aluminum price

This morning, the U.S. International Trade Commission kicks off its 332 investigation of the aluminum industry’s competitiveness in the global arena.

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Before the hearing, executives from Scepter, Inc., Novelis North AmericaHydro Metals USA and the Aluminum Association gave members of the press a preview of what the industry’s testimony before the ITC will sound like.

According to Aluminum Association President Heidi Brock’s testimony, the Commission should focus on 5 key areas:

  1. Needless production: Produce findings on the nature and extent of continued use of inefficient and antiquated facilities and the continued unwarranted expansion of greenfield capacity.
  2. Transparency: Highlight the need to obtain information and transparency about policies that encourage overcapacity including information about state-owned enterprises (SOEs) operating in the aluminum industry as well as SOEs that provide the industry with supplies, electric power, and services.
  3. Tax Policies: Investigate China’s tax policies on aluminum exports. Chinese traders are “gaming” the system such that primary aluminum that does not qualify for the tax rebate is making its way into the U.S. market disguised as a semi-fabricated product. How can China tighten its enforcement of the 15% export tax on primary aluminum and crack down on fake semis?
  4. Enforcement: Review the enforcement of countervailing duties/anti-dumping orders and research the impact of transshipments through third countries that circumvent those orders or other tariffs.
  5. Environmental Impacts: Examine the role of China’s aluminum industry in meeting the commitments China has made to reduce carbon emissions. China cannot meet its carbon reduction commitments without both eliminating energy subsidies and curtailing outdated, carbon-intensive production in the aluminum industry.

When MetalMiner asked Brock about how much data and information the AA currently has on Chinese state-organized enterprises and subsidization practices, per the second bullet point on transparency, her answer indicated that the domestic industry may still largely be in the dark regarding the details.

“It’s going to be a long process,” Brock said. “Compared to the U.S. industry, where we’ve been collecting and reporting [data] for decades now, our hope is that our Chinese colleagues commit to transparency in their markets.”

She mentioned that it is “frustrating” when China says they plan to cut capacity, and then turn around and go back on their word. For example, according to her testimony, one of the largest aluminum producers in China announced in October 2015 that it would curtail all of the capacity at one of its largest smelters due to low aluminum prices and the resulting losses. But the decision was reversed only a few weeks later when the local government offered significant discounts on critical inputs, such as power, in order to avoid the loss of local jobs.

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“We are out there selling our product, and we have seen low prices coming from outside,” said Marco Palmieri, president of Novelis North America. “That has caused significant issues — and [those issues are] real.”

The Commission is expected to deliver a final report based on this investigation in summer 2017.

So, will aluminum receive a similar tariff shield as steel has enjoyed in India? The shield refers to a minimum import price (MIP) that is generally imposed on cheap commodities entering India, just like cheap steel from China.

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In the case of aluminum, too, the main “culprit” seems to be China. Yet, the stance of the Indian government vis-à-vis an MIP is still not clear, as various ministries concerned with the development have given divergent opinions. Read more

There has been considerable concern in the U.S. and elsewhere that China’s exports of primary aluminum are damaging global prices. China would maintain that it imposes an export duty on primary aluminum explicitly to prevent the export of primary metal, largely seen as exporting energy due to the high power cost associated with producing each metric ton of the metal.

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Many outside China believe a considerable amount of metal leaks out of the country in the nominal form of semi-finished products which avoid the export duty, and, indeed, attract a value-added tax refund, only to be subsequently remelted. Large volumes of exports from China make their way to Vietnam, and it is believed much of this material is remelted in the country before being sold.

The Impact of Chinese Aluminum

However, our concern in this article is not so much the impact of primary metal leakage, considerable as it may be, but rather the growing threat of Chinese value-add product manufacturers and the impact they are having on western firms that had previously had the field cornered for automotive and aerospace — to name but two high-tech applications for aluminum — applications.

Chinese material at the end of the last century was considered a joke in terms of quality, but over the first 10 years of this century the country has invested heavily in European and Japanese extrusion, rolling and heat treatment plants and equipment. By the beginning of this decade, Chinese extrusions and commercial sheet/plate were being given equivalence to material from many other sources such as Russia, Turkey, South Korea, Taiwan and other locales.

