Essentially penalizing people for saving money seems like a curious thing to do to try to turn around a struggling economy, but it’s not the first time banks have gotten a push to force them to lend. The European Union has done it, too, in recent memory.
Boy does Toyota Motor Corp. ever wish it had a bigger supply chain this week. Source: Adobe Stock/cacaroot.
My colleague and metal price analyst Raul de Frutos wrote that, “negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.” Read more
The blast at an Aichi Steel plant has curbed production of steel parts, which may impact output at the world’s best-selling automaker which produces around 40% of its global output in Japan.
“At the moment, there is enough supply inventory to keep our domestic plants running until Feb. 6,” a Toyota spokesman told Reuters, adding that overtime and weekend shifts for next week had been canceled.
Considering that other metals prices are still falling, it’s quite a feat that automotive has been able to even hold steady for this long. Prices of stainless, aluminum and copper are all down in their individual MMI sub-indexes this month and our Raw Steels MMI was flat.
Low prices simply have not been enough to entice larger raw material purchases by automakers. U.S. auto sales fell slightly in January because of the East Coast snowstorm, but analysts say end user demand remains strong and buyers will likely head back into dealerships this month. Sales fell less than 1% to 1.1 million, according to Autodata Corp.
Low gas prices and even lower interest rates are continuing to fuel sales and most automakers are optimistic that they can break last year’s sales record by the end of the year. The problem facing metal producers is that there is still so much oversupply out there that even the market hunger for new cars, trucks and SUVs can be sated several times over by the stockpiles that currently exist.
Producers Targeting Automotive
Automotive is still a coveted market for most producers. Nucor Corp. recently opened an office in Detroit as part of a push to increase its sales to the auto industry by 40% to 50% over the next two years. Charlotte-based Nucor saw its sales to the automotive industry increase 20% last year — 1.4 million tons of steel products — over 2014’s numbers.
Alcoa, Inc. is even coming closer to realizing its previously announced split by naming new directors for its new automotive and aerospace company, all of them with experience in the fields.
The fundamental strength of the sector will likely still be there when stockpiles finally dwindle and we see prices rise. Many are predicting that rebound for later this year, but there’s very good reason to believe 2016 could be another low-price year as there is still no definitive deal to reduce oil production and many miners and metal producers are not curtailing production.
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The very idea that America’s workhorse could be made from something so fragile as aluminum was a complete anathema to some people, but the resulting product on the whole has been well received.
An aluminum-bodied Rolls? It’s more likely than you think. Source: Adobe Stock/Dimitri Surkov.
Lighter, more economical and more responsive it can be said in most quarters to have been a success; so much so that Ford has recently announced it will increase the aluminum content in 2017 models.
GM Plays Catch Up
Despite initially trashing the idea, General Motors has now said it would sink $877 million into its Flint, Mich., truck factory this year with the intention of converting many of the bodies for models such as the Chevrolet Silverado and GMC Sierra pickups into aluminum. Read more
For you millennials out there, that means you could buy and drive the two-seat sports car that Doc and Marty turned into a time machine in the “Back to the Future” movies. John DeLorean left his job at General Motors to start his own automobile company in the ’70s. His company, the original DeLorean Motor Company, went bankrupt in 1982 but only after it produced the DMC-12, which became popular after being featured in the film.
Go back to the future and buy a new DMC-12 in 2017! Source: DMC-Texas.
Stephen Wynne, the founder of the new DeLorean Motor Company-Texas, started producing “newly assembled” DMC-12s in 2008. The new company acquired DeLorean parts from the original suppliers and helped hobbyists maintain and refurbish their DMC-12s.
What Does This Mean to Metal Buyers?
It means more stainless steel will be necessary for the Humble, Texas-based automaker to start an assembly line to build all of those new cars! We’ve previously written about how the DMC-12 is pretty much the only stainless-steel-exterior car ever built. Wynne told SFgate.com that the new DMC has enough parts to assemble about 300 cars and a new DMC-12 will cost around $100,000. The tagline on their website is even “clean and timeless design. Stainless steel.”
As sanctions against Iran came down this week, a flurry of business deals were announced by the Islamic Republic and steel production was a major beneficiary of Iran being welcomed into the world community.
Iran is the largest steel producer in the Middle East and Northern Africa and is among the 15 largest producers in the world. Even with significant domestic production capacity, Iran remains a net steel importer. Over 50% of downstream industries are currently non-operational or unable to operate at optimal capacity. This has led to a high demand, low supply situation. It is estimated that the country imports around 8 million metric tons of steel every year, mainly from China and Turkey.
That all could change, though, as Iran is in the mood to make a deal and South Korea’s Pohang Iron & Steel Co. (POSCO) and Italy’s Danieli both made announcements that they will go into business with Iran this week.
Steelmakers are eager to make deals with Iran but can new demand outstrip new supply? Source: AdobeStock/icarmen3.
POSCO plans to sign a preliminary agreement with Iranian steelmaker PKP in March to buy a stake in a $1.6 billion steel mill project in the Middle Eastern country. Read more
In December, prices rose while other metal prices fell, but the rally turned out to be short-lived, a typical behavior in this bearish commodity market. Our subscribers knew, though, at the beginning of January that it wasn’t a good time to buy, since lead was destined to fall as it neared resistance levels around $1,800 per metric ton.
