Market Analysis

The US could enter the lithium market in a very big way. At least, that’s what some experts are claiming. The global demand for lithium is on the rise, especially in the US. This should come as no surprise, as lithium-ion batteries are essential to electric vehicles and energy storage. Still, the question remains: is the US capable of breaking its reliance on lithium imports from Argentina, Chile, Russia, and China?

Lithium Production Needs to Increase

Because of the increased demand for electric vehicles, lithium extraction technology has seen heavy investment. These millions aren’t just coming from the likes of General Motors either, but the US Energy Department.

Right now, much of the focus is on direct lithium extraction (DLE). These technologies aim to extract lithium from brine using filters, membranes, ceramic beads, and other “micro-level” solutions. While such methods are successful, it’s unclear whether they can be scaled up for commercial production.

DLE technology necessitates vast amounts of potable water and electricity. Before the US could boost lithium production, we would need a clear plan to provide ample amounts of both. Since these resources are not particularly abundant, it also gives detractors more ammo to criticize lithium investment.

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Petalite or castorite is one of the primary minerals used to obtain lithium.

Looking to Geothermal Sources

According to this report, geothermal technologies are about to unlock large amounts of lithium hidden in naturally occurring hot brines. These are essentially concentrated saline solutions that circulate through super heated rock in places like San Diego’s Salton Sea. In doing so, the solutions pick up many of the elements contained within the rock, including lithium.

The previously-mentioned issue of water supply is clearly addressed through this method. After all, geothermal power plants use heat from the earth to generate a constant supply of steam. This allows them to run the turbines necessary to produce electricity.

The report also stated that if current tests are successful, the 11 existing geothermal plants along the Salton Sea could produce enough lithium metal to meet US demand 10 times over.

Science Paving the Way to the Lithium Market

Cypress Development Corp recently announced results from its Lithium Extraction Pilot Plant in Amargosa Valley, Nevada. It stated that the lithium extracted via the ion exchange in the recovery area boasts superior separation efficiencies. At the same time, major cations exceeded 98%. Results have also identified preliminary extraction rates of between 83% and 85% within the washed tails.

Meanwhile, lithium extractions performed with the Lionex process are clocking in at 98%. Perhaps most importantly, the report stated that overall impurity removal exceeded 99%. US Energy Secretary Jennifer Granholm remarked at an energy conference last month that DLE technology was a “game-changer” and a “great opportunity” for the United States.

This should come as no surprise to energy insiders. Recently, Warren Buffett’s Berkshire Hathaway Inc. was given a US $15 million grant by the US Energy Dept. to test DLE technology. Again, the site of the tests will be California’s Salton Sea.

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Scoping Study in North America

Just 700 km from CentrePort Canada, Snow Lake Lithium is creating the world’s first all-electric, fully renewable lithium mine. Meanwhile, Snow Lake Resources Ltd. has commissioned a scoping study to assess the proposed creation of a Lithium Hydroxide Plant in South Manitoba. The company called the study “a strategically important step” toward creating North America’s first fully renewable, fully-electric, and fully integrated lithium processing operation.

Starting this month, the study will accelerate the company towards commercialized lithium production. It’s hoped the research will identify the technologies, innovations, skills, and potential partners required to create a world-class lithium hydroxide plant in Manitoba .

The creation of a lithium hydroxide plant would greatly impact North American industry. Specifically, it would enable the integration of a domestic supply of this critical resource. Electric car companies could improve output and potentially even lower prices.

A stronger North American lithium market could help cut costs for electric vehicle manufacturers.

Waiting for the Future

Snow Lake Lithium currently has 11.1 million metric tons of inferred resources at 1% Li2O. The mine has further plans to expand its resources based on the current active drilling campaign.

The scoping study mentioned above will commence in April 2022 and should complete by Spring 2023. Meanwhile, Snow Lake Lithium will continue its engineering evaluation and drilling program across its Thompson Brothers Lithium Project site. Company leaders expect that the mine will transition to commercial production in late 2024.

