Jabil's Global Mechanicals Intelligence Archive

Global Mechanicals Intelligence

Q2 2024 | APRIL- JUNE

MARKET OVERVIEW

North America

• The United States released inflation data that exceeded market expectations, indicating continued high inflation in the U.S. This diminishes the probability that the Fed will cut interest rates soon and pushes back any future rate cuts. This will make borrowing money for many institutions more expensive for future expansions.  
• The continued weakness in the U.S. dollar has supported the metals sector.
• Aluminum futures fell below USD 2,190 per ton in late February, hovering around their lowest in one month after the newest United States sanctions refrained from targeting the Russian aluminum industry.
   

EUROPEAN UNION

• Manufacturing production in the Eurozone is still declining. France's February preliminary manufacturing, services, and composite PMIs were above expectations, while Germany's and many other countries were below expectations.
• The market is expanding in Europe due to factors like the introduction of legislation to reduce automobile pollution (EV cars have much aluminum to reduce weight) and the strong demand from end-use sectors like solar cells and packing.
• The ongoing conflict in the Middle East and fears of supply chain disruptions have created upside inflationary pressures, necessitating a careful evaluation of monetary policy measures. Geopolitical tensions in the Red Sea led major shipping companies to redirect cargo vessels to the Cape of Good Hope, raising shipping charges by 75%, likely filtering down to consumers.
   

SUPPLY COMMENTARY

Asia

• The Asia demand has not fully recovered after the Lunar New Year, and inventories continue to accumulate.
• In the past, we could count on additional or new capacity from China and the Middle East, but this material accumulates and creates pricing pressure.

North America

• The high demand for this material in the automotive and transportation industries dominates the North American market, as EV producers use it to lighten their vehicles. 
• The rise in demand for different metals in Latin America, the Middle East, and Africa is due to the increase among end-users for equipment, consumer durables, construction materials, and infrastructure investment projects in these regions.
• An important portion of the world's aluminum usage is secondary or recycled aluminum. Because of its cost-effectiveness and the small portion of the energy needed compared to metal production, many countries are incorporating this solution instead of making brand-new metal from ore.
• With the closure of the New Madrid smelter in Missouri, the United States will lose nearly a third of its primary aluminum smelting capacity. However, supply from Canada and an increase in domestic recycled aluminum in the United States have more than offset the shutdown of the New Madrid smelter

Europe

• The challenges faced by the European aluminum industry will be unlikely to be easy in the short term. The energy crisis continues, and electricity and natural gas prices are expected to remain volatile at high levels, which will continue to put operational pressure on refiners. At the same time, the industry’s recovery will also require time and sustained policy support.

PRICING SITUATION

Asia

• The pessimistic outlook from top consumer China also pressured prices, with the latest official PMI data pointing to four consecutive contractions in the country’s manufacturing.

• Aluminum prices will continue to fluctuate due to macroeconomic factors, including the Chinese economic outlook and expectations for monetary policy. The verdict on the price impact is still out. The YoY data is weaker than the previous year. 
   

North America

• Aluminum futures fell to below USD 2,190 per ton in late February, hovering around its lowest in one month after the newest sanctions from the United States refrained from targeting the Russian aluminum industry.
• Aluminum prices are still trading in a long-term range. At the same time, the Midwest premium also remained consolidated, with prices retracting downward.

Europe

• The LME three-month aluminum contract dropped to USD 2,190 per metric ton.
   

KEY TAKEAWAYS

• Global equity markets trended down as markets awaited the latest Chinese economic report. Negative sentiments toward any potential growth forced prices down in the short term.
• China has excess material on hand.
• Due to rapid and widespread industrialization, quick and widespread urbanization, and increasing investment and development in the automobile industry, Asia-Pacific is predicted to have the fastest expanding market in the long term. 
• The global aluminum market size was estimated at USD 159 billion in 2022 and is expected to hit around USD 286.07 billion by 2032, growing at a compound annual growth rate (CAGR) of 6.1% from 2023 to 2032.

