Market Analysis

The Renewables Monthly Metals Index (MMI) fell two points this month for a May MMI reading of 101.

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World Bank Launches Climate-Smart Mining Facility

As the world moves toward sourcing a larger and larger share of its total energy needs from renewables, the environmental impact of mining for metals needed for renewable energy has come into focus.

In that vein, on May 1 the World Bank announced the launch of a Climate-Smart Mining Facility, dubbed as the “first-ever fund dedicated to making mining for minerals climate-smart and sustainable.”

“The Facility will support the sustainable extraction and processing of minerals and metals used in clean energy technologies, such as wind, solar power, and batteries for energy storage and electric vehicles,” the World Bank said in a release. “It focuses on helping resource-rich developing countries benefit from the increasing demand for minerals and metals, while ensuring the mining sector is managed in a way that minimizes the environmental and climate footprint.”

According to the release, the World Bank is targeting an investment of $50 million over five years toward the goals of sustainable mining.

The new Climate-Smart Mining Facility is inspired by a World Bank reported released in 2017, titled “The Growing Role of Minerals and Metals for a Low-Carbon Future,” which examines the role of mining in a future of low- or zero-carbon energy sources (the full 2017 report is available here). For example, demand for lithium, graphite and nickel is expected to skyrocket in the coming years (by 965%, 383% and 108%, respectively, by 2050).

Paradoxically, attempts to augment renewable energy usage also come with negative environmental impacts stemming from the mining of minerals needed for renewable energy installation.

“While the growing demand for minerals and metals offers an opportunity for mineral-rich developing countries, it also represents a challenge: without climate-smart mining practices, the negative impacts from mining activities will increase, affecting vulnerable communities and environment,” the World Bank said.

Rio Tinto was among the miners to express support for the initiative.

“The transition to clean energy solutions presents both a significant opportunity and responsibility for the mining industry, as it provides the materials that make these technologies possible,” Rio Tinto CEO Jean-Sebastien Jacques said.

“We want to be part of the solution on climate change and the best solutions will come from innovative partnerships across competitors, governments and institutions. Our collaboration with the World Bank and many others is aimed at making a real difference by promoting sustainable practices across our industry. We look forward to supporting the Climate-Smart Mining Facility by contributing not just funding but also expertise as a leader in sustainable mining practices.”

Glencore Reports Q1 Cobalt Production Rose 56%

Multinational miner Glencore recently released its Q1 production figures, reporting production of 10,900 tons, up 56% compared with Q1 2018.

However, elevated levels of uranium found in cobalt mined at its Katanga operation in the Democratic Republic of the Congo resulted in no cobalt sales from the mine in Q1.

“From April 2019, the export and sale of a limited quantity of cobalt, complying with appropriate regulations, was allowed to resume,” the company said in its production announcement. “Such resumption of exports remains subject to the relevant DRC export procedures, which include continued monitoring by the relevant authorities.”

Glencore’s full-year 2019 cobalt production guidance came in at 57 kt (+/- 4), up from 42.2 kt in 2018.

Grain-Oriented Electrical Steel

The GOES MMI, MetalMiner’s subindex tracking grain-oriented electrical steel, fell one point this month for a May MMI value of 175.

The GOES price fell 0.5% to $2,412/mt.

In other news, German firm Thyssenkrupp’s proposed joint venture with Tata Steel does not appear likely to receive European Commission approval (Thyssenkrupp is a GOES producer).

In September 2018, the two companies announced plans to merge their European operations, forming what would become Europe’s second-largest steelmaking entity.

In October 2018, the European Commission launched an investigation, citing concerns that the merger might lead to higher prices and fewer choices for consumers in the European market.

On Friday, Tata Steel released a statement indicating approval of the JV is unlikely.

