Market Analysis

The Construction Monthly Metals Index (MMI) picked up by 4.9% for this month’s reading.

September 2021 Construction MMI chart

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US construction spending

U.S. construction spending reached a seasonally adjusted annual rate of $1,568.8 billion in July, the Census Bureau reported earlier this month.

The July rate marked a 0.3% increase from the previous month. Furthermore, the July figure jumped by 9.0% compared with July 2020.

During the first seven months of the year, construction spending totaled $883.2 billion, up 6.2% year over year.

Private construction spending reached a rate of $1,231.0 billion, or up 0.3%. Within private construction, residential construction reached an annual rate of $773.0 billion in July, up 0.5% from June. Nonresidential construction came in at $458.0 billion in July, or down 0.2%.

Meanwhile, public construction reached $337.8 billion, up 0.7%. Educational construction checked in at $79.7 billion, down 0.5%. Highway construction rose by 1.9% to a rate of $94.5 billion.

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Exchange-traded funds, or ETFs, are sometimes punted as an alternative to direct investments on metals exchanges, like the LME or CME.

But in reality, it is a different kind of investor who buys ETFs, even if they are largely buying into the same metal story.

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ETF investors and looking ahead

ETF

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ETF investors are often longer-term investors wanting to buy into a trend rather than take a short-term position. More retail or private investors buy ETFs, seeing themselves as investors rather than speculators (if that distinction is a fair one).

But as a recent article in the Financial Times suggests, ETF investors are facing a similar question to trade or hedge fund speculators in estimating how long this run in price rises has to go. Furthermore, they are also facing the question of whether it is part of a much longer-term supercycle or a shorter-term supply chain restocking – pandemic bounce-back recovery.

The supercycle narrative is based on the transition to a new clean energy landscape and the demand that new, low-emission technologies will generate for certain metals like cobalt, nickel, copper and aluminum.

A similar narrative is driving agricultural ETFs. Climate change will create more challenging conditions for farmers and increase the likelihood of poor harvests. In turn, that would usher in decades of higher prices for agricultural products.

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When Chinese steel group Tsingshan announced its Indonesian nickel operations would supply matte — a form of the metal used only for stainless steel production — to battery makers back in February, the news undercut the narrative that only refined nickel would be sufficiently high grade for the electric vehicle sector.

nickel price

leszekglasner/Adobe Stock

The price proceeded to crash. Furthermore, he Chinese government’s decision May 1 to revoke the VAT tax rebate supporting exports of stainless-steel products removed a plank of support for metal exporters in a bid to help domestic consumers.

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Nickel narrative

From a bear narrative of oversupply in the first half of this year the nickel market has swung dramatically to a bull story of rampant demand.

That demand, however, is from solid stainless steel consumption, not from last year’s expectation of battery demand.

China is largely driving the nickel price. A technical squeeze on the SHFE and strong physical demand, manifested by rising imports, are supporting the price.

A Reuters report explains how SHFE inventory had fallen to just 4,455 tons at the end of August. That marked its lowest level since the contract began in 2015.

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The Stainless Monthly Metals Index (MMI) remained flat for this month’s reading.

September 2021 Stainless MMI chart

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Base price and surcharge increase

Both NAS and Outokumpu announced price increases effective Sept. 1.

Outokumpu increased base prices by reducing the discount by one point for all 200 series, 301, 304, 304L, 316L and 430. All other 300 series alloys will see increases by virtue of discount reductions by three points. Outokumpu raised all of its other 400 series alloys by reducing the discount by four points.

In addition to base price increases, Outokumpu increased its width extra for under 48″ to $0.12/lb and added a $0.15/lb gauge extra for 301 18 gauge and lighter. It also increased cut-to-length charges.

NAS increased its base price by reducing the functional discount by one point for 304, 304L and 316L. All other alloys — except for automotive ferritics — will be increased by reducing the discount by two points. Non-430 ferritics will be increased by $0.08/lb, which means these alloys have increased $0.27/lb in 2021.

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The Raw Steels Monthly Metals Index (MMI) dropped by 1.4%, as Chinese steel and U.S. scrap prices declined.

September 2021 Raw Steels MMI chart

Each month, MetalMiner hosts a webinar on a specific metals topic. This month’s discussion is Carbon Steel 2022: What types of steel contracts to set up and when to execute them. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Chinese steel merger to form third-largest steel producer

Chinese steel factory

fanjianhua/Adobe Stock

On Aug. 20, Chinese steelmakers Ansteel Group and Ben Gang formally began the process of merging their operations. If the process is completed, this will create the world’s third-largest steelmaker, behind China Baowu Group and ArcelorMittal.

Since both companies are state-owned, there will be no money changed in the transaction. Instead, the merger will be a government-backed restructuring in an effort to consolidate production in China’s bloated steel sector. Ansteel will be taking a 51% stake in Ben Gang.

The merged entity will keep the Ansteel name. Its annual production capacity will reach 63 million metric tons of crude steel.

