Articles in Category: Non-ferrous Metals

This week in metals, aluminum prices hit a one-month high, even as surplus material in China looked like it would increase as smelters there went back online.

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Even when metals prices were rising across the board in the first quarter, aluminum was the laggard as oversupply still kept investors from buying it and construction demand remained tepid. Thanks to Chinese stimulus that construction demand has shot up and aluminum prices with it.

Aluminum: Smelt All You Want!

Reuters’ Andy Home and our own Stuart Burns both noted that while Beijing is doing everything it can to clean up overproduction in its steel sector — and the resultant pollution that comes with it — there’s no such commitment from the top when it comes to aluminum, mostly because of the state-of-the-art smelters Chinese companies have invested in.

How are Chinese smelters making money? Source: Adobe Stock/Pavel Losevsky

How are Chinese smelters making money? Source: Adobe Stock/Pavel Losevsky.

So, to recap, steel overproduction and pollution is bad but aluminum overproduction and, relatively, smog-free production? China is a-okay with that. What could possibly go wrong?

Rio Repositions

Meanwhile, things have gone significantly awry at Rio Tinto Group. The Anglo-Australian multinational miner shook up its organizational structure this week and head of iron ore commodities Andrew Harding was passed over for the CEO job by copper and coal division leader Jean-Sebastian Jacques. Jacques, a native of France, has only been there since 2011. Harding has been with Rio for 25 years and had been expected to replace departing CEO Sam Walsh this month. Read more

Last week, the U.S. International Trade Administration rescinded the Department of Commerce’s request to 124 Chinese aluminum extruders to participate in the 2014 administrative review of anti-dumping and countervailing duties previously levied against them.

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One of those companies was China Zhongwang Group, the world’s second-largest producer of aluminum extrusions. Last year, Zhongwang was accused of evading U.S. import duties by shipping extruded aluminum products — including pallets and 5050 alloy extrusions — into the country without paying the duties.

“Mounting evidence from private investigators, testimony from former employees, data from online import and export databases, and anecdotal evidence from a variety of reporters and other sources made it clear that ZW has consistently and systematically been exporting aluminum extrusions that are simply welded together into what are essentially aluminum slabs,” U.S. industry group the Aluminum Extruders Council wrote in a statement at the time.

“While they claim these so-called ‘deep-processed’ extrusions are aluminum pallets, there is no evidence that Zhongwang or any of its U.S.-based operations market such a product. It is simply incomprehensible that a company would export hundreds of millions of pounds of these extrusions into the U.S. without even marketing them,” the statement continued.

The Aluminum Extruders’ Council stressed that the administrative review has no bearing on the ongoing Zhongwang scope and circumvention cases. Commerce sends notices and requests to Chinese extruders inviting them to participate in that year’s administrative review every year. Zhongwang’s invitation was simply rescinded with all of the others as a matter of protocol.

Free Download: The June 2016 MMI Report

However, Commerce did announce its preliminary rates for the administrative review. The countervailing duty rates for aluminum extrusions are staying at 20% and the anti-dumping duty rates have been maintained at 86% for 2017. These are preliminary decisions and Commerce will announce final determinations in December.

Nickel prices climbed to a six-week high, a nice recovery after May’s price sell-off.

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The metal benefited from a positive swing in investor sentiment toward commodities in June, stemming from a weaker dollar and the ongoing recovery in oil prices. Nickel has climbed steadily after hitting multiyear lows in February, but the move isn’t big enough to impress the market yet.

3M LME Nickel hits 6-week high

Three-month London Metal Exchange nickel hits a six-week high. Source: MetalMiner analysis of FastMarkets.com data.

Chinese Ore Imports Falling

Nickel ore is the essential ingredient for China’s massive nickel pig-iron production sector. Imports for the first four months totaled 4.16 million metric tons, a 38% decline compared to the same period last year. Indonesian imports have been non-existent since the country imposed its exports ban on unprocessed minerals. Although the Philippines has managed to fill part of the gap, it hasn’t been enough. Read more

A recent Reuters article draws an interesting comparison between the Chinese aluminum and steel industries and then goes on to draw some not-so-encouraging conclusions for aluminum. Excess aluminum production there is damaging the prospects of aluminum producers in the rest of the world, purely because of the size of China’s massive aluminum industry.

