Aluminum

MM-IndX_TRENDS_Chart_February2016_FNL-TOPVALUE100

The trends from our February Metal Price Index were more flat than down in February and it still looks like a bearish market for most of the metals we track.

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Only the Renewables and GOES sub-indexes had price increases for the February MetalMiner IndX reading.

Many producers are seeing their profits decline to the point where capacity shutdowns are necessary. Freeport McMoRan’s stock price fell 45% in the first two weeks of January, after it hit a 13-year low in December.

Alcoa, Inc. — already in the process of splitting itself into two companies and curtailing its smelting business — saw its shares reach a seven-year low this month.

Brazilian miner Votorantim Metals announced in January its intention to suspend two nickel operations. In Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle because of the low prices.

After shuttering its grain-oriented electrical steel operations, Allegheny Technologies, Inc., further signaled it would not supply commodity-grade stainless steel at all this year.

With all of these cutbacks one would think that supply, eventually, would have to be constrained but it’s difficult to measure just how much overcapacity is truly out there.

China’s propensity to dump — and the resultant export market saturation — has still not been curtailed in any significant way. China is producing too much steel, aluminum, copper, solar panels and other goods such as plate glass and chemicals for the domestic market, and usually exports the excess at cut-rate prices. This was reflected in our metal price indexes in this month.

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Although other base metals made new lows in January, aluminum prices held steady. The aluminum MMI fell only one point to 71.

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What didn’t fare well in January was Alcoa‘s stock price, which fell sharply to its lowest level since March 2009.

Alcoa stock plunges in 2016 hitting a 7-year low

Alcoa stock plunges in 2016, hitting a seven-year low. Source: MetalMiner analysis of @StockCharts.com.

Lower aluminum prices were the main cause driving the company’s shares down over the past months. In addition, the recent turmoil in stock markets is not helping matters. A combination of both caused Alcoa’s stock price to plunge in January.

Midwest Premiums

Rising domestic premiums have helped Alcoa improve its margins. Since September, premiums in the U.S. rose from the lows of $0.06 per lb., mainly because of the production cutbacks announced by domestic producers in Q4 2015. However, we haven’t seen falling stockpiles and we’ll probably not see a major bounce-back in premiums. Indeed, over the past couple of months, MW premiums have stabilized at around $0.09 per pound.

Aluminum_Chart_February-2015_FNL

There are a few factors preventing premiums from rising much more. First, some of the proposed cutbacks have been partially rolled back. Alcoa previously announced the closure of its Intalco smelter in Q1, but now the company will keep running until the end of Q2. Century Aluminum is running its Mount Holly smelter at half capacity despite its previous announcement of a complete shutdown.

In addition, domestic aluminum producers will find it hard to succeed in increasing their premiums while global sentiment remains negative. Despite the relative scarcity of material created by domestic producers, there is still a glut of material elsewhere in global markets. Finally, any significant increase in domestic premiums would attract more imports into the country, especially coming from China.

Stockpiles

The main problem with the aluminum industry is that smelters in China keep running and refuse to cut production. The other problem is high inventories. Even though official London Metal Exchange inventories have been trending lower since mid-2013, unofficial stocks have actually increased. According to CRU, global aluminum inventory including unofficial stocks stands at around 15 million metric tons.

Moreover, China wants to keep stockpiling instead of cutting production. In January, top aluminum smelters in China agreed to form a joint venture to stockpile aluminum. These measures will only keep Chinese smelters producing more aluminum while material only goes into financial deals. However, the market knows what China is up to, and investors won’t buy aluminum until shutdowns happen. The stockpiling game will only keep prices low for longer, potentially making the problem even worse once that aluminum enters the supply chain.

Compare Prices With The January 2016 MMI Report

For as long as China doesn’t change its approach, the best that aluminum producers can hope is for prices to stay at current levels.

Actual Aluminum Prices

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With aluminum prices falling over the past year, stock prices for companies that smelt the metal such as Alcoa, Inc., and Rio Tinto Group are suffering as a result, but more action will have to be taken on their part if they’d like to return to profitability.

According to a recent article from US News & World Report, aluminum smelters have already started to reduce production of the metal, but they may have to further cut back on output if they want to return to the black as aluminum demand is not expected to rise any time soon.

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“The price in general has gone lower even though we’ve seen industrial demand and some production cuts,” Michael Turek, a senior trader at BGC Partners, a New York-based global financial services firm, told the news source. “The fact that prices continue to go lower suggests the market feels that thus far, it’s been a cosmetic surgery rather than mainstream surgery.”

On the London Metal Exchange, aluminum prices have dropped about 20% over the past year with global demand slowing. China’s economic issues have spearheaded the decline, as has been the case with many commodities.

