mm-annualreport10092016.pdf

ANNUAL REPORT 2016 OUTLOOK

MetalMiner Annual Metals Outlook – 2016

[email protected] Tel. 773.525.9750

Index

Introduction

Commodities Markets

Industrial Metals Market

Key Price Drivers

Aluminum

Copper

Nickel

Lead

Zinc

Tin

HRC

CRC

HDG

Plate

2

3

5

6

9

10

11

12

13

14

15

16

17

18

2


Let’s say a patient who smokes a pack of cigarettes a day enters a medical office and asks the doctor, “So tell me, exactly when will I get cancer?” The doctor’s response is likely to include recommendations to schedule regular office visits and to alter the patient’s habits – because, of course, the answer to the patient’s question is simply unknowable. In that vein, we believe that the current methods of price forecasting, examining how much or how fast the price of a metal will rise, appear somewhat irrelevant. Lengthy reports analyzing annual metal production and consumption don’t appear helpful to industrial metal buyers, particularly because they are not actionable. The same can be said of probability scenarios based on the consensus of multiple analysts. We view our job a bit differently. First, we analyze the trends in the overall commodities market, the base metal market and each individual metal as well as understand the fundamental data behind these markets. By examining these three distinct elements, we are able to identify the points at which the metal price has a high probability of increasing or decreasing. In this annual report, we will identify and analyze the drivers that buying organizations will want to keep an eye on throughout the year, and pinpoint exact price levels that should signal buyers to make changes to their sourcing strategy for any particular metal. By analyzing and understanding these price drivers, buyers will be ready to react when the market gives clear signs that a new uptrend is developing and remain hedged when the trend is in place – until there is evidence that the trend is over. Since we know that at this time of year (fall 2015), our readers are trying to budget their metal spend, we will attempt to give our best estimates of the average price for each metal in 2016. However, these estimates shouldn’t be used to help you with timing your purchases. Buying decisions shouldn’t be based on predictions, instead buyers need to keep themselves updated, knowing each possible scenario that could cause prices to change direction and react when those scenarios actually happen (not when we think they’ll happen).This report shows you only one snapshot in time – October 2015 – and what we believe the market is doing at that time. Strategic organizations know that market conditions often change rapidly, and our thresholds for hedging or buying as needed in a falling market change as well. To get the most out of this report for your 2015 and 2016 purchases, consider subscribing to our Monthly Metal Buying Outlook. Our monthly price thresholds and recommendations reflect the absolute latest market conditions.

MetalMiner Annual Metals Outlook


Commodities Markets

Regarding a metal price’s movements, we would suggest the following: 40% of price movements are due to the general market 30% of price movements are due to the metal sector 30% of price movements are due to what is going on with the individual metal

With that in mind, looking at the supply and demand picture of a specific metal without taking into consideration what is happening within these other markets, we believe could be a big mistake. Our historical analysis shows that a metal has far greater upside potential when the commodities market overall is in bullish mode whereas the opposite also holds true – a metal has bigger downside potential in a falling commodities market.Although the past doesn’t always tell the future, the study of market history often sheds light on present and future market trends. Before jumping into the bear market we are in today, take a quick look at what caused each bull and bear commodities market during the past 20 years:

In the spring of 2011, commodities entered a new bear market, which is still in place today. In addition and at the same time, the dollar entered a bull market. China’s economic slowdown suppressed the appetite of the world’s largest consumer of commodities.The declines in commodities were not that dramatic during 2012 and 2013. During the summer of 2014, however, the dollar had one of the most spectacular runs in decades, which caused another sharp decline in commodities markets.Finally this past summer, China’s stock market crashed (and as of this writing, there is no evidence that the decline is over). This has increased worries about the stability of the country – resulting in a depressing effect on commodity prices.Furthermore, no discussion of commodities ought to ensue without a discussion of oil prices. That sharp decline by over 60% in a year has dragged all commodities down with it. The decline of crude oil adds credibility to the bear commodity market and at the same time it lowers production and transportation costs of most commodities, including base metals.

