Palladium is the New Gold

After surging more than 50% in the last four months, palladium — that previously little-discussed Platinum Group Metal (PGM) — reached $1,255.12/ounce, surpassing gold for the first time in 16 years last week, according to The New York Times. Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook Driven by both...

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Where is the Next Economic Crisis Coming From?

Be assured there will be a next crisis — there always is, sooner or later. It is the nature of economic cycles that markets get out of balance and have to readjust. That sounds like rather a benign process, but of course we all know there is plenty of pain and many casualties when it...

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This Morning in Metals: Chinese Aluminum Demand to Outpace GDP, Chinalco Chairman Says

This morning in metals news, the chairman of Chinalco says Chinese aluminum demand growth will stay ahead of the country’s GDP, a hedge fund is suing Barclays for over $850 million related to copper trading losses and a Chinese investor is placing big bets on copper. Benchmark Your Current Metal Price by Grade, Shape and...

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The Rise of Automated Trading

Have you ever tracked a metal price and watched it peak or trough for no obvious reason? Or read of some fundamental development in the supply or demand landscape for the metal, only for the price to behave in some unexpected way? Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it...

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Commodity Markets, Optimism on the Wane

It won’t have escaped your notice that the shine has gone off the metals market. Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up Prices have been softening across not just metals but other commodities, like oil, too. Consumers, of course, will not be complaining, but are nevertheless keen...

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Aluminum Prices’ Steady Upward Trend: Can it Go Higher?

The London Metal Exchange aluminum price has risen steadily since this time last year and seemed at times like it may hit, if not breach, $2,000 per metric ton. Many consumers are asking how much further does it have to go? will it break that psychologically important barrier anytime soon? and if it does, how much further does it have to go?

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To understand this, we should consider what has caused price strength in recent months and that you will not be surprised to hear is easy to list, but harder to judge to what extent each factor has had an impact.

Why is Aluminum Up?

First, there are general commodity category price drivers, nearly all base metals have shown price strength over the period as industrial demand has remained positive and surplus supply markets have either tightened or gone into outright deficit. In the case of aluminum, there are several indicators suggesting the market deficit has increased over the last 12 months. Physical delivery premiums have increased not just in Asia, but in the U.S. with the Midwest premium currently trading just below ten cents per pound on the CME Group exchange, up from six cents per pound in the third quarter of last year. Japanese physical delivery premiums have been agreed at $128 per metric ton for the second quarter up from $95 per ton for the first quarter.

[caption id="attachment_84099" align="alignnone" width="498"] Source: Reuters[/caption]

Meanwhile, LME inventory continues to decline with almost 400,000 mt electing to leave the system in February alone. Now it must be said that not all this metal is destined for consumption, as Andy Home in a recent Reuters article points out, the majority of metal leaving the LME system is almost certainly heading to off-market lower cost storage options.

However, the article does quote commodity consultant CRU Group who estimate that the supply deficit outside of China increased from 194,000 mt in 2015 to 821,000 mt last year. They are expecting it to balloon further to almost 1.3 million mt this year. All of which suggests that while the fall in LME inventories may not be a good guide of industrial consumption or the true state of supply and demand, the physical delivery premiums probably are and support the gradually tightening market hypothesis

Arguably though, price strength in the last three-to-six months has had more to do with expectation than reality. China’s robust implementation of its environmental clean-up act has been impressive, with periodic smelter inspections and considerable state pressure being brought to bear to close plants not meet environmental standards.

Declarations of intent to close capacity next winter, not just of aluminum but of coke anode plants and alumina refining has set expectations that a market estimated by CRU inside China as being in slight deficit last year could remain in deficit this year, causing supply to tighten further. It is probably that expectation more than anything that is supporting prices.

The global aluminum market is in deficit, to what extent is almost impossible to judge with any degree of accuracy, but probably less than many estimate. That would cause many other commodities to continue to rise but the aluminum market has the 800-lb gorilla in the room, some 5+million mt of stock and finance trade inventory held in medium-term storage.

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How quickly that metal makes its way onto the market will be a function of the LME price and of the spot-to-term financing spreads. Its presence, though, encourages most to accept there is an upper limit to the price, unless fundamentals change that $2,000/mt barrier will likely prove just that this year. Falls back into the low 1,800s represent a buying opportunity, but current prices in the mid 1950s are proving resistant.

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Commodities and Industrial Metals Outlook, Why are They Diverging?