Lead prices fall in January. Source: MetalMiner analysis of FastMarkets data.
In only two weeks lead prices fell 16% from December’s high. Interestingly, the slump came during one of the strongest months in the auto industry. Auto sales in US hit a new high in 2015, with sales topping 17 million units. In Europe, they grew by 9.3% in 2015 to 13.7 million vehicles. Meanwhile, China, with the largest vehicle market in the world, hit record sales in December, up 18.3% from a year earlier.
Although China’s vehicle sales hit a new record in 2015, its car market decelerated in 2015. The annual growth rate in 2014 was almost 10% while annual growth in 2015 was only 4.7%. In addition, the Chinese market grew thanks to a strong last quarter, which came from a 50% tax cut for small cars, serving as a stimulus measure rather than a sustainable longer-term demand increase.
If it wasn’t because of those inflated numbers, China’s auto market would have probably seen its first down year in 2015.
What This Means For Metal Buyers
It can be argued that, overall, automotive output remains one of the few bright spots in a darkening global manufacturing picture. However, that is not enough to lift this metal up under the current commodity environment. What lead has done in January is just another example of how any metal can struggle when investors don’t put money in commodity markets.
A recent report in The Wall Street Journal said the company has cobbled together an engineering team to set up a unit near Detroit, home of much of the US auto industry. Mahindra’s new staff has been carefully poached from US giants such as Ford Motor Co. and Tesla Motors Inc.
Mahindra’s new Genze 2.0 is a scooter designed for the North American market. Source: Mahindra.
The same report claims Mahindra was already testing the large SUV, said to be comparable to the BMW X5, on the streets of metropolitan Detroit. The SUV will have to meet stiff US safety and fuel economy regulations, and cater to the whims of American buyers if it wants to be successful.
Mahindra’s US Ambitions
This isn’t Mahindra’s first attempt to crack the US automotive market. About a decade ago, the $16.9 billion conglomerate, which controls about 40% of the SUV market in India announced partnerships with US dealers, with the promise of delivering vehicles by 2009. But Mahindra claimed it had trouble meeting US vehicle regulations and canceled its plans in 2010, and the entire episode ended up in US courts as at least 5 automobile dealers from the US filed a lawsuit accusing M&M accusing it of fraud, misrepresentation and conspiracy.
Neither palladium nor platinum had a good start of the year. Within the first three weeks, palladium prices have fallen 17%, hitting a new five-year low.
Palladium hits a five-year low. Source: @StockCharts.com.
Platinum prices are not performing any better. The precious metal is down 7% so far in January and it’s at the lowest levels in seven years, just above the lows of 2009.
Platinum hits a sevn-year low. Source: @StockCharts.com.
Car Sales Didn’t Help
Auto sales in US hit a new high in 2015, with sales topping 17 million units. In Europe, where diesel powered cars dominate the market, vehicle sales were also strong, growing by 9.3% in 2015 to 13.7 million vehicles. Lower oil prices in 2015 helped the increase in car sales, but it still didn’t move the needle for catalysts such as platinum and palladium.
Meanwhile, China, with the largest vehicle market in the world at 24.6 million vehicles sold in 2015, saw a 4.7% rise year-on-year in auto sales, marking another all-time high.
Chinese Car Sales Not All That They Seem
Despite China’s vehicle sales hitting a new record in 2015, the world’s biggest car market decelerated in 2015. The annual growth rate in 2014 was almost 10%. Moreover, the Chinese market grew thanks to a strong last quarter, which came from a 50% tax cut for small cars, serving as a stimulus measure rather than a sustainable longer-term demand increase.
Just like Oprah giving out cars, our January Metal Price Trends report was generous with the dead cat bounces this month. You get a dead cat bounce, copper! You get one, too, aluminum! You get a dead cat bounce, raw steels! Everyone gets a dead cat bounce!
Okay, not everyone. Construction, stainless steel, renewables and rare earths all lost ground and automotive was merely steady.
Still, it’s the most positive movement we’ve seen for many of these metals since early last year. We say they’re dead cat bounces — a cruel-sounding investment term for a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend (sorry, kitties) — because there is little reason to be optimistic that any of these gains will continue.
Stop Me Before I Bounce Again!
The main driver of commodity, and now stock market losses, has been the slowing Chinese economy and it’s looking worse this year than it did at the end of last. Financial institutions such as RBS are even advising clients to sell everything, save bonds, that’s not tied down.
This is great news for buyers but exactly what metal producers don’t want to hear. What’s worse, for them, is that everything the Chinese government is doing to try to turn their economy around, including a panic button system for its stock markets that actually caused more panic, isn’t working. My colleague Raul De Frutos also pointed out that purposely devaluing the yuan actually hurts metal prices.
How Low Can it Go?
The other big driver of the commodity price rout, the price of oil, shows no signs of turning around, either. Oil hit $30 per barrel this week stoking bankruptcy fears among US energy companies and it even temporarily created some nervousness among OPEC nations who clamored for an emergency meeting.
So don’t expect these price increases to continue as transportation and production costs follow oil’s race to the bottom. My colleague at our sister site Spendmatters, Kaitlyn McAvoy, reported that Goldman Sachs is predicting $20 per barrel for oil this year. It’s not a very happy new year for metal producers… or cats.