Base Metals Dashboard - Week Ending May 5, 2023

Chinese aluminum demand is mixed, according to Mysteel. Inventories of ingot have dropped in recent weeks, but aluminum extrusion orders have dropped at the same time. Further curtailments in Yunnan province, which is China’s top production region, remain a concern. Falling production costs due to an oversupply of alumina is a bearish factor, however.

Continuing on China, the country’s manufacturing sector activity fell last month. The country’s official manufacturing Purchasing Managers’ Index (PMI) slumped to 49.2 in April, down from 51.9 in March. A reading below 50.0 signals that the sector is contracting. This is the first time China’s manufacturing PMI has fallen into contraction since December.  China’s manufacturing sector is a large consumer of aluminum. The automotive sector alone is responsible for approximately 26% of China’s total aluminum demand. (Sources: Reuters, SMM)

Continued high energy costs throughout Europe could lead to more aluminum smelter curtailments, according to Norsk Hydro. Nearly 25% of Europe’s annual aluminum production capacity remains offline due to high energy costs. Norsk Hydro’s production was down about 8% last quarter due to curtailments and a worker strike.

As for demand, Norsk Hydro stated that the aluminum market could be in a deficit of 100,000 to 800,000 mt, citing CRU and Wood Mackenzie estimates. These deficits come despite lower demand compared to 2022. CRU believes that European extrusion demand will fall by 7% this year, while North American extrusion demand could fall by 3%, mainly due to weakening construction demand. Automotive demand on both continents is improving, however. (Source: Norsk Hydro)

Copper

Earlier this week, Codelco, which is the world’s largest copper producer, reported that 1Q2023 production was 326,000 mt, down 10% compared to 1Q2022. This is nearly their lowest in 25 years. The company cited equipment issues, a dam freeze, and a rockslide for the drop in production. Annual production guidance is 1.35 million to 1.42 million mt, according to Bloomberg figures. Despite the Chilean production issues, Macquarie estimates there will be a small 133,000 mt surplus in global refined copper production in 2023.

Despite an export ban that begins in June, Indonesia will allow Freeport McMoran and Amman Mineral to continue exporting copper concentrate until May 2024, according to the country’s mining minister. Both Freeport and Amman are building smelters in Indonesia, however, pandemic-related construction delays have pushed back opening dates.  Because of these delays, the government will allow Freeport and Amman to continue exports. Indonesia’s export ban on raw copper is part of an effort to stimulate investment and boost the value of the country’s exports. (Source: Bloomberg)

Steel

European steel demand remains subpar. Tata Steel, which is one of Europe’s steelmakers, stated that European sales revenues fell 16% last quarter compared to the same period last year. Production volume was unchanged, while deliveries fell by 11%, the company also stated. 

Finally, Middle Eastern steel production will increase in the coming years. Saudi Aramco, along with Baoshan Iron & Steel Co Ltd and Saudi Arabia's Public Investment Fund, will soon build a 1.5 million mt/yr steel plate production facility in Saudi Arabia, the companies announced earlier this week. According to their statements, the facility will be the first of its kind in the country, adding it will “be equipped with a natural gas-based direct reduced iron furnace and an electric arc furnace, which aims to reduce carbon dioxide emissions from the steel-making process by up to 60% compared to a traditional blast furnace.” Production is slated to begin in 2026, with sales directed towards domestic buyers as well as neighboring Middle Eastern countries.