Commodities Roundup: European steel faces challenges; US auto sales race off to strong Q1; oil price remains steady

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Here’s a quick rundown of news and thoughts from particular commodity markets, including coverage of a McKinsey report on European steel, the steady oil price, a seismic shift in the copper market and much more.

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

European steel challenges

MetalMiner contributor Christopher Rivituso earlier this week recapped a recent McKinsey report on the challenges ahead for the European steel sector.

Among the issues the sector must address are structural overcapacity and a short-term plan to “compensate for higher costs with profitability improvements and incremental measures that will reduce CO2 emissions.”

The post-financial crisis period has also seen a drop in European steel demand by nearly one-fifth.

“We expect demand for steel in the EU-28 to drop by 5-10 million [metric] tons between 2019 and 2023," the report states. "This is primarily because players in key consumer industries, such as automotive, have been triggered by the Covid-19 crisis to adjust their footprints by closing or relocating production from Europe to other regions.

“Furthermore, a permanent lower demand for office space after the Covid-19 crisis due to increased remote work may reduce demand for office buildings, which in turn will lower demand for steel from the construction sector."

Automakers post strong Q1 sales

After the automotive disruption at the end of Q1 and into Q2 of 2020, US auto sales have come roaring back to start this year.

General Motors reported its Q1 deliveries jumped by 19%. Meanwhile, Ford reported retail sales rose by 23.1%, with its SUV sales surging by 34.4%.

FCA US reported a 25% sales bump.

However, the ongoing semiconductor shortage continues to loom over the sector.

On March 18, Ford said the semiconductor shortage prompted it to build some models without certain parts and hold the vehicles until the parts are available. The automaker projected a hit of between $1 billion and $2.5 billion if the shortage continues through the first half of the year.

Construction spending, pending home sales dip

In a month that saw much of the country struggle with freezing conditions, US construction spending fell in February.

The US Census Bureau reported construction spending reached a seasonally adjusted annual rate of $1,516.9 billion in February. The spending rate marked a 0.8% decline from the previous month.

However, the rate increased by 5.3% on a year-over-year basis.

Meanwhile, pending homes sales fell by 10.6% in February, the National Association of Realtors reported. Pending home sales fell for the second consecutive month.

Copper market sees strong demand

Although demand is still strong, the copper price has recently retreated from a February peak of over $9,600.

Is the metal set to continue its descent or is the recent dip a temporary blip on its way to new heights?

Opinions are mixed, as MetalMiner’s Stuart Burns explained.

Much of last year’s rise come on the back of strength in Chinese manufacturing. Furthermore, supply fears have proved somewhat overblown, Burns added.

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Meanwhile, China’s relaxation of scrap import relaxations is supercharging the scrap market while cooling the refined metal market.

“China’s relaxation of copper scrap imports has created a significant — some may say seismic shift — in the copper market,” Burns wrote. “That shift has taken the heat out of the refined metal market and supercharged the scrap market.

“Current higher LME prices will generate more scrap and, given 6-12 months, improve scrap supply. As such, there is not much ground for copper price weakness in a globally recovering market. However, there is also less probability of a supercycle bull story taking hold again.”

Oil price remains steady

On the back of recovering demand and OPEC supply management, the oil price has recovered since its plunge on the heels of the Covid-19 outbreak and the resulting demand deterioration.

Lately, however, the oil price has settled into a narrow band around $63 per barrel.

The price remained steady, even after a surprise OPEC announcement in which it indicated plans to relax previously announced output cuts.

“In a surprise move last week, OPEC+ announced a further gradual relaxation of the group’s 2020 emergency 9.7 million barrels per day cut in oil output, causing the oil price to briefly retreat,” Burns explained.

“In December, OPEC+ had intended to ease the curb by about 500,000 barrels per day each month in 2021.

“However, in the face of still weak demand, it postponed the easements.”

Race for raw materials

Elsewhere, as the world moves toward greater uptake of renewable sources of energy and electrification in the automotive sector, the shift will require a significant amount of raw materials.

That includes things like copper, lithium and cobalt, in addition to a variety of critical rare earths. (For example, neodymium is a critical element used in wind turbines.) Last month, we touched on the European auto sector's steps toward electrification.

As Burns noted this week, China is ahead of the game in terms of securing its raw materials future.

“In the last four years, China Molybdenum has plowed into the Democratic Republic of Congo’s 350-kilometer copper belt,” he wrote. “The firm paid $2.6 billion (£2 billion) four years ago for the Tenke Fungurume mine from Freeport McMoRan.

“It then expanded its empire in December, paying another $550 million for Freeport’s nearby Kisanfu mine. The mine gave it access to a further 6.3 million metric tons of copper. In addition, the mine offers access to 3.1 million metric tons of cobalt.”

By comparison, Europe and the US have their work cut out for them.

The US government clearly acknowledges that reality. President Joe Biden’s executive order earlier this year called for a wide-ranging review of US supply chains.

“Western governments are pouring billions into supporting the setup of Giga factories and subsidizing the uptake of EVs,” Burns added. “Some, like the UK, are even mandating the end of internal combustion engine (ICE) vehicles by the end of the decade.

“However, if automakers are going to thrive in a post-ICE world, they are going to need a robust supply chain."

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