Articles in Category: Humor

Cinco de Mayo is today. I am sure many an American reader will take the opportunity to savor some Mexican tequila.

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I began my career at Mexico’s only stainless steel mill, Mexinox (now part of the Finnish company Outokumpu), which supplied tequila distilleries with the stainless steel used for fermentation and storage tanks. Tequila is a quintessential Mexican drink and was enjoyed by many a customer visiting the Mexinox plant (off-site, of course).

Mexinox_tequila_350_050516

Source: Katie Benchina Olsen/MetalMiner.

After a tour of the plant, it was only appropriate that we gave our customers commemorative bottles of Mexinox-branded El Gran Viejo Tequila to bring back home to the States. I thought it would be interesting to examine just how stainless is used in tequila production.

Why is stainless steel in tequila production? Of course, stainless vats are a sanitary choice; however, stainless does not impart any additional flavors into the mixture of blue agave juice and the distinctive water called the mosto.

Tequila is distilled twice in accordance with Mexican law. Because no leeching occurs in either the fermentation or distillation process when stainless is used, the resulting tequila “blanco” is clear in color and solely the result of the fermentation of the agave juice and spring water.

The addition of proprietary yeast — and classical music in some cases, finishes out the blend.

A former colleague of mine shared that Cazadores plays classical music in the fermentation room because the sound waves create a soft stirring in the tanks that aides in the fermentation process. Many people describe the resulting tequila after two distillation processes as being light with citrus or aloe vera notes. Blanco tequila is aged less than two months in stainless barrels and then bottled. The darker colored tequilas are those that have been aged in oak barrels which means the tequila takes on the flavors of the wood and the harshness of the alcohol mellows.

Anejo or Reposado?

Reposado is aged two months to under a year, and anejo is aged from one to three years. Once the aging is complete, the tequila can then be stored in stainless tanks again until it is bottled.

Stainless steel is a neutral container that allows the natural elements of the blue agave to be fully experienced. The soil and climate have an impact on the taste of the blue agave hearts.

Tequila from the lowland blue agaves is described to have an earthy flavor whereas the highland blue agaves yield sweeter and fruitier flavors. The other factor in the taste of the finished product is the water which is combined with the blue agave juice.

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Just as bourbon has a unique taste because of the limestone in the Kentucky water, tequila has a special taste because the regional water is high in mineral content. Stainless steel allows all of these factors of Mother Nature to mix together to create a unique tequila without adding any of its own character. By the way,  Mother Nature had a way of bringing tequila to us, supposedly, by a farmer’s wife seeing a rabbit gnawing on a fermented agave plant, according to the Suerte website. I suppose it was luck “suerte” that brought tequila to civilization.

Even as world steel powers gathered in Brussels this week to discuss the massive overcapacity problem and exchange accusations, particularly between the U.S. and China, steel prices continued to rise globally.

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In China, that means zombie steel mills are rising from the dead. While Beijing has engineered some steel capacity cuts, its efforts are being undermined by a rise in domestic steel prices that has seen mills ramp up output. Even those zombies, which had stopped production but were never officially closed down. They have clawed their way back from the grave and are producing steel again. Such is life in the people’s republic.

The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.

The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.

Steel wasn’t the only metal threatened by imports, though, this week. The United Steelworkers filed a safeguard action against imports of aluminum, mostly from China. If found to be in violation of section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum (read, ingots welded together to form “semi-finished products”).

Hey, maybe the zombie mills are just “semi-finished,” too! That is, shut down but never really out of business. Here in the U.S., when a company is in trouble it files for bankruptcy protection. That’s exactly what once high-flying renewable energy company SunEdison, a major supplier of solar power, did this week.

In the U.K., Tata Steel finally sold some of the assets of its loss-making U.K. business. Even if you’re not in trouble, job losses are simply a part of business as Allegheny Technologies, Inc. showed 250 of its salaried employees this week.

There’s simply no mechanisms to deal with losses that way for these Chinese zombie mills. Yet, China claims to be committed to changing to a market-based economy. That’s why it’s so ridiculous that the World Trade Organization and other international trade authorities are even considering market-based economy status for the evolving Chinese economy.

This week we saw oil prices climb back above $40 a barrel and that triggered higher prices for most of our metals, too.

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There’s a big meeting of the Organization of Petroleum Exporting Countries this weekend and all signs point to a continued freeze in production, at least among major producers Russia and Saudi Arabia so many speculators and market watchers are becoming bullish on oil. Oh, how quickly they turn!

Oil and Inflation

A direct knock-off of this oil mini surge is price inflation of everything that oil is used to produce, whether as a base material or for transport and production costs. What’s our favorite industrial metal that also has investment potential and is still considered so downright precious?

