Ferrous Metals

This week our metals faced off against a resurgent US dollar and, once again, lost ground.

Free Download: Latest Metal Price Trends in the May MMI Report

It’s enough to make a metals trader or buyer need a stiff cocktail. How about a nice Moscow Mule in a copper mug? Two ounces of vodka, four ounces of ginger beer and one ounce of lime juice just isn’t the same in glassware. How can your fizzy ginger beer be served in plain, old glassware? Well, badly.

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The three-month aluminum price on the London Metal Exchange is back below $1,800/metric ton. In April, aluminum rallied with most industrial metals thanks to a weaker dollar. However, in May the dollar bounced back up, unwilling to give up more ground, hurting industrial metals.

Aluminum prices are now hanging near previous troughs. If the dollar continues to rally, we would expect aluminum prices to hit record lows this year.

Why Manufacturers Need to Ditch Purchase Price Variance

Same story with nickel, the metal rallied in April after hitting its lowest level in six years, but in May Nickel fell as well and now it’s near that record low. As with aluminum, a stronger dollar would put nickel prices into a tailspin.

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Thanks to fees from its state cap-and-trade law, Northern California homeowners will soon start receiving completely free crystalline silicon photovoltaic solar panels.

Why Manufacturers Need to Ditch Purchase Price Variance

Oakland nonprofit Grid Alternatives is using $14.7 million raised through the state’s cap-and-trade system to install the panels in lower income neighborhoods for free. The fees were paid by industries whose emissions exceeded the state "cap" set by the new law. The fees were donated by state to Grid and the money came out of the Greenhouse Gas Reduction Fund (GGRF), also established by the cap-and-trade law.

Silicon was the biggest mover this week on our renewables MMI, as well.

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New futures contracts for rebar and scrap cleared a hurdle recently and a major automaker said thanks, but no thanks, to aluminum bodies.

LME Closes in on Market Makers

The London Metal Exchange (LME) is close to sealing deals with market makers to guarantee liquidity for its new steel rebar and scrap futures, a move that industry experts say is a step in the right direction.

Why Manufacturers Need to Ditch Purchase Price Variance

But for real longevity, the contracts will need crucial support from major banks and participation of major steelmakers and institutional investors.

A senior level source with knowledge of the process told Reuters progress had been made in discussions with professional market makers as well as physical traders. The contracts are scheduled for launch in October.

“Having market makers would make a huge difference. In the current steel contracts there are no market makers,” Antonio Novi, a director at Levmet, a metals trader that also provides hedging services to industrial companies, told Reuters.

“If it’s true that there’s market makers, we’ll be using it, but until I see it I’ll doubt it very much.”

The LME’s only existing steel contract, a physical contract for billet, has struggled with scant volumes. Its new steel contracts will be cash settled, and so cannot be crippled by problems withdrawing metal from LME warehouses.

Some key steelmakers joined the LME Steel Committee earlier this year, including AK Steel, Klesch Group and the Turkish Steel Exporters Association.

Jeep Sticking With Steel

After months of confirmed reports from inside Fiat-Chrysler suggesting otherwise, FCA CEO Sergio Marchionne has confirmed that the next-generation Jeep Wrangler will not follow the Ford F-150’s lead and adopt an all-aluminum body. Instead, the 2017 Wrangler will stay predominantly steel, and use an aluminum hood, doors, and fenders to keep weight down.

Marchionne said they’d simulated the mileage, “but because of the difference in costs, not just in materials but the actual assembly process, I think we can do almost as well without aluminum,” according to the Wall Street Journal.

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When pharmaceutical manufacturer Biogen Idec planned a new headquarters building in Boston’s growing Kendall Square tech center, they knew the construction and program needs of the 325,000-square foot, five-story project would be a challenge for the architects, engineers and general contractor selected.

Why Manufacturers Need to Ditch Purchase Price Variance

Cambridge, the suburban Boston municipality Kendall Square is located in, had a zoning requirement that all projects stay under 75 feet. That meant architect Spagnolo, Gisness and Associates had to cut its original plan for a six-story building down to five stories.

Biogen had its own needs, too. The company wanted to break down barriers between its management and employees and encourage collaboration among its scientists and researchers through the architecture of the building.

Open Office Plan

The new global headquarters has no private offices, just individually designed workstations called “I spaces” and common “huddle rooms” for private phone calls or spontaneous meetings. The company scrapped telephone landlines for employees, who are issued laptops and headsets.

Panels in the ceilings and floors can be brought down to add soft walls and subdivide rooms for smaller group collaboration.

“The idea was to bring everyone together, no separate offices for executives or private areas for senior management, everyone has the same office in the open floor plan,” said Malisa Heiman, senior associate in the real estate and site planning for Biogen.

Construction Manager Consigli Construction co-located with SGA and several of the project’s subcontractors during the design stage of the project. All mechanical, electrical and plumbing subcontractors were on board during design meetings.

By using 3D building information modeling Consigli and SGA were able to design and deliver a composite slab system with steel trusses. All trusses were prefabricated, some smaller with penetrations and spaces for mechanical systems in beams.

