The aluminum market got off to an unusual start in 2014 as physical market premiums rose to record highs in January while LME aluminum prices continued their downward descent. The sharp increase in the Midwest physical market premium was variously attributed to cutbacks in production capacity and long delivery queues at LME warehouses. But aluminum stocks in LME warehouses have also been declining as LME 3-mo. aluminum prices fell from just over $1,800 a ton at the beginning of the year to below $1,700 a metric ton in February. Global risk factors have added to the market uncertainty as early concerns about emerging markets were supplanted by the upheaval in Ukraine and signs of slower growth in China. While a number of analysts are maintaining a favorable medium-term outlook for global aluminum demand, factors currently weighing on investor sentiment include the apparent slowdown in China, the ‘tapering’ of the Federal Reserve’s bond buying program and upcoming changes in LME warehouse load-out rate rules. Macquarie Research (London) is forecasting an average second quarter aluminum price of $1,730 per mt.
Copper prices were especially hard hit in the first quarter amid worrying signals on the health of China’s manufacturing and financial sectors. A larger than expected drop in Chinese exports in February also rattled markets, despite the likely impact of this year’s later Lunar New Year celebrations on trade flows. As sentiment surrounding the world’s largest copper consumer deteriorated, the LME official 3-mo. copper price fell below $6,500 a ton in early March, the lowest level since July 2010. Despite the weakness in refined copper prices, the volume of copper stocks in LME warehouses fell below 255,000 mt in March after having peaked above 678,000 mt in June 2013. Figures from the International Copper Study Group (Lisbon) indicate a global de-stocking of refined copper occurred last year. Including estimated changes in Chinese bonded warehouse stocks, ICSG estimates that copper demand exceeded supply by nearly 675,000 mt during Jan-Nov 2013. With copper supply expected to ramp up this year, Goldman Sachs (New York) has a 12-month copper price forecast of $6,200 per mt.
Price volatility along the steel supply chain, from iron ore to ferrous scrap to steel sheet prices, was on the rise in the first quarter as lackluster U.S. conditions and weak overseas demand continued to take a toll on the market. According to The Steel Index (London), domestic prices for hot-rolled coil fell by $40 per short ton in the month of February amid heightened import competition. And while extreme winter weather conditions helped to keep ferrous scrap supplies in check, obsolete ferrous scrap tags were still reportedly down around $15 per gross ton in early March following larger declines of $25-$35 per gt in February. Overseas demand for ferrous scrap has been particularly weak, with the Commerce Department reporting U.S. ferrous scrap exports (excluding stainless steel and alloy steel scrap) fell 42 percent year-on-year in January. Significantly diminished demand from key overseas scrap markets including Turkey and China and falling iron ore prices have fueled concerns about continued price weakness going forward.
While not as steep as the sell-off in copper, lead and zinc prices also came under pressure in the first quarter of 2014 as concerns about China also featured prominently. China accounted for 42 percent of global refined lead demand last year according to figures from the International Lead Zinc Study Group and year-to-date prices for LME 3-mo. lead were down 9 percent to less than $2,100 a metric ton as of early March. But the extremely cold winter weather across much of the United States was expected to boost domestic demand for lead-acid batteries. Zinc prices held up relatively better than lead in the first quarter, declining 4 percent from the end of 2013 to around $2,000 a ton as of early March. Following six consecutive years of market surpluses, ILZSG estimates the global refined zinc market tipped into a supply deficit in 2013 and analysts widely expect tight zinc market fundamentals this year. Barclays Capital (London) is forecasting an average zinc price of $2,200 a ton in the second half of 2014.
Stainless steel scrap market participants continued to report challenging market conditions at the start of the year as the official price of LME 3-mo. nickel dipped below $13,500 a ton in January. Unlike with most of the other base metals, turbulent conditions in overseas markets gave a boost to nickel prices as the first quarter progressed. Russia’s involvement in Ukraine raised concerns about the potential for retaliatory measures that could restrict Russian nickel shipments. The complete ban on exports of unprocessed nickel ore from Indonesia that came into effect in mid-January had a more direct impact on the market. As a result, the price of LME 3-mo. nickel rose to more than $15,750 a ton in the first half of March, the highest level since December 2013. Macquarie Research has indicated a total Indonesian export ban through the remainder of 2014 would have a significant impact on the global nickel market balance, potentially pushing nickel prices towards $20,000 a ton by the end of the year.
Paper & Recovered Fiber:
As with the metals, softer overseas demand for recovered paper early this year was accompanied by tight domestic market availability thanks to the extreme winter weather conditions. According to Commerce Department data, U.S. exports of recovered paper dropped to 1.85 million short tons in January, a 4 percent decrease from January 2013. Meanwhile, RISI (Bedford, Mass.) reported in early March that domestic prices for old corrugated containers in the Eastern U.S. jumped anywhere from $10 - $25 per short ton as compared to February, the largest monthly price increase in the last 2 years. The harsh winter weather, high trucking costs and diminished trailer availability were listed as contributing factors to the market tightness. Given the slow start on the export front, RISI reported relatively minor changes in West Coast export prices to China in March. Whether Chinese demand for recovered paper picks up in the aftermath of the Lunar New Year celebrations will be a key market determinant heading into the 2nd quarter of 2014.”