AK Steel published a zero-dollar surcharge for December quotations. MetalMiner has never seen a zero-dollar surcharge from either of the domestic producers, going all the way back to February 2004, the start of the MetalMiner GOES price data tracking service.
Surcharges have not hit these levels since January of 2009 when AK published a surcharge of $10 per metric ton.
Surcharges reflect costs for raw materials and energy, both of which have fallen significantly this past year.
Meanwhile, the M3 GOES index held steady at 176 as other drivers of the monthly index showed some strength.
Insiders suggest that the domestic mills have taken different stands to extract price increases from the domestic market during annual contract negotiations. AK has used Allegheny Technologies Inc.’s worker lockout as a reason to move business to AK. ATI, however, has countered with new temporary workers that they say will keep lines running efficiently. No matter the winner in that battle, we believe buying organizations have hedged their moves and have already shifted some 2016 spend to overseas suppliers.
As a defensive measure against the two domestic mills, global transformer and power equipment producers forged ahead with sourcing both transformer parts and wound cores from producers outside the US.
This comes undoubtedly as a result of China’s Protocol of Accession to the WTO and its desire to be considered a market economy. Currently, for trade cases including GOES, WTO members treat China as a non-market economy.
MetalMiner expects China’s Protocol of Accession to the WTO to become a heated debate.
For the exact GOES M3 coil price, log in or sign up for MetalMiner membership below!
Three-month copper on the London Metal Exchange hit fresh lows last month, trading as low as $4,444 a metric ton, the lowest level since May of 2009. In the face of low prices, more shutdowns were announced during the month of November but so far, they haven’t lifted prices at all.
In early November, Glencore announced that it would reduce its copper production more than expected. The company is now aiming to cut output by 455,000 metric tons by the end of 2017, 14% up from its previously announced figures. Glencore’s cuts came after Freeport-McMoRan announced a pullback in production.
Toward the end of the month, 10 leading copper producers in China announced plans to cut output by 350,000 mt in 2016. In addition, producers urged Beijing to buy up excessive supply to combat falling prices. The State Reserves Bureaualready said that it would buy aluminum, nickel, indium, and zinc.
But supply cuts haven’t been big enough to make a sustainable impact on the market. Moreover, there are still manny producers unwilling to cut production despite the low prices. The head of the world’s biggest copper miner, Codelco, said in November that they won’t cut copper production as prices slump, pointing to the fact that if the company suspends production then it would be difficult to restart, so they would rather try to lower costs. Also, there is skepticism about how many of the announced cuts will actually be made and how long they will last.
In addition, refined copper output in China rose 6.8 % in the first 10 months from the previous year. Meanwhile, disappointing Chinese import data increased demand concerns in November, contributing to the slump in prices. So far, supply cuts haven’t been enough to balance the other side of the equation: Excess material, shrinking Chinese demand and a strong dollar. Prices might have to come down farther before we see a turnaround.
For more prices, log in or sign up for MetalMiner membership below!
For full access to this MetalMiner membership content: Log In | Join
The renewables MMI fell 1.9% to yet another all-time low of 52 this month. The index has fallen in price steadily with very few exceptions since we started charting renewables prices in 2012.
The bearish commodity environment is certainly one part of the story but, as we’ve written before, the market performance of renewable metal inputs such as neodymium and grain-oriented electrical steel (GOES) are only part of the story for the market since, in a commodity sense, it’s still in its infancy.
Strong Investor Interest
While prices fell this month we noted some interesting acquisitions such as Chinese venture capitalist Sonny Wu purchasing 80% of Philips’ LumiLEDs business. LumiLEDs is one of the largest producers of light-emitting diode (LED) commercial lighting, a semiconductor technology that uses rare earth phosphors and other renewables to light your home for less energy.