Commodities and industrial metals have always moved in tandem. However, things have changed over the past few months. Industrial metals continue to rise in price while commodity indexes struggle to hit new ground.

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What's up with that?

[caption id="attachment_84044" align="aligncenter" width="550"] CRB commodity index (in orange) vs DBB industrial metals index (in black). Source: MetalMiner analysis of @Stockcharts.com data. [/caption]

Two things have caused industrial metals to outperform the rest of commodity groups (agriculture, energy, etc) this year:

First, in November industrial metals got a boost as Donald Trump won the U.S. presidential election and his republican party kept control of both houses of the Congress. Investors now hope that a Trump-led GOP government will boost domestic infrastructure, which could be a boon for industrial metals demand. In addition, the new president has stated he is willing to institute more measures to protect domestic producers.

China's Pollution Performance

Second, and more importantly in my opinion, Industrial metals have been benefiting from a tailwind since January when China’s pollution problems got worse and authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. Steel and aluminum are leading this year's rally. This is because these two are the most energy-intensive metals and China has shown a commitment to cut output.

[caption id="attachment_84048" align="aligncenter" width="550"] 3-Month LME aluminum prices accelerate as China begins its pollution crackdown. Source: LME data.[/caption]

China said it will enforce a shutdown of about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi over the winter season, which runs from the middle of November through the middle of March, putting at risk about 1.3 million metric tons of production.

[caption id="attachment_84049" align="aligncenter" width="550"] Steel plate rising sharply this year. source: LME data.
[/caption]

The country has also pledged to eliminate all production of low-quality steel by the end of June and last month, China got specific about where that part will come from when the northeastern Chinese province of Liaoning promised to close more than 10 million mt of low-grade steel capacity over the next three months. In addition to the low-grade cuts, China also ordered steel producers in 28 cities to slash output during winter.

Commodity Prices Weaken

[caption id="attachment_84052" align="aligncenter" width="550"] CRB commodity index struggles to resume bull market. Source: @Stockcharts.com.[/caption]

Industrial metals are in a bull market, there is no question about that. I've been bullish on industrial metals since we called bottom in Q2 of 2016. However, at the same time I'm a bit doubtful about its sustainability.

Investors have been focusing on the supply side this year and they've found reasons to pour money into the industrial metals complex. But, I'm not sure about for how long investors will be lured by this narrative of supply shortfall. Commodity prices have been rage-bound for the past 10 months and they seem to be having a hard time making new headway. That's a sign of sluggish global demand.

What This Means For Metal Buyers

Industrial buyers should continue to expect higher metal prices throughout the year. However, a healthy bull market in base metals should be accompanied by a bull market in other commodity markets. That's not completely the case right now. We will continue to monitor the performance of commodity markets closely. A break above the resistance line (see chart above) will be quite bullish for metal prices. On the other hand, further weakness in commodity markets could put an end on the industrial metals' bull run.

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Oil Prices: So Long OPEC, American Gas and Oil Exploration — North and South — is Expanding

The Organization of Petroleum Exporting Countries in general, and Saudi Arabia in particular, have done the U.S. oil industry a massive favor, and they are probably ruing the day they tried to squeeze America’s shale industry out of existence.

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The collapse in oil prices that ensued after Saudi Arabia-led OPEC opened the spigots two years ago forced American companies, and their many subcontractors, to innovate in a way that would never have happened so fast or gone so far without the imminent threat of survival forcing the pace.

Oil Prices Allow Reopening of Old Wells

Now, U.S. shale producers have achieved economies of scale that allow them to return to previously closed wells in fields like Eagle Ford and achieve 30% returns even at $40 a barrel. U.S. explorers may be making hay in the domestic market, but huge potential exists for these same firms to take their technology abroad.

An OilPrice.com post describes how oil majors are drawing on their experience in the U.S. tight oil market to open up vast fields in South America. Even legally strapped ,Argentina foreign investors are doing the unthinkable and being lured back in by the opportunities.

The hottest play currently, the article says, is Chevron/YPF’s Loma Campana, which is ramping up production steadily and will peak around 2025 with production reaching annual volumes of 2.5 million of oil and 1 billion cubic meters of natural gas. The largest shale development in Latin America, with reserves of 8.7 trillion cubic meters of gas and 16 billion barrels of oil, is Argentina’s Vaca Muerta formation in Neuquén Province but development has been delayed by poor politics.

