Articles in Category: Automotive

AluminumSmelter_565In response to the bearish aluminum market, perhaps the most drastic action to date has been taken wby Alcoa Inc., reporting it will split in 2 in an effort to isolate the company’s profitable aspects from its aluminum smelting operations.

Aluminum prices have been hit hard by the economic crisis in China, a major consumer of the metal. Add to that China’s own manufacturing of aluminum leading to a surplus, which needs to be traded off, causing a further depressed market and you have a perfect storm that is causing companies like Alcoa to take such drastic measures.

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Alcoa isn’t the only company to break up into smaller units, and it is doing so with the expectation that narrowing its focus will lead to a better end result. This will not be without its own set of challenges, however, as Alcoa’s smelters will have to pass on raw aluminum price changes to its customers and will continue to suffer as prices do.

“That’s still their biggest problem,” Bill Selesky of Argus Research told The Wall Street Journal. “If prices continue to suffer, they’ll just have to keep closing smelters.”

Automotive MMI Impacted by Low Prices

We recently reported on the far-reaching effects the bearish aluminum market has had on the automotive market. The automotive MMI continues to fall despite surging supply and demand in the US. Low steel and aluminum prices, compounded by weakening supply and demand overseas, have made their mark on the automotive industry.

You can find a more in-depth aluminum price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

The Automotive MMI fell again in October, inching down 1.4% from its previous all-time low of 73.

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It’s more of the same for an automotive metals market that, while strong on both the supply and demand sides here in the US, is being dragged down by falling demand in other large markets. Automotive specialty metals have been cited as the savior and the future demand driver for many a steel or aluminum company in this bear market.

Automotive_Chart_October-2015_FNLGerdau is practically staking its entire Indian business on it. Aerospace and automotive are also regularly cited as the growth markets for stainless and aluminum overseas, too. The aluminum-bodied Ford F-150 continues to be the darling of the US automotive market with its lighter corporate average fuel economy (CAFE) load and its Denis Leary commercials about “military-grade” aluminum. Even the Super Duty is getting in on aluminum. The emerging markets were on the aluminum train before Ford was, too, and that trend is only growing.

US, European Auto Sales

So, what gives?

In September, US vehicle sales topped a SAAR (seasonally adjusted annual rate) of 18 million vehicles. Leading automakers reported the healthy year-over-year increase in sales number thanks, in part, to big gains over the Labor Day holiday weekend.

It wasn’t just us yanks buying cars constructed cold from specialty metals, either. The Czech Republic will report its highest car sales ever this year. The Volkswagen scandal might be hurting platinum prices but it’s clearly not denting overall vehicle sales, even in Europe where the scandal hits close to home with more diesel cars on the road.

VW has a market share of around 48% in the Czech Republic, a country of roughly 10.5 million people, with the company’s domestic maker Skoda Auto the top seller.

Chinese Demand Collapses

The fly in the automotive metals ointment is demand in China. Like steel, aluminum and other markets, the economic collapse in China has eroded what was once healthy automotive – and automotive metal – demand there.

The urbanization that economists counted on to fuel more Chinese car purchases went away with housing demand there, as well as the un-manipulated renminbi. Beijing is looking entirely to exports now (hence the purposeful devaluation) to pull its economy out of the doldrums, and isn’t even trying to goose those domestic markets much.

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Sad to say, but no matter how strong the US or European automotive markets are, they can’t make up for the loss of Chinese demand, which numbers sales (and people) in the neighborhood of a billion. That’s one of the reasons so many steel companies are looking to India, with its large population, to make up for that demand. The problem there is India’s urbanization isn’t as far along as China’s was. Still, automakers and steel companies such as Gerdau are digging in there for the long haul. Here’s to hoping it’s not as long as some predict.

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The monthly Raw Steels MMI® registered a value of 51 in October, a decrease of 1.9% from 52 in September.

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Even though the 1.9% decline is not very big, we keep seeing sharp declines among steel products. A recent example was plate prices in the US, one of the steel products featured in our monthly forecast. Toward the end of the month, plate fell from $561 per short ton to $519/st. That’s a 10% decline in only one week.

