Market Insights > Metals

Base Metals Dashboard - Week Ending June 23, 2023

June 23, 2023 | Chris Stadele

Aluminum

Over the past weekend, government officials in China’s Yunnan province announced they were abandoning all power rationing to the region’s aluminum smelters. This will allow approximately half of the 2 million mt of capacity that has gone offline to resume production, according to estimates from Shanghai Metal Market. Despite the recent economic stimulus measures by the greater Chinese government, and recovering production, demand should be stable, based on SMM comments. (Source: Shanghai Metal Market)

The hydropower issues in Yunnan province have not materially affected China’s total aluminum production. According to data from the International Aluminum Institute, China’s aluminum smelters averaged 111,600 mt/day in May, up slightly from the 111,200 mt/day average in April. This is also up slightly from last May, as they averaged 111,100/mt that time a year ago. (Source: Bloomberg, International Aluminum Institute)

Late last week, Russia’s top aluminum producer, Rusal, announced it will soon begin building a 4.8 million mt/year alumina plant. Construction will take place in two stages, 2.4 million mt/year each. The first stage will be completed by year-end 2028, and the second by year-end 2032. Given that this plant will take nearly a decade to complete, this news should not have a material impact on near-term supply, demand, or prices for alumina or aluminum. (Source: Bloomberg)

Copper

As of this writing, LME copper on-warrant inventories, meaning the metal is available to trade, stand at 30,125 mt, the lowest level since October 2021. This in turn means that of the 79,300 mt in LME warehouses, only about 38% is available to trade. Most of the recent drawdown has occurred in the past few weeks. On May 23, on-warrant stocks stood at 94,600 mt, the highest level since October 2022. According to Reuters, some of the recent inventory drawdown stems from traders canceling warrants at New Orleans, LA warehouses. (Source: Reuters)

Iran’s copper mine production could soar over the coming years. Last Friday, official Iranian media reported what is thought to be the largest copper discovery in the Middle East. If verified, the discovery would add about 3 billion mt to global copper reserves. As Bloomberg commented, this discovery will also help alleviate some of the supply tightness that could occur due to the energy transition. Iran is already one of the largest copper miners in the world. At approximately 354,000 mt, the country was responsible for about 1.6% of global mine production last year. (Source: Bloomberg/Bloomberg Intelligence, USGS)

After stumbling this spring and early summer, China’s copper market is finally showing signs of recovery. The Yangshan Copper Cathode Premium, which reflects import demand, has risen to $46/mt, up from $21.5/mt in mid-May. On Tuesday, Ji Xianfei, an analyst with Guotai Junan Futures Co told Bloomberg, “Copper demand in China isn’t as bad as people imagined.” Xianfei also estimates that Chinese copper demand is up 3% so far this year. (Source: SMM, Bloomberg)

Steel

Nucor, ArcelorMittal, and Cleveland Cliffs have followed US Steel by raising their prices for flat-rolled steel by $50/st. Earlier this week, Cleveland-Cliffs announced its price hike along with setting a minimum price of $950/st. Last Friday, Nucor set a minimum price of $900/st, and ArcelorMittal set a minimum of $950, along with the $50/st hikes. The recent round of price hikes was initially started by US Steel last week Wednesday. US Steel’s $50/st price hike was the first such announcement by a major steel producer since March, according to Argus. (Source: Argus)

Some North American steel producers are grappling with higher raw material costs and lower sales prices. While releasing its Q4 earnings report, Algoma Steel Group Inc, a Canadian HRC and CRC steel producer, stated costs for metallurgical coke and coal have increased. At the same time, steel prices have dropped, leading to lower revenue. These factors contributed to the company’s net loss of $20.4 million that quarter. (Source: Bloomberg)

Ternium, which is one of Latin America’s top steel producers, will begin constructing a steel slab mill at its existing facility in Pesqueria, Nuevo Leon, Mexico, the company stated this week. Production is expected to start in 2026. Given that production is nearly three years away, this announcement likely will not have an immediate impact on North American steel prices. (Source: Bloomberg)

LME Aluminum

LME Aluminum 3M settled at $2,174/mt, down $96.5/mt on the week.

Aluminum prices were down this week. This has caused the futures forward curve to shift vertically lower by approximately $100/mt. It remains in a steep contango, meaning that nearby prices are lower than forward prices. Aluminum consumers that are concerned about increasing prices might consider hedging future needs by buying swaps or call options. Depending on risk tolerance, end-users might consider strategies that use only swaps or options or a combination of both. 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 traded/settled at 24.5¢/lb this week.

The CME Midwest Premium market is now slightly backwardated for the August through November ’23 contracts. The forward curve then changes to a contango market from the December ’23 contract and beyond. 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 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 $8,390.5/mt, down $176/mt on the week.

Compared to last Friday, LME Copper's forward curve has fallen vertically by approximately $175/mt and is now very flat for the remainder of 2023 and throughout 2024 and 2025. 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 $21,311/mt, down $1,723/mt on the week.

As prices were down this week, nickel’s forward curve has also shifted vertically lower, by about $1,700/mt. It is in a steep contango after the July 2023 contract, meaning that nearby 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 traded/settled at $910/T, down $17/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.