Prices for base metals experienced volatility in October 2017, although the overall picture is one of a bullish pattern that has been in place since June (+43 percent, as of late October, measured by the Bloomberg Industrial Metals Index).
In the third week of October, copper prices rose while the value of zinc sank by 4 percent. China’s steel sector closed that week on a negative tone, with Shanghai Futures Exchange (SHFE) rebar posting a loss of 4.42 percent from Oct. 1 to Oct. 20 and SHFE hot-rolled coil (HRC) losing 2.09 percent in value.
On a short-term basis, we expect steel and base metals pricing to remain supported thanks to the latest batch of data coming from China. According to a statement published by the People’s Bank of China (PBOC), China’s economy is expected to grow at 7 percent as measured by GDP (gross domestic product) in the second half of 2017. Industrial production in China grew by an estimated 6.6 percent in September.
A Société Générale analysis, however, notes that “investments in heavy polluting sectors (which includes steel mills) continued to be the laggards, probably discouraged by tougher environmental inspections. Growth of ferrous and nonferrous metals smelting and pressing turned negative in September.”
Those environmental policies many now include a ban on traders importing copper scrap, starting in 2018. In our view, this news was likely amongst the drivers of copper prices in mid- and late October; however, this news is likely to be priced in at this point.
Aluminum output in China in the fall of 2017 is down compared to 2016. It’s a positive data point and a step in the right direction for aluminum. The common theme seems to be that policymakers are serious about supply side reform and crackdowns on pollution, especially in the winter season.
Steel output in China fell to 71.8 million metric tons in September 2017 compared to 74.6 million metric tons the previous month (by 3.7 percent), as the nationwide anti-pollution drive touted in President Xi Jinping’s policy address in October began to make its mark on output at mills in the world’s largest producing nation.
In the United States, the CEO of Nucor said he thinks the recent downward trend in HRC prices is at an end. He attributed this to tariffs partially stemming the flow and low pricing of imports while demand is staying flat or showing modest improvement. Nucor confirmed a price hike of $40 per ton for steel sheet, which was followed by a similar announcement by NLMK Group.
Offsetting the bullish news slightly was a revised forecast from the World Steel Association, which now sees global steel demand as likely to slow in 2018. Demand in 2018 is now expected to rise by 1.6 percent compared with 7 percent growth in 2017.
Commodities Pricing Trends
Oct. 19, 2017 Jan. 1, 2017 % change
LME Copper $6,973 $5,481 +27.2%
SHFE Copper $8,269 $6,813 +21.4%
LME Secondary Aluminum $1,835 $1,560 +17.6%
LME Nickel $11,775 $9,970 +18.1%
LME Ferrous Scrap $305 $297 +2.7%
SGX Iron Ore $60.38 $74.01 -18.4%
SHFE Rebar $558 $434 +28.6%
[Prices per metric ton.]