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The Chicago Mercantile Exchange (CME) hot-rolled coil (HRC) steel futures market finally demonstrated increased liquidity during 2018, about five years following its introduction in February 2014.

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Both volume of trading and open interest numbers showed improvement during 2018, as evidenced by increasing trade volumes throughout the year. Additionally, the London Metal Exchange (LME) introduced a new Hot Roil Coil contract.

As a result, there’s been quite a bit of excitement and coverage lately of the HRC futures market — is it warranted?

Looking at Chart 1, since January 2018 or so, the CME HRC finally experienced an uptick in regular daily trading volumes, as demonstrated by the bars along the bottom of this daily settlement price chart.

Chart 1: Trade volumes are increasing, finally hitting a regular stride during 2018.
Source: Quandl.com

The next chart also shows a positive sign for CME HRC futures. Open interest shown by the red line in the chart continues to trend upward, charted along with the daily settle price.

Chart 2: Open interest in CME HRC futures continues to increase.
Source: Quandl.com

Have HRC Prices Moved Similarly to Other Steel Price Indexes?

Taking a full look back at prices of CME HRC against our own MetalMiner IndX(™) price tracking since the inception of the trading product, we see only small amounts of variability between historical MetalMiner IndX(™) HRC prices and CME HRC prices.

Chart 3: The MetalMiner IndX(™) U.S. HRC price versus the CME HRC close of day price, February 2014 to February 2019.
Source: MetalMiner IndX(™) and Fastmarkets

Taking a closer look, the next chart focuses on the year 2014 from the CME HRC’s inception date.

As shown in the first couple of charts, the U.S. HRC price was fairly stable around 2014. Comparatively speaking, the CME HRC price was less stable (although it may have offered a speculative opportunity, as it tended to fall faster than actual prices).

Chart 4: The MetalMiner IndX(™) U.S. HRC price versus the CME HRC close of day price, 2014.
Source: MetalMiner IndX(™) and Fastmarkets

Generally speaking, volatility increased in 2015, as the price dropped into December 2015. Thereafter, the price became more prone to fluctuations, but still traded mostly sideways in a band around the earlier price highs from 2013 and never returned to quite as low a price as it hit in 2015.

In early 2018, the price of HRC increased. Actual prices tracked by MetalMiner’s IndX(™)  seemed less volatile than CME HRC prices. However, prices trended very similarly.

Chart 5: MetalMiner’s U.S. HRC price versus the CME HRC close of day price, 2018.
Source: MetalMiner IndX(™) and Fastmarkets

What Does This Mean for Industrial Buyers?

The CME HRC futures liquidity amped up during 2018, the product’s fifth year on the market.

Volume and open interest increased. CME steel prices tended to follow a fairly stable trajectory, similar to what the major indexes report (e.g. CRU, TSI, Platts, etc).

Furthermore, large organizations with significant planning needs that buy in sizable volumes may benefit from the arbitrage play these contracts allow, as well as the overall benefits of using hedging instruments to lock in margins.

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You can’t please all of the people all of the time and the more people you are trying to please the harder it gets.

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When you are the largest and oldest metals exchange in the world and are trying to balance often competing priorities of a very diverse range of stakeholders — not to mention avoid potential litigation for just saying the wrong thing — it is hardly surprising the London Metal Exchange falls out of favor with one group or another from time to time.

Look at the aluminum load out queues some years ago, hated with a passion by consumers, loved by the warehouse operators and the LME in between facing litigation from Rusal over its efforts to find a solution.

Once again, the LME finds itself the object of someone’s ire.

This time it is a range of nongovernmental organizations (NGOs), including Amnesty International and Global Witness, upset with the LME’s plan to enforce standards of responsible sourcing and environmental stewardship on suppliers (or face their brands being banned from LME approval).

To be fair, the NGOs are not upset that the LME is taking the initiative — they are upset that it does not go far enough.

Read more

Two major dam disasters in three years are enough to put the frighteners on investors and get the media abuzz with talk of supply-side shortages.

Yet as small as Vale’s production loss is, the fact remains the market is relatively tight, and supply is becoming an issue again after many years of plenty.

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According to Reuters, the Corrego do Feijao mine shutdown will result in only a 1.5% production loss to Vale, hardly enough in itself to create a surge in the iron ore price to a four-and-a-half-year high of over $100 per ton last week.

The fear appears to be more about what comes next.

Read more

General Motors’ new eBike brand has a name.

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On the heels of a crowdsourcing campaign launched in November, GM announced late last week that its new electronic bike brand will be dubbed ARĪV.

