The price prospects for most of the metals we track remain strong and we have already seen some renewed price increases since we initially published our sub-index reports starting on the first of the year.
The Chinese economy and the strong dollar continue to power the metals bull market… at least for now. Happy new metals year!
A new report said an increasing number of middle class customers with greater spend power, were being attracted toward cost-effective aluminum-free pouches. The high numbers could also be attributed to the large populations of China and India. The APAC region was followed by the European and the North American markets, respectively.
The report by Transparency Market Research (TMR) said consumers like the pouches because they are lightweight and easy to handle, in addition to being environmentally friendly, not to mention their low cost compared to the more common aluminum pouches. They also offer flexibility and ensure better shelf visibility.
Can aluminum-free pouches replace not only glass and aluminum, but also more common aluminum pouches? Source: AdobeStock/iaremenko.
TMP said many changes were occurring in the food packaging system from the way food is produced to how it was distributed, stored, processed and retailed. Food pouches, used for everyday food products, combine the advantages of traditional, rigid food packaging with modern flexible material.
The aluminum-free food pouch, also known as the alu-free pouch, was designed to have a number of advantages over aluminum including superior barrier property, near-perfect air-tightness, optimal puncture resistance to preserve the organic qualities of the food and diverse options for easy opening.
Aluminum-free pouches are required to be recyclable and easily disposable. Therefore, many companies in the APAC region switched to using them. In Europe and the U.S., a patented Ensobarr barrier coating has replaced the aluminum lamination in packaging boards.
Aluminum vs. Aluminum-Free
Based on consumer feedback, manufacturers in all regions are shifting from rigid packaging options that involve the use of glass and aluminum to more flexible packaging options. One option was the stand-up pouch, currently sees its demand going up due to innovations in their packaging styles using resealable spouts and cap. Near-zero leakage of liquids was another reason behind the high demand.
The report said the aluminum free food pouch market could be segmented on the basis of material type, pouch type, by its application and by region. On the basis of material type, the market was divided into flexible plastic which includes films and sheet, rigid plastic and others. The market can be further segmented into flat pouches, stand up pouches and others, while on the basis of application, it can be classified as vacuum, resealable, retort, spouted and stick market.
Many fresh food packaging companies are also shifting to the aluminum-free food pouch as it offers customization and the scope to create new packaging designs that companies require, rather than a one-size-fits-all can or jar.
Product innovation and expansion are the key strategies adopted by major players in the aluminum-free food pouch market. Some of the key players in this market are Astrapak Limited, Berry Plastic Corporation, Coveris, Mondi Group, and Sonoco. These companies switched to aluminum-free food pouches as they gained expertise and experience in delivering them over the years.
Global aluminum demand is more robust than most expected. Chinese stimulus measures boosted demand for aluminum in the auto and real estate industries. In addition, the U.S. is expected to demand more aluminum amid Donald Trump’s plans to inject one trillion dollars in U.S. infrastructure.
Strong demand is supportive for aluminum prices this year. However, in this piece we are going to focus on the supply side. We believe three factors are going to disrupt global aluminum supply. As a result, we’ll see higher aluminum prices this year:
Graphic: Raul de Frutos, MetalMiner.
Last week, U.S. customs officials seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world. The move is the most potent action yet by federal authorities probing whether U.S. companies connected to Chinese magnate Liu Zhongtian illegally avoided nearly 400% tariffs by routing the metal through other countries. Currently, Homeland Security is conducting laboratory tests on the aluminum to determine whether the metal is restricted under U.S. law. Read more
Aluminum on the London Metal Exchange has been trading broadly between $1,700 and $1,750 per metric ton for much of the fourth quarter. Maybe not to the same extent as copper or zinc, but aluminum along with most of the base-metal sector benefited from renewed investor interest as 2016 went on. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017. Read more
The Obama administration also launched a formal complaint Thursday against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country’s vast aluminum industry.
The move against the stockpile of aluminum connected to Chinese billionaire Liu Zhongtian, the owner and CEO of aluminum company China Zhongwang, is the strongest action yet by federal authorities probing whether U.S. companies connected to the Chinese magnate illegally avoided nearly 400% tariffs by routing the metal through other countries.
An aluminum stockpile like this one has been seized by Homeland Security.