One Less Floor

Consigli and SGA were able to shave the entire mechanical floor off the building and achieve the 75-foot zoning height required by putting the mechanical systems in the steel frame. With the utility floor squeezed into the building’s steel frame was completed seven months early and $2.3 million under budget. Biogen took occupation in late 2013. The artifact handed over for facility management was a 3D model.

“We demanded detail early one. The level of coordination allowed fabrication to start more quickly,” said Andy Deschenes, director of project services and innovation at Consigli.

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The London Metal Exchange (LME) yesterday launched a month-long consultation on proposals designed to broaden access to its electronic trading platform, LMEselect. The changes put forward include opening up LMEselect access to category 3 and category 4 (non-clearing) members of the exchange as well as adding flexibility to the criteria required to apply for LME membership.

Why Manufacturers Need to Ditch Purchase Price Variance

“Today’s proposals are crucial to our overarching aim to maximize liquidity and participation on the LME,” said Garry Jones, LME CEO. “Opening up access to trading on LMEselect is beneficial to everyone trading on any one of our venues as it will bring more liquidity and price transparency to all.”

Adding flexibility to the application criteria for LME membership means that prospective members may, in some cases, benefit from exemptions from the UK Financial Conduct Authority (FCA) authorization requirements, which represents a significant step in the LME’s Liquidity Roadmap. The changes would make the LME electronic market more attractive to non-UK based traders who want to take advantage of the Exchange’s enhanced liquidity initiatives but who are currently not eligible or are discouraged from applying by electronic access restrictions.

If the LME decides to proceed with the proposed changes after the consultation period ends, then full details of the category 4 membership requirements including fees and B share requirements will be published.

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Nickel has perplexed and confounded investors for the last year or more.

Prices had been expected to rise on the back of an anticipated shortfall in ore supply, only for the expect opposite to happen. Yet Norilsk Nickel, in it’s latest 2015 Strategy update, reported in a Platts blog that China’s inventories of nickel ore are down significantly, with only around two months of consumption left.

Why Manufacturers Need to Ditch Purchase Price Variance

Norilisk also believes China’s dependence on imported refined nickel is set to rise. It estimates that total nickel demand in China in 2015 will be made up of 42% imported refined nickel, 47% imported feed, and around 11% of domestic feed.

Imports Rising

In 2014, by comparison, total nickel demand in China consisted of 28% imported refined nickel, 61% imported feed, and 11% domestic feed. In its 2014 full-year results, the company forecast a 20,000 metric ton global deficit this year down from a 93,000 mt surplus in 2014. While a number of analysts are also forecasting a revised deficit between 20,000-45,000 mt this year, you have to say previous predictions have failed to materialize so why would this time be any different?

Maybe the issue here is that Norilisk is a producer and they are going to be bullish by nature, and indeed not all agree with Norilisk’s estimate of the current situation. The World Bureau of Metal Statistics reported just this week that the nickel market was in surplus From January to March 2015 with production exceeding apparent demand by 32.9 kilotons, less of a surplus than was running in 2014 but still significant.

Nor did they see it trailing off, in March nickel smelter/refinery production was 147.8 kt and consumption was 137.1 kt suggesting the surplus is continuing and may run through Q2.

The long-awaited dearth of ore supply resulting from the Indonesian export ban last year has failed to materialize. Chinese buyers have switched to a blend of Indonesian and Filipino ores for making nickel pig iron and an increase in refined nickel imports to meet demand.

Demand: Still Down

Demand is down, anyway. The Chinese economy is growing more slowly and stainless production (the source of two-thirds of nickel demand) is, at best, lackluster. In addition we are now coming towards the quieter summer period when demand falls and so it is unlikely the demand side is going to force a change in the downward trend in prices. Demand has stabilized in Europe after previous years’ weakness, but distributors are said to be well stocked and a restocking cycle is unlikely when most are anticipating further weakness in the nickel price.

As prices have fallen, stocks have risen, most obviously on the London Metal Exchange. Part of this rise can be attributed to finance stocks moving out of China and into supposedly safer LME Asian warehouses, but even so some 446,000 mt of LME stocks are going to take some working through and those speculators that have headed for the exits are not likely to pile back in again until they see a sustained downward trend in stocks.

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Today in metals, two steel majors joined forces in India and predictions differed for the US economic recovery.

ArcelorMittal and SAIL Team Up for Auto Plant

ArcelorMittal, and the Steel Authority of India Limited (SAIL), India’s leading steel company, signed a memorandum of understanding to set up an automotive steel manufacturing facility under a joint venture arrangement in India.

Why Manufacturers Need to Ditch Purchase Price Variance

The MoU was signed in London Lakshmi Mittal, Chairman and CEO of ArcelorMittal, and C.S. Verma, Chairman of SAIL. Rakesh Singh, Secretary to the Government of India, Ministry of Steel and Aditya Mittal, ArcelorMittal CFO and CEO ArcelorMittal Europe, were also present.

