Welcome back to the MetalMiner week-in-review! This week we’ve got in-depth reporting on China and market economy status, India getting tough on aluminum imports and Canada… well, you’ll see what happened in Canada.
We Know Gold Prices Have Gone Up… Butt This is Ridiculous
The theft of about $140,000 worth of gold ($180,000 in Canadian dollars) from the Royal Canadian Mint, was supposedly an inside job… in more ways than one.
After a trial that concluded in Ottawa on Tuesday, Leston Lawrence, a 35-year-old employee of the government mint in Ottawa, stood accused of foiling the facility’s high security and smuggling out 18 7.4-ounce pucks — this is Canada, after all — worth about $6,800 each. He sold most of the pucks, cooled into the size of a purity testing dipper used at the mint, to an Ottawa Gold Sellers retail store at a nearby mall. The accused criminal mastermind also had four more of the pucks in a safe deposit box.
“Go ahead, scan me with the wand. Nothing to see here.” Source: Adobe Stock/John Takai.
The question the Royal Canadian Mounted Police, or the Mint, couldn’t figure out is how he got past the state-of-the-art security that featured full-body metal detectors and secondary screenings with a wand for anyone that tripped the first scan?
Before Lawrence was fired from the Mint and arrested in 2015, investigators also found a tub of Vaseline in his locker. While the wand scanners can pick up even small pieces of metal in a person’s clothes, security officials from the Mint said they probably would not detect dipper-sized gold pucks that were forced between someone’s buttocks using the vaseline.
Whether you’re a regular MetalMiner reader, or have never heard of us before, you’re likely familiar with the outsize role China has played in trading with the Western world — and especially with the United States.
That’s why we’ve taken the opportunity to dive deep on a nuanced issue that’s central to the U.S.-China relationship, now and into the future. Our new project, China vs. the World: Why the Battle for New Trade Status is Such a Huge Deal, explores how China’s approach to global trade over the past several decades has affected American commerce (for better and worse), and how something called “market economy status” could change the rules of the game as we know it.
In the latest move, U.S. Representatives Tim Murphy (R-PA) and Peter J. Visclosky (D-IN), the chairman and vice-chairman of the Congressional Steel Caucus, respectively, introduced a House resolution calling on the current Administration to take action on this very issue. But resolving the issue will likely be a longer battle.
While the mainstream media has taken advantage of reporting presidential hopeful Donald Trump’s numerous references to China and his blunt stance on how he intends to change our relationship with that country, MetalMiner’s journalists and editors set out to unpack the tangible drivers behind these types of general sentiments, with a particular focus on — and for — U.S. manufacturing organizations.
Personal video perspectives from key players across several different industries illustrate the China effect on American jobs, workers and approaches to business.
We hope you’ll find this type of project and its presentation refreshing and informative. If you like it, please share it with your networks! We welcome and value your feedback, so please feel free to send us a note at firstname.lastname@example.org.
OPEC members are now talking about a deal that lasts one year, whether that means curtailing production for that period is still unknown. Australia is attempting to collect $766 million in taxes.
OPEC Deal Could Last a Year
A possible deal to support oil prices by the world’s leading producer-countries may last for one year, the secretary-general of the Organization of Petroleum Exporting Countries said on Tuesday, longer than other officials have indicated.
OPEC and non-member producers including Russia are discussing a deal to stabilize the market by possibly freezing output, although key details such as the timing and baseline for any deal have yet to emerge.
BHP Vows to Fight Australian Tax Bill
BHP Billitonsaid it disagreed with Australian tax collectors’ assessment that the miner needs to pay $766 million in back taxes and charges for its Singapore commodities marketing hub, and that it could resort to court action to fight the claim.
BHP is under investigation by the Australian Tax Office (ATO) for allegedly shifting billions of dollars in iron ore profits through marketing hubs in Singapore, where it operates under an effective tax rate of zero as part of a concessional tax deal.
Whereas copper, aluminum and other ferrous metals have languished due to oversupply, the tin price has risen steadily and robust demand has met a constrained supply market. According to the World Metal Statistics August report, the tin market recorded a deficit of 7,200 metric tons during January to June 2016. That’s less of a deficit than in the equivalent period in 2015, true, but still a deficit and with no DLA deliveries during the period total reported stocks fell by 2,600 mt during June. In spite of rising production of refined metal in Asia, a 12.6% increase in demand from top consumer China kept the market under pressure.
Against such a backdrop, the reopening of previously abandoned mines is not unexpected. What does raise an eyebrow is the tactics of one junior miner in employing the image of the hit UK BBC period drama “Poldark” in trying to entice investors onto its $150 million fund.
Strongbow Exploration is invoking the romance of the series set in the 18th century mining industry of northern Cornwall to buy-a-bit-of-history, according to the Telegraph. The TV series featuring the dashing Aiden Turner and delectable Eleanor Tomlinson has been a massive hit here in the U.K. — and may prove equally popular to the “Downton Abbey” series once it’s rolled out around the world. It’s just starting its second series (or “season” to you Americans) with even higher viewing numbers.
