- India has big plans to modernize its railway system, our Sohrab Darabshaw writes.
- In case you missed it, our November MMI report is out. You can download it here to catch up on news and trends affecting our 10 MMI sub-indexes.
- Electric vehicles are all the rage — but what about simply smaller vehicles when it comes to curbing emissions? Our Stuart Burns delved into the matter earlier this week.
- The recently released Panama Papers shined a light on the world of corporate finance, and, furthermore, tax-dodging methods.
- Prefer to get your metals news and analysis in audio format? You’re in luck, as we recently relaunched the MetalMiner Podcast! In case you missed it, check out the first episode with Michael Stumo, CEO of the Coalition for a Prosperous America.
- Investor interest in commodities has picked up — Burns touched on why that is on Wednesday.
- Aluminum has cooled down a bit, but it might be a temporary dip.
- Our Irene Martinez Canorea offered her own take on the surge in commodities interest, with reference to the CRB index.
- Chinese excess capacity has been a long-standing gripe of producers in the European Union and U.S. But circumvention of antidumping tariffs via third parties is also on the E.U. and U.S.’s radar, Burns writes.
This morning in metals news, Nucor announced a major project at its Bourbonnais, Illinois plant, Aleris has a new automotive sheet facility in Kentucky and Chinese automotive sales drop in October.
Nucor Announces Plant Expansion in Illinois
Nucor is building a merchant bar mill at its plant in Bourbonnais, Illinois plant, the company announced Wednesday.
The full-range merchant bar quality (MBQ) mill will have an annual capacity of 500,000 tons and is expected to cost $180 million, according to the Nucor release. The project will take approximately two years to complete.
“This new MBQ mill is right in line with our long-term strategy for profitable growth. It takes advantage of our position as a low-cost producer to displace tons currently being supplied by competitors outside the region. It also builds on our market leadership position by further enhancing our product offerings of merchant bar, light shapes and structural angle and channel in markets in the central U.S.,” said John Ferriola, chairman, CEO and president of Nucor.
“Combined with our other full-range bar mills, we are now strategically located to supply all markets with high-quality bar products and exceptional service.”
Aleris Announces New Automotive Sheet Facility
Aleris opened a new automotive body sheet facility in Lewisport, Kentucky, the company announced.
The project represents a $400 million investment, according to the Aleris release.
Chinese October Automotive Sales Fall
According to data from the Chinese Association of Automobile Manufacturers (CAAM), yearly sales are up, while sales for October dipped from the previous month.
According to CAAM, In October, the production and sales of automobiles in China reached 2,604,000 and 2,704,000 units, respectively, down 2.5% and 0.2% from September. Meanwhile, production and sales were up 0.7% and 2% year-on-year.
For the first 10 months of 2017, the production and sales of automobiles were 22,957,000 and 22,927,000 units, respectively, up 4.3% and 4.1% year-on-year.
An article in the Financial Times this week reporting on recent research done by the Trancik Lab at MIT and the Norwegian University of Science and Technology last year suggests that the future for low-emissions vehicles might simply be smaller vehicles.
Both pieces of solid research support the fact that larger, electric-powered vehicles have a higher life cycle carbon footprint than smaller combustion engine autos.
Let us first define what the research is saying about life cycle emissions. To capture an electric car’s full environmental impact, the research says regulators need to embrace life cycle analysis that considers car production, including the sourcing of rare earth metals that are part of the battery, plus the electricity that powers it and the recycling of its components. The most crucial elements appear to be the source of the electricity used to charge the batteries and the size (and therefore quantity of lithium and cobalt) of the batteries.
Early early vehicles (EVs) were small vehicles with limited batteries and limited ranges, but Tesla changed all that with the model S. With the marker they laid down to the market, vehicle sizes and the range they can offer on a single charge have risen. As a result, so has the size of the batteries, to the point where a model S can weigh up to 2,250 kilograms, but a significant part of that is the massive battery that powers its impressive range.
According to data from the Trancik Lab quoted by the Financial Times, a Tesla Model S P100D saloon driven in the U.S. Midwest produces 226 grams of carbon dioxide (or equivalent) per kilometer over its life cycle. That numbers comes in less than an equivalent large luxury internal combustion engine (ICE) saloon, but much more than a smaller ICE vehicle that may produce less than 200g/km over its life cycle.
Note the reference to the location, as part of the calculation takes account of the electricity-generating capacity — in a solar- or wind-rich environment like Spain or Nevada, it will have a lower carbon footprint than in a coal-rich area, like Poland.
And therein lies part of the problem for legislators, keen to drive our migration to a “zero emission” transport future.
Of course, that is a fiction — all power, even renewables, has a carbon footprint. Power sources, however, vary considerably. To guide both automotive policy and power generation, legislators need to start looking at this more holistically than simply just, in the case of cars, what comes out the tailpipe.
