Market Insights > Metals

Base Metals Dashboard - Week Ending June 30, 2023

June 30, 2023 | Chris Stadele

Aluminum

China’s appetite for aluminum imports remains steady as cargoes continue to arrive. Due to poor end-user demand, however, social, or non-exchange inventories of aluminum products keep growing, according to Shanghai Metal Market’s weekly inventory estimates. Meanwhile, China’s domestic production continues to grow, and could also add to inventories. This could weigh on both China’s domestic aluminum and global prices. (Source: Shanghai Metal Market)

Aluminum smelters in China’s Yunnan Province have restarted previously shuttered output, however, Shanghai Metal Market (SMM) cautions that this uptick could be short-lived. In a note earlier this week, SMM stated “considering the short period of rainy season, the power supply outlook is still full of uncertainty.” Nearly 2 million mt of the province’s aluminum smelting capacity had previously gone offline due to hydropower issues. Of the 2 million mt, about half is scheduled to restart in June, according to previous reports from SMM. (Source: Shanghai Metal Market)

Traders could be pulling Russian aluminum from LME warehouses in South Asia. As of Friday, June 30, the volume of canceled warrants for aluminum, meaning the metal that is set for delivery, from the LME’s South Korean warehouses soared to 60,700 mt, nearly doubling compared to last Friday. This is nearly the highest volume in almost two years, and up from near zero a month ago. The LME’s South Korean warehouses are a known repository for Russian aluminum, according to Bloomberg and Reuters. (Source: Bloomberg, Reuters)

Finally, according to Bloomberg’s newly revised estimates, released on Sunday, Rusal’s alumina production could slump to 5.5 million mt, down 8% on the year, due to a production halt at its refinery in Nikolaev, Ukraine and because of Australia’s ban on alumina shipments to Russia. (Source: Bloomberg)

Copper

Poor economic data from China continues to undermine copper prices and demand. Compared to a year ago, profits at Chinese industrial firms were down 12.6% in May, indicating that domestic demand remains weak. Market participants are looking for any cues of further stimulus from Chinese authorities that aid copper demand. “Market watchers will now look for signs of new policies being announced around the Communist Party’s Politburo
meeting in July,” Chinese commodity broker GF Futures stated in a note earlier this week. (Source: Bloomberg)

Ivanhoe Mines, which operates one of the largest and newest copper mining projects, feels copper demand will outpace supply in coming years. Due to an expected demand surge for the energy transition and lack of investment in new mining projects, Ivanhoe Mines CEO Robert Friedland proclaimed earlier this week “We’re heading for a train wreck here.” Friedland also added, “Investors have yet to grasp the significance of a global rush for the building blocks of clean energy. Ivanhoe Mines’ Congo-based Kamoa-Kakula Mining Complex project, which only started in 2021, is already responsible for approximately 1.5% of global copper mine production. (Source: Bloomberg, USGS, Ivanhoe Mines)

Canadian copper mine output could increase significantly by the end of the decade. Earlier this week, Newcrest Mining stated that it “may have enough gold and copper deposits at its Red Chris project in Canada to open an entirely new section and extend mining in the area for decades.” Newcrest’s neighboring exploration project known as “East Ridge” is also producing “exciting” results, and could have “decades of production,” they also proclaimed. Given that these copper projects will take years to develop, they will not have a short-term impact on copper prices. (Source: Bloomberg)

Steel

Like aluminum, China’s steel inventories continue to grow due to a slumping real estate sector, according to Marex. The Commonwealth Bank of Australia echoed similar comments, stating “the major drag on steel demand remains the property sector, which makes up 35% to 40% of consumption. The bank reiterated that “any recovery in steel demand this year will be tied to stimulus for infrastructure.” (Source: Bloomberg)

As for the US, the American steel market has largely shrugged off recent price hikes by several large US producers. Argus’s weekly domestic HRC assessment fell by $60/st to $820/st this week, largely because demand remains weak. While this assessment update, Argus also stated “Relatively short HRC lead times kept many buyers from purchasing large amounts of steel in the two weeks since steel mills started raising prices and setting HRC price minimums between $900-950/st. (Source: Argus)

US imports of Indian steel could rise by 35% after the US government relaxed its Section 232 restrictions against Indian metal, the Indian Commerce Ministry stated late last week. India’s commerce ministry also stated that this will now grant market access to 70% of steel and 80% of aluminum products from India. According to Argus, however, Indian market participants are somewhat skeptical of the market impact and await further details on the pact. The Section 232 tariffs on Indian steel and aluminum products were implemented in mid-2018 by the Trump Administration, citing national security. These tariffs were 25% on steel products and 10% on aluminum products, respectively (Source: Argus)

US prime scrap, which is a key raw material for steel production via electric-arc furnaces (EAF), could be in “short supply as new manufacturing investments fail to keep pace with demand,” according to Cleveland Cliffs CEO Lourenco Goncalves. He also suggested that the American steel industry is likely too concentrated in EAFs, proclaiming "We are probably a little too much in the EAF versus the blast furnaces in the US… There is no other developed country .. that has a 70% EAFs and less than 30% blast furnace participation … not in Japan, not in Germany, not in France, not in Brazil. Nowhere."

LME Aluminum

LME Aluminum 3M settled at $2,151.5/mt, down $23/mt on the week.

Aluminum prices were down this week. This has caused the futures forward curve to shift vertically lower by approximately $20/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 24.4¢/lb this week.

The CME Midwest Premium market is now flat for the July through December ’23 contracts. 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 $8,315.5/mt, down $75/mt on the week.

Compared to last Friday, LME Copper's forward curve has fallen vertically by approximately $75/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 $20,516/mt, down $795/mt on the week.

As prices were down this week, nickel’s forward curve has also shifted vertically lower, by about $800/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 $873/T, down $28/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.