Author Archives: Jeff Yoders

The leaders of the Environmental Protection Agency and Department of Transportation said today that they will revisit Obama-era corporate average fuel economy standards on greenhouse gas emissions for 2022 to 2025 model cars and light trucks, a win for automakers that said the standards were too tough to meet.

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President Donald Trump, speaking at the American Center for Mobility in Ypsilanti, Mich., went even further saying his administration would cancel Obama’s executive order establishing the standards outright.

“Today I am announcing we are going to cancel that executive action,” President Trump said. “We are going to restore the originally scheduled midterm review and we are going to ensure any regulations we have protect and defend your jobs, your factories. We’re going to be fair.”

The American Iron & Steel Institute, the largest industry association of steelmakers, which count themselves as important members of the automotive supply chain, praised the action.

“AISI is pleased the Administration has withdrawn the final determination of the EPA Light Duty Vehicle Emission Standards issued in January,” said Thomas J. Gibson, president and CEO of AISI in a statement. “As a key materials solutions provider, we look forward to a dialogue between EPA, National Highway Traffic Safety Administration, California Air Resources Board, auto manufacturers and other relevant stakeholders on the mid-term evaluation.”

The CARB’s inclusion is notable as California has said it will go forward with state emissions standards that are more stringent than the federal government’s, no matter if the federal CAFE standards are changed or not.

Federal Reserve Raises Interest Rates

For the first time this year, the Federal Reserve raised interest rates one quarter point to a range of .75% to 1%, a widely expected move following strengthening economic reports and signals from Fed officials.

After its two-day policy meeting, the Federal Open Market Committee voted to raise the range of the federal funds rate to 0.75% and 1.00%, citing progress in labor market growth, business fixed investment and inflation.

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“In view of realized and expected labor market conditions and inflation, the Committee decided to raise…the fed funds rate,” the central bank wrote in its statement.

One member of the committee, Minneapolis Fed President Neel Kashkari, voted against the decision, preferring to keep the federal funds rate between 0.50% to 0.75%. Kashkari is a new voting member of the FOMC this year.

Our March price trends report, which analyzes the entire month of February’s price data from the MetalMiner IndX, shows robust price increases in metals markets that are still running with the bulls.

March Price Trends

Our Stainless MMI led the pack, increasing 6.8%, but the copper, raw steels, aluminum and rare earths sub-indexes all showed strong gains, as well.

One area of concern this month is that oil prices have fallen back below $50 per barrel as U.S.
shale producers beat expectations by adding 8.2 million barrels to existing reserves. Low oil
prices would benefit metals producers by keeping energy and transportation costs lower, but
they also may drag down other commodities with them.

We don’t usually see investment metals such as platinum and gold increasing at the same time
as base metals, either, but positive sentiment about the economy had both increasing this month. So, until we see anything that points otherwise, a rising tide is still lifting all the (metals) boats.

President Trump’s budget proposal this week would cut the federal government to its core if enacted, culling back numerous programs and expediting a historic contraction of the federal workforce, according to economists who spoke to the Washington Post and saw the draft plans.

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This would be the first time the government has executed cuts of this magnitude — and all at once — since the drawdown following World War II, economists and budget analysts told the Post.

Chinese Rebar Jumps

Shanghai rebar steel futures rose nearly 3% on Monday, supported by a pickup in seasonal demand in top consumer China that also lifted Chinese iron ore off of a one-month low.

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But bloated stockpiles of iron ore at China’s ports — holding near their highest in at least 13 years — capped price gains in the steelmaking raw material.

The most-active rebar on the Shanghai Futures Exchange was up 2.7% at 3,496 yuan ($506) a metric ton by the midday break.

U.S. infrastructure was given a near-failing grade of D+ by the American Society of Civil Engineers (ASCE) yesterday, the largest trade association of the civil engineering profession in the U.S. This was the second time in two reports that our national roads, bridges, railways, airports, dams and other infrastructure sites barely avoided the dreaded F.  The criticism could give momentum to President Donald Trump’s vow of a $1 trillion investment to rebuild everything from roads to dams.

