Torlizzi Base Metals Report: China absorbs its own ferrous scrap

Torlizzi Base Metals Report: China absorbs its own ferrous scrap

A monthly review and update on base metals provided by Gianclaudio Torlizzi of Milan-based T-Commodity,

June 26, 2018
Gianclaudio Torlizzi

China’s use of ferrous scrap in steelmaking and foundry applications rose by nearly 50 percent in the first four months of 2018 compared with 2017, according to a Bloomberg report.

The China Iron and Steel Association (CISA) is portraying the Chinese steel market as generally balanced with prices remaining at a reasonable level. Another report from Bloomberg, summarizing a CISA statement, indicates the organization remains concerned that too much steel production remains a threat, including the return of closed induction furnaces.

The value of copper on the London Metal Exchange (LME) dropped by 3 percent the week of June 18-22, based in part on BHP and workers at Chile’s Escondida mine reaching consensus on 18 out of 26 “basic points” during the first week of union contract talks.

The value of LME zinc has been declining steadily since reaching a 10-year high of $3,595.50 per metric ton in February. As of June 25, the LME price was down to $2,887 per metric ton, the lowest level since August 2017.

LME zinc inventories have been rising, though much of this activity is based at just two warehouses. A total of 60,050 metric tons was placed on LME warrant at the Belgian port of Antwerp in late April. Not a ton of it has since been touched. The other active location has been New Orleans, which saw 78,950 metric tons “arrive” on a single day, March 2, and which also has seen sporadic inflows since the end of May.

In the bigger economic picture, the euro zone composite purchasing managers’ index (PMI) rose 0.7 points to 54.8 in June, which is consistent with annual gross domestic product (GDP) growth of 2.3 percent.

JP Morgan analysts consider this to be in a range they think the economy should be at this point and find it encouraging after PMI declines in recent months.

JP Morgan also says the PMI in June is signaling growth comfortably above the 1.9 percent pace that European Central Bank (ECB) staff is assuming for the second half of 2018. This suggests the ECB will follow through on its intention to end quantitative easing (QE) efforts for the year.

Turning to the United States-China trade dispute, the Oxford Economics Global Economic Model has determined that if the U.S. imposes 25 percent tariffs on $50 billion of imports and 10 percent tariffs on $200 billion from China, and China retaliates in kind, the direct hit to each economy would reach 0.3 to 0.4 percent of GDP.

Oxford Economics also believes the imposition of tariffs on half of U.S. imports from China would likely have pronounced indirect effects for two main reasons.

First, the tariffs on $200 billion of imports would affect a wide array of business sectors in the U.S., including some with significant supply chain multipliers. Second, the potential financial market and confidence impact would be substantial.

China’s central bank, meanwhile, has cut the reserve-replacement ratio (RRR) for some banks effective in early July in a bid to relieve the credit difficulties of small and medium enterprises (SMEs). The cut is intended to support debt-to-equity swaps and lending to SMEs. The total liquidity released is forecast at about RMB 700 billion ($106.8 billion), and the move could cushion the trade war’s impact.

Commodities Pricing Trends





June 22, 2018

Jan. 15, 2018

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LME Copper




SHFE Copper




LME Aluminum




LME Nickel




LME Ferrous Scrap




SGX Iron Ore




SHFE Rebar








(Prices per metric ton.)