Argentina holds the largest reserves in South America. In June 2013, the Energy Information Administration estimated that Argentina held 802 trillion cubic feet of recoverable shale gas reserves, the third largest in the world, and 27 billion barrels of oil. The failure to exploit them in the past is laid at the door of Argentina’s erratic former president, Cristina Fernandez, whose exit in December 2015 allowed many to hope the energy market would be put on a more stable footing and investment could resume.

South America Steps Forward

Argentina could be self-sufficient in oil and gas if it gets its act together. Larger neighbor Brazil appears, so far, not to be as well endowed with tight oil and gas as Argentina, but still boasts some 245 trillion cubic feet of wet shale gas and 5.3 billion barrels of oil, while Mexico is comparable to the U.S. and Canada if only national producer Pemex could access the funds and technical expertise to open up its reserves.

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It was assumed that Europe and China would be the next to benefit from tight oil fracking technology after the U.S., but lack of expertise and complex geology in China, and lack of will and complex politics in Europe, have deprived both energy-hungry markets from exploiting their tight oil resources. It would seem American expertise and American money are going to be the driving force behind exploitation of tight oil and gas resources for years to come and the Americas, north and south, are where the action is going to be. So long, OPEC.

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Architecture Billings Back Up in February; Intercontinental Exchange Delays Clearing for London Gold Price Benchmark

The Architecture Billings Index returned to growth mode in February, after a weak showing in January. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the February ABI score was 50.7, up from a score of 49.5 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings).

ICE Delays London Gold Price Benchmark

Intercontinental Exchange (ICE) has delayed the launch of clearing for London's benchmark gold price because not all participants in the auction will be ready, two sources involved in the process told Reuters on Tuesday. The delay could weaken its bid to become the dominant exchange in London's $5 trillion-a-year bullion market, sources say.

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Obama-Era Auto Emissions Standards Will be Reviewed; Fed Hikes Interest Rates

The leaders of the Environmental Protection Agency and Department of Transportation said today that they will revisit Obama-era corporate average fuel economy standards on greenhouse gas emissions for 2022 to 2025 model cars and light trucks, a win for automakers that said the standards were too tough to meet.

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President Donald Trump, speaking at the American Center for Mobility in Ypsilanti, Mich., went even further saying his administration would cancel Obama's executive order establishing the standards outright.

“Today I am announcing we are going to cancel that executive action," President Trump said. "We are going to restore the originally scheduled midterm review and we are going to ensure any regulations we have protect and defend your jobs, your factories. We’re going to be fair."

The American Iron & Steel Institute, the largest industry association of steelmakers, which count themselves as important members of the automotive supply chain, praised the action.

“AISI is pleased the Administration has withdrawn the final determination of the EPA Light Duty Vehicle Emission Standards issued in January," said Thomas J. Gibson, president and CEO of AISI in a statement. "As a key materials solutions provider, we look forward to a dialogue between EPA, National Highway Traffic Safety Administration, California Air Resources Board, auto manufacturers and other relevant stakeholders on the mid-term evaluation."

The CARB's inclusion is notable as California has said it will go forward with state emissions standards that are more stringent than the federal government's, no matter if the federal CAFE standards are changed or not.

Federal Reserve Raises Interest Rates

For the first time this year, the Federal Reserve raised interest rates one quarter point to a range of .75% to 1%, a widely expected move following strengthening economic reports and signals from Fed officials.

After its two-day policy meeting, the Federal Open Market Committee voted to raise the range of the federal funds rate to 0.75% and 1.00%, citing progress in labor market growth, business fixed investment and inflation.

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“In view of realized and expected labor market conditions and inflation, the Committee decided to raise…the fed funds rate,” the central bank wrote in its statement.

One member of the committee, Minneapolis Fed President Neel Kashkari, voted against the decision, preferring to keep the federal funds rate between 0.50% to 0.75%. Kashkari is a new voting member of the FOMC this year.

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Another Copper Strike Sets the Case For a Price Rally

If I was a copper miner, I would be rubbing my hands because copper prices are looking healthy as a horse.

Supply Disruptions

Workers at Cerro Verde mine in Peru put down there tools on Friday, halting output of 40,000 metric tons per month in a dispute over labor conditions (here's a video interview and analysis I did about it for Swiss Financial Television). The strike stretched into its fourth day yesterday after a meeting between the union and management failed to resolve it on Monday. The mine is currently making about half as much copper as it normally does, because owner Freeport-McMoran hired contract workers to operate key areas.

