A Stable Growth Outlook for the Global Economy Bodes Well for Metals & Commodities
The steel industry is looking up amid increased global demand, and investment growth. Demand in China, which controls 50% of global steel production, and is a major steel exporter, has remained stable despite concerns of loss of steel trade arising out of US actions on steel imports under Section 232 of US Trade Expansion Act, 1962. The US imposed trade restrictions in a move to improve the capacity utilization, productivity and job creation in its manufacturing sector, which itself bodes well for the US economy. Stable growth in both China and the US is important for the global economy to stay away from wild fluctuations in commodity prices and its impact on businesses and investor sentiment.
Steel Prices on a Rise, as Steel Demand is up Globally
In the US steel prices have increased over 25% to 35% after tariffs on steel and aluminium were announced by the Trump Administration. China appears to be the biggest target, even though it accounted for 3% of U.S. steel imports last year. Amid opposition from some important trading partners, the US exempted quite a few countries, taking the exempted volume or value to around 65% based on last years data.
In China, which is another big manufacturer and consumer of steel, prices have increased by around 10% in the past one month. SHFE traded steel rebar prices were up 10% in the month of April, while prices for Hot Rolled Coils increased by ~8-9%. An important indicator of steel demand in China, SHFE traded steel rebar prices have risen by 22% after reaching a low of 3333 yuan per ton on 26th March 2018 to close at 4072 yuan per ton on 9th May 2018.
China’s iron and steel prices are rising amid falling steel inventories and growing optimism about demand from the infrastructure and housing sector. After falling in the month of March, steel prices recovered strongly in April partly driven by a sharp fall in inventories. Total steel inventories hit a four-year high of 19 million tonnes in March, but have fallen by around 30% since then. The current situation of rising steel prices and stable to lower prices for iron ore and other steel making raw materials has benefitted Chinese mills to witness better steel margins.
SHFE REBAR PRICES, CHINA (Yuan/Ton)
Iron ore prices have also recovered some ground in the month of April and May, following a sharp decline of over 10% in the month of March 2018. Spot prices of Iron Ore are considered a proxy for global economic health, especially for China as it is the largest consumer of metals.
Iron Ore Fines 62% Fe CFR Futures, Singapore ($/T)
Coaking Coal Prices – Coking Coal Futures, China, DCE
Metallurgical Coke Futures – DEC, China
Base Metals Caught in Nervousness, amid Lower Seasonal Demand, Global Trade Issues & Strength in the US Dollar
Nickel is clearly in an uptrend now, and has already broken the long term downtrend line. Any corrections in nickel should be seen as an opportunity to get into the metal for buying activities, and investment activities. The nickel price scenario wants to remain bullish, but world political news especially protectionist measures and country level sanctions and strong statements by the United States Administration have made buyers cautious.
Earlier on 19th April 2018, Nickel prices on the LME soared to US$16687/MT, breaking all resistance levels, on the back of fears that US sanctions on Russian companies will expand to include the metal. However, the fears receded and nickel prices failed to close above the resistance levels falling sharply to around $14000/MT levels in May. Even as nickel prices continue to remain in the uptrend, the price momentum in nickel prices has slowed down, with the demand side failing to support higher prices. The cancelled warrant ratio for LME nickel has dropped to around 30% as on 10th May 2018, from around 41% as on 20th April 2018, indicating a slowdown in demand for the underlying physical commodity and deliveries thereof.
We continue to remain bullish on the commodity, on the back of expectations of increasing demand throughout 2018 and 2019. Rising global stainless steel demand along with expectations of demand from EV batteries would likely put a floor on prices. US$ 12,500-$13,000/MT levels represent strong support for the commodity, and can be viewed as entry points for making big ticket purchases by industry executives and material buyers. Nickel prices currently stand at US$13,800/MT, which itself provides a strong technical support for the commodity. The target price for Nickel is US$18700/MT by the end of December 2018.
Nickel Prices US$/MT, 3 Moth Futures, LME
LME Copper prices failed to break technical resistance of US$7350/MT, and are now range bound between $6500 and $7250 levels, amid signs of weak demand and nervousness among buyers due to global trade issues. The cancelled warrants ratio for LME Copper stood at 19% as on 10th May 2018, down from 40% level on 20th November 2017, but up from a low of 9% reached on 19th April 2018.
The trend in copper prices is one of the leading indicators of strength in the global economy. Currently, we are clearly in an uptrend, with the long term downward trend line broken. Copper has strong support at US$6500, and should be seen as an entry point for business executives for business and project decisions.
Copper Prices US$/MT, 3 Moth Futures, LME
Metline Industries is a leading manufacturer and processor of aluminium, nickel, titanium and stainless steel alloys in various forms including pipes, plates, fittings, flanges, and relate piping accessories. We are India’s leading steel pipes supplier and steel plates suppliers, with exports to over 50 countries worldwide. Our key products include stainless steel plates, stainless steel sheets, aluminium plates, aluminium sheets, stainless steel coils, stainless steel pipes, stainless steel pipe fittings, stainless steel round bars, stainless steel angles, scrap metals buyers, flexible hose pipes, ss flexible hose pipes and stainless steel flanges. We are India’s leading manufacturer of pipes fittings with exports to the US, Europe, Saudi Arabia, Qatar, Kuwait, and various other Middle East Nations