CommentaryMarket Analysis

The Stainless Steel Monthly Metals Index (MMI) increased again this month by 4.3% to 71, up again after last month’s 11.7% gain.

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Once again, nickel price increases provided an impetus for rising prices. This month, prices increased for all the metals in the stainless steel basket across the board, ranging from 0.2-10%. U.S. stainless steel surcharges increased slightly.

LME Nickel

LME nickel prices. Source: MetalMiner analysis of FastMarkets

LME nickel prices started to rise again following a brief downward trend in the first part of February; however, uptrend volumes are weaker than during recent price increases.

Despite weaker volume, prices finally surpassed the $13,300/mt price point, surging past $13,600 in a single day of trading and potentially signaling an underlying bullishness in the nickel market.

However, the price retraced once more toward the well-trodden $13,300/mt level in the days following the price surge.

Domestic Stainless Steel Market

This month the 304/304L-Coil and 316/316L-Coil NAS surcharges increased by 0.3% and 1.96%, respectively, reversing the previous downward trend dating back to July 2018.

Source: MetalMiner data from MetalMiner IndX(™)

It remains to be seen whether this is a seasonal adjustment or a reversal in trend as we move into the last month of Q1, which is when prices tend to cyclically rise.

What This Means for Industrial Buyers

Stainless steel prices are rising — but is this a new change in direction or a temporary price increase based on the annual cyclical business cycle?

With some weakness reported in the global economy by the OECD last week, it will be interesting to see whether this is the start of a new trend in higher prices or just a flattening out from previous price declines.

Actual Stainless Steel Prices and Trends

All of the metals included in the Stainless MMI increased in price this month.

Chinese Ferro Alloys FeMo Lumps registered the greatest increase at 10.14%, while Chinese Ferro Alloy FeCr Lumps increased 0.2%.

Korean stainless steel coil (430 CR 2B) increased in price by 5.92%.

The three nickel prices included in the MetalMiner IndX(™) also increased across the board again this month, with increases ranging from 4.5–5.5% for LME, Chinese, and Indian prices. However, the increase this month dropped from high rates of change last month, which were in the 14.76-17.39% range.

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Chinese stainless steel 304 and 316 scrap prices registered increases of 0.2%.

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The Rare Earths Monthly Metals Index (MMI) held flat this month, holding for a reading of 18.

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Auditors Cite Material Risk for Lynas Corp

According to mining.com, auditors have flagged a material risk for Australian miner Lynas Corp’s Malaysian operations.

The rare earths miner, one of the biggest outside of China, has been navigating new regulatory standards imposed by the Malaysian government.

“As noted in the report for the quarter ending 31 December 2018, during the half year the Malaysian government appointed a Review Committee to evaluate Lynas Malaysia’s operations,” the miner noted in its quarterly earnings announcement. “The Review Committee’s report was released on 4 December 2018 and found Lynas Malaysia’s operations are low risk and Lynas Malaysia is compliant with applicable laws. Separately, on 4 December 2018, the Atomic Energy Licensing Board (AELB) issued a letter containing two new pre-conditions for Lynas’ licence renewal on 2 September 2019. These conditions relate to the management of the 2 residues produced by Lynas operations in Malaysia.”

According to the release, Lynas has appealed one of the conditions concerning the disposal of water leached purification (WLP) residue, one of the residues cited by the Malaysian government.

The miner’s license to operate in the country is up for renewal in September.

“The regulatory environment in Malaysia was very challenging through the half year, Lynas CEO and Managing Director Amanda Lacaze said in the release. “Despite this, we remained focused on business fundamentals, meeting the needs of our key customers and laying the foundations for further growth in our business.”

Greener Rare Earths Extraction?

According to a report by Forbes, researchers may have found a greener way to extract rare earths, which are coveted for a number of high-tech applications, including ever-more-sophisticated smartphones.

As the article by Dr. Anna Powers notes, mining rare earths is a difficult business — even where deposits exist, they may not be economically viable. In addition, the mining of rare earths elements poses negative environmental impacts.

However, as Powers explained, scientists may have found a more environmentally friendly method by which to extract rare earths elements: bio-acids.

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“Scientists used synthetic phosphogypsum which was produced in lab and had a controlled composition, and used various acids to understand which acid was best at separating rare-earths most efficiently,” she explained. “Surprisingly, bio-acids did the best job! The next step of this research would be to apply industrial grade phosphogypsum found as a by product to refine the results of this study as well as understand how different compositions of phosphogypsum affects the ability of rare-earth metals to be extracted.”

