Base Metals Dashboard - Week Ending October 14, 2022

Prior to the White House announcement, the LME made a similar declaration late last week regarding Russian metals. The LME stated it could limit Russian metal traded on the exchange, via a quota system or ban it all, under two alternatives proposed. These options were outlined in a discussion paper the exchange launched last Thursday. It aims to gather market opinion on how to treat Russian metal that is currently on the exchange, and potentially might be delivered against LME futures contracts. Three possible outcomes were suggested. First, if LME maintains the “status quo,” the LME notes that an “influx of Russian metal into the physical network” could occur and have an impact on the market. As for a quota system (the second option proposed), the exchange feels that the market would not see any benefits, given the complexities of maintaining such a system. Regarding a possible suspension (the third of three options), the LME outlined several additional scenarios, including if the suspension should begin immediately or be delayed until 2023. The LME has given market participants until October 28 to respond.

Will US scrap prices jump if Mexico bans aluminum and steel scrap exports? The Institute of Scrap Recycling Industries (ISRI), a US-based trade organization, is trying to dissuade Mexico from banning aluminum and steel exports to the US. ISRI recently stated they understand the Mexican government’s aim to reduce food inflation, but the organization does not understand why scrap steel and aluminum that are used in food packaging should be targeted. The proposed export ban stems from a set of anti-inflationary laws introduced by the Mexican government last week. Aluminum cans are one packaging product that could be affected more than others. So far this year, Mexico was the second-biggest supplier of aluminum scrap and ferrous scrap to the US, according to Argus. Mexico exports most of its used beverage cans to the US, because the former does not have a rolling mill that produces rolling can sheets (Source: Argus)

Some European aluminum producers are making plans for smelter restarts. For example, to aid its planned 2024 restart of the San Ciprian smelter, Alcoa has signed an additional power purchase agreement with Spanish electricity producer Endesa, according to a press release from late last week. Alcoa had closed the 225,000 mt/year smelter in December 2021 after soaring electricity prices made production unprofitable. The agreement with Endesa runs from 2024 through at least 2030 and will provide approximately 30% of the smelter’s electricity needs. Alcoa now has 75% of the smelter’s electricity needs met, as they signed an earlier agreement with Greenalia. Negotiations are ongoing for the remaining 25%.

Lead

A recent scramble to buy LME warehouse lead stocks has pushed inventories to the lowest level in over 20 years and to the equivalent of just a few hours of global consumption, according to Reuters. As of Friday morning, “on-warrant” LME warehouse lead stocks, which are available to trade, totaled 10,975 mt, down 17,050 mt, or 61% since October 3. AEGIS notes the recent rush on LME warehouses was likely initiated by end-users that are worried about global supplies. Soaring electricity prices in Europe have forced several large smelters to curtail production or contemplate shutdowns due to unprofitability. One Germany-based smelter has been closed for over a year due to flood damage and related regulatory issues. China, which is the world’s largest lead miner and refiner, is also grappling with low scrap supplies and power issues. 

Steel

Late last week, Nucor announced they would not load barges with steel shipments “for a few weeks” due to low water levels in the lower Mississippi River, according to Bloomberg.  AEGIS has been closely monitoring the water levels on the Mississippi River nearest to Nucor’s Jackson MS, plant, and the water level has only improved by about one foot. The current water level is approximately 4.09 feet, up from just under three feet last week Friday. Nucor is currently opting to ship via rail or truck, both of which are far more expensive than barge shipments.