“Based on the Statement of Objections published by the Commission, a comprehensive package of remedies was offered covering all the areas of concern highlighted by the Commission,” the firm said. “The remedies offered were developed considering the overall industrial strategy for the proposed joint venture, the integrated and complex nature of the supply chain to service customers and the need to build a sustainable business which would be able to endure the structural challenges faced by the European steel industry. However, the feedback from the Commission based on the market test it has undertaken suggests that it is unlikely to clear the proposal in spite of the significant remedies offered.”

Actual Metal Prices and Trends

Japanese steel plate picked up marginally, hitting $771.83/mt as of May 1. Korean steel plate fell 0.5% month over month to $596.95/mt. Chinese steel plate rose 0.8% to $650.01/mt. After trading flat last month, U.S. steel plate fell 3.5% to $962/st.

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The neodymium price fell 9.7% to $50,086.40/mt. Chinese silicon fell slightly to $1,528.56/mt, while cobalt cathodes fell 0.4% to $98,688.70/mt.

The Raw Steel Monthly Metals Index (MMI) dropped 1.2% this month, down to an index reading of 80.

Weakness in the index once again came from U.S. domestic steel prices.

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U.S. prices showed weakness of late with HRC, CRC, HDG and plate prices dropping slightly again for the second month in a row.

Source: MetalMiner data from MetalMiner IndX(™)

This brings prices back down to around February levels, when these four forms of steel initially turned around from recent price declines (after reaching historical highs in April 2018).

A Comparison of U.S. and China Steel Prices

The spread between U.S. HRC and Chinese HRC narrowed between March and April, dropping to $161/st from $183/st in March.

Based on preliminary May numbers, the gap looks poised to close further, with a preliminary drop to $120/st based on early May prices.

U.S. HRC Prices and the U.S.-China Price Spread

Source: MetalMiner data from MetalMiner IndX(™)

Compared to HRC, the spread between CRC prices remains relatively flat, with a drop of just a few dollars between March and April. However, the gap looks to narrow more significantly based on early May prices, with a gap of $223/st (down from April’s $240/st price difference).

Waning Demand in Steel-Intensive Sectors

Construction and housing showed some weakness recently, according to the most recently available U.S. Census Bureau figures.

Total construction spending for March dropped below February by 0.9%, totaling around $1,228 billion. Additionally, the sector looks flat since last year, with this March’s figure coming in below last March, when expenditures on construction totaled $1,293 billion, marking a 0.8% drop.

Q1 expenditures look essentially flat compared with last year, with a 0.2% increase.

The durable goods sector has showed strength, with new orders up for four of the previous five months through March, according to the U.S. Census Bureau, with orders for transportation equipment growing the most.

Reuters reported lower auto sales for April, with the sales decline attributed to rising prices and fewer incentives offered, especially on lower-end models.

In addition, consumers turned to the used market in larger numbers this year due to higher prices, as costs of new vehicles increased this year.

What This Means for Industrial Buyers

Steel prices showed weakness lately, with the monthly index on a gentle decline during the past two months.

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Actual Raw Steel Prices and Trends

U.S. HRC futures spot and 3-month prices both declined this month, in excess of 5%, both at $654/st.

Korea’s scrap steel price, currently at $150/mt, dropped significantly after a similarly sizable increase last month, with both the increase and subsequent drop in excess of 16%.

Chinese prices showed some strength, although not across the board. Most notably, Chinese HRC prices increased by 5% to around $600/mt, while steel billet increased over 3% to $551/mt.

The Stainless Steel Monthly Metals Index (MMI) declined this month, dropping by two index points to 69. A few of the prices in the basket registered fair declines, with nickel prices showing weakness.

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LME Nickel

The LME primary nickel 3-month price decreased nearly 8% over the course of April. While prices showed strength early in the year into March, prices faltered and began to trade sideways.

Source: MetalMiner analysis of FastMarkets

More recently, however, prices appear on a declining trend, which could indicate a pricing correction, rather than a shift in trend.

