Articles in Category: Metal Fabricated Parts

David S. Abraham runs the Technology, Rare and Electronics Materials Center and is author of “The Elements of Power: Gadgets, Guns And the Struggle for a Sustainable Future in the Rare Metal Age.” His career spans from commodities trading and Wall Street to the White House where he oversaw international and natural resource programs. He is a frequent speaker on rare metals and technology demands.

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A recipient of numerous fellowships, Abraham researched the rare metal trade at Tokyo University, Japan’s Ministry of Economy, Trade and Industry and the Council on Foreign Relations. He also oversaw operations of a clean water non-profit, starting the organization’s operations in Japan and Uganda. He recently wrote in a New York Times Op-Ed that our emerging green energy market could quickly create a shortage of rare metals. Below is a discussion about rare metals, particularly rare earth element production and other issues surrounding the metals that fuel the gadgets and technology we love, with MetalMiner Editor Jeff Yoders.

Jeff Yoders: With your background in rare metals — as a trader, researcher and regulator — you are one of the few people who has an intimate knowledge of all facets or rare metal production, procurement and end use. Was this book the culmination of your career in rare metals?

David Abraham: I think I’ve been dancing around natural resources for much of my career. I’m not an expert in one particular area of the supply chain. The book is a culmination of my work trying to understand many aspects of the entire field. I was in commodities trading, I understand the language there, although I wasn’t in it for my entire career, I was in government. I understand government policy-making, although I’ve only been there for a little while, too. I’ve been able to understand the language and perspectives of many different folks and that helped me understand the flow of these materials better.

The problem with many rare metals is that there is no way to track their origins without known warehouses or chains of custody. Many are traded in handfuls such as this Coltan ore. Source: Adobe Stock/dipling

The problem with many rare metals, is that there is no way to track their origins without known warehouses or chains of custody. Many are traded in backrooms in handfuls, such as this Columbite-tantalum ore. There is little to no transparency of sourcing. Source: Adobe Stock/dipling.

JY: One of our founders, Stuart Burns, came to metals the same way. Stuart used his scientific training and business experience to communicate effectively with engineer and buyer, local politician and corporate manager before he and our other founder, Lisa Reisman, started MetalMiner in 2008. They met while both were trading metals. You were really able to explain the the complexity of the rare metals supply chain that we have known about for a long time.

DA: It’s amazing to me and it’s even more amazing (the complexity of the rare metals supply chain) when you draw it out graphically. I was at a conference a few months back and someone drew out the interplay between China and Japan just on rare earths phosphors, you can’t even put it on one sheet of paper because it spreads everywhere. And that’s just phosphors.

JY: Looking at the chapter you wrote about CBMM and niobium, it shows the full scope of how this mineral is mined in Brazil, refined in Estonia and then used to strengthen steel in many nations. Looking at rare earths, do you believe market-based producers can compete with Chinese mines that are mostly state-run? Such as Bayon Obo, the Chinese iron ore mine you wrote about that has a very profitable rare earths business on the side?

DA: Well, I’ll let the market determine that. What we have seen, though, is that when you have to pay back your debt — when you have to absorb all of the operating costs and capital costs, just to get your minerals out of the ground and to process them — when you’re competing against someone who can do the same thing without a debt overhang, with often lower absorbing those operating and capital costs, and you’re still competing with someone who has lower environmental costs, it becomes really hard to compete, especitally when people only want to spend a 3 to 5% premium for your products.

JY: We have not seen prices rise significantly for rare earths in the last 4 years, yet we have seen demand increase for both rare metals and rare earths. How does that square?

DA: : Abundant supply, has overwhelmed demand.  Eventually, increasing demand will have to cause an increase in prices, but with the illegal materials world — that many of these metals are traded in within China — it’s hard to come by statistics that will tell you when that will be. Moreover, we don’t know where these materials are stockpiled, how much of them are in government warehouses, private warehouses, etc.

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JY: After the 2010 incident where China stopped exporting rare earths to Japan, do you believe that China’s use of its near-monopoly on their production is a national security issue? Could Chinese producers simply refuse to export their minerals again? Possibly blocking exports to the US?

DA: When it’s something that has happened in that past, there is always a likelihood that it could repeat itself. The bigger question is, is how vulnerable are our supply chains? There are always ways to get materials from one place to another. In the book I wrote about how the US accessed titanium from Russia during the Cold War, despite non-existent trade relations. So, there are always going to be ways to get specialty materials, but it creates a huge risk when your defense supply line goes through another country. Alternatively, the fact that everyone is interdependent also creates some opportunities for collaboration that reduce the specter of war. You have both things going on at the same time.

