Product Developments

New futures contracts for rebar and scrap cleared a hurdle recently and a major automaker said thanks, but no thanks, to aluminum bodies.

LME Closes in on Market Makers

The London Metal Exchange (LME) is close to sealing deals with market makers to guarantee liquidity for its new steel rebar and scrap futures, a move that industry experts say is a step in the right direction.

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But for real longevity, the contracts will need crucial support from major banks and participation of major steelmakers and institutional investors.

A senior level source with knowledge of the process told Reuters progress had been made in discussions with professional market makers as well as physical traders. The contracts are scheduled for launch in October.

“Having market makers would make a huge difference. In the current steel contracts there are no market makers,” Antonio Novi, a director at Levmet, a metals trader that also provides hedging services to industrial companies, told Reuters.

“If it’s true that there’s market makers, we’ll be using it, but until I see it I’ll doubt it very much.”

The LME’s only existing steel contract, a physical contract for billet, has struggled with scant volumes. Its new steel contracts will be cash settled, and so cannot be crippled by problems withdrawing metal from LME warehouses.

Some key steelmakers joined the LME Steel Committee earlier this year, including AK Steel, Klesch Group and the Turkish Steel Exporters Association.

Jeep Sticking With Steel

After months of confirmed reports from inside Fiat-Chrysler suggesting otherwise, FCA CEO Sergio Marchionne has confirmed that the next-generation Jeep Wrangler will not follow the Ford F-150’s lead and adopt an all-aluminum body. Instead, the 2017 Wrangler will stay predominantly steel, and use an aluminum hood, doors, and fenders to keep weight down.

Marchionne said they’d simulated the mileage, “but because of the difference in costs, not just in materials but the actual assembly process, I think we can do almost as well without aluminum,” according to the Wall Street Journal.

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Rare earth prices are falling because the metals used in magnets, batteries and electronics are not so, well, rare, these days. That availability has come with a major environmental price.

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China has lost control of its smaller, unauthorized rare-earth producers and, without export quotas, those metals are finding their way to foreign markets.

In addition to upsetting markets, most of unauthorized producers also have minimal environmental controls and even government-approved factories dump acid-rich, radioactive waste water into giant, leaky, unlined ponds which are threatening to pollute the Yellow River, a source of water for 150 million people.

Clean Earths

Molycorp, by contrast, has cleaned up its act and spent billions restoring its Mountain Pass, Calif., project, replacing its extraction systems and securing its mines.

Molycorp told Fortune it is building a rare earth supply chain that does not produce the kind of horrifying environmental damage other mines do. That means everything from using a process called chloralkali to use recycled water to separate the ore-less bad than chemicals, apparently-to generating power on-site.

The company is also using a new process to seal and bury its toxic tailings. Before reopening Mountain Pass, Molycorp used to dump its tailings in a slurry behind a dam. Now it uses a high-pressure system to squeeze out most of the water, leaving behind a "paste" that will be reburied in what's essentially a 90-acre landfill just west of the pit mine.

Molycorp was recently selected as a 10-year provider of rare earths to Siemens AG for its wind turbine business and both companies touted its clean supply chain as a reason behind the move. If Molycorp, and other US-based rare earths miners, want to compete with the glut of Chinese products the way they will have to distinguish themselves is through supply chain accountability.

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Autodesk, Inc. announced the release of its 2016 Design Suites at a launch event in Boston this week, offering more control over all aspects of the design-build process through a connected desktop and cloud user experience.

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For structural steel, the main difference in the 2016 suite of software products is a much tighter integration of the Advance Steel, a 2013 acquisition, and the Revit 2016 3D building information modeling platform.

“The means of production – how we think about and deliver buildings and infrastructure, both intellectually and physically, is changing,” said Amar Hanspal, senior vice president of Autodesk’s information modeling and product group. “By 2020 there will be 50 billion connected devices in use, with the number rising by 20 billion per year. Buildings are joining the digital world.”

New Rendering Engines

The 2016 version of Revit has new rendering engines that can deliver a rendered scene in minutes instead of hours under the old engine. It also has linked model cropping and better support of the open-source IFC file format.

“Customers don’t want to work in a different environment when doing design and detailing,” said Jim Lynch, vice president of Autodesk’s building group. “No longer have to use (a separate design tool) for detailing. Steel, cast-in-place concrete can all be done in Revit. The plan is to integrate (Advance Steel’s design tools) into Revit. We will keep Advance Steel as a separate product but WILL make it work seamlessly in the Revit environment.”

Better Integrated

Plant 3D, a plant design product, and Advance Steel have also been integrated so you can bring Advance Steel content into Plant 3D.

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ast week UGI Energy Services announced plans to build a liquefied natural gas production facility in Wyoming County, Pennsylvania.

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The facility will draw Marcellus Shale gas from UGI’s Auburn gathering system, then chill it to produce up to 120,000 gallons per day in liquid form. While we have regularly reported the slowdown in both new shale oil and LNG projects in the US this year — and the subsequent cutbacks in oil country tubular goods production — investments are still being made, in the US and overseas, in drilling.

