Articles in Category: Automotive

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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.

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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.

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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.

The Automotive MMI was stuck in park for the month, holding at 93 for the second consecutive month.

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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.

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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.

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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.

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“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.

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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.

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There will be casualties, but profits now are paying for the investments made. Don’t count out Detroit just yet.

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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.

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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.

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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.

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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.

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This morning in metals news, the world’s top copper producer expects a moderate rise in the metal’s price going forward, the Aluminum Association announces new leadership and Kobe Steel continues to reel from its data falsification scandal.

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Copper on the Rise

The price of copper is set to experience moderate increases, according to the mining minister of Chile, Reuters reported.

Aurora Williams, the mining minister of Chile (the world’s top copper producer), said Wednesday that there will be moderate increases in the metal’s price, but not enough to push it above $3/pound for the year.

According to the Reuters report, copper exports reached $3.18 billion in September, their highest level in nearly three years.

Changing of the Guard

The Aluminum Association announced new leadership on Wednesday.

Michelle O’Neill, senior vice president of senior vice president of global government affairs and sustainability at Alcoa, was elected as Aluminum Association Chair, becoming the first woman in the association’s 84-year history to hold the position. She replaced Garney Scott, president and CEO of Scepter, Inc., following a two-year term.

Kobe Steel Data Scandal Continues

It’s difficult to quantify lost trust, but it’s a problem Kobe Steel, Japan’s third-biggest steelmaker, is dealing with now on the heels of a data falsification scandal.

Now, the chief executive of the company is admitting the scandal is a serious hit on the company’s image, one that leaves it with “zero credibility,” The Guardian reported.

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According to The Guardian’s report, General Motors is the latest manufacturer to check whether its cars contain falsely certified parts or components sourced from Kobe Steel.

The Automotive MMI dropped for the first time since June, falling one point for an October reading of 93. 

Much of the automotive basket of metals was stuck in neutral this month, but a few did show some notable movement. U.S. HDG steel dropped 1.7% and LME copper, one of the darlings of August, dropped 4.2%.

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Chinese primary lead rose 8.7%. Our Irene Martinez Canorea wrote about environmentally-based smelter shutdowns in China, which supported the lead price.

“The Chinese environmental campaign has heavily impacted lead,” Martinez Canorea wrote. “According to research group Antaike, 80% of illegal secondary smelters have been shut down during the second half of 2017. China has also lost an important source of raw materials from North Korea due to its commitment to international sanctions.”

Palladium Pulls Past Platinum

One tidbit worth noting is the relationship between palladium and platinum. As of Oct. 1, palladium closed higher than platinum.

The last time that happened? Sixteen years ago.

According to a report by Kitco News, however, many analysts don’t expect palladium’s dominance over platinum to last.

The report attributes the price dynamic to a rise in demand in gasoline-powered vehicles and platinum’s fall alongside gold.

“Palladium is benefitting from its inclusion in catalytic converters in gasoline-powered vehicles, which is expecting robust growth from the shift from diesel engines following the 2015 Volkswagen emissions-rigging scandal, and hybrid electric vehicle demand,” according to a research note from commodities broker SP Angel quoted by Kitco.

Dr. Copper Loses Ground

After surging throughout the summer and hitting three-year highs, copper has been backsliding of late.

As of Oct. 1, LME copper dropped from the previous month’s closing price by 4.2%. The metal, often cited as a global indicator of economic health, lost steam in September like a number of other base metals, as Martinez Canorea wrote on Tuesday.

After a booming August, copper slowed down in September.

“Copper has retraced and the general downtrend has slowed down this month. However, the CRB commodities index has increased, something we had suggested might happen and something that signals a potential bull run,” Canorea wrote.

U.S. Auto Sales

In U.S. auto sales, light trucks continued to be a popular option for buyers. In the year to date, over 8 million units have been sold in the U.S., which is up 4.4% from the same time frame last year, according to sales data released Tuesday by Autodata Corp.

By month, September 2017 light truck sales hit 967,547 units, up 12.4% from September 2016. Meanwhile, sales of passenger cars dropped 3.3% last month compared with September 2016 and dropped 10.5% in the year to date (compared with the same time frame last year).

In short? Trucks continue to be in.

As for sales by manufacturer, General Motors led the way with 279,176 units sold, which was up 11.8% from its September 2016 sales total. On the year, however, GM’s sales are down 0.8%.