Source: MetalMiner analysis of FastMarkets

However, with negative volume still high — as indicated on the weekly chart of LME nickel prices with trading volume shown along the bottom — the correction remains in progress.

China’s Economic Performance Matters for Prices

The present global economic outlook could be characterized as uncertain in the face of ongoing trade talks between the U.S. and China.

After much press early in the year over China’s slower rate of growth, with forecasts shifted downward at the start of the year, the FXI — an index of large-cap Chinese companies — surprised the market with a show of strength.

Source: MetalMiner analysis of Yahoo.com data

Chinese stimulus measures helped bolster the economy’s performance. Recently, however, the boost seemed to lose steam; meanwhile, the FXI uptrend waned.

The U.S. Economy Grew in Q1; Some Sectors Lagged Behind

Economic indicators continue to fluctuate into 2019, for both the U.S. and China.

For example, while Q1 growth appeared stronger than expected in the U.S., construction spending and new home starts showed weakness in March, while new auto sales slowed this year. China’s performance remains mixed, with auto sales also weak there.

Domestic Stainless Steel Market

This month, the 304/304L-Coil and 316/316L-Coil NAS Surcharges dropped to $0.63 and $0.92 per pound, respectively, from $0.64/pound and $0.93/pound at the beginning of April.

What This Means for Industrial Buyers 

Downward-trending prices provide good news for industrial buyers, with stainless steel prices showing weakness this month overall.

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Actual Stainless Steel Prices and Trends

Stainless steel prices showed weakness, with price declines hitting the subindex.

In particular, LME nickel prices fell 7.9% month over month to $12,210 mt. Primary nickel prices in China and India fell by 3.5% and 5.8%, respectively, with Chinese primary nickel averaging $15,412/mt and Indian primary nickel averaging $12.49 per kilogram.

No, we’re not talking about Eddie Murphy and Dan Aykroyd (although we do love that classic film).

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The Global Precious Monthly Metals Index (MMI) has just entered a two-month downtrend, with global trade uncertainties and other economic worries serving as a backdrop. Platinum and palladium are once again taking center stage.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies decreased one point to 94 for the May reading — a 1.1% drop — driven by drops in U.S. gold, silver and platinum prices.

While both platinum and palladium prices dropped last month, in May only palladium began the month lower, while platinum bumped up a bit. This tangible — yet potentially insignificant — short-term reversal of fortune for those two platinum-group metals (PGMs) stands in stark contrast to the previous trend: a huge divide over the past year and a half or so in the platinum-palladium spread, with the latter metal holding a vast premium to the former, which continues today.

Based on MetalMiner IndX data, the U.S. palladium price fell 2.6%, down to $1,365 per ounce, for the month of May. Meanwhile, the U.S. platinum price rose 4.5%, clocking in at $886 per ounce.

Palladium still holds at nearly $100 per ounce higher than the gold price, which stood at $1,283 per ounce in the U.S. at the beginning of the month — down only a few dollars per ounce over the previous month.

Platinum and Palladium (and Gold and Silver) Perspectives

This one-month price trend reversal looks to align with the longer-term forecast as well, according to some analysts.

“Palladium will cost an average $485 an ounce more than platinum this year – a record breaking premium – but the gap will narrow in 2020 as the rally fizzles out and platinum recovers after an eight year downturn,” a Reuters poll showed, according to this article.

“The poll of 27 analysts and traders conducted this month returned a median forecast for palladium to average $1,350 this year – its highest annual average ever – and $1,275 in 2020,” the article stated. “That prediction is higher than a similar poll three months ago which forecast prices of $1,200 this year and $1,150 in 2020.”

Meanwhile, Goldman Sachs stated in a recent analyst report that “we think that lack of substitution by auto companies will lead palladium to continue to outperform platinum,” according to Kitco News.

The investment bank went on record as saying, “Palladium is also set to benefit more than platinum from tighter environmental restrictions in China,” and “as such we reopen our long palladium-versus-short platinum trade recommendation.”

