Articles in Category: Non-ferrous Metals

Aluminum prices have risen around 15% since the beginning of the year.

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The metal is currently trading at a two-year high, just below $1,950 per metric ton. A slow but steady rise.

The aluminum 3003-H14 Sheet price. Source: MetalMiner Price Benchmark.

This year’s rally comes as markets tries to price in Chinese anti-pollution capacity cuts next winter. The world’s largest nation-producer of the metal will force about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi to be shut down over the winter season, which runs from the middle of November through the middle of March, putting at risk about 1.3 million mt of production. Read more

Following the fortunes of Boeing and Airbus, you could be forgiven for thinking that aircraft manufacturers always run late, over budget, and the resulting end product can struggle to meet initial expectations.

Emrbaer E2

The Embraer E2. Source: Embraer.

But Brazil’s Embraer, the world’s third-largest commercial jet maker, has shown with its next generation narrow body regional aircraft, the E-2 series, that it doesn’t have to be that way. Embraer introduced the aircraft at the Paris Airshow in 2013 and it was first displayed last summer at the Farnborough Airshow just 45 days after its maiden flight. The aircraft is set to be delivered on time, on budget, and even slightly underweight.

Segment Dominance

Embraer has been very successful with their current E-jet series and the new E-2 program looks set to maintain the company’s 55% market share dominance of the regional jet market. The E-2 will commence deliveries in the first half of 2018 and variants will be capable of carrying between 70 and 130 passengers. An FT article notes that Embraer has a backlog of commitments from airlines for 690 E2 aircraft, including firm orders of 275.

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The company has struck a wide-ranging and exclusive arrangement with Alcoa Corp. for aluminum sheet and plate for the wings, skins and fuselages of the model, with other Alcoa products being used in key applications such as wing ribs, fuselage frames and other structural parts. The long-term collaboration is said by Aluminum Today to be worth $470 million to Alcoa. “PurePower” engines will be supplied by Pratt & Whitney. Read more

Most base metals will finish the first quarter up, but nickel is one of those exceptions to the rule.

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The metal has traded up and down to finish the first quarter close to flat. Nickel prices are significantly higher than they were one year ago and traders are now finding little reason to be any more bullish than bearish due to a mix of news that helps both positions.

Nickel prices finish Q1 close to flat. Source: Fastmarkets.com.

Philippines Threatens to Stop All Mining

On March 13, The Philippines’ president Rodrigo Duterte, threatened to stop all mining in the country while reiterating his support for Department of the Environment and Natural Resources Secretary Regina Lopez. Philippine lawmakers recently opted to postpone a decision to confirm or reject the ardent environmentalist as the head of the department. Further confirmation hearings are expected to take place in May. The country’s miners hope Duterte won’t reappoint Lopez and instead find someone more moderate.

Indonesia to Restart Exports

Despite additional closures last month and the potential for more, nickel prices fell this month. It could be that traders doubt that Duterte will enforce such strict regulations, but it also has to do with fears that the resumption of exports from Indonesia will compensate for any supply shortfall in The Philippines. Read more

The strike at Chile’s Escondida, the world’s largest copper mine, is ending after workers decided to invoke a rarely used legal provision that allows them to extend their old contract, the union said on Thursday.

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Hours earlier, talks between the two sides failed, and Escondida, which is operated by BHP Billiton, said it would attempt to restart production, presumably with replacement workers. The workers said they would present their decision to the government on Friday and return to work on Saturday.

Escondida produced 5% of the world’s copper last year.

Asian LNG Buyers Come Together

The world’s biggest liquefied natural gas buyers, all in Asia, are clubbing together to secure more flexible supply contracts in a move which shifts power to importers from producers as oversupply grows.

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Korea Gas Corp. said on Thursday it had signed a memorandum of understanding in mid-March with Japan’s JERA and China National Offshore Oil Corp (CNOOC) to exchange information and “cooperate in the joint procurement of LNG.”

