Articles in Category: Commodities

On its journey of self-reliance, India still needs coal.

Highly dependent on imports for this crucial raw material needed for steel and power generation, India has decided to tackle its coking coal deficit by acquiring a foreign coking coal asset, and washing certain grades of coal to make it fuel-ready.

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Power Minister Piyush Goyal told news agency Press Trust of India that one of the ways the government was contemplating reducing its reliance on imports was to wash certain grades of coal to make available 20 million metric tons of coking coal in the next three to four years for the domestic steel industry.

Not Enough Coal for Steel Production or Power Generation

Chairman and Managing Director of Coal India Ltd. S. Bhattacharya has reiterated that coking coal requirements for the domestic steel industry are still not being met. State-run CIL, the country’s near-monopoly coal producer, is said to be looking at coking coal assets overseas as the country was faced with constraints of commercially viable domestic metallurgical coal reserves, the Minister told Parliament in a statement. CIL is looking to appoint a merchant banker to assist it in acquiring assets overseas. Read more

President Trump’s budget proposal this week would cut the federal government to its core if enacted, culling back numerous programs and expediting a historic contraction of the federal workforce, according to economists who spoke to the Washington Post and saw the draft plans.

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This would be the first time the government has executed cuts of this magnitude — and all at once — since the drawdown following World War II, economists and budget analysts told the Post.

Chinese Rebar Jumps

Shanghai rebar steel futures rose nearly 3% on Monday, supported by a pickup in seasonal demand in top consumer China that also lifted Chinese iron ore off of a one-month low.

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But bloated stockpiles of iron ore at China’s ports — holding near their highest in at least 13 years — capped price gains in the steelmaking raw material.

The most-active rebar on the Shanghai Futures Exchange was up 2.7% at 3,496 yuan ($506) a metric ton by the midday break.

Just a few weeks ago, the future looked bright for the oil price. Back in November, the Organization of Petroleum Exporting Countries and a number of non-OPEC producers agreed to cutbacks intended to reign in surplus global oil stocks and, in so doing, support the oil price.

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Initially, the agreement met with considerable success. Hedge funds and speculative investors went long on oil and the price rose. But, this week several comments and statistical reports coincided to remove some of that optimism and resulted in steep price falls. The West Texas Intermediate benchmark fell under $50 for the first time since December while Brent Crude was also down to $52.41 a barrel, its lowest level since November.

Source: The Financial Times.

According to the Financial Times, Wednesday’s decline came after the Energy Information Administration said inventories of U.S. crude stocks climbed by 8.2 million barrels, far more than analysts expected, as refinery oil purchases declined. If the rise in inventory was solely down to refineries slowing or delaying purchases, the impact would not have been as dramatic but the fear among investors is U.S. shale production is roaring back.

Reshalience Explained

Even Saudi Arabia’s oil minister, Khalid al-Falih, is quoted as saying OPEC’s agreement and the corresponding price increase has helped the U.S. shale market to recover and, perversely, undermined efforts to stabilize crude prices. U.S. shale producers have responded to low crude prices by innovating and cutting costs. Breakeven for many is now $40 a barrel, with some said to be as low as $25. Rig counts have doubled since the Spring of last year and output has continued to rise, contributing to the increase in WTI inventories.

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The oil price faces two major headwinds the FT reports. The first is little or no evidence the global oil market is really coming into balance as signatories to the agreement continue to cheat, and the second is an overhang of speculative length in the futures market. Part of this week’s price falls are said to be due to speculators bailing out of long positions after the realization that the market may not be coming back into balance as hoped late last year.

Where to, Brent?

Where the oil price goes from here is anyone’s guess but with even Saudi Arabia threatening not to renew the cutback agreement in the summer if global inventories do not fall back as expected — if other members of the agreement continue to cheat — the probability is the market overhang could get worse in the second half of the year.

U.S. shale oil producers appear to be enthusiastically ramping up production which will likely add do U.S. oil inventories and further depress the price. The oil price has a level which realistically reflects supply and demand but it’s almost certainly below $50 a barrel in today’s market.

German Dominguez

German Dominguez

There’s been a lot of talk about President Trump’s “border tax” lately as it relates to reshoring manufacturing to the U.S. and financing “great, great” border walls, and my colleague Jeff Yoders has done a bang-up job covering the gamut of the Trump administration’s proposed policies in general.

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On our sister site Spend Matters, we tried to get closer to the bottom of the whole south-of-the-border tax issue, which opened up a can of worms — and devolved into golf analogies.

But what does it all mean for U.S and Mexican manufacturers and their future strategies?

Q&A With German Dominguez, Independent Advisor and LatAm Sourcing Expert

We caught up with German Dominguez, an independent sourcing advisor helping U.S. manufacturers to best-cost-country-source direct materials where it is most advantageous in Latin America, mainly within The Pacific Alliance region (Mexico, Colombia, Peru and Chile) — the largest emerging markets economic bloc in Latin America. Read more

A Washington, D.C. federal judge on Tuesday rejected the Cheyenne River Sioux Tribe’s bid to block operation of the Dakota Access pipeline on federal land in North Dakota, saying the tribe likely won’t be able to show that the federal government interfered with its exercise of religion on land outside the tribal reservation by allowing the project to go forward.