Raw-Steels_Chart_October-2015_FNLSharp declines are par for the course in our current bear market. Over the past few years, placing forward buys has only served to reduce profit margins, not to manage risk. It is critical to understand the market we are in, because different buying strategies work for different markets.

Foreign markets have provided a home for the glut of steel that the oversupplied Chinese market has created with its overcapacity and weak demand. Chinese exports continue to grow year-over-year. In September, the vice-chairman of the China Iron Steel Association (CISA) said that they expect Chinese steel product exports to exceed 100 million metric tons this year. So far, during the first 8 months, product exports reached 71.87 mmt, up 26.5% compared to the same period in 2014.

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Solid automotive and construction data simply don’t make up for the slowdown in the same sectors in China. On top of that, we have a steel production cost declining thanks to lower oil, scrap and iron ore costs. In September crude oil fell again, remaining below $50 a barrel. Similarly, iron ore prices remained at low levels in September, below $55/mt.

What This Means For Metal Buyers

Based on the latest numbers, Chinese automotive, construction and manufacturing activity keep pointing down. As long as we don’t see improvements in China, more steel price declines might be around the corner. It seems like the time to start buying forward hasn’t come yet.

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Brazil’s top steel producer, Gerdau, seems to be well on its path to making its India operations turn a profit by 2016.

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The company, which is listed on the Sao Paulo and New York Stock Exchanges, recently said with a rise in demand for specialty steel in India, its wholly-owned Gerdau Steel India subsidiary, which mainly serves India’s automobile sector, is trying to double its sale over last year.

Counting on Automotive Specialty Demand

The demand for specialty steel is rising across the auto sector, and Gerdau India expects to sell 200,000 metric tons this calendar year, a report in Financial Chronicle said. Sridhar Krishnamoorthy, Managing Director at Gerdau Steel India, said “The market is looking up. The demand for our steel is rising from across the auto sector, and we will be able to sell 2 lakh tonne (200,000 metric tons) this calendar year,”

Krishnamoorthy revealed the company recently received an order to supply specialty steel to some Japanese automobile companies in India, which were also Gerdau’s global clients.

How Did Gerdau Get to India?

Gerdau entered India in 2006-07 through a joint venture with Kalyani Group to acquire the SJK Steel Plant at Tadipatri. Gerdau took almost total control of the business in 2013. At that time, it was only making pig iron and billet.

Since then, the company has invested in a factory in the southern province of Andhra Pradesh, and in setting up the state-of-the-art production specialty steel production facility. The plant consists of iron and steelmaking facilities, has an installed capacity to produce 300,000 metric tons of specialty steel per year, he said. The integrated steel factory also supplies steel to India’s defense, rail and related industries.

New Products

The Brazilian multinational recently started selling a new type of steel for the US, Brazilian and European automotive industries. According to the producer, the material was 20% more resistant to heat and pressure, and will be used in diesel engines, mostly for pistons.

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Krishnamoorthy said the company adopted a 2-pronged strategy to make the operation sustainable. It is cutting down the sale of merchant bars, a commodity steel item, and was increasing the sale of value-added products to the more lucrative auto component sector.

Krishnamoorthy, being a company man, said the market is looking up, and the India operations will be able to break even and start making a profit in 2016.

The price funk that industrial metals are in got a little bit funkier for platinum and palladium this week as the two metals saw their prices plummet on news that Volkswagen AG has been cheating on its diesel vehicles’ emissions tests for years.

The intricate scheme puts even the New England Patriots’ best cheating efforts to shame, and that’s saying something. It centered on software in a diesel VW’s internal computer that was able to detect a testing scenario and turn its full emission control systems on. During normal driving, the automobiles would not have their emissions systems engaged. Or recall 482,000 cars in the US alone.