220

240

260

280

300320340360380400420440460

200196.72

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Japanesebubble

bursts +Asian

currencycrisis

(1996-98)

Recovery ofAsian

marketsincreases

globaldemand for

commodities(1999-2001)

Globalrecession

raises fears of demandslowdown

(2001-2002)

Global Interest rates attheir lowest level. Feddevalues dollar as the

only way to fightdeflation. Falling dollar

and China’s double-digitannual growth createcommodities boom

(2002-2008)

Fed aggressivelylowers short-termrates to combat

a weakeningeconomy. That

pushed the dollar even lower causing

commodities toclimb sharply(2007-2008)

Recovery of global

markets and a falling dollar

lift commodities(2009-2011)

Dollar risessharply,causing

commoditiesto plunge

(summer 2014)

Commoditiesfinally

succumb tofears of a

recession ofthe globaleconomy

and a strongdollar (2008-2009)

China’s economyslows down, reducing

demand for globalcommodities whiledollar enters a bull

market (2011 - today)China’s stockmarket crashsteepens the

decline incommodities

(summer 2015)

CRB Commodity Index since 1996

Figure 1: CRB Commodity Index since 1996


Commodities Markets

When Will We Hit Bottom?

We are now in the fifth year of the bear market that started in 2011. The speed of the decline has significantly accelerated over the past year. This has caused the CRB commodity index to fall below the low levels of the recession of 2009. Prices are now approaching the lows of 2002, which could act as a psychological support to prices.

Markets move in trends. Every single bear market in history has seen a bull market right behind it. The best cure for low prices are lower prices (as well as the inverse – nothing cures high prices like high prices). We see the former already happening with producers cutting capacity in response to low prices. This will eventually balance the oversupplied market, with prices rising again until they are attractive enough for new supply to come into the market.

The length of this bear market and the steepness of the latest declines make us think that we are closer to the bottom. However, it could take months or even years for this market to hit bottom. As trend-followers, we remain bearish as long as the falling trend is in place, especially while the main macroeconomic drivers (which we’ll analyze soon) keep pointing to more commodity weakness.

Today, we’d characterize commodities markets as unhealthy, and this environment has not helped support metal prices.

In other words, the upside potential of any individual metal will remain limited until commodities turn the other direction. In this period of volatility it is especially critical for metal buyers to keep a close eye on the market and watch for signs of a trend shift.


Industrial Metals Market

It is not a coincidence that the chart of industrial metals (Figure 2, below) looks very similar to that of the CRB In-dex (Figure 1) in the previous section. Base metals are commodities themselves; therefore the same macro drivers apply.

Since 2011, every base metal price has fallen somewhere between 35%-60% and each of them is at or near multi-year lows. In the chart above we can see how the Industrial Metals ETF has made lower highs and lower lows during this period. (By lower highs we refer to the peaks of the price increases and by lower lows we refer to the troughs of the prices. Bear markets are characterized by having lower highs and lower lows. The opposite is the case in bull markets.)Industrial metal prices are very sensitive to economic activity as their demand depends strongly on industrial usage. Slower growth in China and fears the world’s second-largest economy could slow down even further has hit base metal prices significantly. As with commodities, industrial metals remain in a long-term downtrend and we remain bearish on them until we see evidence suggesting the contrary. A strong dollar and weak global demand for base metals (especially from China) have led to a glut of raw materials everywhere. Prices might need to fall further before the market changes direction.

07 Apr Jul Oct 08 Apr Jul Oct 09 Apr Jul Oct 10 Apr Jul Oct 11 Apr Jul Oct 12 Apr Jul Oct 13 Apr Jul Oct 14 Apr Jul Apr JulOct 1511

12

14

15161718192021222324252627

13.12

DBB Industrial Metals ETF since 2007

Figure 2: DBB Industrial Metals ETF since 2007


Key Price Drivers

The fact that commodities and base metals all peaked in 2011 and have fallen ever since is not a coincidence. We see two main price drivers playing a big role at the moment and they will likely continue to do so in 2016:

1. The US Dollar

Base metals as commodities move in the opposite direction to the dollar. There are several reasons why the value of the dollar has an impact on commodity prices. The main one is that commodities are priced in dollars. When the value of the dollar drops, it will take more dollars to buy commodities. Another reason is that when the value of the dollar falls, foreign buyers will have more buying power, typically causing demand to increase as prices drop.Over the past few decades, every important turn in the US dollar was either followed by, or coincided with, a turn in the price of commodities.

In the spring of 2011 the dollar started a new bull market, which coincided with the peak of commodity prices. Ever since, the dollar trended up while commodities trended down. But it wasn’t until the summer of 2014 when the dollar made a decisive move, sharply rising to a 11-year high. This caused commodities (and therefore base metals) to plunge.

