Author Archives: Jeff Yoders

China announced last year it had implemented ambitious cuts in steel capacity. Now, a new report says that not only did those cuts not happen, but China actually increased steel production capacity.

Click Here for Current Metal Prices

But a new report by Greenpeace East Asia and Chinese consultancy Custeel says that number was largely smog and mirrors. Many of the plants China says it closed down were already idle, while production was restarted elsewhere and brand new plants opened.

China, which accounts for half the world’s steel production, has a total capacity of 1.1 billion metric tons, announced plans to eliminate 100-150 mt of annual production over the next five years.

Last year, it said it had far exceeded its initial target to cut capacity by 45 million mt, which China said its steel sector exceeded, recording total 2016 cuts of around 85 mmt.

But the Geenpeace/Custeel report said that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 mmt of cut capacity involved shutting down production plants that were operating.

At the same time, some 54 mmt of capacity were restarted, and 12 mmt of new operating capacity came online.

Two-Month Trial: Metal Buying Outlook

That left China showing a net increase in operating capacity of 36.5 mmt last year, a figure that is consistent with a 3% increase in steel production in the second half of last year.

Such an increase is consistent with evidence of a deterioration in the air quality in Beijing in the second half of last year — the steel industry is a heavy consumer of coal and contributor to air pollution, and most of the restarted capacity came in the industrial provinces near the capital, Shanxi, Hebei and Tianjin.

We warned last month that the mostly small losses the prices our MetalMiner IndX experienced were caused by investors taking profits.

Click Here for Current Metal Prices

Our suspicions were confirmed when almost all of our sub-indexes had big price rebounds this month. The Automotive MMI jumped 12.2% Raw Steels 8% and Aluminum 6%. Even our Stainless Steel MMI only dropped 1.7% and has taken off since February 1 as nickel supply is even more in question now with both the Philippines and Indonesia’s raw ore exports in question.

The bull market is on for the entire industrial metals complex. Last month’s pause was necessary for markets to digest gains but the strong positive sentiment for both manufacturing and construction shows no signs of ebbing in the U.S. and Chinese markets.

The 2010 Dodd-Frank law explicitly gives the President of the United States authority to order the U.S. Securities and Exchange Commission to temporarily suspend or revise the Conflict Minerals rule included in the Dodd-Frank banking reform law for two years if it is “in the national security interest of the U.S.”

Two-Month Trial: Metal Buying Outlook

Last week we reported that the Trump administration was working on a draft executive order to, indeed, suspend the rule which requires reporting of supply chains to enforce a ban on tin, tantalum, tungsten and gold from the Democratic Republic of the Congo. It’s backed by human-rights groups but many businesses say the rule, as is, requires a swath of industries to investigate whether their products contain the metals far down their supply chains. Compliance has already been hit or miss for the rule. Last year, 65% of companies said they still could not make determinations about their full supply chains.

Reuters reported that the leaked draft memo, which its reporters saw, said that the Secretary of State and Secretary of the Treasury were tasked with proposing a plan for addressing human rights violations and the funding of armed groups in the Congo and were also required toreport back within 180 days.

The memo also lays out a justification for suspending the rule, saying that while it has helped discourage some American companies from purchasing materials in the region, it has also led to “some job loss.”

Click Here for Current Metal Prices

Of course, this is only a draft and it could significantly change before any actual executive order is drafted. The one thing that is sure, however, is that thanks to the wording of the Dodd-Frank law, President Donal Trump (R.-N.Y) does, indeed, have the power to suspend the rule for up to two years.

The American Iron and Steel Institute reported that for the month of December 2016, U.S. steel mills shipped 7,173,245 net tons, a 6.7% increase from the 6,724,277 nt shipped in the previous month, November 2016, and a 9.4% increase from the 6,556,342 nt shipped in December 2015.  Shipments for full year 2016 are 86,533,341 nt – a slight change from shipments of 86,546,657 nt for full year 2015.

Two-Month Trial: Metal Buying Outlook

A comparison of December 2016 shipments to the previous month shows the following changes: hot-rolled sheet, up 11%; cold-rolled sheet, up 4%, and hot-dipped galvanized sheet and strip, down 3%.

Manufacturing PMI Hits a 2-year High

The January 2017 Institute for Supply Management Purchasing Managers’ Index and Non-Manufacturing Index, released on February 1 and February 3, respectively, reveal a surging manufacturing sector in the U.S., with slowing growth in the services sector.

Click Here for Current Metal Prices

The PMI® jumped 1.5 percentage points to 56.0, its highest level in more than two years. At 56.5, the NMI® declined by one-tenth of a percentage point, indicating slowing growth in the non-manufacturing portion of the economy.

The Trump administration is reportedly considering an executive order that would suspend the conflict minerals rule of the Dodd-Frank banking regulation bill.

