Market Insights > Metals

Base Metals Dashboard - Week Ending July 8, 2022

July 08, 2022 | Chris Stadele

Global aluminum production could increase by 2% to 70 million mt in 2023, due to smelter restarts and the commissioning of new projects, according to Bloomberg Intelligence. Based on their calculations, this will swing the market into a surplus of approximately 0.4 million mt in 2023, compared to an expected deficit of 0.2 million mt this year. This could weigh on LME aluminum prices next year, as market participants polled in a Bloomberg survey estimate prices will average $3,062.50/mt, down from this year’s estimate of $3,328/mt. However, rising demand from the electric vehicle sector could push prices back to $3,300/mt in 2024.

Have copper prices found a bottom? Copper prices rallied on Thursday, reports that China is contemplating a $220 billion stimulus package, according to Bloomberg. However, Shanghai, a key industrial hub, will conduct a new round of COVID tests this week, stoking fears that renewed lockdowns could occur. These fears could weigh on copper prices and expectations of demand recovery. On Wednesday, Fan Rui, an analyst with Guoyuan Futures Co. told Bloomberg “There is no bullish news at the moment, really… in China, the economy is facing a double blow from the flare-up of new cases and a weaker-than-expected demand recovery.” Geordie Wilkes, head of research at Sucden Financial Ltd, echoed similar comments, stating “We’re certainly expecting more downside…. We’re not in a recession yet but we’re certainly seeing slower growth, and so there aren’t any real prospects for copper to rally meaningfully from here.”

Soaring electricity prices throughout Europe could lead to further zinc smelter curtailments, according to Macquarie. If electricity prices stay high, or power rationing occurs, the bank estimates that European zinc output will drop to 2.03 – 2.08 million mt this year, down from their prior estimate of 2.37 million mt. Based on their calculations, this could lead to a global deficit of 0.315 to 0.360 million mt, up from their prior estimate of 0.220 million mt. The bulk of the deficit is in Europe, as they estimate that the region could have a deficit of 0.290 to 0.335 million mt. They also believe that “greater losses than this should only occur in a truly power shortage scenario.”

Finally, regarding US aluminum and steel exports, American steel and aluminum producers who sell into Europe will be the first to face the European Union’s carbon border adjustment tax, according to Bloomberg Intelligence. According to the World Economic Forum, “A carbon border adjustment tax is a duty on imports based on the amount of carbon emissions resulting from the production of the product in question. As a price on carbon, it discourages emissions. As a trade-related measure, it affects production and exports.” As Bloomberg stated last Thursday, this tax will make imported metals products more expensive in Europe, and could also affect the prices for raw materials needed for steel and aluminum production.

LME Aluminum

LME Aluminum 3M settled at $2,436.50/mt, down $7.50/mt on the week.

Aluminum’s forward curve has shifted slightly lower compared to last Friday, and it remains in contango, meaning that spot prices are lower than futures prices. This allows aluminum producers to hedge future sales at prices higher than that of spot prices. The aluminum market has sufficient liquidity to use swaps and options. If you are a consumer of aluminum, you might consider strategies that use only swaps or options or a combination of both, depending upon your risk tolerance. Please contact AEGIS for specific strategies that fit your operations.

Midwest Premium

Prompt month CME MWP last settled at 29.61¢/lb this week.

The CME Midwest Premium contract continued lower this week and remains in backwardation. The CME Midwest Premium swap market is thinly traded, and there is no options market. Hedging in this thinly traded market is challenging, so we recommend using strategically placed limit orders. Please contact AEGIS for specific strategies that fit your operations.

LME Copper

LME Copper 3M settled at $7,805.50/mt, down $242.50/mt on the week.

LME Copper's forward curve is essentially flat through December 2026. It continues to shift vertically lower, this week by approximately $250/mt. It is essentially flat through December 2026. The copper market has sufficient liquidity to use swaps and options. Consumers might consider strategies that use only swaps or options or a combination of both, depending upon your risk tolerance. Please contact AEGIS for specific strategies that fit your operations.

LME Nickel

LME Nickel 3M settled at $21,581/mt, down $243/mt on the week.

Nickel’s forward curve continues to shift lower, and is in contango, meaning that spot prices are lower than futures prices. The nickel market has sufficient liquidity to use swaps and options. Consumers might consider strategies that use only swaps or options or a combination of both, depending upon your risk tolerance. Please contact AEGIS for specific strategies that fit your operations.

CME Hot Rolled Coil (HRC) Steel

Prompt month HRC Steel last traded at $915/T, down $15/T on the week.

For CME HRC Steel, liquidity is low for swaps, but hedging can still be done with strategically placed limit orders. The same is true for options. Similar to other metals, a combination of both swaps and options might work in certain cases, depending upon your risk tolerance. Please contact AEGIS for specific strategies that fit your operations.