That’s right, silver! Despite being mined with just about every other metal in the world silver is still a precious metal and its industrial uses combined this week with investors grabbing it up to create a sweet spot for the gray metal. As of this writing it’s riding a 10-month high and looking to gain even more.

Aluminum Still Lags

However, not all metals are enjoying a healthy rebound. Alcoa, Inc. reported first quarter results this week and things weren’t so good for the aluminum smelter. How bad was it? Profits fell 92%. So, yeah, pretty bad.

Our own Stuart Burns put virtual pen to paper and explained that, thanks to Chinese overproduction and stockpiling, smelting aluminum simply isn’t a good business to be in right now. He even called it “an industry on the cusp of shooting itself in the foot.”

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If there’s a better example of why Alcoa will soon split itself into two and CEO Klaus Kleinfeld will join the new aerospace, titanium and value-added products half, I haven’t seen it.

Copper Loses All its Gains

My colleague Raul de Frutos also examined why copper has underachieved this year, even amidst the Q1 base metals rally. Dr. Copper is apparently only starting on the back nine and didn’t do any real work in Q1. We’ll monitor the situation with the rest of the base metals in Q2.

This week saw metal prices, particularly hot-rolled coil and cold-rolled coil steel, rally even as major steelmaker Tata Steel announced it was abandoning the U.K. market because of regulations and low prices.

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Markets can sometimes appear paradoxical that way. Steel-Insight’s James May elaborated that it’s actually curtailed supply that has helped prices increase here in the U.S. Bye, bye, oversupply!

Steel Prices Rally, Speculators Arrive

Another factor, at least for steel ingredient iron ore, was more trading activity in China as investors are looking for short-term returns rather than investing in iron ore long-term there.

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can’t find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2.

Back here in the U.S., steelmakers are cautiously increasing prices of rebar and other products as the construction season begins in earnest in the East and Midwest, testing the waters of recent commodity price increases.

So, speculative buying, price increases despite demand levels that are still relatively flat and more supply shutdowns are all happening. Is it any wonder that Barclays is warning investors that commodities, overall, could experience a “rush for the exits?”

They’re not the only ones saying Q2 could be bad, either. Our own Raul de Frutos wrote that markets could change direction, big-time, in the next quarter.

Anti-Dumping 2: Electric Boogaloo

It also wouldn’t be a day ending on y, these days, either without mentioning dumping, dumpling. Was that too friendly? Sorry.

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My colleague, Raul, explained the effects anti-dumping duties have had on hot-rolled coil, cold-rolled coil and hot-dipped galvanized steel prices here in the U.S. Another investigation into phosphorous copper from South Korea was opened this week, too.

If you wanted an eventful week in steel, you got it.

International benchmark Brent crude has now spent more than seven days above $35 a barrel – and it was above $36 a barrel all of this week.

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Reuters noted that it’s up a quarter of its value since hitting $27 a barrel on February 11th. While U.S. crude inventories rose to a new record of 517.98 million barrels last week, output fell for a sixth straight week to 9.08 million barrels a day, according to data from the U.S. Department of Energy’s Energy Information Administration.

The types of wells that built domestic driller Chesapeake Energy. Source: Adobe Stock/ W.Scott

The types of wells that built domestic driller Chesapeake Energy. Source: Adobe Stock/ W.Scott

So, is Brent back? If you’re reading MetalMiner and asking that, you haven’t been paying enough attention. DO NOT FALL FOR SHORT-TERM PRICE INCREASES! You need to look at that underlying trend. Non-farm payroll data will come out later today and many are looking to that report to give more information on U.S. and overseas oil production but, even still, we’d caution that oil is far from coming back to even its recent norms — 60 per barrel — and this increase could be short-lived as supply as those inventory numbers are still plenty high.

Oil won’t be giving the metals you purchase a boost anytime soon via higher production and transportation costs, either. Even if these prices can be sustained they’re not yet a significant enough jump to increase those downstream costs.

So, What DID Happen in Energy, Then?

So, then nothing really happened in energy this week? Oh, boy, no.

Earlier this week former Chesapeake Energy CEO was indicted by a federal grand jury and accused of conspiring with an unnamed competitor to rig the price of oil and gas leases in his native Oklahoma. McClendon — along with former Chesapeake founding partner Tom Ward — is credited as being an innovator in horizontal drilling and hydraulic fracturing leading to the US shale oil and natural gas boom.