The bikes were available for preorder starting Feb. 14. According to a GM release, the eBikes will be launching first in Germany, Belgium and the Netherlands due to “the popularity of lithium-ion battery-powered eBikes in those markets.”

The eBikes will begin being shipped to customers starting in the second quarter of this year.

Meld and Merge

GM’s new eBikes come in two models: a Meld compact bike and a Merge folding bike.

When it comes to electrified transportation, everyone wants to know about range.

“The battery was validated to rigorous safety standards similar to GM’s electric vehicles batteries,” the release states. “Riders can charge their ARĪV eBike’s battery in approximately 3.5 hours and receive up to 64 kilometers of ride time on a single charge.

“The ARĪV Merge and Meld come standard with safety components such as integrated, rechargeable front and rear LED safety lights for increased visibility and oversized brake rotors to increase stopping power.”

The bikes can reach speeds of up to 25 kph, the release states, powered by “four levels of pedal-assisted power.”

Features and Cost

Other features include an app, connectable via Bluetooth, which provides data like speed, distance and remaining battery level, among other pieces of information. The eBikes also come with a mount for smartphones and a built-in USB port for on-the-go charging purposes.

So, what will interested consumers be forking over to acquire one of these bikes?

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Per the release, in Germany the Meld is going for €2,750, while the Merge will come in at €3,350. Meanwhile, in Belgium and the Netherlands, the Meld and Merge bikes will cost €2,800 and €3,400, respectively.

Steel imports are once again threatening India’s steel sector, spurring major steel companies to ask the government to impose steel import duties.

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In the past few months, representatives of steel companies like Tata Steel and JSW Steel have met steel ministry officers with a request that the Indian government look at the present steel import-export scenario and impose duties.

According to a Reuters report, Indian domestic producers are facing not only the issue of cheap imports from China, Japan and some Southeast Asian countries, they are also been buffeted by low domestic prices.

Now, there are reports coming in that the steel companies are seriously contemplating increasing prices, which seems like a contrarian position since consumers have the option of buying cheap, imported steel. At the start of the present financial year, India had turned into a net steel importer for the first time in two years. By June, imports had increased by as much as 15%.

JSW Steel has already hiked the prices by over $100 per ton; others are thinking of following suit.

The reason? An increase in some raw material prices and growth in international steel prices. Indian companies have explained their proposed hike was to be in sync with rising international prices.

Imports, however, are what are causing Indian steel majors a major headache.

Imports of stainless steel from Indonesia, for example, has grown by nine times, according to the Indian Stainless-Steel Development Association (ISSDA). ISSDA also feels that countries like Indonesia, Malaysia and others are allegedly abusing the Association of Southeast Asian Nations (ASEAN) free trade agreement.

The steel ministry is sympathetic to the demands of local producers, and may be contemplating some measures to curb the situation.

But it’s not clear exactly what the government plans to do.

Some reports said the new measures may be more in the nature of non-tariff measures. It’s a case of once bitten, twice shy for India on this matter. In 2016, it lost a dispute against Japan at the World Trade Organization (WTO) on charges that New Delhi unfairly imposed import duties to safeguard its steel industry.

JSW Steel’s Joint Managing Director Seshagiri Rao was quoted last month as saying there was an urgent need to raise duties on steel imports, dubbing them a “major threat” to domestic industry.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

In the first nine months, while exports from India fell by 38%, imports grew faster, Rao pointed out.

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.

Some call them safeguards, some call them protectionist barriers, and some love them and some hate them.

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Few measures divide like import tariffs.

We have seen it in the U.S. While Europe would claim its own measures are a reaction to the impact of imports following the U.S. Section 232 action, the reality is domestic European producers — led by their trade group, the European Steel Association (EUROFER) — are very much in favor of the European Union’s decision to put in place permanent safeguard measures on steel imports (in place of the provisional ones which have been applied since July 2018).

The new measures differ from the provisional arrangements in part because they were arrived at after careful monitoring of imports in the intervening period. As such, they are so are more targeted, at some 26 product categories, Pan European Networks reports in its publication Government Europa. The tariff of 25% applies to imports that exceed a certain threshold and are designed to ensure sufficient supply is available to consumers without allowing the market to be swamped by excess material, severely depressing prices.

A report in Steel Times quotes Eurofer saying imports have surged by 12% last year, making the need for an effective defense mechanism essential.

Axel Eggert, director-general of EUROFER, is quoted as saying “For every three tonnes of steel blocked by the US’ section 232 tariffs, two tonnes have been shipped to the open EU market.”

