LME copper
U.S.-Mexico border wall in Arizona.

A section of an existing US-Mexico metal border wall in Arizona. Source: Adobe Stock/Yukon Charlie.

This morning in metals news, President Donald Trump threatened to close the southern border with Mexico, U.S. Steel was fined over $700,000 for air pollution violations and the LME copper price fell Tuesday.

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Trump Threatens to Close Mexico Border

President Trump intensified his stance on the situation at the border with Mexico, tweeting Monday that “Our detention areas are maxed out & we will take no more illegals. Next step is to close the Border!”

It remains to be seen if he will act on those words; however, such a closure would have wide-ranging ramifications, impacting both the humanitarian crisis at the border and, from a business perspective, throwing a wrench into supply chains.

Trump’s threat also comes at a time when the U.S., Canada and Mexico are in a holding pattern over approval of the United States-Mexico-Canada Agreement (meant as the successor to NAFTA). The executives of the three countries signed the deal during the G20 Summit in Buenos Aires late last year, but the trade deal must be ratified by each country’s legislature.

U.S. Steel Fined Over Emissions

U.S. Steel was hit with a fine of over $700,000 over emissions at its Clairton Coke Works facility in Pennsylvania, the Pittsburgh Post-Gazette reported.

According to the report, the company was fined $707,568 over air pollution violations at the facility during the second half of 2018, elevating the total fines levied against U.S. Steel over the last year to more than $2.3 million.

Dollar Rises, LME Copper Falls

The LME copper price dipped as the U.S. dollar gained strength, Reuters reported.

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In addition, supply concerns stemming from a protest at the Las Bambas copper mine in Peru eased upon the government’s offer of a deal to end the protestors’ blockade, according to the report.

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This morning in metals news, U.S. Treasury Secretary Steven Mnuchin tweeted Friday that this week’s round of trade talks with China were “constructive,” LME copper is on its way for its first quarterly gain since the end of 2017 and China’s imports of copper are forecast to dip this year.

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U.S.-China Talks Continue

Markets reacted positively late this week on optimism from the latest round of U.S.-China trade talks, this time held in Beijing over Thursday and Friday.

U.S. Treasury Secretary Steven Mnuchin tweeted that the talks were constructive.

As Mnuchin noted, trade talks are scheduled to continue next week in Washington, D.C.

Copper Makes Gains

According to Reuters, LME copper is set to notch its first quarterly gain since the end of 2017.

Copper stockpiles in LME-registered warehouses are moving toward 11-year lows, according to the report.

China Copper Imports

Speaking of copper, China is expected to import far less of the metal in 2019, according to a Reuters report citing research house Antaike.

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According to the report, China’s copper imports are forecast to fall 14.7% on account of increased domestic production.

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This morning in metals news, the copper price fell Tuesday, U.S. steel mills have produced at a capacity rate of 80.7% through Feb. 16 and a $1.8 billion steel mill could be coming to Texas.

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Copper Falls

With renewed U.S.-China trade talks scheduled today, the price of copper dropped, Reuters reported.

LME copper fell 0.6% to $6,245 per ton, according to the report.

Capacity Utilization Rate

U.S. steel mills posted a capacity utilization rate of 80.7% for the year through Feb. 16, according to the American Iron and Steel Institute’s weekly steel production report.

Adjusted year-to-date production through Feb. 16 hit 12.7 million net tons, up 8.4% from the 11.8 million net tons during the same period last year at a capability utilization rate of 75.7%.

Steel Dynamics Plant Search

San Patricio County in south Texas is in the mix for a new $1.8 billion steel plant in the works from Steel Dynamics, according to the Corpus Christi Caller Times.

In November, Steel Dynamics announced plans to build a new organic flat roll steel mill with an annual capacity of 3.0 million tons. The mill was expected to create about 600 jobs, according to the steelmaker.

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“The company currently expects to locate the facility in the southwestern United States, to cost effectively serve not only the southern United States, but also the underserved Mexican flat roll steel market,” the company said in a release. “Determination of the final site location is subject to state and local government infrastructure and incentive support. Upon final site selection and the receipt of required environmental and operating permits, the company would expect to begin construction in 2020, followed by the commencement of operations in the second half of 2021.”

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This morning in metals news, copper gains momentum, Japan’s steel federation thinks domestic output will grow this year and U.S. Steel will have to pay at least $40 million to repair one of its facilities after a fire.

