Aluminum As manufacturing activity in China, Europe, and the US shrinks, aluminum demand remains grim. Coupled with a weak global market, production in top-producer China remains near record highs, weighing on international prices. As Bank of America recently proclaimed, “The demand side has taken over in terms of weakness on aluminum. It’s not just China, it’s all over. There are no shortages.” (Source: Reuters) |
China’s aluminum production soared again in July. According to Shanghai Metal Market, primary aluminum production hit 3.568 million mt, while daily production averaged approximately 115,100/mt. Both figures are at or near all-time highs. This significant jump in production was primarily due to restarting previously curtailed production in Yunnan province. Production is expected to surge again in August as more Yunnan-based production goes back online. (Source: Shanghai Metal Market)
Continuing on China, both Chinese aluminum production and demand will jump this year, according to Citigroup and China-based researcher Aladdiny. Production will hit 41.5 million mt, up 3.6% compared to 2022, while total demand will increase by 3.4% to 41.8 million mt. Most major sectors, including construction, power, packaging, and transport, are expected to grow aluminum consumption this year. Only exports are expected to decrease, falling 12.5% to 3.7 million mt. (Source: Bloomberg) As for other major producers, Bloomberg continues to fine-tune its production estimates for Russia’s top producer, Rusal. Even though alumina costs could jump another 4% in 2H2023 after rising 55% in 1H2023, Rusal’s aluminum production will likely be unchanged. Alumina prices, the key raw material for aluminum production, have increased as Rusal has had to find external supplies. Rusal is currently shut off from most of its non-domestic alumina sources due to the Russia-Ukraine conflict and sanctions. (Source: Bloomberg) Copper Copper prices continue to suffer while concerns over China’s property sector mount. Country Garden Holdings Co., one of the country’s largest real estate developers, faces increasing financial problems and scrutiny. As Bloomberg stated, “any failure to pay its debts would hurt fragile investor sentiment.” (Source: Bloomberg) Continually in the Chinese property sector, new home prices, which are generally seen as a proxy for housing demand, fell by 0.23% last month, the first price drop in 2023. Several large real estate developers have missed recent bond payments, signaling a potential default. The country’s faltering real estate sector continues to burden copper. (Source: Bloomberg) |
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India remains a bright spot for copper demand. The country’s imports of refined copper are set to grow this financial year and next, according to researcher ICRA. Similarly, total consumption is expected to grow by 10% this financial year and next. The country consumed 1.25 million mt in the fiscal year that ended in March, and ANZ Group believes this will grow to 2.4 million mt by 2030. (Source: Bloomberg) With its third CEO in less than a year, Chile’s embattled state-owned copper miner, Codelco, aims to improve finances by reducing debt while increasing production. Its debt obligations are nearing $19 billion and could balloon to $30 billion within the next four years if finances do not improve, researcher Cesco recently stated. This growing debt pile comes while Codelco’s production is at the lowest level in nearly 25 years amid soaring production costs and falling ore grades. As reported last week, the company is working with neighboring miner Anglo American on ways to improve efficiencies and grow production volumes. (Source: Bloomberg) Inventories of copper in LME warehouses have surged since mid-July. This morning, warehouse stocks stood at 92,200 mt, up nearly 66% from the July 13 of 54,225 mt. Despite the surge, warehouse stocks still sit near historic lows as traders have drawn on inventories due to subpar global production. (Source: Bloomberg) Steel A bidding war over US Steel has erupted recently. After rejecting an initial $7.3 billion offer by Cleveland Cliffs, US Steel is now reviewing a $7.8 billion offer by Esmark. ArcelorMittal has also stated they are reviewing a potential bid to buy out US Steel. If approved, the combined company would be one of the largest steelmakers in the world. This bidding frenzy comes while US Steel has experienced several quarters of declining revenues and profits amid surging raw material and energy costs. (Sources: Reuters, Bloomberg) After proposing a $7.8 billion deal to buy out US Steel, Esmark’s CEO proclaimed in an interview on Tuesday that he has the funds “in the bank” to complete the deal. He later clarified that they have $10 billion in cash, and the company has no debt. This compares to Cleveland Cliffs’ recently rejected, where the company would have used stock and borrowed funds to complete the deal. (Source: Reuters) India’s steel producers have benefited from growing domestic demand in recent years, but exports have lagged due to the weak Chinese market and a burdensome export tariff. While reporting earnings late last week, Jindal Steel, one of India’s largest producers, proclaimed that the country’s steel demand will grow by 8 to 9 million mt per year over the next two financial years. The company stated that the export tariff, which the country retracted last November, led to a 55% drop in exports in fiscal year 2023. (Source: Reuters) In