Market Analysis

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If we think copper, zinc, and even aluminum have performed well this year, none of them are a patch on iron ore.

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Iron ore prices rise

China’s iron ore imports fell for the second straight month in November. Imports dropped by 8.1% from a month earlier, Reuters reported.

However, prices still rose strongly.

China brought in 98.15 million metric tons last month, compared with 106.74 million tons of imports in October. Nonetheless, the November total rose 8.3% from November 2019.

The report went on to say that for the first 11 months of the year, iron ore imports stood at 1.07 billion tons. Meanwhile, full-year imports totaled 1.06 billion tons in 2019.

Imports seem to be constrained due to availability rather than lack of demand. Quite the contrary, prices are continuing to rise.

Spot iron ore hit the highest level since December 2013 last week. The Dalian Commodity Exchange price climbed a further 2.8% to Yuan 928 per metric ton (over $141 per ton). That is a rally of 50% since this time last year. The price is also up 72% since the end Q1 China lockdown crash pushed prices below $80 per ton.

Infrastructure stimulus investment and a strong construction market have supported steel prices. As a result, steel mills have been producing flat out and drawing down port stocks of raw materials like iron ore.

According to another Reuters report, imported iron ore stocked at 45 Chinese ports dipped for the fourth week over Nov. 27 to Dec. 3. Imports fell by 1.6 million tons from a week earlier to about 124.5 million tonnes, mainly due to lower arrivals.

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China is going through a purple patch at the moment, particularly the Chinese aluminum sector.

An early and strong rebound from Q1 lockdowns and significant stimulus investment that has made its way into property and infrastructure activity have boosted demand for all the base metals.

However, aluminum has arguably seen the biggest benefit.

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Chinese aluminum sector sees rising bauxite, alumina imports

A recent post by ING notes China’s strong imports in aluminum-related raw materials — notably bauxite and alumina — continued in the second half.

Bauxite imports in the first 10 months grew by 14% year over year to around 96 million metric tons. Total alumina imports, meanwhile, rose by 205% to 3.1 million tons.

As we reported last month, primary metal imports, while easing now, have been a surprise feature this summer. Total imports in the first 10 months hitting 878 ktons, or 14 times higher than the same period last year, ING reports.

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The Raw Steels Monthly Metals Index (MMI) increased by 9% for this month’s value.

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

U.S. demand continues to recover

Year-to-date production through Nov. 28, 2020 declined 18.4%, according to the American Iron and Steel Institute. However, several indicators show that demand continues to recover.

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On the face of it, zinc is yet another base metal on a bull run, from a low of $1,675 per ton in March of this year to around $2,800 per ton now.

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

An ING Bank report makes the case for strong fundamentals — constrained supply and robust demand from China squeezing the market from an expected surplus to a pronounced deficit this year. But there’s more at play.

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The Copper Monthly Metals Index (MMI) increased 11.0%.

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

New copper futures contract

On Nov. 19, the Shanghai International Energy Exchange (INE), a subsidiary of the SHFE, started trading new bonded copper futures contracts. This contract addresses the second of “two” spot markets for copper — the tax-included domestic market currently supported by the dollar-denominated SHFE contract and the on-shore “bonded facility” market based in Shanghai to be denominated in RMB.

Not only does this create a new risk management tool for copper buyers, but it suggests China is now moving toward fulfilling its “dual circulation” strategy and bringing its currency more fully into the global market.

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Industrial metals have done rather well in bouncing back from the coronavirus pandemic lockdowns.

Classic fundamentals have been supported by rising sentiment to boost prices across the board. Mine supply has been constrained by governments forcing companies to close mine sites and refineries in a bid to contain the spread of the virus resulting in a hit to raw material and refined metal output in a number of countries.

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

According to Capital Economics, nickel, tin and zinc have been hit the most, each down 8% to 11% for the first three quarters of 2020 over 2019.