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The D+ grade from the American Society of Civil Engineers‘ (ASCE) is unchanged from its last report card in 2013, suggesting that only minor progress had been made in improving public works.

The ASCE estimated in a statement that the United States needed to invest $4.59 trillion by 2025 to bring its infrastructure to an adequate B- grade, a figure about $2 trillion higher than current funding levels.

Chinese Steel Exports Plummet

Chinese steel exports tumbled to a three-year low in February, customs data showed on Wednesday, lower than expectations, as steelmakers in the world’s top producer shifted to meeting rising demand at home.

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Shipments for the month were 5.75 million metric tons, the lowest since February 2014, data from the General Administration of Customs showed. It was down 29.1% from a year ago and down 22.5% from January.

The Aluminum Association, the group that represents the North American aluminum production industry, today filed a trade enforcement action against the People’s Republic of China seeking relief for domestic producers of aluminum foil. This action is part of the industry’s broad trade strategy to address Chinese overcapacity throughout the value chain.

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The Aluminum Association’s Trade Enforcement Working Group filed anti-dumping and countervailing duty petitions alleging that dumped and subsidized imports of aluminum foil from China are causing material injury to the domestic industry.

“Today’s action marks the first time the Aluminum Association has filed unfair trade cases on behalf of its members in its nearly 85-year history,” said Heidi Brock, President & CEO of the Aluminum Association. “This unprecedented action reflects both the intensive injury being suffered by U.S. aluminum foil producers and also our commitment to ensuring that trade laws are enforced to create a level playing field for domestic producers.”

The anti-dumping margins alleged by the domestic industry range from 38% to more than 134% of the value of the imported aluminum foil. The domestic industry’s countervailing duty petition alleges that Chinese producers benefit from 27 separate government subsidy programs.

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The industry group previously said it wanted to avoid filing the trade actions if it could via meetings with its Chinese counterparts but, apparently, there simply was not enough progress in curtailing injurious imports.

Rainbow Rare Earths, which owns a rare earths mining project in Burundi, was listed on the London Stock Exchange at the end of January, according to the Financial Times. This has prompted speculation in mining and trading circles that China’s dominance may finally be challenged. We’re not holding our breaths, and China likely isn’t either, but it wouldn’t be the first time that the abundance of resources in Africa had been underestimated.

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The U.S. Geological Survey said in 2015 that China’s annual production of the key battery, magnet and conductor elements was slightly more than 100,000 metric tons. Australia came in second with 10,000 mt. Only three other countries produce more that 1,000 mt of rare earths a year. The US produced 4,100 mt but that’s sure to go down after the 2016 closure of the Mountain Pass mine, Russia produced 2,500 and Thailand checked in with a respectable 1,100 mt contribution to the production of cell phones, military hardware and wind turbines.

Rare Earths MMI

The FT points out that despite China’s dominant market position in refined exports, the same is not true of rare earth deposits. It’s estimated that China has no more than 30% of global deposits of the quite abundant, despite their name, elements. The problem that all new rare earths projects run into is the cost of bringing new deposits into production and the ability of one country with such a dominant position to flood the market and bring down prices, hitting the viability of new projects.

What’s Left of China’s Previous Challengers

Remember what happened to Molycorp, Inc. and how the Japanese threw a lifeline to Australia’s Lynas Corp.? Yet, the fact that Lynas is still trudging along and investment is still being made by a Japanese government and industrial culture that wants nothing to do with China’s rare earths industry may, paradoxically, be what sets Africa apart and its low-cost resource sector apart from others who have taken on the dragon.

Japan was de facto banned by the Chinese government from receiving any shipments of rare earths back in 2011 after the Japanese Navy detained a China fishing trawler captain. Since then, Japanese industry has not only aggressively replaced rare earths in its supply chains, depriving China of customers, but also supported Lynas and other non-Chinese manufacturers even to the point of keeping them in business. There is little doubt that both public and private Japanese money would automatically flow into African projects if significant deposits of rare earths are found.

Grudge Match

That China has lifted export quotas and prices have fallen to a low range means little to nothing to Japanese businessmen and women who remember having their supply chains cut off in 2011.