Click Here for Current Metal Prices

The conflict mineral rule requires reporting of supply chains to enforce a ban on tin, tantalum, tungsten and gold from the Democratic Republic of the Congo. It’s backed by human-rights groups but many businesses say the rule, as is, requires a swath of industries to investigate whether their products contain metals that could have been sold by armed groups so far down their supply chains that it’s impossible to tell where it came from. Reporting has been spotty even under the current rules.

The proposed executive action, drafted last week and reviewed Wednesday by The Wall Street Journal, would suspend the conflict-minerals rule for two years. Business groups have fought the rule in court, saying its requirements are costly and burdensome.

US Sells Crude Oil From Strategic Reserve

10 million barrels of crude from the U.S.’s strategic reserve are scheduled to be sold later this month, the Department of Energy said.

Two-Month Trial: Metal Buying Outlook

The shipment is part of a total 25 million barrels, to be sold over a period of three years, as per the 21st Century Cures Act, signed in December last year.

It can be tempting to lump our Renewables MMI in with the Rare Earths MMI as sub-indexes that rarely move with fairly calm, if lower-priced, markets.

Click Here for Current Metal Prices

That might be true of the once-high-flying RE market, but to say that about renewables would be a mistake. Sure, many of the magnets and batteries derived from rare earth elements end up in wind power installations and hybrid/electric cars so there’s a direct relation from end use, but the real difference maker in the renewables market is solar.

An estimated 2% of all new jobs created in 2016 in the U.S. came from the solar industry, according to the Department of Energy. 10% Of those jobs came from non-warm weather climes such as Colorado, too, so regional limitation is essentially over. The solar industry employs more than three times the amount of people as the coal industry, despite the political power of the latter. Solar installations are expected to rise by 29% this year from last. While wind and other renewable technologies have a long road to adoption, the solar industry is largely “there” when it comes to supplying energy directly to homes and businesses with solar silicon photovoltaic panels affixed to them and even directly to modern energy grids.

Aside from those statistics, too, there are market forces at play that make solar adoption a strong investment opportunity. China’s National Energy Administration has revealed its solar power production more than doubled in 2016, hitting 77.42 gigawatts, making China the world’s largest producer of solar energy.

But Jeff, you say, isn’t this just yet another promised tipping point? Haven’t we been promised all of this before? What makes me feel different about these studies is that they are based on jobs, and not adoption numbers alone. You may have noticed that we have a new President who is very eager to develop new American jobs. As much as President Donald Trump might like oil pipelines, coal mines and steel mills, he’ll need solar to create millions of American jobs and to make us all tired of winning so much.

Two-Month Trial: Metal Buying Outlook

The DOE report says 187,117 workers are employed at coal, oil, and natural gas power plants compared to nearly 374,000 people in the solar industry. This is somewhat misleading because an array of direct and indirect jobs related to exploration, excavation, construction, and well surveying—still employs millions of people come from fossil fuels such as oil and natural gas exploration and those aren’t counted. Still, the National Solar Jobs Census 2016 documents truly dramatic growth of a the solar industry in less than a decade and that 10% projected increase isn’t something the Trump administration can afford to miss. Workers who install rooftop solar panels make up the largest share employment in the sector at 137,133 jobs.

Increasing installations would be considered the low-hanging fruit of jobs growth. The Renewables MMI was up 2% this month.

For full access to this MetalMiner membership content:
Log In |

California’s Mountain Pass mine, the sole significant developed source for rare earths elements in the U.S., will go on the auction block in March, according to papers filed in late January in the U.S. Bankruptcy Court in Wilmington, Del.

Two-Month Trial: Metal Buying Outlook

Up for sale is land and some equipment at the mine which cost former owner Molycorp, Inc. roughly $1 billion to develop, according to the court. Mineral rights at the site belong to an entity called Secured Natural Resources LLC, which is owned by creditors of Molycorp including JHL Capital Group LLC.

The open-pit mining operation was part of Molycorp’s plan to have both production and processing capability for rare earths, at a time when prices were high (early in this decade)… but as our Rare Earths MMI chart shows, prices have been flat for eight consecutive months now and low for much, much longer. The prices of the 2011 rare earths market, strongly affected by Chinese supply disruptions, appear to be nothing more than a distant memory at this point.

A switch in trade policy in early 2015 — prompted by losing a World Trade Organization case — ended export quotas placed on Chinese producers effectively killed any chance Molycorp had to compete based on costs of production. Molycorp’s rare earths processing business, with operations mainly in Asia, emerged from the bankruptcy as the core of a reorganized company, Neo Performance Materials, but Mountain Pass and its high cost of production were left behind in the reorganization.

According to the Wall Street Journal, a Swiss investment fund linked to Russian-born billionaire Vladimir Iorich is part of a buyout group that has made an offer to take over Mountain Pass. Pala Investments Ltd., Iorich’s investment firm, is a partner in a buyout group’s $40 million offer for the assets. Joining Pala is Novatrek Capital GmbH, a private-equity firm founded by Pala alumnus Joseph Belan, as well as Sole Source Capital of Los Angeles, according to filings with the bankruptcy court.