On the other side of the fundamentals, equation demand in top consumer China came roaring back during Q2 and Q3, fueled by infrastructure spending that is seeing positive PMI numbers across all sectors — consumption, retail, construction, manufacturing and exports.

GDP in China has recovered to finish the year above last, and there seems little sign that demand is likely to tail off anytime soon. While the rest of the world’s demand has been initially badly hit by lockdowns, it was maintained for electronics and PPE equipment, both dominated by Chinese manufacturers, which have more than made up for losses in more conventional areas.

Prospects for industrial metals next year

Will this buoyant backdrop persevere into 2021, consumers are asking themselves, should I be factoring in continually rising prices through next year?

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This month the Aluminum Monthly Metals Index (MMI) rose by 7.9%.

Check if your service center is providing you with price transparency for your aluminum spend.

Aluminum prices continue uptrend

During November, LME aluminum prices increased by 10.9%, closing at $2,023/mt. This means that since its April low, the price recovered 38.5% and even reached a two-year high.

The price increase appears supported by a few factors:

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It would seem the stock markets are not the only beneficiaries of good news on the results and roll-out of vaccines protecting against the coronavirus. The oil price has been a significant beneficiary too, briefly touching the highest level since March this week, before easing slightly.

According to the FT, Brent crude gained 3.8% to $47.80 a barrel, having earlier briefly topped $48, as traders bet that travel and other energy-intensive industries would pick up in 2021. Tamas Varga, an analyst at Brokerage PVM is quoted saying the rally this month that had been driven by FOMO — or “fear of missing out” — has now become a “fundamentally justifiable price rise.” Oil had already risen 25% this month as the vaccine news became progressively more positive.

Oil prices have been further supported by expectations that OPEC and its allies, including Russia, will extend the duration of their production cuts when they meet next week, to offset weak demand over the winter months.

Are you prepared for your annual aluminum contract negotiations? Be sure to check out our 5 best practices

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If we were worried about China’s dominance of global steel output over the last decade, the next decade is looking like it may be even worse.

Having bounced back robustly this year from severe coronavirus lockdowns in Q1, China is on track to top 1 billion tons of steel production by the end of 2020, beating 2019’s 996.3 million tons despite steel-consuming industries suffering a lockdown.

Indeed China is the only major producing country to have increased output this year, up 5.6% at the end of October. Europe, North America, Japan, South Korea, and India are all down over the year cumulatively, leading to a global 1.9% reduction.

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

Despite a small decrease from record levels in August and September, China’s October output was still up on last year.

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China and India find themselves in some sort of a mini-race in the crude refining business.

(As readers of our Annual Outlook know, the oil sector is one of three key macroeconomic pillars we consider in our analysis of commodities markets, in addition to the Chinese economy and the strength of the U.S. dollar).

China races ahead in crude refining

China, though, is paces ahead of its neighbor. If all goes to plan, China could soon dethrone the present No. 1 refiner, the United States.

Bloomberg quoted the International Energy Agency (IEA), which said that perhaps by next year, China would dethrone the U.S. as the top refining country in the world.

This will be no small feat.

China may become No. 1 following the closure of some refineries in the U.S.

Steve Sawyer, director of refining at energy industry consultancy Facts Global Energy, told Bloomberg in an interview that, in the coming years, China would be putting out an additional million barrels a day, helping it overtake the U.S.

India aims to build crude refining capacity

While China goes about the crude refining business, its neighbor India has also thrown its hat in the ring.

For the last couple of years, India has made no bones of building its domestic refining capacity. The country has added some well-known international petroleum companies to its client list.

India planned to double its current capacity in the next 10 years. However, Prime Minister Narendra Modi wants things done faster.

At present, India’s refining capacity stands at 250 million tons, or a little more than 5 million barrels per day, based on a conversion factor of 7.33 barrels per metric ton of oil. Under an earlier plan, India sought to hike this to 450 million to 500 million tons over the next 10 years.

Now, Modi wants to do it even faster, accomplishing it within five years.

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