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Which begs the question, why not just run the full emissions control system all of the time, VW? Apparently, there’s a trade-off between performance and emissions when the control system is engaged and VW erred on the side of… performance? Such a decision programmed into software by a large, multinational automaker is shocking, especially since VW recently passed Toyota Motor Corp. as the world’s largest car company.


This innocent-looking Volkswagen Beetle TDI could have been polluting as much as 40 times beyond emissions standards.

VW’s decision has already impacted platinum prices. The funk they are in is now of “We’re An American Band” levels. Platinum fell to a 6-and-a-half-year low of $925.30 an ounce this week, after dropping 4% on Tuesday alone, its biggest one-day fall in more than 2 years. It could, eventually, be a boon for palladium, which is used as a catalyst in gasoline engines, if Europe adopts standards that make diesel engines less popular there due to the scandal but palladium is down, too, in the short term. Read more

Car shares aren’t the only commodity to fall out of favor following the revelations that German automaker Volkswagen Group has been manipulating laboratory emissions tests on its diesel cars for years.

Apparently, VW ran software on its cars that sensed when the tests were being made and released urea into the emission gas to neutralize harmful nitrogen oxide emissions and dramatically improve the results.

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So successful was the fix that the real results could be ten times worse than the recorded figures. Shares in the firm have collapsed more than 35% since the scandal hit and today CEO Martin Winterkorn resigned.

PGM Collateral Damage

But collateral damage from news of the VW scandal rolls on daily. Johnson Matthey, a refiner of platinum group metals used in catalytic converters has also seen its share price drop by 11.8% so far. Even though diesel car catalysts account for no more than 15% of Johnson Matthey’s profits.

Likewise, platinum prices have taken a pasting as their use in diesel car catalysts is such a significant part of the demand picture. Platinum fell to a 6-and-a-half year low of $925.30 an ounce this week,, after dropping 4% on Tuesday alone, its biggest one-day fall in more than 2 years.

The metal is already down more than 20% so far this year and speculators digesting the likely impact on demand will not have been encouraged by some reports suggesting this could be the end of diesel cars.

In Europe, diesel car sales make up about 50% of all new registrations so potentially the impact on new car demand and production could be catastrophic. Compared to the US, where only 2-3% of all new cars are diesel according to data in the Financial Times. Improvements in gasoline engine efficiency had already begun to have an impact of demand for diesel cars though as this from pre-scandal days graph shows

Source FT

Source: Financial Times

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US manufacturing growth is still only plodding along and platinum prices are at their lowest since 2009 thanks, in part, to the Volkswagen emissions scandal.

Markit PMI Still Barely Positive

US manufacturing activity remains at a nearly 2-year low this month, and job creation in the sector has slowed. Markit‘s purchasing managers’ index registered 53, indicating sluggishness due in part to the strong dollar and suggesting “the sector will have acted as a drag on the economy in the third quarter,” Markit Chief Economist Chris Williamson told Reuters.

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Any reading above 50 indicates expansion in the sector.

Platinum Near a 7-Year Low

The price of platinum, widely used in diesel car engines, could fall below $900 am ounce for the first time since the financial crisis in the wake of the emissions scandal at Volkswagen AG, according to some metals investors and analysts.

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Spot platinum fell heavily on Tuesday and nearly hit a 7-year low on Wednesday at $929.08 an ounce, before recovering slightly to $932.25, as some questioned whether the affair would have a lasting effect on demand for diesel cars.

Why are automakers not embracing stainless steel in structural applications to reduce overall weight and create safer and more fuel-efficient vehicles?


In addition to helping Marty and Doc get back to 1985, the DeLorean was innovative, practical and sported an attractive brushed stainless steel body.

Usually when you think of stainless steel in cars, the exhaust system, the trim or the DeLorean DMC-12 from the “Back to the Future” movies come to mind.

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The unpainted stainless body panels of the DeLorean made for a unique looking sports car/time machine, sure, but that seems to have done nothing for the mainstreaming of stainless steel use in the manufacture of passenger cars. Read more

Sitting in road work, we all grumble about repairs and the corresponding delays they create, but the fact is there is far too little care and maintenance of our crumbling infrastructure going on.


