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The Raw Steels Monthly Metals Index (MMI) traded sideways this month, driven by slower domestic steel price momentum. The current Raw Steels MMI fell to May 2018 levels.

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Domestic steel prices have started to fall slightly. Prices traded lower in August, showing some downward momentum. Buying organizations may want to remember that this year domestic steel prices have remained at more than seven-year highs.

Source: MetalMiner data from MetalMiner IndX(™)

All forms of steel decreased in August. HRC, CRC and HDG showed weaker momentum. Meanwhile, plate prices held stronger in August. Plate prices had the support of low metal availability. However, plate prices lost momentum at the end of August and prices decreased. So far in September, prices for all steel forms declined.

The recent slowdown in steel prices may comes down to historical steel price cyclicality. Domestic steel prices have remained in a sharp uptrend since January 2018. Prices have started to come off slightly but remain higher than last year’s average.

Chinese Steel Prices

So far in September, Chinese steel prices have increased. Chinese steel prices increased in August, recovering price momentum. Chinese steel prices appear to be in a recovery and have started an uptrend, after a slight downtrend since the beginning of the year. Higher Chinese domestic demand has supported prices.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices tend to drive U.S. domestic steel prices. Therefore, buying organizations may want to keep a close eye on pricing.

The Spread

The hot-rolled coil and cold-rolled coil spread seems to be weaker than historical pricing.

The spread has been historically around the +/- $100/st level. However, the spread started a divergence back in November 2015, reaching around $200/st. 

The current spread now stands at $79/st. This means that CRC and HRC prices have become closer than anticipated. Market anomalies sometimes create divergences in prices. However, this may correct soon.

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to follow price movements closely to decide when to commit to mid- and long-term purchases. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner monthly outlooks provide a continually updated snapshot of the market from which buying organizations can determine when and how much to buy of the underlying metal. Click here for more information on how to mitigate price risk year-round and request your two-month free trial.

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Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 3.68%, falling to $785/st.

Chinese steel billet prices increased sharply this month by 11.56%, while Chinese slab prices increased just by 1.17%, moving to $634/mt.

The U.S. shredded scrap price closed the month at $354/st, decreasing from last month.

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MetalMiner’s Global Precious Monthly Metals Index (MMI) — tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe — continues its trek downward.

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The Global Precious MMI clocked a value of 81 for its September 2018 reading, down 1.2% from 82 last month — and reaching a low not seen since January 2017.

Here’s What Happened

Both U.S. platinum and U.S. gold took sizable hits this month.

Read more

The Rare Earths Monthly Metals Index (MMI) dropped one point this month, falling for a reading of 17.

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China Raises Quota for Rare Earth Smelting, Separation

On Aug. 27, China’s Ministry for Industry and Information Technology announced it would increase the quota on rare earth smelting and separation.

The quota increased 15% to 115,000 tons, according to Reuters.

Caught in the Crossfire

The South China Morning Post reported on a Chinese company that could get caught up in the escalating trade war between the U.S. and China.

Shenghe Resources Holding, as the Post notes, is one firm in a consortium that has invested in the Mountain Pass mine in the U.S. (which was the only operating rare earths mine in the U.S. before owner Molycorp filed for bankruptcy in 2015).

If the back and forth results in China imposing a tariff on U.S. rare earths, as the article notes, that could throw a wrench into the consortium’s plans to export materials from the mine to China and, moreover, impact the mine’s viability.

Rare Earth Recycling

The US Federal Laboratories Consortium recently recognized a team of researchers for their work on a rare-earth magnet recycling process.

According to Recycling International, researchers from the Critical Minerals Institute and Ames Laboratory were honored with the Notable Technology Development Award for their work on a rare-earth magnet recycling process.

”A unique strength of this technology is that operational hazards and negative environmental impacts associated with acid-based dissolution process are eliminated without sacrificing purity, efficiency and potential economic impact” said Ikenna Nlebedim, the lead investigator for the research, in an Ames Laboratory release on the news.

Given China’s overwhelming dominance of the global rare earths market, the U.S. has continued to explore options to move away from dependence on foreign sources of the materials. According to the release, the process entails magnets being “dissolved in water-based solutions, recovering more than 99 percent purity rare earth elements.”

According to the Ames Laboratory announcement, collaboration is ongoing with a commercial partner, Infinium Metals, to produce metal ingots at a larger scale.

Per the release, patents are being filed for the researchers’ recycling process.