Only time will tell if the US and its northern neighbor can capitalize on this massive opportunity. Until we experience a breakthrough, the entry into the global Lithium Market remains a matter of “baby steps.”

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Like other industry insiders, the team here at MetalMiner has paid very close attention to the way international sanctions on Russia are affecting metals markets. When the invasion of Ukraine started, aluminum, zinc, and even steel had been strongly supported. Since early March, those prices have fallen back (as have Russian troops). Despite this, we feel that the titanium market is long overdue for some investigation.

Titanium is a key component in many industries, including aerospace.

Russian & Ukrainian Titanium is Crucial to US Industry

It’s true that Russian troops have withdrawn from many major cities in Ukraine. However, it’s likely this is just a tactical move. Once Russian forces regroup, they could escalate the fighting back east. Most experts feel the war will move to disputed provinces like Donbas and the southern “corridor” to Crimea.

Whatever happens, this geopolitical crisis has massive ramifications for metal prices. That’s why it’s odd that the titanium market hasn’t seen more attention. After all, the US is far more dependent on Russian and Ukrainian supplies of titanium than other metals. According to US import data, the two countries supply an annual average of 37% of US titanium bars and rods. Of this, Russia alone provided some 50% of rolled products, while both delivered more than 80% of blooms and slabs.

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Both Boeing's defense and commerical interests require titanium.

Titanium Market Amid Russian War a Threat to Boeing

Most US titanium was delivered by the Verkhnyaya Salda-based company, VSMPO-Avisma. However, as the Financial Times reported this week, Boeing recently stopped buying titanium from the corporation despite the latter being its largest supplier. As it turns out, VSMPO-Avisma is actually a sub-corp of Russian state-owned defense company Rostec.

In this case, Boeing had little option. As a defense contractor with huge commercial interests, it would be near impossible for the company to continue buying from Russia. In fact, this was likely true before the surge in negative sentiment related to surfacing Russian war atrocities. Fortunately, Boeing does have options.

Looking to Japan for Supply Relief

Japan is already a major supplier of aerospace quality titanium sponges. Despite accounting for only about a 1/5th of the global market, the country provides more than 80% of US sponge imports. Equally important to the equation are Japan’s high-quality downstream producers. These include Toho Titanium and Osaka Titanium Technologies, two of the few high-grade titanium manufacturers in the world.

Although MetalMiner Insights does not currently publish titanium prices, our SaaS platform contains a full range of prices, forecasts and should-cost models for aerospace grades of aluminum for both the US and European market.

Unfortunately, both firms are reportedly near capacity already. In fact, the Financial Times recently stated that Toho was already at capacity in the first quarter of 2022. The company even had to turn away orders from US Timet. Fortunately, Japan’s capacity can and probably will increase before long. However, the move to more costly Japanese suppliers will still result in higher prices throughout the Titanium market.

US companies like Boeing will not be alone in their search for non-Russian titanium supplies. Despite having significant European options, aerospace competitor Airbus is also a significant consumer of VSMPO products. Airbus leaders are even waging a fight to have titanium excluded from sanctions altogether.

Airbus has not yet annouced how it will fill gaps in its titanium supply.

Titanium Market Bracing for Price Increases

All of this seems to indicate that titanium prices could reach pre-financial crisis levels of over $15/kg within the next two years. As of this writing, there are four major countries that are certified to produce and ship titanium for the aerospace industry. They are Russia, Ukraine, Kazakhstan, and Japan. With the first two out of the picture for the immediate future, upcoming supply constraints could make the current titanium market look like a surplus by comparison.

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The extremely high natural gas prices this past winter have left many Europeans reeling. At the time, the increased costs were blamed on a shortage of Russian supplies. Today, many are wondering if the restrictions on gas exports by Russia were intentional. A reminder to Europeans of their vulnerability prior to the invasion of Ukraine, perhaps? It’s debatable. Still, the shuttering of smelters across the continent has had a dramatic effect on metals production. As we’ll see, this may only be a small sign of things to come.