We may not like roadwork on long trips, but it keeps the country and the economy humming. Source: Inland Asphalt Paving

Major infrastructure spending has been the preserve of emerging markets for the last few decades. According to an Economist article mature economies are rather resting on the laurels of past investment are sitting on a time bomb of crumbling and decrepit roads, bridges, dams, railways and levies that is costing these established economies dearly.

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According to the paper, in America the average bridge is 42 years old and the average dam 52. The American Society of Civil Engineers rates around 14,000 of the country’s dams as “high hazard” and 151,238 of its bridges as “deficient.” Nor is the US alone in its neglect. Half of London’s sewers are over a hundred years old as are a third of Germany’s bridges.

The Cost of Lousy Roads and Bridges

This crumbling infrastructure is both dangerous and expensive: traffic jams on urban highways cost America over $100 billion in wasted time and fuel each year; congestion at airports costs $22 billion and another $150 billion is lost to power outages. Much was made of the post-financial crash benefits of infrastructure spending but in reality little was done in mature economies like the USA.


Source: St. Louis Federal Reserve Bank.

The spending was short-lived and limited in scope, and, in the paper’s opinio,n a hugely wasted opportunity. At a time when construction costs had fallen by some 20% from the pre-crash level and the economy in 2009-2010 desperately needed a boost, the US instead embarked on a bank-saving quantitative easing program.

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Rating agency Standard & Poor’s reckons that the activity spurred by increasing government spending on infrastructure by 1% of GDP would leave the economy 1.7% bigger after three years in America, 2.5% bigger in Britain and 1.4% in the euro zone, while the legacy of that investment would go on for decades. Further, such investment would support manufacturing and industry rather than the financial sector which appears to have bounced back remarkably well from financial near-meltdown in 2008.

Not all infrastructure spending has to be bricks and mortar to create value, but to spread the benefits among home-grown manufacturing that’s often the best kind. America’s roads, bridges, dams and other hard assets will continue to serve only as long as they are kept in good order. Surely now is the time, as the economy recovers and tax coffers improve, to divert some of those funds to much-needed investment in the country’s infrastructure?

US auto sales remain the bright spot in the drivers of the monthly Automotive MMI®.

The Real Steel Story

Seasonally adjusted annual rate of sales for light vehicles rose to 17.8 million compared with 17.3 million a year earlier and was the highest since July 2005, according to researcher Autodata Corp. August was the fourth consecutive month that adjusted sales remained above the 17 million mark.

Automotive August-2015The Automotive MMI® still registered only a value of 73 in September, a decrease of 3.9% from 76 in August. Weak prices for most of the base metals that make up the index (HDG, copper, aluminum and lead) abound despite strong end user sales in the US. In China, auto sales are falling with the rest of the domestic economy there.

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China Again

Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013 and such a large economy’s fall is dragging down the prices of automotive metals just as it is dragging down the prices of oil and other commodities.

Major iron ore producers, Rio Tinto PLC, BHP Billiton, Vale SA and Fortescue Metals Group Limited have ramped up production again despite massive iron ore and steel oversupply. believes they intend to continue exploring for iron ore in Australia despite lower growth forecasts from China and weaker iron ore prices, betting on continued strength in iron ore demand over the long term.

What This Means For Metal Buyers

This is normal behavior from major miners such as the Big Three (Rio, BHP and Vale) and almost-there cousin Fortescue. They can make a profit by squeezing volume out of their mines at low prices based on scale, alone, but iron ore investment is coming from non-traditional miners, as well.

India’s Essar Steel is making a $1.9 billion investment in the steelmaking ingredient in Minnesota, of all places. It’s difficult to imagine how such an investment makes long-term sense for Essar without a turnaround in both iron ore and steel prices. Since high-strength automotive steel alloys are one of the best-performing steel products on today’s market, it’s even more difficult to imagine those prices turning around without continued strong auto sales in the US and Europe and a turnaround in China and other emerging markets.

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This Month’s Prices and Trends

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