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This morning in metals news, the Canadian government announced it is rolling out $100 million in funding for its domestic steel and aluminum industries, copper moves toward a seven-month high, and Vietnam’s steel exports to the U.S. increased in 2018.

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Canadian Steel, Aluminum Get a Boost

The Canadian government has announced it will offer $100 million in funding to small- and medium-sized aluminum and steel firms in the country, the CBC reported.

The U.S.’s Section 232 tariffs on steel and aluminum remain in place for NAFTA partners Canada and Mexico. Those tariffs are the primary point of contention as the successor to NAFTA — the United States-Mexico-Canada Agreement (USMCA) — still needs to be ratified by the three countries’ legislatures.

Copper Continues Hot Streak

The copper price moved toward a seven-month high on Tuesday, Reuters reported.

LME copper jumped 1% to $6,472.50 per ton, according to the report.

Vietnam Steel Sector Grows

Despite the U.S.’s aforementioned Section 232 tariffs, one southeast Asian country saw its steel exports to the U.S. rise last year.

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According to an S&P Global Platts report, Vietnam’s finished steel exports to the U.S. surged 48% in 2018 compared to 2017.

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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.

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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Last week, MetalMiner reported on the challenges India’s steel companies face in the form of cheaper imports, and their desire for the Indian government to impose an import tax.

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The woes of India’s aluminum producers, too, are similar.

Primary and secondary producers have started grumbling about cheaper imports eating into their aluminum business.

The ongoing trade war between the U.S. and China has seen the dumping of aluminum finished products in India, not only from China but also from nations with whom India has a free trade agreement, including Vietnam, Malaysia and Japan.

Anil Agarwal, of the Aluminium Secondary Manufacturers Association, was quoted by the Business Standard newspaper recently as saying that the import of finished aluminum products into India had eroded the margins of medium and small players by as much as 7%.

According to estimates, such imports have gone up by over 50% year on year, which has put the small and medium-sized enterprises (SMEs) businesses in peril. Total aluminum imports have grown 21% year over year.

Between April and October 2018, aluminum imports into India increased 24% year over year. In addition, low prices and rising production costs have also made life difficult for the domestic aluminum industry. Production costs, for example, have gone up as much as 30% over the past approximately four years.

Primary and secondary aluminum producers, like their steel counterparts, have been asking the Indian government to hike the import duty on primary aluminum to 10% from the current 7.5%, according to the Business Standard.

India’s domestic aluminum industry has about 3,500 MSME players, the Business Standard notes, while there are three large primary producers —Hindalco Industries, Vedanta and the state-owned National Aluminium Company (Nalco).

Scrap aluminum imports, too, have gone up dramatically.

But imports of aluminum scrap carry a 2.5% import duty, even though imports have gone up by about 27%, by the industry’s reckoning.

Indian producers lament they cannot compete with countries like China. The latter is able to produce aluminum at a cheaper rate because it follows the Shanghai Metal Exchange for price, which is U.S. $250-300 per ton lower than that on the London Metal Exchange.

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Incidentally, India has set a target of producing 10 million tons of aluminum by 2030, up from the present-day 3.4 million tons.

With the February 2019 Monthly Metals Index (MMI) report, we can officially move past  2018 and begin to take a look at the world of metals thus far in the new year.

On the trade front, trade officials from the U.S. and China met in January for renewed talks on the ongoing trade standoff between the economic powerhouses. A March 2 deadline approaches, however, after which President Donald Trump had previously indicated the U.S. would up its tariff rate from 10% to 25% on a a wide variety of Chinese imports (worth approximately $200 billion).

However, this week the president indicated he might not stick to that March 2 deadline, which could allow for further negotiations between the two countries if the deadline were postponed.

Meanwhile, in the world of metals, seven of our 10 Monthly Metals Indexes (MMIs) made gains this post month, with the remaining three posting no movement.

