Weekly Metals News – March 11-15

The Battle for Dominance: LME vs. CME

The London Metal Exchange (LME), a longstanding pillar in the global metal trade, is encountering stiff competition from the Chicago Mercantile Exchange (CME). The competition is heating up as the CME makes strides in gaining a foothold in the aluminum contracts market, attracting an increasing number of participants and transaction volumes. Despite this growth, the CME still trails behind the LME in terms of global aluminum trade influence.

The burgeoning interest in aluminum contracts at the CME can be attributed to significant shifts in the global market. Protective measures by the US, including duties imposed on aluminum imports from Russia and China, have compelled US market participants to seek alternatives to the LME for their aluminum needs. The CME has been vying for this market share since 2009, leveraging LME scandals in recent years to boost its appeal.

Parallel to the tussle between the LME and CME, the Shanghai Futures Exchange (ShFE) stands as a formidable player within the Chinese market. China, accounting for a substantial portion of global aluminum production—estimated between 40 and 50 million tons annually—remains a critical arena where the ShFE dominates.

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Spent yeast finds a useful application

Austrian scientists have pioneered a sustainable method to repurpose waste yeast from beer production, proposing its use in the industrial recovery of non-ferrous metals such as copper, zinc, nickel, and aluminum. This novel approach taps into the inherent properties of both live and dried yeast, which are effective at absorbing metal ions from solutions.

The cell walls of yeast are composed of molecules adept at bonding with ions of non-ferrous metals, facilitating the extraction of these metals from various solutions. This capability has significant implications for industries, especially in the context of recycling electronic waste.

In laboratory experiments, yeast has proven remarkably efficient at metal ion absorption, extracting:
– At least 20% of nickel
– 50% of copper and aluminum
– An impressive 90% of zinc

These results were consistent across solutions with varying acidity levels, with the absorption process taking between 40 minutes to one hour.

While the concept of using yeast in hydrometallurgy—the process of extracting metals from their ores through aqueous solutions—has been explored globally, its practical application remains limited. The findings from the Austrian team could potentially lead to widespread adoption, marking a significant step towards environmentally friendly metal recovery methods.

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Sibanye-Stillwater’s Battle Against Market Downturn

Sibanye-Stillwater, a global leader in the production of platinum, palladium, and rhodium, faced a severe financial setback with a record loss of $2 billion by the end of 2023. This financial downturn was primarily attributed to a global oversupply of these critical metals, which are essential components of catalytic converters in vehicles. The demand for platinum, palladium, and rhodium experienced a sharp decline, leading to a 33% price drop between 2022 and 2023.

A significant 48% reduction in the availability of secondary palladium further exacerbated the situation. This shortage was linked to the aftermath of the coronavirus pandemic, which slowed down the rate of vehicle recycling. Consequently, fewer catalytic converters—rich sources of palladium—were being recycled, tightening the supply in the market.

In response to these challenges, Sibanye-Stillwater is actively seeking ways to mitigate its financial strain. Measures include pausing or adjusting the timeline of certain investment projects to curb expenditures.

Additionally, the company is engaging in lobbying efforts with the U.S. Congress. A key agenda is to secure a 10% mineral extraction tax exemption for palladium.

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Signs of Recovery in the Global Nickel Market

After enduring a two-year decline, the global nickel market is showing signs of stabilization and slight recovery. Starting from February, when the price per ton of nickel stood at $15,985 on the London Metal Exchange, there has been a noticeable increase, with prices surpassing the $18,000 mark, a level last seen in November of the previous year.

The primary use of nickel is in the production of stainless steel, with China being the largest producer. Consequently, Chinese demand significantly influences global nickel prices. However, the past nine months have witnessed a weakening in China’s industrial sector, leading to reduced orders for stainless steel and, by extension, for nickel.

Another key driver for nickel demand comes from the electric vehicle industry, as nickel is a crucial component of EV batteries. Nonetheless, the growth in EV sales has been slower than previously anticipated, further impacting nickel demand.

On the supply side, there’s been a notable increase in the production of low-grade nickel in Indonesia, contributing to the market’s supply glut. Despite the low prices negatively impacting producers, Indonesia has not indicated any plans to cut back production.

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Rusal slightly increased sales and significantly reduced revenues

In 2023, Rusal, a leading producer of aluminum and aluminum alloys, reported financial outcomes that depicted a mix of gains and challenges. Despite a 6.6% increase in sales volumes, totaling 4.153 million tonnes of primary aluminum and its alloys, the company faced a substantial decline in revenue and profitability:

– Revenue: Fell by 12.6% to $12.21 billion
– Adjusted EBITDA: Dropped by 61.2% to $786 million
– Normalized Net Profit: Plunged by 67.6% to $702 million

Interestingly, the company experienced a positive shift in net cash flow from operating activities, suggesting an improvement in working capital management. However, cash flow from investment activities turned negative, indicating increased capital expenditures or investments.

The increase in Rusal’s sales volume did not translate into higher revenue, primarily due to the declining prices of aluminum on the London Metal Exchange for the majority of the year. It wasn’t until November that prices began to rebound, highlighting the volatile nature of commodity markets and their impact on producers.

A notable strategic achievement for Rusal in 2023 was the significant expansion of its sales to China, which saw a 2.5-fold increase. This growth bolstered the share of Asian countries in Rusal’s sales structure to 38.4%, up from 27% the previous year. The company also maintained a strong presence in the CIS countries, with nearly 32% of its products shipped to these markets.

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Rusal’s Strategic Shift Amidst European Market Challenges

The endeavor to increase market share in China, however, comes with its set of challenges. Given the competitive landscape of aluminum exporters vying for the Chinese market, Rusal might find itself compelled to offer its aluminum at discounted rates. The pressure is further compounded by China’s own burgeoning aluminum production, which saw a 3.4% increase in 2023, reaching 41.5 million tonnes. With projections indicating further growth in 2024 due to new production capacities coming online, Rusal’s quest to carve out a significant market share in China could be an uphill battle.

Competing on price may be Rusal’s viable strategy to gain traction in the Chinese market, considering the stiff competition and China’s self-sufficiency in aluminum production. This strategy, however, could impact Rusal’s profitability and margins.

In addition to China, Rusal is exploring opportunities to increase its presence in other Asian markets, such as India and South Korea. While these markets offer new avenues for growth, the volumes are unlikely to compensate for the loss incurred from the diminished presence in the European Union.

Back home in Russia, Rusal faces a unique challenge. The company’s strategy of selling aluminum at prices higher than those on the London Metal Exchange (LME) makes it a less attractive option for Russian consumers. A strategic pivot towards offering substantial discounts, contingent upon securing long-term contracts, could potentially unlock sales growth within the Russian market.

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