Actual Metal Prices and Trends

Yttrium fell to $32.88/kilogram, down 0.5%. Terbium oxide fell 0.5%, down to $427.39/kilogram.

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Neodymium oxide dropped 1.5% to $46,245.80/mt. Europium oxide fell 6.8% to $43.10/kilogram. Dysprosium oxide fell 0.9% to $167.30/kilogram.

To be fair, not all shale gas drilling is slowing, but in the Permian Basin, which has seen the most incandescent growth in recent years, according to the Financial Times, growth is slowing markedly, according to Schlumberger, Halliburton and the U.K.’s Weir Group – all majors suppliers to, or active players in, the fracking industry.

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Source: Financial Times

The article cites logistical challenges, including labor costs and a lack of adequate pipeline capacity constraining growth. The article states the following factors have undermined the economics of oil production in the region:

  • rising costs for labor and equipment
  • difficulties in disposing of the unwanted water and natural gas produced alongside the oil
  • and, above all, a shortage of pipeline capacity for taking crude from the wilds of west Texas to refineries and export terminals along the Gulf of Mexico coast.

The Financial Times quotes Bill Thomas, chief executive of EOG Resources, who said: “When you’re focused on one basin, one play, it gets very difficult to continue high rates of growth.”

Source: Financial Times

From a low two years ago, the tight oil industry’s rebound has been impressive. Much of it is coming from the Permian Basin, with national production up by 1.5 million barrels a day in the 12 months to July.

But questions are being asked as to whether or not the Permian may be reaching a plateau. New wells drilled alongside older wells are relatively less productive than the original when assessed on the basis of their length and the weight of sand used in the fracking process — so-called “parent” and “child” wells, as the Financial Times calls them.

That would suggest the long-term potential for the region to continue impressive growth at ever-lower cost is called into question.

Whether that proves to be the case remains to be seen. Of course, the Permian is not the only tight oil resource in the country. While others haven’t seen the level of investment the Permian has enjoyed in the last two years, subject to oil prices, the other regions still have huge potential.

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What it probably does say is the stellar growth of recent years is unlikely to continue and may be slower from the middle of this year onwards. With the dramatic rise in steel prices following the U.S.’s imposition of a 25% import tariff on steel products, it was to be expected drillers would find both exploratory work and infrastructure investment slowing. However, the Financial Times suggests the slowdown has caught many in the industry by surprise and suppliers’ share prices have taken a hit as a result.

The Construction Monthly Metals Index (MMI) picked up two points this month, rising 2.2% for a September reading of 92.

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U.S. Construction Spending

U.S. construction spending in July — the most recently available month for Census Bureau data — hit $1,315.4 billion, which marked a 0.1% increase from the June 2018 revised total and a 5.8% increase from the July 2017 total.

Through the first seven months of the year, spending hit $740.5 billion, up 5.2% from the same period in 2017.

Private construction spending was at a seasonally adjusted annual rate of $1,010.9 billion, down 0.1% from the revised June estimate of $1,011.9 billion. Within private construction, residential construction was at a seasonally adjusted annual rate of $560.1 billion in July, up 0.6% from the revised June estimate of $556.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.9 billion in July, down 1.0% from the revised June estimate of $455.3 billion.

Meanwhile, public construction was at an estimated seasonally adjusted annual rate of $304.5 billion, 0.7% above the revised June estimate of $302.3 billion. Within public construction, educational construction was at a seasonally adjusted annual rate of $71.6 billion, up 2.1% from the revised June estimate of $70.1 billion. Highway construction was at a seasonally adjusted annual rate of $94.2 billion, up 0.4% from the revised June estimate of $93.8 billion.

Architecture Billings Rise at Slower Rate

According to the Architecture Billings Index (ABI) — put out by the American Institute of Architects — architecture billings grew last month, but at a slower pace.

The ABI for August hit 50.7 (a reading of 50 marks no growth), meaning growth was relatively minimal.

“However, this is not yet cause for concern because indicators of new work in the pipeline—measured by inquiries into new work and the value of new signed design contracts at firms—both remained strong in July,” the ABI report for the month states.

Billings decreased in every region but the South, according to the report. The South region led the way with an ABI of 55.2, followed by the West (49.6), Midwest (49.3) and Northeast (48.0).

This month’s survey asked architecture industry professionals regarding the impact of tariffs on their businesses on the heels of recent U.S. tariffs and the resulting retaliatory tariffs.