The MoU is the first step of a process to establish a JV between the two companies. The proposed JV will construct a state-of-the-art cold rolling mill and other downstream finishing facilities in India that will offer technologically advanced steel products to India’s growing automotive sector.

MarketWatch: US Recovery Murky

It’s a mystery if the US economy will fire back up and grow at a significant rate this summer.

Not long ago, economists thought US growth could reach nearly 4% in the second quarter after a tepid 0.2% gain in the first three months of the year, a period marked by unusually harsh weather. That would be a carbon copy of the feast-or-famine growth pattern that occurred in 2014.

Many are so sure after an uneven batch of economic reports midway through the second quarter. A poll of analysts compiled by MarketWatch predicts the US will expand at a 3.2% annual rate from April through June — and some have chopped their forecasts to below 3%.

A cluster of fresh reports this week probably won’t give much inkling.

Orders for durable goods such as TVs and trucks that are meant to last a long time are expected to fall again in April. Business spending and investment have softened considerably since last fall.

Sales of new homes nationwide, meanwhile, might creep higher in April, but closings are still historically weak.

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China has changed its tack on steel exports.

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In previous years it has sought a more conciliatory position to complaints by trade partners, a WSJ article says in the past CISA, China’s steel trade association, has sought to persuade local steel mills to curb exports and show restraint but this year, in the face of an unprecedented surge in volumes, Ministry of Commerce spokesman Shen Danyang is quoted as taking a much more defensive line saying the rise in steel exports is due to higher global demand and is a result of Chinese steel products having strong “export competitiveness.”

Chinese Now Say Exports ‘Justifiable’

Set against a backdrop of the EU’s recent investigation into dumping of cold-rolled coil from China and Russia, Shen is reported to have come out fighting, saying “Under such circumstances (demand and competitive pricing), I feel that it’s quite normal for Chinese steel exports to these countries to be rising, and it’s quite justifiable.”

Meanwhile, the WSJ adds the US, Australia and South Korea have also signaled that they are lining up support for trade action against Chinese steel exports, which rose by 50.5% last year to a record 93.8 million metric tons and have continued at a high level this year.

Chinese steel mills are on a roll according to data reported by the WSJ. Between September last year and January this year, the volume of China’s outbound steel shipments each month shattered the preceding month’s record. While in the first four months of 2015, steel exports were 32.7% higher than a year earlier.

The reason isn’t hard to find, domestic steel prices in China have been on a slide as demand has collapsed. According to a Bloomberg article Infrastructure and construction together account for about two thirds of China’s steel demand, citing HSBC research, and construction is slow as housing prices fall there.

Construction Slump Continues

New home prices slid in 69 of the 70 cities tracked by the government in April from a year earlier, according to National Bureau of Statistics data. As a result construction-related steel prices such as rebar have hit their lowest level since 2003.

What’s worse is the peak buying period for the construction sector is now in the past and demand would fall for seasonal reasons even if construction was strong. According to Reuters, prices have dropped 13% so far this year with the most-traded rebar futures contract for October settlement on the Shanghai Futures Exchange down to 2,355 yuan ($379.71) per ton, while MetalMiner’s own China tracking service has recorded a 16% fall in domestic steel prices this year from 2,810 yuan/mt at the beginning of the year to 2,340 yuan now.

What is Chinese ‘Cost?’

Such a slump in prices has aided steel mills in their drive to dump excess capacity overseas. Is it below cost? What is the cost price in China? what are a mill’s true costs for state enterprises that receive all kinds of support both at the regional and state level?

Steel mills are under pressure to close excess capacity but so far the result has been limited, excess capacity is being offered for export rather than any real attempt made to exercise market discipline and shutter plants. The trend is likely to get worse before it gets better, particularly if Beijing’s hard line continues, we can expect more trade disputes and possibly lower prices in the year ahead.

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Autodesk, Inc. announced the release of its 2016 Design Suites at a launch event in Boston this week, offering more control over all aspects of the design-build process through a connected desktop and cloud user experience.

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For structural steel, the main difference in the 2016 suite of software products is a much tighter integration of the Advance Steel, a 2013 acquisition, and the Revit 2016 3D building information modeling platform.

“The means of production – how we think about and deliver buildings and infrastructure, both intellectually and physically, is changing,” said Amar Hanspal, senior vice president of Autodesk’s information modeling and product group. “By 2020 there will be 50 billion connected devices in use, with the number rising by 20 billion per year. Buildings are joining the digital world.”

New Rendering Engines

The 2016 version of Revit has new rendering engines that can deliver a rendered scene in minutes instead of hours under the old engine. It also has linked model cropping and better support of the open-source IFC file format.

“Customers don’t want to work in a different environment when doing design and detailing,” said Jim Lynch, vice president of Autodesk’s building group. “No longer have to use (a separate design tool) for detailing. Steel, cast-in-place concrete can all be done in Revit. The plan is to integrate (Advance Steel’s design tools) into Revit. We will keep Advance Steel as a separate product but WILL make it work seamlessly in the Revit environment.”

Better Integrated

Plant 3D, a plant design product, and Advance Steel have also been integrated so you can bring Advance Steel content into Plant 3D.

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