Ferrous Metals

Washington news organizations such as Politico are reporting more details about what a potential Trump Administration $1 trillion infrastructure plan might look like.

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The pictures that the Washington, D.C. media are portraying are quite dramatic and some of them engage in a level of speculation about funding mechanisms that likely only have a tangential relationship to what is being discussed right now at Trump Tower.

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Could more transit projects be part of a Trump infrastructure plan? Source: Jeff Yoders.

Politico’s analysis is a case in point, with speculation and quotes from both democrats and republicans about everything from a new gas tax indexed to the inflation rate to a quote from U.S. Rep. Peter DeFazio (D. Ore.), the top Democrat on the Transportation Committee, who said that public-private partnerships “won’t do much for the 143,000 bridges that need work nationwide unless you’re going to toll 143,000 bridges… it’ll help with individual sorts of big projects, but it’s not any kind of cure-all, and it certainly isn’t going to get the big bang that Trump has talked about in infrastructure.”

Federal Infrastructure Bank?

Yet, a mere 45-minute drive away, the Baltimore Sun praised another idea supposedly being debated by President-elect Trump and his advisors. U.S. Rep. John K. Delaney (D. Md.)’s Partnership to Build America Act would use repatriated corporate profits now held overseas (made available by a reduced tax rate on overseas earnings brought home and a larger tax on profits that remain off-shore) to put billions into the Highway Trust Fund and to create a new U.S. investment bank — with a $750 billion infrastructure fund — that would be available to state and local governments. Read more

India’s mining sector has the potential to contribute as much as $70 billion to the country’s economy by 2030 and generate about 6 to 7 million jobs, believes the country’s industry association, the Confederation of Indian Industry.

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A report titled, Mining Opportunities – Realizing Potential was recently released by the CII, though with an added a cautionary note: clearances “still remain an impediment for a smooth transition from auction stage to implementation stage.”

Mining Reforms Having an Effect

The current Modi government initiated reforms in the mining sector, which underperformed during the previous regime, many say, due to red tape. One of the most important steps was the clearance of the National Mineral Exploration Policy (NMEP) by the government in.

NMEP has the following main features for facilitating exploration in the country:

  1. The Ministry of Mines will carry out auctioning of identified exploration blocks for exploration by the private sector on a revenue-sharing basis. If exploration leads to auctionable resources, the revenue will be borne by the successful bidder of those auctionable blocks.
  2. Creation of baseline geoscientific data as a public good for open dissemination free of charge.
  3. A National Geoscientific Data Repository was supposed to be set up to collate all baseline and mineral exploration information generated by various central and state government agencies and also mineral concession holders and to maintain these on a geospatial database.

While these policy changes have been welcomed overall, there has been some criticism over the implementation. The CII report, for example, talks of the “inordinately long time that is required for obtaining this clearance and the cumbersome process involved therein.”

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The report was recently released at the International Mining and Machinery (IMME) and Global Summit 2016. It said that the Environment and Forest clearance processes take a long time and added that there was significant room for improvement in the clearance system in terms of efficiency, speed of decision making, predictability and transaction.

There’s also unexpected criticism from another quarter on the new mining policy. A report in the DNA newspaper, quoting global miner Anglo American PLC, said the Indian auction system discourages foreign direct investment as the auction process does not provide adequate risk-reward incentive.

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In the report, John Vann, group head of exploration at Anglo, said the auction system makes it difficult to see India competing with other countries where Anglo American invests. According to him, the granting of licenses rather than auctioning off mines would give confidence to foreign investors.

In a series of articles, we will be looking at globalization and the growing reaction against many of the consequences that free trade has brought, epitomized most recently by the election of Donald Trump as U.S. president on an anti-globalization ticket.

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One of several admittedly poorly detailed pledges Trump made was to save the U.S. steel industry by raising barriers against Chinese competition, perceived as unfair, state-supported dumping of excess production in the U.S. market.

Popular as Trump’s message was with many voters, his sentiments are not singular to the U.S. In Europe, steelmakers face sluggish growth and have struggled with overcapacity for years creating an environment in which even the most efficient have struggled to make money.

Hampered or supported by a political social contract to protect workers rights and employment — depending on whether you are a producer or a worker — every job loss has been resisted and delays in restructuring have dragged out the pain for everyone. In such an environment, even the usually patient Europeans have finally snapped and, spurred by popular opposition to free trade, have started to ramp up action against imports seen as unfairly priced or which are believed to circumvent World Trade Organization rules.

Europe Circles in on Vietnam

A recent Reuters report covers the European Union’s anti-fraud office (OLAF) investigations into whether Chinese companies shipped steel through other countries, known as transshipment to avoid anti-dumping duties.

