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The Senate Energy and Natural Resources Committee voted 18-4 Friday to advance the Energy Policy Modernization Act of 2015, a broad bipartisan measure that would fund modernization of the energy grid and reauthorize the Land and Water Conservation Fund.

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10 Republicans and eight Democrats voted for the bill, presidential candidate Bernie Sanders (I-Vt.) was among those who voted against the bill, which would fund improvements to the energy grid, streamline mine permitting and set deadlines for liquid natural gas export decisions. It would also streamline the approval process for projects such the Alaska gas pipeline.

11 Environmental groups – including The Sierra Club, the League of Conservation Voters, the Environmental Defense Fund, and the Natural Resources Defense Council – oppose the legislation and sent a letter to the committee attacking several of its measures. Maria Cantwell (D.-Wash.), the ranking Democrat on the committee and a co-sponsor of the bill with Lisa Murkowski (R.-Alaska), usually enjoys the support of the environmental groups.

Controversial Measures Left Out

In fact, Cantwell and Murkowski specifically tailored the bill to avoid controversial issues that had stalled earlier energy bills over the last eight years. These included the Keystone XL Pipeline and tying any of its measures to climate change. The mainstream bill, apparently, was still not enough for Sanders of the environmental groups.

The letter said the bill needs a “stronger vision for accelerating the development and deployment of clean energy.”

The mining and manufacturing industries have generally been supportive of the bill.

“It should be a top priority for Congress this session to implement policies that take advantage of our significant resource abundance in order to bolster our energy supply and strengthen the economy,” said Hal Quinn, the National Mining Association‘s president and CEO, of the bill.

Best Option for an Energy Bill?

With the gridlock in Washington, it is difficult to pass legislation at all, let alone get everything you want. Environmental groups called out 10 specific measures they found unacceptable in the letter. These included the sections on expediting LNG exports, ending the mandate to phase out fossil fuels in federal buildings, altering certain Energy Department efficiency programs, and expediting mineral mining permits.

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They may want to reconsider their opposition if this bill passes the full Senate, which it’s on track to do. A Cantwell spokeswoman said that amendments were planned to deal with many of the environment groups’ concerns. If this bill should fail it’s unlikely that a more environmentally friendly one will pass with both houses of Congress controlled by Republicans. The Sierra Club and the other groups might find themselves wishing for a bipartisan compromise bill like Murkowski and Cantwell’s.

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The new Senate Energy Bill released to the public this week promises to help miners by modernizing federal permitting processes, but what, exactly, is in the bill for the domestic industries?

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We asked the National Mining Association to detail exactly how the bill would help miners and their manufacturer customers.

One of the biggest changes it would make is requiring the federal government to come up with a definition of what “critical minerals” are.

  • The bill amends Section 3 of the National Materials and Minerals Policy, Research and Development Act of 1980 to modernize the congressional declaration of federal mineral policies.
  • It requires the secretary of the interior, acting through the director of the US Geological Survey, to establish a methodology for the designation of critical minerals based on the potential for supply disruptions and the importance of their use. Requires the list of critical minerals to be reviewed and updated at least every three years.
  • Requires the Secretary of the Interior, in coordination with state geological surveys, to identify and quantify critical mineral resources throughout the US within four years. Requires a report on the status of geological surveying for any mineral on which the US is more than 25% import dependent, but which is not designated as a critical mineral.
  • Permitting: Outlines a series of performance improvements and reporting requirements to reduce delays in the federal permitting process for mines that will produce critical minerals. Requires the development of a performance metric to evaluate progress made in improving permitting efficiency.
  • Directs the Office of Management and Budget to include mining projects on the Federal Infrastructure Projects Permitting Dashboard. Requires a report from the Small Business Administration on regulations affecting the critical minerals industry.
  • Requires Federal Register notices to be completed within 45 days, prepared at the organization level of the agency, and transmitted from the office in which the documents or meetings are held or the activity is initiated.
  • Directs the Secretary of Energy to conduct a program of research and development to promote the efficient production, use, and recycling of critical minerals throughout the supply chain, and to develop alternatives to critical minerals that do not occur in significant abundance in the US.
  • Analysis and forecasting: Directs the Secretary of the Interior, in consultation with Energy Information Administration, to establish a forecasting capability for critical mineral reliance, production, price, recycling and related factors. Requires a new “Annual Critical Minerals Outlook” and protects proprietary data.
  • Education and workforce: Provides for a workforce assessment, curriculum development and programs related to critical minerals at institutions of higher education.
  • Reauthorizes the National geological and geophysical data preservation program
  • Administration: Repeals the National Critical Materials Act of 1984, makes conforming amendments, and provides two savings clauses related to the effect of critical minerals.