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Copper Reaches Seven-Week High

Copper prices surged to a seven-week high on Thursday, Reuters reported, inversely with a dropping U.S. dollar.

LME copper jumped 0.5% to hit $6,167 per ton, according to the report.

Japanese Domestic Output

The chief of Japan’s steel federation said Japan’s domestic steel output will likely be higher, aided by demand from the 2020 Tokyo Olympics, according to a Reuters report.

In 2018, Japan’s steel output slipped 0.3% on a year-over-year basis, as India overtook it for the No. 2 spot on the list of the world’s top steel producers.

U.S. Steel to Repair Clairton Plant After Fire

U.S. Steel announced this week that it would need to spend at least $40 million on repairs after a fire at its Clairton Coke Plant (just south of Pittsburgh), the Pittsburgh Post-Gazette reported.

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The fire ran through the building on Christmas Eve, leading to county officials to issue air quality alerts.

In January, the Copper Monthly Metals Index (MMI) dropped 3.9%, falling back 3 points to the November 2018 level of 74. Lower LME copper prices drove the index lower.

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Similar to other base metals, LME copper prices fell in December. LME copper prices fell below the $6,000/mt level, which served as a stiff resistance level for most of 2017. Prices over this level indicate a bullish copper market, while prices below that level signal a more bearish trend. This level has represented a psychological signal for “Doctor Copper” since 2017.  

LME Copper prices. Source: MetalMiner analysis of Fastmarkets

So far in January, LME copper prices have increased. However, current levels remain below that $6,000/mt psychological ceiling. Trading volume also appears weaker, which does not support a sharp uptrend.

Global Copper Outlook

According to data released in January, Chilean copper production reached 540,720 tons in November, the highest level in 13 years. The increase was driven by higher ore grades and more efficient processes. As reported by Chile’s national statistics agency INE, copper production increased 7% in November versus October. Production reached its highest levels  since December 2005.

Anglo American announced that overall production will increase more than expected between 2018-2021. Forecasts suggest 2018 production increased by 2%, driven by increases in copper output. 2019 production could increase by another 3%, and 2020-2021 production by an additional 5%.

Despite this forecast by Anglo American, the International Copper Study Group (ICSG) announced a wider deficit in September. The global refined copper deficit increased to 168,000 tons in September from the previous 43,000 tons in August. For the first nine months of 2018, the market saw a 595,000-ton deficit versus the previous year’s deficit of 226,000 tons.

Chinese Scrap Copper

LME copper prices and Chinese copper scrap prices tend to follow the same trend. However, this month they traded differently. LME copper prices fell while Chinese copper scrap prices increased. The divergence between LME copper prices and Chinese copper scrap has become more notable recently, driven by lower scrap availability in China.

Source: MetalMiner data from MetalMiner IndX(™)

The spread has become smaller this month. The wider the spread, the higher the copper scrap consumption, and therefore, the price.

What This Means for Industrial Buyers

LME copper prices fell this month, moving below the $6,000/mt level. Buying organizations will want to understand how to react to the latest copper price movements. Adapting the “right” buying strategy becomes crucial to reduce risks. Only MetalMiner’s Monthly Outlook reports provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

Click here for more info on how to mitigate price risk all year round — and get a free 2-month trial to our Monthly Metal Buying Outlook.

Actual Copper Prices and Trends

In December, most of the prices that comprise the Copper MMI basket fell. LME copper decreased by 4.87% this month. Indian copper prices also fell by 5.91%, while Chinese cash primary copper prices decreased by 3.83%. Prices of U.S. copper producer grades 110 and 122 fell by 3.36%. Meanwhile, the price of U.S. copper producer grade 102 decreased by 3.2%, to $3.64/pound.

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This morning in metals news, U.S. senators are asking for an independent review of the Trump administration’s Section 232 tariff waiver process, LME copper is down for the third straight day and Chinese steel mills are preparing for difficult times ahead.

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Another Look

The review of Section 232 tariff exemption requests from domestic companies has been going on since June, and the process has come in for much criticism.

According to a Bloomberg report, a bipartisan group of senators have asked for an independent review of the tariff waiver process, noting that as of last month only about one-third of the approximately 50,000 requests had been addressed.

LME Copper Down Again

London copper has been on the slide of late, dropping Tuesday for the third straight day, Reuters reported.

According to the report, the drop comes after comments by President Donald Trump to the Wall Street Journal related to China. The president said it was unlikely the U.S. would agree to China’s request to delay the scheduled Jan. 1 tariff rate increase — up to 25% from 10% — on the previously announced $200 billion tariff package.

