China

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This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

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According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

China’s campaign to cut environmentally polluting steel, aluminum, power generating and similar industries, like cement plants, is understandably catching the headlines.

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For producing industries like steel and aluminum, the cutbacks have supported prices. The expectation is the closures made this year will accelerate during the November to March heating period, when there will be forced closures of plants, even some that have passed the environmental tests.

All this has supported the expectation that there will be supply shortages in the face of an economy that continues to grow strongly and where recent PMI data supports current growth levels persisting at least through to the end of the year.

Yet while the headline announcements are all about capacity cuts, a recent Reuters article illustrates they are only part of the story.

Read more

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On Monday, our Irene Martinez Canorea wrote about copper prices, which have been on a bullish run. Today, Stuart Burns writes about investors’ copper positions. 

Reuters reported last week that the LME copper price reached a three-month high after a surprise rise in China’s Purchasing Managers Index (PMI).

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Investors jumped into copper after the official Chinese PMI rose for an 11th consecutive month, to 51.7 in June. Hedge funds and other investors increased long positions by 9,531 contracts to 58,816. Reuters reported that net long copper positions are now nearly double the 29,787 contracts reported back at the beginning of May and a dramatic reversal from the net short position of 47,109 contracts just a year ago.

The jump in the LME price was short-lived, dropping back as the dollar strengthened and LME data showed copper stocks gaining, but the Reuters report went on to question whether the current bullish run for copper is likely part of a longer-term recovery or a short-term case of overexuberance.

Although Chinese PMI numbers are not an exact measure of copper demand, they have been a good indicator over time. But after nearly 12 months of positive PMI numbers, many analysts are said to be expecting weaker readings in the second half of the year.

Chinese stimulus measures have boosted growth for longer than most had expected, but cracks are beginning to show in the housing market and Beijing’s tightening of credit is impacting small- to medium-size enterprises. The performance of those enterprises are not reflected in the official PMI figures, which are focused more on the large corporate sector.

Smaller businesses are measured by the Caixin PMI, which fell to its lowest level this year in June and is now hovering around the break-even point between contraction and expansion.

With the impact of stimulus measures beginning to decline and global stocks of copper remaining plentiful, it’s hard to see a case for copper’s continued strength in the second half of the year, despite the bullish bets indicated by the increasing long positions.

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If Reuters’ analysis is correct, we can probably expect an easing of copper prices, if not during the summer then into the fall.

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Before we head into the weekend, let’s take a brief look back at some of the news from the world of metals this week:

China’s Falling Steel Exports?

Earlier this week, our Stuart Burns wrote about the phenomenon of dropping Chinese steel exports:

“As we noted in a piece yesterday reviewing the 232 probe, China’s share of the U.S. import market for steel products has been falling for the last couple of years, mainly due to successful anti-dumping cases,” Burns writes. “China no longer appears even in the top 10.

So, what exactly is going on in China with respect to steel production and demand? Can we take it that Beijing’s actions to tackle excess steel production have finally resolved China’s deflationary impact on global steel markets?”

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In case you missed it on Monday, definitely give the story a read, especially as the Department of Commerce’s Section 232 steel investigation results will be announced any day now.

Indian Coal Faces Green Wave

Also earlier this week, our Sohrab Darabshaw wrote about coal mine closures in India, partially a result of the growth of the renewable energy sector:

“One estimate by the Energy and Resources Institute predicts if the cost of renewable energy and storage continue to fall, India may phase out coal power completely by 2050. Both solar and wind energy prices have been steadily decreasing over the last three years.

“In 2016-17, India added over 14,000 megawatts of new renewable energy power compared to almost 7,000 megawatts of new coal power capacity.”

Even so, the dependence on old energy sources won’t disappear immediately. Yesterday, Indian Steel Minister Choudhary Birender Singh announced India will ramp up its steel production significantly. That uptick in production will need energy, and Singh indicated Coal India Ltd. will be asked to provide the coal needed to back the steel-production operations.

In general, however, the interplay between older, dirtier sources of energy and clean, renewable energy sources is happening all over the world.

China-U.S. Back and Forth

Tensions have been building between the U.S. and China, as Reuters reported President Donald Trump was growing frustrated with China over its inability to rein in North Korea, while China expressed concern this week about the results of the Section 232 aluminum investigation.

The Department of Commerce investigations into steel and aluminum imports were announced in April.

Adding to the tension is China’s disapproval of a planned $1.42 billion arms sale by the U.S. to Taiwan, which the Chinese embassy denounced in a statement, Reuters reported Friday.

With many expecting tariffs or quotas (or a combination of the two) to be slapped on steel and aluminum imports (as an outcome of the 232 investigation), there’s no doubt the tension between the U.S. and China will only increase.

What’s Next For U.S.-India Ties?

President Donald Trump met with Indian Prime Minister Narendra Modi earlier this week in Washington D.C. Our Stuart Burns wrote about Modi’s visit and what could be in store for the U.S.-India relationship throughout the Trump administration.

