Automotive

Concern in China is rising that June’s 3.4% fall in auto sales, compared to the year before, could be the start of a trend. After two years of consistent growth and high capacity utilization the world’s largest car market is showing signs of fragility.

Data from the China Association of Automobile Manufacturers quoted in the FT suggests China’s automotive market may be maturing after years of breakneck growth.

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MM-IndX_TRENDS_Chart_July-2015_FNL

There’s no reprieve from the bearish metals environment in this month’s MMI Report.

More Analysis: The July Metal Price Forecast

With the exception of the very specialized grain-oriented electrical steel (GOES) market and the Renewables MMI®, all of our indexes lost ground in June and could not gain traction amid falling commodity prices and a strong US dollar.

The one index that was steady from last month, which tracks raw material inputs of the renewable energy sector, has been stagnant for two years and, until trends show otherwise, its steadiness is more a measure of a lack of market activity than anything close to a turnaround or a new trend toward increasing prices.

The Stainless MMI is flirting with two-year lows and our Raw Steels index is up against lows not seen in years as well. Weakness in the Chinese stock market has put additional pressure on metals that were already reeling from the effect of the strong dollar. This is bad news for steelmakers, miners, refiners and smelters by itself, but coupled with increased supply in most of the metals we track, it’s become a real deterrent to profitability.

Moreover, both Europe and the US have higher-than-normal inventories of semi-finished products at service centers. Mill lead times remain short suggesting weak demand. Weak demand will continue to place downward pressure on prices.















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Through half of 2015, US auto sales are on track to hit record levels not seen in 15 years. After climbing more than 4% through July annual sales could approach the previous annual record of 17.4 million if they stay on this pace.

Yet, none of that demand seems to be helping automotive metal prices.

Free Download: Last Week for the June MMI Report

As robust as the US automotive market is, it can't entirely make up for sluggish sales elsewhere that are depressing demand for metals such as steel, aluminum and copper and pushing our index further down. Even the exhaust system metals, platinum and palladium, saw a deep dive this month.

Chinese New Car Sales Barely Growing

New car sales grew just 1.2% in China this May. Further complicating matters, is the fact that the nation of 1.37 billion is starting to develop a used car market and it's looking very much like Chinese consumers like paying less for a used car, rather than paying more for a new one. What a shock?

This is, of course, bad news for raw materials suppliers as the massive Chinese auto market only recently transitioned to automobiles being the main form of transportation. Less-metals intensive bicycles and motorbikes had filled that role until recently.

Chinese steel and aluminum manufacturers had been counting on more robust growth from the domestic new car market and a strong used market could stunt the advances many were planning to reap from new car sales.

Bearish Market Hits Home

The monthly Automotive MMI® registered a value of 82 in July, a decrease of 3.5% from 85 in June.

Automotive_Chart_July-2015_FNL

As we have documented liberally, the strong US dollar has created a bearish environment for all metals and automotive inputs are no exception. The steep fall observed this month in palladium, a metal that had previously held our automotive index up, was an example of just how much the bearish market is affecting even metals with strong demand. Palladium hit a two-year low this month and the bottom, subsequently, fell out of an already listing price index.

Copper, zinc and lead also fell significantly.

What This Means for Automotive Metal Buyers

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The drama surrounding Greece's debt is compounding the bear market and, while it hasn't yet caused strong currencies such as the dollar to see significant gains, its potential to do so threatens all commodities.
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The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI® constituent metals and their exact price movements, log in or register below!

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We recently wrote about platinum prices sinking. Well, palladium seems to be following its sister metal.

In April we noticed that palladium was heading into trouble and it certainly was, only this month the metal dropped 15%, falling to its lowest level in two years.

Palladium spot price since 2012

Palladium spot price since 2012. Source: MetalMiner.

Unlike platinum, palladium finds more application in gasoline engines and is, therefore, more exposed to the Chinese and US markets than to European markets.

Automotive Demand Stalls

Slowing growth in Chinese auto sales may have scared investors away from this precious metal.

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Another bearish factor is that supply concerns eased amid signs of recovering mining output this year. Although, there are different opinions on this and some experts are still saying there will be a continuing deficit.

Palladium Follows Platinum

As with platinum, we believe that a main driver has been a stronger dollar which puts pressure on commodities and gives South Africa’s miners an incentive to keep producing as their currency depreciates against the dollar. Meanwhile, it is clear that investors are not pouring money into precious metals and this trend is hurting palladium as well.

