Commodities Roundup: Tata bailout in the U.K.?; Silver steadies; Iron ore takes a breather

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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:

Tata Group in talks over U.K. bailout

MetalMiner’s Stuart Burns detailed the challenges India’s Tata Group faces in the U.K., where it operates steelmaking enterprises.

“Despite considerable investment over the years, British Steel operations has failed to break even at the operating level for a decade,” Burns wrote. “According to a report by the Financial Times, the steelmaker is bleeding cash.

“The latest set of accounts, pre-COVID, showed a pre-tax loss of £857 million before one-off items in the 12 months ending March 31. For the same period the previous year, the company ran a deficit of £146 million.

“Worse, for the first time the accounts felt the need to caution ‘material uncertainty’ on its future funding and cast significant doubt on its ability to continue as a going concern.”

In light of its financial struggles, the firm is reportedly in talks with the British government over possible state aid.

"Normally, a British Conservative government would be firmly against state bailouts," Burns added. "This government, however, has shown its self to be more socialistic in many of its policies than even some Labour governments.

"As such, don’t count out the possibility that the government may cut some kind of deal with Tata."

Aluminum’s LME-SHFE arbitrage

Meanwhile, Maria Rosa Gobitz took a look at the aluminum market in this month’s Aluminum MMI report.

“The LME price reached $1,818/mt on Sept. 1, a level it had not reached since January 2020,” she wrote.

“Meanwhile, the SHFE price reached CNY 14,960/mt on Aug. 24. However, the SHFE aluminum prices continued to move higher than the LME price.

“Throughout the month, SHFE prices were approximately $360/mt to $415/mt higher than the LME price. Some of the arbitrage has occurred due to the weakening of the U.S. dollar, which makes the Chinese price appear higher.”

Copper prices find support

Copper has been a major riser among metals this year.

That trend continued last month — supported, like other metals, by strong demand from China (plus a dash of supply fears).

“LME copper prices declined for the first half of the month and, after increasing, traded sideways, moving from $6,439/mt at the end of July to $6,702/mt in August,” Gobitz explained. “The SHFE price followed a similar trend to the LME price. Both prices had not reached this level since June 2018.

“Copper inventories in LME warehouses continued to decrease, closing at 89,350 tons. Stocks have not fallen to this low of a level since January 2006.”

U.S. steel prices rise

Meanwhile, U.S. steel prices showed upward movement last month.

Why? As Gobitz explains, the recovering automotive sector is likely one primary contributing factor.

“The recovery of the U.S. auto industry might be driving the steel price increases, she wrote.

“U.S. auto production continued to improve. Producers such as General Motors, Ford and Fiat Chrysler ramped up their assembly plants.

“However, supply has not quite caught up with demand. As such, U.S. auto inventory continues to tighten.”

Silver steadies

After a surge in the silver price this summer, the precious metal steadied somewhat to close August.

The silver price, which fell below $13 per ounce in March, approached $30 per ounce in the first half of August. Thereafter, however, the price retrenched, steadying around the $27 per ounce level.

In other news relevant to precious metals, the Federal Reserve this week announced plans to achieve inflation levels above 2% in order to reach a 2% long-term average.

Stainless surcharges gain again

Stainless surcharges have gained for a fourth consecutive month, Gobitz explained Thursday.

“Alloy surcharges for 304 in September will be $0.6231/lb, an increase of $0.0361/lb compared to August,” Gobitz wrote.

“Over the past month, LME nickel prices increased approximately 12%, up to $15,442/mt by the end of August.”

Iron ore takes a break

The steelmaking raw material iron ore has enjoyed a fairly swift upward ascent this year, powered by Chinese demand amid its coronavirus recovery and related stimulus measures.

The rise of the iron ore price, however, has taken a bit of a breather of late. In that vein, Burns speculated on if the recent trend does in fact constitute a break en route to even higher prices — or, if the price has reached its top.

“Industrial production in China accelerated in August,” Burns explained. “With the Chinese national holidays coming in early October, continued restocking is likely to support prices over the next 2-3 weeks.

“However, as winter approaches, construction is unlikely to continue at the heady pace of this summer.

“China’s stimulus measures have been a major driver of both sentiment and actual demand. However, the measures are not as construction-heavy as they were after the financial crisis.”

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