Market Insights > Metals

Base Metals Dashboard - Week Ending August 5, 2022

August 05, 2022 | Chris Stadele

The ongoing power crisis in Europe is a “significant threat” to the global zinc supply in 2022, according to Glencore. In its 1H 2022 production results report, released yesterday, the company stated that their European zinc production was 350,900 mt, down 12% from 1H 2021, as one smelter was closed due to high electricity costs, and its remaining zinc smelters are currently barely profitable. Europe, which represents nearly 30% of global zinc production according to Glencore’s calculations, has been subject to several zinc smelter closures in 2021 and 2022 due to high electricity costs. As for demand, Glencore believes that China’s zero-COVID policy, the Russia-Ukraine conflict, and fears over inflation could all pose demand-side risks.

Copper prices could be rangebound for the remainder of 2022. China’s slowing real estate sector has tempered copper demand for wiring and household appliances, according to Maike Metals International, a major China-based copper trader and importer. Maike, therefore, predicts copper prices will hover between $7,000/mt to $8,000/mt for the remainder of 2022, as the real estate sector remains subdued. The company also stated that further interest rate hikes by the US Federal Reserve to cool inflation could also keep a cap on copper prices.

As for raw materials, China’s exports of alumina to Russia surged again last month. Of the 190,000 mt China exported, 184,000 mt, or 96.8%, went to Russia, according to Reuters and Chinese customs data. This marks the highest monthly Chinese alumina sale to Russia so far this year. China normally exports little alumina to Russia, as they only shipped 1,747 mt to them in 2021. However, logistical issues and sanctions from the Russia-Ukraine conflict have forced Rusal to seek out Chinese alumina. These alumina imports have helped Russia’s aluminum producer, Rusal, to keep aluminum production flowing.

Regarding steel demand, rising coronavirus cases, increasing inflation, and a shrinking raw material supply could lead to lower steel demand in Japan, according to Japan’s Ministry of Economy, Trade and Industry. The agency recently predicted that 3Q steel demand could dip by 1.8% year-over-year to 20.96 million mt. On a similar note, Toyota has lowered its production forecast by approximately 58,000 vehicles for July and by roughly 150,000 vehicles in August due to a parts shortage, according to S&P Global.

Continuing on steel, ArcelorMittal’s global steel production fell by 12.7% to 30.9 million mt in 1H 2022, due to the ongoing Ukrainian conflict and weak demand. In its 2Q results report, the company also stated that the inflationary pressures due to the Russia-Ukraine conflict have eroded consumer and business confidence. Going forward, the company believes gas supply risks in Europe and COVID lockdowns in China could weigh on demand through the remainder of 2022.

LME Aluminum

LME Aluminum 3M settled at $2,416.00/mt, down $72.50/mt on the week.

Compared to last Friday, aluminum’s forward curve has shifted lower by approximately $60/mt this week, but its shape is essentially the same. It remains in contango, meaning that spot prices are lower than futures prices. Aluminum consumers that are concerned about increasing prices might consider hedging future needs by buying swaps or call options. If you are an end-user, you might consider strategies that use only swaps or options or a combination of both, depending upon your risk tolerance. The aluminum market has sufficient liquidity to use swaps and options. Please contact AEGIS for specific strategies that fit your operations.

Midwest Premium

Prompt month CME MWP last settled at 28.0¢/lb this week.

The CME Midwest Premium contract was steady 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 $7,870.50/mt, down $47/mt on the week.

LME Copper's forward curve is now in contango, meaning that spot prices are lower than futures prices. 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 $22,216/mt, down $1,403/mt on the week.

Nickel’s forward curve shifted lower this week, 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 $818/T, down $37/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.