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A major miner announced more layoffs and steel imports were down this month, according to preliminary data.

Anglo-American Layoffs

Global mining company Anglo-American PLC said on Friday it will shed thousands of jobs in the next couple of years and might put up more assets for sale as it battles an accelerating slump in metals prices that has dragged its shares down to a 13-year low.

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The company posted a steep fall in first-half profit after a rout in prices of metals from platinum to iron ore, and said the next six months could be even worse. Anglo-American is the fifth-biggest diversified global mining group by stock market capitalization. The statement said it would cut about 6,000 of its almost 13,000 office-based and other non-production roles globally, 2,000 of which will be transferred through the sale of some assets.

Steel Imports Starting to Fall

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported recently that the US imported a total of 3,049,000 net tons (NT) of steel in June 2015, including 2,458,000 NT of finished steel (down 10.3% and 10.7%, respectively, vs. May final data). Year-to-date total and finished steel imports are 21,670,000 and 17,833,000 NT, respectively, up 3% and 14% respectively, vs. the same period in 2014.

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Normally, when a project of this size is called off, it sends ripples throughout the entire steel sector, and even negatively affects the stock market.

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Yet, when a few days ago, South Korean steelmaker POSCO let it be known that it had decided to put its much-vexed $12 billion project to build a steel plant in India’s iron ore-rich state Odisha on hold, the reaction in India as well as globally was muted. Almost as if it was anticipated.

Regulatory and Approval Delays

The subdued response can best be attributed to the extraordinary delay – a decade – in trying to get the project off the ground. Holdups in receiving permissions for land use and environmental clearances from the local and Indian governments, long legal battles, protests against the project by residents, red tapism, even the kidnapping of company executives in 2007 for a day by protesting activists, all ensured that the project remained a paper tiger all this while. It’s been a veritable ten years of legal and public relations battles for the former Pohang Iron and Steel Company.

For much of this period, we at MetalMiner, faithfully reported and analyzed the developments on the “POSCO India story,” from the sidelines.

It’s not clear yet, though, whether the Korean giant has finally thrown in the towel in sheer disgust at the inordinate delay, or whether it’s really a strategic decision that was part of the company’s overall cut in overseas business. Given the fact that steel industry across the globe is hemorrhaging cash, it could very well be the latter.

Blame the Steel Market

Officially, unnamed POSCO officials were quoted in the Indian media saying – it’s all part of the restructuring. The exercise is expected to reduce by about a third, POSCO’s overseas businesses. The company has been struggling with sagging profits for some time now, and cutting costs seems like the best way out for now. No doubt, if the Odisha project had gotten off the ground, it would have had provided some financial succor for POSCO in today’s troubled times.

However, a Press Trust of India report quoted by website FirstPost said POSCO put the project on hold due to the aforementioned delays in regulatory approvals.

As far back as early 2014, we predicted that the POSCO India project was on its deathbed, and that no amount of posturing by either the new Indian government sworn in last year or even by POSCO could save it.

A Reuters report said the South Korean steelmaker scrapped its plans after a new law made it costlier to source iron ore for the plant. This was the entire attraction of Odisha in the first place, access to cheap and readily available iron ore.

POSCO Swears The Project’s Not Dead… Yet

The steel major, however, would like everyone to believe that the epitaph of this “Indian steel tragedy” has yet to be written. Steel analysts here feel that POSCO, the world’s sixth-largest steelmaker by revenue, was likely to continue in India even if it ultimately decided to scrap the Odisha project altogether. That’s because the company had no choice but to be in a country where steel consumption was growing at a steady pace, a global rarity.

