Articles in Category: Company News

Washington news organizations such as Politico are reporting more details about what a potential Trump Administration $1 trillion infrastructure plan might look like.

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The pictures that the Washington, D.C. media are portraying are quite dramatic and some of them engage in a level of speculation about funding mechanisms that likely only have a tangential relationship to what is being discussed right now at Trump Tower.

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Could more transit projects be part of a Trump infrastructure plan? Source: Jeff Yoders.

Politico’s analysis is a case in point, with speculation and quotes from both democrats and republicans about everything from a new gas tax indexed to the inflation rate to a quote from U.S. Rep. Peter DeFazio (D. Ore.), the top Democrat on the Transportation Committee, who said that public-private partnerships “won’t do much for the 143,000 bridges that need work nationwide unless you’re going to toll 143,000 bridges… it’ll help with individual sorts of big projects, but it’s not any kind of cure-all, and it certainly isn’t going to get the big bang that Trump has talked about in infrastructure.”

Federal Infrastructure Bank?

Yet, a mere 45-minute drive away, the Baltimore Sun praised another idea supposedly being debated by President-elect Trump and his advisors. U.S. Rep. John K. Delaney (D. Md.)’s Partnership to Build America Act would use repatriated corporate profits now held overseas (made available by a reduced tax rate on overseas earnings brought home and a larger tax on profits that remain off-shore) to put billions into the Highway Trust Fund and to create a new U.S. investment bank — with a $750 billion infrastructure fund — that would be available to state and local governments. Read more

Subsidies given by the U.S. state of Washington to Boeing are illegal under international trade rules derived from the General Agreement on Tariffs and Trade (GATT), the World Trade Organization said on Nov. 28.

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It was a victory for rival aircraft maker Airbus and the European Union. The ruling from a WTO panel is the latest blow in a drawn out trans-Atlantic battle between the aviation industry’s two titans, which has seen both Airbus and Boeing score points along the way.

In the decision, the WTO said that subsidies set up by Washington state to support production of Boeing’s 777X commercial jet, were “prohibited” as they encouraged the use of domestic materials, fueling unfair trade distortions.

The panel called  for the subsidies to be withdrawn within 90 days.

Airbus was represented by the European Union in the case while the U.S . federal government fought for Boeing and Washington state because companies and regional authorities are not represented at the Geneva-based WTO.

Potential Tata, Thyssen Merger Could Shutter Half of Port Talbot

Tata Steel and Thyssenkrupp AG are looking at reducing the size of Britain’s largest steel plant in Port Talbot, Wales, industry sources told Reuters, as the two firms press ahead with merger plans for their European steel operations. The plan would also deal with the overcapacity afflicting the industry.

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The move could see one of Port Talbot’s two blast furnaces shut, halving the plant’s capacity. Up to 4,000 people are employed at the site.

One Chinese aluminum company above all others seems to have stirred up controversy in the North American market.

China Zhongwang has been cited in a Department of Commerce preliminary determination that its shipments into the U.S.A. of aluminum alloy 5050 extrusions were an attempt to circumvent anti-dumping (AD) and countervailing duties (CVD) rulings on 6000 series extrusion alloys, a case that is ongoing.

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Now, the firm’s proposed $2.3 billion purchase of U.S. aluminum producer Aleris Corporation is embroiled in political objections after senators asked treasury secretary Jack Lew to launch a review of the deal.

China Zhongwang Speaks

In an interview with Harriet Lau of China Zhongwang Holdings in Hong Kong, MetalMiner sought the Chinese producer’s side of the story. Maybe not surprisingly, Lau refuted claims that China Zhongwang had tried in any way to circumvent AV/CVD regulations by shipping 5050 alloy into the US market. Read more

When commodity producers talk down the market you know prospects really aren’t very good for a price rise.

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Iván Arriagada, chief executive at Antofagasta was interviewed by the Financial Times while at the recent LME week and is quoted as saying Copper will continue to lag behind as other commodity prices rebound, adding the market is likely to remain oversupplied for at least the next three years. While demand for copper in China will grow at around 3% next year, that growth will be outweighed by oversupply.

Chinese demand this year has been bolstered by a surprise stimulus boost early this year but many are expecting that to fade by Q2 next year resulting in a surplus of 192,000 metric tons in 2017, up from 185,000 mt this year, according to Reuters.

“We continue to forecast a surplus market for both 2016 and 2017,” said Grant Sporre of Deutsche Bank, “This is sufficient to … continue to weigh on prices.”

A prediction Arriagrada would appear to support when he said “we may see events where the price drops further.”

Although prices are near year-highs, at least since March, imports of copper by China fell this month to their lowest since February of last year and the domestic market remains at a discount to the international market.

