Base Metals Dashboard - Week Ending November 11, 2022

Copper

Concerns over Peruvian copper supplies have also supported prices recently. Peru's Las Bambas copper mine is reducing production due to ongoing protests, according to company statements from last Thursday. If mine operations stop, it would potentially remove 2% of global supply, according to Reuters. The Las Bambas mine has been subjected to several disruptions this year, including one stoppage that lasted over a month. The residents who are protesting at the mine are demanding compensation for its usage. The Las Bambas mine, which is one of the world’s largest copper mines, produced 300,000 mt in 2021. At 2.2 million mt, Peru was the world’s second-largest copper miner in 2021, according to USGS data.  (Sources: Reuters, Bloomberg)

Aluminum

As of this morning, LME aluminum stocks have fallen 29,150 mt from the October 28 peak of 578,425 mt. Most of the recent decline originated from warehouses in Port Klang, Malaysia. AEGIS notes that the aluminum delivered out of Port Klang warehouses was likely there only briefly. As of October 19, LME aluminum stocks in Port Klang totaled 381,425 mt, more than double the level seen on October 10. Most of this recent increase came from Citibank, according to unnamed sources cited by Reuters late last month. According to the sources, increasing borrowing costs had cut the profitability of the bank’s aluminum trading. Banks such as Citibank, often use metals such as aluminum as collateral for financing deals. Such deals normally involve borrowing money to purchase aluminum now to sell forward at a higher price. However, rising interest rates have made such deals less attractive. Thus, as existing financing deals have expired, more aluminum has been delivered to LME warehouses. (Sources: Bloomberg, Reuters)

Aluminum prices have trended sideways since early October, despite the deliveries into LME warehouses. However, some industry professionals have warned that even greater volumes could be delivered to the exchange. Last month, US aluminum producer Alcoa expressed fear that 1,000,000 mt of Russian-origin aluminum could be delivered to the LME every year. Allowing even higher volumes of metal onto the LME could ultimately push prices lower.

Steel

India’s steel demand could grow at a "high single-digit" rate over the next 12 to 15 months, according to comments from Moody's Investors Service yesterday. According to their comments, this expected demand growth could come from infrastructure investments before India’s 2024 national elections. Moreover, they believe that Indian demand is a “bright spot” compared to other regions. AEGIS notes that India’s steel is already on the upswing. Compared to 2021, the country’s finished steel consumption grew by 11.4% between April and October to 65.5 million mt, according to government data. Imports of finished steel also grew during that period, as they imported 3.2 million mt, up 14.5% from the same period in 2021. (Source: Reuters)

Even though India normally imports little steel from the US, higher Indian demand could be bullish to CME HRC prices, if their demand for US finished-steel products increases over the next year. Moreover, other major steel importers could be forced to look elsewhere for steel, especially if their cargoes are diverted to India.

However, a bearish sentiment still hangs over the steel market. Steel industry professionals have lamented that the market is “oversupplied,” and a new contract between the United Steelworkers (USW) and US Steel might add fuel to the fire.  A possible strike was averted by the union and US Steel tentatively agreeing to a new four-year contract earlier this week. The new contract includes a wage increase, a $4,000 bonus, and higher pension and 401K contributions. If ratified, the agreement would be similar to the one reached with Cleveland-Cliffs in October, according to an unnamed source interviewed by Bloomberg. Unnamed sources recently told Argus that a potential strike by the USW could be “the only action that could turn around the market, save increased production cuts by steelmakers.” (Sources: Bloomberg, Argus)