Per the report, 37% of firms indicated that they have seen specific consequences on projects as a result of the tariffs, an increase from 24 percent that reported the same in April,” the report states. “However, 49 percent of firms reported that they have still not seen any impact, while the remaining 14 percent of firms indicated that they were not aware of or not sure of any impact.”

Construction Jobs Added

According to a Bureau of Labor Statistics (BLS) report released today, U.S. unemployment for August was unchanged from the previous month, holding at 3.9%.

A number of sectors added jobs in August, according to the report, including construction.

The construction sector added 23,000 jobs in August after adding 18,000 in July and 8,000 in June. Jobs in the sector have increased by 297,000 over the year, according to the report.

Actual Metal Prices and Trends

Chinese rebar steel hit $661.91/mt for the month, posting a month-over-month increase of 6.1%. Chinese H-beam steel rose 1.2% to $613.69/mt.

U.S. shredded scrap steel fell 4.6% to $354/st.

European commercial 1050 aluminum sheet rose 1.6% to $2,913.29/mt.

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Chinese aluminum bar jumped 5.0% to $2,405.08/mt. China 62% iron ore PB fines fell 0.5% to $76.71/dmt.

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Argentina is not exactly Venezuela, but you could be forgiven for shaking your head at the sheer ineptitude of Argentinian politicians who have presided over yet another economic crisis and have been forced to go to the IMF yet again for a $50 billion bailout.

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As Reuters observes, Argentina is struggling to break free from cyclical financial crises that have hit the country every decade over the past 60 years.

The most recent, in 2002, threw millions of middle-class Argentines into poverty and shook investor confidence in the commodities-reliant economy.

Not that the current administration caused the current morass — the fault for that lies with former President Cristina Fernández de Kirchner.

According to the BBC, her government, which was in power from 2007 until 2015, raised public spending, nationalized companies and heavily subsidized many items of daily life, ranging from utilities to football transmissions on television.

Worse, it controlled the exchange rate, which created all sorts of practical problems, such as giving rise to a black market for dollars and heavily distorting prices. The more conservative administration of President Mauricio Macri’s came into power promising fiscal responsibility and to stem the collapse of the newly freed up currency, but has consistently failed to lower inflation, which is the highest amongst G20 nations.

Since coming to power in 2015, Macri’s administration has failed to enact the economic reforms it promised the IMF, most of them aimed at curbing public spending and borrowing. The resulting spiral of inflation and draconian public spending cuts this year means wages are not keeping pace with prices, making most people poorer.

Source: Bloomberg via BBC

The country is facing inflation of over 31% by mid-2018, record unemployment and rapidly growing poverty marked by queues at soup kitchens, as the poor are unable to even feed themselves, which is leading to unrest.

Inflation is expected to end the year at over 40% despite stringent fiscal constraints the government is imposing. The government is following orthodox fiscal policies, partly under pressure from the IMF. Policies are in place to cut its ministries by more than 50% and decrease public spending by 4%. The goal is to advance the fiscal deficit reduction to zero next year, ahead of the earlier target of 2020. Even so, the peso has collapsed as investors have fled, devaluing by 52% just this year. In the last week alone, the currency lost 16% of its value.

So desperate is the situation that President Macri’s government has imposed a tariff on all exports — yes, you read that right, exports, including steel products.

Admitting it was a bad tariff and a desperate measure that ran counter to the normal intent to generate foreign currency through exports, Macri explained it was to avoid semi-finished products flooding out the country with the collapse of the peso. The government is fearful if it goes unchecked, the market will be devoid of raw materials and domestic manufacturing will collapse, adding to already rising unemployment and further dissuading investment.

According to Bloomberg, the tariff varies between primary products and finished products. For primary products, for every $1 exported, a duty of Argentinian Pesos 4 is charged (or about 10% at current exchange rates), while for finished products, for every $1 exported a duty of Pesos 3 is charged.

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It is hard to see a quick turnaround for Argentina; years of austerity and a harsh recession are likely on the table, with ongoing support from the IMF.

Following past real estate deals with the Macri family, President Trump is giving his verbal support to the Argentine president’s efforts, support that may prove vital if the current $50 billion does not prove sufficient to turn the economy around.

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Rare earth exporters in India have lodged protests after the government snatched their rights to send these precious elements abroad.

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Rare-earth metals are a group of 17 elements, which are found in geological deposits. Some of the most abundant metals in the world are neodymium, cerium, and lanthanum.