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Both metals face excess production at home due to rampant overinvestment and slowing domestic demand. Reuters lists a number of similarities between the two industries: China is the world’s largest producer in both markets, accounting for 51.5% of global steel output and 54.4% of global primary aluminum output in April.

Chinese Steel vs. Chinese Aluminum

In both industries, China has been exporting excess production of steel and aluminum in the form of semi-manufactured products, with steel product exports last year totaling 112.4 million metric tons, representing around 14% of the rest of the world’s output and aluminum product exports of 4.2 mmt representing 17% of the rest of the world’s output. In both cases, exports have damaged prospects for producers elsewhere, forcing closures, losses and delaying investments.

Source Reuters

Source: Reuters

In the case of steel, though, the threat of a delay to China’s application for market economy status by the World Trade Organization has forced a more conciliatory response by Beijing in recent discussions, and the promise of large-scale closure of older capacity in China.

Aluminum Overproduction Unabated

How effective this will be remains to be seen but, even so, it is in marked contrast to the position aluminum is in, where Beijing seems unable or unwilling to curtail new investment. As prices on the Shanghai Futures Exchange have risen this year, idled smelters have restarted and new capacity has continued to come on-stream.

Annualized run rates increased by almost 650,000 mt over the course of April and May, Reuters reports, with May’s average daily output of 86,290 mt the highest since November 2015 before prices fell below $1,518 (10,000 yuan).

The other factor apparently effecting Beijing’s attitude is the rapid rise in capacity is coming from new state of the art low cost aluminum smelters in China’s northwestern provinces. Aluminum is not seen as an old-fashioned, state-dominated industry operating polluting plants close to urban areas.

Free Download: The June 2016 MMI Report

China’s new aluminum capacity is cutting-edge, world-class technology and — at current prices at least — is making money. As a result, Reuters concludes capacity is unlikely to be trimmed anytime soon, at least by government intervention. For aluminum producers outside of China, that is not good news, and although recent rises in price to $1,600/mt are better than the $1,450-1,500/mt levels of late last year, it doesn’t offer much upside in the short- to medium-term if China keeps flooding the market with excess semi-finished products.

Reuters_MetalMiner Chart of the Week 062216_550

Source: Reuters

Aluminum reached a one-month high this week as Chinese demand took up more supply at home. As the Shanghai Futures Exchange price has risen, idled smelters has restarted.

Aluminum price increases this year have been minimal compared to what we’ve seen in steel prices. However, the metal is rising slowly but steadily as investors see an opportunity to buy aluminum when prices fall short-term.

Two-Month Trial: Metal Buying Outlook

That’s exactly what happened this month, after prices sold off in May, investors are again jumping on the metal.

Aluminum hits 1-month high. Source: MetalMiner analysis of fastmarkets data

Aluminum hits a one-month high. Source: MetalMiner analysis of Fastmarkets.com data.

Demand Improves

A recovery in demand is a key factor supporting aluminum prices this year. China unleashed a renewed government stimulus in the form of credit expansion and infrastructure building in December, which has — at least momentarily — improved the demand side of the equation for industrial metals.

Trade figures this year showed China’s relatively strong appetite for aluminum. Higher demand means exporting less as Chinese companies are consuming more aluminum domestically. China’s exports of unwrought aluminum and aluminum semis were 420,000 metric tons in May. From January to May, exports are down 7.9% compared to the same period last year.

Overcapacity Still an Issue

China has committed to stop the expansion of steel capacity and to actively and appropriately wind down “zombie enterprises” through a range of efforts, including restructuring and bankruptcy. That’s not the case when it comes China’s equally giant aluminum sector. Read more

BHP Billiton is planning to boost coal production in the next three years while no agreement has been reached about reducing Chinese aluminum overcapacity.

BHP Billiton Bullish on Coal

Top global miner BHP Billiton outlined plans to boost coal output by 8% over the next three years while slashing costs, and said it would only consider premium, lowest-cost assets for any acquisitions.

Free Download: The June 2016 MMI Report

BHP Billiton is the world’s top exporter of coking coal used in steelmaking and also a producer of energy coal. The Australian miner is in the enviable position of running profitable coal mines at a time when more than half the world’s coal mines are losing money.

Andy Home: No Agreement on Chinese Aluminum

“China has committed to ensure that its central government policies and support do not target the net expansion of steel capacity; and to actively and appropriately wind down ‘zombie enterprises’ through a range of efforts, including restructuring and bankruptcy.”