07 Apr Jul Oct 08 Apr Jul Oct 09 Apr Jul Oct 10 Apr Jul Oct 11 Apr Jul Oct 12 Apr Jul Oct 13 Apr Jul Oct 14 Apr Jul Apr JulOct 1572

74

76

78

80

82

848688909294

989695.41

Dollar Index since 2007

Figure 3: Dollar Index since 2007


Key Price Drivers

The dollar remains in a bull market and that will keep placing pressure on commodities prices through 2016. Although the dollar has stabilized against other currencies since the spring of 2015, there is another key driver exacerbating the current commodities bear market:

2. China

During the 21st century, China has played a big role in commodity prices, as it quickly became the second-largest economy and the main producer and consumer of commodities.China’s double-digit percentage growth has been a key factor inflating prices during the commodities boom. However since 2011, China has had the opposite effect on commodities. Its economic slowdown has made commodities a less attractive asset for investors.

11 12F M M J J A S O N DA 13F M M J J A S O N DA 14F M M J J A S O N DA 15F M M J J A S O N DA F M M J J A SA

76

74

78

80

82

84

86889092949698

195.80200

210220230240250260270280290300310320330340350360370

95.41

Dollar Index (Green) versus CRB Commodity Index (Blue) since 201120

00

2001

2002

2003

2004

2005

2006

2007 2008

2009

2010

2011

2012

2013

2014

0%

5%

10%

15%

China’s GDP Growth since 2000

Figure 4: Dollar Index (Green) versus CRB Commodity Index (Blue) since 2011

Figure 5: China’s GDP growth since 2000


Key Price Drivers

But 2015 has provided China with the opportunity to play its biggest role:

During the first quarter, Beijing suspended initial public offerings to tighten the supply of available stocks while the Chinese central bank helped to promote brokerages’ margin finance operations. This allowed investors to borrow cash to buy stocks. Those actions helped boost stock shares in the short-term, but they have proven unsustainable in the long-term. Chinese stock shares plunged in June, sending commodities to fresh lows due to rising worries of a slowdown in the world’s largest commodities market.

Policy makers in China tried everything to boost the economy, even an unexpected devaluation of its currency but investors’ fears of China remain high.China’s stock market will give us clues into 2016. We believe that commodities markets will likely turn up at the same time as China’s stock market finds its bottom, and the dollar ends its bull market.So far, as we enter the last quarter of 2015, we remain bullish on the dollar, bearish on China and therefore bearish on commodities and industrial metals. Metal buyers however should keep a close eye on these three drivers for signs of a turn around.

2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar Apr May Jun Jul Aug Sep20152000

2200

2400

2600

2800300032003400360038004000420044004600480050005200

9835

Shanghai Composite Index since 2014

$SSEC (Daily) 3115 (14 Sep)

Figure 6: Shanghai Composite Index since 2014


Industrial buying strategy

China accounts for more than half of the world’s aluminum output and consumption. The aluminum surplus in China has widened over the last few quarters, which caused a surge in aluminum exports, distorting the global supply-demand balance.Current prices however have already made Chinese aluminum exports unprofitable. Although exports have fallen in recent months, they are still up 22% compared to last year. A falling Yuan could make Chinese exports more competitive but sinking aluminum prices could eventually cause a sustained drop in exports, reducing the glut in supplies. Many aluminum producers including Century, Alcoa and Rio Tinto have already cut production and moved to more efficient smelting production.On top of that, aluminum premiums have dropped more than 67% this year, placing even more pressure on the profitability of domestic producers. Over the last three months, premiums ap-pear to have stabilized at lower levels. Despite the fact that low prices have already caused producers to cut production, we believe that it will still be a while until aluminum prices make a substantial upward price move. Weak demand puts pressure on prices as China’s manufacturing, automobile and real estate activity (though some portions of the Chinese construction market appear healthier) continue to sag. Moreover, while we continue to see a strong dollar and fears about China, investors appear to have little incentive to buy aluminum.The Outlook

At some point, prices will make a comeback but until we see signs of a bottom, we continue to expect lower prices as we enter 2016. Based on current market conditions, we could see 3M aluminum prices averaging $1,550/mt in 2016. The lows seen during 2009 ($1,350/mt) could act as a support through the year. Buyers should consider fluctuations below $1,840/mt as normal within the falling market, and reconsider their strategy if prices break above this resistance level.

Aluminum Al

2008 2009 2010 2011 2012 2013 2014 2015 2016JJAS JJA JJA JJAS MJJA MJJAS JJAS JJAS JJA1350

1500

1800

1950

2100

2250

2400

2550

2700

2850

3000

3150

3300

1650

ResistanceSupport

$1550 Average

$1840

$1350

LME Aluminum: October 1, 2015

$1550 Average

$1350

Potential Range

$1840

Aluminum Al

1 China GDP & PMI Data

2 China export volumes

3 Dollar to Euro exchange rate

4 Oil prices

5 Primary aluminum production6 MW Premiums7 Capacity utilization8 European & Japanese premiums

Aluminum Drivers

Buyers should continue buying as needed until prices break above $1,840/mt and macro conditions improve. For information on when to place short-term buys refer to our monthly outlooks.

