LME copper

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This morning in metals news, Chinese steel prices are not running in the same direction as the Chinese stock market, copper hit a two-week high and automaker shares were up on yesterday’s NAFTA news.

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Chinese Steel Surging

The Chinese stock market has been on the decline, but steel prices aren’t following suit, as CNBC reported.

The Nanhua rebar steel futures index is up 22% this year, while the Shanghai composite is down 16%, according to the report.

MetalMiner’s Take: From a domestic steel price perspective, the health of the Chinese economy remains less critical than the actual prices of Chinese steel. From a short-term perspective, buying organizations should pay much more attention to actual steel prices in China as opposed to the Chinese stock market, PMI or overall GDP numbers because they tend to lead domestic steel prices. The Chinese government will do its part to shore up the economy to keep China growing at 6.7 -6.8% GDP annually, despite the tariff situation. Meanwhile Chinese domestic steel prices — at least for HRC, CRC and HDG — remain on the rise.

Copper Rises

Copper prices showed signs of upward movement Tuesday, hitting a two-week high, Reuters reported.

LME copper rose 0.3% Tuesday and has risen nearly 6% since it hit a 15-month low Aug. 15, according to the report.

MetalMiner’s Take: The short-term downtrend in copper prices has been driven by sentiment. The threat of a future economic slowdown has driven the current copper price slide, rather than supply and demand issues. In fact, the current supply-and-demand picture is a deficit in 2018. The three major exchanges have registered stock shortfalls in the June-July period, with a 40% decrease in the SHFE. Chinese demand seems strong, with imports reaching records in July. Therefore, copper prices may start to recover again in the short term.

Automaker Shares Rise on NAFTA News

Automaker stocks were up Monday on the heels of the announcement of a preliminary deal between the U.S. and Mexico regarding certain provisions of NAFTA, Bloomberg reported.

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General Motors and Fiat Chrysler were up 4.8%, while Ford jumped 3.2%, according to the report.

MetalMiner’s Take: The North American automotive supply chain is a traditional sandwich with part suppliers, assemblers and OEMs in Canada, America and Mexico. The deal announced so far is more an open danish — just Mexico and the U.S. That is great news for automakers working across the Mexico-U.S. border. However, there is a large part of the equation still to be resolved: Canada. All the same, the Mexico deal — caveat details will be in the small print — heaps pressure on Canada to come to a deal. At least for automakers, the NAFTA renegotiation appears to be paying off.

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This morning in metals news, U.S. steel mills saw their shipments rise in June, Shanghai rebar steel prices hit a nearly seven-year high and copper recovers on optimism regarding U.S.-China trade talks.

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Steel Shipments Surge

Shipments from U.S. steel mills rose 3.2% year over year in June, according to the Times of Northwest Indiana.

In the year to date, U.S. steel shipments are up an estimated 3.6%, according to the report.

Rebar Price Hits Seven-Year High

According to Reuters, the Shanghai rebar steel price has surged to a near seven-year high.

Supply concerns gave rebar price support. Rebar prices rose as much as 4.5% on Monday, according to Reuters.

Copper Bounces Back

The copper price has plunged in recent months, but showed signs of bouncing back Monday, according to Reuters.

The London copper price ticked up on positive sentiment vis-a-vis talks to resolve the simmering trade conflict between the U.S. and China.

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According to Reuters, LME copper jumped 0.9% Monday after closing down 0.2% Friday.

Steel and aluminum are getting all the attention these days — and perhaps rightfully so, given the international row over the U.S.’s steel and aluminum tariffs and the subsequent crossfire of counter-tariffs.

But copper, often referred to as “Dr. Copper” for its usefulness as an overall indicator of economic health, is also undergoing important developments.

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The LME copper price, however, has been on the downswing for much of June.

Three-month copper reached $7,268/mt as of June 11, but it has been all downhill from there. In the ensuing nearly two weeks, the LME three-month price has plunged 6.4% to $6,801/mt, according to MetalMiner IndX data.

The price, however, seemed to be begin to stabilize last week after closing at a one-month low.

Source: LME

Chinese Prices

Similarly, Chinese prices have dropped in recent weeks.

From June 11-24, China primary cash copper dropped from 53,840 yuan/mt ($8,226.38) to 51,470 yuan/mt ($7864.26), good for a 4.4% decline, according to MetalMiner IndX data.