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This statement was made by U.S. Treasury Secretary Jack Lew earlier this month after high-level talks with Chinese officials in Beijing. Reuters’ Andy Home, however, writes that while there has, at least, been a meeting of the minds in regards to Chinese steel capacity, the two sides failed to reach any sort of agreement regarding aluminum other than to hold more talks, according to Lew.

Okay, this may be a little off the wall for a hard-bitten industrial metal consumers trade journal, but it is such a cool use of aluminum that it just couldn’t be passed by.

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The artist, Wolfgang Buttress, has created a 56-foot-tall aluminum beehive among a wildflower meadow on the grounds of London’s Kew Gardens as both a visual thing of beauty and an aural experience like no other.

“The Hive,” as it is known, was first created as Great Britain’s entry in last year’s World Expo in Milan, Italy, according to the AluminiumInsider from whom this photo is replicated.

Screen Shot 2016-06-19 at 22.19.37

The Hive is a visual and aural art experience. Source: AluminumInsider.

Over three million visitors passed through it before it was taken down and returned, only to be recreated here in the U.K.

The structure is made up of 169,300 aluminum bars joined at spherical nodes to form abstract, honeycomb-like hexagons that spiral into the sky. Their rhythm follows the Fibonacci mathematical pattern found throughout nature from shells to trees, and in the proportions of classical architecture an article reports. Others, still, say the structure is  resembles a skep — yes I had to look that up, too — the open-ended straw baskets used for thousands of years by beekeepers.

Within the structure, there are small speakers which relay the noises live from inside Kew Gardens’ nearby hives and the sounds are overlaid by human voices and stringed orchestral instruments said to harmonize with the sounds of the bees. 1,000 LED lights embedded in the structure add to the experience in a pulsating light display and must make the experience even more impressive at night.

The aim of the installation is not purely artistic, though. Buttress and Kew Gardens intend it should create awareness of the plight of bees that have been dying inexplicably in the developed world, yet play such a crucial role in pollination of commercial crops that places like California have to import swarms from Australia and New Zealand to keep their agricultural industry productive.

Free Download: The June 2016 MMI Report

Regardless, the Hive is a novel and intriguing application for a metal whose properties of lightweight, relatively low-cost, good corrosion resistance and ease of use make it almost uniquely suitable for the challenge of such a project.

This week, the ugly issue of metals sitting around in a warehouse and warranted owners possibly losing out on profits from their metals due to long load-out queues returned.

Free Download: The June 2016 MMI Report

U.S. investors swung and missed with a lawsuit over aluminum wait times against several banks who also trade metals, but now they’ve seemingly hit paydirt with a similar lawsuit over zinc storage. Glencore‘s Pacorini warehouse operations business will have to defend the suit as there are seemingly falsified documents at the center of the gripes from customers.

Unlike our previous coverage of warehouse shenanigans, the Pacorini lawsuit has little to do with premiums. In fact, premiums have been acting remarkably normal this year. My colleague, Stuart Burns, explained how London Metal Exchange policies and simply better performance has reduced the queues almost everywhere.

Nope, the zinc lawsuit deals with falsified orders designed to conceal when and where metal entered the warehouse complex.

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While premiums are, mercifully, now acting more normally, some unexplainable market weirdness continues. The LME warehouse in Vlissingen, Netherlands, is behaving as oddly as ever. After dropping to “just” 116 days in February it has since ballooned out again to 336 days following the cancellation from warrant of 656,000 mt in late March and April.

Perhaps, warehouse shenanigans are here to stay.

While London Metal Exchange warehouse queues have all but disappeared, with the exception of Vlissingen in the Netherlands for aluminum and New Orleans for zinc, the even better news is physical delivery premiums have dropped back closer to historically lower levels and more importantly taken on a flat, stable pattern.

Free Download: The June 2016 MMI Report

As Reuters’ Andy Home points out in a recent article, the reasons for the horrendous spike in physical delivery premiums last year were always contentious and, in reality, multiple in origin but arguably long load-out queues played a part, although we always maintained they were as much symptom as cause of a deeper malaise in the physical aluminum market.

Aluminum Premiums Easing

Still, the return to a steady $170-180 per ton level for the Midwest premium and a stable range of $90-120 per metric ton range for Japanese Port premiums is a welcome relief for consumers after the sky high levels of 2014-15 when Japanese rates hit $425 and the MW premium was well over $500. Read more