Commodities Roundup: Copper supply grows, U.S. oil exports, China’s steel capacity

commodities

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.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

Copper supply grows

MetalMiner’s Stuart Burns weighed in on a trend that would further impact copper prices: growing supply.

In spite of recent strikes at copper operations in Chile, copper supplies could be set to grow elsewhere.

As Burns notes, Anglo American CEO Mark Cutifani said the firm’s $5 billion copper project at Quellaveco in Peru could hold enough reserves to supply a century of production.

“Further drilling will be required to map the full extent, but preliminary sampling suggests mineralization could extend to 1,000 meters, the company says,” Burns wrote.

“Quellaveco is due to start production in 2022. Once it reaches full capacity, it will produce an average 330,000 tons a year of copper in its first five years; in the company’s words, it will be a license to print money, the Financial Times reported.”

U.S. housing starts drop 9.4%

According to the most recent report from the U.S. Census Bureau and the Department of Housing and Urban Development, U.S. housing starts in September dropped 9.4% compared with August.

However, September starts rose 1.6% compared with September 2018.

Falling aluminum production

On the aluminum front, the International Aluminum Institute reported global aluminum production fell to 5.16 million tons in September, down from 5.33 million tons in August and 5.30 million tons in September 2018.

Despite that, aluminum prices have been declining.

LME three-month aluminum, for example, has dropped nearly 3% over the last month.

U.S. steel prices fall

Similarly, U.S. steel prices have continued to fall, even as the sector’s capacity utilization rate has inched downward in recent weeks.

U.S. steel production in the year to date remains up compared with the same period in 2018. However, for the week ending Oct. 19, capacity utilization checked in at 79.6%.

Meanwhile, over the last month, U.S. HRC, CRC, HDG and plate prices are all down, with HRC posted an over 12% decline.

The iron ore picture

After supply-side boosts from operational challenges in Brazil and Australia earlier this year, iron ore prices surged to five-year highs.

Since then, however, the price has fallen back to earth.

As such, the falling price has impacted some firms’ decisions to invest. One of those firms is the state-owned Chinese firm Sinosteel, Burns noted.

“The steelmaker has bought into the region’s lower-grade iron ore resources back in the last decade, in what was seen at the time as a potential rival to the country’s largest iron ore producing region further north at Pilbara,” Burns wrote.

“A collapse in iron ore prices largely brought a halt to not just Sinosteel’s ambitions but those of joint venture partners and competitors Mitsubishi. During the five-year life of Mitsubishi’s Stage 1 operations at nearby Jack Hills, it produced and shipped around 1.8 million tons of lump and fines DSO each year.”

U.S. oil exports

According to the Energy Information Administration, the U.S. is now exporting oil to more countries than it imports from abroad.

“This rise in U.S. export destinations coincides with the late 2015 lifting of restrictions on exporting domestic crude oil,” the EIA said. “Before the restrictions were lifted, U.S. crude oil exports almost exclusively went to Canada. Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and July 2019, U.S. crude oil production increased by 2.6 million b/d, and export volumes increased by 2.2 million b/d.”

Through the first seven months of 2019, the largest monthly import source total checked in at 27, down from a high of 37 as of 2009.

Meanwhile, the U.S. exported to as many as 31 sources per month through the first seven months of 2019.

Tariffs concern electronics firms

IPC recently surveyed U.S. electronics firms regarding tariffs and their impacts on their decision-making processes.

Per the survey results, 86% of respondents expressed concern regarding the U.S.’s tariffs (over the last year and a half, the U.S. has imposed tariffs on imported steel and aluminum, in addition to tariffs on hundreds of billions worth of Chinese goods).

"On average, companies report they have seen tariff increases on approximately 31% of the total dollar value of the products they import," the IPC report said. "Twenty-five percent of companies report over half of the dollar value of the products they import are facing higher tariffs."

China’s steel capacity

Circling back to steel, Burns delved into China’s steel capacity, which is set to rise despite a program of production curbs (aimed at mitigating pollution throughout the country).

“China has been engaged in a multiyear program to shutter outdated, more-polluting steel capacity,” Burns wrote. “New additions have been authorized only on a replacement basis, but Platts' analysis suggests plants that have been closed for some years but not pulled down have been allowed to count toward the construction of new, far more efficient steel plants.

“Specifically, the report states China's net crude steel capacity expansion will total 37.65 million mt per year over 2019-23, of which 34.88 million mt per year is due to come online in 2019. This will take China's total crude steel capacity to around 1.2 billion mt per year by the end of this year.”

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