Aluminum Chinese primary aluminum smelters produced a record 3.62 million mt last month, according to government data released earlier this week. This is mainly due to steady demand from the renewables sector and historically high profit margins for the country’s smelters. According to CITIC Futures, smelter profits are now approximately $411/mt, three times higher than this time last year. (Source: Reuters) |
An interesting phenomenon has recently taken place in LME aluminum warehouses. Last Friday, on-warrant inventories, meaning the metal is available to trade, jumped by 25,000 mt, but yesterday, on-warrant inventories dropped by 24,000. Nearly all of this occurred in South Korean warehouses. The aluminum in question could be of Russian origin, as the South Korean warehouses are a known repository of Russian metal. Nearly 79% of the aluminum in the LME warehouse system is Russian, according to the LME’s most recent Country of Origin report, out Friday. (Source: LME)
India’s top aluminum producers are sending mixed signals on demand. Late last week, National Aluminium Company (NALCO), a state-owned producer, stated that its profits for the most recent quarter jumped by nearly 50% compared to last year due to the government’s buildout of infrastructure projects. Meanwhile, competitor Hindalco Industries, a private company, proclaimed that its profits were down slightly due to lackluster demand and prices. Hindalco believes that demand will pick up in the current quarter but is also concerned about the impact that surging aluminum imports from China could have on the market. (Source: Reuters) Finally, in a note earlier this week, Goldman Sachs stated they are bullish on commodities for 2024, as fears of a looming recession have decreased, which will cause the Federal Reserve to stop or reverse its interest rate policy. Specifically, regarding aluminum and copper, the bank is bullish on demand and prices. They also stated that decreasing global stocks for aluminum and copper will drive up prices in 2H2024. (Sources: SMM, Reuters) |
Copper The perceived bullishness in China’s aluminum demand doesn’t extend to copper. In a note earlier this week, one of China’s largest metals traders, Shanghai Wooray Metals Group Co, stated it is “not very optimistic about copper prices” for 2024. According to Shanghai Wooray’s estimates, China will add 800,000 mt tons of production capacity, leading to a surplus as supply growth will outpace demand. (Source: Bloomberg) The spot market for copper demand continues to deteriorate. On Thursday, the LME Copper Cash to 3M spread, a good gauge of spot demand, sank to a $98/mt discount, the widest contango since at least 1994. This spread has fallen over $90/mt since early September, as the global spot market has all but dried up in late Q3 and early to mid Q4. (Source: Bloomberg) The turmoil for First Quantum Minerals’ Panama copper mine continues. On Monday, the company announced it was reducing mine operations due to an “illegal blockade” at its key shipping port. Throughout 2023, First Quantum’s copper mine has been subject to several protests by indigenous peoples due to environmental and other concerns. Its contract with the Panamanian government has been hotly debated, and Panama’s Supreme Court will soon decide its future. First Quantum’s copper mine is one of the largest and most promising mining projects in recent years and is responsible for about 1.5% of global production. (Source: Bloomberg, USGS) While the fate of First Quantum’s Panamanian copper project will soon be determined by the country’s Supreme Court, Jiangxi Copper, one of China’s top copper producers, has increased its stake in the embattled miner to 18.5%, up from 18.3% previously. Shares of First Quantum have tumbled recently after the Panamanian government proposed canceling its contract with First Quantum due to ongoing civil protests. The court won’t be able to make a ruling until after November 22, they stated late last week. Should the contract be upheld, this could lead to even more Panamanian copper being exported to China. (Please note that due to “poison pill,” which is a strategy that some trading companies use to prevent a hostile takeover, Jiangxi Copper’s stake in First Quantum cannot exceed 20%). (Source: Bloomberg, Reuters) Chinese copper imports, the country’s imports of Chilean refined copper have all but dried in 2023, and the demand picture for 2024 and beyond looks grim, Chile’s state-owned copper miner, Codelco, reiterated at a conference earlier this week. This is mainly due to China ramping up its domestic smelter production, which will reduce its reliance on imports of refined copper. As Bloomberg recently stated, “Codelco’s copper sales to China have traditionally been a benchmark for the entire market, with the company’s annual negotiations over prices and volumes a key indicator of sentiment.” (Source: Bloomberg) |