There are also conflicting reports that POSCO was thinking of taking the steel project somewhere else in India – perhaps to the western state of Maharashtra where it already has a downstream steel project. But this was all officially denied by POSCO.

The company has, so far, acquired only around 600 acres out of more than 4,000 acres needed for the 12-million-metric-tons-per-annum steel plant.

And what would have been an otherwise humorous episode in the rather serious steel business was the fact that barely a couple of days after POSCO’s announcement that it would abandon the project, local tribal residents were reported to have forcibly reoccupied the land they had given up for the project. Almost 500 of the 600 acres of land have been taken over as of this writing. That, more than anything else, was the real pointer to this project’s final status – “a lost cause.”

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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Usually, articles about the share price of specific companies bear some kind of footnote concerning the authors own exposure to the shares, whether they are a direct investor or via a fund, in the company in question.

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I can say, with some relief, that I am not, to my knowledge and fervent hope, an investor in BHP Billiton nor, at least in the short term, am I likely to be in the mining sector as a whole. I would accept there is an argument that some commodities could have hit bottom. If I was a betting man I might permit a small punt, but I am not and I won’t.

Caution: Watch for Falling Assets

Mick Davis looks like he may make a contrarian bet and buy Rio Tinto Group’s Australian coal business but that may have as much to do with the fact he has been sitting on a cash pile of investors’ money burning a hole in his pocket than coal is suddenly a great bet, even at these depressed asset prices.

Having spun off a chunk of mining assets under the trendy sounding name of South32 earlier this year, BHP probably hoped the worst of its write downs was behind it. South32 is a collection of alumina, aluminum, coal, manganese, nickel, silver, lead and zinc assets formerly known as Billiton. No one wanted the post-merger assets and BHP — formerly known as the Broken Hill Proprietary Company Ltd. — couldn’t sell them, so the firm wrapped them up into a bundle and gave them to their shareholders. Since May, the share price of South32 has, well… gone south. There’s no doubt BHP knew it would, but at least it got them off the company’s books.

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Source: Financial Times

Not that BHP is alone, even the strategically savvy and fleet of foot Glencore PLC had trouble finding a buyer for its shares in platinum miner Lonmin and ended up doing the same thing, giving those shares to shareholders. Glencore is well shot of it, according to an FT report, the share price has collapsed from £40 each in 2007 to £1.08 today.

Back to BHP, though. Like its competitor, Rio, BHP has a history of buying assets at the wrong time or for the wrong reasons. Bigger isn’t always better and timing is everything. BHP moved into US shale gas too late only to see the price collapse. In 2011 the firm bought US gas operator Petrohawk for $12 billion only to take a $2.84 billion hit writing down goodwill as the value fell. The Telegraph reports the firm has taken a further $2 billion on its Hawkville gas project in Texas as geology complexity slows and complicates the development of the field.

What Does This Mean for Gas, Oil and Metal Buyers?

BHP, Rio and the rest of the major miners are big enough to weather the storm of low commodity prices, but with little on the horizon to suggest commodity prices are likely to rise significantly in the medium term and evidence that some may have further to fall, the companies dividend policies are going to come under pressure. A PriceWaterhouseCoopers report on the industry, covered by the FT, says their policy of borrowing money to pay consistent levels of dividends on their shares is unsustainable.

Dividends paid by the top 40 miners in 2014 consumed all their available cash, reducing their balance sheet flexibility in continuing tough times. Capex has been cut, for the top 40 by 20% in 2014, and exploration budgets fell to $4.9 billion last year, half the level of just two years ago. The maxim that today’s shortage is tomorrow’s glut is writ large in the minds of mining executives, but with investment falling so markedly we can be sure as the decade unfolds the reverse will become true. Whether the current crop of executives will be around to see it is another matter.

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Forecast webinarHave you ever wondered what ingredients go into our Monthly Metal Buying Outlook recipe? Well today is your lucky day as we are pulling aside the curtain to reveal the tools we use to develop our August metal price forecasts.

PREVIEW: MetalMiner™ Price Forecasts for August will take place Thursday, July 30 at 10 a.m. CDT. Register today!