Investment in renewables is strong according to the UNEP Global Trends in Renewable Energy Investment 2015 report. China saw, by far, the biggest renewable energy investments in 2014 — a record $83.3 billion, up 39% from 2013. The US was second at $38.3 billion, up 7% on the year but well below its all-time high reached in 2011. Third came Japan, at $35.7 billion, 10% higher than in 2013 and its biggest total ever.
The numbers for 2015 will be out soon and most are predicting gains over last year as companies such as Tesla and SolarCitystarted construction of factories estimated to cost more than $1 billion — Tesla’s is actually estimated to cost $5 billion — this year.
Investors are clearly in the renewables game for the long run, as many expect a switch from coal-fired electricity production in China and the US to take off in the next 10 years. Liquid natural gas has already begun to replace it — according to my colleague, Stuart Burns the UK is even more rapidly phasing out coal in favor of LNG —and technology improvements in solar and wind are expected to make them competitive with LNG in the near future.
Can these investments speed up adoption and increase the price of parts such as motors made of neodymium magnets? It really depends on how quickly consumers accept SolarCity and Tesla’s products. Tesla’s already selling its Powerwall lithium ion batteries for home solar energy storage.
Alternative applications of solar silicon are also popping up seemingly every day, at least in the warmer parts of the US. As gadgets such as cell phones and tablets take over more and more of our work and home lives, its hard to imagine their thirst for power being slaked entirely by wall-mounted plugs fed by coal or LNG-burning plants.
The House and Senate have passed a $305 billion compromise bill to fund highways and mass-transit projects for five years — the longest in nearly two decades and an unexpected show of agreement after years of clamoring by state transportation officials for infrastructure funding.
The bill is expected be signed swiftly by President Obama, who has supported earlier versions of it, to avoid a shutdown of transportation funds to the states by the end of today.
Revives Ex-Im Bank
The measure also would renew the Export-Import Bank through September 2019, separate the budget for Amtrak’s Northeast Corridor from the rest of the passenger-rail network, and set traffic-safety priorities.
San Francisco’s Bay Bridge is one of the many projects that will benefit from a 5-year transportation bill.
Advocates have said the Ex-Im Bank is a crucial funding and shipment security institution that supports small businesses who want their goods to reach foreign markets. Others have called it corporate welfare that benefits large companies that do business overseas more than small merchants.
The bill would provide money for programs with strong regional constituencies, such buses and ferries, and for the first time set up a grant program guaranteeing funds for large freight projects, which typically haven’t garnered political support because they deliver goods and not people.
Thomas J. Gibson, president and CEO of the American Iron and Steel Institute, said, “The steel industry is not only a user of the highway system, but it is also an important supplier to road, bridge and transit builders. This long overdue legislation will enable steelmakers and our customers to plan for the future, as the bill provides an increase in current investments levels — estimated at 15% for road, highway and bridge projects, and 20— for transit programs.”
As with other indexes, the year-long collapse in steel prices is responsible for some of the losses in construction this month but that doesn’t really scratch the surface. None of the component metals of the index increased this month, with the exception of one surcharge. The non-ferrous construction metals are in the same boat as steel construction inputs such as rebar and scrap steel.
We hate to continue to point the finger in only one direction, but what’s driving the fall in commodities prices is the slowing Chinese economy and its subsequent pull-back in construction demand.
The Chinese steel sector has at least 200 million metric tons of unused annual capacity and, according to Reuters, its outbound shipments of steel have jumped 27.2% in the year to September from the same period last year.
All Commodities in Freefall
It’s a similar story for Chinese aluminum. We continue to chart new all-time lows for the construction MMI as the demand that many have grown accustomed to depending on from China is simply not there anymore. There’s a good chance it might not come back for some time.
That’s why, from a price standpoint, it largely does not matter that the US nonresidential construction market is now in full expansion mode. I have anecdotally observed more process efficiencies in US construction that are making materials prices less of a concern to general contractors and building owners.
We caution buyers to keep their purchases conservative as many analysts thought the market would reach a bottom by and, as this month’s drop clearly indicates. Construction materials prices could have much further to fall.
