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Commodities Roundup: U.S. Smelter Restarts, Copper Prices Plunge

06/29/2018 By

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

From price movements to policy decisions, our MetalMiner editors scour the landscape for what matters. This week:

Section 232 and Smelter Restarts

One of the primary promises of the Trump administration vis-à-vis its Section 232 tariffs was that it would lead to the restarting of idled American production (and, thus, jobs for Americans).

So, how is that going? It’s been a bit of a mixed bag (although we are still, of course, in the early stages of this post-Section-232-tariffs world). MetalMiner’s Stuart Burns noted Alcoa is restarting its Warwick smelter in Indiana, which closed in March 2016. According to a media report, Alcoa is reopening three of five smelter lines, leading to an additional 275 jobs.

The effects of the tariffs and the intended goal of restarting American production will have to be revisited in the longer term.

“It would seem the U.S. will never (or not for years) be able to replace the 5 million tons it imports,” Burns wrote. “Rather than generate American jobs, it will simply mean American consumers will have to pay more.”

Indian Iron Ore

Here there is good and bad news.

The good? Iron ore production in the country has hit levels not seen since 2010-2011, the height of the Indian mineral boom, MetalMiner’s Sohrab Darabshaw wrote.

The bad? Conflict between producers and steel plant owners over high prices of ore.

“Take, for instance, the standoff between iron ore producers and steel plant owners in Karnataka over the high prices of the raw material,” Darabshaw wrote. “Miners are said to be contemplating moving the Supreme Court of India to seek permission to export iron ore for lack of buyers.”

LME Copper Plunge

The London copper price caught a supporting wind in late May and early June, which saw the price $7,261.50 as of June 8.

Since then, however, it’s been a different story, to the delight of copper buyers around the world.

The price seemed to stabilize last week, but then again proceeded to fall, all the way to $6,687/mt as of Wednesday, June 26.

Burgeoning trade tension between the U.S. and China has rippled out to touch copper, of which China is the top global consumer. Continuing tensions and a strengthening U.S. dollar, which inversely correlates with copper, would continue to depress the price. 

Global Crude Steel Production Surges in May

Steel producers around the world were busy last month, when the 64 countries reporting to the World Steel Association produced 6.6% more steel than in May 2017.

Notably, according to the World Steel Association’s monthly production report, China posted an 8.9% year-over-year production increase, producing 81.1 million tons. India’s production was up 7.6%.

Brazil’s production, however, was down 8.6% year over year.

Global crude steel capacity utilization compared with May 2017 was up 4.2 percentage points to 77.7% in May 2018.

Interesting Times for LNG

Despite the growth and viability of renewable energy, consumption of liquefied natural gas (LNG) is up in many major markets, Burns explained.

“Markets like South Korea, Japan, Europe and particularly China are increasing LNG consumption as major new LNG facilities come on-stream and costs fall,” he wrote. “According to global data, global LNG liquefaction capacity is set to expand by 117% over the next four years from 419 million tons per annum in 2018 to 907 million tons per annum by 2022.”

Demand for LNG has an impact on other commodities, as nickel alloys, aluminum and stainless steels are needed for the liquefaction and transportation of LNG.

“Although there are likely to be ebbs and flows in LNG demand — and, therefore, investment over the coming decade — the consensus remains that the market will continue to grow as domestic production of natural gas in southeast Asia and Europe declines and import demand, therefore, rises,” Burns added.

U.S. Steel Imports Down 23%

Not surprisingly, with Section 232 tariffs in effect, the U.S. saw its imports of steel drop 23.3% in May compared to its April total, according to data reported by the American Iron and Steel Institute (AISI).

Through the first five months of the year, South Korea has led the way with over 1.5 million net tons of steel to the U.S., which actually marks a 1% decrease compared with the same stretch in 2017.

As for individual products, May saw a 61% increase in imports of wire rods compared with the previous month.