Author Archives: Jeff Yoders

Indonesia introduced new rules last week that will allow exports of nickel ore and bauxite and concentrates of other minerals under certain conditions in a sweeping policy shift by the key global supplier, Reuters reported.

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A ban on unprocessed ore exports was imposed in 2014 to, the thinking went, encourage investment in mills and smelters in the islands. The government of Southeast Asia’s biggest economy has faced a hefty budget deficit since and missed its 2016 revenue target by $17.6 billion.

The resumption of shipments may have been drafted to help stop the gap.

The new regulations, which took effect on Wednesday, sent nickel prices tumbling more than 5% to a four-month low of $9,660 a metric ton before they recovered.

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The rules include broad changes to permit extensions, which may now be applied for up to five years in advance of expiration, as well as new divestment requirements.

A 2014 Bureau of Labor Statistics report showed that companies in the top quartile of inventory turnover tend to have no more than three to four days of raw materials on hand. For metals suppliers this could lead to shortages and disrupt customers’ supply chains.

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Supply chain financing, though, can help buyers and sellers work to manage supply and cost issues. The role of supply chain finance is to optimize both the availability and cost of capital within a given supply chain by aggregating, packaging, and utilizing information generated during supply chain activities and matching this information with the physical control of goods.

If you’re buying metals for product manufacturing, for example, it can be beneficial to have the cash-flow flexibility of supply chain financing, especially if you’re a smaller manufacturer. In supply chain finance, an agreement is made between the buyer and supplier to use credit facilities or other financial instruments to bring down costs and risks for both parties.

Buyers can utilize “buy now, pay later” open account transactions which can be counted as regular payments for a continuing flow of goods rather than specific transactions or set prices and quantities. Buyers can extend payment terms with their suppliers. Suppliers, such as metals service centers, can use their credit ratings to bring in customers who, without support from banks, might otherwise not be able to do business with them. Other third-party financiers can also join in the agreements and assist either side with loans or other financing instruments.

In aerospace and defense, this could mean optimizing purchasing across a global supply chain. SCF provider Taulia recently announced a partnership with Exostar, which provides cloud-based solutions to the sector, as well as to the life sciences and health care sectors. There are more than 100,000 aerospace and defense corporate buyers using Exostar’s solutions that now have access to Taulia’s supply chain finance offerings. Taulia’s SaaS product is being integrated directly into the Exostar interface so if you’re a small manufacturer providing electronics or metal parts, you could have the same buying advantages of a larger organization.
Earlier last year, TradeRocket and Hitachi Capital America entered a similar agreement. TradeRocket provided Hitachi Capital with a pool of mid-market buyers (companies with annual revenues of $25 million to $500 million) who, once underwritten, would be able to use TradeRocket’s early pay invoice option to its entire supplier network.

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Giving buyers payment flexibility and suppliers access to new markets is a win-win for both bottom lines.

As the new year dawns, we turn our eyes toward the metal markets of 2017. Will the bull run of 2016 continue? What will be the standout performer of the metals we track? Will New Coke finally make a comeback as Even Newer Coke? Only to re-reintroduce Coke Classic in all its aluminum-encased glory? We have predictions. Lots of them.

Steel on Wheels

That’s right, the North American steel market is picking up steam and chugging toward expanded production and renewed profitability for many of the companies we track. Contributor James May said this week that flat products will enjoy higher demand while hot-rolled coil capacity will expand thanks to a combination of new capacity going online (Big River Steel‘s plant is set to open) and the trade policies of the incoming Trump Administration.

Iron Ore Overseas

China consumes over 70% of the world’s seaborne iron ore and a strong year for the Chinese economy bolstered the steelmaking raw material from from $40 per metric ton to $70/mt in global markets last year, an increase that helped re-energize the bottom lines of mining majors Rio Tinto Group, Vale SA, BHP Billiton and Fortescue Metals Group.

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This week, Sohrab Darabshaw pointed out that that was cold comfort to smaller miners in India who are still hamstrung by high export taxes and can’t get their ore into China or other lucrative world markets. That could change soon, but MetalMiner Co-Founder Stuart Burns was even more cautious, reminding us that physical iron ore prices were influenced by a rampant futures market last year.

Source: Adobe Stock/Geargodz

“The interplay of the futures market, physical demand from steel mills, and seaborne iron ore supply has too many variables to predict 2017 and ’18 with any certainty,” he said.

Trumping Trade

While some of the markets are still murky, one thing we all agreed on this week was, once Donald Trump is installed as President of the United States, 2017 certainly won’t be boring when it comes to international trade. Read more

U.S. customs officials have seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world, the Wall Street Journal reported this morning.

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The Obama administration also launched a formal complaint Thursday against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country’s vast aluminum industry.