Ending Europe’s Decades-Long Reliance on Russia

There’s no denying that Europe has been perilously reliant on its increasingly aggressive neighbor these past few decades. If anything, the war in Ukraine has only served to further emphasize this weakness. In fact, the realization proved so alarming that there is now a unanimous agreement to wean the continent off Russian oil, natural gas, and coal.

The UK made the first move, stating that it would cease all Russian energy imports by year’s end. It seems like a bold stance at first glance. However, it’s worth noting that the UK imports relatively little from Russia. In fact, it gets the majority of its gas and oil from the North Sea and Norwegian pipelines.

The rest of Europe doesn’t enjoy such luxuries. Therefore, the consequences of abandoning Russian energy sources are much more significant. Not surprisingly, views on the pace of the change vary widely across the continent. Countries like France, with Europe’s largest store of nuclear power, have pushed for an early embargo on Russian imports. Countries like Germany and Italy, meanwhile, have been much less gung-ho.

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 Russian goods could be cut off at any time.

The Search for New Sources of Coal and Oil

Whatever the timeline, it’s possible that Europe will soon enact a total embargo on Russian goods and services. This is only made more likely by the increasing reports of atrocities committed by Russian troops in previously-occupied areas of Ukraine. Already, active steps are being taken to make up for lost coal and oil.

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By all accounts, the region will find it much easier to replace coal imports. Reports show that the USA, South Africa, Indonesia, and Australia could all increase exports to help make up for lost supply. Crude oil, on the other hand, would present a challenge. Specifically, it would be hard to locate the right types of crude and get the supplies to the refineries that need it.

There is also the question of refinery locations. Indeed, Germany is not the only nation to position its major refineries near the Russia-Europe pipelines. Multiple countries built their entire refining infrastructure based upon heavy use of Russian and Siberian crude.

Russian natural gas piplines are key to European metals production.

Difficulties for European Natural Gas Production

Most experts agree that Europe’s biggest challenge will be substituting Russian natural gas supplies. This will prove particularly true during the winter months, when it is used for both industrial power production and home heating. Estimates indicate that an outright embargo would result in a loss of some 10% of primary energy demand. This, in turn, may force rationing among larger users.

Though chemicals (at 15%) account for the majority of natural gas usage, metals production would be close behind. And since Russian natural gas is cheap to supply via established pipelines, all other sources are going to be more expensive. The fact that the world is currently experiencing a severe shortage of LNG carriers isn’t helping. This would limit the rate at which alternative suppliers could deliver gas even if it were plentiful (which it isn’t).

To make matters worse, much of existing LNG production is already contracted to Asian markets. Moreover, Europe itself has limited scope for degasification. Even if shipments did increase, it would be some time before the continent could process it all.

Metals Production in a Post-Embargo Europe

All in all, it’s pretty much inevitable that Europe will experience a prolonged period of high energy prices and constrained natural gas supplies. This raises questions as to how viable energy-intensive industries like metal smelting, refining, and EAF steelmaking will be in the coming years.

At the end of March, Capital Economics predicted that crude oil prices would remain around $100 per barrel and natural gas at €120 per MWh through 2022. This week, those estimates increased to $130 per barrel and €150 per MWh. To top it off, the firm stressed that these prices will likely extend well into 2023.

It’s a sobering reminder of just how seriously the situation is deteriorating.

Could winter price spikes cause output reductions or closures at multiple aluminum and zinc smelters? How will prolonged periods of high energy costs affect the investment and profitability of those that remain? How will this all affect global metals production? These may be big questions, but there are clear answers just yet.

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Of late, all talk related to the US economy seems focused on inflation. And while the Fed has continually issued statements regarding interest rates, the organization seems split on how to proceed. Moreover, concerns are rising that too much intervention too soon could actually push the economy into a recession next year. In the meantime, it’s worth exploring whether these recession fears have any real merit.