For more prices, log in or sign up for MetalMiner membership below!
For full access to this MetalMiner membership content: Log In | Join
Major drops in steel prices led our Automotive MMI to yet another all-time low this month.
The steel market is plagued by a massive surplus, particularly of imported steel here in the US, that shows no sign of being whittled away. The US imported a total of 2,987,000 net tons (nt) of steel in October 2015, including 2,258,000 nt of finished steel, up 5.4% and 1.4%, respectively, vs. September final data. Estimates say imported steel now makes up more than 30% of the market, a record.
The UK steel industry is facing a crisis that threatens its very existence as regulations, low prices, shutdowns and imports have taken a heavy toll.
One would think that with automobile sales approaching a record in the US and getting a boost in key market China, that prices would eventually be driven higher by new demand, but this market has shown, several times, that even the strong demand in the US for end products is not strong enough to put a dent in the oversupply.
After 2 months holding steady at 59, our Stainless MMI sank in December to 54, 8.5% down from last month.
Three-month nickel on the London Metal Exchange fell in November to a new 12-year low, falling as low as $8,145 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year to date.
This brings up the question: is there still downside potential?
Just a year ago, when nickel was trading near $15,000/mt most analysts only saw upside risk and little downside potential. Since prices were trading at a 50% discount from nickel’s peak in 2011, and half the producers were already underwater, how much lower could prices go?
They Can Go Lower
Well, so far, from $15,000 to $8,500 that’s a 44% decline, there you have your “downside potential.” Why do people make the mistake of buying low only to see prices go even lower? Behavioral finance calls this “anchoring,” the human tendency to attach or “anchor” our thoughts to a reference point even when it makes no logical sense.
When buyers see that nickel prices have fallen significantly and quickly, they anchor the new low price onto a recent price high that nickel previously achieved. This creates the idea that the new price provides an opportunity to buy nickel at a discount.
Most of the time, how high the metal was trading before is irrelevant and we can’t just say that something is undervalued when there has been a change in the metal’s underlying fundamentals. The poor outlook for struggling steel and stainless sectors, as well as China’s slowing growth, kept a lid on a nickel price increase this year. Finally, a surging dollar in November triggered a new sell-off, driving the metal to record lows.
Low prices keep putting more and more pressure on smelters. Toward the end of the month, nickel smelters in China announced plans to cut output next year by at least 20%. The smelters didn’t state how much nickel that 20% actually is, but analysts estimate it to be near 120,000 metric tons. Eight producers already agreed to cut output in December by 15,000 mt. It’s estimated that 70% of global production is now loss-making production.
Both the USA and India’s steel mills are running at less than capacity thanks to the worldwide steel surplus. US steel mills continue to be buffeted by cheap, mostly Chinese imports and lukewarm demand and no one is willing to bet on when, or if, they will ever come back to full production.
On the other hand, the future of India’s steel industry is tied to the percentage of expenditures on infrastructure that the government is expected to provide. The difference between the two is that India’s economy is merely in revival mode, while the US economy is growing at a rapid pace.
Rating Agencies Weigh In
A recently released report by Fitch Ratings titled, “2016 Outlook: Indian Steel Sector,” says that increased spending on infrastructure projects, such as housing and smart cities is the key to the revival of India’s steel industry.
Indian and US steelmakers both face a glut of imports and low prices in their struggles to get back into the black. Adobe Stock/Sasint
Indian steelmakers, however, have to face the onslaught of cheap imports just as their counterparts in the US do, especially imports from China. The difference is, the imports work, to an extent, in Indian producers’ favor, as opposed to how badly they harm US steelmakers.
In India, abundant steel only increases domestic demand in India as low prices and more supply are likely to spur government action as costly infrastructure investments are more likely to be seen as relative bargains.