The move against the stockpile of aluminum connected to Chinese billionaire Liu Zhongtian, the owner and CEO of aluminum company China Zhongwang, is the strongest action yet by federal authorities probing whether U.S. companies connected to the Chinese magnate illegally avoided nearly 400% tariffs by routing the metal through other countries.

An aluminum stockpile like this one has been seized by Homeland Security.

We previously reported the whereabouts of the aluminum stockpile as it curiously moved around the globe. China Zhongwang has denied any connection to the stockpile or its movements, but hundreds of shipping containers of aluminum were seized this week by the Department of Homeland Security. The containers are owned by Perfectus Aluminum, Inc., a California company founded by Mr. Liu’s son, Liu Zuopeng. Perfectus is now run by one of Liu’s close business associates, Jacky Cheung, who runs several companies with connections to Liu.

Homeland Security is conducting laboratory tests on the aluminum to determine whether the metal is restricted under U.S. law, according to federal court documents. The seized aluminum is in the form of pallets and court records don’t state which company manufactured the aluminum. The WJ saw shipping records which show that a separate company called Peng Cheng — which later became part of Perfectus in a merger—imported the metal from an affiliate of China Zhongwang in 2013 and 2014.

Homeland Security and the Justice Department are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud. The WSJ reported that Homeland Security agents have also questioned former employees of the companies associated with Liu, according to people familiar with the investigation.

WTO Case Against Chinese Aluminum Subsidies

As for the subsidies case, the U.S. Trade Representative‘s office said in a formal complaint that China’s actions in the aluminum sector violate WTO rules prohibiting subsidies that cause “serious prejudice” to other members of the trade body. Read more

Rising raw material surcharges are driving up U.S. steel prices, particularly stainless surcharges. The Allegheny Ludlum304 and 316 stainless surcharges rose 34% and 25%, respectively, on the MetalMiner IndX from December to January.

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The chrome portion of our prices jumped month on month and Platts reported that the same thing happened to its stainless benchmarks.

Turner Construction Index Posts Strong 4Q

Turner Construction Company reported recently that its Fourth Quarter 2016 Turner Building Cost Index — which measures costs in the nonresidential building construction market in the U.S. — has increased to a value of 1006. This represents a 1.11% quarterly increase from the Third Quarter 2016 and a 4.90% yearly increase from the Fourth Quarter 2015.

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The U.S. construction market continues to experience broad growth, with the West and Southeast regions seeing more significant gains, and the Northeast and Central regions seeing more moderate gains. While raw material prices have remained flat, they have experienced an overall gain this year and fabricated material prices have seen a continuous growth this quarter.

The Chinese yuan weakened on Monday afternoon after its midpoint was set at its lowest level in half a year.

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China’s authorities sets the mark 0.87% or 594 points lower than last Friday, the biggest daily decline since late June in 2016. Traders are allowed to trade up to 2% either side of the reference point for the day.

The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, plummeted to 14.05% from last Friday’s 61.33%, down 4,728 points.

The People’s Bank of China set the yuan midpoint at 6.9262, a sharp drop for the renminbi compared with Friday’s fixing at 6.8668.

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China’s central bank does not allow the currency to move more than 2% from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
Onshore, the dollar was fetching as little as 6.8679 yuan last week, compared with 6.9318 yuan at 9:54 a.m. today.

It looks as if European Union tariffs on Chinese solar materials will last a little longer.

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In a presentation of the preliminary results of its anti-dumping and anti-subsidy investigation into the import of Chinese solar modules and photovoltaic cells into the E.U., the European Commission has proposed an extension of the current tariffs on Chinese solar panel raw materials for two more years once the current tariffs expire in March.

Based on confidential documents Reuters reviewed, the Commission said ending the measures would likely lead to a continuation of Chinese subsidies for the solar sector and a significant increase in dumped imports of solar cells and modules.

So, no lucrative European markets without tariffs for China, but some in the European solar industry are also blanching at a continuing lack of competition for solar projects.

SolarPower Europe president Oliver Schaefer told PV Magazine that the Commission’s recommendation to maintain the trade measures for another two years is the wrong decision, stressing that the organization will look to E.U. member nations to redress some of what it calls the “inaccuracies reported.”

“Opening ex-officio interim reviews on the minimum import price mechanism is simply tinkering at the edges of a profound issue of European-wide importance,” Schaefer said.

European manufacturers of the panels, however, were all for continuing the tariffs. EU ProSun, a manufacturers’ group that includes Germany’s SolarWorld said there is no shortage of competitively priced cells and modules in Europe and that the depressed E.U. market was due to political decisions, such as to reduce payments for green energy, not the import measures.

The EC report, itself, said turning back the tariff measures would only have a limited effect on demand and that comparisons between the 50,000 people working in importing and installation and the 5,000 to 10,000 in manufacturing were not appropriate. Job gains in the former could be outweighed by losses in the latter, the report stated.