McClendon’s rise was not without controversy and he was accused, in 2012, of taking out more than $1 billion in personal loans, to finance drilling costs, from firms that were lenders to Chesapeake. His personal lifestyle — using Chesapeake resources — also became an issue. Chesapeake’s debt load, itself, eventually forced McClendon out of the company in 2013. He went on to found American Energy Partners shortly thereafter.

Even after being indicted McClendon was defiant facing the charges.

“The charge that has been filed against me today is wrong and unprecedented,” McClendon said in statement. “I have been singled out as the only person in the oil and gas industry in over 110 years since the Sherman Act became law to have been accused of this crime in relation to joint bidding on leasehold.”

The indictment followed a nearly four-year federal antitrust probe that began after a 2012 Reuters investigation found that McClendon discussed with a rival how to suppress land lease prices in Michigan during a shale-drilling boom. Although the Michigan case was subsequently closed, investigators uncovered evidence of the alleged bid-rigging in Oklahoma.

McClendon made his statement on Wednesday. Then, on Thursday, McClendon died in a fiery, one-car crash.

Several witnesses placed emergency calls after McClendon drove his 2013 Chevrolet Tahoe directly into an overpass, according to tapes released Thursday by the Oklahoma City Police Department.

McClendon was killed when he suddenly crossed the center line and struck the wall at a high rate of speed, crushing his sport-utility vehicle’s front end and engulfing it in flames, police said. The Oklahoma City police say it will take a week or more to investigate what happened to McClendon and if the crash was, indeed, a suicide.

We may never know if McClendon was guilty of rigging bids and fixing prices, but he can serve as a cautionary tale of how loose monetary policies and risky bets fueled what was, undoubtedly, a positive boom in American energy production. That the market had to mature beyond the ways of wildcatters like McClendon is a good thing for domestic energy.

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While his risky bets on oil and natural gas paid off big for Chesapeake’s early growth, they also ended up forcing him out. All purchases have elements of risk and reward, especially in the competitive energy markets. Don’t let your risk outweigh potential reward.

This week was a rough one for companies such as BHP Billiton and BAE Systems, vast multinationals that call the entire world home and offer products as varied as mined raw materials to supersonic fighter jets.

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Things started off auspiciously when BHP slashed its interim dividend by 75% on Tuesday, abandoning a long-held policy of steady or higher payouts as it braces for a longer-than-expected commodities downturn. That wasn’t the end of the rough ride for BHP, though. The Anglo-Australian miner was then sued in the US by investors who accused it of fraudulently overstating its ability to manage safety risks prior to November’s fatal dam burst at the Brazilian mine it co-owned and operated with Rio Tinto Group.

Mo’ Nations, Mo’ Problems

So, not only is BHP on the hook for the destruction caused thanks to the dam collapse in Brazil but, if the lawsuit is successful, it could also owe back any money lost by investors.

Saudi Arabai is delaying orders of the Euro Fighter Typhoon due to low oil prices. Is Bae no longer Saudi Arabia's bae? Source: Adobe Stock / Andrew Dunn

Saudi Arabia is delaying orders of the Euro Fighter Typhoon due to low oil prices. Is Bae no longer Saudi Arabia’s bae? Source: Adobe Stock / Andrew Dunn.

But, BHP was not along in facing angry investors and lower returns this week. My colleague, Stuart Burns wrote about the challenge that defense and aerospace multinational BAE Systems is facing as oil prices keep falling and Middle Eastern clients cancel orders for Euro Fighters.

As oil keeps declining, nations such as Saudi Arabia — fighting one war and it might have another conflict on the way — are passing on those expensive Euro Fighters and they’re making only the most necessary defense expenditures. For BAE, that meant issuing a $1.5 billion bond sale at the end of last year to facilitate cash flow in the event of much smaller up-front deposits for those fighter jets.

So, as BAE and BHP dealt with their problems in a fairly bad week for multinationals, was anyone making progress in this bearish metals market?

The General Bucks the Trend

Actually, GE made a first-of-its-kind deal with Chinese metal coatings manufacturer Tianjin Xinyu Color Plate Co, Ltd.

As the only international company bidding among strong local competitors, GE, this week, won a contract to provide power distribution and low-voltage drives as an electrical and automation solution for Tianjin Xinyu Color Plate’s two greenfield continuous galvanizing lines, which produce galvanized steel sheets for white goods and construction industries.

GE’s insulated gate, bipolar transistor-based LV7000 converters and high-performance controllers will allow Tianjin Xinyu Color Plate to manufacture high-quality galvanized steel.

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So, while it was a downer week for most multinationals, GE has reason to celebrate as it extended its reach into a new market.