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Steel Physical steel prices in the US have (temporarily) stalled. At $900/T, Argus’s most recent Midwest HRC price assessment was flat this week after one month of continuous weekly gains. Argus did not cite a specific reason for the price stall but did note that many large-volume contracts have been done in recent weeks at lower prices than current. They also suggested that some buyers are looking into cheaper imports. (Source: Argus) As physical steel prices and demand have spiked in recent weeks, so has steel profitability. The spread between CME HRC Steel and CME MW Busheling Fe Scrap, generally considered a gauge of steel mill profitability, spiked to $500/T last week, the highest level since late June. Although prices have fallen slightly this week, mill profitability is still well off the lows of late October. (Source: CME) |
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Weak manufacturing sectors throughout Europe continue to undermine the continent’s steel industry. Over the weekend, Tata Steel, one of the world’s largest steel producers, stated it will soon cut 800 jobs due to the region’s poor steel market. “The steel market has been in dire straits for some time…. Despite all efforts by Tata Steel to improve its market position and reduce costs, more needs to be done,” they proclaimed. (Source: Steel Times International) US and EU officials remain deadlocked on a permanent solution for the Global Arrangement on Sustainable Steel and Aluminum (GSA). The current tariff suspension will expire on December 31, 2023, unless the US and EU come up with a last-minute solution. According to Bloomberg, officials are working on a solution that will only last two years. In 2017, the Trump administration implemented a 10% import tariff on EU-produced aluminum and 25% on EU steel, citing national security. The tariffs were suspended in January 2022 and replaced with a tariff rate quota system. (Source: Bloomberg) |
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LME Aluminum |
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LME Aluminum 3M settled at $2,207/mt, down $8/mt on the week. Aluminum prices were down this week. This has caused the futures forward curve to shift vertically lower by approximately $10/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 18.9¢/lb this week. The CME Midwest Premium market is now in a contango from the November ‘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. * |
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LME Copper |
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LME Copper 3M settled at $8,267/mt, up $231.5/mt on the week. Compared to last Friday, LME Copper's forward curve has risen vertically by approximately $230/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 on their risk tolerance, consumers might consider strategies that use only swaps, 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 $16,904/mt, down $353/mt on the week. As prices were down this week, nickel’s forward curve has also shifted vertically lower by about $350/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 $890/T, down $3/T on the week. Steel mill profit margins have improved dramatically since early September. The CME HRC Steel – CME MW Busheling Fe Scrap spread, which is generally used as a gauge for steel mill profitability, is now approximately $450/st, up from about $320/st on September 1. Even though CME MW Busheling Fe Scrap prices have risen slightly, this improvement in steel mill profitability is because HRC steel has rallied more than busheling scrap. Since steel prices have significantly recently, mills should consider hedging production and raw material usage for late 2023 and early 2024. For most steel producers, this would consist of buying CME MW Busheling Scrap swaps and selling CME HRC swaps. Options are available for CME HRC, but they are relatively illiquid. Please get in touch with AEGIS for specific strategies that fit your operations. |
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AEGIS Insights |
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11/17/2023: Aluminum and Copper End-Users Should Hedge As Inflation Eases 11/15/2023: AEGIS Factor Matrices: Most important variables affecting metals prices 10/17/2023: Important US Economic Data (AEGIS Reference) 09/28/2023: Aluminum Buyers Should Hedge Alongside Chinese Importers 09/08/2023: Despite Price Slump, Hedging is Still Feasible for Steel Producers 08/25/2023: Growing Secondary Aluminum Supply Could Further Weigh on Prices |
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Notable News |
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11/17/2023: Autoworkers approve GM labor contract 11/15/2023: US steelmakers set for strong start to 2024 as UAW strike fuels price gains 11/14/2023: US HRC: Mills fail to increase sales price 11/13/2023: Tata Steel's IJmuiden plant faces 800 job cuts 11/13/2023: Glencore to take steps towards restart of Nordenham zinc smelter -sources 11/13/2023: Goldman Sachs forecasts higher returns on commodities 11/13/2023: Iron ore defies commodity gloom amid China property hopes 11/13/2023: Workers at Ford, GM plants reject labor deal |