Seaborne iron ore prices have remained stubbornly high.

Chinese demand and a stronger-than-expected Chinese recovery from the first-quarter lockdowns are driving prices.

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Recovering demand

Demand collapsed in Q1 during the lockdown but has recovered rapidly in Q2, originally for flat-rolled products as manufacturing for household goods and air conditioning as the high summer temperature approached. Automotive, however, remains somewhat depressed. Long product production has seen a later surge as the market stocks up ahead of an anticipated fall infrastructure demand for construction.

China has not imported significant volumes of scrap since a change in regulations in 2017. Levels have been controlled by import quotas. As such, demand has in part been met by importing semis, like rods, from Malaysia and billets from Russia.

But a relaxation of scrap import quotas is expected to drive a surge in scrap imports. The change could boost domestic electric arc furnace (EAF) and induction furnace (IF) producers.

Southeast Asian scrap users wary

Scrap consumers in the rest of Southeast Asia are watching developments with some degree of trepidation.

Those consumers are expecting Chinese scrap demand could drive up the region’s prices and reduce availability. Worst case, this could encourage resource nationalism. Countries could impose a ban or limits on scrap exports to protect domestic availability or cap price rises.

Ultimately, if scrap prices do rise, rebar and billet prices will likely rise. Excess Chinese production would struggle to find a home regionally, with many countries like Vietnam not allowing rebar imports.

Regional production outside of China is not especially robust.

Japan’s Nippon Steel closed six blast furnaces at the start of the pandemic. However, the company is suffering from poor demand (even during H2 2019). While JFE expects to bring its one closed blast furnace back on stream later this year, Nippon has no plans to do the same before 2021 — underlining the continued depressed nature of the market.

Well-managed supply from Australia and anxiety over availability from pandemic-hit Brazil will likely continue to support iron ore prices. As if to support supply constraints — or, maybe, in retaliation for political discourse with Australia — China imported iron ore from a wider range of sources in Q2 and Q3. The most notable import sources were Canada, Ukraine and India, Reuters reported this week.

Increased scrap imports could soften iron ore demand.

But, in reality, the level of substitution is going to be modest.

Analysts are expecting iron ore prices to remain elevated, coming in at least above $100 per ton for the rest of this year.

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The Rare Earths Monthly Metals Index (MMI) posted no change from last month’s MMI reading.

August 2020 Rare Earths MMI chart

Pentagon moves ahead with rare earths projects

After awarding Phase 1 contracts to Lynas Corporation and MP Materials in April, the Department of Defense (DoD) opted to freeze funding for the projects pending further review. However, the DoD last month agreed to resume funding and move forward with the projects, as Reuters recently reported.

The projects entail the building of heavy rare earth separation facilities by the two firms in Texas and California, respectively.

The U.S. has long sought to curb its dependence on China for critical rare earths. Rare earths, while not actually rare, are used in a variety of high-tech capacities, including military applications.

Lynas announced July 27 that the Department of Defense had signed a contract for the work on the project, which Lynas will develop with Texas-based Blue Line Corp.

“As noted in our ASX announcement on 22 April 2020, Phase I funding provided by the DoD will allow Lynas and our U.S. partner Blue Line to complete a detailed market and strategy study plus detailed planning and design work for the construction of a Heavy Rare Earth separation facility,” Lynas said in the release. “In line with DoD Phase I milestones, we expect this work to be completed in the 2021 financial year.”

The U.S. facility will process heavy rare earths sourced from Lynas’ Mt. Weld mine in Western Australia.

Breaking down the deals

Meanwhile, MetalMiner’s Stuart Burns weighed in on the developments in the U.S. rare earths scene.

“Lynas processes lanthanum (La), cerium (Ce), praseodymium (Pr) and neodymium (Nd) in Malaysia,” MetalMiner’s Stuart Burns explained. “It would be logical for Lynas to send the balance of its rare earths — otherwise known as SEG concentrate, short form for Samarium (Sm)/Europium (Eu)/ Gadolinium (Gd) concentrate — to the new facility it is building in San Antonio.

“The real value here is in the terbium (Tb) and dysprosium (Dy) content, along with the gadolinium (Gd), according to this post in Investor Intel.

“Currently, the only market for the SEG is China.”

Lynas’ Kalgoorlie project moves forward

In other Lynas news, the Australian firm took another step toward commencing operations at its new Kalgoorlie rare earths processing facility.