Size for size, EV has some 50% lower life cycle emission signature than an equivalent size ICE. The MIT research acknowledges that fact, but the drive for ever longer ranges (required in only a tiny fraction of real life journeys) will reduce the benefit a switch to EV could deliver. The irony is that by the time legislators get around to working out how to incentivize and/or penalize better car choices, the market will be evolving to negate the benefits. The rise of sharing services will mean journeys will be completed less in our own vehicles and more in hired services, so that we do not make purchase choices based on range and where transport providers could coordinate vehicles for longer distances. Battery technology will also improve in the next decade, increasing power density per kilogram of lithium and potentially reducing, or even removing, the need to cobalt altogether.
While legislators fumble forward trying to accommodate the fact they are encouraging poor buying choices and the development of technologies in the wrong direction, be prepared for the fact that we see about turns in EV incentives from the current “all EVs are good” to “some EVs are good — but some are going to be taxed.”
Much like governments encouraged millions to switch to diesels, only for them to heavily penalize diesel cars less than 10 years later, we could see an equally ham-fisted about change on EV tax legislation down the road.
Before we head into the weekend, let’s take a look back at the week that was.
- In case, you missed it, our November MMI series is complete. You can read each piece at the following links:
- Oil prices, cobalt and electric vehicles — Stuart Burns touched on all of them in his post Wednesday.
- It’s been a tumultuous week, particularly in Saudi Arabia, as Crown Prince Mohammed bin Salman has made moves to consolidate his power while tensions with Lebanon are rising, per media reports. Burns touched on the political situation’s impact on the oil price — unsurprisingly, the price is going up. Political turmoil, however, isn’t the only thing sending prices upward.
Industrial metals are in the grips of a bear market, various outlets report, and one of the main narratives sounds like a case of the market having its cake and eating it too.
The FT reports that the oil price, as referenced by the Brent crude quotation, has topped $60 a barrel for the first time in two years.
The article quotes various sources suggesting that while demand is strong, the rise in prices is driven more by supply constraints than by a sudden surge in demand (which caused the China-inspired super-cycle in the last decade). This time, a combination of reduced investment in new capacity (resulting from low prices in recent years) and the OPEC-led production constraints initiated in November 2016 are gradually tightening the market. Trader Trafigura is quoted as predicting demand will outstrip supply by as much as 4 million barrels a day by the end of the decade as supply becomes under better control and the U.S. shale industry fails to make up the delta between supply and gradually rising demand.
That’s where the have the cake and eat it too part comes in.
At the same time, industrial metals are rising strongly. Copper passed $7,000 per ton last month and aluminum is knocking on the door of $2,200 per ton. The cobalt price has doubled in the last 18 months and nickel, long in the doldrums due to over-supply and poor demand from the stainless sector, has also been on the rise due to projected battery demand from electric vehicles and charging infrastructure.
On the face of it, this appears like investors are picking and choosing their good news. If electric vehicles are such a strong bet that metals demand is set to soar, then surely oil demand is set to collapse. That prospect should undermine the oil price, you may reasonably suggest.
If only it were that simple.
Even a doubling of battery production would suggest an extra 750,000 vehicles based on 2016 global electric vehicle and hybrid production of 773,600 units, according to EV-volumes.
There was modest, by global light vehicle sales, of 90 million units in 2016, just 0.86%. Yet for cobalt, it’s still significant when you consider the battery industry currently uses 42% of global cobalt production, so an ongoing rise of 42% increase in lithium ion battery demand (2016 over 2015) would be highly disruptive to cobalt demand.
Plug-in vehicle sales grew 20 times faster than the overall market, justifiably causing concern that cobalt supply could be strained by this one market application.
Worryingly for cobalt, the fastest-growing market is also the largest.
Driven by government subsidies, the Chinese market, at some 351,000 units last year, also grew at 84% over 2015. The switch to EV and PHEV cars is part of Beijing’s drive against pollution, so incentives are not likely to be relaxed anytime soon. Growth of this magnitude dwarfs the 13% and 36% growth rates in Europe and the U.S., respectively.
No wonder cobalt prices have doubled and yet oil prices have virtually ignored the message the rise in EV sales is telling us. One is major disruption to a small, constrained and geographically, supply market, while the other is a long-term trend to a still growing vast supply and demand market that will take years to impact consumption figures.
It was an up-and-down month for the automotive basket of metals. Chinese primary lead dropped 12.1%, while LME copper shot up 4.6%.
Bucking historical trends, palladium continued to be hotter than its fellow platinum-group metal, platinum. Palladium rose 5.1% on the month, while platinum posted a modest 0.8% gain.