“In terms of pure fundamentals, (the aluminum industry) doesn’t appear to have a lot going for it,” Turek added. “I don’t have any major grand upside aspirations for the market. We’re going to need more production cuts, and they’re going to have to be sustainable.”

We here at MetalMiner™ agree with this sentiment.

How will base metals fare in 2016? You can find a more in-depth aluminum 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:

You may be an investor in mining shares or you may be an investor in commodities, or you may be both, but your pension fund — if it’s any good — is almost certainly neither.

Free Download: The January 2016 MMI Report

Because, if it holds mining shares, it is nursing some heavy losses after the last 12 months.

Source: Telegraph Newspaper

Source: London Telegraph

Pension funds, thankfully, are cautious animals. They like solid dividend payers — as many in the mining sector have been for years — but they hate the combination of falling share price, high debt and low commodity prices that will almost certainly result in a cut in dividend payments this year even if mining companies are to survive the downturn. Read more

Ford Motor Company took the automotive world by storm when it announced it was going to construct the iconic F-150 pickup truck from aluminum in 2015.

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The very idea that America’s workhorse could be made from something so fragile as aluminum was a complete anathema to some people, but the resulting product on the whole has been well received.

Classic car

An aluminum-bodied Rolls? It’s more likely than you think. Source: Adobe Stock/Dimitri Surkov.

Lighter, more economical and more responsive it can be said in most quarters to have been a success; so much so that Ford has recently announced it will increase the aluminum content in 2017 models.

GM Plays Catch Up

Despite initially trashing the idea, General Motors has now said it would sink $877 million into its Flint, Mich., truck factory this year with the intention of converting many of the bodies for models such as the Chevrolet Silverado and GMC Sierra pickups into aluminum. Read more

India’s National Aluminum Co. (NALCO) seems to be declaring it will, indeed, join ’em.

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The state-owned aluminum producer is sending a team to Iran, Qatar and Oman to explore opportunities for setting up a gas-fired thermal power plant and associated aluminum smelter next month according a report in the India Times.

NALCO has been looking at a $2 billion project to set up a smelter in Iran’s Kerman province, but sanctions meant it never got beyond the feasibility stage. Now, with sanctions lifted, the firm is exploring all locations in addition to the Iranian project probably with the intent that they can show the Iranians they have other options and negotiate a better deal.

New Suitors

India is reported by the Indian Aluminum Association (IAA) to have the world’s fourth-largest thermal coal reserves at 250 billion metric tons and the fifth-largest bauxite reserves at 3.29 billion mt while also being self-sufficient in aluminum production. So, you may ask, then, why is a state-owned producer looking to invest $2 billion in a project in the Middle East?

India_Alu_consumption

Source: Indian Aluminum Association.

Globally, aluminum has probably the best growth prospects of any of the base metals, even though prices are currently desperately low for producers struggling to cover costs, but India has even better growth prospects than much of the rest of the world. Per capita consumption is only 1.8 kilograms per person compared to over 20 kg in the developed world as this chart from the IAA shows. Read more

One of the largest tractor manufacturers in the world and one India’s top automakers, Mahindra & Mahindra Ltd. is reportedly building an SUV for the American market.

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A recent report in The Wall Street Journal said the company has cobbled together an engineering team to set up a unit near Detroit, home of much of the US auto industry. Mahindra’s new staff has been carefully poached from US giants such as Ford Motor Co. and Tesla Motors Inc.

Genze_20_Mahindra_550_012116

Mahindra’s new Genze 2.0 is a scooter designed for the North American market. Source: Mahindra.

The same report claims Mahindra was already testing the large SUV, said to be comparable to the BMW X5, on the streets of metropolitan Detroit. The SUV will have to meet stiff US safety and fuel economy regulations, and cater to the whims of American buyers if it wants to be successful.

Mahindra’s US Ambitions

This isn’t Mahindra’s first attempt to crack the US automotive market. About a decade ago, the $16.9 billion conglomerate, which controls about 40% of the SUV market in India announced partnerships with US dealers, with the promise of delivering vehicles by 2009. But Mahindra claimed it had trouble meeting US vehicle regulations and canceled its plans in 2010, and the entire episode ended up in US courts as at least 5 automobile dealers from the US filed a lawsuit accusing M&M accusing it of fraud, misrepresentation and conspiracy.

Read more

The price of oil slipped below $27 this week and panic ensued in places other than the disco. Global stock markets fell as investors feared the worst and followed the Royal Bank of Scotland‘s advice and sold everything but bonds.

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The Dow Jones industrial average was down more than 8% on the year and US equity funds have fared even worse. They were down 10.4% earlier this week. After a steep sell-off Wednesday, global stocks were mixed Thursday with Asian markets continuing the previous trading session’s sell-off as oil prices continued to fall. European and then US stocks got a lift after the European Central Bank  hinted at further stimulus measures.

