Market Insights > Metals

Base Metals Dashboard - Week Ending September 9, 2022

September 09, 2022 | Chris Stadele

Nickel

According to Reuters data, U.S. nickel imports from Russia averaged 23,049 tons/month from March to June, up over 70% year-over-year. Also, U.S. aluminum imports averaged around 25,116 tons during the same period, a 21% increase compared to the same period in 2021.

The EU has seen similar increases in metals imports from Russia. Despite the increase in metals imports, the EU, U.S. have been leading the charge to impose sanctions on Russian energy shipments. Prices of both metals surged to record highs following Russia's decision to invade Ukraine on Feb. 24 on fears that sanctions or difficult logistics would block shipments. So far, that has not been the case; however, if that changes, aluminum and nickel prices could be prone to price spikes as supply becomes scarcer.

The Brazilian mining giant, Vale, said that global demand for nickel should increase by 44% by 2030, compared to 2022 demand. The sharp increase will be fueled primarily by the high demand for nickel for use in batteries for electric vehicles. The company went further and said that the "energy transition" will be a key driver in the increases in demand for the metal as demand tops 6.2 MM tons/year.

The company expects its own nickel production to increase during that period, from 190k tons/year in 2022 to between 230k to 245k by 2030 and points out that supply will likely have to come from Indonesia and Canada.

Zinc

Chengdu, a key hub for metallurgy and building materials production, entered a complete lockdown late last week, sparking fears that Chinese metals demand could drop further, right as the country enters its peak construction season. Zinc, which is used in galvanized steel production, was hit especially hard, seeing its largest weekly percentage loss in over a decade. According to Bloomberg, China's property sector has been hit in recent months as home prices and sales volumes have fallen. Home builders, many of which are cash-strapped and debt-ridden, have stopped construction on new projects, thereby weighing on demand for zinc and other metals.

Aluminum

On Monday, LME Aluminum inventories posted their largest increase since February, rising 11% to 308,375 tons. However, LME Aluminum inventories are still a fraction of their historical average of around 2.95 MM tons. The aluminum forward curve is in extreme contango, with the 12-month contract currently trading at around a $59.50 premium to the prompt-month (M1) contract.

LME Aluminum

LME Aluminum 3M settled at $2,286.00/mt, down $9.50/mt on the week.

Aluminum prices were down this week, but the forward curve's shape and position is little changed. It remains in contango, meaning that spot prices are lower than futures prices. Aluminum consumers that are concerned about increasing prices but want to maintain downside participation may consider hedging future needs by executing zero-cost collars. 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 25.0¢/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.

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

LME Copper

LME Copper 3M settled at $7,856.50/mt, up $223.50/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted slightly higher, by about $200/mt. It remains backwardated, meaning that spot prices are higher than futures prices. Copper consumers that are concerned about increasing prices but want to maintain downside participation may consider hedging future needs by executing zero-cost collars 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 $22,944/mt, up $2,465/mt on the week.

Nickel’s forward curve shifted slightly higher this week, by about $2,400/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 $818/T, up $38/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.