“What’s that I hear? A recession?” It’s hard to wrap one’s head around. After all, the economy is booming. Just look at the labor market. Demand for workers is so high it has had a more negative effect on growth than the global supply chain crisis. What’s more, isn’t the dwindling inventory of raw materials a sure sign demand is outstripping supply?

Well, yes. However, a recent Financial Times comment piece suggested that these may just be lagging indicators and that it’s time to take another look at those supply-side constraints.

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Indicators aren't doing much to assuage recession fears

Supply is Showing Signs of Normalization

A recent study by Bank of America highlighted a raft of trucking, rail, and delivery companies currently reporting rapidly declining prices and increasing capacity. Around the world, container demand and rates have been softening for weeks. Sure, the lockdowns in Shanghai have caused a severe spike in vessels moored offshore. However, port handling at nearby cities like Ningbo and Tianjin is progressing normally.

In the West, ocean shipping activity has moderated quite a bit. Vessel queues are dwindling quickly at both LA and Long Beach. This is perhaps because inventory levels are well past the point where panic buying could affect them. In many instances, inventories are above pre-pandemic levels.

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Airfreight, meanwhile, remains extremely tight. In fact, the ongoing China COVID lockdowns may well lead to a temporary reversal of the easing we saw in Q1 come early Q2. Still, all in all, trends seem to indicate that the global logistics market is gradually getting its act together, albeit in fits and starts.

Both LA and Long Beach ports are rapidly clearing queues.

Recession Fears Hinge on Fed Intervention

All of this begs the question: how fast should the Fed be tightening things up, and are we at risk of doing “too much too soon?” That is, could hitting the recovery with a rapid series of rate increases cause us to overshoot the goal? If so, could that push a stuttering economy into a recessionary period? No matter who you ask, you’re not likely to get a fast answer.

Here at MetalMiner, we’re curious to know how well companies have managed to re-stock. We’d also like information on how current inventory levels compare with pre-pandemic levels. It’s likely some firms will be looking to carry higher inventory after the last two years of stock-outs. Indeed, the imperative for “just in case” has overtaken the discipline of “just in time.”

Clearly, some sectors are driven by a desire to “cash in” on rapidly rising prices rather than maintain a historically-set inventory level. Whatever the motivation, this would be a recipe for overstock should the steam suddenly come out of the market.

Wholesale inventories in the US are skyrocketing.

A Fragile Recovery is Recovery Nonetheless

Of course, MetalMiner is not calling a recession – certainly not yet. Almost all early indicators are showing signs of an economy nearing recovery, inflation or not. However, it’s worth acknowledging the recession fears that are currently imperiling aspects of that recovery. More importantly, it’s important to note that the risk of Fed overreaction remains a clear and present danger.

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On April 8th, the European Union announced plans to ban imports of Russian coal. This, of course, comes in the wake of that country’s February invasion of Ukraine. The decision is part of the fifth round of sanctions against the Kremlin. And with the Russian economy already poised for a massive contraction, prices – including metal prices – around the world are sure to be affected.

Aside from banning thermal coal from Russia, the six-pillared sanction package also stipulates a ban on coking and PCI-grade coal. Russia is currently a major supplier of these high-demand raw materials. Therefore, this announcement will undoubtedly create a number of challenges for steelmakers in the 27-member bloc. In fact, according to German state broadcaster Deutsche Welle, Russian metallurgical coal comprises about 25% of total imports.

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Russia's invasion of Ukraine has drawn international condemnation.

No Overstating the Importance of Russian Coal

Any way you slice it, Russian coal is crucial to many European industries. As the name implies, coking coal is the primary feedstock for coke production. PCI-grade coal, on the other hand, is crucial to the production of pig iron within blast furnaces. In 2020, hard coal deliveries to EU coke ovens totaled 38 million metric tons.