According to the FT, it is widely acknowledged that, outside North America and Australia, southern and eastern Africa offer the greatest potential for rare earth production, especially in South Africa, Tanzania, Malawi, Mozambique, Kenya, Burundi, Zambia and Namibia.

Rainbow Rare Earths’ IPO is premised on its Gakara project in Burundi. The project is not yet producing and further exploration will be needed. The risks described in the IPO prospectus are a reminder of the difficulties of developing such projects, including pricing and environmental challenges and the need to produce ore at the required levels of concentration.

Rainbow raised $9.77 million (₤8 million) at its IPO.

The Rare Earths MMI broke eight straight months of flat performance and increased 1 point (5.9%) to 18 this month.

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A Washington, D.C. federal judge on Tuesday rejected the Cheyenne River Sioux Tribe’s bid to block operation of the Dakota Access pipeline on federal land in North Dakota, saying the tribe likely won’t be able to show that the federal government interfered with its exercise of religion on land outside the tribal reservation by allowing the project to go forward.

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Judge James Boasberg of the U.S. District Court for the District of Columbia rejected the tribes’ request for an injunction to withdraw permission issued by the U.S. Army Corps of Engineers for the last, eight-mile link of the oil pipeline underneath Lake Oahe in North Dakota. Read more

After several hundred companies and individuals registered as potentially interested vendors, the Department of Homeland Security has added details to its request for Mexican border wall plans and delayed the procurement process by several days.

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The request for proposal is for a concrete wall structure or structures, nominally 30-ft. tall, that will meet requirements for “aesthetics, anti-climbing and resistance to tampering or damage,” according to a change in the solicitation plan posted to the DHS website on March 3.

Two-phase design-build procedures will be observed, under FAR Part 36.3, with Phase One of the RFP due on or about March 20th.

Under the procurement request, vendors must submit a concept paper of their prototype, which will result in the evaluation and down-selection. Offerers will then submit proposals to the full RFP, including prices, due on or about May 3, 2017.

Multiple awards of indefinite quantity, indefinite delivery contracts are anticipated, DHS said. Unless the full cost of the wall falls within DHS’ current budget for 2017, congress will have to appropriate money for its construction.

Not Only US-Made Steel After All

Speaking to reporters onboard Air Force One on Friday, White House spokeswoman Sarah Huckabee Sanders said that the Keystone XL pipeline, which has been in the works for a decade, will be exempt from an executive order President Trump signed in January requiring new pipelines, repairs, or retrofits to use only U.S.-made steel “to the maximum extent possible.”

The justification for that decision is that the pipeline is already under construction, and so is not covered by the executive order.

“The Keystone XL Pipeline is currently in the process of being constructed, so it does not count as a new, retrofitted, repaired, or expanded pipeline,” Sanders said.

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While it’s true that some parts of Keystone XL have already been built and its developer, TransCanada Corp., has likely already purchased steel for some of it, the 1,200-mile pipeline that is planned to stretch from Alberta, Canada, to Nebraska will likely require much more steel to be purchased before its eventual completion, a construction process likely to take years. The Dakota Access Pipeline that will run from North Dakota to Illinois, which has already restarted construction, was only eight miles of pipe from completion when the Obama administration stopped it last Fall and it, very likely, would not require more steel to be purchased for its completion.

We have long lamented that while solar energy production is a mature generation technology that should be used in nearly the entire U.S., the inability of our electronic grid in much of the country to store solar-generated energy limits its use to when the sun is shining. This almost always requires a backup (usually burning natural gas) for those hours when the sun does not shine.

Renewables MMIIt’s been a few years since we last talked about the baseline load problem that causes utilities that have abundant solar generation, particularly subsidized photovoltaic silicon panels on homeowners’ roofs, to bring energy costs down to zero during the day while the complete lack of generation at night forces them to give much of their short-term stored energy away before the sun goes down.

