Articles in Category: Commodities

Back pedal 12 months and the commodities landscape looked rather different.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Prices had been falling since 2011 and the trend carried through into early 2016. Many worried that the declines were set to continue through this year. 10 months in, the picture looks brighter: Chinese demand for metals has picked up and cost-cutting by producers has boosted profitability.

Commodities Are Up… But Why?

The S&P GSCI Commodities Index has risen from a low of 271.8 in late January to 372.4 today, a rise of 37%, aided by a doubling in oil prices during the period. Mining stocks are among the better-performing asset classes of 2016 and were doing well even before Brexit boosted the fortunes of London-listed stocks. There is a sense of cautious optimism about a recovery in commodities much of which has to do with improved sentiment toward China. Read more

Vanadium from Korea was hit with anti-dumping tariffs and finished steel imports were down in September.

Vanadium Anti-Dumping Tariffs

The Department of Commerce initially placed anti-dumping duties on imports of ferrovanadium from the Republic of Korea ( South Korea) yesterday.

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Commerce preliminarily found dumping by mandatory respondent, Korvan Ind. Co., Ltd., at a preliminary margin of 4.48%. Additionally, based on the application of adverse facts available, Commerce preliminarily found that dumping has occurred by mandatory respondents, Fortune Metallurgical Group Co., Ltd. and Woojin Ind. Co., Ltd., at 54.69%. Commerce assigned a preliminary dumping margin of 4.48% to all other producers/exporters in Korea. Read more

The fact that X2, the mining vehicle set up by Sir Mick Davis in 2013, is releasing its financial backers from their commitments says quite a lot about the state of the global mining Industry.

X2 was set up by Sir Mick after he successfully merged  —or shall we say sold — the $50 billion mining giant Xstrata to Glencore International in May 2013. His plan was to create a new mining and metals group by acquiring assets that he believed would be sold at knockdown prices as the commodities bust unwound from 2011 onward.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Even though commodity prices plummeted in late 2011, the expected distress sale of mining companies’ assets did not come to be. Somehow, miners found ways to lower costs and reduce debts without massive divestments or fire sales. Over the last three years, X2 has purchased a grand total of zero assets.

Not that he hasn’t tried, according to a FT the purchase of Rio Tinto’s coal assets valued at some $2 billion, fell foul of North American pension investors dismayed at the prospects for carbon based resources.

Why Can’t X2 Make a Deal?

Assets have been sold by mining firms, sure. Sir Mick’s previous partners Glencore International successfully sold various assets and paid pay down debt as a result, but for whatever reason the valuations didn’t attract X2’s interest. Meanwhile, BHP Billiton demerged its aluminum business South 32 but did so via taking the business to market which would then have forced X2 to pay a premium if they wanted to acquire the assets.

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X2 didn’t exactly have the $5.6 billion sitting in the bank. Its fund is made up as a number of pledges, six of which were said to be of $500 million each. Noble Group, the commodities trading house, and U.S. private equity firm TPG this summer indicated they will not renew their commitments for next year. This was said to be what prompted Sir Mick’s reassessment of near-term opportunities.

The fund’s other contributors included Abu Dhabi Investment Council, and three Canadian pension funds — PSP Investments, Ontario Teachers’ Pension Plan, and Caisse de Depot et Placement du Quebec —as well as a number of smaller investors, according to the WSJ. One of the problems seems to have been not just a lack of suitable targets, but that investors have the right to veto deals on a case-by-case basis, rather tying X2’s hands.

Sit Down, You’ll Rock the Boat

The lack of fire sale opportunities may also suggest that commodities as a class have not fallen completely out-of-favor. Lenders have remained supportive of the sector and the WSJ says fewer than the expected firms have gone bust as they rode out the downturn by stripping back operations and cutting costs.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Indeed, X2’s decision to release their backers from commitments may mark recognition the commodities market has bottomed. Commodities like Iron ore, coal, gold, nickel and tin have all picked up from recent lows this year, reflected in a 22% rise in the S&P global natural resources index. X2 may have missed the boat, at least for now

Allegheny Technologies, Inc. shares tumbled 15% Tuesday after the Pittsburgh-based specialty metals producer reported a larger than expected third quarter loss and missed analyst revenue estimates as well.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The company lost $530.8 million, or $4.95 per share, vs. a loss of $144.6 million, or $1.35 per share, in the year-ago quarter. Sales fell 7% to $770.5 million. Analysts had expected the company to report an adjusted loss of 10 cents per share and revenue of $822 million.

ATI also announced the permanent closing of the idled Midland stainless steel melt shop and finishing operation in Beaver County, Pa.

It also permanently closed its Bagdad plant in Gilpin, Pa., whichemployed about 225 people. It produced grain-oriented electrical steel prior to the start of the six-month lockout of union workers in August 2015. Midland employed around 250 workers.

“The decision helps provide clarity to some of the people who had hoped that there would be a restart,” ATI spokesman Dan Greenfield said.

In December, the company announced it was mothballing both facilities with the possibility that they would reopen if market conditions for those products improved.