The measures do appear to partially reflect consumers concerns, EUROFER says that the final measures include an immediate “relaxation,” increasing the size of the quota by 5% (calculated on the base years of 2015-2017), with a further 5% relaxation in July and another 5% in July 2020, subject to review. Steel demand in 2019 is expected to increase by just 1%.

But, not surprisingly, not everyone is in favor of the measures.

European auto manufacturers association ACEA has called the measures protectionist. It has said that steel exports to the United States have only dropped slightly, and so little extra steel has been diverted to Europe. EUROFER puts the figure at an increase from 20% import penetration historically to 25% import penetration during the monitored period last year – hardly the “significant volumes” touted by UK Steel Director General Gareth Stace.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

If the U.S. reaches a sufficiently attractive trade deal that it decides to remove the Section 232 measures – unlikely, but a possibility – to what extent will Europe remove its new measures?

We will see. In an increasingly protectionist world, barriers are quick to be adopted and slow to be removed.

The Copper Monthly Metals Index (MMI) hit 76 this month, up 2.7% after a decrease last month — yet it remains in an oscillating pattern that began in the summer of 2018.

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LME copper prices. Source: MetalMiner analysis of Fastmarkets

LME copper prices trended upward this month but were still within the oscillating pattern that started July 2018.

After hitting the late December low of $5,725/mt, the LME price trended upward since early January. LME copper prices increased throughout the first two months of 2019 but are still technically within the resistance boundary of the oscillating pattern, marked by the $6380/mt price point.

From a longer-term perspective, this is beyond the $6,000/mt level that served as the resistance point when prices trended lower during the first seven months of 2017.

A recent report from the International Copper Study Group (ICSG) showed worldwide demand increases are edging out global supply increases of ore and refined production, in terms of aggregate numbers.

The most notable production change reported was an increase in Chilean mine production. The most notable demand increase was the 7% increase in China, most likely due to lower availability of copper scrap in China, as discussed in this month’s MetalMiner February Monthly Outlook.

Vedanta was able to reopen its south Indian copper smelter when the country’s Supreme Court ruled in its favor and overturned a decision by the National Green Tribunal (NGT) to permanently shut down the copper smelter operation due to alleged pollution at its plant in the city of Thoothukudi.

Chinese Scrap Copper

Source: MetalMiner analysis of Fastmarkets

After some divergence in pricing trends, the LME copper and Chinese copper scrap prices re-synchronized in an upward trend. This is due to a short-term LME copper price turnaround, while the China index price is still trending upward gently.

China’s copper premiums fell to an 18-month low recently, indicating there may be some demand weakness.

What This Means for Industrial Buyers

LME copper price momentum appears solid so far during 2019.

Throughout most of 2018, both LME copper and Chinese copper scrap prices trended downward.

Both prices have turned around; however, the uptrend remains somewhat weak.

Historically speaking, prices remain fairly low. With a mild 2.7% increase in the MMI index this month, it’s too soon to determine if copper’s short-term sideways trend is over. Volumes, however, appear fairly buoyant, and prices have trended upward at the start of February.

It’s important for buying organizations to understand how to react to copper price movements. The MetalMiner Monthly Outlook report helps buyers understand the copper marketplace.

Want to a see Cold Rolled price forecast? Get two monthly reports for free!

Actual Copper Prices and Trends

In January, most of the prices in the Copper MMI basket increased, with the exception of Korean copper strip, which fell 0.24%.

Indian copper cash prices increased the most, by 4.24%, to $6.14/kilogram.

The remaining copper prices in the basket increased in the range of 1.8-3.19%, with an average change of 2.59%.

[Editor’s Note: This is the first part of a three-part series that will analyze the state of mainstream perspectives of the impact of tariffs, as well as delve further into the history of Section 232 and China’s role in the current trade dialogue.]

Consultants internally often pose a question to one another – do you want a client who knows he doesn’t know something, or would you rather have a client who doesn’t know what he doesn’t know?

It turns out that phrase came from the famed economist John Kenneth Galbraith, who actually used it to describe forecasters: “We have two classes of forecasters: Those who don’t know … and those who don’t know they don’t know.”

Most consultants (and forecasters) would likely argue one would rather have the former — it’s better to work with someone who knows he doesn’t know something than one who doesn’t know what he doesn’t know.

The same argument applies to trade and tariffs.

The mass media and much of the public has embraced the notion that tariffs are bad and continued “free trade” — with China — is good.

But is it? Does the mainstream press know what it doesn’t know?

We will come to this question shortly — but first, the conventional thinking.