This week we recorded another month of price movements on the MetalMiner IndX. Some were up (Renewables and Grain-Oriented Electrical Steel or GOES), some were down (Construction, Aluminum and Copper) but most of them were simply flat. Steadiness: The sister-kissing tie of metal prices. Nothing lost and nothing gained.

Aside from stressing the need to invent Core-Optimized Mechanical Electrical Steel so that we can have both COMES and GOES price indexes, what can we learn from this?

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Well, for one thing, oil prices are still driving down most commodities. In rapidly economically collapsing Venezuela gasoline can now, thanks to government subsidies, be purchased for 2-cents a gallon. Before you book the next flight to Caracas, red gasoline cans in hand, remember that oil exports account for more than 50% of the country’s GDP. The subsidies that once helped everyday Venezuelans are now choking them as oil continues to not bring in the revenue necessary to run their country.

How bad are things in Venezuela? Standing in line is now a profession.

In Venezuela products are so scarce you could get a job standing in line. Source: Adobe Stock/Andrey Popov.

In Venezuela products are so scarce you could get a job standing in line. Source: Adobe Stock/Andrey Popov.

While oil prices did increase a bit this week, they are still far below $50 a barrel and my colleague, Stuart Burns, warns that this rally will be short-lived. Low oil prices are dragging down all commodities and metals are no exception. Read more

Almost everyone, by now, has heard of the deadly Zika virus which has prompted the World Health Organization to declare a global public health emergency. But this virus has felled another unlikely victim: a car in faraway India. You heard right.

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India’s leading automobile manufacturer Tata Motors never saw this one coming. Its newest hatchback, the Zica, is about to be officially launched, yet, the name, which matches with that of the virus if you ignore the spelling, sent the company into a public relations tizzy.

Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

Tata Executives Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

For months, the marketing division spent thousands of dollars on Zica’s promotional activities until the virus Zika came along. Now, Tata Motors has announced a name change, though at press-time, the new name is not officially out yet.

Zika vs. Zica: Bad Timing

Auto analysts are now wondering whether the change has come too little, too late since the hatchback is to be launched at the Auto Expo in New Delhi on Wednesday. Zica, by the way, stood for “zippy car.”

Sadly, what also turned out to be “zippy” was the rapid spread of the Zika virus.

Zica’s marketing campaign included advertisements featuring football legend Lionel Messi. In another messy coincidence, Zica’s brand ambassador, too, hails from Argentina where the first case of a Zika-infected person, who reportedly contracted the disease after being bit by a mosquito, was from.

New Name But Not Yet

In a statement announcing the rebranding, Tata said: “Empathizing with the hardships being caused by the recent Zika virus outbreak across many countries, Tata Motors, as a socially responsible company, has decided to rebrand the car.”

Tata has said for the time being, though, the compact car will still carry the Zica label. At least until the auto show ends. The new name will be announced in a few weeks.

For auto lovers, the Zica was Tata Motors’ first hatchback offering after the globally famous Nano, billed as the cheapest car in the world. And for those of you out there who love to get your hands greasy with vehicular details, Zica is said to have a 1.2-liter petrol (gasoline) engine or a 1.05-liter diesel engine, both with three-cylinders. The petrol engine will be a new all-aluminum one. Both the engines are paired to a five-speed manual transmission.

Last Week For The January 2016 MMI Report

Along with the Zica, Tata Motors will be showing off a slew of new models including two forthcoming SUVs. Over 80 vehicle launches are expected at the Auto Expo 2016, with Fiat-Chrysler-owned Jeep making its India debut.

 

This week, the Bank of Japan introduced negative interest rates in the latest attempt to goose the Pacific nation’s stalled economy.

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Essentially penalizing people for saving money seems like a curious thing to do to try to turn around a struggling economy, but it’s not the first time banks have gotten a push to force them to lend. The European Union has done it, too, in recent memory.

Shorter supply chains for in-demand products could benefit retailers around the holidays. Source: Adobe Stock/cacaroot.

Boy does Toyota Motor Corp. ever wish it had a bigger supply chain this week. Source: Adobe Stock/cacaroot.

My colleague and metal price analyst Raul de Frutos wrote that, “negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.” Read more

This week in metals, the US Census Bureau reported initial numbers for steel imports into the US last year.

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The finished steel import market share was an estimated 26% in December and is estimated at 29% for the full year. If the 29% figure holds up, it will be a record for the proportion of finished steel imports coming into the US from elsewhere in one year.

How to combat steel imports? Why not just ban them all?

How to combat steel imports? Why not just ban them all? Source: Jeff Yoders

For all of 2015, US steel production hit 86,843,000 net tons, or about 71% of capacity. That’s down 9.3% from the 95,706,000 net tons in 2014 when the industry ran at nearly 78% capacity.

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