Goldman is also bullish on gold and bearish on silver.

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Their analysts “are trimming their [gold] forecasts to $1,300 an ounce for three months, $1,325 for six months and $1,375 for a year from now.” For silver, they listed “three-, six and 12-month silver forecasts of $14.50, $15 and $15.50 an ounce, down from $15.50, $15.50 and $16 previously,” according to the Kitco News article.

The Rare Earths Monthly Metals Index (MMI) held flat this month for a May value of 19.

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Lynas Saga Continues in Malaysia

As we’ve noted in previous installments of the Rare Earths MMI, Australian rare earths miner Lynas Corp. continues to deal with regulatory challenges at its Malaysia operations.

Lynas, the largest miner of rare earths outside of China, is facing two conditions from the Malaysian government regarding the renewal of its license to operate in the country (which expires in September 2019).

The conditions from the Malaysian government related to disposal of two forms of industrial waste.

“We also continue to engage in ongoing discussions with the government to seek to resolve the remaining issues related to the pre-conditions for Lynas’ licence renewal, as detailed further below,” the company said in its Q1 earnings report. “We have restated our commitment to Malaysia, to being a valuable contributor to the economy and to playing a vital role in supporting the development of Malaysia’s 4.0 Industries.”

Tensions have picked up after comments from Malaysian Prime Minister Mahathir Mohamad last month.

“So what we have done is we have opened up the business to other people, and there are other companies willing to buy up or somehow or other acquire Lynas, they have given us a promise that in future before sending the raw material to Malaysia they will clean it up first, they will crack it and decontaminate it in some way with regard to radioactivity, so that when the raw material comes here, the volume is less and the waste from that raw material is not dangerous to anybody,” the prime minister said.

Lynas said it had reached out to the Malaysian government for clarification regarding the prime minister’s comments.

Meanwhile, last month two groups of protestors, representing Malaysian environmental groups and Lynas workers, raised their voices on the issue.

According to a Reuters report, members from each group provided statements to government representatives, with the group representing environmental interests calling for the suspension of Lynas’ license, while Lynas workers touted the plant’s role as a source of jobs.

Actual Metal Prices and Trends

The yttrium price fell 0.4% month over month to $33.39/kilogram as of May 1. The terbium oxide price rose 0.6% to $468.21/kilogram.

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Neodymium oxide plunged 8.9% to $39,698.10/mt. Europium oxide dipped 0.4% to $38.59/kilogram. Dysprosium oxide jumped 0.6% to $220.38/kilogram.

The Copper Monthly Metal Index (MMI) dropped slightly this month, from 79 last month to an index value of 78 for May.

Mild price decreases of less than 1% hit nearly all the prices in the index, with the exception of the Japanese copper cash price (which increased by less than 0.5%).

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LME copper prices struggled to hold onto $6,500/mt during the past couple of months and recently dropped back again to trade in the $6,200/mt range.

Source: MetalMiner analysis of FastMarkets

Looking at the bright red line, the price now trades below the uptrend line drawn from the start of 2019, indicating price weakness.

At best, the price is stuck trading in a sideways band at the moment.

From a technical perspective, it appears that we may have recently seen the completion of what is called a “short-term double-top” type of formation — albeit a fairly short and flat one — which indicates further price declines (see points A and B).

Weakening Global Growth Impacted Copper Prices

Looking at recent trading volume — moderate but negative for several weeks now — prices seem likely to stay in flat territory for the foreseeable future. However, unlike some of the other industrial metals, copper managed to hold some of its price gains made this year.

Source: MetalMiner analysis of FastMarkets

Recent demand concerns have led to weakening prices. According to Codelco Chief Commercial Officer Roberto Ecclefield, demand for copper should grow by 2.3% this year, while mine production could slip by 0.5%, with smelter output flat. Therefore, he does not see this price slump lasting long.