a decision earlier this week, the World Trade Organization (WTO) stated that China violated trade commitments due to its retaliatory tariffs against certain US-produced goods. China recently implemented these retaliatory tariffs due to the Trump-era Section 232 on US imports of Chinese aluminum and steel products. After the decision, the office of the US Trade Representative stated, "The United States is pleased with the World Trade Organization (WTO) panel report released today, recognizing that the U.S. Section 232 actions on steel and aluminum are security measures and that the People’s Republic of China (China) illegally retaliated with sham 'safeguard' tariffs." (Sources: Reuters, Bloomberg) The US will impose anti-dumping tariffs on imports of tin-plated steel from China, Canada, and Germany, the US Commerce Department announced on Thursday. The new tariffs would be 122.5% on tin-plated steel from China, 5.29% on imports from Canada, and 7.02% on imports from Germany. Reuters proclaimed that this move is meant to protect domestic steel producers but could stoke fears that prices for paint cans and similar products could rise. (Source: Reuters) |
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LME Aluminum |
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LME Aluminum 3M settled at $2,137/mt, down $38.5/mt on the week. Aluminum prices were down this week. This has caused the futures forward curve to shift vertically lower by approximately $40/mt. It remains in a steep contango, meaning nearby prices are lower than forward prices. Aluminum consumers 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 get in touch with AEGIS for specific strategies that fit your operations. |
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Midwest Premium |
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Prompt month CME MWP last traded/settled at 21.5¢/lb this week. The CME Midwest Premium market is now relatively flat for the August ‘23 through June ’24 contracts but then switches to a contango market after June ‘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 limit orders. Please contact AEGIS for specific strategies that fit your operations. * Please note all these charts are for desktop only. * |
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LME Copper |
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LME Copper 3M settled at $8,240.5/mt, down $54.5/mt on the week. Compared to last Friday, LME Copper's forward curve has fallen vertically by approximately $55/mt and remains in contango for the remainder of 2023 and throughout 2024 and 2025. The copper market has sufficient liquidity to use swaps and options. Depending upon their risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations.
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LME Nickel 3M settled at $20,131/mt, down $110/mt on the week. As prices were down this week, nickel’s forward curve has also shifted vertically lower by about $100/mt. It remains in a steep contango, meaning that nearby prices are lower than futures prices. The nickel market has sufficient liquidity to use swaps and options. Depending upon your risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations. |
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CME Hot Rolled Coil (HRC) Steel |
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Prompt month HRC Steel last traded/settled at $805/T, down $1/T on the week. For CME HRC Steel, liquidity is lower than other metals for swaps, but hedging can still be done with limit orders. The same is valid for options. Similar to other metals, a combination of both swaps and options might work in certain cases, depending on risk tolerance. Please get in touch with AEGIS for specific strategies that fit your operations. |
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AEGIS Insights |
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08/18/2023: Steel Buyers Can Strengthen Pricing Power During Industry Consolidation 08/16/2023: AEGIS Factor Matrices: Most important variables affecting metals prices 08/03/2023: Important US Economic Data (AEGIS Reference) 07/20/2023: Aluminum Prices Could Hinge on Chinese Stimulus 07/11/2023: Copper Prices Could Remain Subdued While African Production Grows |
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Notable News |
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8/17/2023: Focus: How U.S. Steel became an acquisition target 8/17/2023: Chile's Codelco at risk of insolvency as debt grows, CESCO report says 8/17/2023: U.S. to impose tariffs on tin mill steel from Canada, China, Germany -Commerce Dept 8/16/2023: US welcomes WTO panel report on China steel, aluminum tariffs 8/16/2023: Chinese duties on U.S. imports 'inconsistent' with WTO obligations 8/16/2023: Demand headwinds mean no respite in pressure on aluminum prices 8/15/2023: China's economic woes mount as trust firm misses payments, home prices fall 8/15/2023: China's aluminium production soars in July with optimistic outlook for August 8/14/2023: China's July crude steel output eases on production curbs 8/14/2023: Esmark CEO says has money in bank account for $7.8 billion US Steel bid 8/14/2023: U.S. Steel shares jump after Esmark makes $7.8-billion offer 8/14/2023: Surpluses, low prices to remain a feature of cobalt market 8/14/2023: China's July crude steel output eases on production curbs 8/14/2023: China-based EV manufacturers cut vehicle prices 8/14/2023: US Steel rejects Cliffs' takeover bid |