According to figures provided by the European Statistical Office (Eurostat) this was a decrease of approximately 15.6% from 2019. In that year, more than 45 million metric tons were shipped. Eurostat also noted that coke production in the bloc totaled 30 million metric tons in 2020. This, too, was down 6.3% from the previous year.

Steelmakers Buying Before Rules Go into Effect

As of the announcement, Russian-flagged sea vessels will also no longer be able to enter EU ports in most cases. The European Commission added that “exemptions apply for medical, food, energy, and humanitarian purposes. That said, the proposed coal ban is not due to actually go into effect until August.

As one analyst pointed out, this would allow end-users to acquire large volumes of product until that time. Of course, if the ban goes forward as planned, steelmakers will still need to find new sources of coal. “This will result in further cost increases,” the analyst told MetalMiner. “And while I think Europe can get around it, it will be another constraint.”

Alternatives for Russian Coal

The Search for New Coal Sources

The analyst went on to say that some possible sources the EU might consider to replace Russia’s coal supply include both Colombia and Canada. However, transatlantic shipping logistics and the high quality of Canadian-origin coking coal will make both of these rather expensive options. Due to its proximity, Polish coking coal would be much more convenient. Unfortunately, many of that country’s mines need to dig deeper before hitting coalface, which can drive up costs.

Southeast Asian and Oceania are also in play. As of April 8th, the Singapore Exchange’s Australian Coking Coal contract was $411.33 per metric ton. While the latest price is down from the March 8th high of $585, it is up more than 177% from 2021, when the contract was $148.50.

“There is always the option of sourcing the coal from the United States, which has some of the world’s highest-quality coking coal,” our analyst indicated. However, he remained dubious as to whether the Biden administration would be willing to restart coal mining activities solely for that purpose.

Overstating the Importance of Russian Coal

The day the invasion began, Russian President Vladimir Putin took state television to announce that the “operation in Ukraine” was an attempt to stop the genocide of ethnic Russians and to “de-nazify” and demilitarize the country. The announcement was met with both outrage and accusations of deliberate misinformation from all corners of the world.

Leading up to the mobilization, one of Russia’s main points of contention was the prospective expansion of the North Atlantic Treaty Organization (NATO) military alliance eastward into Ukraine. Russia was – and likely still is – seeking some sort of guarantee that Ukraine would never join that organization, a demand that US officials have declared a “non-starter.”

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The Stainless Monthly Metals Index (MMI) jumped by 25.07% from March to April, as nickel prices remained elevated.

April 2022 Stainless MMI chart

Source: MetalMiner Insights

Nickel prices continue to trade slightly downward. However, nickel prices remain elevated from pre-invasion levels.

Volume flow fluctuated among exchanges in recent days due to distrust of the LME, while nickel prices began to trade within an increasingly narrow range. A sudden change in overall price direction remains unlikely in the coming weeks, however, as LME volumes remain limited.

Risk aversion, margin calls cause trading exodus

Nickel trading finally resumed last month following the historic short squeeze that saw nickel prices spike by more than 90% within hours.

In order to restore stability to the disorderly market, the LME retroactively canceled trades. The LME implemented new rules, including price limits, “to minimise the potential for future disorderly price moves.”

The volatility and overall market uncertainty, in part due to current geopolitical tensions, prompted exchanges and brokers to request higher down payments for certain commodities, known as margins. The new requirements hindered trading, even in regions not connected to Russia or Ukraine. Furthermore, the requirements fueled recent price swings as trades were unwound to avoid the cost of holding positions.

Between the difficulty to finance trade and compounding market risks, volumes upon the resumption of trading remained uncharacteristically low on both the LME and SHFE. Further, open interest on the LME hit a nine-year low, Reuters reported. Meanwhile, open interest on the SHFE nickel contract fell to its lowest level since 2015 as position holders retreated from the market.

What could low volume and liquidity mean for nickel prices?

Read more

The Raw Steels Monthly Metals Index (MMI) increased by 15.14% month over month, as U.S. steel prices picked up this past month.