Are aluminum slabs welded together really "deep-processed extrusions?"

Are aluminum slabs welded together really “deep-processed extrusions?”

Such material is still sold at a discount to European or North American semi-finished products, but its growing penetration and the willingness of major distributors to hold a proportion of their inventory as Chinese material, speaks volumes for its growing acceptance, particularly in terms of quality.

The Lucrative Automotive Market

Still, while China — and to a lesser extent mills in places like Malaysia, Turkey and other locales — gradually ate into western mills’ commodity products, those same western mills moved upstream, investing heavily to meet growing demand for automotive sheet and castings, aerospace sheet, plate and extrusions. Read more

Our Aluminum MMI finished the month flat.

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Aluminum prices rallied into August but they failed to breach $1,700 per metric ton for the third time this year. Aluminum is up 7% this year but unlike other industrial metals, prices haven’t really made that much progress. With the ongoing debate of whether aluminum markets will be in deficit or surplus this year, investors seem hesitant to chase prices much higher.

China’s Exports Fall

Aluminum’s fundamentals look much better than at the beginning of the year, especially when we look at the supply side which has always been the biggest concern for the markets over the past few years. The biggest challenge for the aluminum industry was Chinese exports and they have started to come down.

Aluminum_Chart_September_2016_FNL

China exported 390,000 mt of unwrought aluminum in July, down 9.3% from July of last year. Chinese aluminum exports have fallen around 7% for the first seven months of 2016. Lower aluminum exports are supporting aluminum prices this year.

Chinese Aluminum Production Falls

According to data released by the International Aluminum Institute, China’s aluminum production declined 2.4% in July compared to the same month last year. For the first seven months, production in China has fallen by 3.1%.

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This is the first time the markets have witnessed a fall in China’s aluminum production since 2010. This fall in production is good news for aluminum bulls, which see a market headed for deficit in 2016. However, there is also the other side of the coin…

Fears of Rising Production

Fears of rising Chinese aluminum production in the second half seem to be putting pressure on aluminum prices, limiting any price rally. Whether markets are in a deficit or a surplus this year depends on China’s production. While producers such as Alcoa projecting a record deficit for 2016, Goldman Sachs sees a record surplus in the year.

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It was on one of those weeks when a non-metal commodity dominated metals coverage. We mean the one that factors into just about every metal price through either production or transportation costs. The black gold that sluices across prairie and canyon in tanker cars, pipelines and trucks. The input whose value and production fluctuates at the whim of both Sheikh and wildcatter.

So, honey, then, right?

Saudi Arabia and Russia promised to work together on a “task force” to try to right-size the oil overproduction we’ve become accustomed to over the past two years. MetalMiner Co-Founder Stuart Burns warns that the days of $100 per barrel are, indeed, long gone but something could still come of this latest effort to rein in production. Naturally, the markets ebbed and flowed on speculation of what, exactly, that might be like a small ocean of the stuff filling to the brim a tanker bound for China.

Negative on that Manufacturing Growth

The Institute of Supply Management‘s manufacturing index turned negative in July for the first time since February. And the services gauge fell last month to the lowest level since early 2010. Perhaps the economy’s not doing as great as we thought it was?

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The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.

Transshipment Trouble

Last week, we wrote about China Zhongwang and its billionaire owner, Chinese Communist Party member Liu Zhongtian, buying U.S-based extruder Aleris. Well, more trouble this week for Zhongwang as the Commerce Department launched a new investigation into transshipments related to nearly 1 million metric tons of aluminum stored in rural Mexico.

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Zhongtian says he and his company have nothing to do with it. The Wall Street Journal? Well, it says shipping documents and sales receipts related to the massive stockpile all lead back to Zhongwang.

Less Titanium Production in Utah

Instead of forming titanium sponge by passing titanium tetrachloride in a gaseous phase over molten magnesium or sodium at its Rowley, Utah, facility, Allegheny Technologies, Inc., is cutting out the middle man. The specialty metals producer will now buy its titanium sponge on the open market. By idling the Rowley titanium facility indefinitely, ATI is also cutting 140 jobs. Read more

Source: Ronnie Chua/Adobe Stock

Source: Ronnie Chua/Adobe Stock

China disrupted the global aluminum market when it became the world’s biggest producer of the metal, creating a surplus that forced competitors to shutter as profits plummeted.

