Articles in Category: Green

In a blatant case of posturing ahead of inevitable compensation negotiations, lawyers —acting on behalf of Brazil’s public prosecutors — are said to have lodged claims totaling $44 billion ($155 billion Brazilian Reais) against mining companies Vale SA and BHP Billiton for the collapse of a dam at their Samarco joint venture last year.

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Needless to say, shares in both companies promptly tanked about 6% even though the prosecutor’s office has a habit of claiming big and settling small. As a measure of just how absurd the figure is, the Financial Times states the 155 billion Reais claim is equivalent to twice Vale’s market value and, if enforced, would bankrupt the company leaving no one to clear up the environmental mess. You can bet the funds would disappear into government coffers, not for the clean-up.

Demands as Negotiation Starting Points

By comparison, the FT reports UBS analysts and others who pointed to the 2011 oil spill off the coast of Rio de Janeiro — that prompted prosecutors to claim $11 billion in damages from Chevron and its drilling partner Transocean — was eventually settled for only $42 million.

Indeed, if Brazil was to genuinely pursue the claim through to its logical settlement it would end up shooting itself in the foot. Samarco is a 50/50 joint venture and so would be the settlement costs but, where Vale is a wholly Brazilian company with 154,000 employees in the country, BHP is listed in London and Sydney with comparatively little else at risk in Brazil.

BHP has already written down its Brazilian asset from $1.2 billion to zero, meaning if it walked away it would lose nothing more, according to Reuters.

Samarco Disaster vs. BP Oil Spill

There is no disputing the dam burst was a disaster and there is widespread belief it could have been avoided. The torrent not only killed 19 people but also obliterated Bento Rodrigues, a town of 800, inundated another larger town with mud, and polluted almost 1,000 km (600 miles) of the Rio Doce.

According to Reuters, the disaster killed fish, contaminated water used for agriculture, and left at least 250,000 people without running water for weeks. It was always going to be expensive but BHP and Vale had already agreed to pay a government-estimated $5.6 billion (R20 billion Reais) over 15 years to cover and repair damages and the firms had thought that was an end to the claims process.

Comparisons have been made with claims against BP over their gulf oil spill naturally enough, but in reality there is little to link them. U.S. prosecutors had BP over a metaphorical barrel with its extensive investments in the U.S. market and could take them to the cleaners with impunity. Arguably, they would not have done the same to a U.S. company.

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Brazil would lose more in the long run doing the same to Vale than they would in ensuring the firm survives and, effectively, clears up the mess. So, while I don’t knowingly hold shares in either company I would be more likely to sell them over anxiety about the firm’s medium-term future in an oversupplied market than the damage overzealous prosecutors are likely to do their profits.

The broad commodities rally even helped our normally moribund Renewables MMI increase at least a little (2%) this month.

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The sub-index is still range-bound but it’s in the upper portion of the range we’ve seen it inhabit for the last year.

Renewables_Chart_May-2016_FNL

The steel plate products in the IndX were mainly responsible for the increase. Magnetic rare earth electric motor metal neodymium and silicon actually saw their prices decrease this month.

Rather than bore you with my regular disclaimer on how difficult it is to gauge what exactly is going on at the U.S. consumer level with renewables, due to rebates and subsidies, let’s talk about recent initiatives that could move the needle on solar.

The Department of Energy recently announced $25 million in available funding through an effort called Enabling Extreme Real-Time Grid Integration of Solar Energy (ENERGISE) to help software developers, solar companies, and utilities accelerate the integration of solar energy into the grid.

How to Capture Solar Power?

It’s been a long-term gripe from many in the power generation business that solar, at least here in the U.S., has been great for homeowners and businesses using crystalline silicon photovoltaic panels to feed energy directly into their appliances, laptops, lights and TVs, but much more difficult to transfer it back into the nation’s grid.

$25 million might seem like a lot, but it’s actually a rather small sum considering how long this problem has confounded some of the greatest engineering minds out there.

The initiative specifically seeks to develop software and hardware platforms for utility distribution system planning and operations that integrate sensing, communication, and data analytics to help utilities manage solar and other distributed energy resources on the grid. Its products will, supposedly, be data-driven, easily scaled-up from prototypes, and capable of real-time monitoring and control.

We’ve been promised similar systems in the past so we’re not holding our breath or anything. Still, the expected 10-15 solutions developed with the new funding will be field-tested by utilities to demonstrate their performance and value in real-world operating environments so there’s some rigor to the program.

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As always, we’ll monitor what comes out of this program and how the solutions could impact metals markets for products such as steel plate and silicon.

What This Means for Metal Buyers

While the broad rally has visited steel, the Renewables MMI is still rangebound.

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U.S. shredded scrap prices started 2015 at $350 per long ton delivered to Midwest steel mills.