MARKET OVERVIEW

Asia

• Base metals were recently pressured lower on the London Metal Exchange (LME) by a rise in the U.S. dollar and further woes regarding the Chinese property sector.  
• China aggressively reduced the loan prime rate (LPR) by 25 basis points to increase confidence in the housing market. This has raised expectations for metal market demand, supporting the strengthening of copper prices, but it has not materialized yet.  

North America  

• In North America, oil prices are starting to rebound due to disruptions in Libya, the Red Sea, tension in the Middle East, and a strengthening of physical markets in the U.S. These might push some transportation costs higher, impacting many raw material industries.

Europe ​

• The lack of new copper mining projects globally suggests that copper supply growth will fail to match demand growth. This imbalance in supply and demand is expected to continue driving copper prices upwards, with the mining industry potentially facing significant supply issues by 2025 due to inadequate investment. ​
   

SUPPLY COMMENTARY

Asia 

• With the end of the Lunar New Year holiday, production activities are gradually returning to normal, and demand for raw materials across various industries is beginning to rebound. ​
• In Asia, following the traditional off-season in February, the wire and cable industry's production activities are expected to pick up with seasonal recovery, leading to a gradual increase in cable and copper demand. ​
• In Asia, the domestic air conditioning industry is experiencing its peak production season, with February demand expected to strengthen further, providing robust support for copper prices. ​
• Copper inventories in Shanghai have surged well beyond expectations, currently increasing by nearly 110% to reach 181,300 tons, marking the highest level since late March of the previous year. Moreover, trading activity remains subdued at the current stage, suggesting a potential further increase in refined copper inventories. ​
   

North America ​

• The demand for copper is increasing in the United States, driven by a robust construction sector, advanced telecommunications infrastructure, and a significant automotive industry. ​
• In Canada: Influenced by its growing energy sector and infrastructural development. ​
• In Mexico: The growing market is influenced by industrial growth and increasing urbanization. 

Europe ​

• According to the latest data from the London Metal Exchange (LME), copper inventories in registered warehouses currently stand at 128,300 tons, which has remained at its lowest since September 2023. Since December of the previous year, LME-registered copper inventories have decreased by nearly 25%, indicating a tightening supply situation in the market. ​
• After high-profile mine disruptions, suspensions, and negative guidance revisions in the final quarter of 2023, copper is now subject to a tightening global balance. EU is concerned that supply might not keep pace with demand in 2024. ​

PRICING SITUATION

Asia ​

• Short-term demand is not optimistic; spot transactions are depressed, significantly suppressing copper prices. ​
• Despite China's decision to reduce its LPR by 25 basis points following the Spring Festival, the market has yet to reflect this action. Consequently, there hasn't been an increase in demand for copper as anticipated. 

North America

• Global copper price has been stable for the last three months, moving only 3% to 5% on average.
• Copper futures were near $3.85 per pound, easing from the three-week high of $3.9 on February 22nd as markets continued to assess the impact of stimulus and looser monetary policy on demand for base metals in China. 

Europe

• Copper prices fluctuated in recent months, mainly due to macroeconomic factors and China’s economic outlook.
• European copper cathode premiums were stable this week as trade continued to occur steadily amid no uptick in spot demand.
• Copper scrap price relative to the LME also remained stable.

KEY TAKEAWAYS

• A 25-basis point reduction in China’s LPR has not translated well in the trading market. The property market in China will likely continue to be deeply troubled this year.

• The rising demand for copper in the building and construction sector, the thriving manufacturing sector, and the heightening demand for copper in electrical wiring to meet the power requirements across the United States and Canada are the major market drivers, which will drive a price increase.

• The lack of new copper mining projects globally suggests that copper supply growth could fail to match demand growth by 2030. This imbalance in supply and demand is expected to continue driving copper prices upwards, with the mining industry potentially facing significant supply issues by 2025 due to inadequate investment.