Plants, Projects Planned

Bloomberg Business reported this week that Anadarko Petroleum Corp. selected a group of developers including Chicago Bridge & Iron Co. for a potential $15 billion LNG project in Mozambique.

CBI’s joint venture with Japan-based Chiyoda Corp. and Saipem SpA, based in Italy, will work on the onshore project that includes two LNG units with 6 million metric tons of capacity each, Anadarko said Monday. Construction plans also include two LNG storage tanks, each with a capacity of 180,000 cubic meters, condensate storage, a multi-berth marine jetty and associated utilities and infrastructure, according to Texas-based Anadarko, which says it will make a final investment decision by the end of the year.

Last week, the Department of Energy gave Cheniere Energy Inc. final approval for the nation’s fifth major export terminal at Corpus Christi in Texas, which will ship the fuel from 2018.

What’s Driving Infrastructure Investment?

While oil prices have bounced back from lows seen earlier this year, it’s certainly not the market that’s driving these investments. While high-cost projects, such as those in Canada’s oil sands, have been canceled by oil exploration companies, relatively inexpensive projects with a quicker path to payback, such as these LNG projects, are still being funded.

The payback is diverse and not confined to domestic home heating. LNG has been priced at a fraction of diesel prices for the last four years. Domestic trucking (18-wheelers and other heavy consumers of diesel) have yet to make a large-scale commitment to LNG, and most places where fuel is dispensed have yet to put in expensive infrastructure to handle the product, but there has been enough success for UGI to justify committing resources to its adoption.

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Denied deals abound today in MetalCrawler. An Indian steel major says not so fast on a sale of its long products division and Rio Tinto Group might be close to moving an aluminum division but is refusing to comment so far.

Tata Says No Long Products Deal Done

Reports that Tata Steel is about to sell its long products division to Klesch Group are “speculative” and do not reflect the views of the company, the steelmaker told India’s National Stock Exchange on Tuesday.

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Geneva-based Klesch Group, a global commodities business involved in chemicals, metals and oil production and trading, declined to comment.

Tata Steel, Europe’s second-largest steelmaker, said in October it is in talks to sell its loss-making long products division, which employs 6,500 people mostly in the UK, to Klesch.

Same With Pacific Aluminium

Rio Tinto Group plans to sell some of its aluminum assets in a potential $1 billion deal, the Financial Times reported, reviving a sale plan for its Pacific Aluminium unit two years after it was canceled.

The FT, citing “people aware of Rio’s plans”, said on Sunday that Rio had hired Credit Suisse to find a buyer for Pacific Aluminium, known as PacAl, which comprises a group of smelters in Australia and New Zealand.

A spokesman for Rio Tinto said the company “doesn’t comment on market speculation.”

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With HR coil prices at $450 per ton in mid-April (although big buyers could get $420/ton), HR coil prices had dropped $250/ton since late summer. US mills blamed imports – which is true – but forgot to mention that they had kept steel prices at elevated levels for 9-12 months while prices in the rest of the world were tanking. What did they expect?

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It is our view that we are now at the bottom and in late April, ArcelorMittal led the industry with a $20/ton increase for June deliveries. Since then, transaction prices have edged up to $460/ton and slightly above. So where do we go from here?

Lead times across the industry vary from around 3-5 weeks for hot-rolled coil. The aim of the price increase was to extend those order books and lead times and therefore create momentum for further price gains. It certainly brought some buyers back in with any remaining May tonnage sold out quickly at the lower price.

Inventory Surplus

At this point in the cycle, the inventory situation is critical. Inventories remain elevated, but total flat-rolled stocks appear to have stabilized at just over 6 million tons (around 10-11 weeks of demand) and we expect them to begin to fall steadily over the next few months as service center order levels have been slack for much of 2015 as they received earlier orders – both domestic and import.

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409 is often considered “the barely stainless steel,” or affectionately the most humble of the stainless steels. Stainless steel must have a minimum of 10.5% chromium to be stainless steel. 409 Contains a minimum of 10.5% chromium, thus the moniker barely stainless steel.

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In addition to minimal chromium content, 409 stainless has three additional properties that make it an attractive product for substitution: it is the lowest cost stainless, it has good oxidation resistance and excellent formability.

Middleweight Corrosion Fighter

According to AK Steel, 409 gets specified where oxidation and corrosion requirements go beyond carbon steel and some coated steels. North American Stainless suggests, “it is not as resistant to corrosion or high-temperature oxidation as the higher-alloyed stainless steels (430 or 304), but it is still far superior to mild steel and low alloy corrosion resisting steels and most coated mild steels.”

And not to ignore the other main US producer of 409, Allegheny Technologies explained its usage in automotive mufflers, “The good fabricability of this alloy, combined with its basic corrosion resistance and economy have significantly broadened the utility of ATI 409HPtm stainless.”

