Inventories among traders and steel mills are pilling up, as a result of which buying activity has reduced for all major steel raw materials and base metals. An important reason for reduced buying is that prices are too high and consumers tend to purchase in smaller volumes, waiting for a price correction. Prices for raw materials have also fallen on account on reduced demand from China mills, amid Chinese government decision to implement production limits on factories to cut emissions and reduce the extensive smog situation in the winter season ahead. Prices are likely to remain at lower levels for coming 2-3 months, as demand would remain low at Chinese mills, the biggest buyer of steel making raw materials.
The overall global economic situation remains strong, and the fall in prices across major steel raw materials can be attributed to the falling demand due to higher inventories among traders and mills. Expectations for another increase in interest rate by the US Federal Reserve at its December meeting, also dented investor sentiment, but a rising interest rate environment is also a proxy of growth in economy, and I believe there is nothing to worry about the same. The long term picture and positive trend for industrial raw materials remains positive.
Rebar steel and iron ore prices have been lower as the market continues worry about reducing demand at mills, while coking coal and coke prices are also down on account of risk averse attitude among buyers.
Coming to the base metals category, copper is the leading indicator of global demand for metals, and the fall in the cancelled warrants ratio is a matter of concern, as it has almost halved in the past 1 month down to 23% from 54%. After reaching a high of $6968.5 on 5th September 2017, LME Copper futures prices marked a low of $6366.50 on 22nd September 2017, marking a fall of around 8.6%. This could also be partly attributed to profit booking by investors and traders. We have seen price correction in all major base metals including nickel, with prices falling from a high of $12,380 on 4th September 2017 to around $10,600 on 22nd September 2017, a fall of over 14%. A rise in cancelled warrants has however limited the fall in aluminium prices.
Demand Scenario for Base Metals
The cancelled warrants ratio for LME Copper has fallen from 54% as on 23rd August 2017 to stand at 23% as on 22nd September 2017. Metal on warrant represents inventories in store at the LME’s warehouse. However, cancelled warrants represent metal slated for delivery (investors cancel their warrants because they want to take it out of the LME warehouse). A fall in the cancelled warrants ratio for LME copper, indicates that deliveries from LME operated warehouses has slowed down significantly.
Cancelled Warrants Ratio for Base Metals at LME Warehouses
Falling Cancelled Warrants Ratio for Copper, Nickel, Zinc, & Lead
- The Cancelled Warrants Ratio for Copper has reduced from 54% on 23rd Aug 2017 to 23% on 22nd September 2017
- The Cancelled Warrants Ratio for Nickel has reduced from 37% on 23rd Aug 2017 to 35% on 22nd September 2017
- The Cancelled Warrants Ratio for Zinc has reduced from 49% on 23rd Aug 2017 to 44% on 22nd September 2017
- The Cancelled Warrants Ratio for Lead has reduced from 41% on 23rd Aug 2017 to 37% on 22nd September 2017
In Comparison the Cancelled Warrants Ratio for Aluminium has Risen in the Past 1 Month…
- The Cancelled Warrants Ratio for Aluminium has risen from 15% on 23rd Aug 2017 to 20% on 22nd September 2017
Coking Coal Future, Price Chart, China, Dalian Commodity Exchange, 22nd September 2017
Metallurgical Coke Future, Price Chart, China, Dalian Commodity Exchange, 22nd September 2017
Rebar Future, Price Chart, China, SHFE, 22nd September 2017
Iron Ore Fines, Fe, CFR Futures, Singapore, 22nd September 2017
LME Copper Future Price Analysis – 25th September 2017
LME Nickel Future Price Analysis – 25th September 2017
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