Aluminum Al


1500

1800

1950

2100

2250

2400

2550

2700

2850

3000

3150

3300

1650

ResistanceSupport

$1550 Average

$1840

$1350

LME Aluminum: October 1, 2015

$1550 Average

$1350

Potential Range

$1840



China, with its huge manufacturing sector, has served as the growth engine for copper demand over the last decade, representing over 40% of global copper demand. China’s slowdown has hit copper prices hard. China’s manufacturing PMI fell to a 77-month low of 47.3 in August, while poor construction numbers have weighed on investor sentiment. The slowdowns in the Chinese manufacturing and construction sectors have significantly hit copper demand, or at least any hopes of demand coming back. US copper demand appears solid, with strong auto and construction numbers. However this doesn’t make up for the slowdown in China as the giant consumes four times as much copper as the US.While demand remains weak, China’s refined copper imports have declined steadily this year while China has increased its copper smelting capacity as well as its imports of copper ores and concentrates.It’s also worth mentioning that a large amount of the copper in China could be tied up in financing deals. A US federal rate hike would be bad news for the profitability of these deals, which could cause these piles of copper to enter markets, further pressuring the supply and demand balance.Copper miners have had to rethink their business plans to combat low prices. Some of them will eventually cut production like the mining giant Glencore PLC who announced that it would suspend production at two copper mines in Africa. On the other hand, producers have done a good job of reducing their unit production costs helped by lower crude oil prices.For this reason, not enough excess capacity has come offline to help support copper prices. While fears of China remain, it could take a longer period of time to shutter excess capacity, further depressing prices.The OutlookCopper has done nothing but fall since 2011 and until we see signs of a turn-around, we remain bearish. Based on current market conditions we could see 3M LME copper averaging $4,700/mt next year. Based on the rate prices have fallen, we could imagine $4,200/mt acting as a floor next year. Buyers should consider fluctuations below $6,220/mt as normal within the falling market, and reconsider sourcing strategies if prices break this resistance level.

Copper Cu


3682

4208

4734

5786

6312

6838

7364

7890

8416

8942

9468

9994

LME Copper: October 1, 2015

ResistanceSupport

$4700 Average

$6220

$4200

$4700 Average

$4200

Potential Range

$6220

Copper Cu


2 China export volumes


4 Automotive and construction

growth

5 Fed rate hike6 Capacity utilization

Copper Drivers

Buy only as needed as prices continue to fall. Don’t be surprised if we continue to see sharp declines during 2016. Buyers should consider buying forward only if prices break above $6,220/mt and the commodities outlook improves. Refer to our monthly outlooks for updated strategic information on when to buy 2-3 months worth of demand.

Copper Cu


3682

4208

4734

5786

6312

6838

7364

7890

8416

8942

9468

9994

LME Copper: October 1, 2015

ResistanceSupport

$4700 Average

$6220

$4200

$4700 Average

$4200

Potential Range

$6220



11

As we discussed in one of our monthly reports, many nickel producers thought that prices would climb on the back of the Indonesian export ban. However, what they did not anticipate involved the alternative supply from Philippine suppliers who have taken up the shortfall. This caused nickel prices to fall more sharply than other metals this year.After exports from Indonesia had fallen, the country had considered the option of relaxing its ban on mineral exports to allow for nickel shipments. However, Indonesia recently decided to retain its export ban. We doubt this will cause prices to rally.Thanks to the Philippines’ higher production, supply remains ample and the real issue involves weak demand. Like with most base metals, China is responsible for over 40% of global nickel demand. Although US data might look encouraging, China consumes 5 times more nickel than the US so growth here can’t make up for the drop in Chinese demand.The slump in prices now has nickel miners rethinking output. Australian miner Mincor Resources said this year it will reduce production by 56% during the second half, as it can’t sustain operations at current price levels. Poseidon Nickel, another Australian miner also shuttered production by placing its Lake Johnson mine into care and maintenance.While some of the smaller mines have struggled, the bigger producers remain in a stronger position as they have maintained production because of scale and lower costs. With a large inventory of nickel ore, refined metal on exchanges and adequate supply of ferro-nickel, the fundamentals don’t suggest a strong argument for nickel prices to rise unless China demand picks up or production is taken offline.

