Market Insights > Metals

Base Metals Dashboard - Week Ending December 30, 2022

December 30, 2022 | Chris Stadele

*Please note that our offices will be closed on Monday, January 2 due to the New Year’s Day holiday. The LME and CME are also closed that day. We will not produce a Metals First Look that morning. *

Aluminum

At least one major Japanese aluminum consumer has agreed to pay a $86/mt premium for 1Q 2023 deliveries, according to Bloomberg. AEGIS notes that this $86/mt premium is the lowest in two years and is down from initial offers of $95/mt from earlier this month. This is the premium over the London Metal Exchange (LME) cash price that Japanese importers agree to pay for primary aluminum shipments. These premiums, which are set on a quarterly basis, are negotiated directly between Japanese end-users and global aluminum producers. This premium has dropped in recent quarters as demand, specifically from the automotive sector, has softened, according to Bloomberg. Japan imported approximately 2.793 million mt of aluminum in 2021, or about 4% of global production, according to the Japan Ministry of Finance and USGS data. (Sources: Bloomberg, Japan Ministry of Finance, USGS)

US aluminum consumers should closely watch Japanese import premiums because weakening premiums could foretell softening global demand. As we noted above, Japanese import premiums (over LME) are dropping, signaling that manufacturers are turning away the supply of metal. This shift in demand is likely to send the metal to other major aluminum importers. As aluminum shipments are rerouted, the immediate result could be lower premiums in North America, represented most commonly by MWP. More broadly, AEGIS wonders if these declining premiums are a sign that the market remains oversupplied.

Lead

The Australia-based Port Pirie lead smelter, which is one of the largest in the world, has started ramping up production after completing a project that improves efficiency and performance, owner-operator Nyrstar stated earlier this week. The smelter has been closed since October to complete the project. Nyrstar did not say how much these improvements will increase production. The plant produced 160,000 mt of lead in 2018, according to Reuters. (Source: Reuters)

This re-opening is likely welcome news to end-users. A recent scramble to buy LME warehouse lead stocks has pushed inventories to the equivalent of a few hours of global consumption, according to Reuters. As of this morning, lead stocks listed as "on warrant," which denotes they are available to trade, totaled 12,650 mt. This is barely off the October 25 low of 10,075 mt. 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.

Copper

First Quantum Minerals, the parent company of the huge Cobre Panama copper mine, says the mine is operating normally while negotiations continue with the Panamanian government, the company stated on Wednesday morning. They also stated that last week Wednesday, December 21, the government ordered First Quantum to shut down the mine and was given 10 days to comply. First Quantum’s CEO held the first in-person talks with the Panamanian government on Monday, December 26, and continued Tuesday and Wednesday. These talks come after First Quantum’s arbitration filing against the Panamanian government last Saturday, December 24. The dispute between First Quantum and Panama stems from a disagreement over royalty payments. The Cobre Panama mine began operations in 2019 and is one of the largest projects brought online in recent years. According to company estimates, the mine will produce 340,000 to 350,000 mt of copper in 2022. Based on USGS figures, this equates to approximately 1.5% of global production. (Sources: Bloomberg, Reuters, USGS)

LME Aluminum

LME Aluminum 3M settled at $2,378/mt, down $11.50/mt on the week.

Aluminum prices were down this week. However, the shape and position of the forward curve remain nearly the same as last week. 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 20.3¢/lb this week.

The CME Midwest Premium market is in contango throughout early 2023, flat between July and Dec ‘23, and then goes flat beyond Jan. ’24. 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 $8,372/mt, up $22.50/mt on the week.

Compared to last Friday, LME Copper's forward curve is nearly unchanged. The forward curve is now in contango through May 2023 but becomes backwardated after that contract. 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 $30,048/mt, up $501/mt on the week.

As prices were up this week, nickel’s forward curve has also shifted vertically higher, by about $500/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 $744/T, down $19/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.