A few highlights from this month’s round of MMI reports:

Read about all of the above and much more by downloading the February 2019 MMI Report below:

The aluminum price has been fluctuating between around $50/ton above and below a median of $1,900 for several months now.

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There is considerable uncertainty as to where it is going to go in 2019, yet some commentators, such as ING Bank, are predicting prices will hit U.S. $2,250/ton by the end of the year on the back of constrained supply.

Of course, we should define what we mean by constrained supply.

There are two aluminum markets: one in China and the other being the rest of the world. They no longer operate quite in parallel universes as Alcoa’s ex-boss Klaus Kleinfeld once suggested, their intersection being Chinese exports of semi-finished metal – that metal that both exists within the Chinese market and the rest of the world.

How that volume of semi-finished exports varies tells us a lot about the state of the Chinese and global markets.

Although lifted by record November exports, the January-November figure is up 20.2% from a year earlier, to 5.28 million tons. That figure is on track to hit almost twice the total production of the world’s largest producer outside of China: Rusal.

Much of Rusal’s production is primary, of course, and China’s exports are semis. However, semis flooding the Southeast Asian and wider markets depresses or replaces local demand for primary metal, so the comparison remains valid.

China’s exports are often not given the attention they deserve as a dynamic in the global aluminum price.

Despite the primary metal deficit persevering in the world outside China, premiums have weakened, with ING noting European premiums have edged lower for several months now. As a result, inflows of material into LME warehouses have increased — since early December, LME inventories have increased from 1.04 million tons to around 1.3 million tons.

In Asia, premiums have also been weaker.

Japanese spot premiums are trading at around U.S. $77/t, down from over U.S. $90/t in October, with quarterly premiums for 1Q 2019 of U.S. $83-$85/t, compared to U.S. $103/t in the previous quarter.

Meanwhile, cost pressures have eased with fears of disruption from Rusal’s alumina refineries now removed and an expectation that Norsk Hydro’s Alunorte refinery could be back to full production in the first half, reducing supply-side fears.

At the same time, China has moved from being a net importer to a net exporter of alumina. As a result, alumina prices have fallen from levels as high as U.S. $640/t over parts of 2018 to around U.S. $370/t currently. The alumina/aluminium price ratio has also fallen from a peak of 31% in September 2018 to 19% currently.

Even so, according to U.S. producer Alcoa’s advice last week reported by Reuters, at current prices some 30-40% of the world’s smelters are losing money, which explains why supply-side primary metal growth flatlined in the second half of last year. Even Chinese smelters reacted to the low price environment.

Under the circumstances, ING’s $2,250/ton looks optimistic for the year end. As with every prediction this year, that has to come with the caveat that it depends what happens to trade talks, as so much expectation on the direction of global GDP growth appears to depend on that issue.

The longer uncertainty goes on, the more of a drain it will be on investment and the potential for continued positive growth in H2 and next year. For now, the U.S., China, emerging markets and even Europe appear to remain in positive GDP growth mode (although it has to be said, Europe’s numbers are meager).

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Positive demand growth and continued constrained supply suggest a lift in prices this year is in the cards. However, rising Chinese exports remain a worry.

If the domestic market is not absorbing this tonnage and the SHFE price remains depressed due to oversupply then the deflationary impact of those exports is unlikely to simply go away.

The February Aluminum Monthly Metals Index (MMI) edged up this month by 1.2% for an index value of 86. The index increased one point from January’s reading and has remained near the low last seen in February 2017, when the index hit a value of 84.

 

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LME aluminum prices trended upward at the start of January but lost some momentum and are moving sideways to start February. Prices continued to show weakness by failing to breach the price resistance point of $1,970 during January (the support price for most of 2018).

Source: MetalMiner analysis of Fastmarkets

With only a weak uptrend followed by some sideways movement, prices have grown weaker at $1,783/mt this month. The politics of trade and financial uncertainty in China, rather than supply and demand in the aluminum market, continue to direct LME price levels into early 2019.

Source: MetalMiner analysis of Fastmarkets

Typically, SHFE prices move similarly to LME prices, but with a lag.

