Saturday, May 16, 2009
China continues to drive the commodities market
May 15, 2009
Latest Chinese trade data for April pretty much confirms that China, for now, remains the driving force for the global economy in general and, in turn, several key commodities in particular, subsequently pulling along other raw materials and infusing the marketplace with a degree of optimism that some warn cannot be sustained.
Copper and iron ore imports, for example, hit all-time highs last month as China restocks to meet improved domestic demand, but also to stockpile material having taken taking advantage of the lower prices earlier this year.
How long will the current level of buying continue whether it’s for copper scrap, soybeans or crude oil?
And what will the market reaction be once Chinese import demand moderates as expected? Has China already reached some sort of saturation point?
The hope, of course, is that other global economies are also in or beginning an expansion phase thus limiting the downside associated with assumed less robust Chinese buying in the months ahead. The latest Purchasing Managers’ Index data from the U.S., the Eurozone, and China were all encouraging; even Japan showed an increase for April.
Switching to metals, the latest ferrous scrap price indicators, as published by Scrap Price Bulletin place No.1 HMS composite at $188.50/gross ton, up $45.33/ton from a month ago or plus 32%. Year-to-date, the heavy melting scrap composite is averaging $175.63, or about 50% less than last year’s annual average of $355.65/ton. Shredded was figured at $212.83, and No.1 dealer bundles were placed @ $210.50.
World Steel Dynamic’s “SteelBenchmarker” has its No.1 HMS reference price @ $184/gross ton; shredded at $207 and No.1 bushelings t $212/ton. The latest prices, they say, are up ranging from 12% for HMS to 23% for bushelings from two weeks ago.
The question, of course, is have we’ve now seen the low for the year?
If not, there’s certainly some cost push incentives at work for the producing mills who are offering hot-rolled sheet in coil in a range at either side of $400/net ton…GFMS, for one, believes that mini-mills are not profitable with spreads under $200/ton for HR and shredded scrap. They reason that if higher scrap prices hold in May and into June, “…HR coil prices should turn.”
Turning next to scrap exports, Turkey is believed to have back off buying U.S. scrap. The last indicator we had placed buying at $260 cfr, for shredded material. We’re also hearing that Turkish rebar demand has softened and prices have fallen to around $400/metric ton, f.o.b. Others are reporting that Turkey is at a standstill with respect to scrap purchases.
Other offshore consumers are said to be buyers of HMS @ $200/mt - $210/mt delivered to East coast piers.
We’re seeing monthly improvements with March exports up 11.5% over February. First quarter 2009 exports to all countries are up 17.5% over comparable first quarter of 2008. The reason? China (Duh!) Their March ferrous scrap intake was a whopping 1.1 million metric tons, far and away the largest monthly import total we’ve ever seen, and for reasons that are not all that clear: more than just bargain prices? Other traditional large buyers such as Turkey and Korea are actually importing less. China’s share of the March total was 60% vs. February’s 29% share.
GoldmanSachs/JBWere’s latest on the nickel market is a downgrade from an earlier assessment. They now forecast LME cash nickel at $4.94/lb for the full year, almost half of nickel’s 2008 annual average.
And while they do see nickel prices benefiting from the pull of other commodities traced to Chinese buying, nickel demand, they say, remains “weak” and that any pick up in price will be “capped by higher production, particularly in the form of nickel pig iron in China.” So far this year LME cash has averaged $4.95/lb. It’ll be interesting to see whether lower average nickel prices this year will alter the production and demand mix for 300, 200, and 400 series of stainless steels.
China, not surprising, is also dominating U.S. copper scrap trade, taking 76% or 62,704 metric tons of the March total of 82,195 metric tons. The next largest buyer was Korea at only 4,264 metric tons. For the first quarter of 2009, however, total copper scrap exports to all countries was 5.9% less than comparable first quarter 2008 figures
According to Chinese customs data, China imported some 400,000mt of copper scrap from all sources in April. As a supplier to China, the U.S. market share works out to be around 12% - 15% of the total/month.
Total March aluminum scrap exports were up an impressive 45% over February at 135,753 metric tons, but remain 40% lower in the first quarter compared with year earlier figures. China (plus Hong Kong) continues to dominate scrap trade – their share worked out to be 72% of the March total to all countries
Speaking at the Metal Bulletin Zinc conference held in Dusseldorf this week, Macquarie’s Adam Rowley is looking for LME cash zinc to trade in the mid-60¢/lb range for the balance of this year vs. last year’s average of approximately 85¢/lb.
At the Instituite of Scrap Recycling Institute’s Las Vegas Convention two weeks ago, Robin Bhar at Calyon was even more bearish on zinc with an annual average for this year figured 54.4¢. A recent forecast from Goldman Sachs has LME cash averaging 55¢/lb this year and next.