Now, China wants to expand its reach and make higher-value products with aluminum and took a big step toward doing so last week with the acquisition of Cleveland-based Aleris Corp.

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According to a report from Bloomberg, Chinese aluminum entrepreneur Liu Zhongtian acquired Aleris for $2.3 billion and gives him greater access to technology primarily enjoyed by the Western world, in addition to buyers that include aerospace manufacturer Boeing Co. and automakers like Audi.

“This was a different kind of move by a Chinese company,” Yi Zhu, analyst at Bloomberg Intelligence, told the news source. “Previously, China went after raw-material assets abroad, but this is about going to the downstream, and it fits with the Chinese government’s goals to upgrade manufacturing and the economy.”

China emerging as the world’s biggest producer of aluminum also spelled doom for Alcoa Inc., a longtime domestic producer for more than 100 years, which closed smelters in the United States.

Zhongtian Embroiled in U.S. Anti-Dumping Cases

Our own Jeff Yoders wrote on this acquisition last week and noted Zhongtian’s issues with the United States. “The cases against Zhongwang allege that the firm has been selling aluminum extrusions at below cost and that the Chinese entity receives state aid in the form of financing and other benefits giving it an unfair advantage. If Liu had a U.S. company, though, he could produce extrusions here and avoid the entire mess,” Yoders wrote.

MetalMiner’s aluminum prices provide accurate benchmarks for 3003-H14 sheet. They are based on a proprietary database of more than 31 million benchmarks collected from more than 1,100 companies operating in 19 industries.

 

Aluminum-industry representative Jeff Henderson says he is convinced that China Zhongwang Holdings Ltd., a Chinese aluminum giant controlled by billionaire Liu Zhongtian, tried to evade U.S. tariffs by routing aluminum through Mexico to disguise its origins, a tactic known as transshipping.

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Nearly one million metric tons of aluminum was discovered stockpiled neatly stacked behind a fortress of barbed-wire fences in rural San Jose Iturbite, Mexico two years ago. The stockpile is worth around $2 billion and represents roughly 6% of the world’s total inventory and it quickly became an obsession for the U.S. aluminum industry.

“My Moby-Dick has been Zhongwang,” Henderson, president of U.S. trade group the Aluminum Extruders Council told the Wall Street Journal.

U.S. executives contend that the mysterious cache was part of a brazen scheme by one of China’s richest men to game the global trade system.

Zhongtian denies any connection to the Mexican aluminum or transshipping, but company records, trade documents and legal filings reviewed by The Wall Street Journal, along with interviews of people who have done business with Mr. Liu, raise doubts about his account.

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The Commerce Department says it is investigating the Mexican aluminum’s origin now as part of a slew of trade complaints by the domestic metals industry against China, many of which include allegations of transshipping.

U.S. construction spending during July came in at an annualized rate of $1,153.2 billion, nearly the same as the revised June estimate, which was $1,153.5 billion, the Census Bureau reported ahead of the Labor Day holiday. Even so, the July 2016 figure is 1.5% higher than the July 2015 construction spending total.

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July’s numbers could be attributed to spending on private construction projects, which was up 1% compared to the revised June total. Public construction spending, by contrast, was down for the month by 3.1%. For the year, private construction spending gained 4.4%, while public spending dropped 6.5%.

Construction_Chart_September_2016_FNL

The Construction MMI reflected healthy U.S. demand for construction metals and jumped nearly 5%. Economists polled by Reuters had forecast construction spending rising 0.5% in July but keeping its gains from June is still good news for construction.

The upward revisions to the May and June construction spending data could see the second-quarter gross domestic product estimate revised up from the 1.1% annual pace reported last month and economic growth is good for construction and the economy as a whole.

Aluminum, Surcharges Up

Construction received a boost from the aluminum components of the sub-index, which posted strong gains despite the Aluminum MMI turning in an overall flat performance this month. Fuel surcharges were up across the board as oil’s taken a bit of wild ride lately. Products such as rebar and H-beam steel were also up.

