Market Insights > Metals

Base Metals Dashboard - Week Ending August 12, 2022

August 12, 2022 | Chris Stadele

**AEGIS is attending the SMU Steel Summit Conference 2022 at the Georgia International Conference Center in College Park on August 22 – 24. If you would like to schedule a meeting during the summit, please contact Patrick McCrann at pmccrann@aegis-hedging.com or (713) 936-2806. **

Copper

Will Chile’s new taxes affect copper production? Chilean copper miners are currently pleading with the government to soften a tax proposal the industry believes would increase costs, thereby making them less competitive in world markets, according to Bloomberg. The tax proposal, which its congress is currently debating, includes an ad valorem sales tax ranging from 1% to 7% depending on copper prices and production volume. One mining tax consultant quoted by Bloomberg on Wednesday proclaimed the ad valorem sales tax does not consider the producer’s profitability, making the tax especially burdensome for miners with high costs and low margins. Industry participants have also warned that the taxes could discourage investment in new copper mines.

Aluminum

Europe’s aluminum supply outlook is under threat from a continuing energy crunch.. Several European smelters have closed in 2021 and 2022 due to high electricity costs, and more curtailments could occur if energy prices stay high or strengthen further, per Bloomberg. Alcoaechoed similar comments late last month; its CEO said between 10% to 20% of global aluminum smelter capacity was unprofitable in June. Analysts also feel that the recent drop in LME warehouse stocks could be supportive of aluminum prices. LME aluminum stocks were 287,425 mt this morning and are nearing 20-year lows.

Like European aluminum production, Chinese production is also under threat. A smelter accident earlier this week in Sichuan, China has taken 190,000 mt out of production, according to Shanghai Metal Market. This region, which is one of China’s most important aluminum production regions, is also experiencing other supply issues, as a searing heatwave is causing power shortages and affecting some metals production, according to Bloomberg. Shanghai Metal Market recently stated that several aluminum smelters in the Sichuan and Shandong provinces have curtailed production due to power rationing.

As for American aluminum demand, total P1020 aluminum imports from January through June soared by 41.6% to approximately 1.073 million mt year-over-year, according to US Census Bureau data. However, market participants interviewed by S&P Global late last week proclaimed that US aluminum import demand could drop in the coming months as automotive demand is starting to show signs of weakness, and rising interest rates are weighing on the housing sector. Also, rising scrap flows are replacing some primary demand.

Steel

Finally, regarding steel, Argus’s spot HRC assessment is now $822/st, near a 48% drop since January 1, largely due to overall falling demand and oversupply. However, according to Argus, the oil and gas sector has been a “bright spot,” as high oil and gas prices have supported steel-casing demand and prices. That said, tubular producer Tenaris stated they are looking to increase pipe production and are in the process of purchasing another furnace. Cleveland-Cliffs, Nucor, and Steel Dynamics are also working to bring a combined 16,200 st/day, or an additional 1.45mn st/quarter, back online in the 2H 2022.

LME Aluminum

LME Aluminum 3M settled at $2,434.50/mt, up $18.50/mt on the week.

Aluminum prices rallied this week, so the forward curve has shifted slightly higher by approximately $10/mt this week, but its shape continues to look 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 27.4¢/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 $8,091.50/mt, up $221/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted higher by $200/mt. It has now switched from contango to backwardation, meaning that spot prices are higher 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 $23,036/mt, up $820/mt on the week.

Nickel’s forward curve shifted higher this week, by just over $800/mt. It remains 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 $812/T, down $6/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.