Can’t make it live? Register anyway and we’ll send you a copy of the slides and recording of the webinar!

“Understanding the major factors influencing price is key to managing your risk and the first step in implementing an effective sourcing strategy. Our forecasts are based on a methodology we have developed for some of the largest metal buying organizations in the world. We use all of these tools to analyze the markets and distill the pertinent information into single page reports for our customers. At this event we will be happy to discuss our outlook for aluminum, copper, nickel, lead, zinc, tin, and various steel forms including HRC, CRC, HDG and plate” – Lisa Reisman, executive editor, MetalMiner

Speakers will also include John Conolly, managing director, Azul Partners:

John has over 20 years of experience in listed derivatives, trading commodities and advising clients on hedging commercial risks. In addition to being a regular contributor to CNBC, Bloomberg and Fox Business News, John developed an industry leading market commentary product as Director of Product Marketing for CME Group.

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Old Chinese proverb: when a giant in a race with another falters, the other, without a doubt, wins.

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Actually, I made that up. Ignore it. Still, when China’s economy started showing signs of a meltdown, some in India “predicted,” in a knee jerk reaction, that it was a “welcome development” for neighbor India.

No need to reiterate here how the two nations, with the largest populations and the largest economic growth rates, were in competition with each other in almost every sector.

A few days later, after the fog cleared, warning bells were rung by analysts and ratings agencies that if China was to lose the race, it would be tough for India, too. Even a tiny spill, such as the one China’s stock market felt last week, was bad enough. There would really be no winners in the race.

China’s economic troubles could have a significant impact on India, particularly in sectors like IT and steel, according to India’s trade and industry body, The Associated Chambers of Commerce and Industry of India (Assocham).

The adverse economic developments may have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, claimed another agency, India Ratings and Research (Ind-Ra) in a statement.

News reports, quoting metal analysts, claimed that while it was true that a drop in commodity prices linked to China’s slow demand was a positive for India, it was not really “good news” for a host of metal and iron ore producers such as Steel Authority of India, Tata Steel, and upstream oil producers.

The fall in ore, steel and copper prices hit Indian manufacturers as hard as any other company in the world, so what’s there to cheer about?

A paper prepared by Assocham said that in today’s global economy, where India’s economy — like any other — is plugged into the rest of the world’s, the China downturn was bound to impact India. China, incidentally, was the number one merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion, as claimed by Assocham.

But the more pertinent point made by Assocham was that the kind of cost competitiveness which the Chinese companies provided to manufacturing semi-process industries — such as electronics, electrical and telecom equipment — would disappear from the global supply chain. This is without even mentioning the inability of India to fill any of those spaces vacated by the Chinese companies.

Another news report quoted Hitesh M. Avachat, Deputy Manager at CARE Ratings, as saying that China accounted for more than 30% of the overall consumption of metals globally. For Indian metal producers, the price collapse meant their landed price in India would go down further, thereby pressuring companies to reduce prices. Because of the likely Chinese dump of its surplus goods, India’s export demand may also fall, he added.

Jayant Acharya, Director, Commercial and Marketing, JSW Steel Ltd., quoted in the same report, said if prices kept falling, margins would get impacted.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metals prices had gone down in the range of 2-21% in the first six months of 2015. On a year-to-date basis, Chinese domestic hot-rolled coiled steel prices had declined by 21%, London Metal Exchange nickel prices by about 12%, LME copper metal prices by 9% and China alumina prices by about 10%. In the last month, alone, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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Gold miners saw their stock values plummet with the price of the yellow metal on Monday. BHP Billiton is investing $240 million in its Western Australia iron ore tug boat and port business.

Gold Sell-Off Hits Miners Hard

The steep sell-off in shares of gold miners, tracking a plunge in the metal’s price, wiped out more than $8 billion from their combined market value on Monday and pushed a global index of gold stocks to a six-and-a-half-year-year low.

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The Thomson Reuters Global Gold index slumped 8.5% to its lowest since late 2008, the biggest one-day percentage drop in two years, after gold prices sank.