According to Bloomberg, Codelco also forecasts a shortage in concentrate as new smelter capacity in China coming online this year increases competition for supplies, with the shortage growing during the second part of the year.

What This Means for Industrial Buyers

Copper’s bullish sheen receded of late, so now is the time to watch the market carefully for buying opportunities.

For more specific guidance, following our support and resistance price guidelines, request a free two-month trial of our Monthly Metal Buying Outlook.

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Actual Copper Prices and Trends

This month, most of the copper prices in the index fell; however, all of the price decreases were mild at under 1%.

India’s copper cash price decreased by nearly 1%, as did China’s primary cash, copper bar and copper wire, as well as the LME primary 3-month price.

The May Aluminum Monthly Metals Index (MMI) held flat at 88 for the third month running, with gains in Chinese aluminum prices negated by weak LME prices.

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LME aluminum prices trended downward throughout April, down to recent January 2019 lows. However, prices seemed to find support again around $1,800/mt in the early days of May.

Source: MetalMiner analysis of FastMarkets

The price basically retraced back to January lows, losing all of the gains made during 2019.

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SHFE Aluminum

SHFE aluminum prices continued to increase, with a higher per ton price of around $2,100/mt.

Source: MetalMiner analysis of Fastmarkets

Based on the most recent production figures from the International Aluminum Institute, although March production levels in China increased by 10% over February 2019, Chinese production levels when compared with March 2018 only increased by 1%. During Q1 in total, Chinese production registered at 8.9 million mt, versus 8.8 million mt the year prior — a 1.6% increase over 2018.

Supply Concerns Fade, but Deficit Anticipated in 2019

With global demand for aluminum outpacing supply, the LME price decline could be a temporary weakness.

Aluminum has been caught up in the general negative pricing momentum industrial metals saw during the past few weeks, as the dollar showed strength. As the dollar strengthens, metal prices tend to weaken. However, if demand conditions deteriorate, the price declines could stick, or the price could continue to move sideways on weakened demand.

According to Alcoa’s most recent quarterly report, a global aluminum deficit of aluminum in the range of 1.5 million mt to 1.9 million mt is estimated for 2019. However, the company estimate was revised down from the range of 1.7 million mt to 2.1 million mt given in the company’s prior quarterly report. This indicates the company anticipates some moderation of global growth, with its estimates revised down to the 2-3% range from 3-4%, stating lower demand growth in China, particularly lower transportation and electrical sector demand.

Midwest Aluminum Premium

The U.S. Midwest Premium continued to hold at the historic high of $0.19/pound during April.

What This Means for Industrial Buyers

LME aluminum prices weakened along with other base metals prices last month, showing downward momentum; prices remain within range of a sideways trend. Prices could hold, then continue to rise further once more or move lower from here depending on overall supply and demand factors at large. It’s also possible the sideways pricing band will continue to hold on weakened demand. Even in a sideways market, it’s important to watch the market carefully for buying opportunities in order to buy on dips.

For more specific pricing guidance related to aluminum and aluminum products, buying organizations may want to request a free trial now to our Monthly Metal Buying Outlook.

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Actual Metal Prices and Trends

Chinese aluminum prices led the index this month, with increases in the range of 2.7% to 2.8%.

The LME primary 3-month price declined by 5% (the biggest decrease in the aluminum basket).

European and Korean prices also declined, but more mildly (in the range of around 1%).

The Construction Monthly Metals Index (MMI) gained one point for a May reading of 84.

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U.S. Construction Spending

According to the U.S. Census Bureau, U.S. construction spending during March 2019 came in at an estimated seasonally adjusted annual rate of $1,282.2 billion, or down 0.9% from the revised February estimate of $1,293.3 billion.

In addition, the March spending estimate marks a 0.8% decline from the March 2018 estimate of $1,293.1 billion.