Labor Talks in Chile

As is always the case with copper, labor negotiations in Chile, the world’s top copper producer, play a key role in the metal’s price.

Earlier this month, in an ongoing dispute at BHP’s Escondida mine, the company responded to a contract proposal from its unionized workers at the mine, Reuters reported.

“The company hopes … to reach a mutually beneficial agreement, and to touch on issues like the bonus and salary increases, which were not addressed in our response,” BHP said in a statement, according to the Reuters report. Per the report, the company must present a final contract offer by July 24.

In the same vein, Reuters reported Monday that workers at Codelco’s Chuquicamata mine are threatening to strike. The mine produced approximately 19% of Codelco’s total output in 2017, according to the report. Again, a strike there would certainly put support under the copper price.

U.S. Dollar

Meanwhile, the U.S. dollar, which is inversely correlated with base metals like copper, picked up steam from June 7-19, in line with the metal’s drop.

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However, the U.S. dollar index has tracked back in recent days, dropping from 95.50 as of Thursday to 94.30 late Monday afternoon.

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This morning in metals news, India has plans to impose tariffs on U.S. goods in response to the latter’s steel and aluminum tariffs, workers at the Port Talbot facility in Wales are wary of the impacts of the U.S. steel tariff and copper approaches a two-week low.

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India Strikes Back With Retaliatory Tariffs

India announced that it plans to impose tariffs on U.S. goods, a move that strikes back against the U.S. for its tariffs on steel and aluminum, CNN reported.

According to the report, the proposed tariffs would impact 30 U.S. goods at a value of $241 million.

Port Talbot Workers Apprehensive of Tariff Repercussions

Workers at the Port Talbot Steelworks plant in Wales are worried the U.S. tariff on steel will lead to even more steel being dumped from China, The Guardian reported.

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According to the report, the Port Talbot plant sells 10-12% of its output to the U.S.

LME Copper Draws Near a Two-Week Low

The price of LME copper slipped to near a two-week low, Reuters reported.

Copper fell 0.2% Monday to $7,006.50 per ton, according to the report.

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This afternoon in metals news, London copper reached its highest price since late 2014, exchange-traded funds tracking palladium are losing cash and one analyst looks at how high zinc can go.

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LME Copper Keeps Rising

LME copper hit a three-year high Tuesday, lifted by strong Chinese steel prices and positive news from the mining sector, Reuters reported.

LME copper soared to $6,642.50 per ton, its highest since November 2014.

What’s the Deal with Palladium ETFs?

According to a Bloomberg report, investors have made quite a bit of money on palladium this year, yet ETFs that track the metal are losing cash, fast.

Why?

“The explanation for the outflows lies in part in the scarcity of physical palladium and a robust borrowing market that has developed among users and speculators,” the Bloomberg report states.

According to data compiled by Bloomberg, more than $49 million has flowed out of the two main palladium ETFs in the U.S. and Europe (the ETFS Physical Palladium Shares and the ZKB Palladium fund) through Aug. 21 of this year.

The Zinc Ceiling

Like copper, zinc has also had a record-setting time, recently hitting a high not seen in a decade ($3,180.50).

On Monday, Reuters’ Andy Home wrote about just how high zinc can be expected to go.

“But right now the LME zinc market is bubbling away with stocks falling and spreads tightening,” Home writes. “Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580?

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This morning in metals news, European steel association Eurofer predicted increased steel demand in its Monday forecast, but also sounded a cautionary note regarding the U.S. potentially imposing steel tariffs (as a product of the Department of Commerce’s Section 232 investigation); Norwegian metals company Norsk Hydro inks a $3.2 billion deal to buy a 50% stake in aluminum products maker Sapa; and LME copper stabilized Monday after U.S. jobs report news.

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Demand To Go Up … But Eurofer Wary of Section 232 Tariffs

Eurofer, the European steel association, offered a mix bag of news in its Monday steel forecast.

On the one hand, it predicted an uptick in demand for steel, according to Reuters. According to the report, the forecast predicts a 1.9% rise in apparent EU steel demand, to 159 million tons, up from a previously forecasted 1.3%.

On the other hand, Eurofer sounded a warning note regarding the potential for “market distortions,” including tariffs, like the ones the U.S. Commerce Department may impose on steel and aluminum imports at the conclusion of its Section 232 investigations.

“In particular, measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions,” Eurofer director general Axel Eggert said in a statement quoted by Reuters.