US Cold-rolled coil prices since 2012. Source:MetalMiner IndX

U.S. Cold rolled-coil prices rose to their highest levels since March of 2012 this week. Spot steel prices saw some upward action in January, however, prices really came under pressure in early February.

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In March, U.S. steel mills are pushing for another round of price hikes. So far, they seem to be succeeding.

China Steel Prices

Hot-rolled coil price spread. Source: MetalMiner IndX

Back in November, we predicted a surge in steel prices as we moved into the new year. When international steel prices rise, U.S. mills can more easily justify a price hike. Chinese prices set the floor for international prices. Last summer, U.S. steel prices declined sharply while Chinese prices held well. That caused the international price arbitrage to come down to normal levels.

The price arbitrage started to widen again this year as momentum in U.S. steel prices picked up. However, the arbitrage is still relatively narrow compared to historical levels, especially in hot-rolled coil. Therefore, U.S. mills still have some room to hike prices. Still, for the rally to be sustained throughout the year, Chinese steel prices will need to keep rising.

Falling Chinese Steel Exports

In January, Chinese steel exports fell near 24% compared to the same month last year. In absolute terms, January steel exports were at their lowest level since June 2014. Exports fell by double digits in the last four months of 2016. While more countries act against the threat of a flood of Chinese steel, we could see further moderation in exports this year, which bodes well for global steel markets. What’s surprising is that exports have falling despite rising output.

According to the data released by the World Steel Association, China’s January steel production rose 7.4% to 67 mmt while global steel production rose 7% from a year ago. In addition, China’s operating steel capacity increased in 2016, since most of the announced cuts in capacity were already idle.

So far, solid demand in China has absorbed the increase in output, or at least most of it. The Caixin Manufacturing PMI in China rose to 51.7 in February, beating market expectations and marking the eighth-straight month of growth. In addition, there are rumors that China is stocking its excess steel production. According to SteelHome, hot-rolled coil and rebar inventories in China have surged so far this year.

All About Production Cuts

In conclusion, U.S. mills could continue to raise prices in the short-term. However, for a sustained bull market in steel prices, Chinese steel prices will have to rise as well. China’s domestic demand looks strong, but it won’t be enough to support a rising price trend in the face of rising output.

Two-Month Trial: Metal Buying Outlook

Beijing has ordered curbs on steel and aluminum output in as many as 28 northern cities during the winter heating season, as it steps up its fight against pollution, but we need to see if those cuts actually materialize this year. China will need to intensify its efforts to curtail excess steel capacity. Otherwise, if production continues to grow unabated, it could hamper this price recovery.

Indian billionaire Anil Agarwal’s audacious purchase of 13% of mining giant Anglo American PLC  took the stock markets by surprise last week. But Agarwal, chairman of London-listed Vedanta Resources is known for his bold and sometimes seemingly counter-intuitive acquisitions.

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Agarwal has bought the shares in the name of his family trust Volcan, saying it is just an investment in a “great company with excellent assets,” stating that he had no immediate plans to launch a takeover, according to the Financial Times.

No one believes him, of course, or at least not the part about it just being an investment in a great company with excellent assets. True, the prospect of Agarwal’s Vedanta with a market cap of $2.99 billion, being able to takeover Anglo-American with a market cap of  $20.84 billion (£16.7 billion) is verging on the absurd, but the truth is Agarwal is probably more interested in a seat on the board and the opportunity to influence Anglo-American’s future in South Africa than seriously taking over a group that is seven times the size of his own.

Source: Financial Times

Anglo-American has made no secret of its desire to divest some of its more troublesome South African investments.

Two-Month Trial: Metal Buying Outlook

The political instability and red tape in South Africa has caused the miner problems in recent years and Anglo has already sold two assets to Vedanta including the Gamsberg zinc project in the Northern Cape which Vedanta should bring to production next year. Read more

3-Month London Metal Exchange zinc price. Source: Fastmarkets.com.