Steel prices rise

U.S. steel prices rose in March.

Plate prices skipped the price descent and climbed to new all-time highs.

Meanwhile, HRC, CRC and HDG hit a bottom in early March and continue to rise.

Know what to do when the market shifts. Make sure you’re familiar with the art of timing your buy.

No quick ending to the war in Ukraine

Thus far, Ukrainian forces appear to have foiled Russia’s plan of a quick victory over the neighboring region.

According to a senior defense official, around two-thirds of Russian forces retreated from Kyiv as Russia proved unable to successfully manage military operations on multiple fronts. While the retreat suggests a minor victory for Ukraine, it’s far from a signal the conflict will end any time soon.

Instead, the official stated that the troops will likely “be refit, resupplied, perhaps maybe even reinforced with additional manpower, and sent back into Ukraine to continue fighting elsewhere.” As Russia’s focus shifts to the Donbas region of Ukraine, the potential for a prolonged, more conventional war appears increasingly likely.

As such, supply constraints and the war’s other impacts on commodities, including steel, will continue as well.

European steel prices have jumped to new record highs. On top of the disruption of imports of Ukrainian steel, the E.U. banned imports of Russian steel products as part of a growing list of sanctions against the invading country.

Russia and Ukraine account for roughly one-fifth of steel imports to Europe, Bloomberg reported. Surging energy prices — due, in part, to the war — also caused numerous steelmakers on the continent to curtail production. The cumulative effect translates to an ever-tightening global steel market that, in addition to those in Europe, continues to push up global steel prices.

MetalMiner’s free weekly newsletter provides up-to-date metal price intelligence, including recent coverage of the impact of the war in Ukraine on metal prices.

Alternate sources for pig iron supply

Prior to the U.S. steel price inversion, MetalMiner examined the potential points of domestic market exposure to the ongoing conflict between Russia and Ukraine. Specifically, the fact that Russia and Ukraine account for more than 60% of U.S. pig iron supply.

According to the CEO of Stelco, however, while Russia and Ukraine were the leading sources of pig iron supply, they are far from the only options.

In a Wall Street Journal opinion piece, Alan Kestenbaum makes the case for steel sanctions against Russia. Of particular note, he mentions his own Ontario-based company Stelco has a remaining 90% plus of its 1 million tons of annual pig iron capacity available for use.

Beyond that, hot briquetted iron (HBI) stands as a pig iron substitute. Cleveland-Cliffs recently commissioned a new plant in Toledo. The facility started production last June. It boasts an annual capacity of 1.9 million metric tons of natural gas-based hot briquetted iron.

Pig iron is among multiple pressure points for the U.S. steel sector due to the ongoing conflict. However, it is likely not the primary driver of the current price ascent.

Chip shortage hammers auto output but zinc prices will add support for HDG prices

Meanwhile, U.S. automotive production continues to be stunted by the semiconductor shortage. The war in Ukraine has exacerbated the problem.

AutoForecast Solutions recently trimmed its expectations for North American auto output from its original estimate of 15.3 million vehicles. Due to ongoing shortages, automakers will produce at least 16,000 fewer vehicles, with a total of 300,000 still at risk. As steel makes up around 54% of the average vehicle, according to the American Iron and Steel Institute, 300,000 vehicles would amount to roughly 220,000 short tons of flat-rolled steel.

Stellantis, Ford, and GM all recently announced production cuts, citing semiconductor and parts shortages.

In spite of the cuts, GM remains optimistic that total production during 2022 will still outpace that of 2021. The company currently estimates total production in 2022 will reach 15.15 million vehicles compared to 13.14 million in 2021.

Although 2022 will not see a substantial uptick in steel demand from the auto sector, HDG prices continue to see upside pressure due to historically high zinc prices. Zinc prices reached a new all-time high in early April.

European prices

Soaring energy costs substantially curtailed smelting for the galvanizing metal across Europe. While Europe’s energy crisis predated Russia’s invasion, the conflict nonetheless worsened it.