All rare earths are classified into two groups: light rare earths (LREs), and heavy rare earths (HREs).

Just 20 years earlier, the Government of India (GoI) allowed the private sector into beach sand mining. Now, it issued a notification, wherein the right to export these rare-earth metals have been taken away.

Instead, the GoI has introduced a canalization system.

The primary aim of canalization of exports through Indian Rare Earths (IRE), according to the Financial Express, is to curtail direct private sector export of beach sand minerals and derivatives like ilmenite, rutile and zircon.

Canalizing means putting quantitative restrictions on exports.

But the move has obviously not gone down well with rare earths miners. Miners have said these checks would curtail beach sand mining activities and deprive India of a developing sector.

According to a new research report by Global Market Insights, Inc, the rare earths market size will exceed U.S. $20 billion by 2024. It’s well known that the majority of the global rare earth production capacity is in China. However, China has not shown much inclination of sharing those resources with other nations.

Thus, the focus is on countries like India and Japan — specifically India, which has a sizable reserve.

Driving this sector is the demand for magnets in automobiles, and requirements in defense and energy generation. Electric cars, for example, rely on some of rare-earth metals.

Beach sand minerals and their derivatives find diverse applications in paints and other decorative materials, papers and plastics, and high-tech applications. At present, much of India’s share of domestic production, as well as exports, are done by private sector firms.

The GoI notification said export of beach sand minerals had been brought under the STE and shall be canalized through IRE. Beach sand minerals, permitted anywhere in the export policy, will now be regulated in terms of the new policy. One of the other sources of angst for private firms in the business is that they have already made huge capital investments by way of technology and production facilities.

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According to the Financial Express report, beach sand minerals mining activity commenced in India in 1908. In addition, until 1998, other minerals were restricted only to public sector companies (except for garnet), but just after that the GoI embarked on a path of liberalization that allowed participation by the private sector.

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Following Russia’s military intervention in Ukraine in February 2014 — the Ukrainian crisis, as it became known as — a number of countries imposed sanctions on Russia led by the United States and Europe, but supported by many others like Canada, Australia and Japan.

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The impact on Russia’s economy was significant, but by early 2016 many countries, even within the previously united E.U., were calling for sanctions to be lifted (or at least revised).

By that stage, the Russian economy had recovered from the initial shock and, despite the restrictions, was doing rather well.

But this time last year, it all began to go downhill (again, this despite a very pro-Putin president being in the White House).

Initiated by President Barack Obama, Congress passed the Countering America’s Adversaries Through Sanctions Act, which imposed new sanctions on Russia for interference in the 2016 elections and its involvement in Ukraine and Syria.

Then, in March of this year, President Donald Trump imposed financial sanctions under the Act on the 13 Russian government hackers and front organizations that had been indicted by Mueller’s investigation into Russian interference in the 2016 U.S. elections.

This was followed in April by further economic sanctions on seven Russian oligarchs and 12 companies under their control. Among these was Oleg Deripaska, a move that sent such severe shock waves through the aluminum market that the administration hastily backpedaled and gave a stay of imposition until October “to allow the market to adjust.”

Many expected a permanent exception to be made for Rusal or for some fudge of ownership to be manufactured such that Deripaska was no longer deemed to be the controlling entity in holding company En+ or Rusal.

But as the date looms ever closer, questions are being raised about whether this will be how it plays out in practice.

More, rather than fewer, sanctions keep getting added to the list. A recent Economist article reports that in August alone, the U.S. has: slapped penalties on Russian shipping firms accused of trading oil with North Korea; imposed restrictions on the arms trade in connection with the poisoning of ex-Russian spy Sergei Skripal in Salisbury; and began congressional hearings on the two new pieces of legislation designed to punish Russia for its interference in elections.

The Economist report goes on to say the greatest threat to Russia’s economy comes from two proposed bills: the Defending Elections from Threats by Establishing Redlines Act of 2018 (DETER) and the Defending American Security from Kremlin Aggression Act (DASKA).

Sen. Lindsey Graham, one of DASKA’s six bipartisan co-sponsors, is quoted as saying it is the “sanctions bill from Hell.” When details of its contents made their way into the Russian press in early August, the rouble slid to two-year lows and the share prices of Russian state banks began falling, according to the Economist reported.

Source: Thomson Reuters

Russia has been taking active steps to mitigate the effects, funneling rising oil revenues into its National Welfare Fund and building up reserves.

However, despite a weaker rouble helping exporters, the economy is suffering.