We previously reported the whereabouts of the aluminum stockpile as it curiously moved around the globe. China Zhongwang has denied any connection to the stockpile or its movements, but hundreds of shipping containers of aluminum were seized this week by the Department of Homeland Security. The containers are owned by Perfectus Aluminum, Inc., a California company founded by Mr. Liu’s son, Liu Zuopeng. Perfectus is now run by one of Liu’s close business associates, Jacky Cheung, who runs several companies with connections to Liu.
Homeland Security is conducting laboratory tests on the aluminum to determine whether the metal is restricted under U.S. law, according to federal court documents. The seized aluminum is in the form of pallets and court records don’t state which company manufactured the aluminum. The WJ saw shipping records which show that a separate company called Peng Cheng — which later became part of Perfectus in a merger—imported the metal from an affiliate of China Zhongwang in 2013 and 2014.
Homeland Security and the Justice Department are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud. The WSJ reported that Homeland Security agents have also questioned former employees of the companies associated with Liu, according to people familiar with the investigation.
WTO Case Against Chinese Aluminum Subsidies
As for the subsidies case, the U.S. Trade Representative‘s office said in a formal complaint that China’s actions in the aluminum sector violate WTO rules prohibiting subsidies that cause “serious prejudice” to other members of the trade body. Read more
After surging in November, base metals fell across the board in December. That selling pressure spread into aluminum markets, limiting any upside moves into the year-end. Prices however didn’t give that much ground as aluminum’s fundamental story remains rather bullish. The drops look a lot like classic profit-taking.
The auto industry is a key driver of aluminum demand. Auto sales in US and China (the world’s biggest car market) finished the year on a strong note. Total vehicle sales in the U.S. hit an 11-year high in December, aided by a fourth-quarter surge in demand that exceeded expectations. In China, car sales hit an all-time record in November, up 17.1% year-on-year.
Although the figures came in strong, they should be taken with a pinch of salt. In the U.S., cars were sold at an average 10% discount off the original asking price and that’s an incentive level not seen since the beginning of the financial crisis. Similarly, in Q4, China announced a 50% cut in its sales tax on automobiles with small engines. The tax cut was effective only until the end of 2016 although some analysts expect China to extend the tax cut into next year.
One of the factors supporting higher aluminum prices has been that there were fewer smelter restarts than expected smelter in China. In addition, we foresee limited additional restarts this year due to rising production costs and pollution issues in China.
First, alumina seems headed for a supply deficit this year following Chinese curtailments. Second, coal prices have surged since China reduced the hours for workers in its coal sector, supposedly in a bid to control pollution and curtail its excess industrial capacity. Truth be told, though, China really relaxed the mining day norm simply to control skyrocketing — some would say artificially high — prices. However, we expect the maneuvers will keep China’s supply of coal and aluminum in check this year.
For years, China’s cities have been choking on the smog spewing from China’s industrial production sector but things have recently gotten much worse. Two weeks ago, authorities asked 23 cities in northern China to issue red alerts as inspection teams scoured the country. The scale of the red alert measure shows that the Chinese government is taking air pollution seriously. Given that coal burning is the biggest contributor to air pollution in China, industrial metals supply could shrink this year, particularly steel and aluminum.
What This Means For Metal Buyers
The massive existing overcapacity and questions regarding China’s ability to maintain its rate of growth are the main factors that could spoil the party for aluminum bulls. However, for the reasons explained above, it seems early to make a call on that. We still see upside potential in aluminum prices.
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To begin 2017, aluminum prices inched higher with the U.S. dollar retreating and traders awaiting clarity on the market.
According to a recent report from the Economic Calendar, downward pressure on aluminum has been the story since December, but over the course of 2016 the metal saw a 13% increase. The reason? falling supply with the closure of capacity while demand grew as the result of China’s infrastructure initiatives.
Donald Levit, writing for the Economic Calendar, said: “Even though it is typical for aluminum prices to retreat in late fall and winter, prices held steady through mid-December after Donald Trump won the U.S. presidential election in November. Trump made a campaign promise to move to further stimulate the U.S. economy, and that stimulus could potentially include infrastructure spending. That would boost aluminum demand.”
What does 2017 have in store for aluminum prices? Volatility could be the word with traders attempting to assess how the market will evolve as the year progresses.
