Whoever first uttered the phrase “May you live in interesting times” must surely have imagined today’s US metals markets.
The saying – part blessing, part curse – is an apt summary of the present day. From pig iron to nickel, aluminum to steel, prices in the United States soared again due to geopolitical events, supply chain strains and general uncertainty.
As domestic markets began to stabilize after record price increases in 2021 and the economy came to terms with the realities of a post-pandemic world, inflation hardened in the first quarter of 2022, Russia invaded the Ukraine and a new variant of COVID-19 has emerged.
The combination of factors is turning the markets upside down. The conflict between Russia and Ukraine has had the most profound impact.
The two countries accounted for about 62% of U.S. pig iron imports in 2021, and the war has removed a significant amount of the main raw material electric arc furnace steel for U.S. steelmakers and global producers. Approximately 70% of steel production in the United States is based on EAF.
American buyers have had to look to replace Russian and Ukrainian equipment since the February invasion, with Brazil taking over most of that business. S&P Global Commodity Insights’ Platts Brazilian pig iron export valuation nearly doubled from January to mid-March, topping $950/t in early April.
In turn, the Platts CIF pig iron price valuation in New Orleans rose about 91% in mid-March, reaching $1,030/mt, the highest level since S&P Global began pricing in January 2018. The weekly U.S. pig iron import valuation is now down $90 from the recent but still high peak.
Pig iron often acts as a relief valve for steelmakers when scrap prices rise. However, as pig iron prices skyrocketed in the United States, so did scrap. The Platts US Midwest No. 1 bushel price has jumped 53% to $780/liter since early February, while the Platts TSI US Midwest shredded scrap index has risen 30% to $610/liter during the same period.
As raw materials soared, U.S. finished steel markets saw a price spike. The Platts TSI US Hot Rolled Coil Index rose more than 50% in just over 30 days after the invasion, hitting a recent high of $1,500/st before falling slightly.
Supply problem pushes up prices of non-ferrous metals
The rise in US prices linked to the uncertainty of Russia is not limited to the ferrous complex. The global price of nickel is up about 57% so far this year and Platts delivered nickel cathode premium nearly doubled to 17.771 cents/lb.
In addition to Russia, which accounts for around 17% of global nickel production, inventories remain low for the material – as well as metals such as copper, aluminum and zinc – after a global market deficit the last year, according to data from the World Bureau of Metal Statistics.
As the war in Ukraine escalated, the price of nickel more than doubled in early March to a record high of over $100,000/mt. The rapid rise led to the suspension of trading by the London Metal Exchange and the cancellation of around $3.9 billion in trades.
The suspension of trading and subsequent shutdowns have generated even more uncertainty. And uncertainty – whether related to supply, demand or other market dynamics – can drive prices up, as it has in the US aluminum market.
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Platts’ aluminum transaction premium in the U.S. Midwest is up nearly 32% year-to-date, currently standing at 39.8 cents/lb – just below the all-time high of 40.1 cents reached at the end of March.
The US market is the largest importer of aluminum in the world, providing around 75% of the primary aluminum it consumes.
Exports of primary aluminum to the United States from Russia, one of the world’s top producers, had increased towards the end of 2021 – reaching 22,854 tons in December, before falling to just 7,348 tons in February, according to US census data.
Much of this decline can likely be attributed to uncertainty surrounding aluminum supply from Russia. Its “most favored nation” trade status has been scrapped by Congress and the Biden administration, and the threat remains that exports will be cut short by potential sanctions or other trade action.
At the same time, demand for aluminum in the United States remains stable, supply tight and freight rates high, according to market participants. As in other metals segments, this resulted in higher prices.
China lockdown adds uncertainty
The recent COVID-19 outbreak in China has also muddied things for America.
Chinese aluminum smelters have increased output in recent weeks on the back of rising power supplies and profits. However, the “zero-COVID” lockdowns in some of the country’s biggest cities, including Shanghai, have some wondering where the extra production will go if consumer demand there is shaken.
The closures mean that the global workshop workforce is mostly housebound and some manufacturing facilities have been forced to close temporarily.
COVID-related measures could lead to a sharp drop in short-term imports by China, further supply chain disruptions and a flood of goods seeking to be transported from warehouses and ports once restrictions are lifted.
China’s unneeded domestic aluminum supply could seek a home in other regions, displacing tons of those markets, causing a domino effect that would generate volatility around the world, including in the United States.
Some predict that additional global aluminum supply could reach US shores and wonder whether this – along with a change in demand or a change in the status of US aluminum import duties – could lower prices and send market players on a new kind of roller coaster. .
As global markets become increasingly interconnected, it’s likely that the blessing and curse nature of “interesting times” will become the norm for America for some time to come.