Market Insights > Metals

Base Metals Dashboard - Week Ending September 29, 2023

September 29, 2023 | Chris Stadele

Aluminum

Russia’s and China’s aluminum industries are further deepening their relationship. On Monday, the China Nonferrous Metals Industry Association (CNIA) signed a memorandum of understanding with the Russian Aluminium Association, according to Bloomberg reports. This agreement will allow the groups to “collaborate more closely on alumina, aluminum fabrication and aluminum products,” according to their joint statement. Russia has recently become one of China’s top alumina and aluminum suppliers. (Source: Bloomberg)

China’s primary aluminum imports spiked in August and could jump again in September while the import arbitrage continues to improve. The spread between spot SHFE and LME prices is generally used to estimate the import arbitrage that Chinese aluminum importers are subjected to. Based on monthly average prices, this spread currently hovers near $446/mt (SHFE over LME), the highest level of 2023. This could suggest that Chinese importers might grab cheaper foreign supplies, and price spreads remain advantageous. (Source: China Customs, SHFE, LME)

At an annualized rate of 71.2 million mt, global aluminum production hit an all-time high last month, according to estimates from the International Aluminum Institute (IAI). China’s primary smelters lead the way, producing 3.6 million mt in August, or about 60% of the globe’s output. As Andy Home of Reuters stated, “It's now clear that China, the world's largest producer, is experiencing a production surge thanks to improved power supply in previously drought-hit parts of the country's hydro-electric system. What's not clear is whether Chinese demand can absorb the new wave of production.” (Sources: IAI, Reuters)

Norsk Hydro, one of Europe’s largest aluminum producers, just signed a power purchase agreement with Alqip, Europe’s largest energy service provider, for renewable-sourced electricity between 2024 and 2032. According to Norsk Hydro’s press release, “Access to renewable power and modern technology enables Hydro to produce aluminium in Norway with a carbon footprint of about 75 percent less than the global average. Long-term power purchase agreements at competitive prices are crucial for Hydro to continue to lead the way in low-carbon aluminium globally.” The electricity prices that European aluminum smelters are subject to have been volatile since late 2021 due in part to restrained natural gas flows from Russia. (Source: Norsk Hydro)

Copper

On Monday, the spread between LME Copper Cash-3M traded to the widest contango since at least 1994 before rebounding slightly through Friday. The spread settled at $70.10/mt contango on Monday, collapsing nearly $65/mt since the US Labor Day holiday. A wide contango such as this suggests that the spot market is well supplied. Also, global demand has been stunted in recent months due to China’s slowing manufacturing and real-estate sectors. (Sources: LME, Bloomberg)

Despite its slumping real estate and manufacturing sectors, China’s copper smelters are producing about 1 million mt of refined copper per month, according to government and Bloomberg data. These smelters are relying more upon foreign-sourced raw copper due to poor investment in China’s copper mining sector. Last month, China imported 2.7 million mt of copper ore and concentrate, about 20% more than in August 2022. Meanwhile, imports of refined copper dropped. (Source: Bloomberg)

Codelco, the Chilean state-owned copper miner and the world’s largest, will meet its obligations despite slumping output, JP Morgan recently stated. In a note earlier this week, JP Morgan stated, “We believe Codelco will be able to meet all of its financial obligations despite the elevated capex budget and operational issues it has faced that has led to reduced production and increased unit costs.” The Chilean government could also increase financial support to Codelco, JP Morgan predicts. The company recently stated that at 1.55 million mt, Codelco’s 2022 copper output fell to a 25-year low due to a myriad of production issues and could slump to approximately 1.31 million mt in 2023. (Source: Reuters)

In neighboring Peru, copper production could finally be on the upswing. At a Peruvian copper mining conference earlier this week, the country’s copper miners expressed their frustrations over the government’s “red tape” that has delayed or held back nearly $57 billion in projects in recent years. Prime Minister Alberto Otarola’s announcement that the government will streamline the permitting process and implement other measures was therefore met with great enthusiasm by conference attendees. Peru is the world’s second-largest copper miner but risks losing that position due to “red tape” and other issues. (Source: Bloomberg)

Steel

Another steel producer has shuttered production due to the autoworkers strike. Starting next month, Brazil’s Gerdau SA will reduce its output of specialty steel at several US-based plants, the company announced on Thursday. This is the second steel plant closure in as many weeks due to the autoworkers strike. Last week, US Steel announced it would temporarily close its Granite City, IL blast furnace in response to the strike. (Sources: Bloomberg, Argus)

The US is Taiwan’s leading ferrous scrap supplier. Through August, the US has shipped 841,277 mt to Taiwan, up by 2.7% compared to last year. Last month, about 41%, or 93,225 mt, came from the US. At 2.27 million mt, Taiwan’s total net ferrous scrap imports from all suppliers are up about 14.8% compared to January-August 2022. (Source: Argus)

Canada’s largest steelmaker, Stelco Holdings, could bid for US Steel, Bloomberg reported late last week. Should the deal go through, this move would increase Stelco's North American assets and give it greater access to the automotive industry. Due in part to shrinking profits, US Steel has been a takeover target in recent months, with ArcelorMittal, Cleveland Cliffs, and Stelco all expressing interest. (Source: Bloomberg)

The US is not the only country or region that has experienced slumping steel demand. Due to falling European steel demand, SSAB, one of Europe's steelmakers, might make further cuts to its Finland-based workforce if trade unions approve. According to Reuters, the potential cuts would affect about 2,400 of its approximately 4,700 employees at the Raahe steel plant, saving about 10 million euros in costs. Last month, SSAB cut staff at two other Finland-based steel plants. (Source: Reuters)

Prices for nickel, a key raw material in stainless steel production, have dropped nearly 38% this year due to falling demand. This slumping demand comes while global production has increased due to new plants in China and Indonesia. Despite the recently poor demand, inventories at LME warehouses remain near 15-year lows. (Sources: Bloomberg, LME)

LME Aluminum

LME Aluminum 3M settled at $2,347/mt, up $106.5/mt on the week.

Aluminum prices were up this week. This has caused the futures forward curve to shift vertically higher by approximately $100/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 19.9¢/lb this week.

The CME Midwest Premium market is now in a slight contango from the October ‘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 $8,270.5/mt, up $48.5/mt on the week.

Compared to last Friday, LME Copper's forward curve has risen vertically by approximately $50/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 $18,694/mt, down $724/mt on the week.

As prices were down this week, nickel’s forward curve has also shifted vertically lower by about $720/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 $703/T, down $26/T on the week.

The spread between CME HRC Steel and CME MW Busheling Scrap is generally used as a proxy for steel mill profitability. This spread currently sits at about $355/st, falling nearly 50% since the mid-April high of $731/st. Despite this significant drop, steel 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.