• The lack of new copper mining projects globally suggests that copper supply growth could fail to match demand growth by 2030. This imbalance in supply and demand is expected to continue driving copper prices upwards, with the mining industry potentially facing significant supply issues by 2025 due to inadequate investment.

MARKET OVERVIEW

Asia ​

• China aggressively reduced the loan prime rate by 25 basis points to increase great confidence in the housing market. This has brought expectations for metal market demand, supporting the strengthening of steel prices, but it has not materialized yet. ​
   

North America ​

• Oil prices are starting to rebound due to disruptions in Libya, the Red Sea, tension in the Middle East, and a strengthening of physical markets in the US, which might push some transportation costs higher.   ​
   

Europe ​

• Manufacturing production in the Eurozone declined. France's February preliminary manufacturing, services, and composite PMIs were all above expectations, while Germany's and other countries were below expectations.

SUPPLY COMMENTARY

Asia ​

• Downstream industries shut down early for the Spring Festival holiday, reducing orders for electric furnace and billet steel plants.  Production activities are gradually returning to normal after the Holiday, and demand for raw materials across various industries is beginning to rebound. ​
• Steel mills reduced their production output due to annual maintenance and cost pressures. In February, the planned production of hot-rolled coil saw a significant decline compared to January. ​
•  Regarding inventory, steel mills replenished stocks before the Lunar New Year holiday. According to the 55-city index, inventories increased in all seven major regions, rising by 210,500 tons. ​
   

North America ​

• In the United States, weaker buying programs defined the February trade, as steep declines in demand for hot-rolled coil and thinning order books through January prompted many flat-rolled consumers to reduce purchases. 
• Numerous suppliers across the U.S. reported difficulties placing all their tonnages this month as some mills canceled unshipped orders at the start of the trade while others trimmed down buying programs. 
• U.S. weakness was not universal, as lingering supply tightness in some obsolete grades helped shield prices, specifically in most regions, from steeper declines. ​
   

Europe ​

• Supply has been affected by the conflict between Russia and Ukraine, high energy prices, poor demand prospects, and the European steel industry's decline.  There are still great uncertainties in steel demand, which may continue to weaken the demand for downstream steel. ​
   

PRICING SITUATION

Asia ​

• China's steel demand has hit its lowest point in nearly four months, driven by mounting worries over weak demand from manufacturing sectors for ferrous metals. ​
• This comes alongside a deteriorating Chinese housing market, which has seen a sharp 34% decline, resulting in steel prices dropping to USD 800 per ton from USD 1,300 per ton in April 2023.  ​
• The prices could be expected to fall further during 2024 if the second-largest economy does change course.
• High inventories in China following the end of the Spring Festival holiday are forcing lower raw material prices.  

North America ​

• HRC (hot-rolled coils) spot prices slumped 10% week-over-week into USD 800 to $900 per ton, with reports of mills continuing to discount larger volume orders. Futures contracts for March, April, and May deliveries trading between USD 770 and USD 800 per ton point to a potential price floor emerging. USA buyers predominantly avoided spot purchasing amid recent price declines. ​
• Lead times in the United States are reported to be four to five weeks. ​
   

Europe ​

• EU Dockside ferrous scrap prices in northwest Europe fell sharply over the past week as exporters lowered their collection prices following drops in bulk export markets. ​
• Recent price declines largely reacted to the quick drop-off in the Turkish scrap import market, given its role as a global seaborne bellwether and largest ferrous scrap importer. ​
• In Q1 2024, iron ore prices are anticipated to continue being influenced by market sentiment rather than fundamental supply and demand factors. Given the subdued state of construction fundamentals, People’s Bank of China (PBoC) announcements are expected to support prices instead of causing significant increases. ​
   

KEY TAKEAWAYS

• Buyers are largely waiting for the steel price to continue sliding down until it reaches its bottom in the next few months.   ​
• The Middle East situation will continue to affect fuel and transportation costs. ​
• China is expected to introduce additional measures to stimulate its economy.