Koch Companies Trade Study

According to a recent Koch Companies study on trade, the U.S. economy will see some very negative impacts on the economy as a result of President Donald Trump’s trade war, including:

  • Macroeconomic losses, which project declining GDP of 1.78% and a long-term impact in 2030 of 1.25%
  • Household financial losses of $2,357 per household in 2019, which compound to $17,276 in spending power over a 12-year time frame (2018-2030) in the form of lower wages, higher prices and lower investment returns
  • Increased unemployment
  • Production losses by 2030 modeled as a loss of 1% against the baseline for agricultural and services sectors and a manufacturing production decline of 2.5% from baseline

All of the above appear as reasonable conclusions one might make based on a standard methodology using the GTAP model and database, which ironically was the very same model used by the Department of Commerce to come up with the rationale for imposing Section 232 tariffs in the first place! Other countries have also used the GTAP model to formulate trade policies.

The Koch Companies’ study stands in good company. Multiple additional governmental and pay-to-play studies have come out arguing similarly against tariffs. Here are just a few:

So why in the world should we question these studies?

Because the studies don’t tell the whole story.

Media Bias, Not Fake News

Forget about fake news: legitimate studies have confirmed anti-tariff media bias.

A study conducted in 2005 — after the Bush steel tariffs of 2002 — sought to test a prediction that, “newspapers will devote more space to the costs of tariffs than to their benefits…” The study sampled 123 stories on trade from The New York Times and 177 stories from the Wall Street Journal (the stories ran during the Bush steel tariffs of 2002 from Jan. 1 through Sept. 10).

The WSJ also showed a “slant” toward free trade as measured by more sentences criticizing tariffs than supporting them, compared to The New York Times, according to the study methodology.

Not surprisingly, the results showed newspapers covered the “costs” of steel tariffs more than the benefits and the authors concluded the results suggest “that mass media will weaken the power of special‐interest lobbies relative to unorganized interests.”

Simply put, one should expect more anti-tariff media coverage than pro-tariff coverage.

Before we dive further into the studies, let’s re-examine the history of Section 232 and what cases have resulted in presidential trade action.

Part 2 of this series will be published Friday, Feb. 7. 

Last month, we wrote that winter was apparently “just heating up” for the Global Precious Monthly Metals Index (MMI).

Turns out we were right.

 

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The subindex tracking a basket of gold, silver, platinum and palladium prices from four different geographies shot up four points to hit 94 for the February reading — a 4.4% increase — driven by a scorching palladium price that began the month higher than the gold price (both above $1,300 per ounce).

But that wasn’t the only driver.

The U.S. silver price, as tracked by our MetalMiner IndX, bumped above $16 per ounce, the first time it reached that level since July 2018.

Gold began the month sitting pretty at $1,320 per ounce. Meanwhile, the U.S. platinum price rebounded for the February reading after its January dip, ending up at $820 per ounce.

Let’s take a moment to take that in: platinum at $820, while palladium broke the $1,300 barrier to start February at $1,325 per ounce. That represents the most massive platinum-palladium spread ($505 separating the two) in favor of palladium in the history of MetalMiner’s Monthly Metals Index, which dates back to January 2012.

It’s also the 16th straight month of palladium holding a premium over platinum.

A palladium price correction? Nowhere to be seen so far.

Latest Palladium Price Outlook

Reuters polled 29 analysts and traders just before the beginning of this month on the palladium and platinum outlook, and while the former’s prices may stagnate in 2020, these next 11 months look to be the metal’s best ever.

“The median forecast was for prices to average $1,200 an ounce this year and $1,150 in 2020 – up from $1,027 last year and only $612 in 2016, but beneath current prices around $1,350 and the record high of $1,434.50 reached earlier this month,” according to the article.

What is Driving PGM Prices?

The global palladium supply shortage is still the top driver, with a shortfall of more than 1 million ounces this year and next estimated by researchers Refinitiv GFMS, according to Reuters.

However — automotive metaphor alert — the driver that could stall the palladium price craze is a marked slowdown in major global car markets.

Automotive sales in China fell last year for the first time in three decades, and the U.S. and E.U. automotive markets are bracing for more potential slowdowns amid economic growth concerns.

Will that happen in 2019? Much remains to be seen.

For now, it seems that if buyers are buying on the spot market and could stand to somehow substitute platinum for palladium in their industrial applications, it wouldn’t hurt to look into it.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Key Price Movers and Shakers

The U.S. silver price bumped up 3.6% to sit above $16 per ounce.

Gold began the month at $1,320 per ounce, a 5.8% increase over its Jan. 1 level.

The U.S. platinum price rebounded for the February reading after its January dip, rising 3.3% and ending up at $820 per ounce.