Apparently, OLAF is looking into several cases where Chinese steel firms shipped the metal to another country, disguised its origin, and then shipped it on to Europe to avoid duties or quota limits from the original producing country. As with the recent China Zhongwang case in the U.S., the transshipment country is again Vietnam. OLAF is investigating 190 shipments of Chinese coated steel coils that arrived in Portugal, Spain and Poland from Vietnam in 2013-2014, the news wire says.

OLAF estimates the shipments via Vietnam were worth about $19 million and that the steel was given Vietnamese certificates of origin, the Vietnamese trade ministry said on its website, and it should be said Vietnamese authorities are cooperating with the E.U. in investigating these allegations.

If confirmed, OLAF would apply retroactive duties of 58% on the shipments and the Vietnamese fear it could impact bona fide shipments from the country, if not with automatic duties then with greater scrutiny and control.

Normal Enforcement?

Action taken against countries that break WTO or trade rules is a long way from anti-globalization. The most free-market orientated countries would be foolish to not ensure their trade partners adhere to the rules.

Steel is the second-largest industry in the world after oil and gas, with an estimated global turnover of $900 billion. As Reuters points out, steelmakers face sluggish demand growth, chronic overcapacity and poor profitability, problems that a flood of Chinese steel allegedly sold at a loss has made far worse than it should be.

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Yet, in spite of repeated claims the country intends to close capacity — even though it has closed 150 million tons this year — China’s steel output rose for a seventh straight month in September and its exports are on track to beat last year’s record of 112 million metric tons.

The country has not, until now, seen its exports as a problem, but as it gradually gets shut out of overseas markets it may finally dawn on China that they cannot allow their steelmakers to simply export their excess capacity, whether it is being done profitably or dumped at below cost, their trade partners are rapidly losing patience.

Our November metal price trends report showed an industrial metals complex buoyed by strong Chinese demand and bullish on the future, thanks to the election of republican presidential candidate Donald Trump who promises to curtail regulations on metals producers and the energy suppliers that provide power for smelting, steelmaking and mining.

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While some of the metals turned in a flat performance during the month of October, almost all quickly took off after the election. Now, as our lead forecasting analyst, Raul de Frutos, recently wrote, the industrial metal bulls are in full charge.

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The minor metals remained flat, but that’s no surprise to any buyer at this point. The fact that rare earth miner Lynas Corp. received a lifeline from a hedge fund and a Japanese state-owned enterprise was a minor (metals) surprise itself.

It’s a good time to be a producer of base metals as it looks like the bulls may continue to run in 2017. For more information on how to plan your purchases well into the New Year, consult our monthly metal buying outlook.

The Department of Commerce placed preliminary anti-dumping duties on imports of carbon and alloy steel cut-to-length plate (CTL plate) from nine countries. Some of the tariffs were as high as 130.63%.

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Anti-dumping laws provides U.S. businesses and workers with a transparent, quasi-judicial, and internationally accepted mechanism to seek relief from the market-distorting effects caused by injurious dumping of imports.

Austria

In the Austria investigation, Commerce preliminarily found that dumping has occurred by the sole mandatory respondent Bohler Edelstahl GmbH & Co KG, Bohler Bleche GmbH & Co KG, Bohler International GmbH, Voestalpine Grobblech GmbH, and Voestalpine Steel Service Center GmbH (collectively, Voestalpine) at a preliminary dumping margin of 41.97%. Read more

UPDATE: Ruling from Commerce detail on 5050 aluminum extrusions now included in this post.

The Department of Commerce is expected to launch a formal investigation today into whether Chinese steel companies are shipping steel through Vietnam to avoid U.S. import tariffs, a person familiar with the matter told the Wall Street Journal.

Steelmakers Asked for Vietnam Investigation

The decision to investigate follows a complaint in September from U.S. steelmakers, and is an escalation of U.S. efforts to stop a glut of China-made metal from flooding U.S. markets. The inquiry could result in new tariffs on steel imported from China via Vietnam, under rules designed to prevent such a tariff-evading practice, known as circumvention. Read more

Automotive sales fell 5.8% in October, marking the first time since the beginning of the recession that sales of new cars and trucks in the U.S. declined for three consecutive months.

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The yearly rate of sales for October was 18.02 million, according to Autodata Corp. That’s in line with the 18.18 million in October 2015. Nearly every major automaker posted sales declines in October. Ford Motor Co. and Fiat Chrysler Automobiles NV both posted double-digit declines of 11.9% and 10.3%, respectively. General Motors Co. beat analyst expectations, with sales down only 1.7%.

We had warned last month that last month that while our Automotive MMI was flat, that could signal a plateau for end-user automotive sales and this month we saw the other side of that plateau, as the sub-index fell 4%.

Automotive_Chart_November-2016_FNL

Automotive metals are still a lucrative market for steelmakers and aluminum smelters, but the drop in sales could be a bit worrying as any prolonged drop in demand could for vehicles could eventually be felt down the supply chain.

