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Commodities Roundup: LME Debuts New Pricing Functionality, India’s Coal Shortage

07/27/2018 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:

LMEselect Update

For those trading on the London Metal Exchange (LME), MetalMiner’s Stuart Burns delved into the new pricing option added to electronic trading platform LMEselect.

“Following feedback from the LME’s 2017 consultation exercise, the exchange has extended the implied pricing mechanism already in operation on the LMEprecious market to be available across copper, aluminum, zinc, lead, nickel and tin base metals,” he wrote.

So, what exactly does that mean? Cutting through the particulars, the idea behind the new functionality, according to Burns, is that it will “allow investors to trade on one prompt date each month rather than the greater variety currently available of any day in the month.”

“The contract would therefore be simpler to trade and similar to the system used by the CME,” he added.

Indian Coal Shortage

MetalMiner’s Sohrab Darabshaw touched on India’s coal shortage, which has been good news for U.S. coal miners.

According to Darabshaw, Indian authorities have advised provinces to start importing coal for the next three years. That’s good news for U.S. coal.

“According to a report by the Energy Information Administration, U.S. miners, otherwise struggling to find buyers, may end up exporting 104 million tons of coal in 2018 — up 7.2% from a year ago,” Darabshaw explained.

Australia and China

As Burns noted this week, copper is often considered a general economic bellwether, particularly with respect to China, the world’s top copper consumer.

However, he argued that the Australian economy might be an even better indicator vis-à-vis China.

“China is the world’s largest importer of copper, and Australia — the fifth-largest copper producer — is intimately tied to the world’s second-largest economy,” he writes. “China is its biggest customer, not just for copper but also for iron ore, coal, aluminum, bauxite and a range of other materials.”

In that vein, the copper price has plunged in recent weeks, even dipping below $6,000/mt at one point this month.

E.U. Steel Consumption

The E.U.’s apparent steel consumption in Q2 jumped 3%, according to a European Steel Association (EUROFER) report.

The report — which came out prior to news that President Donald Trump had reached an agreement with European Commission President Jean-Claude Juncker regarding intentions to roll back trade barriers that have gone up this year — argues that the Section 232 tariffs have led to steel being diverted into the European market.

“The latest data confirms the severe impact the US Section 232 tariffs are having by deflecting imports into the EU — with surges across almost all product lines,” said Axel Eggert, EUROFER director general, in a release. “This surge is occurring at the same time as growth predictions are being revised onto flatter trajectories. We cannot risk the ongoing recovery being put at stake — and welcome the recent EU safeguard in its efforts to stabilize the sector.”

According to the report, third-country imports into the E.U. rose 9.8% in Q2, hitting 10 million tons (the highest total since Q3 2007).

Freeport McMoRan Reports Q2 Earnings

The world’s top publicly traded copper producer on Wednesday reported Q2 net income of $869 million, up from $268 million in Q2 2017.

The miner’s share price dipped just over 5% on the New York Stock Exchange Wednesday morning after news of operational challenges at its Grasberg mine in Indonesia but bounced back to its nearly predrop level as of Thursday afternoon. The share price hit $15.94 as of mid-afternoon Thursday.

“Our second quarter results reflect strong performance from our global operations and a continued focus on productivity, cost management and capital discipline,” President and CEO Richard C. Adkerson said. “During the first half of 2018, we generated $2.7 billion in cash flow from operations and capital expenditures totaled $0.9 billion, enabling further strengthening of our balance sheet and advancement of initiatives to build value for FCX shareholders.

“We achieved important progress during the quarter to reach a new long-term partnership structure with the Indonesian government, and we remain focused on completing negotiation and documentation of definitive agreements to restore long-term stability for our Grasberg operations.”

Correction: An earlier version of this article misclassified LMEselect as a newly released platform. The London Metal Exchange released new functionality for its platform called implied pricing, not an entirely new product.