“Spending by the Indian government on infrastructure will be the catalyst for any meaningful improvement in domestic steel demand. The agency expects India’s steel consumption to improve modestly by 7-8% in 2016,” according to the Fitch report.
No doubt, high imports and soft steel prices globally in 2016 might bring up sales in India, but that will still eventually result in far lower prices, meaning less profit for Indian steel producers despite more sales. Steel companies’ margins are likely to be lower in 2016 but could improve, incrementally, in 2017, supported by “(an) improving domestic demand and the imposition of safeguard duty on imports on certain steel products for 200 days,” according to the Fitch report.
The Effect of Tariffs and Duties
As with steelmakers worldwide, the prices of Indian steel dropped almost a quarter year-on-year as of the end of September. The imposition of a 20% duty on certain steel product imports, effective September 14, has saved the day for some Indian steel companies.
In a similar vein, another global ratings agency, Moody’s Investors Service, cautioned that failure to implement reforms in India could hamper investment amid weak global growth.
According to Vikas Halan, a Moody’s vice president and senior credit officer, a healthy 7.5% GDP growth for India for the fiscal year that will end in March 2017 (FY2017) and a pick-up in manufacturing activity will broadly support business growth.
The ratings agency expects upstream oil and gas companies to benefit from lower fuel subsidy burdens, although low crude and domestic natural gas prices will continue to hurt profitability.
Another Negative Outlook
The agency’s negative outlook for the steel industry reflects elevated leverage and an extended period of low prices due to continuing low steel import prices, while the negative outlook for metals and mining companies reflected bleak global commodity prices.
While India’s steelmakers are banking on growth to see them through these difficult times, one of the biggest challenges that the US industry faces is the growth of steel imports. Its best bet is to reduce imports and pray that the domestic market will swing back to buying for US mills.
Earlier this year, steel companies including AK Steel, Nucor and U.S. Steel filed trade cases to stem the flow of steel products entering the US. The only silver lining was that steel imports into the US have started to come down on a year-over-year basis for the last five months.
The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.
Airbus and Autodesk‘s design studio, The Living, have designed and developed the largest 3D-printed metal part for a commercial airplane in history, what they call a “bionic” partition that is 3D-printed from a direct metal laser sintering (DMLS) “printer” that uses a new super-strong alloy called scalmalloy to achieve the lightness of aluminum with the strength of titanium.
Already used for small parts, often with complex shapes, the Airbus/Autodesk project brings additive manufacturing into the plane’s cabin. The assembly is for a partition that separates the passenger cabin of an A320 from the rear galley.
Autodesk CTO Jeff Kowalski unveils the new Airbus A320 “bionic” partition, made of 112 3D-printed parts. Photo: Jeff Yoders
The resulting “bionic” replacement is a stronger partition compared to the current model that also saves 55 pounds in weight. If one final test is passed next month, the new partition will be in every new A320 next year. The companies estimate that using it will remove 96,000 tons of CO2 a year thanks to less jet fuel being burned to transport the lighter partition system. Read more
Last week, I attended the Atlantic and Siemens‘ Bold Bets, billed as a conversation with Chicago Mayor Rahm Emanuel and industry leaders about the global marketplace and, as the workforce evolves, how the US is adapting to the challenges and opportunities changes in manufacturing present.
It’s not the first time we have heard about how building a better workforce, through education that focuses on Science Technology Engineering and Mathematics (STEM) can help the US compete in the 21st century.
Is paying for community college a bold bet? Or just an old bet? The Atlantic Washington Editor-at-Large Steve Clemons and Chicago Mayor Rahm Emanuel talk it over. Photo: Jeff Yoders
Mayor Emanuel was his usual exuberant self, touting his initiatives that support students who go on to the City Colleges, Chicago’s version of community college, where they can get training for those popular STEM fields.
A STEM Job in Every Pot
“You need a 21st century infrastructure to move on education,” Emanuel said. “There’s nothing that China is doing that, on a manufacturing level, we can’t compete and win on.” Read more