Chinese Steel Mills Hit a Rough Patch

According to another Reuters report, Chinese steel producers posted losses for the first time in three years.

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Per the report, as a result of falling prices, some mills are looking to utilize more low-grade iron ore in the steelmaking process in an effort to tamp down costs.

MetalMiner’s Take: In markets in which profit margins erode, simple supply and demand fundamentals ought to take hold — producers ought to limit supply to boost profits.

In the U.S., producers did exactly that for years and years, operating at below 80% utilization rates (U.S. producers have only recently hit those production rates as a result of the tariffs, the bullish commodity market and a booming economy).

When Chinese producers start to run losses, those producers ought to take a lesson from their American peers — and limit production to shore up profits.

But Chinese steel producers won’t do that. In fact, they will do the opposite — continue to produce, even at a loss, to keep people employed.

And once again, that excess steel will flow to the rest of the world.

Too much steel always has and always will put a lid on prices. Therefore, steel-buying organizations will want to watch very closely how much steel China produces, as well as the price per ton, as Chinese steel production and steel prices lead the U.S. market.

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This morning in metals news, President Trump is reviewing the U.S.’s steel and aluminum tariffs with respect to their application to Canada and Mexico, copper prices are up and the World Trade Organization (WTO) has set up a panel for a dispute between Japan and South Korea.

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Could Metals Tariffs on Canada, Mexico be on the Way Out?

Kelly Craft, the Trump administration’s ambassador to Canada, said the president is reviewing the U.S.’s steel and aluminum tariffs on Canada and Mexico, according to a Bloomberg report.

Canada and Mexico initially secured a temporary exemption this spring, but that expired June 1. The countries hope that the U.S. will remove the tariffs before the signing of a finalized trade deal (the recently agreed upon United States-Mexico-Canada agreement, the successor to the North American Free Trade Agreement).

MetalMiner’s Take: Many readers believe Canada and Mexico will be exempt from the Section 232 tariffs with the passage of the new trade agreement. If the tough rules of origin language on USMCA is adopted, the lifting of the tariffs would certainly provide some relief, particularly for semi-finished aluminum products, which remain in short supply within the United States.

But it seems like passage of the deal remains contingent on the lifting of the sanctions, so it remains unclear who will win this game of chicken. Regardless, service center inventory levels have risen; rising inventory levels generally do not support prices.

Copper Prices Rise

LME copper prices were up Monday partially on account of shrinking LME inventories, Reuters reported.

LME copper jumped 1.1% on Monday.

MetalMiner’s Take: It is not just falling LME inventories that are supporting copper. Despite the impact on the Chinese stock market and much media hullabaloo around trade wars, copper consumption in China remains robust (both for refined and scrap).

The copper market is tight and continued global growth, permitting that lack of abundant supply, will continue to support the market.

WTO Launches Panel for South Korea-Japan Dispute

The WTO has set up a panel to deal with a dispute between Japan and South Korea over the latter’s anti-dumping duties on stainless steel bars, according to the Nikkei Asian Review.

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The duty has been in place since 2004, according to the report.

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This morning in metals news, the LME copper price fell Thursday, miner Antofagasta downgraded its 2018 copper production guidance and Norsk Hydro says the global aluminum market is moving toward a deficit.

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Copper Price Slides

The LME copper price dropped to a two-week low Thursday, Reuters reported.

MetalMiner’s Take: Despite the three-week downtrend in copper prices, LME copper prices remain over the $6,000/mt mark, which acted as a psychological ceiling for most of 2017.

The downtrend does not appear sharp. In fact, copper prices have traded sideways since the beginning of the month. Fundamentals support an increase in LME copper prices, as global stocks are decreasing and copper premiums are increasing globally.

The copper supply and demand balance calls for a deficit in both 2018 and 2019. In fact, copper ore grade is starting to deteriorate in some big mines, such as Codelco, creating expectations of shortages over the following years.

Up and Down

Chilean miner Antofagasta announced downgraded cooper production guidance for 2018 but forecast an increase in production for 2019.

“The physical copper market continues to look tight and the outlook for next year remains positive despite ongoing fears about disruptions to global trade,” Antofagasta plc CEO Iván Arriagada said in a release. “We have narrowed our copper production guidance for the full year to 705-725,000 tonnes and looking ahead we expect production in 2019 to increase to 750-790,000 tonnes, driven by higher average grades at Centinela Concentrates and Zaldívar.”