Lynas awarded a kiln contract worth U.S. $15 million to Metso Outotec. The kiln will be 110 meters long and weigh approximately 1,500 tonnes.

Furthermore, Metso Outotec will manufacture the kiln to “Lynas’ own design,” which “improves on the design of the four 60 metre kilns currently in operation at the Lynas Malaysia plant.”

“The new kiln will provide increased efficiency and reliability,” Lynas said.

MP Materials announces merger

As for MP Materials, it announced July 15 it will merge with Fortress Value Acquisition Corp (FVAC).

MP Materials is the owner and operator of the Mountain Pass mine in California.

Drew McKnight, CEO of FVAC, stressed the need to “find a reliable and resilient source for rare earths,” calling it “crucial for the U.S. and global supply chain.”

Actual metals prices and trends

The Chinese yttrium price rose 1.3% month over month to $32.25/kg as of Aug. 1. Terbium oxide gained 0.3% to $662.83/kg.

Neodymium oxide jumped 6.7% to $45,574.28/mt.

Dysprosium oxide fell 1.6% to $265.85/kg.

The Copper Monthly Metals Index (MMI) increased 5.1% for this month’s MMI reading.

August 2020 Copper MMI chart

LME copper prices increased through the first half of July and have traded sideways since mid-July.

However, the price remains well above $6,000/mt. Chinese demand remains strong and market sentiment remains positive.

Will prices temporarily slow down?

LME copper prices continued to rise throughout July. The price reached a 14-month high by surpassing the $6,400/mt level.

SHFE prices followed a similar trend.

However, the price increase seems to have slowed. LME and SHFE prices have trended sideways for the last three weeks.

Copper inventories in LME warehouses decreased nearly 60% to 128,125 tons in July, reaching the same low levels seen in mid-January.

On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks increased by 60% to 159,513 tons by the end of the month. This could be due to the fact that even though demand in China remains strong, it tends to have a seasonally weak demand period from June to August. During that period, in which construction slows due to the hot and rainy summer (as MetalMiner reported last month).

Another factor contributing to the price slowdown is that despite positive sentiment toward economic recovery in the next few months, the rest of the world needs to show more signs of demand improvement.

Moreover, a week ago, the Brent crude market appeared to have moved back into contango.

This could signal the demand recovery expected for the second half of 2020 could appear too optimistic, which may bring some negative sentiment to copper prices.

China sets a copper imports record

Another explanation as to why LME stocks remain low while SHFE stocks have surged involves China’s record copper imports in July.

Reuters reported China imported 762,211 tons of raw copper and copper products in July, a 16.1% increase from the previous month.

High demand from the Chinese manufacturing industry and durable goods sectors drives the high import levels. However, the main driver may have been the arbitrage between the LME and the SHFE prices.

Chilean copper supply takes a hit

The National Statistics Institute (INE) of Chile reported at the end of July that copper production had declined 0.6% to 472,172 metric tons in June.

July marked the first month since the beginning of the pandemic that copper production in Chile saw little impact due to the coronavirus. Until now, Chile served as the only main producer that did not implement temporary shutdowns. However, throughout June, producers had to scale down as some reported coronavirus-related fatalities.

Despite Chile being one of the hardest-hit countries in South America, coronavirus cases seemed to have peaked in mid-June. As such, production could ramp up later this year.

Actual copper prices and trends

Copper prices continue to rise, with the Copper MMI value increasing 5.4% over last month.

Japan’s primary cash price increased 7.0% month over month to $6,640/mt.

U.S. producer copper grades 110 and 122 increased by 4%, resulting in a $0.14/pound increase for both to $3.66/pound. U.S. producer copper grade 102 increased by 3.7% to $3.88/pound, compared to $3.74/pound last month.

Indian copper cash prices increased by 8.3% to $6.68 per kilogram.

Korean copper strip increased by 0.4% to $7.42 per kilogram.

The Chinese copper primary cash price increased by 4.3% to $7,283/mt.

As a followup from a piece we posted last month about container logistics in the current pandemic environment, we thought an update may be appropriate.

In that vein, the dynamics at play in global supply chains remain highly volatile.

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In this month’s Automotive Monthly Metals Index (MMI) report: Ford CEO Jim Hackett will retire, the company announced this week; General Motors has plans to add more than 2,700 electric vehicle charging stations across the U.S.; and U.S. sales continue to show signs of recovery, but July sales remained down compared with a year ago.