Meanwhile, Q1 construction spending reached $277.7 billion, down 0.2% compared with Q1 2018.

Under private construction, spending reached $961.5 billion, down 0.7% from February. Within private construction, residential construction hit $500.9 billion in March, down 1.8% from February. Nonresidential construction came in at $460.6 billion in March, up 0.5% from February.

As for public construction, spending in that segment hit $320.7 billion, down 1.3% from February. Educational construction spending fell 1.5% to $76.6 billion, while highway construction spending fell 1.9% to $104.5 billion.

Billings Growth Slows

According to the monthly Architecture Billings Index (ABI) put out by the American Institute of Architects, March proved to be a down month for billings growth.

The March ABI value was 47.8, down from 50.3 the previous month (anything above 50 indicates growth, while anything below 50 indicates contraction). Per the report, billings declined for the first time in over two years.

“While this score may raise concerns about the start of a period of weaker business conditions, it is important to note that it does follow on the heels of a particularly tough late winter period for much of the country, with record-setting cold, storms, and floods,” an AIA release on the report states. “In addition, many indicators of future work at firms remain positive, with both inquiries into new work and the value of new design contracts continuing to grow, although the pace of growth of design contracts has slowed in recent months. Backlogs of work at architecture firms also rose to a new high of 6.5 months in March, up from 6.3 months one year ago.”

The South was the only region out of the four tracked in the ABI to show billings growth, posting an ABI value of 54.2. The Midwest (48.7), West (47.2) and Northeast (43.5) all came in at sub-50 values.

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Actual Metal Prices and Trends

Chinese rebar increased 5.8% month over month to $606.97/mt as of May 1. Chinese H-beam steel rose 2.5% to $577.29/mt.

U.S. shredded scrap steel fell 3.3% to $321/st.

European commercial 1050 aluminum sheet fell 0.9% to $2,618/mt. Chinese aluminum bar rose 2.6% to $2,266.13/mt.

The Automotive Monthly Metals Index (MMI) dropped two points this month, down to a reading of 91 for May.

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U.S. Auto Sales

General Motors and Ford Motor Co. have turned to a quarterly sales reporting schedule, moving away from the traditional monthly reporting model. GM made the switch last year, with Ford following suit earlier this year.

However, the two automakers recently announced Q1 earnings. GM reported net revenue of $34.9 billion, down 3.4% year over year, and income of $2.1 billion, up 93.2% year over year (GM’s first-quarter sales fell 7% year over year). Ford, meanwhile, reported net revenue fell $1.6 billion to $40.3 billion, while income fell $600 million to $1.1 billion (Ford’s first-quarter sales fell 1.6% year over year).

Similarly, Fiat Chrysler announced earlier this month that it will start reporting on a quarterly basis beginning Oct. 1. For April, Fiat Chrysler sold 172,900 vehicles in the month compared to 184,149 vehicles in April 2018, a decrease of 6.1%.

In other news for the automaker, Reuters reported Friday that Fiat Chrysler entered into a $307.5 million settlement with about 100,000 U.S. owners of Fiat Chrysler diesel vehicles because of illegal software that caused the vehicles to emit excess emissions.

U.S. Honda sales edged up 0.1% in April, with car sales down 3.4% and truck sales up 3.1%.

“As industry sales continue to level off, we are increasing our share of the market through the strength of our car and truck lineups and our disciplined approach to sales,” said Henio Arcangeli Jr., senior vice president of automobile sales at American Honda Motor Co. “The compact SUV segment remains a bright spot for both Honda and Acura brands in 2019, with CR-V the outright retail sales leader in the industry’s largest segment, and the Acura RDX the fastest growing model in the compact luxury SUV segment in 2019 and the top-selling retail model.”

Nissan sales rose 9% year over year, with Nissan Altima sales up 59%.

Toyota sales fell 4.4% on a volume basis and 8.6% on a daily selling rate basis. Toyota recently announced Novelis Inc. would supply it with aluminum automotive body sheet for the new 2019 RAV4.