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Barring a very brief rally in June, the price fell every month over the year and dropped to $170/long ton in December. Indeed, if we look at the chart, U.S. ferrous scrap prices have been in a downtrend since late 2013.

U.S. Shredded Scrap Prices ($/long ton delivered US Midwest Mill)

steel_insight_scrap_300_050116

Source: Steel-Insight.

When prices fall every month, scrap yards and steel mills reduce their purchases to the bare minimum as they expect to be able to procure material at a lower price the very next month. Read more

New investigations of cut-to-length steel plate from several countries were announced Friday and the Texas Supreme Court rejected a new law that, the court said, preceded the state’s authority to enforce its own air quality laws.

Steel Plate Anti-Dumping Investigation

The Commerce Department has initiated anti-dumping duty investigations of imports of carbon and alloy steel cut-to-length plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, South Korea, South Africa, Taiwan, and Turkey and countervailing duty Investigations of imports of carbon and alloy steel cut-to-length plate from Brazil, China, and Korea.

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The petitioners are ArcelorMittal USA LLC, Nucor Corporation and SSAB Enterprises, LLC. The products covered by these investigations include carbon and alloy steel hot-rolled or forged flat plate products (not in coils), whether or not painted, varnished, or coated with plastics or other non-metallic substances (cut-to-length plate).

Texas Supreme Court Rejects Houston Air Quality Law

The Texas Supreme Court said Friday that the heart of a Houston air quality law is preempted by the state’s Clean Air Act, handing a victory to an industry group including ExxonMobil Corp. and ConocoPhillips.

Attorneys for the city of Houston argued that the city was simply trying to enforce the standards set out by the Texas Commission on Environmental Quality, a state agency, by putting in place a parallel enforcement mechanism that would impose fines on the companies even if the Commission chose not to act.

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In an 8-1 ruling, the justices made it clear that they disagreed, writing that if the Commission chose not to enforce any given law, that did not clear the way for Houston authorities to do so.

China has a dilemma.

On the one hand, popular protests due to increasing levels of pollution are an expression of growing unrest among China’s rising middle classes, all conscious of environmental issues.

Too Much Pollution

Pollution is a source of international shame that has prompted Beijing to take the drastic steps of closing down coal-fired power generation and coal-consuming heavy industry around cities hosting major events such as the Olympic games and flower festivals, so that the People’s Republic can show a clean face to the world.

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On the other hand, that same coal is mined by some 5 million coal workers who have already come onto the streets to protest loudly and publicly about proposed rationalization in the industry and Beijing is nothing if not sensitive to public protest.

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy

Coal-fired power continues to dominate Chinese power  generation. Source: Adobe Stock/Snap Happy

So, what to do? close coal mines and coal-fired power stations or keep them open and suffer the atmospheric pollution and health hazards that involves?

Pollution Exports

The answer, as with so much else in China, is export it so it’s someone else’s problem. In this case, the policy appears to have been to export the pollution and hence the problem westwards and centrally to less-affluent and less-populated areas.

According to the Financial Times, pollution has decreased in Beijing and Shanghai while it has increased in the interior. Beijing’s smog has been lifting, the average concentration fine particulate pollution (PM2.5) is down 28% year-on-year in the first three months of this year. Read more

Just a month after BMW proudly announced it was shifting its development strategy toward more all-electric vehicles (EVs) and autonomous technology in order to address a “new era” in the industry, the company was rocked by the defection of the core development team of its i3 and i8 electric vehicle lineup.

The embarrassing part is the defection isn’t to another automotive major but to Future Mobility Corp., a Chinese startup backed by Tencent Holdings, a Chinese investment company. The move underlines how established “old world” firms in the automotive sector are struggling to compete with start-ups and newcomers in the EV and hybrid market.

Who Left BMW for Future Mobility?

The WSJ reports that Carsten Breitfeld, a 20-year BMW veteran who developed the company’s i8 plug-in hybrid sports car, left the Munich-based automaker last month to become chief executive of the Chinese electric car company. Now, three key executives from the “BMW i” electric car group are following him. Dirk Abendroth, who developed electric powertrains for the i-series, Benoit Jacob, who was head of design at BMW i, and Henrik Wenders, head of BMW i product management.

AdobeStock_ joel_420_electric_car_550_042016

BMW is betting on electric cars for its future, but Future Mobility just poached its entire i team. Source: Adobe Stock/Joel 420.

One would like to think they are not being simply lured by money, creative professionals of this caliber will be more motivated by being at the cutting edge of development and technology than euros in the pocket and BMW, for all their media hype, have failed to make a success of their electric vehicles division.

BMW Slows Electric Car Development

According to the WSJ, BMW has slowed development of future models. Last year, BMW sold 24,057 i3 models, and 5,456 i8 models, a 66% increase in BMW i division sales but paltry by the standards of a volume automaker. Read more

A former success story in U.S. renewable energy has filed for chapter 11 even as China’s “zombie mills” fire up steel production again.

