that household incomes across the country were 13% higher than they would have been without the mining boom and real wages were 6% higher.

Just like a Norway without oil and gas, without iron ore, coal, natural gas and other natural resources Australia’s economy would have to work a whole lot harder to just tread water.

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Nickel prices maintained near nine-month highs mid-week, due in part to Chinese stainless steel mill demand and decreased supplies from the Philippines, a top exporter of ore.

According to a report from Reuters, nickel prices peaked earlier in the week to $11,885 a ton, its highest point since November 2016. Year-over-year, nickel prices are up more than 15%.

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“Stainless steel demand in China and elsewhere has surprised on the upside and talk about nickel consumption in lithium-ion batteries has helped,” Societe Generale analyst Robin Bhar told the news source.

“Supplies have been under stress,” Bhar added. “The Philippines exported less for various reasons, including monsoon rains, mine inspections and shutdowns. Some NPI (nickel pig iron) capacity has been shut in China because of environmental inspections.”

Nickel Lagging Behind in the Bull Run

Our own Irene Martinez Canorea recently wrote that nickel, along with tin and lead, are more reticent to join the bull rush with aluminum, copper and zinc.

She writes: “Even though the industrial metal outlook remains bullish, lead and tin seem to be behaving on their own terms. Buying organizations will want to pay careful attention to trading volumes in the coming month.”

How will nickel and base metals fare in 2017? You can find a more in-depth nickel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

Aluminum, copper and zinc have moved in a solid bullish manner. While nickel has joined these three base metals, tin and lead seems to be more reticent to join the bull party. 

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

Tin showed some weakness at the beginning of August, contrary to the other four base metals. In August, prices fell sharply. The tin price soon recovered, but still lacked the bullish sentiment. Trading volumes are not heavy, nor are prices breaking key resistance levels.

Source: MetalMiner analysis of FastMarkets

Lead has also showed some weaknesses during August, as prices fell with heavy selling volume. 

Source: MetalMiner analysis of FastMarkets

What Does This Mean for Buying Organizations?

For its forecast subscribers, MetalMiner defines different buying strategies for all of the base metals, as well as four forms of steel, depending on the price dynamics, together with trading volumes.

Even though the industrial metal outlook remains bullish, lead and tin seem to be behaving on their own terms. Buying organizations will want to pay careful attention to trading volumes in the coming month.

Free Download: The August 2017 MMI Report

Knowing when to buy forward and when to hold off on purchases can be a challenging activity for any procurement professional. MetalMiner’s Monthly Metal Buying Outlooks provide buying organizations with a clearer picture as to when to make purchasing decisions.

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The International Lead and Zinc Study Group (ILZSG) released its August report, which found the global market for refined zinc metal was in deficit during the first half of the year. Total reported inventories declined over that time, as well.

Global production from zinc mines grew 5.4% compared to the first half of last year, mostly due to a boost in output from Peru, India and Eritrea.

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Furthermore, zinc production suffered in places like Canada, Thailand, Peru and the Republic of Korea, leading to an overall worldwide increase of just 0.5% after factoring in growth in places like France, Brazil and India.

The ILZSG report stated: “Despite a decrease in Chinese apparent demand for refined zinc metal of 2.1%, global usage rose by a marginal 0.6%. This was mainly due to increases in the United States and Taiwan (China).”

Gauging the Zinc Price Ceiling

Our own Fouad Egbaria wrote just last week that zinc has really hit its stride, recently hitting its highest price point in more than a decade ($3,180.50).

Just how high can the zinc price fly? Reuters’ Andy Home states:

“But right now the LME zinc market is bubbling away with stocks falling and spreads tightening. Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580?”

How will zinc and base metals fare in 2017? You can find a more in-depth zinc price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

Bizarrely, although zinc prices have soared this year on the back of demand for galvanized steel for construction, further strength this week may have been heightened by a loss of investor appetite for those same steel products.

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

Following booming steel prices this year, the Shanghai exchange increased trading charges last week in an effort to curb speculative activity. Steel prices have consequently slumped by 3.5% as investors got out of steel and into steelmaking raw materials with lower transaction charges, such as zinc.

Surging Shanghai zinc prices have in turn encouraged a rise in the London Metal Exchange price, hitting a peak of $2,994 per metric ton — not seen since October 2007, Reuters reports.

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