Actual Metal Prices and Trends

The yttrium price ticked up 0.2% month over month to $33.63/kilogram as of March 1. Terbium oxide moved up 1.6% to $444.67/kilogram.

Neodymium oxide fell 1.1% to $45,961.90/mt. Europium oxide ticked up 0.2% to $38.86/kilogram and dysprosium oxide rose 5.2% to $189.83/kilogram.

If you’re in the midwestern U.S., chances are your March has gotten off to a more-frigid-than-normal start.

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Not so for the Global Precious Monthly Metals Index (MMI), which has gotten even hotter.

The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four more points to hit 98 for the March reading — a 4.3% increase — driven by a still-scorching palladium price that began its second month in a row higher than the gold price.

In fact, the U.S. palladium bar price, as tracked by the MetalMiner IndX, hit $1,522 per ounce on March 1. That level has never been seen in the history of the MMI series, which began in January 2012.

Forget your road salt or other de-icer — just throw some palladium on your slippery sidewalk, it should melt the ice in no time!

All of this is to say that the Global Precious MMI is now in a six-month uptrend.

Meanwhile, the U.S. platinum bar price rose slightly, but not nearly enough to eat into the spread with its sister platinum-group metal (PGM). The U.S. gold price faltered a bit, beginning the month at $1,312 per ounce (about $8 per ounce lower than last month). Silver prices also dropped across the four tracked geographies.

Palladium Market News and Notes

Last month, we reported that the global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next as estimated by researchers Refinitiv GFMS, according to Reuters.

It looks as though Norilsk Nickel is getting on that forecast bandwagon as well.

Norilsk (also known as Nornickel), which produces 40% of the world’s nickel, said “in 2019 the global palladium market deficit is forecast at 800,000 ounces compared with 600,000 ounces in 2018, with consumption up by 500,000 ounces to 11.2 million ounces due to strong demand from autocatalyst producers,” according to a recent Reuters report.

“(The) spot palladium market practically dried out” in 2018, Nornickel is quoted as saying. According to the Reuters report, the company said the “supply tightness was partly eased by the release of stocks from palladium ETFs (exchange-traded funds), which fell below 1 million ounces for the first time since 2009, and from Nornickel’s Global Palladium Fund.”

Meanwhile, the World Platinum Investment Council said the global platinum market will see a surplus of 680,000 ounces in 2019 (after a surplus of 645,000 ounces in 2018), resulting from supply growth of 5%, which exceeds demand growth, according to a press release.

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All of this conspires to keep the platinum-palladium spread wider than ever.

The Raw Steels Monthly Metals Index (MMI) increased slightly again this month, moving to an MMI reading of 82, an increase of 2.5% month on month.

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This month, U.S. raw steel prices stopped their multimonth decline off peak highs and began moving sideways overall. Typically, steel prices tend to trend upward through Q1, but that is not a hard and fast rule (supply and demand factors and general macroeconomic conditions play a role).

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices seemed to finally hit a point of price resistance this month and fell back to $997/st. Even at this price, plate prices remain at a historic high. Typically, HDG prices trend higher than plate. However, the plate price exceeded the HDG price this fall and continues to ride higher than HDG.

Source: MetalMiner data from MetalMiner IndX(™)

The HDG price has dropped from the 2018 price surge and now appears back at levels typical of 2016-17 when the price oscillated around the $900/st mark, which served as a historically significant resistance point during 2014 (prior to steep HDG price decreases in 2015).

Iron ore prices increased during February based on continuing supply concerns, but supply issues will likely ease as the year progresses.

Based on a better-than-expected China manufacturing PMI release in February, iron ore, coking coal and coke futures prices increased in late February on a four-day rally based on optimism over the steel sector’s 2019 performance. In early March, however, prices appear to have moderated on demand concerns.

What This Means for Industrial Buyers

Plate prices may have peaked but they remain historically high, oscillating around the $1,000/st mark after reaching $1,022/st in December.

HRC, CRC and HDG prices moved sideways during the month, a shift from the recent downward trend in prices.

Given the shift in trend to sideways for raw steels, buying organizations will want to watch the market carefully for opportunities to buy.