Benchmark Your Current Copper Price by Grade, Shape and Alloy: See How it Stacks Up

The action adds to disruptions at the world's two largest copper mines, Escondida in Chile and Grasberg in Indonesia, which are losing production daily due to a strike and an export ban respectively.

The Technical Picture

[caption id="attachment_83818" align="aligncenter" width="500"] Three-month London Metal Exchange copper. Source:MetalMiner analysis of fastmarkets.com data.[/caption]

The technical picture is important because it tells a lot about what buyers and sellers are doing. Copper rose nearly 30% in November. Usually, after such a huge run it’s normal to see some selling but we haven’t really seen that yet.

Two-Month Trial: Metal Buying Outlook

Since November, prices are holding pretty well and that’s a sign that bulls are still in control. A sharp price decline in oil prices last week would normally bring other commodities down but copper held its ground well. The red metal continues to make higher highs and higher lows, a textbook definition of a healthy uptrend.

What This Means For Metal Buyers

The diagnosis is that while copper's bull market doesn't show real signs of weakness, we continue to expect further upside moves. Buyers should keep an eye on the ongoing supply disruptions because they could hurt your budget.

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Lithium Fever: Are Skyrocketing Prices Set to be The Latest Bubble?

After rising aggressively, some would argue that lithium prices have already peaked.

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Reuters quotes Paul Robinson, director at consultancy CRU Group saying that prices have little upside because demand growth has been met with aggressive supply build up, similar to rare earths and vanadium in past cycles. Even though demand is projected to soar 60% to 300,000 metric tons of lithium carbonate equivalent (LCE) annually by 2020, the newspaper quotes a National Bank Financial report saying new players could flood the market.

Strong Demand is Company, 60% Growth is a Crowd

"It's crowded, no doubt about it, and it will get culled," said Jon Hykawy, president of Stormcrow Capital, calling lithium, the "latest bubble sector."

An indication of extent to which lithium fever has gripped investors and junior miners is illustrated in a Bloomberg article which reports that in the wake of President Mauricio Macri's decision to remove currency and capital controls and taxes introduced by his predecessors, about 40 foreign companies began to consider opportunities in Argentina’s mining industry. More than half of those planning to mine lithium.

The country may be about to flood the market with lithium the newspaper reports and while not all the projects are likely to go ahead, if they did output would reach 165,000 tons/yr or about 45% of predicted global supply by 2021, according to government projections. Currently global supply is just 185,000 metric tons, illustrating the rate at which demand is expected to rise.

Beware Lithium Fever... Just like Pac-Man Fever Before It!

Much of the enthusiasm for investment in more lithium production is fueled by a belief electric vehicle battery demand is about to take off.

[caption id="attachment_83669" align="alignnone" width="300"] Source: Bloomberg News.[/caption]

Taken in addition to new projects being planned in Chile, the U.S., Australia and elsewhere and that surge of new supply becomes a torrent, potentially leading to a collapse in prices.

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While lower lithium prices would be good for battery costs, too much of a fall would be bad for the industry. What it needs is stability to encourage responsible and well-funded investment for the long term, not boom and bust

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Africa Vies to be a Rare Earths Player, Create a Rival for Dominant China

Rainbow Rare Earths, which owns a rare earths mining project in Burundi, was listed on the London Stock Exchange at the end of January, according to the Financial Times. This has prompted speculation in mining and trading circles that China’s dominance may finally be challenged. We're not holding our breaths, and China likely isn't either, but it wouldn't be the first time that the abundance of resources in Africa had been underestimated.

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The U.S. Geological Survey said in 2015 that China's annual production of the key battery, magnet and conductor elements was slightly more than 100,000 metric tons. Australia came in second with 10,000 mt. Only three other countries produce more that 1,000 mt of rare earths a year. The US produced 4,100 mt but that's sure to go down after the 2016 closure of the Mountain Pass mine, Russia produced 2,500 and Thailand checked in with a respectable 1,100 mt contribution to the production of cell phones, military hardware and wind turbines.

The FT points out that despite China’s dominant market position in refined exports, the same is not true of rare earth deposits. It's estimated that China has no more than 30% of global deposits of the quite abundant, despite their name, elements. The problem that all new rare earths projects run into is the cost of bringing new deposits into production and the ability of one country with such a dominant position to flood the market and bring down prices, hitting the viability of new projects.

