Well we all knew that the Volkswagen admissions scandal was the story that was going to run and run, so it should come as no surprise that the media is full of the latest allegations being made against Fiat Chrysler by the Environmental Protection Agency.
The Washington Post, the Economist and the Financial Times all report the EPA’s announcement that they are in discussions with the automaker over software which they say, might be illegal. The EPA has held back from calling the technology a “defeat device” in the terms used in last year’s cases against VW.
But in broad terms the operation of the software appears to work in a similar way to that of VW’s in that it also has the characteristics of the emissions controls under certain circumstances. Contrary to what many others believed, in fact, emission control equipment is allowed some pretty wide parameters of operation.
Diesel’s Easier… To Pollute With
In Europe where the rules are less rigorous, the testing regime allows diesel cars up to 14 times more noxious gases on the road under test conditions. According to the Economist, they are allowed to shut down their emission controls on the grounds that not doing so might damage engines when the ambient temperature is low. But in some cases this ambient threshold could be as high as 17 degrees, a temperature not reached for months in many Northern European countries. Read more
After surging in November, base metals fell across the board in December. That selling pressure spread into aluminum markets, limiting any upside moves into the year-end. Prices however didn’t give that much ground as aluminum’s fundamental story remains rather bullish. The drops look a lot like classic profit-taking.
The auto industry is a key driver of aluminum demand. Auto sales in US and China (the world’s biggest car market) finished the year on a strong note. Total vehicle sales in the U.S. hit an 11-year high in December, aided by a fourth-quarter surge in demand that exceeded expectations. In China, car sales hit an all-time record in November, up 17.1% year-on-year.
Although the figures came in strong, they should be taken with a pinch of salt. In the U.S., cars were sold at an average 10% discount off the original asking price and that’s an incentive level not seen since the beginning of the financial crisis. Similarly, in Q4, China announced a 50% cut in its sales tax on automobiles with small engines. The tax cut was effective only until the end of 2016 although some analysts expect China to extend the tax cut into next year.
One of the factors supporting higher aluminum prices has been that there were fewer smelter restarts than expected smelter in China. In addition, we foresee limited additional restarts this year due to rising production costs and pollution issues in China.
First, alumina seems headed for a supply deficit this year following Chinese curtailments. Second, coal prices have surged since China reduced the hours for workers in its coal sector, supposedly in a bid to control pollution and curtail its excess industrial capacity. Truth be told, though, China really relaxed the mining day norm simply to control skyrocketing — some would say artificially high — prices. However, we expect the maneuvers will keep China’s supply of coal and aluminum in check this year.
For years, China’s cities have been choking on the smog spewing from China’s industrial production sector but things have recently gotten much worse. Two weeks ago, authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. The scale of the red alert measure shows that the Chinese government is taking air pollution seriously. Given that coal burning is the biggest contributor to air pollution in China, industrial metals supply could shrink this year, particularly steel and aluminum.
What This Means For Metal Buyers
The massive existing overcapacity and questions regarding China’s ability to maintain its rate of growth are the main factors that could spoil the party for aluminum bulls. However, for the reasons explained above, it seems early to make a call on that. We still see upside potential in aluminum prices.
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After President-elect Donald Trump targetedToyota 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.
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.
U.S. auto sales set a new record in 2016. Automakers sold 17.55 million vehicles last year, as sales continued at a hot pace in December and topped analysts’ expectations.
Automakers eclipsed the record year of 2015 by some 70,000 vehicles or 0.4%, according to tracking firm Autodata Corp. Light truck sales totaled 59.5% of all sales last year, with cars representing 40.5% of the record. A year ago those percentages were 55.8% to 44.2% and each were about half just a few years ago.
Another new sales record looked like a longshot just a few months ago, but a strong holiday sales period helped U.S. automakers forge ahead. Our Automotive MMI increased a point last month closing out a strong year.
Automotive metals are not just seeing robust demand from U.S. consumers. Automotive purchases in China are helping the strong economic recovery there, too. Sustainable growth in the world’s largest consumer of commodities is a bullish trend for all industrial metals and automotive alloys are no exception.
Ford Motor Company‘s recent decision to reinvest in a plant in Michigan rather than open a planned facility in Mexico may be the first salvo in an automotive trade war that has long been promised by President-elect Donald Trump.
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The two companies said they finalized an agreement calling for Tokyo-based Panasonic to pay capital costs for the manufacturing. Palo Alto, California-based Tesla made a “long-term purchase commitment” to Panasonic.
Their statement gave no financial figures. The factory in Buffalo is under development by SolarCity Corp., a San Mateo, California-based solar panel company owned by Tesla. The photovoltaic cells and modules will be used in solar panels for non-solar roof products and solar glass tile roofs that Tesla plans to begin making, the announcement said.
LME Names New Clearing Executive
The London Metal Exchangehas appointed James Proudlock as deputy chief executive of its clearing system, the exchange said last week.
Proudlock, who has 30 years experience in commodities, will join LME Clear in April next year.”Prior to joining LME Clear, James worked at JP Morgan Securities for 10 years where he was a managing director and commodity product lead for Futures and Options and most recently markets execution,” the LME said.
Renewed economic confidence followed the election of republican nominee Donald Trump and Americans snapped up new vehicles at a rapid pace in November, giving the U.S. auto industry a chance of breaking its all-time record for full-year sales.
In November, U.S. auto sales rose 3.7% compared with a year ago, according to Autodata Corp. On an annualized basis, that equaled a rate of 17.87 million units. November sales growth projections had ranged from 2.7% at Edmunds.com to 4.2% at Kelley Blue Book. Total sales for November were 1.38 million, that shattered a record for the month that was set in November 2001.
The month’s annual sales rate, adjusted for two extra selling days this November, was 17.9 million vehicles, more than the 17.7 million average estimate.
