Market Insights > Metals

Base Metals Dashboard - Week Ending September 23, 2022

September 23, 2022 | Chris Stadele

Steel

Due to “market conditions and continued high levels of imports,” US Steel has idled its 1.5 million ton/year blast furnace and 140,000 ton/year tin line, both in Gary, IN. The company made these announcements in its 3Q 2022 Guidance press release last Thursday. It is unclear when either plant will resume production. The Gary, IN closure, is the first closure by a US steelmaker due to deteriorating market conditions “in recent memory,” according to Argus. Earlier this summer, US Steel announced it would be temporarily idling its 1.4 million ton/year Mon Valley steel plant for 30 days for routine maintenance. The company “pulled forward” maintenance on the Mon Valley plant from October to September. Similarly, the company “pulled forward” scheduled maintenance on a Slovakia-based plant from October to September.

Aluminum

Citing moral grounds, some European aluminum consumers are hesitant to purchase Russian aluminum, according to Reuters reports from an annual conference held in Barcelona, Spain last week. This conference is part of a traditional “mating season,” where aluminum buyers and sellers negotiate annual contracts. According to one anonymous trader cited by Reuters, Russian aluminum is trading for a $100 to $150/mt discount to LME. Russia’s main aluminum producer, Rusal, was not invited to the conference, but several representatives nevertheless attended, according to Reuters. It is possible the discount on Russian aluminum is evidence of that country's supply being offered at sequentially lower rates, to try to find buyers. The apprehension to seek out Russian metals comes despite a crippling power crisis across Europe that has forced nearly one million mt, or approximately 22% of the continent’s aluminum production, to go offline.

According to Bloomberg reports, Rusal is developing a plan to deliver aluminum directly into the LME’s Asian warehouses, according to Bloomberg. Even though Rusal has not been sanctioned by Western governments due to the Russia-Ukraine conflict, Western buyers have shunned the company’s aluminum supplies, thereby leading to excess production as Rusal struggles to find alternative buyers. Traders have worried that large Russian deliveries direct to LME warehouses could suppress global prices. However, Rusal, fearing a negative price reaction, is only contemplating a test program, according to unnamed sources interviewed by Bloomberg. It is rare for smelters to sell directly onto an exchange, as most seek out long-term contracts.

Copper

Falling demand due to an ongoing manufacturing recession in Europe will lead to a global copper market surplus, thereby potentially weighing on prices into 2023, according to analysts interviewed by Reuters this week. Analysts from Citigroup believe a seasonal surplus will occur between December and March, pushing copper prices to $6,600/mt, a nearly $1,100/mt decline from the current LME 3M Select price. Similarly, Macquarie estimates that the market will swing to a surplus of 691,000 mt next year, compared to an expected deficit of 162,000 mt this year. Macquarie expects a surplus next year despite unchanged production, blaming the surplus wholly on lower demand.

According to a Moody’s report released yesterday, copper producers will face lower earnings for at least the next 12 months because of escalating input costs, lower production volumes, and falling global prices. However, the ratings agency does believe that supply-chain issues in top producers Chile and Peru will limit price declines. Similarly, Moody’s believes that high energy and raw-material costs will hurt earnings and production for European zinc, aluminum, and nickel producers. They also believe that metals demand will weaken as economies throughout the world begin to slow. (Source: Bloomberg)

LME Aluminum

LME Aluminum 3M settled at $2,165.00/mt, down $112.00/mt on the week.

Aluminum prices were down this week. The forward curve has shifted lower by approximately $100/mt, but its shape continues to look the same. It remains in contango, meaning that spot prices are lower than futures prices. Aluminum producers that are concerned about decreasing prices might consider hedging future sales by selling swaps or buying put options. 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 24.4¢/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.

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

LME Copper

LME Copper 3M settled at $7,433.00/mt, down $329.00/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted slightly lower, by about $300/mt. Prices throughout 2023 are relatively flat, but the forward curve in 2024 and beyond is 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 $23,411/mt, down $838/mt on the week.

Nickel’s forward curve shifted slightly lower this week. However, the shift was not even throughout the curve. For example, October ’22 shifted lower by about $800, but September ’23 shifted lower by about $600/mt. Prices in 2025 and beyond are higher than last week. 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 $802/T, up $13/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.