As January played out, SHFE prices stayed weaker — within the pricing trendlines identified by MetalMiner in the January MMI report — with clear sideways movement, especially during the second half of the month.

U.S. Domestic Aluminum

The U.S. Midwest Premium continued to move sideways in January at $0.18/pound, ending the month at the same price point. As previously pointed out by MetalMiner, the Midwest Premium remains at a historical high. According to some analysts, the outlook on the U.S. Midwest Premium is bearish and expected to fall through April.

The European Premium fell from $150/ton to $60/ton, attributed to the removal of sanctions on Rusal. Japanese Q1 aluminum premiums also dropped significantly (by 17-19%).

Sanctions on Rusal Lifted

The U.S. lifted sanctions on aluminum giant Rusal on Jan. 27 following the company’s compliance with the removal of the Russian oligarch Oleg Deripaska — along with several other influential Russians, identified due to their ties with Russian President Vladimir Putin — from its board and parent company En+.

Given that Section 232 tariffs on imports of aluminum remain in place, this should limit ingot price decreases from the removal of sanctions on Rusal; this could be bearish for ingot prices.

But that does not explain what is happening in the commercial alloy/semi-finished market.

Due to the increased use of flat-rolled aluminum in the automotive industry, supplies of the semi-finished metal have grown tight in the U.S. marketplace. The usage of aluminum in vehicles will likely continue to increase due to the need for automakers to adapt to 2025 Corporate Average Fuel Economy (CAFE) fuel economy standards. Some additional vehicle lines, especially those with greater sales volume, could convert to aluminum “white bodies.” For 2018, the Ford Expedition and Lincoln Navigator now also use aluminum bodies.

To give some sense of what this means in terms of aluminum usage, a single Ford F150 truck uses an estimated 676.3 pounds of aluminum per vehicle. With sales of 909,330 units in 2018, that translates to around 608 million pounds of aluminum sheet. Add in the two additional models (the Ford Expedition and the Lincoln Navigator) and it’s easy to see why flat-rolled tightness exists.

What This Means for Industrial Buyers

Aluminum prices are trending slightly upward this year; however, at this time, prices are in a short-term sideways trend. Tariffs and supply concerns linger and should continue to support prices.

Only the MetalMiner Monthly Outlook provides a continual snapshot to aid buying organizations with the pricing data that can help determine when and how much of the underlying metal to buy.

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Actual Aluminum Prices and Trends

LME aluminum prices rose during January, but the uptrend lost steam as the month played out. LME primary 3-month prices ended the month at $1904/mt, around 3% higher than December’s closing price of $1,846/mt.

SHFE aluminum prices continued to fall overall, with sideways movement during the second half of January.

Chinese aluminum bar prices rose by 3.1% to $2,152/mt. and the Chinese aluminum primary cash price increased by 2.52%. However, Chinese aluminum billet decreased this month by 1.69% to 2052.47/mt.

Korean commercial grade 1050 sheet continues to decline at a slower rate, ending about 0.91% lower at the end of January. The Indian cash price increased 3.78% from $1.85 to $1.92, retracing some of the price decrease of 6.6% reported last month.

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The Construction Monthly Metals Index (MMI) held flat, sticking at 82 for the third straight month.

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U.S. Construction Spending

U.S. construction spending in November (the most recently available data) hit an estimated $1,299.9 billion, up 0.8% from the October total $1,289.7 billion.

November spending marked a 3.4% increase from the November 2017 construction spending total.

For the first 11 months of the year, spending hit $1,200.7 billion, a 4.5% increase from the January-November 2017 period (when spending hit $1,149.3 billion).

Under private construction, spending hit $993.4 billion in November, marking 1.3% increase from the revised October total of $980.4 billion. Furthermore, residential construction hit $542.5 billion, up 3.5% from October. Meanwhile, nonresidential construction hit $524.2 billion, down 1.2% from October.