The Auto Industry and Aluminum
Our own Raul de Frutos echoed the sentiments of aluminum’s struggles in December after a 2016 of growth. But what does the auto industry have to do with it? Raul writes:
“The auto industry is a key driver of aluminum demand. Auto sales in US and China (the world’s biggest car market) finished the year on a strong note. Total vehicle sales in the U.S. hit an 11-year high in December, aided by a fourth-quarter surge in demand that exceeded expectations. In China, car sales hit an all-time record in November, up 17.1% year-on-year.”
How will aluminum and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:
India is becoming a growing powerhouse in the base metals industry and — although producers seem more intent in expanding outside the country, witness Aditya Birla’s smart acquisition of Novelis — the country has the two significant advantages that encourage an expectation of rapid domestic growth. These are low current per capita consumption and the world’s fifth-largest domestic reserves of bauxite.
Obstacles to India and Base Metals
Assured rapid domestic growth is not a slam dunk, though. Power costs in India are high and competing demands for power in a country with a severe shortage of generating capacity mean refiners have to build their own captive power stations to ensure continuity and price competitiveness.
Both mining and plant construction then run into problems of land ownership and poor supporting infrastructure. Both issues that could be addressed if there was the political will and, as such, can be said to be self-inflicted. That’s cold comfort to producers struggling to get projects approved and developed on budget. So, maybe, it comes as no surprise that producers have been lobbying hard for protection against imports.
Sources: Bloomberg and World Bureau of Metal Studies
According to industry sources quoted by the Economic Times of India, imports of aluminum have increased by 159% in 2015 compared to 2011 levels. Possibly more worrying for the industry is that the country is importing more than 50% of aluminum consumed. While India has annual aluminum consumption of 3 million metric tons, half of that is supplied by imports. India’s production capacity is 4 mmt. Read more
No greater debate has ever roiled our virtual pages than the one about Ford Motor Company and its use of the term “military-grade aluminum.” This post from last May is just one of several posts we have written about Ford’s ad campaign for the aluminum-bodied F-150 pickup and all not only rank high in our site stats but also seem to draw the most commenters willing to lend their expertise that, mostly, rejects Ford’s use of the term.
Enjoy this look back and feel free to post if you have any strong feelings about “military-grade” yourself as we look back at the year that was. — Jeff Yoders, editor
No term has brought up more discussion in the pages of MetalMiner than Ford Motor Company‘s insistence that the F-150 pickup truck is made of “military grade” aluminum.
On this Memorial Day, we thought we’d revisit whether military grade was actually a specification or a simple marketing ploy on Ford’s part. Since the aluminum-bodied F-150 was introduced in the 2015 model year, more information about its actual construction has been shared by Ford.
Individual dealers are now touting the strength and research that went into the cab and other body parts of the F-150. “Military grade” is still sprinkled throughout the the video, but they also concede the alloy is also part magnesium and silicon. Ford also mentions that a large portion of the F-150 is, in fact, high-strength steel.
Ford has also admitted that the F-150 is primarily built from 6,000 series aluminum alloy, the strength of which is increased by heat-treating after it is formed.
The “military grade” refers to the specs that military applications of 6,000 series alloy is used in. In fairness to Ford, manufacturers and fabricators have been promoting their products as “military grade” for decades, and that’s really no different than Ford’s use of the term.
We certainly wouldn’t recommend that anyone take an aluminum-bodied F-150 into a war zone to test just how “military grade” it really is, but, from a specification standpoint, Ford seems to have good reason to be proud of the rigor of the processes it uses to produce the F-150.
Domestic aluminum and zinc prices in China have been supported this year by a doubling in coal prices, due to a perception that higher coal prices lead to higher energy prices and directly translate to higher energy intensive metal prices.
China’s central government probably feels it has little alternative than to rationalize thermal coal production which, a year ago, was suffering from some 2 million metric tons of overcapacity. The irony is that investment in coal mines would fall if the government would trim plans for new coal-fired power stations.
Is Coal-Fired Capacity Actually Decreasing?
Yet in a market which has seen the world’s largest investment in renewable energy, Greenpeace is quoted in the Guardian newspaper saying China is adding two new coal power station projects each week across 10 different provinces. The environmental campaign group estimated in July that China already has up to 300 gigawatts of excess coal-fired capacity with another 205 gw under construction and plans for an additional 405 gw. As of July, China already had 895 gw in coal-fired power stations representing more than half its electricity generation London-based Carbon Tracker is quoted as saying. Read more