The Moderate Medium Term

The current increase in prices has caught the market by surprise (but not us). Copper hit a 15-month high last week after powering to $5,443 per mt, not on some sudden strong fundamentals, but on speculator buying. What’s driving the current surge in prices appears to be a disconnect in the copper market.

‘Refined copper is said to be broadly in balance, the International Copper Study Group and the International Wrought Copper Council both estimate that the refined market is in balance, a position ironically supported by the London Metal Exchange and Shanghai Futures Exchange which has seen almost unprecedented rises and falls in inventory this year.

Yet, at the end of October, the net year to date movement in all global exchange copper stocks (across the LME, SHFE and Chicago Mercantile Exchange Group warehouse systems) has been a rise of just 22,500 mt, in a global copper market of 23 million mt. Even so, current speculator enthusiasm aside, in a poll of analysts at LME week, Reuters found it hard to find anyone who was bullish about copper in the medium term or about the pace of infrastructure investment in China next year.

Nearly everyone is quoted as saying they expect both demand, and hence prices ,to ease from about Q2 2017 onward. The expectation seems to be that surplus concentrate will make its way through to the refined market next year and that the two cannot exist as parallel universes indefinitely.

Copper’s Long-Term Future

Further out there are better prospects for copper. Capital expenditures have been slashed and for firms like Antofagasta and mining is all about cost containment at the moment. The firm has two projects involving expansion at its operations at Pelambres and Centinela, which could add 200,000 mt per year but the firm is on no hurry and has given a deadline of the end of next year to announce if it plans to proceed or not.

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Long-term grades are falling and potentially developments like electric cars are cited by producers as cause for rising demand but that is still some way down the line. As the FT points out, state-owned producer Codelco needs to spend $17 billion over the next four years just to maintain its copper output due to declines in the grade of copper extracted from its current mines. If those funds are not spent, the supply surplus will dwindle but for now it remains and so, too, will prices around current levels, if not lower in 2017.

Grain-oriented electrical steel M3 prices rose by about 3% this past month.

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Coincidentally, Allegheny Technologies, Inc. announced that it would now permanently idle its Midland, Pa. and Bagdad in Gilpin, Pa. facilities, thus exiting some commodity stainless steel markets as well as the GOES market entirely.

The closures — combined with new labor agreements, rightsizing plans and defined benefit retirement plans closed off to new employees — will help ATI improve its cost structure. ATI’s flat-rolled products division is expected to return to profitability in 2017 according to the most recent earnings announcement.

GOES_Chart_November_2016_FNL

And though these ATI plants have been idled since the Spring of this year, it now appears certain that the U.S. will have only one remaining GOES producer: AK Steel.

Similar cost reduction themes played out at the most recent AK Steel earnings call on October 25, “The improved product mix, higher average selling price per ton, improved carbon steel market prices, focus on cost reductions and lower raw material costs contributed to the 31% increase in adjusted EBITDA.”

In terms of the improved carbon steel market, we noted that non-ferrous metal prices continued to rise throughout October, confirming a bull market. Steel price declines have started to slow and, in fact, cold-rolled coil prices notched up $1/st this week. Though this appears insignificant, it demonstrates that steel prices may have found a price floor. In addition, the gap between domestic and international CRC prices has narrowed.

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Although GOES prices tend to move somewhat independently from other non-ferrous and ferrous metals, the fact that non-ferrous metals have moved in a bullish direction and steel prices also appear to be finding a floor means that, in the near term, we would not expect to see any dramatic GOES M3 price declines.

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Two weeks ago, Japanese lenders and a hedge fund struck a deal to save Australia’s Lynas Corp., the only major rare earths producer outside China, from collapse. In doing so, they cut its interest costs and gave Lynas nearly four years breathing room to pay off its debt.

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State-owned Japan Oil, Gas and Metals National Corp. (JOGMEC) and Sojitz Corp. did so to ensure a supply of rare earths from outside China, the world’s biggest producer of the elements. Japan’s interest is understandable. It’s the nation that Chinese producers unceremoniously boycotted in 2011 back when rare earths prices were flying high. Even though that’s not the case today, Japanese manufacturers have no interest in ever being dependent on China’s rare earths industry again. After the collapse of Molycorp, JOGMEC even agreed to slash the interest on its loan to Lynas to 2.5% from 6%.

Rare-Earths_Chart_November-2016_FNL

Lynas will not have to make any fixed repayments on the $203 million it owes to Sojitz and JOGMEC until 2020. It previously faced staged repayments up to 2018.

Our Rare Earths MMI held at 17 for the fourth straight month, the textbook example of a stagnant market with flat demand and more than enough supply.

The one bright spot in the sub-index continues to be the permanent magnets used in electric motors for wind turbines and other products. These elements include neodymium and samarium.