SunEdison Files for Bankruptcy

U.S. solar energy company SunEdison Inc. filed for Chapter 11 bankruptcy protection on Thursday, becoming one of the largest non-financial companies to do so in the past 10 years.

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Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt.

In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30.

China’s Zombie Mills Fire Up Production

The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China.

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While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected.

The Renewables MMI got a boost from increasing steel prices and resilience in solar silicon to increase 3.8% to 54 this month.

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This is likely not related to the broader rally in metals prices as renewables are fairly niche and this sub-index is still trading well within the low range we’ve seen it inhabit for most of the last year. Many renewables aren’t even publicly traded and we have long lamented the effect government incentives have on hiding and keeping prices low for metals and end products subsidized at several points in the supply chain such as silicon.

Renewables_Chart_April-2016_FNL

So, to get a real feel of what’s going on out there it’s sometimes necessary to look at other metals used in the end products. For solar panels, that’s our precious/industrial friend, silver.

The average solar panel actually uses about two-thirds of an ounce of silver. That might not sound like a lot, but at around $15 an ounce on the MetalMiner IndX, U.S. silver contributes more to the cost of a crystalline photovoltaic silicon solar panel than it does to most other industrial products that use silver. Laptop computers use way less than half-an-ounce of silver while a cell phone contains a minute 200-300 milligrams of the shiny metal.

Silver Breaks Out

Silver has broken out from the lows of 2015 and has joined its precious cousin gold in seeing its value increase exponentially this year. Unlike gold, though, silver has a ton of renewable applications. The solar industry uses about 5% of the world’s annual silver supply, or an estimated 52.4 million ounces.

Demand Effect

Some might say an increase in the price of silver doesn’t have any direct correlation to the rise in silicon prices or any real connection to solar adoption, either. While this has a grain of truth to it, such a healthy increase in a related component metal can’t entirely be discounted. Silver is actually the primary ingredient in PV cells, and 90% of crystalline silicon PV cells use a silver paste. As a regularly tracked commodity, silver’s demand is relevant. Not just in the U.S. but in massive solar adopters China and India, as well.

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That being said, a big price spike in silver could keep adoption of the technology low, too, but that spike would still be a better indicator of loss of demand than some of the prices of subsidized metals. That and, of course, the undeniable rally in steel products being used in all of those wind turbines and solar panels.

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We previously reported that a World Trade Organization dispute settlement panel ruled that India’s requirement that companies that sell solar power to the government use only domestically-made parts and components for its massive Jawaharlal Nehru National Solar Mission unfairly discriminated against American manufacturers.

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Is that really a good thing? There are several states and municipal governments here in the U.S. that do exactly what India wanted to do: subsidize local renewable energy companies and, in some cases, require them to buy silicon solar photovoltaic panels from local manufacturers.

Solar photovoltaic panel array on a tiled house roof

To receive a local power generation credit, should you have to consider foreign suppliers to put solar panels on your house?

There are 44 programs in 23 states, and “China and India have already identified several of these programs as incompatible with WTO law,” according to a December 2015 paper by Vanderbilt University Law School Professor Timothy Meyer. Read more

The Renewables MMI is still firmly stuck in its low trading range and this month it was even steadier than usual, recording a 52, the identical score it recorded in February.

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Demand for solar silicon for panels, electric magnets for wind turbines and electrical steel for all of them is still growing but, as we’ve noted before, extended government incentives continue to distort prices in the US.

Mergers and Acquisitions

Globally, the picture is no clearer for home-based solar electricity generation. Foxconn Technology Group bought a a majority stake in Sharp Corp. last month and that very much throws into doubt the fate of the Japanese electronics maker’s solar operations, a business that once made the Osaka-based company the world’s largest seller of solar cells.

Renewables_Chart_March-2016_FNL

Foxconn is the much-maligned electronics supply chain partner of Apple, Inc. Sharp was a pioneer in solar 60 years ago but — after years of taking on excessive debt — the energy-solutions business, which includes solar products, posted a loss of $45 million (5 billion yen) in the three months ended Dec. 31. The company projects a loss of 7 billion yen for the fiscal year ending March 31 for the segment, according to a Feb. 4 filing.

GOES Consolidiation

Foxconn’s electronics focus puts the future of Sharp’s solar panel business very much in doubt. Of course, there are still plenty of silicon photovoltaic panel manufacturers out there — SolarWorld in Germany and First Solar here in the US come to mind — but losing such a pioneer is a big blow to an industry that, despite strong adoption, is still struggling with low prices.

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We also saw Allegheny Technologies, Inc. idle its grain-oriented electrical steel (GOES) operations recently and, although ATI did settle its long-running labor dispute with the United Steelworkers, there is still no word on when or if that Pittsburgh-based specialty steel producer will restart its GOES lines.

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