Norsk Hydro Buys Aluminum Products Maker Sapa

Norwegian metals firm Norsk Hydro, in a deal worth $3.2 billion, bought a 50% stake in aluminum products maker Sapa, Reuters reported Monday.

Norsk Hydro’s acquisition allows it to spread its business across the value chain — the Norwegian firm makes primary aluminum from scratch, while Sapa presses, cuts and shapes it, according to the report.

Sapa, which has 22,400 employees and in 2016 recorded sales of 53 billion crowns ($6.84 billion), has been jointly owned by Orkla and Hydro since 2013, according to Reuters.

LME Copper Steadies

Copper prices stabilized Monday after news of a solid U.S. jobs report inspired optimism in a U.S. economic recovery, Reuters reported Monday.

This follows June’s news of expansion in Chinese manufacturing, which also buoyed prices by virtue of increased demand for the metal.

Since late June, copper prices have been consolidating in the range of $5,800-$5,965, according to the report.

For more on copper, come back to check out Irene Martinez Canorea’s Copper MMI piece this afternoon, which will survey the month that was and market trends for the metal.

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This morning in metals news, LME copper bounced back Thursday after a down Wednesday, Saudi steel producers are happy about a cut in export tariffs and Volvo made a major announcement regarding the future of its vehicle inventory.

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Copper Rebounds Slightly After Hitting One-Week Low

After a Wednesday that saw a 0.9% drop for LME copper, the metal bounced back Thursday, ticking up by 0.1%, Reuters reported.

The metal moved up from its one-week low, which on Wednesday stood at $5,815 per ton.

In the backdrop was the recent release of the minutes of the Federal Reserve’s June meeting, revealing “policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate rises,” according to Reuters.

Saudi Steel Gets Tariff Cut Relief

Steel producers in Saudi Arabia received good news this week as the government announced it would stop export duties on steel for two years, according to Reuters.

According to the report, the government also cut cement export duties by 50%.

While Saudi stocks overall were down early Thursday, stocks in the building materials sector showed well, including Al Yamaha Steel Industries, which surged by 2.1%, according to Reuters.

Volvo Looks to Go All-In on Green Rides

The traditional combustion engine took a hit this week when automaker Volvo announced it would build only electric or hybrid vehicles beginning in 2019, The New York Times reported.

While the “green” vehicle market is still relatively small, it is growing. As Autodata Corp numbers released this week show, sales of Tesla vehicles, for example, have surged. In the year to date, Tesla sold 23,550 vehicles, good for a 42.7% increase in sales from the same point last year.

Of course, those sales figures are tiny when compared with traditional automakers, like GM and Ford, which sold 1.41 million and 1.29 million units, respectively, in the calendar year to date. Sales for those giant automotive brands, however, are down (albeit down from a big 2016 in sales for automakers).

Clearly, battery-powered and hybrid vehicles are picking up steam. What does this green wave mean for metals? The boom presages increased demand for metals like cobalt, for example. Also, according to Seeking Alpha, the coming electric vehicle revolution bears bad news for platinum group metals (PGMs), like platinum and palladium.

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This morning in metals news, copper slipped from its two-month high on the London Metal Exchange (LME), Canadian researchers have discovered a way to make metals processing greener and nickel hits its lowest price in a year.

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Copper Falls in Anticipation of Federal Reserve Interest Rate Decision

Copper fell from a two-month high on the LME — and dropped 1.1% on the Shanghai Futures Exchange — ahead of the U.S. Federal Reserve’s decision this week regarding raising the interest rate (which many expect it to do), Reuters reported.

The decision is scheduled to be announced Wednesday afternoon, after the conclusion of a two-day policy meeting.

An uptick in the interest rate is expected to shore up the dollar, making dollar-based commodities more expensive for holders of other currencies and leading to a dip in demand, Reuters reported.

Researchers Announce Environmentally Friendlier Way to Process Metals

A Canadian team of researchers recently announced a new method for processing metals without toxic chemicals or reagents, Science Daily reported.

The team outlined its approach in a recently published article in Science Advances. Through their method, the scientists seek to perfect a process that curbs the negative environmental impacts of processing metals, using easily recyclable compounds instead of toxic materials.

The discovery was the result of a collaboration between Jean-Philip Lumb and Tomislav Friscic at McGill University in Montreal, and Kim Baines of Western University in London, Ont.