However, most analysts are still bullish on automotive sales despite the fact that the sales record of 2015 will mostly likely not be met.

“Key fundamentals like job security, rising personal incomes, low fuel prices and low interest rates continue to provide the environment for a very healthy U.S. auto industry,” GM Chief Economist Mustafa Mohatarem said in a statement. “The U.S. auto industry is well positioned for sales to continue at or near record levels for the foreseeable future.”

Automotive demand is strong in Europe and other mature markets, too.

BMW AG recently reported higher profit in the third quarter even though a decline in sales in the U.S. and increased investment in electric vehicles and other technology eroded earnings at its automotive division. Fellow German automaker Daimler (maker of Mercedes-Benz automobiles) and BMW are benefiting from the strong recovery in Europe’s car markets and renewed demand in China.

Austria’s Voestalpine AG, a company that supplies both with automotive steel and hot-briquetted iron ore, recently held an event wherein its CEO Dr. Wolfgang Eder said that their automotive metal sales, most of which are to European customers, are strong.

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“We do not see it different than what we see and here in U.S. auto markets,” Eder said. “We do not see any weakness. These deliveries are lower than U.S. domestic production, and while we do WANT to do more business with American automakers, those customers (BMW and Daimler) are paramount right now because we know that people, especially in the U.S. market, like those cars.”

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U.S. builders cut their spending on construction projects in September, the second straight monthly decline. Much of the decrease came as government spending for schools, sewers and transportation infrastructure projects tumbled. Our Construction MMI increased a point even as contractors cut spending.

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This was part of a yearlong decline as infrastructure funding has become a key policy issue in the presidential election.

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The Commerce Department said Tuesday that total construction spending fell 0.7% in September to a seasonally adjusted annual rate of $1.15 trillion. Publicly-funded construction dropped 0.9% to an annual rate of $270.3 billion. Over the past 12 months, government construction has slumped 7.8% — a decline equal to nearly $23 billion. It’s been a bad year for government infrastructure spending.

Federal government construction spending tumbled 1.9% after surging 4.8% in August.

Despite interest rates near historic lows, making it cheaper for the government to borrow and investment in facilities, the outlook for infrastructure spending has deteriorated. Next week’s Presidential election will likely clear up the short-term future of government infrastructure spending.

Free Download: The October 2016 MMI Report

Both Hillary Clinton and Donald Trump have pledged to revive infrastructure funding if elected. By reforming the business tax code, Clinton would provide an additional $250 billion in direct funding over five years and found a new infrastructure bank with $25 billion. Trump would rely on new tax credits for infrastructure, with the campaign projecting an additional $1 trillion being spent over 10 years.

Both would face the difficult task of shepherding their infrastructure spending ideas through what could be an adversarial congress.

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Allegheny Technologies, Inc. shares tumbled 15% Tuesday after the Pittsburgh-based specialty metals producer reported a larger than expected third quarter loss and missed analyst revenue estimates as well.

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The company lost $530.8 million, or $4.95 per share, vs. a loss of $144.6 million, or $1.35 per share, in the year-ago quarter. Sales fell 7% to $770.5 million. Analysts had expected the company to report an adjusted loss of 10 cents per share and revenue of $822 million.

ATI also announced the permanent closing of the idled Midland stainless steel melt shop and finishing operation in Beaver County, Pa.

It also permanently closed its Bagdad plant in Gilpin, Pa., whichemployed about 225 people. It produced grain-oriented electrical steel prior to the start of the six-month lockout of union workers in August 2015. Midland employed around 250 workers.

“The decision helps provide clarity to some of the people who had hoped that there would be a restart,” ATI spokesman Dan Greenfield said.

In December, the company announced it was mothballing both facilities with the possibility that they would reopen if market conditions for those products improved.

Free Download: The October 2016 MMI Report

Richard Harshman, ATI’s chief executive officer, said that has not happened. He announced the move as part of the company’s third-quarter earnings statement.

The Commerce Department has placed anti-dumping and countervailing duties on mechanical drive parts from Canada and China, some as high as 400% for the latter. U.S. auto sales are forecast to fall this month.

The Auto Sales Plateau Begins to Slope

U.S. auto sales are forecast to drop more than 7% in October from the same period in 2015, the sixth monthly decline so far this year, as automakers offer steep discounts and adjust production to manage inventories, J.D. Power and LMC Automotive said on Friday.

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This may be the fall from the plateau we have seen over the last few months of flat auto sales.

The two auto industry consultants said October U.S. new vehicle sales will number 1.347 million, down 7.3% from 1.453 million units a year earlier. The seasonally adjusted annualized rate for October will be 17.7 million vehicles, down from 18.1 million on the same basis a year earlier. This October has two fewer auto sales days than October of 2015. Read more