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Richard Harshman, ATI’s chief executive officer, said that has not happened. He announced the move as part of the company’s third-quarter earnings statement.

The Department of Commerce made, yesterday, affirmative final determinations in the anti-dumping investigations of imports of circular welded carbon-quality steel pipe from Pakistan, Oman, the United Arab Emirates, and Vietnam, and the countervailing duties investigation of imports of the same merchandise from Pakistan.

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The investigations covered welded carbon-quality steel pipe and tube, of circular cross-section, with an outside diameter not more than 16 inches, regardless of wall thickness, surface finish, end finish, or industry specification.

The products are generally known as standard pipe, fence pipe and tube, sprinkler pipe, and structural pipe and are intended for the low-pressure conveyance of water, steam, natural gas, air and other liquids and gases in plumbing and heating systems, air conditioning units, and automatic sprinkler systems. The products may also be used for light load-bearing and mechanical applications, such as for fence tubing.

Free Download: The October 2016 MMI Report

Commerce determined that imports of circular welded carbon-quality steel pipe from Pakistan, Oman, the United Arab Emirates, and Vietnam have been sold in the U.S. at dumping margins of 11.80%, 7.24%, 5.58% to 6.43%, and 0.00% to 113.18%, respectively. Commerce also determined that imports of circular welded carbon-quality steel pipe from Pakistan received countervailable subsidies of 64.81%.

Chinese GDP is on a roll this year. After turning out less steel in 2015 than the year before, the first time in more than three decades that steel production declined, 2016 is back on the rise.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

According to Bloomberg, crude steel output totaled 603.78 million metric tons in the first nine months of this year, up 0.4% from a year ago. Demand has been boosted by stimulus measures encouraging investment in the real estate and infrastructure sectors. The September output of 68.17 mmt implies that Chinese apparent steel consumption jumped 9% from a year earlier, RBC capital markets is quoted as saying.

Surging in September

This makes September the strongest month so far in 2016 and October will probably stay high as consumption typically rises in the Fall. Steel mills are being encouraged by a return to profitability and, in spite of protectionist moves from overseas, markets around the world say China’s exports in the first nine months rose 2.4% on a year earlier at 85.1 mmt, the highest ever Bloomberg says.

Nor is this stimulus and debt-fueled binge restricted to steel. Global daily average aluminum production rose to 164,600 mt from 159,800 mt in August, led by a rise in China’s output for the month to 2.75 mmt, the highest in 15 months.

A rally in Shanghai aluminum prices and demand from housing and infrastructure encouraged Chinese smelters to bring back some 1.8 mmt of capacity this year in addition to adding some 2.9 mmt of new capacity. Chinese output is expected to continue to rise, Reuters mentioned in a recent note, and suggested that prices could soften to $1,550 per mt by the end of the year as a result of excess supply. While total global primary aluminum production increased to 4.937 mmt, up 1.2% from the same month last year,  growth continued to be at the expense of western smelters with North American output falling 11%  to 325,000 mt last month.

Markets React to Stimuli

As we have seen in the past, China’s stimulus measures are rather like the sugar rush that comes and goes. Chinese GDP has been boosted or at least stabilized at 6.7% this year on the back of measures introduced by Beijing towards the end of last year.

Free Download: The October 2016 MMI Report

But, like previous stimulus measures, the result is increased debt progressively at lower rates of return and ultimately adding to more of a global overproduction problem. In the short term then, demand for iron ore, coking coal, bauxite and alumina looks set to remain firm at least until the winter slow down begins to bite. Depending on how marked that is we will either see a drop in raw material demand, and hence prices, or a drop in finished steel and aluminum output. Neither scenario being particularly positive for prices.


Kevin Dempsey, AISI.

MetalMiner Managing Editor Taras Berezowsky recently sat down with Kevin Dempsey, Senior VP for public policy at the American Iron & Steel Institute. Dempsey leads the AISI public policy team representing the interests of North American steel producers and also serves as General Counsel to the Institute. Before that he was a practicing attorney who specialized in trade matters.

During his years on Capitol Hill and in the private sector, Dempsey has worked extensively on international trade negotiations, including the Doha Development Agenda and the original negotiations on the accession of China to the World Trade Organization. He also has considerable experience with U.S. and international law related to subsidies, trade remedies, market access, intellectual property rights, and product standards, as well as U.S. legislative procedures for authorizing and implementing trade agreements.

This is part three of their discussion. Read part one  and pick up where we left off in part two for more on the U.S., China, steel and trade matters.

Kevin Dempsey: I’m not a believer that there’s a WTO case that’s going to solve all of this problem, either, but there may be aspects of the Chinese system that can be addressed. We have successfully brought several WTO cases against China for restrictions they’ve placed on the export of raw materials.

