Market Insights > Metals

Base Metals Dashboard - Week Ending December 2, 2022

December 02, 2022 | Chris Stadele

Aluminum

In a rare occurrence, LME aluminum on-warrant (i.e., available to trade) and canceled warrant (i.e., set for delivery) stocks both equaled 249,575 mt on Thursday morning, indicating that combined LME stocks then totaled 499,150 mt. Largely due to fears that Russian metals could be banned from the exchange, total stocks increased by over 75% in October as traders dumped metal onto the exchange. However, the LME decided against a ban on November 11, and traders have begun to pull aluminum from LME warehouses. Total stocks are now down considerably from the October 27 high of 587,100 mt.

Traders have long worried that allowing significant volumes of aluminum onto the exchange could be bearish for prices. So why are LME aluminum prices up nearly 15% since early October? AEGIS notes that the recent jump in prices could be tied to a weakening US Dollar and China’s relaxation of its COVID policies. The USD and aluminum normally trade inversely to each other. True to form, the USD is down nearly 9% from the late September highs, while aluminum prices have rallied. As for China, government officials stated they will allow home quarantine for “some” people” who have tested positive for COVID-19. Officials also stated they will “speed up” COVID vaccinations for the elderly. More actions will be announced “in coming days,” according to Reuters. We also note that these measures could boost aluminum demand, and therefore could remain supportive of LME aluminum prices. (Source: Reuters)

Copper

LME Copper prices surged over 10% in November, the first monthly price gain since April 2022. AEGIS notes that this was the largest monthly price jump since April 2021. We also point out that the recent uptick in prices could be tied to China’s COVID and economic policies. In addition to the new COVID-19 policies outlined in the Aluminum section above, Chinese authorities relaxed financing restrictions on property developers, earlier this week, in an attempt to boost its faltering real-estate sector. Also, last week Friday, China’s central bank lowered the reserve requirement ratio (RRR) on domestic banks. The RRR is the percentage of funds that a bank must hold in reserve and not lend out. This move is meant to increase the country’s money supply. (Source: Bloomberg)

However, not all news this week was bullish for copper prices. Workers at BHP’s Escondida copper mine in Chile reached an agreement with the company early Monday morning, avoiding a strike that was scheduled for this week. The workers were threatening to strike due to safety concerns, according to Reuters. The new agreement alleviates these concerns, as it contains” concrete and verifiable measures to improve the hygiene and safety of workers,” according to union statements. At 1.01 million mt, the Escondida copper mine produced nearly 5% of the world’s output last year, based on USGS and BHP data. AEGIS notes that the Chilean news is likely neutral to bearish for LME copper prices. (Source: Reuters, BHP, USGS)

Steel

In an attempt to stabilize the steel market, Cleveland-Cliffs has increased prices for its flat-rolled products by $60/st, the company announced earlier this week. After the Cleveland-Cliffs announcement, competitors Nucor, ArcelorMittal, Stelco, and US Steel all made similar price hikes. These are the first such announcements since late-August, when Cleveland Cliffs and several competitors increased prices by $50 to $75/st, respectively. Prior to the late-August announcements, HRC prices were down nearly 50% on the year; however, price increases by Cleveland-Cliffs and others did little to stem the tide. HRC prices are down nearly 20% from August 30, as Argus’s November 29 HRC assessment was $627.50/st. AEGIS notes that these price increases could be attempts to stave off unprofitability. Earlier this month, some steel producers interviewed by Argus stated that HRC prices could be nearing a bottom, as most are operating at breakeven or even at a loss.

There was potentially bullish international steel news this week, too. A nationwide “indefinite” trucker strike in South Korea continues after the government and trucking unions failed to reach an agreement during early Monday morning talks. The strike, which started last week Thursday, has already affected the logistics of South Korea’s steel industry, the country’s industry ministry stated Friday. However, Hyundai Steel said that the strike was expected, thus they shipped urgent contract volumes and procured raw materials well in advance. That said, they also stated that Thursday’s shipment of steel products could not be moved. Moreover, a prolonged strike could be “problematic” for the company due to limited storage space and logistics. This is the second major trucker strike in South Korea this year. Last June, a trucker strike briefly affected production and shipments for top steelmakers Hyundai Steel and POSCO. (Source: Yonhap, Argus, Reuters)

The US is a large importer of South Korean cold-rolled (CRC) steel products. AEGIS notes that a prolonged strike could affect US imports of South Korean CRC steel products and could also impact US domestic and import prices of CRC.

LME Aluminum

LME Aluminum 3M settled at $2,545.50/mt, up $183.00/mt on the week.

Aluminum prices were up this week. Compared to last Friday, the forward curve has shifted vertically higher by $180/mt; however, its shape remains the same. It remains in contango, meaning that nearby prices are lower than forward prices. Aluminum consumers concerned about increasing prices might consider hedging future needs by buying swaps or call options. End-users might consider strategies that use only swaps or options or a combination of both, depending on 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 20.4¢/lb this week.

The CME Midwest Premium market is in contango from the prompt month contract (December) through January 2024. Prices are flat throughout the remainder of 2024. 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 $8,450.00/mt, up $442.00/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted higher by about $400/mt. The market is now slightly backwardated until 2025. This means that nearby prices are higher than forward 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 their risk tolerance. Please contact AEGIS for specific strategies that fit your operations.

LME Nickel

LME Nickel 3M settled at $28,862/mt, up $3,446/mt on the week.

Nickel prices rallied this week, so the forward curve shifted vertically higher by about $3,400/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 settled at $672/T, up $1/T on the week.

For CME HRC Steel, liquidity is low for swaps, but hedging can still be done with 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.