Zinc prices climbed last week. The metal is now trading near the milestone of $3,000 per metric ton. The last time prices hit this level was in September 2007.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Zinc has doubled in price since it hit bottom in January of last year. As prices climbed, many buyers probably made the mistake of thinking prices were too high, missing this spectacular rally. However, buyers that subscribe to our monthly outlook, didn’t miss this rally. We recommended buying forward starting in April of 2016. Ever since, prices have risen without looking back. Read more

For off-road cognoscenti, there are few automobiles more iconic than Jaguar Land Rover’s Defender. Since its introduction in 1948, the rugged old workhorse has earned a reputation for go anywhere capability and durability as an article in the FT notes.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The Defender’s engineering simplicity meant that the car could be repaired in the middle of the desert with the sparsest of resources and spare parts. But that rugged simplicity also led to its downfall. The SUV’s body-on-frame construction meant that it failed to meet modern safety crash tests and the engine just polluted the air too much to meet European emission rules. JLR consequently halted Defender production last year to the anguish of its diehard fans.

Land Rover Defender. Source: Autoexpress

Well, it would seem JLR has aspirations for a comeback. According to the FT, the group expect to relaunch the Defender in 2019 and its design group is working furiously to reconcept a new vehicle that meets modern environmental and safety standards, requiring a complete redesign from the ground up of the old Defender.

Aluminum Everywhere

It would be inconceivable if the new Defender was less capable than the old, a betrayal of that once iconic brand and, by all accounts, JLR has no intention of letting them down. Like the old Defender, a new version will employ considerable use of aluminum in the body, but unlike the old steel chassis will have an entirely new aluminum frame construction. Read more

Speaking at S&P Global Platts’ recent Steel Markets North America conference, noted trade attorney Alan Price of the Washington law firm Wiley Rein said the World Trade Organization case that the federal government filed on behalf of aluminum producers against Chinese overproduction of the light metal in January, will essentially serve as a guide for other industries looking to challenge state-subsidized companies’ overproduction for export in the People’s Republic.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

“The solutions to Chinese overcapacity are to follow the money and see who’s subsidizing it,” said Price, who has represented several U.S. industries in anti-dumping and countervailing duty legal actions against Chinese producers, as well as WTO disputes. “China has not fundamentally reformed its excess capacity. The rest of the world’s production has remained stable, but the explosion in Chinese capacity is still there.”

Alan Price

Alan Price, image courtesy of Wiley Rein

Price said the aluminum case fundamentally attacks the mechanism China uses to back up failing businesses, the availability of subsidized money in China known as “money for metal” on the municipal, state and federal level there.

“The WTO case involving aluminum, challenges, fundamentally, the Chinese subsidization system,” Price said. “It goes after the financial systems of China and how everything is financed. In aluminum you can track all the companies involved. There are around 10 and it’s a much more understandable beast, much more understandable problem than the vastness of the Chinese steel industry. This case will fundamentally decide if China will be allowed to prop up failing businesses.” Read more

If you can’t beat them, then join them? That may be the gist of UC Rusal’s latest proposal for dealing with Chinese aluminum overproduction: an OPEC-like organization for the global aluminum industry.

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In a Reuters article the world’s largest aluminiu producer outside of China was quoted by the TASS news agency at an economic conference in Russia’s Black Sea resort of Sochi as suggesting that Industry ministers should get together and explore ways and means of creating a producers club.

Liquid metal

The Chinese aluminum industry has been able to cut costs by essentially selling liquid metal to nearby product manufacturers. Source: Adobe Stock/Kybele.

The trade minister quoted by TASS, Denis Manturov, talked of creating a single policy in the area of standards and technology but, in reality, there would be little to be gained if that was the sole purpose. More attractive to western smelters in general, and Rusal in particular, would be any mechanism that curbed China’s growing dominance of the primary aluminum market.

Rusal was, until a few years ago the world’s largest aluminum producer. In 2016 Rusal produced 3.685 million metric tons, according to Reuters, but China now produces over half the world’s aluminum with Chinese producers overtaking the Russian firm. China’s Hongqiao is now the world’s biggest aluminum producer overtaking Rusal in 2015 and again in 2016. Read more