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Actual Raw Steel Prices and Trends

U.S. shredded scrap prices registered a month-over-month price increase of 5.73%, rising to $332/st, reversing last month’s 11% price decrease.

LME scrap prices also increased. The primary one-month futures price increased by 9.58%, while the LME primary three-month price registered an increase of 2.78% since the beginning of February.

Korean standard scrap steel prices fell by 11.28%, reversing the price increase during the past few months, and ended at $155.56/mt (down from the October high of $193.69/mt).

Chinese coking coal prices increased this month by 2.34% — flattening out somewhat after recent monthly double-digit increases — to $322.56/mt at the start of March.

Chinese iron ore prices were flat month on month. The Chinese pig iron price fell 9.5%.

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The March Aluminum Monthly Metals Index (MMI) increased again this month, rising 2.3% for an index value of 88, up from February’s value of 86.

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LME aluminum prices ended February near the price at the month’s outset, thus ending only slightly higher month on month following a dip in price around mid-month.

The LME price ended at $1,913/mt and once again failed to breach the long-term price resistance point of $1,970/mt during February. In the early days of March, the price dropped further to around $1,872/mt during trade at the start of the first full week.

Prices show weakness in that the slope of increase has continued to decline as the year progresses.

Source: Fastmarkets

SHFE prices have flattened out. The metal currently is moving in a sideways price trend on the back of a strengthened pricing pattern (when compared with generally falling prices in China since September).

Source: MetalMiner analysis of Fastmarkets

Prices appear constrained by high levels of Chinese production of both alumina and aluminum, in addition to weakening Chinese domestic demand. During 2018, Chinese aluminum production increased by 9.9%, rising to 72.53 million tons.

Recently, the Chongqing-based Bosai Group restarted Chalco’s Nanchuan alumina plant that closed in 2014 due to low alumina prices. According to a recent Reuters article, Bosai leased the plant from Chalco for the next 15 years with alumina production underway and the first production to come off the line very soon. This will add to raw alumina supply and may contribute to further price declines as the new supply comes online.

U.S. Domestic Aluminum

Meanwhile, the U.S. Midwest Premium rose slightly in February to $0.19/pound, and still remains at a historic high. Even with the rising premium, ingot prices continue to trend lower due to strong supply.

The LME Western European Aluminum Premium stayed flat, coming in at $75/mt in February, while the LME East Asian Aluminum Premium also stayed flat at $85/mt.

What This Means for Industrial Buyers

During February, aluminum prices continued to trend sideways.

Industrial indicators show a weaker domestic economy in China, which could constrain price increases.

LME warehouse stocks increased quite a bit into the new year, also likely dampening price increases. SHFE warehouse stocks also remain sizable from a longer-term perspective, with some restocking increasing volume into 2019.

These factors suppress aluminum price increases, even in an uncertain macroeconomic trade environment.

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Actual Aluminum Prices and Trends

Both LME and SHFE aluminum prices continued trending sideways during the past month. While the U.S. Midwest Premium nudged upward this month and remains high, it is offset by strong supply.

India’s primary cash price increased 9.9% this month, while China’s primary cash price increased 2.1%. Korean prices fell this month in the 3-4% range.

March 29 is currently supposed to be the date by which Britain’s future relationship with the European Union is finally settled.

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There are several possible outcomes of varying likelihood. Britain could remain part of the E.U., which is looking comparatively unlikely.

Or, it will leave based on the agreement Prime Minister Theresa May has reached with Brussels, but including some last-minute tweaks around the longevity of the Irish border question (the most likely option).

Or, Britain will plunge out with no formal agreement — and to judge by the opinions of much of the business community and many commentators, it would plunge into an extremely uncertain and volatile future.

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The Construction Monthly Metals Index (MMI) held flat for an MMI reading of 82 this month.

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U.S. Construction Spending

According to Census Bureau data released earlier this week, U.S. construction spending in December 2018 reached an estimated $1,292.7 billion, down 0.6% from the previous month but up 1.6% year over year.

Construction value in 2018 surged 4.1% from 2017, according to the Census Bureau release, up to $1,297.7 billion from $1,246 billion.

Broken down by type, spending on private construction hit $991.2 billion, down 0.6% from November’s estimate of $997.1 billion.

Within private construction, residential construction hit $536.7 billion in December, down 1.4% from the November estimate of $544.2 billion. Nonresidential construction reached $454.5 billion in December, up 0.4% from the revised November estimate of $452.9 billion.

