Logistics

Today, in MetalCrawler: a federal regulator urged replacement of rail tank cars, but just wants new tank cars and doesn’t want to replace them with pipelines. Alcoa, Inc., insists it’s now a “multi-materials” company and not just an aluminum producer, and construction associations have petitioned the federal government for guaranteed costs for change orders on federal projects.

NTSB Wants New Rail Cars

Federal officials Monday called for the urgent replacement of railroad tank cars to make them more fire-resistant in the event of an incident like last month’s fiery derailment near Galena, Ill., of a train hauling crude oil.

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The current rail car fleet should be aggressively replaced or retrofitted with better protection against heat from fires and by increasing the capacity of pressure relief devices, the National Transportation Safety Board recommended.

“We can’t wait a decade for safer rail cars,” NTSB Chairman Christopher Hart said in a statement. “Crude oil rail traffic is increasing exponentially. … The industry needs to make this issue a priority and expedite the safety enhancements, otherwise, we continue to put our communities at risk.”

The New Alcoa

Alcoa is at the forefront of two trends changing the metals industry, the Wall Street Journal reports, both of which will be on display Wednesday, when the company is expected to report earnings of 25 cents a share, up from nine cents a year earlier. In January, it reported its best full year results since 2008.

The first trend: an eastward shift in raw production, driven by economic growth in Asia and changes in relative costs.

The second: a turn by metals companies toward making parts for fast-growing markets like aerospace and automotive, which are more profitable than making raw metal.

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Current prices for US HRC are around $470 per ton ex-works, although big buyers dealing with some mills can still pay $450 per ton.

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Steel-Insight believes that this is close to the bottom, but we don’t expect a sharp turnaround anytime soon. So why is this a pricing trough?

Further Discounting

First, those big discounted prices have been available for around three weeks and some big distributors and tube buyers have pulled the trigger at the $450 per ton level. That has helped push out mill lead times back to four weeks and lessened the need to discount heavily. We understand that integrated mills are now far more reluctant to discount below $470 per ton. There could be further discounting on cold-rolled coil front as the spread remains too high compared to cost.

Second, shredded scrap prices look like they are stabilizing at around $250-260 per ton delivered to Midwest mills. That means mini-mills are not likely to discount below $450 per ton as they would lose money and they don’t need to take that business to fill their order books now. International scrap prices have bumped up a little, although they lack the overall momentum to rise much more, while scrap flows into yards slowed with the lower prices.

Finally, there has been a supply response.

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Caterpillar Inc.’s recent announcement that it is investing in Chicago-based technology startup Uptake shows how much the US construction industry has evolved when it comes to data analytics. Cat, a company that once operated as a pure supplier to a loose network of construction companies and the subcontractors they work with viewed sales of equipment, and not what happens to that equipment once it exits its warranty period, as their key business just five years ago.

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Cat’s statement to the media sounded like something out of Silicon Valley, hitting major buzzwords such as predictive and dynamic analytics. It read, “to help customers around the world better understand the health of their equipment and optimize machine availability, Caterpillar Inc. today announced it has entered into a technology and predictive analytics agreement with Uptake, provider of a dynamic analytics and insight platform for a wide array of industries, based in Chicago, Ill.”

Cat CEO and Chairman Doug Oberhelman took it a step further.

“Customers use our current technology for fleet monitoring and to track fuel efficiency, idle times, location and more,” he said. “Our existing solutions are effective, but it’s time we take it to the next level. This relationship will combine Caterpillar’s world-class product engineering and design expertise with Uptake’s software, application and data analytics expertise.

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In the last couple of months, the price of iron ore may have come down by about 15% in India, reflecting global trends, but local steel companies remain unimpressed. In fact, some have even gone on record to claim it was a case of too little, too late.

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The cheaper iron ore prices have gone down due to lower production costs of the ore, itself, and subdued demand in the domestic market. The state-run mineral producer, National Mineral Development Corporation (NMDC) had cut the price this month, too, by about $5 (Rs 300) per metric ton of lumps or higher grade iron ore and about $10 (Rs 500) per mt in fines, which contain less iron.

But steel companies said the price correction had come in too late and was too little to boost their margins. They said the NMDC price correction, and that by other iron ore manufacturers, had come “very late in the day,” and that it was also less than the global price correction.

Many steel companies in India have been relying on imported ore, once available at cheaper rates than Indian ore, to meet their needs. The Indian Government informed Parliament that while there was a dearth of iron ore in India, regional shortages due to the previous Supreme Court-imposed ban had led to a gap in supply and demand.

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MetalCrawler’s latest news today includes an agreement in the oil strike that’s had managers camping in at a refinery in Toledo, Ohio.

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Low prices and cheap imports have caused a Minnesota iron ore operation to be shut down and Ford Motor Co.’s aluminum-bodied F-150 truck is enjoying sales success.

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Rio Tinto can’t count on aluminum to help it turn a profit. India places tariffs on imports of stainless from China, South Korea and Malaysia. Tepid housing demand in China is what’s caused all of its steel exports in the first place and gold is showing some resiliency.

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MetalCrawler searches the globe far and wide for the latest in metal market news and trends.

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LME Aluminum for three-month delivery has fallen back below the $1,800-per metric ton level from over $2,100 in the third quarter of last year. The prospect of a disorderly unwinding of the stock and financing trade, which, until recently, had locked up large amounts of aluminum in deals, is causing a chilling effect in the entire aluminum market.

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Physical delivery premiums are also falling worldwide. Reuters reports that South Korea’s state stockpiler bought 2,000 mt of aluminum at a premium of $330/mt over LME cash.

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The London Metal Exchange hosted a forum at Chicago’s Virgin Hotel last week and paramount on the minds of attendees was the Exchange’s recent clarification of “load-out” at warehouses, particularly those with long LME aluminum queues. The change was made to prevent the abuse of LME load-in, load-out (LILO) requirements.

The new definition of “load-out,” which went into effect February 1, states that metal must be shipped to a different warehouse operator or to a consumer in the same LME location, or it must physically leave the location altogether. This is to stop the so-called “merry-go-round” deals pioneered by Metro International in Detroit and that have taken hold at the Pacorini Vlissingen (Flushing) warehouse complex in Vlissingen, Netherlands.

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However, certain respondents in the LME’s consultation process indicated that participants would like to be able to temporarily use non-LME, or off-warrant, storage situated in the same warehouse complex, before the metal is loaded out per the revised definition. The LME has agreed to ask the physical market committee it created to address such questions to consider whether such a service could be allowed, while not diluting the protection against potentially abusive behavior provided by the new definition.

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The federal government spent $96 billion on infrastructure projects, according to a Congressional Budget Office report released on Monday.

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The figure, which includes water projects, is dwarfed by a total of $320 billion that was spent on infrastructure by state and local governments, according to the report.

The CBO said 57% of the money that was spent by governmental agencies was used for operating expenses and maintenance of existing infrastructure, while 43% was spent on new construction.

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The Nonresidential Construction Index (NRCI) from FMI Management Consulting climbed two points in Q1 and matched the same period last year.

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This normally is good economic news for US construction, however, construction companies are facing the challenge of not having enough people to keep up with increasing backlogs, warns Phil Warner, head researcher for FMI. A downloadable version of the report is available from FMI.

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