It’s another way in which they subsidize their domestic steel producers. They restricted the export, for instance, of coking coal, which had the effect of lowering the price for their domestic producers and raising the price on the world markets for everybody else. That was a violation of their WTO commitment, so we took them into WTO and we succeeded in that the WTO changed that policy. It’s going to require firing on all cylinders and pressing on all these fronts because it’s not just one single thing in China, it’s this whole range of government policies that are at play.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

So, we have to press on enforcing our trade laws, getting our allies to enforce their trade laws. Enforce, really,  at every chance we get. If there’s a WTO violation to push China to address that. But then keep pressing through international forums to get China to make the necessary economic reforms domestically and get out of the steel business. Read more

Aluminum prices have risen this year, but not as much as other base metals. Aluminum continues to struggle near $1,700/mt, a level that prevented prices from rising three times this year.

3M LME aluminum near stiff resistance levels

Three-month LME aluminum near stiff resistance levels. Source: MetalMiner analysis of data.

Many analysts argue that this year’s rally is limited because they expect Chinese smelters to restart capacity in the fourth quarter. The argument is that now that aluminum prices are higher than at the beginning of the year, smelters making aluminum will be more profitable.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Some capacity has already been restarted, but the numbers are running short of analysts’ expectations. Despite all fears, it’s possible that aluminum output in China will not increase as most analysts are predicting. Why? Let’s look at the cost curve:

Energy Prices Rise

It takes a lot of energy to smelt aluminum. Indeed, energy accounts for around half of the cost for Chinese smelters to produce aluminum. While aluminum prices have increased 13% this year, thermal coal prices have surged near 70% this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to expand production.

Oil prices near stiff resistance levels. Source: MetalMiner analysis of data

Oil prices near stiff resistance levels. Source: MetalMiner analysis of data.

For this reason, it’s not a surprise that oil prices, the main benchmark for energy prices, look very similar to aluminum. Oil prices are currently at a stiff resistance level near $50/barrel.

What This Means For Metal Buyers

Most analysts expect capacity restarts to weigh on aluminum prices. However, higher energy prices could prevent Chinese smelters from restarting capacity. Oil prices are now trading near a key level. If oil prices manage to trade above $50/barrel, we would expect aluminum to finally break above $1,700/mt.

Like steel, there has been some positive news about aluminum consumption in India. A research report said aluminum intake is poised to grow from 3.3 million metric tons in 2015-16 to 5.3 mmt in 2020-21.

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The report, “Indian Aluminium Industry: Geared for Growth,” is by global research and ratings agency Crisil and Mtlexs. It forecasts growth based on a combination of government initiatives such as “Make in India,” Smart Cities, Housing for All, and an increase in the transport of freight across the country.

Electrical Power Demand

The analysts say aluminum’s main demand would come from the power sector, since the white metal was now often used as a cost-effective, lightweight substitute for copper in transmission and distribution. In the coming five years, investments from state utilities and central government schemes worth millions of dollars are being planned to expand India’s transmission and distribution network.

The other sector that would drive the uptake is the automotive sector. The tightening of vehicular emission standards has forced automakers to look at aluminum to reduce vehicle fleet weight. India’s automobile sector is poised for heavy growth in the next five years.

As has become the norm, any news of increased consumption is accompanied by a downside: cheap imports. Like producers in the U.S., whose interests are being harmed by China’s exports of semi-finished products, India’s aluminum sector, too, as reported earlier by MetalMiner has been dogged by such imports. In India, imports make up almost 50% of the total consumption, largely from neighboring China. Just between 2011-2016, imports of aluminum increased 14%.

Smelters Want Tariffs

Aluminum majors such as Hindalco, Vedanta and Nalco have been urging the Indian government to impose a Minimum Import Price (MIP) to enable the domestic industry to take on what is being called as a “foreign economic invasion.”

Hindalco’s Managing Director Satish Pai was quoted saying such a government move would help the domestic industry compete with the cheap imports. He was addressing the recent World Non-Ferrous Conference 2016.

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He said in the last five years, the imports from the ASEAN (free-trade agreement countries including Brunei Darussalam, Myanmar/Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam) had increased from 6% of the total refined imports to 31%. The Indian Mines Secretary has indicated that the government is examining the aluminum sector’s demand and would make a decision on the imposition of an MIP in the next 15 days.The Mines Ministry already held several rounds of discussions with aluminum industry leaders.

Rio Tinto has cut its guidance for iron ore shipments and U.S. consumer confidence unexpectedly fell this month.

Rio Tinto Cuts Back Iron Ore Guidance

Global miner Rio Tinto on Thursday cut its 2016 guidance for iron ore shipments by as much as 5 million metric tons after releasing lower third-quarter production data, citing shipping interruptions.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The downward revision — equivalent to as much as $290 million at current ore prices — comes as the steelmaking commodity stages a recovery on the back of a surprise lift in demand from China.

U.S. Consumer Confidence Falls

Consumer confidence unexpectedly fell to a one-year low in October as Americans soured on the outlook for the economy amid a contentious presidential election campaign.

The University of Michigan preliminary index of sentiment declined to 87.9 from 91.2 in September, according to a report Friday. That was weaker than the lowest estimate in a Bloomberg survey of economists. Long-term inflation expectations declined to a record low.