The Outlook

Nickel prices have fallen sharply over the past year. The lows of 2009 ($8,700/mt) might provide support over the coming months but this support level could easily be broken over the course of 2016 if conditions remain bearish. Buyers should consider fluctuations below $13,310/mt as normal within this falling market, and reassess their strategy if prices break the $13,310/mt level. Based on current market conditions we could see 3M LME nickel averaging $9,500/mt next year.

Nickel Ni


9390

11268

15024

16902

18780

2065822536

24414

26292

28170

3004831926

33904

13146

LME Nickel: October 1, 2015

ResistanceSupport

$9500 Average

$13310

$8700

Potential Range

$9500 Average

$13310

$8700

Nickel Ni



3 Philippine exports

4 Indonesia export ban5 Nickel inventory

Nickel Drivers

Although prices seem low today, nickel could fall below the lows of 2009 if macroeconomic conditions don’t improve. We don’t recommend buying large inventories until the outlook improves and nickel breaks the $13,310 resistance level. For details on when to place short-term buys refer to our monthly outlooks.

Nickel Ni


9390

11268

15024

16902

18780

2065822536

24414

26292

28170

3004831926

33904

13146

LME Nickel: October 1, 2015

ResistanceSupport

$9500 Average

$13310

$8700

Potential Range

$9500 Average

$13310

$8700



12

The lead market has been in surplus over the past few years. However, production versus usage has remained fairly stable since 2013, which may have allowed prices to remain stable as well. This allowed lead to become one of the best price performers among the base metals until this year when the metal couldn’t buck the bearish sentiment, falling with the rest of the industrial metals. Another factor that helped support prices during the past few years involved the closure of big mines in 2015 and anticipated closures in 2016. However, that data seems already priced in as lead broke key support levels this year, signaling that investors have lost their appetite for the metal. Like the rest of the base metals, the main drivers include a strong dollar and China’s weak demand.China makes up over 45% of lead’s world demand, with the largest automobile market. During the first half of 2015, auto sales in China grew at the slowest pace in the last five years. On top of that, China’s lead exports have significantly grown, reflecting the weaker domestic demand for refined lead.Despite a supply/demand equation that appears more in balance than many of the other metals, lead will have a hard time bucking the current negative sentiment around weak China demand and a strong dollar.

The Outlook

As we see investors giving up on lead, prices could continue trending lower with the rest of the base metals. The lows of 2010 ($1,500/mt) might provide support for the coming months but this support level could be broken over the course of 2016 while momentum remains bearish. Buyers should consider fluctuations below $1,982/mt as normal within the falling market, and reassess their strategy if prices break this resistance level. Based on current market conditions we could see 3M LME nickel averaging $1,580/mt next year.

Lead Pb


1170

1365

1560

1950

2145

2340

2535

2730

2925

3120

3315

3510

1755

LME Lead: October 1, 2015

ResistanceSupport

$1580 Average

$1982

$1500

Potential Range

$1580 Average

$1982

$1500

Lead Pb


2 China automotive demand


4 Supply/demand balance

5 Mine closures

Lead Drivers

We recommend buying only as needed and waiting until prices show strength before committing to large volumes. Lead would need to break $1,982 before organizations should think about buying forward.

Lead Pb


1170

1365

1560

1950

2145

2340

2535

2730

2925

3120

3315

3510

1755

LME Lead: October 1, 2015

ResistanceSupport

$1580 Average

$1982

$1500

Potential Range

$1580 Average

$1982

$1500



13

Despite a prior two-year zinc deficit, this year, zinc supply has outpaced demand. The main reason for this shift involves China - now producing more and consuming less zinc. Chinese zinc production has boomed, up 18% during the first half of the year and, along with many other base metals, underlies how China not only buys less refined metal but also makes more of its own. This shift toward becoming a net producer of some metals rather than a net consumer and engine of metal demand has significant ramifications on global metals markets. Chinese imports of refined zinc have plummeted, underscoring this new trend. Lower imports and a significant increase in exports have increased availability of zinc in the world ex-China. Consider that Chinese imports of zinc contained in zinc concentrates increased by 51.3% to total 604kt; however, the country’s net imports of refined zinc metal decreased by 66.3% to 126kt. Zinc, like lead, outperformed the rest of the base metals over the past few years, but 2015 has seen prices plummet. After prices broke key support levels this year, we could see further price weakness while investors’ sentiment on China remains bearish.

The Outlook

Zinc prices could continue trending lower with the rest of the base metals. Buyers should consid-er price fluctuations below $1,920/mt as normal within the long-term downtrend, and reassess their strategy if prices break above that level.

