This morning in metals news, a new European steel giant could be coming on the scene, that giant could result in the loss of thousands of jobs and aluminum hits a five-year high ahead of further Chinese supply cuts.

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Tata Steel, ThyssenKrupp Agree to Merge European Operations

The New York Times reported Wednesday that Tata Steel and ThyssenKrupp had agreed to a deal to merge their European steel operations — a merger that has been in the news for more than a year.

According to the report, while there are still some obstacles to completion of the merger, if it goes through the merged operation would make the second-largest steelmaker in Europe, behind only ArcelorMittal.

Merger Could Yield Loss of 4K Jobs

While the potential merger of the Indian steel giant Tata and German firm ThyssenKrupp’s European operations might be cause for celebration for some, it won’t be for a considerable number of workers, according to one report.

The merger of the two firms’ European operations could lead to the loss of 4,000 jobs, according to CNNMoney.

The merger is expected to cut costs by between €400 million and €600 million ($720 million) a year, according to the report.

Aluminum Soars to Five-Year High

Aluminum continued its strong 2017, hitting a five-year high, Reuters reported.

Not surprisingly, news from China has much to do with the rise, as supply cuts are forthcoming from Chinese producer Chinalco, according to the report.

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LME aluminum traded at $2,191 per ton, its highest since September 2012, according to Reuters.

China Zhongwang is a company that is used to controversy.

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Then again, you don’t get to be the world’s second-largest aluminium extruder in the space of a few years without ruffling a few feathers.

Zhongwang’s attempts to muscle in on the global stage by buying Aleris Corp immediately ran into opposition from U.S. senators. Just this week, Zhongwang USA, an investment firm backed by Zhongwang Group’s chairman and Aleris Corp, announced its intention to extend the deadline for a decision by two weeks to end September, Reuters reported.

Zhongwang USA is not part of Hong Kong-listed China Zhongwang Holdings Ltd, but Liu Zhongtian heads up both companies — a fact that has clouded multiple investigations against one entity or another in recent years.

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This afternoon in metals news, black cabs in London will be moving toward electric power, production of copper and steel is up in Kazakhstan, and Dr. Copper appears to be backsliding after its previously torrid pace.

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Electric Cabs?

Further adding momentum to the electric vehicle industry, black cabs in London will soon be powered by electricity.

Sapa SA’s aluminum plant in Wales will reopen this week and supply parts for automakers like London Electric Vehicle Co., the maker of black cabs, Bloomberg reported.

The move is part of the overall comeback for aluminum, which works in tandem with the rise of the electric vehicle, particularly the U.K.’s effort to phase out vehicles powered by fossil fuels by 2040.

Copper, Steel Output Up in Kazakhstan

Cooper and steel production have surged in Kazakhstan through the first seven months of the year, according to a Reuters report.

For January-August, copper production is up 5.5% and crude steel production is up 9.7% in Kazakhstan, according to Statistics Committee data.

Copper Price Begins to Slide

The metal often referred to as “Dr. Copper” boasted a healthy diagnosis as late as last month, when the metal hit a three-year high.

But political tensions on the Korean peninsula, among other things, have seen the metal’s price begin to backslide.

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The copper price has dipped 6% since Sept. 8, when President Donald Trump said the U.S. would not rule out a military option vis-a-vis North Korea’s latest nuclear test, according to Reuters.

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This morning in metals news, U.S. primary aluminum is still low despite an increase in prices, China Zhongwang Holding announced it had purchased a German aluminum producer and associations representing steel, soybeans and poultry were united by the issue of steel tariffs.

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U.S. Primary Aluminum Production

Aluminum prices have been on a steady climb in recent months, but primary aluminum production remains low, according to a report in Hellenic Shipping News.

In fact, since January 2015, the country’s primary aluminum production has dropped 50%.

Zhongwang Makes Investment

China Zhongwang Holding announced Wednesday that it is making an investment in a German aluminum producer Aluminiumwerk Unna AG, according to state-owned news agency Xinhua.

The value of the deal has yet to be disclosed, according to the report, but the acquisition is part of Zhongwang’s effort for an increased presence in the aircraft aluminum market.

Steel, Soybeans and Chicken

Associations representing steel, soybeans and chicken came together this week to express their belief regarding the potential negative impact of steel tariffs.