Free Download: Latest Metal Price Trends in the June MMI Report

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MM-IndX_TRENDS_Chart_June-2015_FNLRemember that bounce we saw in most of the metal prices we track last month? Annnnd it’s gone.

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The bearish environment our metals are up against resumed this month as the strong dollar erased nearly all of the gains from May. There were some positive outliers, though, with construction showing growth just as the summer building season begins in the US and the Global Precious Metals MMI was able to hold onto its May gains.

Check out the June MMI Report to get details on the fundamentals of all of the markets we track.















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MetalMiner's basket of industrial metals used by the auto industry, the monthly Automotive MMI®, registered a value of 85 in June, a decrease of 2.3% from 87 in May.

Automotive_Chart_June-2015_FNLAs the chart shows, this move basically undoes May's gains and puts the automotive metals index back where it was in April. The loss nearly erased the 2.4% gain last month as palladium and platinum prices either fell or traded sideways and the other metals tracked in the index weren't really responsible for the recent movement, anyway.

Robust Car/Truck/SUV Sales

While automotive sales remain strong in the US and abroad, those sales are not creating the necessary demand for automotive materials to move the needle this year – even as companies such as Alcoa, Novelis, ArcelorMittal and others invest heavily in automotive aluminum and steel facilities worldwide.

FREE Download: Compare Prices With the May MMI® Report.

US car buyers bought new cars and trucks at the fastest pace in nearly a decade in May, US auto sales data released by the automakers showed. General Motors, Fiat Chrysler and Honda reported increases. Toyota, Nissan and Ford saw declines.

Americans bought about 1.63 million new vehicles in May, up 1.6% from about 1.61 million in the same month last year, according to automotive statistics provider Motor Intelligence. Industry forecasts had expected a 1% decline in sales, to 1.59 million, in part because May was one sales-day shorter than it was last year.

May’s seasonally adjusted annualized rate came in at 17.8 million, well past analysts expected 17.3 million.

Steel Inventories Still High

The big drag on the index continues to be the price of steel, which reached another new low this month. Cheap imports and high inventories are to blame in that market, and those high inventories will continue to make the road just as hard to ride for automotive.

Domestic steel producers have filed anti-dumping and countervailing duty petitions against five countries related to corrosion-resistant steel, the type used in automotive applications.

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The petitions charge that unfairly traded imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan are causing material injury to the domestic steel industry. The petitions further charge that significant subsidies have been provided to the foreign producers by the governments of those countries.

It will take months to know if this action produces significant relief of the cheap imports and, even then, the anti-dumping and CVD determinations might not be high enough to have an effect. The end-use automotive market and its much of its material supply chain is intrinsically tied to the steel market.

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The ever-resourceful Renault-Nissan and their ever-creative chief executive, Carlos Ghosn, have just launched their latest offering for the emerging markets, the Renault Kwid.

Free Download: Latest Metal Price Trends in the May MMI Report

Priced at Rs 300,000 ($4,700) is it certainly pitched price-wise at the emerging markets and at first glance should prove popular in its first market, India, but also in other emerging markets in time such as Indonesia, Vietnam and others.

Emerging Auto Markets

The attractions are clear, all have massive populations, low per-capita car ownership markets with huge medium-to-long term potential. A Financial Times article explains that Renault had to start from the ground up in designing the Kwid to achieve such a low price.

They based the whole design team in Chennai, the city known as the Detroit of India – a first for a western car maker – using mostly Indian designers and sourcing Indian parts. The concept they say is frugal, innovation and required a completely new clean sheet approach.

Illustrating the problem, the FT quotes Navi Radjou, a management theorist in saying “companies don’t like to learn new things, to be blunt. They try to exploit their existing knowledge, not to rethink what they do from scratch.”

Why Automakers Miss

Western businesses see developing economies mostly as new markets where they can sell more of what they already produce. Those that try to come up with something new tend only to tweak existing offerings, which rarely works. GM and Volkswagen may well be cases in point, having poured millions into the market with limited success.

Even Indian firms get it wrong. Tata Motors‘ Nano was certainly cheap when it was introduced in 2009, but it flopped. Spurned, the article says, by rudimentary features and a poor safety record.

