MetalMiner September Newsletter
MetalMiner
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Three Articles?
About MetalMiner
Price risk is naturally built into most metal contracts. Locking in volume using a price index with suppliers means your contract is prone to market volatility, on a delayed basis.
There are other ways to handle price adjustments. MetalMiner Insights provides alternative sourcing strategies which help mitigate price risk by providing price forecasts and price volatility alerts for your specific metal category, grades and forms.
Analyst Commentary
China is Still the Largest Exporter in the World - But of What Will Surprise You!
For as long as we have been in the metals industry, China has had an oversized impact on metals prices - either because China is the 800 lb gorilla in terms of demand, or supply as a key producer. China matters because that country’s demand (and much of its supply) have undergirded the notion of a “commodity super cycle”. Forgive us for being skeptical (MetalMiner has long not bought into the notion of any such cycle). And for the first time in many years, the data is telling us so.
?How you may ask??
Let’s start with the macroeconomic data and then we can turn to metals specifically.
Here are ten macroeconomic signals that make China look bearish structurally for the medium to long-term:
MetalMiner has written about nearly all of these recently and over the years.
Without a fast growing China, a big chunk of the demand or commodity super cycle balloon faces an outsized hole!?
Now let’s take a look at what is happening from a metal market price perspective. In short, the relationship between China steel prices and US steel prices has gotten tighter in the last 3 years. In fact, HRC prices in China and the US are now correlated at 89.59% vs a 10+ year correlation of 79% (going back to January of 2013). Base metals look a little different and we are watching these correlations closely. The correlations have weakened over time (see chart below) with long term correlations between aluminum, copper and tin primary prices in China with LME equivalents at 93%, 97% and 97% respectively going back to 2013.?
What does this data tell us? It tells us that China’s structural demand problem might also now be its new largest export, particularly for steel. Perhaps China has less of an influence on aluminum, copper and nickel. And just as the rest of the world saw China’s growth as a driver of metals prices, it’s deflationary cycle certainly appears to impact global steel prices.
Source: MetalMiner Insights, charts & correlation analysis
领英推荐
Chinese Steel Exports Hit Fever Pitch
Speaking of China, steel exports appear to be the exception from the commentary above. The world’s largest producer is forecasted to hit an 8-year high in 2024. Despite the rising number of tariff measures on China, the country continues to flood the global market with steel it has no means of consuming amid the multi-year downturn of its property sector. Estimates suggest total steel exports could reach over 100 million tons this year.
Other Asian countries remain the leading destination for China’s exports. This explains why some of them have been named in a recent?trade petition filed by a number of U.S. mills and the United Steelworkers union regarding coated flat rolled steel better known as HDG. However, an increasing number of exports have started to make their way into Europe as well. While this will almost certainly guarantee further anti-dumping and trade measures, it shows the difficulty of blocking a country like China out of global trade. The invariable result of China’s longstanding supply glut will have a deflationary impact on global steel prices, which will make recent steel price increases witnessed in both Europe and U.S. difficult to sustain. The rise in Chinese steel exports to Europe could also see the correlation between European and Chinese steel prices strengthen from where it currently stands since 2019 at a negligible 33%.
- Nichole Bastin
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