The Automotive Monthly Metals Index (MMI) gained 2.4% for this month’s MMI reading.

Automotive MMI

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The U.S. steel sector’s steel capacity utilization rate has continued to inch upward in recent months, rising to 59.3% for the week ending Aug. 1.

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Aluminum does appear to be having a surprisingly strong post-pandemic recovery — in China, at least.

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[Editor’s Note: This article was edited Friday, July 31, to reflect that the U.S. government had reached separate agreements with Lynas and MP Materials, not a joint venture deal. The article also now includes an analysis of the materials Lynas processes and information regarding the possibility of a new Kalgoorlie plant.] 

Potentially the biggest shakeup to the U.S. rare earths market in years was announced this month, in a move by the U.S. to bolster the country’s rare earth supply chain that has been almost totally reliant on an increasingly belligerent China.

It would be convenient to think the Pentagon’s announcement that Australian rare earth miner Lynas Corporation had secured U.S. government funding to design a A$50 million ($36 million) processing plant in Texas was in response to recent threats by China to withhold material supplies to Lockheed Martin. 

But the reality is an agreement has been cooking for months.

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Road to a Lynas deal

Last year, the Australian government earmarked funding to help raise investment for new rare earths mines in the country. Fifteen have been identified as being commercially viable.

However, it wasn’t until this year that plans for the refining operation in the U.S. finally came together.

According to the Financial Times, in April the U.S. Department of Defense approved funding for two heavy rare earth processing operations, the first a joint venture between Australian listed Lynas Corp. and Blue Line in Texas to process the full range of rare earths that Lynas currently produces at the Lynas Advanced Materials Plant in Malaysia.

Lynas processes lanthanum (La), cerium (Ce), praseodymium (Pr) and neodymium (Nd) in Malaysia. It would be logical for Lynas to send the balance of its rare earths — otherwise known as SEG concentrate, short form for Samarium (Sm)/Europium (Eu)/ Gadolinium (Gd) concentrate — to the new facility it is building in San Antonio.

The real value here is in the terbium (Tb) and dysprosium (Dy) content, along with the gadolinium (Gd), according to this post in Investor Intel.

Currently, the only market for the SEG is China. China is the only real producer of heavy rare earth elements in the world, presently with 97% control of this market segment.

By doing this with Blue Line, Lynas will be able to capture the full value of the Tb and Dy market internally.

The agreement also holds out the possibility of funding for a new plant to be built in Kalgoorlie, Australia, a resource the Australian government is also willing to support in developing.

However, the Pentagon subsequently put the funding on hold pending review. Congressional lawmakers argued only U.S. companies should receive funding. Lynas is the only major non-Chinese producer of rare earth intermediates after the 2015 collapse of the debt-laden Mountain Pass refining operation in California.

Eventually, common sense carried the day and the project has been given the go-ahead.

The second DoD investment is with U.S.-based MP Materials, owner of the California Mountain Pass mine, to develop refining facilities it was building out before Mountain Pass hit the buffers in 2015. Now, MP exports some 26,000 tons a year of concentrate to China for refining, on which the Chinese have levied a 25% tariff during the current trade war.

Lynas nearly suffered a similar fate, in 2016, shareholders, including state-owned Japan Oil, Gas and Metals National Corporation, agreed to a debt restructuring of Lynas, saving it from collapse.

The challenge for Western miners and refiners is China’s dominance of the market (at over 80%).

If China chooses to raise production or flood the export market, rare earths prices collapse and challengers are bankrupted.

Although RE’s are in reality not rare, the processing is environmentally and technically challenging. In short, it’s expensive.

But the metal oxides are so critical to so many key industries and technologies. As such, it is inconceivable in an increasingly hostile trade environment that the West cannot support and subsidize, if necessary, its own supply chain.

Ideal partners

As such, Australia and Lynas make an ideal partner.

The country holds a sixth of global rare earths deposits. The Australian government is making investments to support the mining of at least nine of the 15 rare earth elements.

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Combined with Mountain Pass, a wider suite of light and heavy could be available. Both firms have prior refining experience on which to build.

This has been a volatile year for global markets, with already slowing economic growth compounded by the destructive impact of the coronavirus pandemic.

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The U.S. steel sector has slowly but surely been showing some signs of recovery.

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