BHP Investing in Infrastructure

BHP Billiton said today it will spend $240 million upgrading its marine iron ore facilities in Western Australia. The funds will be used to purchase six tug boats and build a new tug harbor in Port Hedland’s inner harbor, with construction due to be completed in September 2016.

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Second quarter results will be coming out later this month for North American producers of flat-rolled stainless steel. The burning question remains will US mills will file anti-dumping lawsuits about flat-rolled stainless steel?

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If anti-dumping lawsuits are filed, what will the impact be on manufacturers and buying organizations?

Why Are Imports Up?

Let’s remember the reason imports began increasing in mid-2014: domestic mills had four-month lead times. Service centers as well as large manufacturers had to source imported cold-rolled stainless to stay in business.

Steel Background Texture

A surplus of both domestic and imported cold-rolled stainless has led to low prices.

Manufacturers also relied on imports to make up for the loss of production at Outokumpu’s Calvert, Ala., plant caused by technical issues with its cold-rolling mills. In addition to long lead times, the strengthening US dollar kept imports flowing to the US.

Right now there is a glut of both domestic and imported cold-rolled stainless steel. Service centers still have higher than desirable inventories.

Base price or Nickel Surcharge?

Is it really the base price that is hurting the domestic stainless mills, or is it the nickel surcharge that has declined by nearly 25% since the beginning of the year devaluing inventories, domestic and import alike?

That question may be tough to answer, so, instead, we’ll look at the likely impact on buying organizations of anti-dumping suits:

  1. Bright Annealed Coil: Allegheny Ludlum is the only US producer of 48-inch-wide, bright annealed coil. AK Steel is the only producer of 36-inch wide. Outokumpu’s Mexinox facility produces 48-inch wide, but is in Mexico and could be subject to anti-dumping duties as it was in 1998. The bright-annealed demand in the US exceeds the domestic supply making imports a necessity. The bright annealed finish can vary greatly from producer to producer, so once reliable and consistent quality is established, buying organizations will want to stick with that source. Some of the best producers of bright annealed coil are in Taiwan, China and Japan as well as France and Germany.
  2. Light Gauge Coil (.030” and thinner): Once the mills get busy again, the light gauges are going to become constrained. The thinner the thickness, the longer it takes to roll on a cold-rolling mill. If anti-dumping lawsuits are filed, then light gauge from domestic mills could become more expensive, thus increasing the cost to the manufacturer.
  3. Proprietary Stainless Grades: Although the US stainless cold-rolled market is dominated by 304, 316L, 301, 201 and 430, there could be alloys strictly made on an import basis that would be part of anti-dumping cases.

The domestic mills need to look at their strengths and capitalize on them. Anti-dumping lawsuits are a crutch, not a cure for domestic producers. In the end, stainless coil anti-dumping suits hurt the manufacturer because it limits options and artificially increases prices to source stainless steel coil.

As seen in 2014, imports were a necessity for the US market and have always supplemented it. The domestic mills have already regained short lead times. They are back to delivering many products in under four weeks. The option to import cold-rolled stainless steel needs to be left open in the event that domestic mills cannot fulfill US demand.

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MM-IndX_TRENDS_Chart_July-2015_FNL

There’s no reprieve from the bearish metals environment in this month’s MMI Report.

More Analysis: The July Metal Price Forecast

With the exception of the very specialized grain-oriented electrical steel (GOES) market and the Renewables MMI®, all of our indexes lost ground in June and could not gain traction amid falling commodity prices and a strong US dollar.

The one index that was steady from last month, which tracks raw material inputs of the renewable energy sector, has been stagnant for two years and, until trends show otherwise, its steadiness is more a measure of a lack of market activity than anything close to a turnaround or a new trend toward increasing prices.

The Stainless MMI is flirting with two-year lows and our Raw Steels index is up against lows not seen in years as well. Weakness in the Chinese stock market has put additional pressure on metals that were already reeling from the effect of the strong dollar. This is bad news for steelmakers, miners, refiners and smelters by itself, but coupled with increased supply in most of the metals we track, it’s become a real deterrent to profitability.

Moreover, both Europe and the US have higher-than-normal inventories of semi-finished products at service centers. Mill lead times remain short suggesting weak demand. Weak demand will continue to place downward pressure on prices.















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