Two-Month Trial: Metal Buying Outlook

Efforts to sell Mountain Pass out of bankruptcy had struggled because the mine carries with it national security concerns, due to its ability to produce rare earths for high-tech military equipment, and might catch the eye of international trade regulators. The Committee on Foreign Investment in the U.S., or CFIUS, is likely to take an interest in new owners, according to courtroom discussions during the bankruptcy case, the Wall Street Journal reported. CFIUS is an interagency body tasked with reviewing transactions that could result in control of a U.S. business by a foreign person to determine if the deal would have affect the national security of the U.S.

For full access to this MetalMiner membership content:
Log In |

The U.S. Army Corps of Engineers approved the construction of the Dakota Access Pipeline on Tuesday, paving the way for an infrastructure project that has been surrounded by protest and controversy.

Two-Month Trial: Metal Buying Outlook

Robert Speer, the acting secretary of the Army, announced the decision to Congress, saying he was ready to offer the pipeline’s owner a 30-year easement on a disputed patch of land.

In the decision, Speer said he would halt the preparation of an environmental impact statement meant to assess the effects of the pipeline, adding that he had sufficient information to support approval. The pipeline had already passed environmental review and a federal judge found for the pipeline after the Standing Rock Sioux Tribe flied a lawsuit, based on the tribe’s water supply and sacred lands, against it before then-President Obama halted the project last November. No part of the proposed route goes through tribal lands.

Click Here for Current Metal Prices

The easement will allow for the completion of the last mile and a half of the 1,172-mile project, connecting oil production areas in North Dakota to a crude oil terminal near Patoka, Ill. The pipeline is owned by Energy Transfer Partners. In a statement, Sen. Heidi Heitkamp, D-N.D., said, “Today’s announcement by the U.S. Army Corps of Engineers brings this issue one step closer to final resolution — and delivers the certainty and clarity I’ve been demanding.”

The American Iron and Steel Institute Board of Directors has approved a public policy agenda outlining an aggressive, pro-manufacturing policy to guide advocacy for the upcoming year and highlight importance of the steel industry to the success of the American economy.

Click Here for Current Metal Prices

“The impact public policies have on manufacturers must be carefully considered to ensure economic growth and our national security. Our 2017 Public Policy Agenda highlights a concerted effort on behalf of members of the North American steel industry to combat foreign unfair trade practices, create jobs, highlight our innovations and sustainability, and strengthen the manufacturing base,” said Thomas J. Gibson, AISI president and CEO. “We will be sharing our priorities with policymakers and government leaders, and look forward to working together to turn obstacles into opportunities.”

Highlights AISI priorities for 2017 include:

  1. Press China and other nations to eliminate their steel overcapacity and to end all subsidies;
    Enforce aggressively and expeditiously U.S. unfair trade laws.
  2. Defend the right to treat China as a Non Market Economy at the WTO.
  3. Improve the implementation of the ENFORCE Act against trade law evasion.
  4. Reduce the corporate tax rate to 15-20% while maintaining accelerated cost recovery.
  5. Revise the EPA Clean Power Plan and the New Source Performance Standard for utility greenhouse gas emissions.
  6. Ensure the approval and completion of the Keystone XL and Dakota Access pipelines and  facilitate investment in our national energy infrastructure.
  7. Withdraw EPA’s final determination for the light-duty vehicle GHG standards for model years 2022-2025.
  8. Ensure infrastructure funding is accompanied by reforms that streamline permitting and approval of large projects to speed project delivery time and reduce added cost.
  9. Direct increased funding of infrastructure improvements towards long-term, multi-year projects.

Our Automotive MMI took off in February, surging 12.2% along with strong gains in steel prices and all of the base metals in the automotive index saw gains in the first full month of 2017.

Hot-dipped galvanized steel was a particularly strong performer along with the catalyst metals, palladium and platinum. The tough talk about U.S. automotive production that President Donald Trump started during the campaign has only ramped up since his inauguration. Automakers could have to significantly alter their purchasing and supply chains if a border tax is enacted.

House Republican leaders have proposed what they call a “border-adjusted tax,” which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer recently said it was under consideration and could help pay for a wall along the Mexico border.

An overhaul of the U.S. tax system could hand an advantage to Ford Motor Company, Honda America and General Motors, which rely the least on imported vehicles among the major automakers. The shake-up, if it is a border-adjusted tax, would clearly undermine Toyota America, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields told analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79% of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Motors. Honda ranks just behind Tesla and Ford, with 68% of its U.S. sales coming from domestic plants, followed by GM with 65%.

If the first weeks of the Trump administration are any indication, though, initial action on a tax plan could happen quickly via executive order and the lengthy process of legislation could be a post-executive order action plan.

January is typically the weakest month of the year for U.S. auto sales, and last month appeared to be no exception. Sales fell 2% to 1.1 million, according to Autodata Corp. Supply chain executives are clearly more worried about supply chains and a possible import tax this month than end-product sales.

For full access to this MetalMiner membership content:
Log In |