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Judge James Boasberg of the U.S. District Court for the District of Columbia rejected the tribes’ request for an injunction to withdraw permission issued by the U.S. Army Corps of Engineers for the last, eight-mile link of the oil pipeline underneath Lake Oahe in North Dakota. Read more

Investors are running up cobalt prices as automakers and suppliers stock up on the raw material for lithium-ion batteries as they prepare for an increase in electric vehicle production.

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Reuters reported that Shanghai Chaos Investments and Switzerland-based Pala Investments as two of the companies that invested heavily in cobalt last year, although the amount they’ve stockpiled is unknown.

On Dec. 1, cobalt was just around $30,000 per metric ton on the London Metal Exchange. As of Monday, one mt of cobalt was trading around $49,000. That’s an increase of 63% in three months.

Report: Trump Will Scrap EPA Clean Power Plan Next Week

President Trump is expected to issue orders next week that will begin the process of striking the Clean Power Plan and ending a moratorium on new coal mining on federal lands.

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The plan was largely opposed by manufacturers and metals producers. Its end will most likely bring a sigh of relief from utilities with coal-dominated generation mixes, as well, since they won’t have to alter their generation mixes within any deadlines.

The Institute for Supply Management said its manufacturing index rose to 57.5% from 56% in January, topping the MarketWatch-compiled economist consensus of 56.5%.

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Any reading above 50% indicates improving conditions.This is the highest reading since August 2014. 17 Of 18 U.S. manufacturing industries reported growth in February.

China Upset About EU Plate Steel Duties

China expressed concerns on Tuesday over what it said was increasing protectionism after European Union regulators imposed new duties on steel imports from the world’s biggest producer.

The European Commission is seeking to protect EU steelmakers while avoiding tensions with Beijing, which it sees as a possible ally against protectionism and climate change.

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It imposed definitive anti-dumping duties of between 65.1% and 73.7% on imports of heavy plate non-alloy or other alloy steel from China on Tuesday, confirming provisional tariffs set in October.

Copper prices are trading near $6,000 per metric ton, up 30% from just four months ago. Things can change quickly and I don’t know where prices will be by the end of the year, but what’s clear to me is that most analysts’ forecasts seem way off. According to a recent survey polled by Reuters, copper analysts are are expecting prices to average $5,350/mt this year.

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In my opinion, this is a very conservative price average and quite bearish due to what Behavioral finance calls “anchoring,” the human tendency to attach or “anchor,” our thoughts to a reference point even when it makes no logical sense. Analysts see that copper prices have risen significantly and quickly, so they anchor the new price of $6,000/mt onto the $4,500/mt level where prices were trading at just a few months ago. This creates the idea that $6,000/mt is an expensive price for copper and, for this reason, you will almost see no one but me calling for an average above $6,000/mt this year. Read more

The operating cost of rolling cold-rolled coil from hot-rolled coil is around $30-50 per metric ton depending on how efficient the steel mill is. Internal (or external) logistics cost to shift the coil between the HRC mill and a CRC mill could be as much as $40/mt but a single-site mill won’t have that cost.

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Add in capital costs that are amortized over the mill life of up to $15/mt and it is no surprise that the long-term price of CRC has been around $100/mt above the price of HRC.

Right now, spot HRC prices are a minimum of $820/mt while HRC is $620/mt. That is a spread of $200/mt.

That makes CRC one of the most profitable products in the steel industry. Why is that the case?

Spread of CRC over HRC ($ per metric ton)

Source: Steel-Insight

First of all, we need to look at the way that the U.S. steel industry is structured and realize that CRC is a niche. Read more

A glut of idled river barges is clogging Mississippi River shorelines from St. Louis to New Orleans is leaving U.S. barge companies that haul grain, coal, steel and other bulk goods counting their losses.

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Even with record-large exports of corn and soybeans, typically a boon for shippers that haul grain to Gulf Coast export terminals, the collapse of coal shipments to the lowest levels in decades has left the dry bulk barge fleet chasing too little cargo.

In pursuit of rising grain volumes since 2014, many shippers expanded their fleets too quickly.

Barge lease rates paid to companies like Archer Daniels Midland Co.’s American River Transportation Company, privately held Ingram Barge and a handful of smaller operators are at 1-1/2-month lows and more than 30 percent below the five-year average for February.

Trump Proposes $54 Billion Defense Spending Increase

President Trump will propose a federal budget that dramatically increases defense-related spending by $54 billion while cutting other federal agencies by the same amount, according to an administration official.

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The proposal represents a massive increase in federal spending related to national security, while other priorities, especially foreign aid, will see significant reductions. How quickly that increase will turn into downstream metals purchases for defense contractors remains to be seen.