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Here’s a quick rundown of news and thoughts from particular commodity markets, including a drop in commodity prices, aluminum market movements and much more.
MetalMiner, a sister site of ours, scours the landscape for what matters. This week:
Commodity prices fall on strong dollar
Commodity prices are generally inversely correlated with the US dollar. That is, when the US dollar strengthens, commodity prices generally decline.
That relationship showed up in recent weeks, as the US dollar index showed some strength.
“Policy makers at the Federal Reserve advised Wednesday that interest rates would rise from record lows sometime in 2023, updating an earlier forecast of rises not until 2024,” MetalMiner’s Stuart Burns wrote.
“The more bullish position on rates boosted the dollar. As a result, the dollar index gained 1.5% over last week. That marked its best result since last September.
“In turn, commodities took a hit across the board.”
The gold price dropped about 4% last week, he added, its worst performance in over a year. Base metals, too, took a fall. LME copper, for example, after surging to an all-time high last month, closed Wednesday at $9,321 per metric ton, down 6.43% month over month.
Aluminum deficit to surplus
Speaking of base metals, Burns also delved into the state of the aluminum market, which for now is extremely tight.
“Admittedly, last year was distorted by the pandemic,” he wrote. “However, from January through May, global smelters operated normally around the world. The pandemic hit consumption badly, but output remained resilient.
“Not surprisingly, therefore, this year to date swung to a 588,000-ton deficit compared to over a 1-million-ton (1,074 kt) surplus, as reported by the World Bureau of Metal Statistics for the whole of last year.”
Output surged to 5.74 million metric tons in May, the International Aluminum Institute reported, or up nearly 6% year over year. The rise in output could cap further prices gains for the metal.
“But rising global output alone could be enough to cap further global aluminum price rises this year as many of the major economies get close to pre-pandemic levels of consumption,” he added.
“In the short term, the rising dollar will add to deflationary price pressures, not just for aluminum but across the commodities sector.
“As our recent annual price outlook advised, the downside support level is therefore positioned a lot lower than the upside resistance level. From a fundamental perspective, rising supply looks like it may outstrip rising demand.”
Belgian government proposes loan to Liberty Steel asset
Spend Matters has previously covered the fallout from the collapse of Greensill Capital, the top backer of the GFG Alliance.
As such, Liberty Steel, a subsidiary of GFG, has scrambled to keep its operations going.
In Belgium, the government has proposed a loan to a Liberty Steel asset there to keep the plant going.
“The government of Belgium’s Walloon Region plans to provide a loan to Liberty Steel’s Liberty Liège-Dudelange (LLD) rolling and coating asset while seeking a new buyer for it. The move follows the March collapse of the steelmaking group’s main creditor, Greensill Capital,” MetalMiner’s Christopher Rivituso reported.
“In this context, the company LLD is in the process of judicial reorganization by ‘collective agreement’ (since May 11) and there is a significant risk in the short term that it will not be able to continue its activities,” Walloon Region Vice President Willy Borsus said in a June 3 statement.
Global copper production rises in Q1
Global copper mine production in Q1 rose by 3.7% year over year, the International Copper Study Group reported.
Peru, the second-largest copper producer, saw its production rise by 3%. Pertinent to the country’s mining sector, socialist Pedro Castillo, who took home a slim majority of the vote in the recent presidential election runoff, has promised higher taxes on the country’s miners. Opponent Keiko Fujimori, daughter of imprisoned former President Alberto Fujimori, however, has contested the result, claiming electoral fraud.
The U.S. State Department, however, praised the election process.
“We commend Peruvian authorities for safely administering another round of free, fair, accessible, and peaceful elections, even amid significant COVID-19 pandemic challenges,” the State Department said. “These recent elections are a model of democracy in the region. We support allowing electoral authorities time to process and publish the results in accordance with Peruvian law.”
Steel market remains tight in US, Europe
Turning to steel, despite an over 16% year-over-year jump in global steel production in May, steel markets in the US and Europe remain tight, Burns explained.
“In the US, the market remains extremely tight,” he wrote. “Mill lead times are out to the end of this year. Furthermore, prices are set to stay high into 2022.
“The situation is not dissimilar in Europe. In Europe, the steel market is seeing a similar post-pandemic bounceback, supply chain restocking and constraints, like the US, by tariffs on imported material.”
Despite the year-over-year jump, May steel output actually slowed compared with the previous month.
“But looking at the month-over-month growth rate, daily global steel output fell by 0.4% in May,” he added. “That followed a 3.5% rise in April.
“At the same time, Beijing’s combination of dire warnings about manipulative speculative pricing, restrictions on credit for construction and pressure on polluting industries to reduce emissions have combined to cause a sharp correction on the previously buoyant iron ore price, down 9% on the Dalian exchange to $173/ton this week.”
US steel imports drop in May
Sticking with steel, US steel imports in May dipped slightly compared with the previous month, the Census Bureau reported.
The US brought in approximately 2.3 million metric tons of steel in May, down from 2.4 million in April.
A drop in imports of blooms, billets and slabs led the decline. Imports of blooms, billets and slabs declined by approximately 32% to 604,340 metric tons.
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