What's Left of China's Previous Challengers

Remember what happened to Molycorp, Inc. and how the Japanese threw a lifeline to Australia's Lynas Corp.? Yet, the fact that Lynas is still trudging along and investment is still being made by a Japanese government and industrial culture that wants nothing to do with China's rare earths industry may, paradoxically, be what sets Africa apart and its low-cost resource sector apart from others who have taken on the dragon.

Japan was de facto banned by the Chinese government from receiving any shipments of rare earths back in 2011 after the Japanese Navy detained a China fishing trawler captain. Since then, Japanese industry has not only aggressively replaced rare earths in its supply chains, depriving China of customers, but also supported Lynas and other non-Chinese manufacturers even to the point of keeping them in business. There is little doubt that both public and private Japanese money would automatically flow into African projects if significant deposits of rare earths are found.

Grudge Match

That China has lifted export quotas and prices have fallen to a low range means little to nothing to Japanese businessmen and women who remember having their supply chains cut off in 2011.

According to the FT, it is widely acknowledged that, outside North America and Australia, southern and eastern Africa offer the greatest potential for rare earth production, especially in South Africa, Tanzania, Malawi, Mozambique, Kenya, Burundi, Zambia and Namibia.

Rainbow Rare Earths’ IPO is premised on its Gakara project in Burundi. The project is not yet producing and further exploration will be needed. The risks described in the IPO prospectus are a reminder of the difficulties of developing such projects, including pricing and environmental challenges and the need to produce ore at the required levels of concentration.

Rainbow raised $9.77 million (₤8 million) at its IPO.

The Rare Earths MMI broke eight straight months of flat performance and increased 1 point (5.9%) to 18 this month.

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CME Group/Reuters Will Leave LBMA Silver Price; Philippines Considers Ore Export Ban

CME Group and Thomson Reuters will step down from providing the LBMA silver price benchmark auction, the London Bullion Market Association said on Friday, less than three years after they successfully bid to provide the process.

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"In consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction," the LBMA said in a members update seen by Reuters.

The two will continue to operate and administer the silver auction until a new provider is appointed, the LBMA said. It will launch a new tender to appoint an alternative provider to operate the process "shortly", it said.

"We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn," an LBMA spokesman said.

The two companies launched the LBMA silver price in August 2014 to replace the telephone-based London silver "fix," which had been in operation for more than a century, with an electronic, auction-based and auditable alternative.

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CME Group provides the electronic auction platform for the benchmark, while Thomson Reuters is responsible for administration and governance. The LBMA owns the intellectual property rights.

Philippines Might Consider Indonesia-Style Ore Export Ban

The Philippines may consider banning exports of raw minerals to encourage domestic processing and boost the value of shipments, an environment official said on Friday, as the government looks to extract more from its mining sector after a crackdown.

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Why Most Analysts’ 2017 Copper Price Forecasts are Wrong

Copper prices are trading near $6,000 per metric ton, up 30% from just four months ago. Things can change quickly and I don't know where prices will be by the end of the year, but what's clear to me is that most analysts' forecasts seem way off. According to a recent survey polled by Reuters, copper analysts are are expecting prices to average $5,350/mt this year.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In my opinion, this is a very conservative price average and quite bearish due to what Behavioral finance calls “anchoring,” the human tendency to attach or “anchor,” our thoughts to a reference point even when it makes no logical sense. Analysts see that copper prices have risen significantly and quickly, so they anchor the new price of $6,000/mt onto the $4,500/mt level where prices were trading at just a few months ago. This creates the idea that $6,000/mt is an expensive price for copper and, for this reason, you will almost see no one but me calling for an average above $6,000/mt this year.

Most of the time, how high the metal was trading earlier is irrelevant when there has been a change in the metal’s underlying fundamentals. There are many things that affect the price of a metal, but at the end it all comes down to three things: Demand, supply and investors' sentiment. All these are looking much more bullish for copper compared to last year.

Demand for copper has improved as China. Once again, increased infrastructure and property construction spending last year has boosted the metal there. An increase in infrastructure spending is also expected in the U.S. This boost in demand for metals has translated into price increases for all industrial metals. When investors are bullish on industrial metals that creates a tailwind to any individual metal as investors tend to overreact on bullish news while dismissing bearish news.