European smelting company Nystar noted, “it is not economically feasible to operate any of our sites at full capacity.” While under normal conditions the company boasts a capacity of 720,000 tons per year, it now anticipates “total production cuts of up to 50%.” Nystar is hardly alone within the region which, as a whole, accounts for roughly 16% of global refined zinc output.

Europe’s mounting troubles continue to narrow the expected surplus for 2022, which follows a 194,000-ton deficit in 2021, according to the International Lead and Zinc Study Group (ILZSG). Furthermore, LME warehouse inventories of zinc continue to dwindle.

The market will experience further tightness, as major traders like Trafigura move to take substantial quantities of the metal out of warehouses. SHFE inventories climbed throughout the year. However, logistics issues in China will hinder any relief that those stocks could provide.

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices.

Actual metals prices and trends

Chinese slab prices rose by 1.36% month over month to $807.66 per metric ton as of April 1. Meanwhile, the Chinese billet price increased by 5.97% to $763.84 per metric ton.

Chinese coking coal prices fell by 2.22% to $502.79 metric ton.

U.S. three-month HRC futures rose by 27.39% to $1,530 per short ton. Meanwhile, the spot price increased by 24.78% to $1,405 from $1,126 per short ton. U.S. shredded scrap steel prices rose by 26.35% to $609 per short ton.

Russia’s invasion of Ukraine has sent shock waves throughout global metals markets. However, it’s important to remember that the most consistent longer-term driver of metal prices is Chinese demand. That’s why it’s surprising to see how little attention has been paid to the world’s largest consumer and producer of metals in recent months.

It’s understandable for global news networks to focus on the atrocities uncovered in Ukrainian cities. It also makes sense to counter such reports with more encouraging news, like coverage of the ongoing peace talks. Still, Chinese demand hasn’t gone away nor lessened. Instead, the country’s massive pull on metals prices has merely taken a back seat in the news cycle.

For example:

Energy-intensive base metals like aluminum and zinc have been driven higher by European power costs. Copper, on the other hand, has largely traded sideways as the market looks to China for direction.

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China’s Ongoing Challenges

Recent PMI and flash data suggests that Chinese consumption is falling and new orders are drying up. This comes on the heels of news that Beijing may be willing to allow growth rates to decline to avoid building up more debt. To make matters worse, China is also trying to tackle widespread problems in its property sector.

Capital Economics, veteran China watchers, has issued several reports on this subject. They seem to paint a picture of slowing industrial demand, services suffering from new COVID lockdowns, and property sector challenges. In fact, CE’s April 1st report specifically warned of a sharp fall in the official non-manufacturing PMI from 51.6 to 48.4. This would be the lowest figure since August and is far weaker than most industry insiders were hoping for.

An Intersection of Problems

China’s demand decline is almost entirely the result of the sharp drop in the services index from 50.5 to 46.7. The instant Beijing reimposed movement restrictions and lockdowns, consumers turned more cautious. On top of that, the Chinese industrial activity hit a five-month low in March. This was a full month before Shanghai’s lockdown officially took effect. In the absence of a miracle, April is likely to be much worse.

The longer these trends continue, the more they will impact global metal prices. Indeed, CE goes on to report that most “metal-intensive” sectors have seen rapidly-declining activity for some time now. This is largely due to reduced demand for all metals, copper included. In the absence of a sign that Beijing is planning a major manufacturing stimulus, China’s industrial sector will continue to grind to a halt. In due time, this will seriously weaken economic growth in key export markets like Europe and Japan.

Interestingly enough, this slowing demand is taking place as supply increases. Indeed, China’s power rationing has officially ended. More flexible guidance on environmental targets suggests smelters will soon ramp up output. In fact, according to Reuters, China’s daily aluminum output rose to its highest since mid-2021 in January and February. This was in spite of pollution curbs during the heating season and the Winter Olympics. It’s only fair to assume that March is going to be higher still. Unfortunately, this increased supply is hitting the market as demand slows both domestically and internationally, and logistics problems at ports are again on the rise.

