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Nickel and Zinc are two base metals that every commodity investor is talking about right now. Both metals have benefited from a bull narrative of supply shortfall this year.

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On top of that, they both are benefiting from higher demand coming from China which is being reflected in the surge in Chinese imports this year:

Zinc

3M LME Zinc

Three-month London Metal Exchange Zinc price. Source: Fastmarkets.com.

Zinc investors have been drawn in by the narrative of mine closures and a resulting tightening of the supply chain. As zinc prices weakened over the past three years, more than 1.5 million metric tons of mine capacity was either idled or closed permanently.

These closures were further exacerbated when Glencore announced its plans to suspend 500,000 mt of production last October. Although many people called for a tight market in previous years, in 2016 it really seems to be happening while the development of new mines is being restrained by limited capital to invest in new projects.

Other than the supply shortage, we are witnessing strong Chinese demand likely thanks to a boost in infrastructure spending. Net imports of refined zinc more than doubled to 280,800 mt in the first half of 2016, showing strong appetite for the metal. At the same time, China’s own production of refined zinc fell by 1% over the same period.

zinc production - usage

Zinc production – usage in thousands of metric tons. Source: MetalMiner.

Indeed, according to preliminary data recently compiled by the International Lead and Zinc Study Group, zinc is finally in deficit territory for the first time since 2014. The global market for refined zinc metal was in deficit by 64,000 mt from January to May 2016 with total reported inventories falling by 24,000 mt over the same period.

Nickel

3M LME Nickel

Three-month LME Nickel Price. Source: Fastmarkets.com.

In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.

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On top of the supply shortage, refined nickel imports in China have surged by 189% to a record 226,100 mt in the first half of the year.

What This Means For Metal Buyers

When the metal you buy is rising in price while the fundamental picture is suddenly turning bullish, there is no time for second thoughts. Hedge metal needs and protect your budget.

The United Steelworkers and the petitioning domestic steelmakers praised new anti-dumping tariffs against cold-rolled flat steel products, while also saying that the damage from cheap imports has already hurt their operations.

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“Today’s final duty orders by the Obama Administration expands fairer pricing conditions on cold-rolled steel products from five countries, combined with duties placed earlier this summer on the same steel import products from China and Japan,” United Steelworkers President Leo Gerard said. “We have nearly 19,000 steelworkers and iron ore miners still on extended layoff status since last year as the remaining steel trade case investigations continue to reduce huge inventories of unfairly dumped and subsidized finished steel imports that have been stockpiled before the case was initiated.”

Non-coil stainless is included in a new anti-dumping petition. Source Adobe Stock/Jovanning.

Cold-rolled steel flat products from five countries received new tariffs. Source Adobe Stock/Jovanning.

 

The cold-rolled case hit producers in Brazil and the Republic of Korea hardest — South Korea’s POSCO was hit with 64.62% combined anti-dumping and countervailing duties due to a failure to confirm key elements of its response to investigators — but tariffs have already had an effect on steel imports into the U.S. Most of them were already being collected as preliminary duties that became final last week. The initial case was filed last year.

Injury Before Remedy

“The year-long investigation and duty orders show our trade laws need a rewrite in today’s world of steel overcapacity that’s putting American manufacturing workers and miners on layoff in their our own market, while foreign producers keep shipping illegally-subsidized and dumped products,” USW International Vice President Tom Conway told the Times of Northwest Indiana. (more…)