Hyundai reported auto sales picked up 1% to 55,420 vehicles in April 2019.

For the industry overall, MarketWatch reported April sales fell 6.1%, down to their lowest level since October 2014.

Tesla, Panasonic Relationship Under Stress

MetalMiner’s Stuart Burns last month touched on the TeslaPanasonic relationship after Panasonic announced it would not invest in an expansion of Tesla’s Nevada Gigafactory.

The Japanese firm manufactures battery cells for Tesla’s EV batteries.

“Output was meant to double next year, but after citing financial reasons the two companies have said they intend to increase production from the existing equipment rather than invest in more capacity,” Burns wrote. “Tesla’s record as a mass manufacturer has come in for considerable criticism over the last 18 months, first with repeated delays in deliveries of the Model 3 and now apparent significant underutilization of the battery plant.”

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Actual Metal Prices and Trends

The price of U.S. HDG fell 4.4% month over month to $881/st as of May 1. U.S. platinum bars rose 4.5% to $886/ounce. U.S. palladium bars fell 2.6% to $1,365/ounce.

Chinese primary lead fell 1.7% to $2,482.06/mt. LME copper dropped 0.9% to $6,435/mt. U.S. shredded scrap steel fell 3.3% to $321/st.

phonlamaiphoto/Adobe Stock

What a difference a month makes in commodity markets.

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Just a month back, we reviewed the delicate balance OPEC was facing in trying to drive prices higher without having to make further cuts in output.

It seemed every time they squeezed the market higher, greater U.S. shale output slowed the advance, yet OPEC lost market share.

But now the U.S. seems to be coming to OPEC’s aid.

The market was finely balanced after a loss of output from Libya, where a civil war is raging, and Venezuela, where state bankruptcy and U.S. sanctions have put output into what appears to be, if not terminal decline, then a fall that could take many years of investment before it can recover.

The Financial Times and the Times both reported this week that moves by the Trump administration to remove waivers previously granted to key oil-consuming countries has taken the market by surprise. The news caused oil prices to spike in anticipation of the market being deprived of Iranian production.

Japan, South Korea, Turkey, India and China will, according to the Financial Times, face pressure to cancel Iranian oil imports as the U.S. seeks to increase pressure on Tehran over what it sees as its role in state-sponsored regional terrorism.

Source: Refinitiv

The oil price has already risen sharply this year. Brent crude climbed 2.6% on Monday to $73.80 a barrel, after hitting a high of $74.31 in early Asia trading following the announcement by a U.S. official. West Texas Intermediate, the U.S. marker, rose as much as 1.2% to a high of $64.74, the highest intraday level in two weeks, the Financial Times reported.

According to the Financial Times, the U.S. hopes its traditional oil-producing allies will raise output to offset further falls in Iranian supply — as they did last year — but this decision is not without complications.

Saudi Arabia and OPEC are in conflict with the U.S. in wanting higher oil prices and a balanced market, yet the U.S. is making no efforts to restrict its own shale oil output, expecting OPEC to raise or lower its supply to keep prices stable.

The latest forecasts from major agencies, including OPEC and the U.S. Energy Information Administration, see the market in a deficit of up to 500,000 barrels a day this year, before more supplies from Iran — and possibly Venezuela and Libya — are lost, the Financial Times reports.

A tighter oil market will increase gasoline prices, contrary to a campaign pledge from the president to lower them. The U.S. still imports at least one-third of its oil supply and remains exposed to global oil prices, despite being the largest producer in the world this year.

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It would appear prices could rise further as the removal of waivers begins to bite and major consumers switch to other supply sources. Despite slower global growth, energy and transport costs look set to continue to rise. (We will be covering a development in marine transport next week that predicts higher container rates in 2019-20 and suggests supply chain managers should be factoring in higher costs later this year and next.)