Ford Drives October Sales
Ford Motor Co. led the way this past month, according to sales data released by Autodata Corp.
Ford’s October sales rose 6.4% year-over-year, although year-to-date sales through the month are down 1.9% compared to the same time frame last year.
General Motors, meanwhile, saw a 2.3% year-over-year dip in October with 252,614 units sold in the U.S. market. In the year to date, GM’s sales are down 1.0%.
Despite the drops in year-to-date sales, both GM and Ford are doing well in one particular market: trucks.
While there is increasing momentum behind electric vehicles (EVs) and greener energy, in general, light truck sales for both GM and Ford are up, 6.6% and 3.6%, respectively, through the first 10 months of the year. Across all automotive brands, light trucks sales were up 3.6% year-over-year in October, and are up 4.3% through the first 10 months of the year.
Even so, as our Stuart Burns wrote last week, the big brands are preparing for the future.
“The auto industry is certainly going through challenging times. In some quarters there is an expectation the established old order will be swept away by new challengers, such as Tesla,” he wrote. “The fact is, however, the incumbents have a huge depth of experience in supply chains, manufacturing, marketing and distribution.
“After an arguably slow start, they are moving swiftly to both develop new technologies in-house and to buy smaller firms in areas they recognize they lack the skills or expertise.”
Down the sales list, Fiat Chrysler saw a 13.2% year-over-year drop in October. Fiat sales are down 8.4% in the year to date.
Speaking of EVs, it wasn’t the best month for Tesla. Again, small sample sizes notwithstanding, Tesla’s October sales were down 15.9% year-over-year (although they’re up 18.5% for the year to date).
Meanwhile, Toyota (up 1.1%), Honda (up 0.9%), Nissan (up 8.4%) and Volkswagen (up 10.7%) all posted sales in October.
BMW Recalls 1 Million Vehicles
In general automotive news, BMW announced Friday it was recalling 1 million vehicles in North America, Reuters reported.
According to the report, the recalls — most of which are in the U.S. — are related to two separate vehicle fire risks. Per BMW spokesman Michael Rebstock, the vehicle recalls could expand to other countries.
Actual Metal Prices and Trends
This morning in metals news, U.S. manufacturers are pleased that the U.S. Department of Commerce’s ruling in a recent antidumping case treats China as a non-market economy, BHP looks to meet copper demand with more drilling and U.S. Steel reports its third-quarter earnings.
Manufacturing Group Praises DOC’s China Decision
The Manufacturers for Trade Enforcement (MTE) expressed their support for the Department of Commerce’s recent antidumping ruling on Chinese aluminum foil (for which dumping margins were assigned based on the department’s non-market economy dumping methodology).
“Fair international competition and a level playing field are essential for the global competitiveness of U.S. manufacturers,” said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute and co-chairman of the MTE. “China has not met the statutory criteria to be treated as a market economy, and we applaud our government’s commitment to ensuring China is not prematurely awarded market economy status.
“Substantial state intervention in the Chinese economy has resulted in significant overcapacity in many manufacturing sectors in China while also distorting global markets and hurting American manufacturers. Jobs have been lost in all of our industries. China should not be afforded market economy status while still maintaining a state-controlled economic system that encourages unfair trade practices that injure multiple U.S. industries.”
BHP Aims to Meet Copper Demand
Miner BHP, in efforts to meet growing copper demand in an increasingly electrified automotive market, is turning to the drill, according to Reuters.
According to the report, BHP’s copper exploration budget has hovered at an annual average of $60 million the last 4-5 years.
U.S. Steel Posts Solid Third Quarter
U.S. Steel reported third-quarter net earnings of $147 million, or $0.83 per diluted share. Third quarter 2016 net earnings were $51 million, or $0.32 per diluted share.
“Our third quarter results were modestly better than we expected, with stable operating performance at each of our segments and our Tubular segment producing positive EBITDA in the quarter,” said Dave Burritt, U.S. Steel’s president and CEO, in a release. “Our results for the first nine months of 2017 improved over the first nine months of 2016, with all three of our segments improving compared with 2016.”
With investors always so fixated on short-term results and today’s corporations criticized for short-term decision-making, it comes as some surprise that the media uses the long-term potential for electric cars, ride sharing and self-driving cars as a reason why an automaker’s share price should dip or rise.
According to Forbes, in 2016 total U.S. sales of electric vehicles (EVs) were only 159,139 vehicles. True, it’s a big jump on 2015, but still amounts to less than 1% of the U.S. automotive market.
Self-driving cars are not even out there yet and ride sharing is in its infancy, even as a well-developed concept. Not that these trends will not be major disrupters in the next decade, but in the short term we are not talking game-changers, yet.