The uncertainty around sanctions, their impact and the possibility of further measures is having a dire impact on inward investment. Compared with a year earlier, foreign direct investment fell by more than 50% in the first half of 2018, The Economist reported.

Coming as they do on top of the 10% U.S. import tariff on foreign-sourced aluminum, we will see considerable volatility and disruption to the aluminum markets this autumn if sanctions are applied to Deripaska, not to mention other oligarchs on the sanctions list. Shipments out of Russia for any metals – steel, aluminum, and other base and specialty metals – are already being severely delayed as banks scrabble to run compliance checks on the shareholdings and involvement of already sanctioned parties in those producers.

Delays of a month in paying bills normally processed in an hour are now common, which is disrupting supply chains and work flow. For the first time, the market is asking what will be the impact of a total ban on Russian metal supplies (never mind just Rusal’s aluminum).

Your supplier may not be Rusal, but your supplier’s supplier may be (or even his or her supplier’s supplier). The elevated conversion premiums we have seen this summer among European extruders is a reflection of this anxiety and will only get worse if further sanctions disruption ensues.

This uncertainty should be prompting all U.S. metal importers to explore the supply chain of their suppliers in order to understand the potential risks they face and, if necessary, take appropriate steps to safeguard supplies.

For those consumers thinking they only buy domestically and are therefore not affected — think again. You may be buying foreign made metal via a distributor and are potentially still exposed. Even if you are not, domestic prices will rise if there is any significant disruption to foreign supplies.

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As we saw with the 25% tariff on steel and 10% on aluminum, tariffs cause domestic producers to move swiftly to capitalize on competitors’ cost increases by raising their own prices.

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Just last year, the U.S. Department of Commerce kicked off an investigation of imports of aluminum foil from China; in February, it issued a final affirmative determination in its anti-dumping and countervailing duty cases.

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Last week, Mexico announced it was going in a similar direction.

The Mexican government launched an anti-dumping investigation of imports of aluminum foil from China. Mexican firm Almexa Aluminio was the petitioner in the case, according to the government release.

The products referred to in the company’s petition are “aluminum foil coils for domestic and/or industrial use with a thickness equal to or less than 0.080 millimeters (mm), without support, simply laminated, with an external diameter equal to or greater than 100 mm and weighing more than 5 kg,” according to the release.

The Aluminum Association, a U.S. industry group, expressed support for the Mexican government’s decision.

“The Aluminum Association is pleased by the Government of Mexico’s decision to launch an antidumping investigation on imports of certain Chinese aluminum foil,” said Heidi Brock, president and CEO of the Aluminum Association. “The North American aluminum market is highly integrated, and it is vital the region work together to combat unfair trade practices and enforce rules-based trade. The U.S. aluminum industry has already seen real results from targeted and durable trade enforcement actions, and we are glad to see trading partners like Mexico demonstrate their commitment to rigorous and timely enforcement of global trade rules.”

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Per the Mexican government release, “non-market economy conditions prevail in China” for some several reasons, including:

  • the artificial reduction of prices
  • the role of “industrial associations as tools of the state”
  • and the “control and state direction of foreign direct investment abroad and the direction and control of the State in the entry of investment and property”

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Global crude steel production was on the rise last month, jumping 5.8% compared with July 2017, according to a World Steel Association report this week. That rate is down from the 8.5% posted in July 2017 and the 6.4% in June 2018.

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According to the report, the 64 countries reporting to the World Steel Association produced 154.6 million tons (MT) in July.

Global capacity utilization, however, fell for the first time since December, dropping from 78.9% in June to 77.5% in July. However, July’s global capacity utilization is up from July 2017’s 73.8%.

China’s crude steel production in July jumped 7.2% compared with July 2017, having produced 81.2 MT last month. China posted a 12.9% production growth rate in July 2017 and 7.5% in June 2018.

Japan produced 8.4 MT, marking a 2.0% year-over-year drop. South Korea’s crude steel production hit 6.2 MT for an increase of 0.1%.

Elsewhere, U.S. production of 7.3 MT marked a 4.5% increase.

Meanwhile, Turkey’s production reached 3.3 MT, down 2.3%. As noted in this space before, rising political tensions between the U.S. and Turkey led to the U.S. doubling its Section 232 tariffs vis-a-vis Turkey, raising the steel tariff to 50%.

At 3.0 MT, Brazilian production was up 6.7%.

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Ukrainian production rose 11.4% to 1.8 MT.

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