Similarly, Ford had a strong September, with sales jumping 8.9% from September 2016. However, like GM, Ford’s sales are down in the year to date (2.7%).

Reuters reported Tuesday that GM’s shares rose 3.1% and hit a record intraday high, while Ford’s stock rose 2.1%.

It wasn’t a great month for Fiat Chrysler. September sales dropped 9.7% year-over-year. In the year to date, the automaker’s sales are down 7.9%.

A number of other automakers boasted strong September 2017 sales figurers that raced past September 2016 sales.

Toyota (14.9%), Honda (6.8%), Nissan (9.5%), Volkswagen (22.8%) and Mitsubishi (17.2%) all had solid September year-over-year increases. In the year to date, all five of the aforementioned automakers have exceeded sales compared with the same time frame of last year — Volkswagen posted the largest year-to-date jump of that group at 7.8%.

Sales in China

According to the most recently available sales data from the Chinese Association of Automobile Manufacturers (CAAM), August automotive sales in China were up 5.3% year-over-year.

For the first eight months of the year, 17,511,000 units were sold, up 4.3% from the same time frame last year.

Volvo was among the big winners in China in September. Volvo’s September global sales rose 11.2% year-over-year. In China — Volvo’s biggest market — sales rose a whopping 29.8%, according to a company release. From January-September, Volvo’s Chinese sales are up 29.9% compared with the first three quarters of 2016.

Feeling the Electricity

Meanwhile, our Stuart Burns wrote about an announcement that could represent the rise of the electric vehicle (EV) in China, a shift that has massive implications for the automotive world.

China, the largest automotive market in the world, moving toward the EV constitutes a significant development, to say the least.

Burns covered the recent announcement from Beijing outlining the government’s plans to move toward EVs, as the country — and the world — prepares for the phaseout of vehicles powered by fossil fuels. The U.K. and France have made similar announcements this year, setting long-term goals to ban the sales of gas and diesel cars by 2040.

India, too, announced a push toward electrification earlier this year, with an ambitious goal of selling only electric vehicles by 2030.

For now, of course, these are merely government statements — actual implementation of the processes necessary, in both the public and private sectors, to reach these goals is another story entirely.

As for automakers, GM announced Monday its plans to move toward an all-electric fleet.

“General Motors believes in an all-electric future,” said Mark Reuss, General Motors executive vice president of product development, purchasing and supply chain. “Although that future won’t happen overnight, GM is committed to driving increased usage and acceptance of electric vehicles through no-compromise solutions that meet our customers’ needs.”

The automaker plans to introduce two new all-electric vehicles in the next 18 months, according to the GM announcement, and a total of at least 20 new all-electric vehicles by 2023.

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Like “electricity for all,” the Indian government’s latest ambitious plan is for a complete transformation of its auto segment and move towards all electric vehicles (EVs) by 2030.

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Toward this goal, the government has started making the right moves, but the question on every one’s mind is simple: Is the plan possible?

The political will is there, but to have all vehicles on the road running on battery by 2030 seems like a pretty impossible dream.

Nitin Gadkari, India’s road transport minister, made the government’s intentions clear, rather forcefully, when he said recently, “We should move towards alternative fuel … I am going to do this, whether you like it or not.” He was addressing delegates of India’s automobile lobby group, SIAM. Gadkari made it clear he would “bulldoze the plan through.”

It’s really all about numbers, say the experts. After all, how does a country of over 1 billion people, where over 20 million vehicles are sold annually, embark on such an ambitious drive?

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A New Defender on the Roads?

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“The king is dead, long live the king” — or so the headline may read if Jim Ratcliffe, founder and CEO of one of the U.K.’s largest companies, is successful in his bid to create an entirely new and modern Defender following the demise of the old Land Rover Defender in 2016.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Fans of the long-running Defender bemoaned its loss when Jaguar Land Rover (JLR) finally called time on the model last year. Reports that they intend to bring out a replacement in two years are dismissed by Ratcliffe as likely to be more Chelsea Tractor (British slang for a road-only 4×4) than a real Defender. JLR will go for more of a volume SUV, not a vehicle totally committed to the off road, he believes.

Judging by the firm’s gradual expansion of its range into more road-focused models, he may well be right.

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