2019.08.27 – Spot Markets: Observed New Metal-In-Concentrate Inventories; Trade Spats Worsen

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EXECUTIVE SUMMARY

  • We upgraded X, FCX, HudBay Minerals and Norbord to Overweight in August as valuations improved at lower share prices. We are impressed that Norbord cut costs to a $14 or $20/000 sq ft advantage over WY and LPX. We value X’s captive iron ore and integrated processes, where up to 23 m.t. of proposed electric furnace expansions may drive up scrap prices towards $600 to drive up X’s selling prices. FCX and HudBay benefit as at least 5 major copper projects of about 1 mmt have been delayed.
  • While total exchange inventoriese are near 11 year lows at 2.38 mmt, large buildups of unrefined metal- in-concentrates in 2019 first-half include > 0.7 mmt CU, 0.6 mmt ZN, 0.2 mmt PB and record bauxite and nickel mine outputs permit higher alumina and nickel supplies. In 2019 the inventory gains occur at mines, concentrators and smelters prior to refined output as the refiners slow with doubts about orders.
  • It is unknown whether or not a recession will develop, or whether any recession is shallow or deep. We we see evidence of firmness across several markets that we follow as though a long destocking cycle has concluded in each of these. #1 Nickel pirce to $7.20 from $5.50 in past month. #2 Hot-rolled sheet to $585 from $525/ton in past two months. #3 Lumber from $319 to $360/000 bf since June. #4 OSB up $20-$30/000 sq ft since June. #5 Steel scrap up $20 to $38/t for August. #6 OCC containerboard scrap up $1/ton for August.