Aluminum at Deficit?

According to Norwegian firm Norsk Hydro, the global aluminum market is moving towards a deficit.

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“The third quarter reflected our continued challenges at Alunorte and increased raw material costs, while higher aluminium and alumina prices, as well as strong Energy results, contributed positively. The market for aluminium is tightening, and we expect the 2018 global primary market in deficit,” President and CEO Svein Richard Brandtzæg said in a release announcing the aluminum and renewable energy firms third-quarter financial results.

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This morning in metals, Ford Motor Co. says prices of U.S. steel are higher than anywhere else in the world, China’s alumina exports surged in September and the LME copper price dropped Tuesday.

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High Prices

U.S. automaker Ford has been vocal about what it views as the negative impact of the U.S.’s steel and aluminum tariffs.

According to a Detroit News report, Ford’s president of global operations on Monday said “U.S. steel is costing more than anywhere else in the world” as a result of the tariffs.

MetalMiner’s Take: It’s a bit difficult to understand what has driven the public complaints from Ford about steel and aluminum tariffs, particularly when most OEMs take long positions on their metal spend.

Some OEMs have locked-in contract prices that simply do not fluctuate, according to MetalMiner benchmark data. The manufacturing organizations that make stronger arguments against tariffs are those that remain subject to spot-price movements, have a corporate policy that forbids hedging or lack the buying power to demand fixed prices.

Perhaps the vocalization of the complaints have heated up because many OEMs have entered the fourth quarter contract negotiation season and the producers want to open discussions at much higher price levels. In defense of Ford’s complaints, the multi-tier extended supply chain remains far more exposed to metal price volatility than a company like Ford.

In this environment, OEMs will need to work double time to create programs and opportunities for aggregating volumes across supply chains, developing directed buy and enablement programs, aggregation opportunities and using technology to better support the entire extended global supply chain.

China’s Alumina Exports Rise in September

China’s exports of alumina hit a 2018 high in September, Reuters reported.

Exports of alumina in September hit 165,839 tons, up from 29,722 tons in August.

LME Copper Falls

The LME copper price fell 1.1% on Tuesday, Reuters reported.

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The drop comes a day after London copper had reached a one-week high.

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This morning in metals news, mills in the Chinese city of Tangshan have increased steel production despite the official start of winter cuts, LME copper prices fell and U.S. imports of aluminum from Australia have been on the rise.

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Tangshan Boosts Steel Production

The Chinese city of Tangshan, a steelmaking hub in the country, has seen its steel mills boost production despite the start of winter cuts, Reuters reported.

According to the report, local officials did not give precise instructions on the targeted emissions curbs. Recently, Beijing delegated the imposition of its annual winter caps — part of the government’s effort to tackle pollution in the country — to local governments.

LME Copper Price Falls 1%

Also according to Reuters, the price of LME copper fell 1% Thursday as a result of a stronger U.S. dollar — the two are inversely correlated — and pressure on the Chinese economy.

MetalMiner’s Take: LME copper fell slightly this month. However, LME copper prices have shown a recovered momentum since September, when prices breached the psychological level of $6,000/mt.

Copper prices tend to react to Fed index rate increases — or, at least, the expectation of Fed rises. When that happens, the U.S. dollar tends to have a short-term trend reaction and prices move higher for a week. However, the long- and mid-term trend does not change for that reason.

Therefore, copper prices may continue their uptrend. Buying organizations can expect LME copper prices to trade higher.

Imports of Aluminum From Australia Rising

Imports of aluminum from Australia into the U.S. have been increasing of late, according to an S&P Global Platts report.

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Per the report, imports of aluminum from Australia have jumped 23% from July to August.

MetalMiner’s Take: It should come as no surprise to anyone that Australian P1020 aluminum ingots have started to arrive on U.S. shores at a discount.

Interestingly, the discount represents two driving factors: the fact that Australia is exempt from Section 232 aluminum tariffs and that U.S. buyers prefer T-bar or sows and not ingot (which is the form coming from Australia).

The U.S. does not produce enough primary material domestically and the tariffs have driven the trade shift from Canada (the previous dominant supplier) to Australia. What will become more interesting to OEMs and other large buying organizations, however, involves the semi-finished material market, in which the U.S. currently operates with a significant deficit.

MetalMiner expects large volumes of semi-imports from Europe to help mitigate domestic supply shortages.