Despite individual product strength, steel remains a very bifurcated market with prices up in the U.S. and down globally. Despite promises to wind down production in the second half of the year, China is buying up coal for steel production. The price of coal needed to make steel has surged more than 45% over the past three weeks, to its highest level since early 2013.

Major Shipper Close to Insolvency

South Korean shipping giant Hanjin Shipping Co. appears to be sailing toward oblivion as we’re writing this, a move that reflects weaker global steel demand or overall excess capacity. In the past week, creditors pulled the plug after $900 million (1 trillion Korean won) in support failed to keep the company afloat, forcing Hanjin to file for bankruptcy protection. Seoul Central District Court, which will decide the fate of the company, has set a Nov. 25 deadline for it to develop another restructuring plan, but many experts think liquidation will be the most likely outcome.

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Even though construction product demand looks strong, there are a lot of other factors that could plague these metals in the near future.

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In the largest foray by a Chinese company into the U.S. aluminum market since the financial crisis, Zhongwang USA LLC said this week that it would buy U.S. aluminum company Aleris in a $2.33 billion deal, expected to close Q1 2017.

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Zhongwang USA is owned by Liu Zhongtian through his Chinese group Zhongwang International Group Ltd. but he is also the founder of Asia’s second-biggest extruder, Hong Kong-listed aluminum products maker China Zhongwang, a firm embroiled in anti-dumping cases in the U.S. Liu has been angling to get a toe in the U.S. market for some time, there was talk of a $120 million aluminum casting plant in Barstow, Calif., as part of an earlier attempt to get into the U.S. but it came to nothing in the end.

Automotive Demand

Zhongwang is making a bet on the growing automotive aluminum sheet market, being a substantial manufacturer of automotive extrusions in China and recently building a rolling mill for automotive sheet to service the Chinese automotive body market. Read more

This week, most exchange-traded metal prices came down to Earth as the Federal Reserve hinted it may finally increase interest rates. The hardest hit was copper, which hit a two-month London Metal Exchange low. Weaker Chinese imports over the past few months and the bearish calls of some major banks have exacerbated copper’s recent price fall.

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When construction is strong in, China copper imports surge… but with them falling? It doesn’t look like demand in the world’s largest consumer is keeping up. Copper is just one of many metals that would be affected by interest rate increases and more hawkish behavior from the Fed, in general, but unlike other non-ferrous metals whose prices have increased on the LME this year — such as zinc and tin — copper has not shown strong demand and generally falling supply. Copper never was fundamentally strong even when its price jumped in Q2.

Trump Trumpets Trade

Politics met metals this week as Republican Presidential Nominee Donald Trump became the first candidate for President to promise to label China a currency manipulator and take action at the World Trade Organization accordingly.  He also promised to instruct the office of the U.S. Trade Representative to bring more trade cases against China. You’d think he’d be nicer to the country that used to make his ties.

Let’s Exchange, No Spoofs!

The London Metal Exchange and CME Group made headlines this week as the former cut fees in half this month as an apology for moving its live “ring” (where traders make deals using hand gestures on big red couches) trading to a backup location after structural problems were discovered at its brand new London office. As for CME Group, it cracked down on a rogue trader, suspending him for at least 60 days, for “spoofing.” Spoofing is the practice of setting up electronic trades to create demand only to pull out of them at the last minute.

India Hates Steel Dumping, Too

India joined the U.S. and E.U. this week in placing tariffs on cheap imports of hot-rolled and cold-rolled flat steel. Although six countries saw their imports to the world’s largest democracy tariffed, China was, again, the main dumping culprit.

Aluminum Association: Let’s Make a Deal

Speaking of China, not only does the Aluminum Association — North America’s largest trade association of primary smelters — still want a bilateral trade deal with China to set up rules for imports from the People’s Republic, but it signaled this week that it would pursue tariffs similar to those steel has won against Chinese importers if it can’t get the deal it wants for its producer members.

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The AA may even ask the International Trade Commission to reclassify some imports of “semi-finished” product to make them subject to existing taxes.