US imports rise

Preliminary reports from the U.S. Census Bureau indicate steel imports rose for a second consecutive month.

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The Copper Monthly Metals Index (MMI) decreased by 3.4% in August, as forms of the metal included in the index dropped (with the exception of Chinese copper scrap).

September 2021 Copper MMI chart

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Copper prices trend downward

Similarly to the index, LME copper prices dropped by 3.3%. LME trading volumes spiked as the price declined from Aug. 16-19. This sell-off signaled a strong negative trend.

Since then, prices recovered. However, trading volumes remained muted, reinforcing the negative market sentiment.

SHFE prices behaved similarly to LME prices. Meanwhile, the volatility of the dips did not appear as strong. The SHFE’s heaviest trading volumes occurred toward the end of the month, when prices jumped, thus signaling a strong positive indicator.

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An aluminum market that has lived with Chinese oversupply for two decades is experiencing a very different year in 2021.

According to Reuters, it is starting to price in a very different future.

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Aluminum prices of the future

aluminum ingot

WestPic/Adobe Stock

The world needs more aluminum to go green. However, the smelters that produce the stuff use huge amounts of power. Those smelter account for around 2% of all manmade emissions each year, much of which is due to Asia’s overwhelming reliance on coal as a power source.

Squaring the circle between aluminum’s huge power demands and efforts to meet emissions commitments is proving very challenging for China’s aluminum industry. The post reports IAI estimates that the world will need another 25 million tons of primary metal production to meet an expected 80% rise in demand by 2050, fueled in large part by the drive to decarbonize.

Yet, even that daunting target assumes a 100% recycling rate. Even with the best of intentions, that is unlikely to happen.

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The Aluminum Monthly Metals Index (MMI) increased by 4.1% for this month’s reading.

September 2021 Aluminum MMI chart

Do you know the five best practices of sourcing metals, including aluminum?

LME three-month aluminum prices are only $100/mt away from 2011 prices.

Overall, LME aluminum traded up despite some volatility in August.

Prices took their largest dip Aug. 16-19 before recovering. During the same period, LME trading volumes got heavier, marking a negative trend.

However, volumes got even heavier as the price increased. This ultimately signals that the market remains bullish.

Chinese prices also climbed this month. SHFE volumes — along with prices — picked up heavily toward the end of the month, consistent with a strong bullish trend.

Beijing wary of rising aluminum prices

Rising aluminum prices have become a concern for China.

Bloomberg reported that the China Nonferrous Metals Association believes the steep increase of the aluminum price is not supported by fundamentals and substitutions could emerge.

Record high prices have already deterred the manufacturing sector in China.

China’s Caixin Index has dropped since June. In August, the index dropped below the 50 level, meaning factory activity is contracting.

On Sept. 1, China released its third batch of metals from state reserves. The move is an attempt to control prices and prevent commodities inflation from hurting economic growth. However, the release did not dent prices.

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The Automotive Monthly Metals Index (MMI) fell by 1.4% for this month’s MMI reading.

September 2021 Automotive MMI chart

 

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US auto sales

semiconductor and automobile

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Ford Motor Co. reported its August retail sales increased by 6.5% from the previous month.

However, retail sales declined by 39.6% on a year-over-year basis. Total sales fell by 33.1% year over year.

Ford truck and SUV sales fell by 35.7% and 30.4%, respectively.

The automaker also touted a record August for electric vehicle sales.

“Electrified vehicle sales were up 67.3 percent over last year for a total of 8,756 vehicles,” Ford said. “Electrified vehicles are bringing in new customers to Ford at a rate that is more than 8 points higher than Ford’s overall conquest rate.”

Meanwhile, General Motors, which reports on a quarterly basis, in July reported Q2 sales rose by 40%. In a letter to shareholders last month, CEO Mary Barra underlined the automaker’s effort toward achieving zero emissions. In addition, she said GM aims to develop “a full EV portfolio that doesn’t depend on partial solutions like hybrids and ‘electrified’ ICE vehicles.”

Honda, meanwhile, reported August sales fell by 15.6%, citing “industrywide parts supply issues.”

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Higher stock levels and summer holidays have seen prices for hot rolled coil in Western Europe move off since late July, industry watchers said.

“I have the impression that people are not fully back yet from their holidays,” one source said.

Those who have returned are now either taking a wait-and-see approach to any new buying or are purchasing only small amounts, the source added.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Hot rolled coil slides in Western Europe

hot-rolled coil steel

taitai6769/Adobe Stock

Offers on hot rolled coil prices produced in Western Europe are now about €1,150 ($1,350) per metric ton exw for December delivery. That marked a drop of 4.2% from the €1,200 ($1,410) in July.

Prices for cold rolled coil, a downstream product of hot rolled coil, normally carry a premium of €100-120 ($120-140) per metric ton.

Import offers on hot rolled coil from the Far East are now about €1,000 ($1,175) per ton cfr European ports, sources also said.

Another trader reported he had heard of offers from South Korea at €960 ($1,130) per metric ton cfr Antwerp.

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