Britain has voted by a narrow majority 51.8/48.2 to leave the EU. What happens now is anyone’s guess. We are in uncharted territory, even those leading the charge for a Leave vote seem somewhat perplexed by the outcome and have been busy backtracking on promises and commitments made during the campaign about what they could deliver.
David Cameron, Britain’s prime minister, has announced he will step down before the conference season in October to make way for a new leader of the party’s choosing. The automatic assumption is this will be Boris Johnson with Michael Gove as Chancellor, but the party is deeply divided and a lot could happen between now and the Fall.
In the meantime, the markets have taken the decision badly. The FTSE 250 — which is considered a close barometer of the UK economy — fell by 12.3% before paring losses back to 7.1%, while the pound tumbled to $1.30, before recovering slightly to $1.36 against the dollar. Read more
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.
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?
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Last week, the U.S. International Trade Administration rescinded the Department of Commerce’s request to 124 Chinese aluminum extruders to participate in the 2014 administrative review of anti-dumping and countervailing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.
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 Councilwrote 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.
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.
In a surprise move, Andrew Harding, the head of iron ore at commodities miner Rio Tinto Group has been passed over as CEO to replace outgoing Sam Walsh on July 2 by relative newcomer to the group, Jean-Sebastien Jacques who only joined in 2011 and has headed up Rio’s copper and coal divisions, the Sydney Morning Herald reports.
Harding has been with Rio for 25 years and had been expected to replace departing Walsh in part due to his experience in iron ore which is central to Rio’s existence. The miner generates about half its revenues and around 90% of its earnings from iron ore sales, just 9% from aluminum and copper and the balance from diamonds and other minerals.
Rio Tinto’s Future
The move is seen as part of future plans for Rio to reduce reliance on iron ore and to divest itself of coal assets. Although the firm would argue otherwise — its cost of production for iron ore is a fraction of what it was five years ago — the firm’s expansion into an already oversupplied market is seen by many as a dead end.
Rio Tinto increased iron ore production by 11% last year to 327.6 million metric tons, and that should rise another 7% to 350 mmt by the end of this year, the Telegraph’s Questor column reports. The miner is not alone as rivals BHP Billiton and Fortescue also ramp up production to offset falling prices.
This year, the policy appears to have paid dividends as Chinese demand has risen on the back of a short-term boost from a huge government backed loan splurge at the start of the year, but there are signs the economy there is slowing again. Read more
Our own Lisa Reisman (Executive Editor, MetalMiner) will be live and in-person at the SMU Steel Summit Conference 2016, August 29-31 at the Georgia International Convention Center in Atlanta, providing our steel price forecast to those in attendance. The conference will also feature four keynotes, including:
Alan Beaulieu (Principal, Institute for Trends Research)
Lourenco Goncalves (President and CEO, Cliffs Natural Resources)
Roger Newport (CEO, AK Steel)
Christopher Oakley (Vice President and Regional Executive, Federal Reserve Bank of Atlanta)
Other speakers include representatives from Big River Steel, IHS Global Insight, Cargill Metals, McNichols Co., Kloeckner Metals Corporation, Steel Market Development Institute, Steel Dynamics, Precoat Metals and 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.
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.
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.
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.
The Commerce Department has placed preliminary countervailing duties on imports of biaxial integral geogrid products from China. Geogrids are used in road construction for ground stabilization but also in buildings foundations for the same reason.
They usually consist of a grid made from an extruded polymer, usually polypropylene or high density polyethylene that’s filled with aggregate to stabilize a road or foundation surface. Commerce preliminarily determined that many producers/exporters in China received countervailable subsidies ranging from 16.60% to a huge 128.27%.
Biaxial geogrid product being used in road construction. Credit: Tensar.
This is the second-time this year that geogrids from China have been tariffed. Georgia-based Tensar International Corp. filed petitions last year over imports of Chinese biaxial integral geogrid products, asserting that the Chinese grids are receiving illegal government subsidies and being unfairly dumped on the U.S. market. The ITC made a preliminary injury finding in January that marked the clearance of the first procedural hurdle in the case. Now that both the ITC and Commerce have made affirmative initial dumping rulings, final determinations should be expected soon.
How to Protect Intellectual Property?
Although geogrid products are a relatively obscure construction input, the financial stakes of the case are considerable, as Commerce has said that U.S. imports of Chinese biaxial integral geogrid products tallied $1.5 billion in 2014. It’s an example of the difficulty U.S. manufacturers face, including those of metals, in developing products —Tensar invented the biaxial geogrid that’s now been used in millions of construction projects worldwide — and then defending their products from mass production by Chinese producers.
“The volume, price effect and impact of the subject imports have been both significant and harmful,” Tensar said in its filing. “Accordingly, the commission should find that subject imports have caused material injury to the domestic industry.”
Recently it issued quality control rules that required registration for the manufacture, import and sale of 16 steel products. One of the outcomes of this order was that it would weed out defective and substandard stainless steel used in utensils and kitchen appliances.
The quality control order was issued by the steel ministry in consultation with the Bureau of Indian Standards (BIS), making it compulsory to hold a BIS certificate. The certificates apply to low-grade stainless steel plates, sheets and strips, especially those used for utensils as well as for low nickel austenitic stainless steel sheet and strips used in kitchen appliances and utensils.
The latest Quality Control Order is applicable to some 25 grades of stainless steel. Incidentally, the QCO mainly covers three Indian Standards including IS 5522, IS 15997 and IS 6911. Grades covered by these three standards are: IS 5522 – 304, 302 & 430; IS 15997 – N1 (Min 1% Nickel), N2 (Min 1.5% Nickel) & N3 (Min 4% Nickel); IS 6911 – 405, 430, 410, 420S1, 420S2, 420S3, 431, 440, 201, 201A, 202, 301, 302, 304S1, 304S2, 309, 310, 316, 316L, 316Ti, 321 & 347.
The order was to be implemented by the producer, domestic or foreign, and not the end user.
The order placated a section of domestic steelmakers who were clamoring for a stop to cheap imports. In March, after some intense lobbying by steel players, the Indian government extended safeguard duties on a range of steel products by another two years to protect local steelmakers from cheap imports.
The move was welcomed by the Indian Stainless Steel Development Association (ISSDA), a trade body representing the stainless steel industry. ISSDA also pointed out that the order will have a minimum impact on the stainless steel utensils market since it does not cover stainless steel containing less than 1% nickel.
ISSDA President N.C. Mathur said the order would ensure competitiveness and growth of India’s manufacturing sector.
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.
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.
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.