Zinc Zn


1197

1330

1463

1596

1862

1729

1995

2128

2261

2394

2527

2660

2793

ResistanceSupport

LME Zinc: October 1, 2015

$1580 Average

$1920

$1450

Potential Range

$1580 Average

$1450

$1920

Zinc Zn


2 China zinc production


4 China imports of refined zinc

Zinc Drivers

Prices have room to fall. Generally, buy only as needed and keep yourself updated for opportunities to buy short-term forward. Longer-term, change your strategy only if macro conditions improve and prices break above resistance at $1,920/mt.

Zinc Zn


1197

1330

1463

1596

1862

1729

1995

2128

2261

2394

2527

2660

2793

ResistanceSupport

LME Zinc: October 1, 2015

$1580 Average

$1920

$1450

Potential Range

$1580 Average

$1450

$1920



14

Since 2014, tin prices declined by 45% over a one-year period. Tin has seen the worst price decline across the base metals. In addition, tin’s fundamentals seem to support price levels.Supply continues to grow after many years of no new mines. Thanks to supply from Myanmar, China has enough raw ore to process that the country has now become a net exporter of refined tin products. As a net exporter, China has added to total global supply. Moreover, weak demand has made it difficult for Indonesian producers to regulate supply to the market. Indonesia historically served as the primary source of tin ore to China, however newer regulations require Indonesian producers to sell tin for export through the ICDX exchange with the intent of helping Indonesian producers move up the value chain. That strategy has largely backfired.After Q1 of 2015, prices have remained range-bound while other metal prices suffered sharp declines. Two factors helped to support prices:First, Indonesia introduced new rules for shipments this past summer, allowing only refined products from legal mines to leave the country. And indeed, Indonesian refined product export numbers have declined. Tin has also reached an “oversold position”, meaning when prices suffer a sharp and steady decline, we’d expect to see a price rebound as short-sellers cover positions and bottom-feeders come into the market. Prices need some time to digest losses.Tin fundamentals, however, will not likely support prices for too long in this current environ-ment. The macro picture would need to improve, otherwise we’d expect lower prices next year. Prices could stay range-bound between $13,400-$16,600/mt, but further weakness in China could cause prices to fall below that price range.

The OutlookWe could see tin trading within its current price range for some time but eventually prices likely have more downside risk. If macro conditions don’t improve we would expect to see prices falling below medium-term support at $13,400/mt and move to support at $11,800/mt. On the other hand, prices breaking resistance at $16,600/mt would be a bullish signal. Based on current market conditions we mark an average price for 3M LME tin at $13,750/mt.

Tin Sn


11949

13556

17070

1877720484

22191

23559

25505

27312

25019

30725

32433

15363

LME Tin: October 1, 2015

ResistanceSupport

$13,750 Average

$16600

$11800

Potential Range

$13,750 Average

$16600

$11800

Tin Sn



3 Myanmar tin mining

Tin Drivers

While prices remain range-bound, refer to our monthly outlooks for short-term buying opportunities. Should prices break above $16,600/mt (with the commodities outlook improving) then consider hedging/buying larger volumes. If prices break support levels at $11,800/mt, then expect prices to fall further and buy only as needed.

Tin Sn


11949

13556

17070

1877720484

22191

23559

25505

27312

25019

30725

32433

15363

LME Tin: October 1, 2015

ResistanceSupport

$13,750 Average

$16600

$11800

Potential Range

$13,750 Average

$16600

$11800



Like the rest of the industrial metals, it should come as no surprise that steel prices have largely fallen since 2011. Like the rest of industrial metals, a strong dollar and a slowdown in China have driven steel prices.China accounts for more than half of the world’s steel output and consumption. While one could characterize demand in the US as muted, Chinese demand looks downright weak. Despite the economic slowdown in China, we still don’t see a corresponding reduction in Chinese steel capacity. This overproduction has created a glut of steel in international markets, further depressing global steel prices. HRC prices have fallen 30% year to date while prices in China have fallen about 38% YTD.With no stop in sight for Chinese exports, it’s no wonder that US steelmakers keep fighting against the flood of imports. In August, US steel producers filed new anti-dumping petitions for hot-rolled steel flat products, from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the United Kingdom alleging that producers in each of the seven countries are selling hot-rolled steel in the US market at less than fair value. This trade case could eventually put a damper on US imports of HRC coming from these countries but we don’t see these petitions having much impact on current price direction.As we will analyze in the following sections, other negative factors have put pressure on steel prices and the industry as a whole. Whereas HRC prices lack upside momentum, we still see no reason to call bottom to this HRC market. Prices could continue to move significantly lower before China cuts enough production to help put a floor under steel prices.The OutlookWe expect steel prices to hit bottom along with the base metals, but we don’t see signs of that happening yet. Therefore, the trend appears intact – we expect prices to continue at these levels or move lower. Although HRC prices appear more stable since May, we could see prices fall further if macro conditions don’t improve. The lows of 2009 ($382/st) will be a level to watch for support in 2016. We recommend buyers continue purchasing only as needed, taking advan-tage of price drops. Should prices break resistance levels at $487/st buyers may wish to reassess their strategies. Based on current market conditions we mark a 2016 average price for US HRC prices at $410/st.