During a joint press statement this week, Trump stressed India’s status as the world’s largest democracy and touted himself as a friend to India.

However, he also touched on thornier issues, like trade barriers.

“I look forward to working with you Mr. Prime Minister to create jobs in our countries, to grow our economies, to create a trading relationship that is fair and reciprocal. It is important that barriers be removed to the export of U.S. goods into your markets and that we reduce our trade deficit with your country.”

After the Tragedy

The Grenfell Tower fire earlier this month could have been prevented if safe building materials had been used. Burns wrote about that and more in his piece on the tragedy.

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Steel stocks rose earlier this week following reports that President Donald Trump could soon place tariffs on foreign steel companies.

According to a report from CNBC, U.S. Steel climbed more than 2% while AK Steel and Nucor each traded at 3% and 1% higher, respectively.

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Meanwhile, steel companies from around the would wait with bated breath on the Department of Commerce’s findings into its Section 232 investigation, which will determine whether foreign-made steel imports impact U.S. national security.

“There is a lot of anticipation that there is going to be a statement by the Commerce Department today or later this week that suggests Trump impose something like the 232 tariffs,” Macquarie managing director Aldo Mazzaferro told CNBC.

Impacting Steel Stocks

Citing sources speaking to Reuters, Trump is impatient with China and is looking to impose tariffs on steel imports from the Far East nation. This is impacting steel stocks in a major way.

“Supportive trade policy actions such as Section 232, could be a catalyst to change investor perception,” research analyst Jorge Beristain wrote. “We now have Buys on all Steels & Service Center names as they should benefit from stronger U.S. economic growth and rising trade protectionism.”

Beristain added steel demand in the first five months of 2017 is up 4% compared to the same time frame last year. In addition, Trump’s proposed $1 trillion infrastructure plan will likely also increase demand for steel.

How will steel and base metals fare in 2017? You can find a more in-depth steel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

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This morning in metals news, India looks to boost its steel output, China expresses concern about the Trump administration’s Section 232 probe into aluminum and steel imports, and researchers have discovered a new, environmentally friendly way to extract copper.

India Prepares for Surge of Steel Production

India is looking to ramp up its steel output to 300 million tons, according to a report in the Press Trust of India.

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Steel Minister Choudhary Birender Singh announced today the steps that will be taken to ramp up production. Two new policies aim to boost production to 300 million tons by 2030, according to the report.

Self-sufficiency is the objective of the new national steel policy. Singh added the government has reached out to Coal India Ltd. to assure that there will be enough fuel to support the uptick in production.

China Awaits U.S. 232 Investigation Verdicts

According to the Chinese Commerce Ministry, China is “concerned” about the impending result of the Trump administration’s Section 232 investigation into aluminum imports — one for which China has been the central focus.

In a report from Reuters, Sun Jiwen, a spokesman for the Commerce Ministry, said the basis for the investigations — national security — is too broadly defined.

Yesterday, Reuters reported Trump was growing increasingly frustrated with China, particularly in reference to its handling of North Korea.

Unsurprisingly, there are tensions and concerns on both sides of the equation (although tariffs would affect other nations and not just China). Many expect the Trump administration to announce the Section 232 findings in the near future.

A New Way to Extract Copper

MIT researchers have discovered a way to separate pure copper from sulfur-based minerals while eliminating toxic byproducts in the process.

According to a report in MIT News, the research team identified the proper temperature and chemical mixture in order to “selectively separate pure copper and other metallic trace elements from sulfur-based minerals using molten electrolysis.”

The article notes: “Copper is in increasing demand for use in electric vehicles, solar energy, consumer electronics and other energy efficiency targets. Most current copper extraction processes burn sulfide minerals in air, which produces sulfur dioxide, a harmful air pollutant that has to be captured and reprocessed, but the new method produces elemental sulfur, which can be safely reused, for example, in fertilizers. The researchers also used electrolysis to produce rhenium and molybdenum, which are often found in copper sulfides at very small levels.”

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In addition to being a fascinating scientific discovery and process, a clean way to extract an increasingly important product like copper is a great development.

Nickel has been in the throes of a long bear market, but there are reasons to be optimistic about a price bounceback for this industrial metal.

According to a recent report from the Financial Times, demand from China and the electric car battery market heating up could spur a nickel price boost in the coming months.

However, investors should still exercise caution.

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“True, there are plenty of negatives out there,” writes Alan Livsey for the Financial Times. “Supply growth from smelters in China and Indonesia has yet to abate. Forced destocking from end users and traders has made matters worse. Goldman Sachs expects net supply growth will nearly triple in 2018 from the estimated 37,000 tonnes this year.”

Livsey added if supply can be curtailed and demand grows as projected, nickel’s once low reputation with investors could see a significant change in direction.

Are Commodities as a Whole ‘Losing their Roar’?

Our own Irene Martinez Canorea recently wrote how June has not been particularly kind to metal producers, beginning with the U.S. Federal Reserve spiking interest rates up by 0.25%.