JY: It’s such a web, with so many shared and competing interests. It makes it difficult to see the whole picture.

DA: Right. Is it true that US security is undermined because we need resources from countries that we consider competitors? I would say yes, but there are also some positive sides to this situation that aren’t discussed as much. Interdependencies can sow the seeds of cooperation.

We will showcase Part Two of our discussion with David Abraham tomorrow. Follow Jeff Yoders on twitter at @jyoders19.

One of only two US-based grain-oriented electrical steel (GOES) producers recently idled production of the specialty metal, alone with some of its stainless melting and finishing operations. Commodity data from China continues to disappoint.

ATI Idles Stainless Line, GOES Operations Over Low Prices

Allegheny Technologies, Inc. has idled its standard stainless melt shop and sheet finishing operations at its Midland, Pa. facility. ATI also idled its grain-oriented electrical steel (GOES) operations, including its Bagdad, Pa. facility.

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ATI said, in a statement, that the future restart of the Midland and GOES operations, respectively, will depend on future business conditions and ATI’s ability to earn an acceptable return on invested capital on products produced at those operations.

Chinese Slowdown Continues in November

China’s output of key industrial commodities, including coal and steel, remained weak in November amid chronic oversupply as slowing construction demand took its toll.

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The world’s second-largest economy has been hit by weak demand at home and abroad, factory overcapacity and challenges posed by its transition to a consumption-led growth model from one reliant on investments

As we entered the final month of 2015, what we’ve known for some time became all but cemented: 2015 will go down as one of the worst years on record for metals producers. Great news for buyers, sure, but was it ever lean to be a producer this year.

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Our final MMI report of the year showed another batch of all-time low prices and not a single sub-index showed positive growth. The best any of our metals could do was hold steady. You may remember us saying something similar — all-time low prices and little, if any, upward movement in the sub-indexes — in November, October and September… and June… and March.

Commodities’ Bad Year

How bad is it? The last time raw materials like copper and oil were this cheap, an economic depression loomed. the Bloomberg Commodity Index, which tracks a wide swath of raw materials, plummeted to its weakest level since June 1999.

The last time US oil reserves were this flush with crude was 1972. What’s a major miner to do as raw materials are historically low, too? Well, If you’re Anglo American, this week, you announce you’ll cut jobs, sell mines and retrench. 85,000 Of Anglo American’s 135,000 workers’ jobs are on the line.

There will be less loading of iron at Anglo American mines next year. Source: Adobe Stock/nikitos77.

There will be less loading of iron at Anglo American mines next year. Source: Adobe Stock/nikitos77.

It’s not surprising and no one can really blame Anglo American for finally cutting jobs and production. It’s now more expensive, depending on where it’s mined, to pull iron ore out of the ground than to sell it at these prices. Alcoa‘s move to shut down smelters came from the same economic conditions.

Steel Reels

For steelmakers, it’s the worst downturn in 15 years. US steel shipments were down about 11% through the first nine months of 2015 compared with the year-ago period, according to the American Iron and Steel Institute (AISI). The industry, which employs about 150,000, has announced 12,000 layoffs the past year, the group says.

What’s most disturbing is this downturn is nothing new and it’s been afflicting producers since last year. It would be great to say that the overproduction problem and supply gluts are being curtailed and the shutdowns are having their desired effect.

Except that’s not true. So far, oversupply still exists and producers are still in the same boat. So things could, indeed, get a lot worse in 2016. Umm, Happy New Year?

MM-IndX_TRENDS_Chart_December2015_FNL-TOPVALUE100The December MMI Price Trends Report is out and it’s, well, just what we expected, unfortunately. Prices have plunged this year and last month was no exception with metals such as copper, 9% plummet, and raw steels, fell 4.2%, posting big losses after months of a smaller, more gradual slide.

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The finished product sub-indexes are showing how much of a buyers’ market really exists right now. The Construction MMI fell 4.6% as rebar and steel scrap continued to be oversupplied, despite strong demand. For automotive products, the drop was even more precipitous with the Automotive MMI falling 7%. Santa was good to buyers this year.

Thinking 2016 will be better? No signs of that yet. Is it any wonder that a mined mineral, coal, is what everyone hopes they don’t get in their stocking this time of year? Miners and base metal producers are closing smelters, shutting mines and girding up to reduce capacity in 2016. The market, though, is still in a glut for most of the metals we track right now.