As most MetalMiner readers know, alloy substitutions in stainless steel have typically occurred when an alloying element such as nickel has increased in price. When nickel becomes volatile, manufacturers have sought options with less nickel or no nickel that have sufficient properties to make the final product without compromising quality. Both 304 and 316L are readily available and could be considered the path of least resistance in terms of specifying stainless steel; however, in some cases, these alloys may exceed the necessary properties for the final application.

Most consider 304 or 316L the “old standby” grades, but that thinking contains a few misconceptions. For example, stainless is stainless because it has at least 10.5% chromium (some would say 11% chromium), not because it contains nickel. Stainless can be both magnetic and non-magnetic. In commercial food service equipment — NSF specifies, for food zones, stainless needs to have a minimum chromium content of 16% and has nothing to do with whether or not it is magnetic.

Compliance Alloy

In the early 2000s, product substitution meant a new push to inform the manufacturer that type 430 has 16% chromium and is, thus, NSF 51-compliant. In many cases, a transition occurred in which buying organizations switched from 304 to lower nickel-bearing grades such as 301 or 201 before the switch to 430 occurred. In cases in which 430 could not be substituted for 301 or 201, the next wave of substitution came from higher-chromium ferritic grades such as 439 or 441. Both alloys were developed for the automotive market in which weldability and formability were necessary along with added corrosion resistance from the basic 409 automotive grade.

In residential appliances, the major manufacturers became reticent to move to magnetic stainless grades due to a perception that magnetic equated to not “real” stainless steel.

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Another domestic steel plant closing has been blamed on cheap imports and a major steelmaker in India took a big write-down for similar reasons.

ArcelorMittal Shut Down

ArcelorMittal is permanently closing its money-losing Georgetown, S.C., mill, delivering a blow to the local economy, the Charleston Post and Courier reported.

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The company said the shutdown will be completed by Sept. 30 and 226 workers there will lose their jobs.
Luxembourg-based ArcelorMittal blamed “challenging market conditions facing the USA business,” which uses electric arc furnaces to make wire rod used in the automotive and construction industries.
In the press release announcing the closure, ArcelorMittal also said the mill “has been severely impacted by waves of unfairly traded steel imports from China and other countries.”
ArcelorMittal previously shut down the Georgetown operation in 2009. It reopened in early 2011 after negotiating pay cuts and other cost-saving measures with employees.
“Despite our joint efforts and a highly productive workforce, the facility has incurred significant losses since the restart due to high input costs and imports,” P.S. Venkat, CEO of ArcelorMittal Long Carbon North America, told the Post and Courier.

Tata Steel Has Long Product Woes, Too

Tata Steel Ltd. slumped in Mumbai after India’s largest producer of the alloy wrote off its long-products business in the UK.

The shares fell as much as 3.1% to 355.10 rupees and traded at 359 rupees as of 9:37 a.m. local time, Bloomberg reported. The stock has declined 10 percent this year, compared with a 0.7% drop in the benchmark S&P BSE Sensitive Index.

The Mumbai-based company expects to take a non-cash impairment of 50 billion rupees ($787 million) for the quarter ended March 31, according to a statement Thursday. That would completely write off the value of the UK long-products business, which Tata Steel is trying to sell to Geneva-based Klesch Group.

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Most of our commodity metals posted gains this month. Even laggards such as the Construction and Raw Steels MMIs were able to post at least a flat month and avoid a loss. Only the markets that were generally flat to down before commodities’ big downturn, Rare Earths and Renewables, lost ground this month.

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The big question, is, then are these metals’ prices truly going back up or are we merely experiencing temporary gains with the downward trend soon to continue? It honestly may be too soon to tell.

We have seen several commodities fall much lower this year after outside-influenced one-month rallies. As my colleague Raul de Frutos wrote regarding the copper market this month, “we know that trying to guess the bottom is a terrible strategy to take.”

The Dollar and Oil Prices

The big outside influence, of course, is actual weakness in the US dollar, the first real weakness seen this year.
The oil price reduction that has kept most commodities low this year has moderated, with oil hitting $60 a barrel this week. A 0.7% fall in the dollar index was the biggest drop of 2015.
Further weakness in the dollar throughout the rest of the year would give a bigger boost to commodities and foreign markets.

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According to a recent report from the Freedonia Group, worldwide demand for copper is expected to advance 4.7% every year to 37.2 million metric tons in 2019. It also says the Asia-Pacific region is expected to see the fastest annual gains, led by increased output in China and India.

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Electrolytic refining of primary copper will be the primary method of production in these countries, but recycled scrap will account for a larger share of total refined copper output.

Construction Spending in India, US

Outside the AP region, the Freedonia report says advances in construction spending would also fuel copper demand in North America, particularly in the US, where early signs of building construction activity significantly increasing exist. This is followed by Western Europe which could see a “moderate increase” in copper demand since construction and manufacturing output there is expected to climb at a below average speed.

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