Looking Ahead at Metal Prices

For now, the main narrative affecting metal prices continues to be the war in Ukraine, Russian sanctions, and European power costs. Still, as markets find workarounds and short-term solutions, the issue of Chinese demand will again move to the forefront.

One intriguing graph CE released today shows China PMI’s and Industrial metals as measured by S&P’s GSCI Index.

Historically, the Caixin and Official Manufacturing PMIs tend to correlate with a broad measure of commodity prices, which is clearly visible on the chart. However, rising European energy prices and the invasion of Ukraine have had a short-term impact on that relationship. That said, the connection is likely to reassert itself in the near future. When it does, the question is, will it result in a sharp uplift in Chinese economic activity or a fall in commodity prices?

We can speculate all we want. But for what it’s worth, my money says we’ll see lower commodity prices come next year.

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The Renewables Monthly Metals Index (MMI) slipped by 2.5% for this month’s reading.

(Editor’s note: This report also includes the MMI for grain-oriented electrical steel, or GOES.)

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Biden looks to Defense Production Act to boost domestic production

As we noted in the Rare Earths MMI report, President Joe Biden recently called upon a provision of the Defense Production Act to boost domestic production of materials needed for large-capacity batteries and infrastructure.

The move comes over a year after the president’s executive order on supply chains. In that order, Biden called for 100-day reviews of critical U.S. supply chains. The president specifically targeted semiconductors, high-capacity batteries, critical minerals and pharmaceuticals.

Meanwhile, in his use of the Cold War-era Defense Production Act, the president seeks to boost domestic production of important battery materials.

“The United States depends on unreliable foreign sources for many of the strategic and critical materials necessary for the clean energy transition — such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries,” a March 31 memo from the White House states. “Demand for such materials is projected to increase exponentially as the world transitions to a clean energy economy.”

In the order, Biden calls on the secretary of defense to “create, maintain, protect, expand, or restore sustainable and responsible domestic production capabilities of such strategic and critical materials by supporting feasibility studies for mature mining, beneficiation, and value-added processing projects.”

Furthermore, the secretary will also consult with other agency heads to survey the domestic industrial base “for the mining, beneficiation, and value-added processing of strategic and critical materials for the production of large-capacity batteries for the automotive, e-mobility, and stationary storage sectors.”

The MetalMiner Monthly Metal Outlook (MMO) report includes coverage of steel plate, which is included in the Renewables MMI basket of metals. 

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Rio Tinto’s new remelt furnace at its Laterrière Plant in Quebec officially came online amid a tight aluminum market and elevated aluminum prices.

Rio Tinto projects boosts aluminum recycling capacity

The two-year project added 22,000 metric tons of recycling capacity for North American rolled product customers in the automotive and packaging industries.

aluminum price

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According to Rio Tinto, the new facility will offer its customers “an additional solution to recycle scrap from their manufacturing processes and turn it into high quality, low carbon aluminum alloys.”

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Alcoa aluminum smelter’s road to recommissioning

Meanwhile, the currently idled Alcoa Intalco Works smelter faces one remaining hurdle for its recommissioning.

The smelter and its prospective owners secured taxpayer funding to update the facility. Washington Gov. Jay Inslee signed into law a state construction budget with the $10 million line item to improve efficiency and reduce emissions at the Ferndale facility.

A restart of the smelter remains in limbo, however. The prospective buyer, Blue Wolf Capital, still must establish a preferential long-term power contract with the Bonneville Power Administration (BPA). BPA previously rejected a proposal for reduced-rate electricity at the facility. However, negotiations are ongoing.

The required industrial rate is about 50% less than the current market rate. Should Blue Wolf Capital secure a contract, the smelter could return online as early as this summer, according to one report.

Alcoa idled the facility in the spring of 2020. Plummeting metal prices eroded the smelter’s profitability.

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