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Demand for solar panels in Europe is certainly stronger than North America right now, but both industries still rely heavily on government subsidies and prices, as a result, have stabilized at the low level we’ve observed for over three years now. The Renewables MMI was up one point this month.

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As any good rare earths buyer knows, China produces more than 85% of the global supply of rare earths and the country is also the largest consumer.

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What if China was to become a net rare earths importer? A recent report by Adamas Intelligence, a rare metal research firm says that China will, eventually, become just that.

The report reiterates how substitution and replacement have hurt demand over the last six years. It says 30,000 metric tons of annual rare earth oxide demand were lost due end-users’ growing concerns over supply security. On top of that more than 20,000 mt were lost as a result of the ongoing phase out of mature technologies such as fluorescent lamps, some nickel-based batteries, and hard disk drives used in PCs.

This isn’t news to anyone following our Rare Earths MMI. It’s been flat for the last three years and has remained steady at 17 for the seventh straight month.

However, they will eventually recover. According to Adamas, following a lengthy and painful adjustment, the rare earths market will return to strong global demand growth for a number of rare earth elements including neodymium, praseodymium, dysprosium, and lanthanum by 2020. The resulting rise in price will help “sustain the profitability and growth of today’s dominant producers, and incentivize continued investment in exploration and resource development globally”

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Rare earths demand will boom from 2020 onwards as growth rates of top end-use categories such as electric vehicles, wind turbines and other high-tech applications accelerate. One of Adamas’ key takeaways is that as China’s insatiable demand for rare earth elements continues to grow over the next decade, China’s domestic production will struggle to keep up in all scenarios, leading the nation to become a net importer of certain rare earths at the expense of the rest of the world’s supply security. In fact, by 2025 China’s domestic demand for neodymium oxide for permanent magnets alone, Adamas believes, will be poised to exceed total global production of neodymium oxide by 9,000 mt.

So, even if the market looks essentially flat for the next nine years, the promise of renewed rare earths demand is still there.

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After President-elect Donald Trump targeted Toyota Motor Corp. yesterday with a taunt about the Japan-based multinational’s plan to build a new plant in Baja, Mexico, to build the Corolla model, both Toyota and Japan are fighting back.

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Trump warned Japan’s biggest automaker that it will face heavy penalties if it chooses to make cars for the U.S. market in Mexico, writing “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.”

The president-elect’s tweet sent shares of Japanese automakers makers sliding today. An angry Japanese government and corporate establishment pushed back against Trump’s criticism of Toyota.

“Toyota is responsible for large employment at U.S. plants such as in Kentucky. It’s questionable whether the new U.S. president has a grasp of how many vehicles Toyota builds in the U.S.,” said Taro Aso, Japan’s finance minister.  Hiroshige Seko, minister for trade and industry, added that the Japanese government would do its part to explain to the new U.S. administration about the contribution of the country’s car industry to the U.S. economy.

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Other Japanese CEOs also chimed in in support of Toyota including Sony’s Kazuo Hirai and Nissan’s Carlos Ghosn in what seemed like a full-court press from “Japan, Inc.” condemning Trump’s tweet.

Welcome to the first MetalMIner Week-in-Review of 2017!

This week, trade issues came to the forefront as President-elect Donald Trump, now just two weeks from his inauguration, named veteran trade lawyer and former Reagan administration official Robert Lighthizer as his U.S. Trade Representative.

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While nobody could accuse China of getting a free ride from the current administration, I think it’s safe to say the U.S. Trade Rep’s office website won’t have an endorsement of the Trans-Pacific Partnership on it come January 20th.

Michigan or Michoacan?

Who gets hurt the most by a bunch of fair trade hardliners coming into office with Trump? It might look like Mexico right now — Ford Motor Company just pulled up stakes on a new facility there and instead invested in Michigan — but it’s actually China, as the U.S. trade deficit with them is our largest and the director of Trump’s National Trade Council, Peter Navarro, is a longtime critic of the way the People’s Republic trades with the U.S. and the entire world. Expect Navarro, Lighthizer and Commerce Secretary nominee Wilbur Ross to set their sights squarely on China’s trade with the U.S.

Also, China says it’s really serious about cleaning up its dirty steel mills and smelters this time.

From Russia with Hard-to-Find Oil

President-elect Trump has had mostly good things to say about Russia and he’s even boasted that he’d “get along well” with Russian Federation President Vladimir Putin, despite intelligence community accusations that Russia “hacked” the recent election by providing information from the Democratic National Committee and Democratic Nominee Hillary Clinton’s campaign manager, John Podesta, to organizations such as Wikileaks for wide distribution and dissemination. Trump may get tested early on that Russian reset, anyway, because Russia is already reclassifying its biggest shale oil find to avoid sanctions placed on the federation when it annexed Crimea.

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If Russia can avoid sanctions on its oil exports what will that say about any other country thumbing its nose at international law? Interesting trade times coming up.