Base Metals Dashboard - Week Ending April 29, 2022

Notable Metals News 

Earlier this week, Russia’s Nornickel, the world's largest refined nickel producer, asserted that their operations were “uninterrupted” by Russia-Ukraine conflict. The company made 52,000 mt of the metal in Q1 2022, up 10% year-over-year, according to a company press release. Regarding the Ukrainian conflict, the company stated, “In spite of certain challenges in logistics and deliveries of equipment, spares and consumables, due to geopolitical situation, our operations remain uninterrupted. Currently, we are using new logistical arrangements and exploring opportunities with alternative suppliers.” The company says production increases at the Oktyabrsky and Taimyrsky mines, and ramp-up of the Norilsk Concentrator led to higher refined-nickel output.

Global steel production has dropped in recent months. Chinese steel production led global production lower last quarter, as the country produced 243.5 million mt, down 10.5% year-over-year, according to the World Steel Association. Total global steel output fell by 6.8% to 456.6 million mt, compared to Q1 2021. Of the top 10 steel nations, only India had a production increase, making 31.9 million mt, up 5.9% compared to Q1 2021. The supply decrease coincided with a rallying steel market; for example, May CME HRC futures are up nearly 45% from the January lows. US production was down a mere 0.4%, as we produced 20.3 million mt last quarter.

Continuing on steel, the EU could end tariffs on Ukraine steel, per a proposal being considered, according to Reuters. This could encourage President Joe Biden to end the current 25% Section 232 tariff on Ukrainian steel, Fortune magazine proclaimed hours after the EU announcement. Earlier this month, US Senators Dianne Fienstein and Pat Toomey penned a letter to Biden urging him to do so, stating, “Lifting the U.S. tariff on steel from Ukraine is a small but meaningful way for the U.S. to signal support for Ukraine and to provide stability and improve the country’s long-term economic outlook." The current tariff was set in 2018 as part of the Section 232 tariffs that sought to reduce the flow of metals imports, thereby preventing foreign exporters from dumping cheap steel onto the US market. The US imported 127,853 mt of Ukrainian steel in 2021, down from a pre-Section 232 volume of 240,730 mt in 2017. 

Finally, to compete with the LME, the CME will launch aluminum options on May 23, pending regulatory approval, according to their press release yesterday. The option contract will be a derivative of the current physically-delivered CME aluminum futures. In the press release, CME Group’s Global Head of Metals, Jin Chang, states, “Our new option contract is the latest example of CME Group's decade-long track record of helping the aluminum community to manage risk as their needs evolve,” adding “a record 4,888 Aluminum futures contracts traded on April 19 and average daily volume in April currently around 1,300 contracts, up over 100% from last year.” The CME introduced its aluminum futures in 2014.

If these options gain popularity, they could be another risk-mitigation tool to aluminum consumers to set upper limits on their aluminum input costs. LME aluminum options already exist, with good liquidity. The CME version's slightly different specifications may make them a better tool in specific situations.