“One Day, this will all be yours.” “What, the curtains?” “No, all that you bloody see!” Poldark is taking audiences by storm and igniting memories of romantic tin mining. Image courtesy of PBS/Masterpiece.
Strongbow may well raise its capital on the romantic idea of buying into a 400-year-old mining tradition, but hard-nosed investors may like to know that with modern recovery technologies, Strongbow’s South Crofty mine has at least a 10-year lifespan.
In the largest foray by a Chinese company into the U.S. aluminum market since the financial crisis, Zhongwang USA LLCsaid this week that it would buy U.S. aluminum company Aleris in a $2.33 billion deal, expected to close Q1 2017.
Zhongwang USA is owned by Liu Zhongtian through his Chinese group Zhongwang International Group Ltd. but he is also the founder of Asia’s second-biggest extruder, Hong Kong-listed aluminum products maker China Zhongwang, a firm embroiled in anti-dumping cases in the U.S. Liu has been angling to get a toe in the U.S. market for some time, there was talk of a $120 million aluminum casting plant in Barstow, Calif., as part of an earlier attempt to get into the U.S. but it came to nothing in the end.
Zhongwang is making a bet on the growing automotive aluminum sheet market, being a substantial manufacturer of automotive extrusions in China and recently building a rolling mill for automotive sheet to service the Chinese automotive body market. Read more
Steel production in China, the world’s biggest supplier and consumer, will likely contract this year and shrink further in 2017 as local demand slows, according to Li Xinchuang, a vice chairman at the China Iron & Steel Association.
“There will be significant declines in the next three months,” said the influential Li, who’s also dean of the China Metallurgical Industry Planning & Research Institute, in a phone interview with Bloomberg News. “If steel consumption and production are set to decline, then there’ll definitely be less demand for iron ore.”
Metals and minerals are actually in a decade-long down cycle. Source: Morningstar/World Bank.
“Our original estimate was for a 3% decline this year,” Li told Bloomberg. “Based on how things have played out this year, I think the decline in output might be less than anticipated but the downtrend remains unchanged. Iron ore should be on a downtrend, not on an uptrend.”
This falls in line with many public statements from Beijing that have said China will get serious about curtailing production in the second half of the year and also reduce stimulus measures to the sprawling Chinese carbon steel industry. Citigroup, UBS Group, Morningstar and others are predicting a fall in steel prices and iron ore, as well, as demand wanes in the world’s largest consumer. This group includes James May of Steel-Insight, a MetalMiner contributor.
Morningstar’s Andrew Lane recently cautioned that steel is one of many metals and minerals in a decade-long decline. The investment research firm also pointed out that China’s excess capacity equates to nearly 4 times actual steel production in the U.S. in 2015, so the resilience of loss-making capacity in China reflects the heavy involvement of local governments eager to support employment, GDP, and tax revenue rather than optimize profitability.
Construction has been one of the few pockets of strength in the U.S. economy – until recently. Construction payrolls have declined since March and spending in May rose less than 3% from a year earlier, the lowest rate since 2011.
Coming after strong growth of 10% last year, the question now is whether the sputtering is just a blip or something more lasting that portends a significant drag on the economy.
The Associated Builders & Contractors, American Institute of Architects and National Association of Home Builders‘ chief economists recently gathered in Washington, D.C., for a mid-year market forecast, outlining stable to strong residential and commercial project activity through 2017.
Each economist discussed present and future indicators for sector performance, including ABC’s Construction Backlog Indicator (8.6, 1Q2016); AIA’s Architecture Billings Index (52.6 in June) and the Construction Consensus Forecast (5.6% growth in 2017); and, the NAHB/Wells Fargo Housing Market Index (60, August 2016).
While all of the economists predicted growth in 2017, they had varying degrees of optimism.
Anirban Basu, ABC Chief Economist: “Nonresidential construction spending growth will continue into the next year with an estimated increase in the range of 3 to 4%. Growth will continue to be led by privately financed projects, with commercial construction continuing to lead the way. Energy-related construction will become less of a drag in 2017, while public spending will continue to be lackluster.”
Robert Dietz, NAHB Chief Economist: “Our forecast shows single-family production expanding by more than 10% in 2016, and the robust multifamily sector leveling off. Historically low mortgage interest rates and favorable demographics should keep the housing market moving forward at a gradual pace, but residential construction growth will be constrained by shortages of labor and lots and rising regulatory costs.”
Kermit Baker, AIA Chief Economist: “Revenue at architecture firms continues to grow, so prospects for the construction industry remain solid over the next 12 to 18 months. Given current demographic trends, the single-family residential and the institutional building sectors have the greatest potential for further expansion at present.”
An administrative law judge who suspended U.S. Steel Corp.‘s 337 case against 40 Chinese steel companies earlier this year improperly linked the case to the anti-dumping and countervailing duty investigations handled by a separate government agency — the Department of Commerce — according to an International Trade Commission opinion.
