Aluminum

U.S. customs officials have seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world, the Wall Street Journal reported this morning.

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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.

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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.

Chinese Supply

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.

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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.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

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:

Remember that giant aluminum stockpile that sat in a Mexican desert for years before being transported to Vietnam recently?

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Why it has crisscrossed the globe remains a puzzle for American executives and investigators trying to unravel the logic behind its movements.. Now, a Dallas attorney’s correspondence suggests a surprising possibility: that the stash is Chinese billionaire Liu Zhongtian’s retirement fund.

Like all Chinese citizens, Zhongtian, the 52-year-old chairman of aluminum giant China Zhongwang Holdings Ltd., isn’t supposed to move more than $50,000 a year out of the Communist Party-led country. To get around the restrictions, Chinese nationals have used Hong Kong money changers to illicitly transfer cash between bank accounts, combined their $50,000 quotas to make large-scale transfers and even carried cash across borders in suitcases.

The Wall Street Journal reports that Zhongtian developed an industrial-scale approach involving boatloads of aluminum which he stockpiled with plans to sell the metal over time, according to the Dallas attorney’s correspondence and people who have worked for Mr. Liu whose accounts are supported by shipping and corporate records.

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Representatives of China Zhongwang deny that the stockpile is an attempt to move wealth out of China.

As we continue to spotlight and republish our top posts of 2016, we travel way back to New Year’s Day 2016 for another metal price story. This one by our Editor-at-Large and MetalMiner Co-Founder, Stuart Burns noting an aluminum price increase from almost exactly one year ago today. — Jeff Yoders, editor.

Aluminum has since taken off with the rest of the base metals and we’re in a full bull market. It’s quite a contrast from situation just one year ago.

The London Metal Exchange (LME) aluminum price has risen from the low $1,400s per metric ton in October to the mid $1,550s this week.

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At the same time, the Japanese have started settling first quarter 2016 physical delivery premiums at $110 per mt, 22% higher than the previous quarter, the first time they have risen in a year.

rolled aluminum on table with worker

What is behind the increase in the aluminum prices? Adobe Stock/uwimages.

Meanwhile, probably not unconnected, Japanese port stocks have fallen at the country’s three major ports. Stockpiles fell in November by 7.5% to 401,000 mt according to Reuters. Over the in US, the Midwest transaction price, which includes the LME price and premium that buyers pay to take delivery of the metal, has risen steadily this month to $1,736 per metric ton by December 24, up from $1,599/mt on 28 October, which was its lowest point since May 2009. 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.

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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.

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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.

Indian-born metals tycoon Sanjeev Gupta seems to be snapping up metals fast, whether those investments are aluminum, steel or other producers. Gupta’s investments come as competition is shying away from investing in the U.K. steel and other metals businesses.

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Gupta recently announced that he would be investing $148 million (around £120 million) in Britain’s last standing aluminum smelter. Gupta’s Liberty House along with his father’s SIMEC business will be paying $371 million (£330 million) to buy assets that include the plant at Lochaber in the western Scottish Highlands and two hydroelectric plants that power it.

UK Aluminum

The plan is to upgrade the equipment and turn it into an aluminum wheel manufacturing facility. Gupta’s Liberty and sister company SIMEC are part of the Gupta Family Group Alliance (GFG) , and, according to a report in the London Telegraph, “the move is part of the parent group’s strategy  to build what it describes as ‘a competitive and sustainable metals and engineering sector’ in the U.K.”

The Scottish government has supported the acquisition and has guaranteed the power purchases of the aluminum smelter for the next 25 years.

Liberty supplies parts to the U.K.’s automobile industry with clients including Jaguar Land Rover. Lochaber, with a capacity of 47,000 metric tons, was put on the block by Rio Tinto under its plan to dispose of its non-core assets.

The deal will immediately safeguard the existing 170 jobs, generate another 300 jobs directly and about 2,000 direct and indirect jobs in the overall supply chain.

This deal marks one of the largest single investments made by the GFG Alliance. It also marks a major step in GFG’s plan to forge a sustainable metals and engineering sector in the U.K. by integrating the supply chain.

Other Acquisitions

Liberty has spent at least $618 million (£500 million) in the past year on acquisitions. In November, it had also signaled its intention to buy some of Tata Steel UK’s specialty steel business.

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The Telegraph says the purchase of various steel furnaces is part of Gupta’s larger plan to complete his “green steel” vision, where scrap steel is recycled in the U.K. market.

Alcoa, Corp. recently launched new aluminum product lines produced with low carbon emissions and recycled content. The new sustainable line includes two key product categories:

  • Ecolum: a range of cast products among the least carbon-intensive products available today, yielding a 75% lower carbon impact than the industry average.
  • Ecodura: aluminum billets made with a minimum of 50% recycled content and use up to 95% less energy to manufacture when compared to products with no recycled material.

Alcoa said ecolum products will qualify for Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council and, as such, the company is preparing Environmental Product Declarations for the building and construction market that helps customers achieve LEED materials and resources credits.

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Only plants that operate on hydro-electric power that meet the emissions requirements for the ecolum guarantee of less than 2.5 metric tons of CO2 emissions per metric ton of aluminum. The ecodura products can be produced at any facility that has the ability to remelt scrap.

Aluminum Rod

Ecolum aluminum rod produced at Alcoa’s Fjardaál hydro-electric smelter in Iceland. Source: Alcoa.

MM-IndX_TRENDS_Chart_December2016_FNL-TOPVALUE100If you read MetalMiner, it’s no surprise to you that the industrial metals bull run took off in a major way this month. Copper rose nearly 17% to edge out the Raw Steels MMI (up 14%) as our December big winner, but even the metals that lost a little ground (aluminum and our global precious index) pared their losses below 3% on the MetalMiner Indx.

The industrial metals picture looks a lot more upbeat than it did just two months ago, but markets are fluid things. When will commodities and the surging U.S. dollar (the dollar index hit a new high Thursday) uncouple? Can the optimism last? What will higher interest rates mean in the new year?

We hope you made your purchases before prices took off and we’ll be here in 2017 and beyond to advise you on how to buy industrial metals in this bull market.

 

An Indian government body has decided against imposing safeguards on imports of aluminum products citing lack of evidence over imports hurting profitability of domestic industry.

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The Directorate General of Safeguards, which is a part of India’s finance ministry, said imports had come down while production and sale of unwrought aluminum that is extracted from primary metal or scrap, had gone up.

Trump Picks Perry For Energy Secretary

President-elect Donald Trump has chosen former Texas Governor Rick Perry to head the U.S. Department of Energy, putting him in charge of an agency he proposed eliminating during his bid for the 2012 Republican presidential nomination.

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The choice of Perry adds to the list of oil-drilling advocates skeptical about climate change who Trump has picked for senior positions in his Cabinet, worrying environmentalists but cheering an industry eager for expansion.