HRC HRC

HRC US ($/st)

200

400

600

800

1000

1200

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

MetalMiner IndX(SM) HRC: October 1, 2015

ResistanceSupport

$410 Average

$487

$382

Potential Range

$410 Average

$487

$382

HRC HRC

1 Total China steel exports

2 US import levels 3 MOH service center inventory

4 Raw material input cost

trends

5 Currency exchange rates

Steel Drivers

Keep buying only what’s needed to meet demand. Consider buying larger volumes only if prices rise above $487/st and macro conditions improve.

HRC HRC

HRC US ($/st)

200

400

600

800

1000

1200

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

MetalMiner IndX(SM) HRC: October 1, 2015

ResistanceSupport

$410 Average

$487

$382

Potential Range

$410 Average

$487

$382



CRC CRC

ResistanceSupport

400

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

600

800

1000

1200

1400

CRC US ($/st)

MetalMiner IndX(SM) CRC: October 1, 2015

$530 Average

$621

$458

Potential Range

$530 Average

$621

$458

CRC CRC

1 Raw material input cost

trends

2 Total China steel exports

3 MOH service center inventory

4 CRC anti-dumping trade case 5 US import levels (volume trends)

Steel Drivers

Buy only small volumes and wait until the macroeconomic outlook improves and CRC prices break above $621/st before committing to large volumes.

CRC CRC

ResistanceSupport

400

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

600

800

1000

1200

1400

CRC US ($/st)

MetalMiner IndX(SM) CRC: October 1, 2015

$530 Average

$621

$458

Potential Range

$530 Average

$621

$458

AUG-14SEP-14OCT-1

4NOV-1

4DEC-14JA

N-15FE

B-15MAR-15APR-15MAY-1

5JU

N-15JU

L-15

AUG-15SEP-15

2000

3000

4000

5000

China CRC Domestic Price in RMB/mt

price

CRC price trends have moved similarly to HRC prices as they share similar price drivers, although a few of the dynamics look a bit different. At the time of this writing, cold-rolled sheet imports have increased by 13% YTD, despite an anti-dumping case filed in late July. Moreover, the US steel industry’s YTD capacity utilization ratio fell to 72.5%, down from 78% last year. Industry ratios above 80% are generally seen as a healthy sign for the industry. Although construction and automotive industries look strong in the US, steel demand from the energy sector has been quite weak. The slump in crude oil prices has taken its toll on energy companies’ capital expenditure budgets. Low energy prices will continue to weigh on steel prices, another reason why we would expect steel and oil prices to bottom at the same time.

The Outlook

With CRC prices lacking upside potential and as long as the macro outlook remains bearish, we will continue to see low prices, marking an average price for 2016 at $530/st. CRC prices would have remained stable, as they had during the past few months, if macro conditions did not wors-en. But in fact, conditions have gotten a bit worse and CRC prices have correspondingly dropped in recent weeks. The lows of 2009 ($458/st) will be a level to watch for support in 2016. We wouldn’t recom-mend buying long-term forward while prices remain weak. Buyers can reassess their strategy if prices break resistance levels at $621/st.



With zinc and aluminum prices falling, we’d like to remind readers to pay careful attention to coating extras. In fact, with both of those base metals reaching 5-year lows, now looks like a good time for HDG buyers to review cost breakdowns for all coated steel products and other 2016 extras. On the import side, according to the most recent government data, hot dipped galvanized sheets and strip increased nearly 20% YTD. We note these increases despite the trade case. The latest automotive numbers have reaffirmed a slowdown in China’s automotive industry. During the summer months, auto sales in China declined compared to last year. If the trend con-tinues, annual auto sales will have declined for the first time over the past +20 years. However, China hasn’t made any commensurate capacity re-adjustments to meet new auto sales levels. Instead, excess material has gone to export markets, which has helped to keep a lid on global HDG prices. Chinese steel exports have increased over 25% YoY in the first seven months of the current year. Another factor to consider is China’s currency devaluation. Steel exports could increase further as a more favorable currency makes Chinese exports more competitive. The OutlookPrices remain weak and it seems clear that there is little that could support steel prices this year. As we have regularly mentioned, placing long-term purchase orders while markets continue to fall might not serve as a strong strategy. Buyers may wish to rethink their strategy if prices go above $626/st. Otherwise, we should expect prices to remain weak with an estimated 2016 average of $560/mt. If prices keep falling, $507/st is a level to watch for support.

