Market Insights > Metals

Base Metals Dashboard - Week Ending September 1, 2023

September 01, 2023 | Chris Stadele

*Our offices will be closed on Monday, September 4, to celebrate the Labor Day Holiday. We will not produce Metals First Look that morning. The CME is also closed that day; however, our trading desk will provide LME coverage, and current clients may contact metals@aegis-hedging.com for indications. *

Aluminum

Emirates Global Aluminum (EGA), the Middle East’s top aluminum producer, expects its total 2023 sales volumes to align with last year, the company stated in its 1H2023 earnings release. In the first half of 2023, EGA sold 1.32 million mt of aluminum products, up 1% compared to 1H2022. Sales are usually higher in the second half of the year, CEO Abdulnasser Bin Kalban stated. Kalban is also bullish on global aluminum demand without specifying a timeline or reasoning. The company is planning further investment due to its bullish demand forecasts. (Source: Bloomberg, Arabian Gulf Business Insight)

As for Russian aluminum production, Rusal’s profits plummeted to $420 million in 1H2023, down from $1.68 billion in the same period last year. This substantial profit drop is mainly due to falling aluminum prices while alumina and other production costs increased. The alumina costs have increased recently as they have had to rely on higher-priced imports due to sanctions. Rusal is also currently cut off from its refinery in Ukraine due to the war. Meanwhile, the company is selling aluminum at a discount to the LME. Due to self-sanctioning efforts by Western buyers, Rusal has had to seek other buyers, namely China. (Source: Bloomberg)

Meanwhile, China’s Yunnan province, the country’s top aluminum production region, will likely be subjected to long-term energy challenges, according to a recent note from Morgan Stanley. “As the world exits a decade of cheap, abundant power, electricity-intensive aluminum output is likely to become more challenged,” they proclaimed. Specifically, regarding Yunnan province, they stated, “The situation in Yunnan highlights the difficulties of an industry dependent on a stable source of power trying to switch to renewables and deal with seasonality.” Hydropower issues due to a severe, ongoing drought in Yunnan province led to significant curtailments at many of the region’s aluminum smelters. Production has only recently ramped up after significant rainfall eased the hydropower issues. (Source: Bloomberg)

That said, China’s total aluminum production shows no sign of slowing. The country’s total domestic operating aluminum capacity is approaching 42.7 million mt per year, a record high according to Shanghai Metal Market (SMM). This means operating capacity utilization, which measures how much of their production capabilities they are using, is nearly 95%. As for demand, SMM sent mixed signals as “higher prices suppressed buying appetite,” but “the peak season is coming, hence market expectations have improved.” (Source: Shanghai Metal Market)

Copper

Recent Chinese economic data continues to show their economy is declining. Manufacturing activity contracted for the sixth consecutive month in August, according to China’s National Bureau of Statistics. Meanwhile, the country’s services sector also slowed, suggesting consumers held back summer spending. The government’s recent stimulus measures have yet to jumpstart the sluggish economy, weighing on copper prices and demand. (Source: Bloomberg)

The search for copper in formerly underutilized regions continues. China-based Zijin Mining Group Co, which opened the Cukaru Peki copper and gold mine in eastern Serbia about two years ago, is exploring plans to further expand the operation, according to Serbian officials. Zijin has already invested about $678 million into the project, and the next phase will be $3.5 billion to $3.8 billion. The mine produced 111,000 mt of copper last year, according to Zijin. (Sources: Zijin Mining Group, Bloomberg)

Continuing on underutilized regions, the sale of Zambia’s state-owned Mopani Copper Mines (ZCCM), which has experienced many production and financial problems, is dragging on longer than expected, as the government hoped to find a buyer by the end of July. On Tuesday, Sibanye Stillwater, a prominent South African precious metals producer, stated it is still “in the hunt” for ZCCM despite the prolonged sale process. Sibanye Stillwater has recently expanded its portfolio to include nickel and lithium assets in Europe and the US. (Source: Reuters)

Zambia’s northern neighbor, the Democratic Republic of Congo (DRC), a large and growing copper and cobalt producer, is seeking to regain control of large projects sold off in recent years. According to the DRC, Eurasian Resources Group (REG), a Kazakhstan-backed miner with dozens of mining and exploration permits in the DRC, has been slow to develop numerous projects. Neither side has formally announced any bids or offers or what assets could exchange hands. The DRC is the world’s largest cobalt producer, with nearly 70% of global production. It is also now tied for second place with Peru in copper production. (Source: Bloomberg, USGS)

Steel

Argus’s weekly domestic HRC Midwest price assessment fell again this week. It stands at $750/st, down $10/st compared to last week, and has fallen nearly 38% since the April peak of $1,200/st. Falling demand continues to suppress prices, while a looming auto workers' strike could further cripple demand, some in the steel industry fear. (Source: Argus)

A possible autoworkers strike next month could lead to a significant amount of steel being sold onto the spot market, Argus proclaimed late last week. Wolfe Research recently stated that up to 90,000 short tons/month of steel demand could be lost if a strike occurs. The looming strike and its market implications were a hot topic at last week's SMU Steel Summitt. (Source: Argus)

US Steel is reviewing several buyout offers and has signed several confidentiality agreements, the company told its shareholders earlier this week. Although there have been several suitors, Cleveland-Cliffs, a rival steel producer, is the apparent front-runner to buy out US Steel. The current bidding war over US Steel stems from the company's recent poor financial performance due to falling revenues while energy and raw material costs increased. (Source: Bloomberg)

Finally, Mexico hiked its tariff on imports of steel and aluminum products earlier this month. Specifically for steel, the government raised the tariff on most products to 25%, up from 15% previously. This will likely slightly impact South Korea’s steel exports to Mexico, according to the Korea Iron and Steel Association (KOSA). This is mainly because 85% of Mexico’s steel exports cannot be tariffed due to the Mexican government's Program of Sectoral Promotion (Prosec). In 2022 South Korea exported 2 million mt of steel products to Mexico. (Source: Argus)

LME Aluminum

LME Aluminum 3M settled at $2,237/mt, up $86.5/mt on the week.

Aluminum prices were up this week. This has caused the futures forward curve to shift vertically higher by approximately $90/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.

Midwest Premium

Prompt month CME MWP last traded/settled at 20.4¢/lb this week.

The CME Midwest Premium market is now in a slight contango from the September ‘23 contract on forward. The CME Midwest Premium swap market is thinly traded, with no options market. Hedging in this thinly traded market is challenging, so we recommend using limit orders. Please get in touch with AEGIS for specific strategies that fit your operations.

* Please note all these charts are for desktop only. *

LME Copper

LME Copper 3M settled at $8,500.5/mt, up $145/mt on the week.

Compared to last Friday, LME Copper's forward curve has risen vertically by approximately $155/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.

LME Nickel

LME Nickel 3M settled at $21,085/mt, up $290/mt on the week.

As prices were up this week, nickel’s forward curve has also shifted vertically higher by about $300/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.

CME Hot Rolled Coil (HRC) Steel

Prompt month HRC Steel last traded/settled at $718/T, down $9/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.