In addition, we are witnessing an increase in raw material prices. Oil prices have nearly doubled since this time last year. Higher energy prices increase the cost of producing metals (especially those energy-intensive ones like aluminum) and boost investor appetite for industrial metals.

In addition to this more bullish macro-environment, copper is also developing a bullish narrative of supply short-fall. The copper supply has been hit due to issues at BHP Billiton’s Escondida mine and Freeport-McMoRan’s Grasberg mine.

A strike at Escondida in Chile, the world's largest copper mine, appeared far from ending this week as the conflict neared its third week, with the union denying a news report that it had returned to talks with the mining company. The mine produced about 5% of the world's copper in 2016.

Freeport-McMoRan is barred from exporting copper ore from Grasberg in Indonesia. To make things worse, the company started started talking about adjusting its mining rates and seems headed for arbitration with the government.

There will be other temporary suspensions at smaller copper mines such at El Soldado mine in Chile. In addition, some major contract negotiations in large mines are due this year.

What This Means For Metal Buyers

Copper prices might look expensive compared to what they were just three months ago, however that rally might just be the beginning of a bigger move. Sentiment in the industrial metal complex remains quite bullish and current supply issues could turn into large deficits if stoppages and disruptions are prolonged, building the case for new rallies in copper prices. Analysts price forecasts are looking quite conservative.

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from Investing Hedging – Steel, Aluminum, Copper, Stainless, Rare Earth, Metal Prices, Forecasting | MetalMiner https://agmetalminer.com/2017/03/01/why-most-analysts-2017-copper-price-forecasts-are-wrong/

The London Metal Exchange’s New Steel Scrap Contract Comes of Age

The London Metal Exchange steel scrap contract is coming of age much more rapidly than the old steel billet contract did. Unlike its older sibling, the steel scrap contract has the prospect of becoming a meaningful and valuable tool both for the trade but also for analysts and financial players. MetalMiner Benchmarking: Click Here for...

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McConnell Says Trump-Backed Infrastructure Bill Could Come Soon

Leading Republican lawmakers said over the weekend proposals for a new Trump-administration-backed infrastructure bill could be introduced as early as the coming weeks.

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Senate Majority Leader Mitch McConnell (R. Ky.) told reporters he expects to receive "some kind of recommendation on an infrastructure bill, a subject that we frequently handle on a bipartisan basis," but gave no details or timing.

He has previously voiced concern over adding to budget deficits with a new injection of federal funds for road, bridge and other construction projects like the ones President Barack Obama secured from Congress in 2009, especially after a major highway funding law was enacted about a year ago.

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During the campaign, Trump said he would push for a $1 trillion infrastructure program to rebuild roads, bridges, airports and other public works projects. He said he wanted action during the first 100 days of his administration, which now seems unlikely.

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3 Reasons Why Aluminum Prices Will Rise in 2017

Global aluminum demand is more robust than most expected. Chinese stimulus measures boosted demand for aluminum in the auto and real estate industries. In addition, the U.S. is expected to demand more aluminum amid Donald Trump's plans to inject one trillion dollars in U.S. infrastructure.

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Strong demand is supportive for aluminum prices this year. However, in this piece we are going to focus on the supply side. We believe three factors are going to disrupt global aluminum supply. As a result, we'll see higher aluminum prices this year:

[caption id="attachment_82825" align="alignnone" width="338"] Graphic: Raul de Frutos, MetalMiner.[/caption]

Trade Barriers

Last week, U.S. customs officials seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world. The move is the most potent action yet by federal authorities probing whether U.S. companies connected to Chinese magnate Liu Zhongtian illegally avoided nearly 400% tariffs by routing the metal through other countries. Currently, Homeland Security is conducting laboratory tests on the aluminum to determine whether the metal is restricted under U.S. law.

Amid Donald Trump's pro-American policies, driven by what he sees as the U.S. losing to China in terms of trade, this new complaint may heighten trade-related tensions between the two countries. Higher trade barriers can turn into supply supply disruptions as international producers lose profitability in their export business. We believe aluminum exporters, particularly in China, will have to cut production as they lose business.

[caption id="attachment_82826" align="aligncenter" width="500"] Aluminum prices hit a 20-month high. Source: MetalMiner analysis of fastmarkets.com data.[/caption]

We've previously reported that the aluminum stockpile debate would have bullish repercussions on aluminum prices. Aluminum investors seem to agree with us. Aluminum prices recently hit a 20-month high following the news that the aluminum stockpile was seized.