HDG HDG

400

600

800

1000

1200

1400

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

HDG US ($/st)

MetalMiner IndX(SM) HDG: October 1, 2015

ResistanceSupport

$560 Average

$626

$507

Potential Range

$560 Average

$626

$507

HDG HDG

1 US import levels 2 Automotive sales (US and China)3 Construction demand4 Raw material input cost trends5 US anti-dumping case 6 Currency exchange rates

Steel Drivers

Consider placing forward purchases only if HDG prices break above $626/st and macro conditions improve. Otherwise, keep buying small quantities as prices fall.

HDG HDG

400

600

800

1000

1200

1400

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

HDG US ($/st)

MetalMiner IndX(SM) HDG: October 1, 2015

ResistanceSupport

$560 Average

$626

$507

Potential Range

$560 Average

$626

$507

AUG-14SEP-14OCT-1

4NOV-1

4DEC-14JA

N-15FE


5JU

N-15JU

L-15

AUG-15SEP-15

4000

4500

5000

5500

China HDG Domestic Price in RMB/mt

price



PLATE

The import data suggests YTD plate numbers are up 12% from the same time a year ago. Plate prices in China are at a 45% discount compared to prices in US. That arbitrage has in part led to the current glut of service center inventory, though less so for plate than other forms of metal.The price differential between China and other countries has been an incentive for Chinese producers to continue exporting. This will continue to happen if China is not able to spur its domestic economy. China has already attempted to boost its economy several times, but growth has failed to pick up. These measures don’t appear to be an early solution to the Chinese slowdown. Talk of the Chinese government’s attempts to curb “zombie” state-owned enterprises remains just that, talk. We will watch for signs that the Chinese have actually begun reducing steel capacity. Perhaps only lower prices will help drive this action.

The Outlook

Interestingly, plate prices have hovered near the lows of 2009. We would give an average price of $540/st for next year. Buyers should expect prices to remain low. We would not suggest placing forward buys unless the macro outlook changes and prices show strength. Prices breaking above $594/st should signal buyers to alter their sourcing strategies. $400/st is a level to watch for support throughout next year.

PLATEPlate

$540 Average

$594

$400

Potential Range

ResistanceSupport

400

600

800

1000

1200

1400

1600

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

PLATE US ($/st)

MetalMiner IndX(SM) PLATE: October 1, 2015

$540 Average

$594

$400

Plate

1 MOH service center inventory levels2 US import levels3 Energy demand4 Total China steel exports5 China demand 6 Raw material input cost trends

Steel Drivers

Continue buying only as needed while prices remain weak and macro-conditions don’t favor a price increase. Consider changing your buying strategy if plate prices break above $594/st.

PLATEPlate

$540 Average

$594

$400

Potential Range

ResistanceSupport

400

600

800

1000

1200

1400

1600

JAN-08

APR-08JU

L-08

OCT-08

JAN-09

APR-09JU

L-09

OCT-09

JAN-10

APR-10JU

L-10

OCT-10

APR-11JU

L-11

OCT-12

JAN-11

APR-12JU

L-12

OCT-12

JAN-12

APR-13JU

L-13

OCT-13

JAN-13

APR-14JU

L-14

OCT-14

JAN-14

APR-15JU

L-15

OCT-15

JAN-15

JAN-16

PLATE US ($/st)

MetalMiner IndX(SM) PLATE: October 1, 2015

$540 Average

$594

$400

AUG-14SEP-14OCT-1

4NOV-1

4DEC-14JA

N-15FE


5JU

N-15JU

L-15

AUG-15SEP-15

2000

2500

3000

3500

4000

China PLATE Domestic Price in RMB/mt

price



n Don’t forget, this Annual Metals Outlook report is updated quarterly and provides long-term support and resistance levels, projecting average price for the next 12 months.

n For a more frequent look at the market, we also offer our popular Monthly Metal Buying Outlook report, prepared using tools and proprietary data developed for some of the world’s largest manufac-turers and available via subscription with a new report issued every 30 days.

n We also offer Custom Research and Forecasting for all the metals covered in the Annual Metals Out-look and Monthly Metal Buying Outlook reports. For more information, please contact Lisa Reisman at [email protected] or (773) 525-9750.

19

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