US Steel’s Anti-Dumping Cases Not Significantly Related
The commissioners, in overturning the suspension of U.S. Steel’s case, determined ITC rules do not allow for the suspension of a 337 investigation simply in order to notify the Commerce Department as required by statute, and that elements of U.S. Steel’s case involving allegations of price fixing and transshipment “are, at most only partially related to anti-dumping and countervailing duties.”
Administrative Law Judge Dee Lord suspended the case on July 6 because Commerce was not notified of the investigation, and because elements involving price fixing and transshipment, at least partially, fell under the scope of Commerce’s antidumping and countervailing duty investigations.
U.S. Steel’s initial petition, filed on April 26, cites allegations of collusion and price fixing, transshipment to evade anti-dumping/countervailing duties, and theft of trade secrets via hacking by Chinese agents.
U.S. Steel is seeking a general exclusion order to block all Chinese carbon and alloy steel products from the U.S. market, a limited exclusion order blocking imports from 40 listed steel companies and a cease-and-desist order for their alleged illegal practices.
U.S. Steel claimed that a hack similar to one that happened in 2011 to it and other companies was carried out to acquire the recipe and production process of a popular automotive steel alloy, dual-phase 980, that Baosteel and other Chinese companies began offering shortly after the hack,
As a counterbalance to our article this week about proposed tariff changes intended to counter the flow of unwrought metal out of China, China Hongqiao, the world’s largest aluminum producer, is reported in the South China Morning Post rejecting concerns the Chinese aluminum industry has a major overcapacity problem.
Two-Month Trial: Metal Buying Outlook
In fact, in the words of Chief Executive Officer Zhang Bo, China’s high demand for aluminum and improving “self-discipline” in production and capacity expansion has already resulted in a much healthier state than some analysts’ believe. As in steel — and several other commodities — China’s position in the global aluminum market cannot be overstated, but unlike steel an export regime is supposed to keep excess production from being exported onto the world market.
China’s Aluminum Demand and Supply
Broadly speaking, up to a couple of years ago that held good. China accounts for some 53% of global demand of 30 million metric tons in the first half of this year and is self sufficient in primary aluminum although it does import bauxite and alumina, intermediate products.
How much excess aluminum is being produced by Chinese Smelters? Source: Adobe Stock/Pavel Losevsky.
Zhang Bo says given that the industry’s (in China) overall plant utilization exceeds 80%, and over 80% of the smelters are profitable, “nobody should have the idea that the industry is in major overcapacity.”
He also noted mainland China’s 8.6% year-on-year first-half aluminum demand growth has far outstripped output growth of just 1% with robust demand from the transportation, electronic and electrical markets this year. To be fair, China Hongqiao figures appear — on the face of it — to support his position. On Friday the group posted a 20.7% year-on-year rise in net profit for the first half to $510 million (3.28 billion CNY) as a 9% fall in selling prices was more than offset by a 25% growth in sales volume the article stated.
Nor is China Hongqiao an exception. The industry’s daily output volume has surged from a low of around 75,000 mt early this year to 90,000 mt now, not far short of last year’s highest levels, ANZ Senior Commodity Strategist Daniel Hynes is quoted as saying.
Earlier promises of smelter closures when prices were around $1,599/mt (10,600 CNY per mt) are now a distant memory, as prices have surged to $1,885.95/mt (12,500 CNY) today gradually idled capacity is being brought back into production. Nearly 200,000 mt of annual capacity having resumed in the second quarter and another 300,000 mt is due to come back in the third quarter, according to the SCMP.
Smelting Capacity Expands
Earlier targets to cut 4.5 million mt of outdated aluminum capacity, even if implemented, will be rapidly replaced by some 3.7 mmt-a-year of new capacity scheduled to come onstream in the second half of this year alone. China Hongqiao expanded its annual aluminum smelting capacity by 29.8% to 5.89 mmt in the 12 months to June 30, and Zhang expects it to reach 6.5 mmt by year-end.
China Hongqiao will, of course, talk up the market and downplay suggestions of excess production. The company’s share price has done well on a resurgent aluminum price and rising profits, the last thing Zhang Bo wants is talk of overcapacity.
China’s aluminum semis exports have reduced a little this year, suggesting domestic demand is robust and mills do not have such a pressing need to dump metal abroad as they did last year. Still, with such a dominant position in the global aluminum market a sneeze at home could easily result in a cold for smelters in the rest of the world.
A who’s who of manufacturing companies, fabricators, service centers, wholesalers, trading companies, steel mills, toll processors and companies that provide products and services to the steel industry will be present at Steel Market Update‘s annual conference later this month, including our own Lisa Reisman.
Lisa will be providing a steel price forecast to those in attendance at the Georgia International Convention Center in Atlanta, August 29-31. She will be joined by representatives from the Institute for Trends Research, Cliffs Natural Resources, AK Steel and the Federal Reserve Bank of Atlanta, who will be delivering the keynotes during the 3-day event.
To learn more and register for the conference, click here.