Can the US steel industry finally catch a break? Source: Adobe Stock/Inzyx.

Can the US steel industry finally catch a break? Source: Adobe Stock/Inzyx.

My colleague Stuart Burns adroitly pointed out that while commodities such as oil, and the metals we track daily, are oversupplied, none of this has anything to do with demand. Most of the panicked investors are scapegoating China and demanding more stimulus, a course of action that would actually worsen the oversupply and the slowing economy there.

Like a tourniquet applied to stanch the bleeding of a limb injury, the oversupply that oil drillers and miners have built up to force out competitors — and the currencies purposely devalued to encourage exports — are now figuratively killing the limb.

Of course, that doesn’t mean the State Reserves Board won’t try it.

I am the oversupply. Fear me.

I am the oversupply. Fear me.

Producers have been, to a large extent, their own worst enemy. Just look at the position Freeport McMoRan has put itself in, divesting part of its largest asset, the Glasberg mine, and all.

In times like these, we like to accentuate the positive. Steel-Insight’s James May reports that, thanks to anti-dumping actions and falling capacity, US steel mills are finally in the “sweet spot” that will allow prices to rise.

Free Sample Report: Our January Metal Buying Outlook

What a concept, eh? Rising metal prices. My colleague Raul de Frutos helpfully pointed out this week that we’ve actually been in a bear market for awhile and it could keep going so long as that pesky oversupply is there. Even that “sweet spot” James mentioned for US steel mills is a short-term thing. A  paper ring. Prices will fall back to earth later in the year.

Aluminum producers in India are looking to the US and other export markets with hope in the new year, after the double whammy of cheap Chinese imports and low prices for the silver-white metal for almost all of 2015.

Free Download: New! The January 2016 MMI Report

As in other countries, the overall global commodity free fall was the main cause of the mayhem for Indian producers. Aluminum prices dropped from a monthly average of $2,455 a metric ton in 2011 to the recent $1,468 per mt. A large number of Indian aluminum majors are now staring down capacity shutdowns and operational losses. Companies such as Vedanta have been negatively affected.

What Can Save Indian Aluminum?

There are three factors aluminum producers are banking on: more and newer innovative uses of aluminum, especially by US companies, India’s economy improving and producing at full throttle and, finally, support from the Indian government via additional taxes and tariffs to stop the influx of cheap imports.

Indian smelters are counting on automotive and other sectors to eliminate their surplus.

Indian smelters are counting on automotive and other sectors to eliminate their surplus. Source: Adobe Stock/Arsel.

New uses of the metal are key to producers overcoming their recent losses. Indian aluminum companies have put their faith in a large increase in the use of aluminum in the automotive, aircraft manufacturing and construction sectors in the US and in European countries. Expansion by Indian producers into these markets needs to happen to justify their optimism.

Read more

An appeals court will allow the EPA Clean Power Plan to stay in effect while it is argued in court and China’s plans to tame its largely state-run metals producers are starting to become more clear.

Clean Power Plan Will Stay in Effect

The Washington D.C. Circuit on Thursday refused to put the Environmental Protection Agency Clean Power Plan on hold until legal challenges to the rule are completed, but they did fast-track a trial on the legality of the new rule.

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The Obama administration considers this an early victory as it looks to defend and implement the sweeping regulations that would slash carbon emissions from existing power plants.

29 States and several industry groups petitioned to overturn the CPP or, at the very least, block it from being implemented while the legal battle plays out. They’ve argued that they’ll be irreparably harmed by starting the compliance process, even though they’re likely to succeed in convincing the court that the rule is illegal.

However, the D.C. Circuit panel shot the request down in a two-page order, though it said the appeals court would expedite the consideration of the case and schedule oral arguments for June 2.

China’s Metals Transition Plan

China’s plans to set up funds to manage coal and steel capacity closures and stockpiling schemes for metals such as aluminum have offered nervous markets some clarity on the likely future make-up of the country’s sprawling and predominantly state-run metals and mining industries. But it’s still way too early to tell if these initiatives even can be successful in taming overproduction.

As the world’s largest producer of aluminum, steel and other metals, and the biggest consumer of copper and iron ore, China is crucial to global metals markets which have slumped in the past year as Chinese industrial demand growth slowed.

Free Sample Report: Our January Metal Buying Outlook

After weeks of talks between government officials and leading metals producers, Beijing looks set to take a direct approach to managing capacity cuts and layoffs in coal and steel. It will provide smaller-scale financing deals to groups of producers of non-ferrous metals, such as aluminum, for stockpiling and capacity cutback initiatives.