Market Insights > Metals

Base Metals Dashboard - Week Ending September 2, 2022

September 02, 2022 | Chris Stadele

Aluminum

European aluminum production continues to drop, which could be supportive of global prices. On Wednesday, Alcoa announced that they will immediately begin closing one 31,000 mt/yr potline at its 94,000 mt/yr smelter in Lista, Norway due to soaring spot electricity costs. According to their press release, Norwegian spot electricity prices have soared to over $600/MWh, making aluminum production dependent on spot-power rates unfeasible. Including the Lista smelter, only about 5% of Alcoa’s global smelting portfolio is exposed to short-term electricity costs.

By our last count, over a dozen European aluminum smelters have fully or partially curtailed production due to soaring electricity costs since October 2021. The estimated annual production loss of this curtailed production is now just over 1 million mt. However, aluminum prices at the LME are down nearly 18.1% in 2022 and are approaching 16-month lows.

* Please note that due to the US Labor Day holiday, the CME will be closed on Monday, September 5. We will not produce the First Look that morning. However, the trading desk will provide LME coverage, and current clients can contact metals@aegis-hedging.com for indications. *

Steel

Canadian steelmaker Stelco predicts that lower scrap volumes will push scrap prices higher, thereby leading to higher finished-steel prices. According to Stelco, steel scrap prices have fallen tremendously this year due to falling demand and ample supply. Prompt-month (September) CME MW Busheling Fe Scrap futures have dropped over 40% from the late-March highs. However, in anticipation of a spike in scrap costs, several companies, including Stelco, have already raised their flat-rolled steel prices by $50 to $75/st in recent weeks, according to Argus.

Copper

Finally, regarding copper, one producer expects supplies to tighten further in 2023 and beyond. On Wednesday, the world’s largest copper miner, Chile’s Codelco, told local newspaper El Mercurio that they have set their 2023 production estimate at 1.45 million mt. For the five-year period between 2023 and 2027, the company now expects to average 1.5 million mt. Just last week, Codelco lowered its 2022 production estimate range to between 1.49 million mt and 1.51 million mt, down from a prior estimate of 1.61 million mt. These production estimates are due in part to declining ore grades and lower recovery levels at several sites. Several construction projects have been halted due to worker fatalities, thereby delaying future production endeavors.

At 5.6 million mt, Chile was the world’s largest copper producer in 2021, according to the USGS. Total world production was 21 million mt that year. Although Codelco’s predicted drop in production this year is only approximately 0.5% of global mine production, this could add to the supply deficit of refined copper. The same is true for the expected declines into 2023 and beyond. According to the International Copper Study Group’s most recent estimate, the world refined copper balance is currently in a deficit of 72,000 mt.

LME Aluminum

LME Aluminum 3M settled at $2,295.50/mt, down $198/mt on the week.

Aluminum prices were down this week, so the forward curve has shifted lower by approximately $200/mt, 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 25.3¢/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.

* Please note all these charts are for desktop only.*

LME Copper

LME Copper 3M settled at $7,633/mt, down $527.50/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted lower, by about $500/mt. It remains backwardated, 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 $20,529/mt, down $1,104/mt on the week.

Nickel’s forward curve shifted significantly lower this week, by about $1,100/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 $780/T, down $25/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.