Research and Markets recently published its “Permanent Rare Earth Magnets Market – Drivers, Opportunities, Trends & Forecasts: 2015-2022” report. It said that the global permanent rare earth magnets market is expected to grow at a CAGR of 13.2% during the forecast period 2016-2022 to reach $41.41 billion by 2022.

For Lynas, and the companies that have invested in it, this market offers hope of salvation but we would exercise caution as always. China is attempting to consolidate its rare earths industry the same way it is attempting to do so with steel. The problem is that Beijing still exerts relatively little control over small, provincial mines that fly under the rardar of national mining standards.

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Permanent magnet demand has always been strong but it will need to grow by quite a bit to exhaust current Chinese production and, just like with steel, the consolidation process is slow and sure to be manipulated by the economic growth needs of the People’s Republic.

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Unplanned global oil supply disruptions averaged more than 3.6 million barrels per day in May, the highest monthly level recorded since the U.S. Energy Information Administration started tracking global disruptions in January 2011.

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From April to May, disruptions grew by 0.8 million bpd as increased outages, largely in Canada, Nigeria, Iraq, and Libya, more than offset reduced outages in Kuwait, Brazil, and Ghana. Six months later, the U.S. is joining the energy disruption party. On Saturday, an explosion and fire in Alabama sent futures surging and traders scrambling to supply the East Coast states with fuel.

EIA Energy Disruptions

Oil supply disruptions as measured by the U.S. Energy Information Administration. Source: EIA.

Colonial Pipeline Co., which carries gasoline and other refined products from Houston to Linden, N.J., was forced Monday to shut its two main pipelines after a crew working near the site of a prior spill hit the line with construction equipment. Read more

Oil inventory hit an all-time high after a surprisingly strong last full week of October and a major copper trader said the LME should cut fees.

Oil Inventory Hits an All-Time High

The Energy Information Administration said oil inventory is up by 14.4 million barrels in the week to October 28, reaching 482.6 million barrels. That’s the largest weekly build since the U.S. Energy Department started keeping records in 1982.

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Oil prices fell after the data, with benchmark U.S. crude futures dropping 3.3%, or $1.57, to $45.12 a barrel, their lowest level since late September. U.S. crude imports jumped by about 2 million barrels per day to just under 9 million bpd, the highest rate since September 2012.

Red Kite Founder Says LME Should Cut Fees

The London Metal Exchange should further cut fees and review rules that may give high-speed traders an unfair advantage, the founding partner of Red Kite Group, Michael Farmer, said on Tuesday.

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Farmer, who has earned the nickname Mr. Copper for his long experience in industrial metals trading, warned that rising fees and high-frequency trading will further cut liquidity on the LME, which has suffered sliding volumes this year.

LME week is upon us and one of the stories coming out of London is how reforms to end long lines have distorted the metal’s supply picture. A new European metals trading platform has been launched.

Aluminum’s Fundamental Picture

Reforms to the London Metal Exchange‘s global warehouse network have, as planned, cut the amount of metal trapped in storage, but the unintended consequence is a distorted fundamental picture and more pressure on already tumbling volumes.

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Since 2013, the LME has implemented measures aimed at reducing queues for aluminum as it leaves warehouses after banks and traders that own them profited from letting long queues build up while charging rent.

New German Metals Trading Platform

A new trading platform for buying and selling of base metals for immediate physical delivery was launched in October by German company Metalprodex GmbH, with the most initial trading liquidity in aluminum and lead, the company’s head said.

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Newly established Metalprodex is offering an electronic trading platform enabling delivery of physical metal within two days.

The tight oil and natural gas story here in the U.S. is often framed as a struggle between environmentalists who want to keep it — and other fossil fuels such as tight oil — in the ground, and drilling and exploration companies who want to sell it as a home heating and transportation fuel that at least burns cleaner than coal.

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What’s often left out of the discussion is the advantages gas can provide for plants, factories and other major industrial users that have nothing to do with the light switches in your house or apartment.

Voestalpine's reducing tower

Voestalpine’s 450-foot-high direct reducing tower near Corpus Christi, Texas, takes iron ore pellets and reduces them to 91% iron briquettes. Customers include steel suppliers for BMW and Mercedes-Benz. Source: Jeff Yoders

Austria in Texas

Last week, I toured Austrian specialty steelmaker Voestalpine AG‘s new $1.4 billion, direct-reduction hot-briquetted iron (HBI) production facility near Corpus Christi, Texas. It’s estimated that company’s investment will generate an estimated $600 million over the next decade and the new facility has already added 190 jobs to the local economy.

HBI, or sponge iron is a pre-material used in steel production. The new Texas facility takes iron ore pellets that are roughly 60% iron and reduces them down to HBI that is 91% iron. They use a high-temperature, natural-gas fueled furnace tower, now the tallest building in South Texas at 450 feet, to “reduce” oxygen and other impurities out. Read more