As demand for electric vehicles grows and green initiatives become more visible, it’s not surprising to see movement toward making the entire production process going green — for example, from the processing of raw metals all the way to a final product itself (a “green” vehicle).

Nickel Falls to One-Year Low

It isn’t a good time for nickel, which fell to its lowest price in a year Tuesday in a climate of falling Chinese steel prices and a weak forecast for the Chinese economy, Reuters reported.

As the Chinese government tackles credit debts — the nation was recently downgraded by rating agency Moody’s for the first time since 1989 — many expect growth to slow in the second half of the year. That prediction has already been borne out by weak April and May Chinese economic data, according to the article.

Caroline Bain, chief commodities economist at Capital Economics in London, told Reuters that China’s efforts to rein in credit growth and curb excessive behavior on the property market is “bad news” for metals.

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Copper prices continued to trade flat in March. Over this month, strikes at major mines Escondida and Cerro Verde ended while Freeport-McMoran got a temporary export permit for its Grasberg mine.

Escondida’s Strike Ends

The strike at the world’s largest copper mine, Escondida in Chile, ended in the final week of March. The strike had lasted 44 days, longer than expected.

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The mine is not rushing to ramp up back to prestrike output levels. Owner BHP Billiton has said will outline the impact of the strike on Escondida’s output in results due for release on April 26. The strike is estimated to have cost Escondida more than 200,000 metric tons in copper production.

Copper MMI

Workers at the mine voted to return to work, despite not having reached an agreement on a new pay deal with management. Instead, workers extended their existing contract by 18 months, losing out on a new signing bonus or wage increase, but they will be able to renegotiate a new deal in 2018 after a new pro-union Chilean labor law goes into into effect.

Cerro Verde Mine Resumes Operations

Cerro Verde, Peru’s largest copper mine, had been operating at 50% of capacity since workers initiated a strike on March 10. At the end of the month, workers signed an agreement as the union accepted the company’s offer to improve family health care benefits and pay workers their portion of the mine’s profits earlier than usual. The mine produced just under 500,000 mt of the red metal last year.

Grasberg Mine Gets Temporary Export Permit

Freeport-McMoran was granted a temporary permit to export copper concentrates from its Grasberg mine in Indonesia, the world’s largest gold mine which also produces copper. The new permit broke a 12-week deadlock that had cut supply to Asian smelters. The new export license will last eight months. The amnesty means the company can renew deliveries of copper concentrates in Asia after declaring force majeure in February, but longer-term discussions over the company’s rights in Indonesia have yet to be determined.

What This Means For Metal Buyers

Copper supply disruptions have lasted longer than expected. Although they seem to have come to an end, their impact on supply still need to be outlined. In addition, these strikes have set the case for wage negotiations across the industry.

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Some major contract negotiations in large mines are due in the coming months. In the meantime, copper investors might focus their analysis on macro factors such as the ongoing China-U.S. trade negotiations, the performance of the U.S. dollar and global demand for industrial metals.

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Copper prices rose nearly 20% in November, a stellar rally that caught many by surprise… except us, of course.

Copper_Chart_December-2016_FNL

Following this sharp move, there were concerns about the pace of the metal’s gains. However, so far, the metal has shown resilience to giving those gains back. Indeed, it looks like copper still has fuel in the tank to move higher.

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Investors are pouring money into base metals as Chinese demand from infrastructure and construction continues to beat expectations. Momentum in copper is also being driven by hopes that U.S. President-elect Donald Trump will spend more on infrastructure. Stronger Eurozone and U.S. manufacturing PMIs also contributed support. Domestic PMI rose to 53.2 in November, the highest reading in five months and well above market expectations.

On November 30, OPEC agreed to curb its production to support falling oil prices. The news pushed crude oil prices above $50, providing support to commodity markets and metal prices.

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The International Copper Study Group (ICSG) estimates that global mined production will increase by 4% this year. But next year the ICSG is forecasting zero growth in mine supply. Even though copper markets are still in surplus, investors know that copper is a very slow business in terms of new project development. Consequently, even if prices continue to rise enough to incentivizee new developments, it will take a long time for that new supply to hit the market.

Despite analysts’ skepticism about copper’s rally, prices still have room on the upside. Given the ongoing price strength across the industrial metal complex, we see no reason not to remain bullish on copper.

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