Meanwhile, public construction spending in December was $301.5 billion, down 0.6% from the revised November estimate of $303.5 billion. Within public construction, educational construction reached $77.5 billion, holding flat from November spending. Highway construction reached $89.1 billion, marking a decrease of 0.9% from November’s estimate of $89.9 billion.

Billings Growth Strong to Start 2019

According to the monthly Architecture Billings Growth Index (ABI) released by the American Institute of Architects, billings growth was strong in January.

The January ABI came in for a reading of 55.3, up from 51.0 the previous month (anything above 50.0 indicates billings growth).

The strong month comes despite the partial government shutdown that extended into late January. According to the AIA release, the January score of 55.3 was the highest ABI value in more than two years.

Speaking of the government shutdown, this month’s ABI survey question asked respondents about the impact of the shutdown on their business. According to the release, a majority of respondents said the shutdown had no impact. However, 12% said the shutdown had a direct impact on at least one of their projects and 10% said it had an indirect impact (meaning contractors and/0r clients were impacted by the shutdown).

In addition, according to the survey results, firms with a residential specialization were slightly more likely than firms of other specializations to have been directly impacted by the shutdown.

By region, the South and Midwest posted the strongest billings growth in January. The four regions tracked in the ABI posted January values of:

  • South: 54.7
  • Midwest: 54.4
  • Northeast: 52.4
  • West: 51.5

Actual Metal Prices and Trends

Chinese rebar steel increased 1.3% to $566.49/mt as of March 1. Chinese H-beam steel jumped 1.0% to $564.99/mt.

U.S. shredded scrap steel jumped 5.7% to $332/st.

European commercial 1050 sheet aluminum increased 1.5% to $2,603.37/mt. Chinese aluminum bar jumped 1.5% to $2,185.24/mt.

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Chinese 62% iron ore fines increased 0.2% to $78.47/dry metric ton.

The Automotive Monthly Metals Index (MMI) picked up one point this month, rising for an MMI value of 93.

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U.S. Auto Sales

As noted in previous reports, General Motors last year announced a switch from monthly sales reports to quarterly reports. Fellow Big Three automaker Ford Motor Co. has followed suit, recently announcing it would also move to a quarterly reporting schedule.

“We knew that a lot of our competitors would watch to see what our experience would be and if we’d stick to our guns,” GM spokesman Jim Cain told the Detroit Free Press. “We always expected they’d follow.”

Meanwhile, most automakers continue to report on a monthly basis. Fiat Chrysler reported February sales fell 2% year over year, breaking an 11-month streak of year-over-year gains.

“The overall industry is starting off slower due in part to weather, the U.S. government shutdown and concern over tax refunds,” U.S. Head of Sales Reid Bigland said. “We still see a strong, stable economy and anticipate any lost winter sales will be made up in the spring. For us, the Ram brand was the standout in February, and Jeep Cherokee set a February record as well.”

Honda saw its total sales dip 0.4% year over year in February. However, Honda’s Acura brand posted a strong February, with Acura sales increasing 11.3% year over year.  Sales of Acura trucks increased 23.9% year over year.

Nissan’s U.S. sales dropped 12% year over year. Nissan’s ousted former CEO Carlos Ghosn was granted bail by a Tokyo court, NPR reported, as he awaits trial on corruption charges.

Subaru reported a 3.9% year-over-year sales increase, with its Forester performing well in the year to date (up 17.6% compared with January-February 2018 sales). However, earlier this month Subaru recalled 1.3 million vehicles due to brake light issues, impacting certain Forester, Impreza and Crosstrek vehicles.

Section 232 Auto Report Moves to Trump

Last month, Secretary of Commerce Wilbur Ross submitted a report to President Donald Trump related to the Trump administration’s Section 232 investigation on imports of automobiles and automotive parts.

Pursuant to Section 232 of the Trade Expansion Act of 1962, once an investigation begins the commerce secretary has 270 days by which to provide the president with a report including recommendations. This particular investigation began May 23, 2018, setting the deadline on Feb. 17.

However, some industry groups have complained because the report was not made available to the public.