Pollution in China

Another disruptive factor to the global aluminum supply chain is the ongoing pollution problems in China. For years, Chinese cities have been choking on the smog spewing from China’s industrial production sector but things have recently gotten much worse. Last month, authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. The scale of the red alert measure shows that the Chinese government is taking air pollution seriously. Given that coal burning is the biggest contributor to air pollution in China, industrial metals supply could shrink this year, particularly steel and aluminum.

Rising Raw Material Costs

One of the factors supporting higher aluminum prices has been that there were fewer smelter restarts than expected smelter in China. In 2017, the increase in production costs will limit additional restarts.

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First, alumina seems headed for a supply deficit this year following Chinese curtailments. Second, coal prices have surged since China reduced the hours for workers in its coal sector, supposedly in a bid to control pollution and curtail its excess industrial capacity. Truth be told, though, China really relaxed the mining day norm simply to control skyrocketing — some would say artificially high — prices. However, we expect the maneuvers will keep China’s supply of coal and aluminum in check this year.

What This Means For Aluminum Prices

We've been calling for higher aluminum prices for months. The reasons to expect higher prices continue to pile up. Aluminum prices rising back to $2,000/metric ton as more aluminum buyers should minimize their price risk exposure if they haven’t done it yet.

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from Investing Hedging – Steel, Aluminum, Copper, Stainless, Rare Earth, Metal Prices, Forecasting | MetalMiner https://agmetalminer.com/2017/01/17/3-reasons-why-aluminum-prices-will-rise-in-2017/

Will Aluminum Experience More of the Same Investor Behavior in 2017?

Most aluminum consumers seem quite content with the range-bound behavior of the light metal over recent months.

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Aluminum on the London Metal Exchange has been trading broadly between $1,700 and $1,750 per metric ton for much of the fourth quarter. Maybe not to the same extent as copper or zinc, but aluminum along with most of the base-metal sector benefited from renewed investor interest as 2016 went on. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017.

Fund net longs tripled during 2016, confirming that aluminum is back in fashion among the investor community. Chartists, however, are calling a more cautious note with Reuters technical review suggesting wave patterns are indicating price falls this quarter to below $1,600 per mt.

[caption id="attachment_82791" align="alignnone" width="558"] Source: Reuters[/caption]

That is quite a brave call when you look at the upward trend aluminum has followed since the fourth quarter of 2015, and when you set it against the relatively positive global economic backdrop for industrial metals in general.

Still, Reuters is not alone in urging caution. This week FastMarkets posted a note highlighting recent deliveries into LME warehouses and suggested price direction will be heavily influenced over the next few months by whether forward spreads will allow the stock and finance trade to roll positions. If tight spreads and possibly firmer interest rates do not allow the metal to remain locked up in stock and finance deals, it could have a negative impact on metal prices in the weeks and months ahead.

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Industrial supply and demand fundamentals remain broadly supportive for aluminum at current levels, so it will be of more than academic interest to see whether the charts have called a turn early or whether, in light of price movements over the next three to six weeks, chartists reread the patterns and adjust their predictions later in the quarter. Our own analysts are also supportive of a higher aluminum price this year, possibly seeing $2,000 per mt before year end. Watch this space.

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from Investing Hedging – Steel, Aluminum, Copper, Stainless, Rare Earth, Metal Prices, Forecasting | MetalMiner https://agmetalminer.com/2017/01/12/will-aluminum-experience-more-of-the-same-investor-behavior-in-2017/

Chinese Yuan Falters After Midpoint Set Lowest Since June

The Chinese yuan weakened on Monday afternoon after its midpoint was set at its lowest level in half a year.

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China’s authorities sets the mark 0.87% or 594 points lower than last Friday, the biggest daily decline since late June in 2016. Traders are allowed to trade up to 2% either side of the reference point for the day.

The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, plummeted to 14.05% from last Friday’s 61.33%, down 4,728 points.

The People's Bank of China set the yuan midpoint at 6.9262, a sharp drop for the renminbi compared with Friday's fixing at 6.8668.

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China's central bank does not allow the currency to move more than 2% from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
Onshore, the dollar was fetching as little as 6.8679 yuan last week, compared with 6.9318 yuan at 9:54 a.m. today.

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