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Today in metals, two steel majors joined forces in India and predictions differed for the US economic recovery.

ArcelorMittal and SAIL Team Up for Auto Plant

ArcelorMittal, and the Steel Authority of India Limited (SAIL), India’s leading steel company, signed a memorandum of understanding to set up an automotive steel manufacturing facility under a joint venture arrangement in India.

Why Manufacturers Need to Ditch Purchase Price Variance

The MoU was signed in London Lakshmi Mittal, Chairman and CEO of ArcelorMittal, and C.S. Verma, Chairman of SAIL. Rakesh Singh, Secretary to the Government of India, Ministry of Steel and Aditya Mittal, ArcelorMittal CFO and CEO ArcelorMittal Europe, were also present.

The MoU is the first step of a process to establish a JV between the two companies. The proposed JV will construct a state-of-the-art cold rolling mill and other downstream finishing facilities in India that will offer technologically advanced steel products to India’s growing automotive sector.

MarketWatch: US Recovery Murky

It’s a mystery if the US economy will fire back up and grow at a significant rate this summer.

Not long ago, economists thought US growth could reach nearly 4% in the second quarter after a tepid 0.2% gain in the first three months of the year, a period marked by unusually harsh weather. That would be a carbon copy of the feast-or-famine growth pattern that occurred in 2014.

Many are so sure after an uneven batch of economic reports midway through the second quarter. A poll of analysts compiled by MarketWatch predicts the US will expand at a 3.2% annual rate from April through June — and some have chopped their forecasts to below 3%.

A cluster of fresh reports this week probably won’t give much inkling.

Orders for durable goods such as TVs and trucks that are meant to last a long time are expected to fall again in April. Business spending and investment have softened considerably since last fall.

Sales of new homes nationwide, meanwhile, might creep higher in April, but closings are still historically weak.

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The transportation funding can got kicked down the road in Washington and a major steel company agreed to pay for a predecessor’s Michigan environmental infractions.

House Passes Short-Term Highway Bill

The House voted Tuesday to extend federal transportation funding for two months, in an attempt to prevent an interruption in the nation’s infrastructure funding at month’s end, the Hill reported.

Why Manufacturers Need to Ditch Purchase Price Variance

The decision to punt a long-term funding extension to the summer was approved by a 387-35 vote, over the objection of Democrats, who argued Congress should have found a way to pay for a longer-term extension.

Twelve Republicans and 23 Democrats voted against the bill. Rep. Mark Amodei (R-Nev.) voted “present.”

Ahead of Tuesday’s vote, White House officials said President Obama is willing to sign the temporary transportation funding extension if it is passes the Senate later this week, even though he would prefer a longer-term solution.

AK Steel Dearborn Pays Severstal’s Fines

AK Steel will pay $1.35 million to settle alleged air pollution violations at a Dearborn plant previously owned by the American subsidiary of Russia-based Severstal.

The Justice Department announced the agreement among the steelmaker, the federal government and the State of Michigan Wednesday, saying it settles 42 violations alleged by the state Department of Environmental Quality and two notices issued by the Environmental Protection Agency against Severstal North America.

AK Steel, based in Ohio, announced last summer its intention to purchase Severstal’s Dearborn coke-making facility and other assets for $700 million. Following the sale, completed in September of last year, AK Steel took responsibility for past violations.

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It may seem absurd at first sight to compare an icon of America’s heritage, the Harley-Davidson, with a British transplant to India from the 1940’s, but both the Harley and Enfield share at least one thing in common. Both trade on a marketing image that is soundly retro, much as Harley has tried to appeal to a younger audience, it’s old guys like me that drool over those classic lines and make up the majority of their owners.

Pool 4 Tool’s Automotive SRM Summit

The Enfield also has a decidedly retro appeal with the range being largely unchanged from the original 1940’s designs; it oozes rugged simplicity and economy. The Bullet 500 single cylinder machine is essentially the same as made by Enfield from the 1940’s in the UK before Eicher Motors, a Mumbai-listed manufacturer of engines and commercial vehicles, bought Enfield’s Indian unit in 1994 and kept the brand alive as Royal Enfield after it closed in the UK.

Modern Design, Classic Appearance

Changes such as using aluminum instead of steel for engine components and fuel injection instead of carburetors have improved the reliability and economy but not changed the appearance.

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