California Dreamin’: Solar for All

The Wall Street Journal recently reported that, stepping in where government and university research have failed to deliver solutions, for-profit California utilities — including PG&E Corp., Edison International and Sempra Energy — are testing new ways to network solar panels, battery storage, two-way communication devices and software to create “virtual power plants” that manage green power and feed it into California’s power grid. In California, real-time wholesale energy prices often hit zero during the day while the need for energy at night can spike them to as high as $1,000 a megawatt hour.

If California wants to stand as a land of free-flowing solar without even the need of the fossil fuel industries that the Trump administration says it wants to re-energize, then it will need a way to store its solar power, particularly if it wants to retire its last nuclear plant in 2025. Power company AES brought 400,000 lithium-ion batteries online last month in Escondido, Calif., (near San Diego) where Sempra plans to use them as a “virtual power plant” to smooth out its energy flows over the 24-hour service day.

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Electric car manufacturer Tesla, Inc. is supplying batteries to Los Angeles area network that will serve Edison International, to create the largest storage facility in the world if no one builds a bigger one by 2020 when it’s slated to be completed. The facility will be able to deliver 360 mw/h to the grid for a full day on short notice.

The 2,2000-mw Diablo Canyon nuclear plant is owned by PG&E, which wants to retire it by 2025 to meet stringent state energy codes as well avoid costly upgrades to the aging plant. Its first unit began churning out power in 1986 for the company then known as Pacific Gas & Electric.

Many utilities avoid building lithium-ion battery virtual plants because they remain considerably more expensive to build and set up than traditional power plants. California’s state laws make them more desirable there because of both environmental policies (read, climate change goals) and the regulatory hurdles and costs of just building a new plant in the Golden State. Of course, that hasn’t stopped the state from approving and building them, but the utilities that have shuttered plants early are now turning to the virtual plants to shore up their own bottom lines. PG&E Is testing batteries, software and several technologies to upgrade its grid and replace Diablo Canyon.

Intermittency, What is it Good For?

If Tesla, PG&E, Sempra and Edison can solve the grid intermittence problem in California then economies of scale could reduce the costs of virtual plants elsewhere and incentivize grid modernization via market prices rather than regulation. The costs of energy from a virtual plant will still likely cost more per mw/h than those of a new gas peaker plant, but only experimentation in cost reduction from actual working plants providing energy 24/7 can bring down those costs and deliver the innovation necessary to both optimize and right-size battery-based virtual plants. The utilities deserve praise from both customers and investors for boldly going where none have gone before. Once again, the market provides.

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The Renewables MMI inched up 1.9% this month in the very mature actual metals market.

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U.S. construction spending unexpectedly fell in January as the biggest drop in public outlays since 2002 offset gains in investment in private projects, pointing to moderate economic growth in the first quarter.

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The Commerce Department said on Wednesday that construction spending declined 1% to $1.18 trillion. Construction spending in December was revised to show a 0.1% increase rather than the previously reported 0.2% decline.

Economists polled by Reuters had forecast construction spending gaining 0.6% in January rather than the loss that was booked.

Construction MMI

Our Construction MMI held steady this month despite the falling spending. The component metals of the sub-index still have bulls behind them, despite the flat performance. Steel construction materials such as rebar and h-beams are still posting big gains but scrap and others saw a loss.

It’s almost as if construction products are still in demand, particularly in China’s construction sector, even as U.S. construction experiences a pullback.

In January, public construction spending in the U.S. tumbled 5%, the largest drop since March 2002. That followed a 1.4% decline in December. Public construction spending has now decreased for three straight months.

Outlays on state and local government construction projects dropped 4.8%, also the biggest drop since March 2002. This could be an ominous sign for construction spending this year, provided, of course, that a major infrastructure plan, such as the $1 trillion plan President Trump continues to promise, doesn’t pass quickly enough to boost construction prices. The longer that it takes to pass an infrastructure plan, the less likely it is to boost contractors’ bottom lines this year.

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That boost is needed for our aging infrastructure, too. Spending on state and local government construction projects has now dropped for three straight months. Federal government construction spending plummeted 7.4% in January, the largest decline since May 2014. The drop snapped three consecutive months of gains.

Spending on private construction projects actually rose 0.2% in January, but could not make up for the loses in government projects.

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