As for public construction, spending reached $306.5 billion, 0.9% below the October total of $309.3 billion. Educational construction hit $76.7 billion, marking a 2.0% drop from October’s $78.3 billion. Highway construction spending reached $93.4 billion, up 1.7% from October’s $91.8 billion.

Architecture Billings Index

The Architecture Billings Index (ABI), released monthly by the American Institute of Architects, indicated modest billings growth to close 2018.

The December ABI came in at a value of 50.4 (anything greater than 50 indicates growth). The December ABI marks a drop from the previous month, when it reached 54.7.

“But despite flat billings in December, firm billings increased every month of the year in 2018,” the ABI report states. “And while concern about a potential economic slowdown looms for 2019, firms are not yet seeing any clear signs of it in their project workloads.”

Billings growth was the strongest in the Midwest, which posted an ABI of 56.3. Trailing the Midwest were the Northeast (51.6), South (49.4) and the West (49.2).

On the jobs front, the report notes the construction sector added 280,000 jobs in 2018, an uptick of 30,000 from the construction jobs added in 2017.

This month’s ABI survey of architecture industry professionals asked about the stock market volatility December and its level of impact on billings growth.

According to the ABI report, just 5% of respondents indicated the December volatility impacted their current projects, while an additional 29% reported “they have heard rumblings of potential impacts but haven’t seen anything definitive just yet.”

Actual Metal Prices and Trends

Chinese rebar steel ticked up 0.5% month over month to $559.36/mt as of Feb. 1. Chinese H-beam steel also moved up 4% to $559.36/mt.

U.S. shredded scrap steel fell 11.0% to $314/st.

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European commercial 1050 aluminum sheet fell 0.5% to $2,654.15/mt. Chinese aluminum bar rose 3.1% to $2,152.41/mt. Meanwhile, 62% iron ore PB fines rose 2.6% to $78.31 per dry metric ton.

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A recent article by CBC in Canada highlights the mess that has resulted from the imposition of steel and aluminum tariffs between the U.S. and Canada.

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It is fair to say the same mess is almost certainly prevailing on the U.S. side of the border.

The only winner seems to be the Canadian Treasury —and, likewise, the U.S. Treasury — which is raking in tariff duties from consumers having to pay more money on imported steel and aluminum.

CBC quotes Finance Canada data suggesting $839 million has been collected; the figure will hit over $1 billion by the time Canadian Finance Minister Bill Morneau announces his pre-election budget this spring.

Quite how he will handle this unexpected windfall remains to be seen.

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This morning in metals news, aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 results, India is considering a higher iron ore import duty and Shanghai steel futures moved up.

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Alcoa Reports 4Q Earnings

Pittsburgh-based aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 earnings this week, reporting adjusted net income of $125 million, excluding special items, for the final quarter of 2018.

The 4Q net income total was up from $119 million in the third quarter but down from $195 million in 4Q 2017.

For 2018 as a whole, the company reported adjusted net income excluding special items of $675 million, up from $563 million in 2017.

“Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments,” President and CEO Roy Harvey said. “With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead.”

In 2019, Alcoa projects a global aluminum deficit between 1.7 million and 2.1 million metric tons. In addition, Alcoa reported the global alumina market came in at a deficit of 0.6 million metric tons.

“In 2019, the Company expects the alumina market to move to a surplus that is projected to range between 0.2 million and 1 million metric tons, which assumes ongoing, third-party supply disruptions in the Atlantic region,” Alcoa states. “The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.”

India Considers Hiking Iron Ore Duty

According to a report from Creamer Media’s Mining Weekly, the Indian government is considering an increase to its iron ore import duty.

Per the report, domestic industry has lobbied the government to increase the current 2.5% duty on imported iron ore.

Shanghai Steel Picks Up

Global steel prices have lagged of late, but Thursday was a positive session for Shanghai steel futures, Reuters reported.

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Per the report, the most-traded rebar contract on the SHFE ticked up 0.8%, while hot rolled coil was also up 0.8%.