Aluminum

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

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase
growth.

MM-IndX_TRENDS_Chart_September2016_FNL-TOPVALUE100

Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

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This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for 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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U.S. Automakers sales numbers were down substantially in August. The drop is something that’s usually expected as the summer sales season winds down, but the steepness of said drop is what’s more concerning to economists and automotive executives.

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Ford Motor Co. saw the biggest drop, down 8% year on year for the month of August to 214,482, General Motors was down 5% to 256,429 vehicles and Volkswagen was the most down 9.1% to 29,384 vehicles. Of the majors only Fiat Chrysler showed any growth, buoyed by a strong line up of SUVs to post a 3% increase to 197,000.

Automotive_Chart_September-2016_FNL

While automotive metals remain a lucrative and sought-after market for both steelmakers and aluminum smelters, the pace of sales is slowing. Sales are still on a pace to beat last year’s record of 17.5 million, but the seasonally adjusted annual sales rate dropped to 17 million last month, according to Autodata Corp. That’s the slowest pace for an August since 2013, and far below the 17.9 million pace set in July and 17.7 million in the same month last year.

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Increases in precious metals had buoyed the Automotive MMI for much of this year, but the catalytic converter metals stalled this month and that was the cause of much of the drop in our index. Steel prices remain bifurcated between U.S. and global prices and a summer of uncertainty over U.S. Steel‘s section 337 case has led to little clarity for metal buyers of Chinese automotive steel. U.S. Steel’s case centers on an allegation that Chinese steel companies stole the formula and process for an automotive alloy.

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U.S. Automakers sales numbers were down substantially in August, not that a drop wasn’t wholly unexpected — the industry has been growing strongly in recent years and at some stage was bound to peak — but the scale of the drop was enough to make the market sit up and notice.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

According to the FT, Ford’s drop was the first to report, down 8% year-on-year for the month of August to 214,482, GM was down 5% to 256,429 vehicles and Volkswagen, possibly suffering from the emissions scandal, was hit the most down 9.1% to 29,384 vehicles. Of the majors only Fiat Chrysler bucked the trend, buoyed by a strong line up of SUVs to post a 3% increase to 197,000. Read more

Jackson Hole: All the Hiking, Skiing and Monetary Policy You Need

Buyers of most commodities began the week by eagerly watching the annual Central Banker get together at Jackson Hole, Wyo., particularly for any clue as to when the Federal Reserve will finally raise interest rates.

But our own Stuart Burns explained that aging populations, slower productivity growth and a reluctance around the world to spend and invest have propelled advanced economies into so-called “secular stagnation” and it might be some time before the fragile U.S. economy can stomach a rate hike.

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A bigger concern for those of us that write about economics for a living is now that “kitchen sinks” and “bazookas” have been exhausted, what metaphors will we use to describe central banking policy tools? Hopefully, the central bankers at least got some good hiking in at Jackson Hole. Read more