A contributing factor to the solid month was the Thanksgiving weekend and Black Friday sales, which are having an increasing effect on the month’s output. With one month to go, the auto industry has a decent chance to match or exceed its 2015 full-year record of 17.47 million vehicles sold.
Automotive sales and metals prices are both benefiting from bullish sentiment among buyers and investors. Steel companies stock prices have increased after Trump’s election just as aluminum and copper prices in the bullish metals markets.
Another factor in new car sales is the enduring low prices for both oil and gasoline, which might change soon now that the Organization of Petroleum Exporting Countries and other producers such as Russia have finally agreed to a production freeze.
Rising oil prices, however, might not be the detriment to auto sales that they have in the past. Hybrid vehicles and simply more efficient fuel consumption have blunted the impact of gasoline prices on new car sales. One of the reasons that the gas tax has become such a poor funding mechanism for the federal Highway Trust Fund is that motorists simply have to buy less gas for today’s efficient, newer vehicles.
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The result is expected to be a dramatic reduction in the amount of copper and plastic used. Every year the Volvo Group should be able to dispense with around 3,000 miles (5,000 kilometers) of cabling, which is the equivalent of 18 metric tons of copper and 33 metric tons of plastic.
Volvo is saying goodbye to miles of cabling in its truck division. Can IoT sensors replace all that expensive copper and plastic? Source: Volvo.
“The savings could amount to a large number of hours, sometimes even days. In the factory, the cables are awkward to handle and time-consuming to fit in the right place,” said Jonas Hagerskans, a development engineer at the Volvo Group. “The wireless sensors are much simpler to install. The cables are also sensitive to dirt and rust and prone to faults. By replacing the cables with wireless sensors, it is possible to prevent all the potential cabling faults. When trucks come into the workshop for repairs, identifying faults in long cables that are difficult to access is very time-consuming. In the future, our customers could get their trucks back from the workshop more quickly.” Read more
Republican control of the White House and both chambers of Congress in January will put the GOP in a tenable position to pass significant tax reforms it has been pushing for years, such as lower corporate rates and a simpler tax code, experts say.
It could be the most significant rewrite of the tax code since the Reagan administration.
The House Republican overhaul of the tax code is being written to expand the economy and avoid increasing budget deficits, U.S. Rep. Kevin Brady (R., Texas), who is leading the effort said on Tuesday.
“We designed our blueprint to break even within the budget, considering that economic growth,” said Brady, the chairman of the House Ways and Means Committee,at The Wall Street Journal’s CEO Council. At the same time, Brady said, if there are some deficits, he would accept them if the result was stronger growth. Avoiding long-run deficits could make it easier for Republicans to pass their plan under budget rules that avoid a Senate filibuster and forbid increasing future deficits.
Johnson-Matthey: Platinum Could See Surplus Next Year
The platinum market could return to surplus for the first time in six years in 2017 as lower auto catalyst loadings and weakness in Chinese jewellery purchases pull demand lower, refiner Johnson Matthey said in a report on Monday.
Recently, two events seemed to inflame this ongoing debate. Galvanized rebar was part of the topics taken up for discussion at an international meeting on galvanized steel in India, while a research report, released about the same time, talked of the latest trends in the market in the increased use of GFRP rebar.
Galvanized steel is the gold standard for construction rebar such as this rebar web waiting for a concrete pour. Can glass-fiber reinforced plastic seriously compete? Photo: Jeff Yoders.
The second international galvanizing conference in Kolkata in eastern India saw participation from a cross section of zinc and alloy industries, including the U.S. Delegates talked about ways to expand the zinc market in India and also how to use zinc in automobile industries, fertilizers, and in rebars.
Zinc in Construction
The Indian Government is showing some interest in the role of zinc in building important infrastructure such as bridges. India’s demand for galvanized steel structures will keep rising because of its growing infrastructure. Steel becomes rust-proof (or corrosion resistant, as the industry says) when coated with a layer of zinc, hence galvanization. If done properly, galvanization extends the useful life of rebar and other products for decades. Read more
An interesting pair of articles in the financial times last week covered a disturbing rise in auto repossessions following the failure of borrowers to meet repayments in the sub-prime automotive market.
Repossessions in the U.S. totaled 1.6 million in 2015, the third-highest level on record according to data going back 20 years, and only just falling short of the 1.8 million and 1.9 million peaks seen during and immediately after the financial crisis in 2008 and 2009.
That number, the FT says, is predicted to rise to 1.7 million this year as large numbers of individuals simply failed to repay the loans.
Source: Financial Times
As competition in the auto loan market has grown, lenders have tended to relax standards, offering bigger loans to consumers and giving them more time to pay it back, the FT says. As a result, the sub-prime auto ABS market has grown to $38.1 billion, with net losses across the sector hitting 9.29% in September, according to Fitch ratings. That’s 23% higher than a year ago.
Fitch defines sub-prime ABS as a deal with expected net losses above 7% and, although the model builds in a considerable level of delinquency before lenders lose money, the trend is still a worrying one. Not so much because the sub-prime auto market represents systemic risk to the financial system but more because it illustrates two things:
The financial services industry has not learned much from the last financial crisis. It is still packaging up essentially junk loans and palming them off on lenders greedy for a high-return on a low-interest rate market. Nor does it say much for the authorities who are clearly policing this market no better than the mortgage market in the middle of the last decade.
It also says something about a rising level of debt overreach building up in the economy. U.S. growth has been supported by the consumer. Indeed, personal consumption is by far the largest sector of the US economy and has remained positive even in an economy experiencing relatively stagnant wage inflation. If defaults are rising it should be a red flag that limits are being reached for sectors of the good old US consumer to continue spending, and that is a worrying signal for future growth.