So buyers shouldn’t overspend, thinking they’re getting a great deal, this holiday season. The after the holidays sales could be even better.

The narrative flow in the automotive industry has been firmly behind aluminum in the quest for lower weight and better fuel consumption, but steelmakers were never going to stand idly by and see one of their most lucrative markets rapidly eroded even though the speed of the change has caught some of them by surprise.

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Brian Aranha, Vice President of Global Automotive at ArcelorMittal is quoted in Automotiveworld saying Ford’s decision to switch a large chunk of the F-150 to aluminum “…was a bad surprise for us, we just didn’t see it coming.”

factory manufacturing

Aluminum might be making inroads, but steelmakers are going to fight to keep their automotive customers. Source: Adobe Stock/AnastasiiaUsoltceva.

Well, whether they saw it coming or not, they are reacting now. Steelmakers the world over are pouring millions into research and development to carve out a role for steel in the car designs of the future.

The Aluminum Challenge

They have much to fear, in an executive summary to a report by Ducker Worldwide last year called DriveAluminum highlight is made to the rapid gains made by the light metal.

Source Ducker Worldwide

Source: Ducker Worldwide

Although the F-150 leads the class with 1,080 lbs. of aluminum, the pickup truck segment has embraced weight reduction more than any other. The average content will be 548.9 lbs per vehicle almost the same as E segment sedans at 549.9 lbs. and SUVs close behind at 410.3 lbs.

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Spot iron ore prices hit a fresh 10-year low after falling below $40 per metric last week.

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Weakening steel demand is causing a slump in finished products and raw materials prices. Our Raw Steel MMI didn’t take a break in December, falling 4.2% to 46 points, yet another all-time low.

Raw-Steels_Chart_December-2015_FNL

Early this year, many believed that the steel industry would recover during the second half of the year, even steel companies’ 2Q15 better-than-expected-earnings results raised optimism of a possible recovery. We didn’t subscribe to this view. The slump in steel prices continues and the fiscal 3Q15 financial results of most steel companies failed to cheer up investors.

The market has seriously underestimated the demand erosion that the economic rebalancing in China has created.

Overcapacity Still an Issue

Steel producers are still waiting for demand to meet the overcapacity built over the past few years. In addition, almost a decade with borrowing costs near zero has lead to a situation where there is still new capacity yet to be built and also existing capacity that doesn’t close. Low-cost credit has permitted even unprofitable production to be maintained, and while production levels are well off their peaks, there have been few permanent capacity closures.

Chinese Producers

The excess of production is still a concern in China, given the high levels of debt that producers there are dealing with. While many steel companies are able to cover debt costs out of operating profits, other companies are still borrowing from one bank to pay the older debt to another.

In November, Chinese steelmaker Tangshan Songting Iron and Steel, with an annual capacity of 5 million metric tons, said it would cut output due to debt pressures. Despite China cutting interest rates, as demand and prices collapse, banks are starting to tighten lending to the steel sector and losses are stacking up. Many mills are having a hard time extending their loans while they lower steel prices in competition to get contracts. The plunge in Chinese steel profits and and prolonged worries over weak demand might force more and more Chinese producers to close, removing exports from the global market before we see a recovery in prices.

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Steel prices, like the rest of base metals, were impacted in November by a strong dollar and the bearish sentiment that this adds to commodity markets. There are few to no indicators pointing to a recovery in steel prices anytime soon.

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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.

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Meanwhile, the M3 GOES index held steady at 176 as other drivers of the monthly index showed some strength.

Goes1215_1

Source: Zepol

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.

Additional Developments

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.

GOES_Chart_December_2015_FNL

Though dollar values of imported transformer parts fell by 10% in October, wound core part imports jumped by 18% in October, according to data from Zepol.

GOES_121015_2

Source: Zepol

In an unrelated move, China announced some market economy reforms to create greater competition for electricity transmission.

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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.

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Our December Copper MMI fell 9% to 60 points.

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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.

Copper_Chart_December-2015_FNLIn 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 Bureau already 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.

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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.

Renewables_Chart_December-2015_FNL

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.

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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 SolarCity started 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.

Consumer Demand

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.

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The market for these specialty metals likely won’t turn around sharply, especially not in this bearish commodity environment, but the continued investment and underlying consumer demands shows the future potential for renewables.

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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.

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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.

BayBridge_550

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.

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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.”