“It is critical that our industry have the opportunity to review the recommendations and advise the White House on how proposed tariffs, if they are recommended, will put jobs at risk, impact consumers, and trigger a reduction in U.S. investments that could set us back decades,” the Motor and Equipment Manufacturers Association said in a prepared statement. “Secrecy around the report only increases the uncertainty and concern across the industry created by the threat of tariffs. MEMA calls for the immediate and full release of the report.”

Meanwhile, the European Automobile Manufacturers’ Association (ACEA) issued a statement, arguing European automobiles do not pose a national security threat to the United States.

“Imports of cars and auto parts from the EU clearly do not pose a national security risk to the United States,” ACEA Secretary General Erik Jonnaert said. “Any trade restrictive measures in our sector will have a serious negative impact, not only on EU manufacturers but also on US manufacturers.”

Investments and Relocation

General Motors made waves late last year when it announced plans to close several of its North American plants and cut 15% of its workforce.

GM is far from the only automaker cutting costs and shuffling production, as MetalMiner’s Stuart Burns explained last month. Ford, Jaguar Land Rover, Nissan and Honda, among others, have either cut jobs or moved production.

“The U.S. market could be due for a severe shakeup if President Donald Trump’s threat to slap import tariffs on foreign cars comes into effect,” Burns explained.

“UBS Bank reckons that the worst case — tariffs of 25% — would see the American market shrink by 12% next year.”

As for investment, while GM previously announced the shuttering of five North American plants in 2019, it recently announced new investment in other plants. The automaker plans to invest a total of $56 million in two Michigan plants, located in Romulus and Lansing.

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Actual Metal Prices and Trends

U.S. HDG steel rose 1.8% month over month to $896/st as of March 1. U.S. platinum bars rose 6.0% to $869/ounce. U.S. palladium bars rose 14.9% to $1,522/ounce.

U.S. shredded scrap steel rose 5.7% to $332/st.

Chinese primary lead rose 0.8% to $2,615.72/mt. LME copper rose 5.3% to $6,494/mt.

Korean aluminum coil fell 3.5% to $3.31/kilogram.

On the heels of the doldrums of December, metals prices have made gains through the first two months in 2019.

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February was an especially strong month for a number of metals.

However, markets are especially sensitive to any snippets of news coming out of the ongoing U.S.-China trade talks. President Donald Trump recently delayed the March 1 deadline for a planned tariff rate increase as talks continued.

Whether the two countries reach a meaningful deal anytime soon remains to be seen; as of now, however, metals prices are enjoying a bit of upward momentum.

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Global crude steel production growth slowed in January, hitting its lowest level since August.

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According to the World Steel Association, global crude steel production rose 1.0% year over year in January, down from 3.8% growth in December. Global steel production in January hit 146.7 million tons (MT).

Crude steel production growth for China (in red) and the world. Source: worldsteel.org

As usual, China led the way in crude steel production, churning out 75.0 MT, marking a year-over-year increase of 4.3%. India, which recently passed Japan as the world’s second-largest steel producer, produced 9.2 MT, which was down 1.9% year over year. The country India passed in the steel production standings, Japan, saw its production fall 9.8% to 8.1 MT, while South Korea’s production fell 1.5% to 6.2 MT.

The U.S. produced 7.6 MT in January 2019, marking an 11.0% year-over-year increase. U.S. steel mills continue to fill an incrementally larger share of total capacity. According to the American Iron and Steel Institute, U.S. steel mills churned out steel at a capacity utilization rate of 80.9% through Feb. 23 of this year, up from 75.7% for the same period in 2018.

By tonnage, U.S. steel mills produced 14.6 million net tons in the year through Feb. 23, which marked an 8.0% increase over the same period in 2018.

In Europe, Italy’s crude steel production fell 3.6% to 2.0 MT, which France’s dropped 9.7% to 1.2 MT. Spain also produced 1.2 MT, marking an increase of 5.9%.

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Crude steel production in Ukraine hit 1.9 MT, down 4.9%, while Brazil’s crude steel production rose 2.3% to 2.9 MT.

Turkey’s steel sector continues to face challenges, with 2.6 MT in January marking a 19.5% year-over-year decline. Turkey’s steel remains subject to the U.S.’s Section 232 steel tariff, which the Trump administration increased to 50% from 25% last year amid diplomatic tensions. In addition, another Turkish export market, the E.U., recently imposed new steel safeguards in an effort to curb diverted steel supplies (which it sees as an outcome of the U.S.’s Section 232 action).