In fact, the Detroit three are doing pretty well at the moment, despite a slowdown in car sales this year (both in the U.S. and some other parts of the world).
The U.K. has downgraded auto sales three times this year, from 2.7 million vehicles last year to 2.59 million this year. Next year has been downgraded yet again to an expected 2.51 million.
Ford has just announced its results and surprised both the wider market and analysts who had been expecting modest growth. Instead, Ford saw earnings per share at $0.43, well above expectations of $0.32, according to the Financial Times.
Apparently, Ford’s lineup of trucks have powered results this year, not EVs or hybrids, even though the firm’s Fusion Energi is one of only five EV models to have sold more than 10,000 vehicles last year.
GM has not faired as well, declaring a hefty $2.98 billion loss in the third quarter, much of which was an impairment from the sale of its European Opel brand. But yet again, GM’s adjusted earnings per share of $1.32 were well ahead of market expectations of $1.13 and supports a near 30% rise in the share price this year.
The auto industry is certainly going through challenging times. In some quarters there is an expectation the established old order will be swept away by new challengers, such as Tesla. The fact is, however, the incumbents have a huge depth of experience in supply chains, manufacturing, marketing and distribution.
After an arguably slow start, they are moving swiftly to both develop new technologies in-house and to buy smaller firms in areas they recognize they lack the skills or expertise.
Detroit is not alone in this.
Automakers in Germany, France, the U.K. and Japan also face a technological revolution and are pouring billions into their respective visions of how that future will unfold. Japan is betting big on fuel cells, Europe is going more hybrid, and the U.S. is going both hybrid and EV.
There will be casualties, but profits now are paying for the investments made. Don’t count out Detroit just yet.
This morning in metals news, NAFTA renegotiation talks continued with the U.S. aiming to tighten automotive content rules in favor of North American-made metals, Allegheny Technologies Incorporated (ATI) commented on its Q3 earnings and Alcoa reached an early termination agreement for a power contract tied to one of its Texas smelters.
U.S. Looks for Stricter Auto Content Rules
Trade negotiators from the U.S., Canada and Mexico are in Arlington, Va., until Oct. 17, engaged in a fourth round of talks focused on the North American Free Trade Agreement (NAFTA).
According to a Reuters report this morning, the U.S. is seeking stricter rules for automotive content, demanding a higher percentage of the materials — including aluminum and steel — that go into automotive manufacturing should come from North America.
According to the report, the proposal — which includes aluminum, steel, copper and plastic resins — would place those materials on the auto parts tracing list for the first time in the history of the 23-year-old trilateral trade agreement.
ATI Expects Q3 Results to Meet July Outlook
ATI commented on third quarter financial results on Thursday, and announced a non-cash net of tax charge of $114 million, or $(1.05) per share, for goodwill impairment related to the Cast Products business.
“Excluding the goodwill impairment charge, we expect our third quarter 2017 results to be in line with our outlook provided in July,” said Rich Harshman, ATI’s chairman, president and chief executive officer, in a company release.
Alcoa Announces End of Power Contract Agreement
On Friday morning, Alcoa announced power provider Luminant Generation Company LLC has terminated the electricity contract tied to Alcoa’s Rockdale Operations in Texas.
The smelter at Rockdale has been fully curtailed since the end of 2008, according to the Alcoa release. The termination of the contract was effective Oct. 1.
Alcoa expects an annual improvement to net income and adjusted EBITDA of $60 million to $70 million as a result of the contract termination, beginning in the fourth quarter of 2017.
Life is full of ups and downs.
So, too, is the world of metals.
Last month, all 10 of our MMIs saw upward movement. This month? Not so much.
Eight of 10 MMIs tracked back this month, albeit several of them fell by small amounts. The GOES MMI, meanwhile, picked up a point, while the Aluminum MMI posted no movement.
If you’ll remember, copper and aluminum had big months in August, as we detailed in last month’s MMI report. After a cooling period last month, though, so far in October copper has tracked back upward — so maybe it was just a September slump for the good Dr. Copper.
“However, market watchers can see a new rally taking place within the base metals industry,” wrote our Irene Martinez Canorea in her Copper MMI report. “Copper prices — along with lead and tin — increased sharply on heavy trading volumes. Buying organizations can expect upward movements within the bullish market.”
Meanwhile, as for aluminum, the flat month is actually an encouraging sign for the metal’s strength.
“Aluminum traded sideways in September,” Martinez Canorea wrote. “This trading pattern suggests resilience, as aluminum prices digest price gains and become strong again to continue the uptrend. Trading volumes continue to support the current rally, driving aluminum prices to a five-year-high in September.”
The aforementioned represents a small snippet of the analysis available in this month’s report.
You can read about all of the aforementioned — and much more — by downloading the October MMI report below.