She writes: “The most recent Fed rate hike breathed a little life into the dollar, which has fallen for most of this year. We believe this could have a direct impact on the metals industry — namely, causing prices to fall.”

How will nickel and base metals fare in 2017? You can find a more in-depth nickel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

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This morning in metals news: copper slides slightly but is still near its recent 11-week high; shares of a U.S.-based aluminum company fell after a Reuters report that the company knowingly supplied flammable panels for use in Grenfell Tower and the European Union is considering retaliatory measures if the U.S. places tariffs on steel and aluminum imports.

Copper Hovers Near 11-Week High

Copper fell on Monday but still hung around its previous 11-week high, Reuters reported, hanging tough amid good news about Chinese demand and potential supply shortages.

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On Friday, LME copper reached its highest price since April 7. According to a report cited by Reuters, a seasonal rise in electricity usage in China is likely to contribute to a rise in demand for the metal.

Arconic Shares Fall After Report Linking Company’s Products to Grenfell

On the heels of the deadly June 14 fire at Grenfell Tower in London, metal company Arconic‘s shares are falling after a report indicated the company knowingly provided flammable panels for use in the tower.

According to a Reuters report, emails sent to and from an Arconic sales manager include questions about why the company provided combustible cladding material for use in the building of the tower.

Arconic argued that while it knew the panels would be used for construction of the tower, it was not its role to decide what materials are or aren’t compliant with building codes, the Reuters report says.

Shares of Arconic dropped 6% early Monday, CNBC reported.

EU Considers Response to Potential U.S. Tariffs

While China is the primary target of the U.S.’s Section 232 investigations into steel and aluminum imports, other countries are preparing for the effects of potential U.S. tariffs.

EU nations are among those concerned about a trade policy readjustment from the Trump administration.

Cecilia Malmström, EU trade commissioner, said the bloc was “making preparations” to respond to the imposition of U.S. tariffs, USA Today reported. She added U.S. tariffs would “unjustifiably hit” EU nations.

The Trump administration launched the investigations in April. The U.S. Department of Commerce held public hearings on the subjects of steel and aluminum imports May 24 and June 22, respectively.

Chinese excess capacity has been the main talking point for U.S. producers, who argue that China is flooding the market with the metals and leading to depression of prices and, as a result, job losses and plant closures in the U.S.

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The trade commissioner also said the EU would study any actions by the Trump administration to determine if they are in line with World Trade Association rules.

In the week when the world pensively awaits the U.S.’s Section 232 judgement — a move promised by President Donald Trump during his election campaign and aimed largely at China — a recent Reuters report on Chinese steel exports makes interesting reading.

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Source: Reuters

China’s steel exports have been sliding for months.

According to Reuters, China’s January-May export total was 34.2 million tons, down 26% from last year’s equivalent period and the lowest level since 2014. The year drop in export tonnage amounted to 12.1 million tons — roughly equivalent to Canada’s production over a full 12-month period, Reuters reported.

Yet bizarrely enough, China produced 72.78 million tons of steel in April, an all-time record Reuters says. The following month, China tallied the second-highest monthly total at 72.26 million tons.

Meanwhile, profits on products like steel rebar have surged to $162 dollars per ton this month, as inventory levels have fallen and demand has remained robust (particularly from the construction sector). Investment in real estate is running at an annual growth rate over 6%, Reuters reports. Although there are fears of overheating in some regions, real estate has been stronger for longer than analysts outside the market expected.

As we noted in a piece yesterday reviewing the 232 probe, China’s share of the U.S. import market for steel products has been falling for the last couple of years, mainly due to successful anti-dumping cases. China no longer appears even in the top 10.

So, what exactly is going on in China with respect to steel production and demand? Can we take it that Beijing’s actions to tackle excess steel production have finally resolved China’s deflationary impact on global steel markets?

First, Reuters notes that China has been quite successful in permanently closing previously shuttered steel plants, as well as in in tackling older and more environmentally damaging mills. Those actions combined has resulted in the removal of some 100 million tons of capacity.

In addition, Beijing’s focus on environmental issues has hastened the closure of induction furnaces, which use scrap rather than iron ore as their input and are often labelled as producers of sub-standard products (and, hence, unapproved). Unapproved equates to illegal by Beijing — as such, their production and their closures does not figure in the normal statistics. A significant proportion of China’s rebar production came from these mills, which explains the record profits being earned by surviving state-owned manufacturers of the same products as they capitalize on the removal of these scrappy competitors.

Unfortunately, nobody expects China’s construction market to continue at the current pace and a slowdown is in the forecast for the second half of the year.  Replenishment of low inventory levels will maintain steel mill production runs for a while, but as Reuters notes, China’s mills have a notoriously poor record in adjusting output to demand. So, we should expect that as demand eases, inventorying levels will rise, prices will fall, and access production may well begin to leak through exports onto the international market.

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While America’s anti-dumping legislation will largely protect that market from Chinese material, the rest of the world may find itself under pressure next year from greater availability of Chinese steel at falling prices, further fueling an already rising tide of protectionist sentiment in both developed and emerging markets.