Platts reported that the American Institute for International Steel, the National Chicken Council and the American Soybean Association published a new report covering the impacts of steel tariffs on supply chains.

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The Trump administration’s Section 232 investigation into steel imports is ongoing. The probe, launched in April, has a January deadline for completion.

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Before you get into your planned Labor Day festivities, let’s take a look back at some of the stories here on MetalMiner from the past week:

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  • After a somewhat stagnant run, aluminum had a strong August — why? Our Stuart Burns covered aluminum’s upward momentum last week.
  • Ah, the North American Free Trade Agreement (NAFTA), the deal that’s stayed in the news for much of the year. President Donald Trump recently renewed rhetoric threatening the 23-year-old trade agreement on the heels of the completion of the first round of negotiating talks held in Washington, D.C. We recapped the recent developments in the ongoing talks held by trade representatives of the U.S., Canada and Mexico.
  • Speaking of trade agreements, talks are also underway between the U.S. and South Korea on KORUS, the free trade deal the two countries began in 2012.
  • China was reportedly amenable to making further significant cuts to tackle excess capacity, which has been a major talking point, not just for the U.S., but the global market. However, President Trump rejected China’s proposal. Burns offered his analysis on the situation.
  • It’s been a mostly good year for base metals — but not every metal has joined in on the fun, as our Irene Martinez Canorea wrote last week.
  • Hurricane Harvey inflicted a severe toll on the people of southeast Texas and southwest Louisiana. Now, there’s a long road ahead to recovery, both in terms of the humanitarian and economic impacts of the storm.
  • Burns looked to the the so-called “lucky country” of Australia, which is rich in iron ore. But what happens when iron ore reserves are exhausted? Answering the question briefly: look to the sun.

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This morning in metals news, August was a huge month for aluminum, zinc, and nickel; copper hit a three-year high on Thursday; and a South Korean company announced it will produce lithium-ion batteries with a greater percentage of nickel than before.

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An Anything But Dreary Month

August is typically a quiet month for many, as people take vacations before the end of the summer.

It was not a quiet month for metals, though.

In August, aluminum, zinc and nickel all posted significant price increases (10%, 12% and 15%, respectively).

Copper Hits Three-Year High

Copper kept rolling Thursday, hitting a peak not seen since 2014.

The metal thus closes a strong August  — during which its price rose 7.5% — on a record note.

From Cobalt to Nickel

As automakers look to meet growing demand for electric vehicles, some battery makers are turning to more nickel and less cobalt in the construction of lithium-ion batteries.

For South Korean company SK Innovation, that means using more nickel. The company announced Thursday that it has begun commercial production of batteries using an increased portion of nickel (as opposed to the expensive, and scarce, cobalt).

“The batteries will help extend a driving range of electric vehicles up to 500 kms, and we will also develop new batteries by 2020 that can provide a range of more than 700 kms,” Lee Jon-ha, principal researcher of the company’s battery R&D center, said in a statement quoted by Reuters.

Free Download: The August 2017 MMI Report

Aluminum, copper and zinc have moved in a solid bullish manner. While nickel has joined these three base metals, tin and lead seems to be more reticent to join the bull party. 

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Tin showed some weakness at the beginning of August, contrary to the other four base metals. In August, prices fell sharply. The tin price soon recovered, but still lacked the bullish sentiment. Trading volumes are not heavy, nor are prices breaking key resistance levels.

Source: MetalMiner analysis of FastMarkets

Lead has also showed some weaknesses during August, as prices fell with heavy selling volume. 

Source: MetalMiner analysis of FastMarkets

What Does This Mean for Buying Organizations?

For its forecast subscribers, MetalMiner defines different buying strategies for all of the base metals, as well as four forms of steel, depending on the price dynamics, together with trading volumes.

Even though the industrial metal outlook remains bullish, lead and tin seem to be behaving on their own terms. Buying organizations will want to pay careful attention to trading volumes in the coming month.

Free Download: The August 2017 MMI Report

Knowing when to buy forward and when to hold off on purchases can be a challenging activity for any procurement professional. MetalMiner’s Monthly Metal Buying Outlooks provide buying organizations with a clearer picture as to when to make purchasing decisions.

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This morning in metals news, it was a mixed Monday for base metals in China; in Arizona, the copper industry, environmentalists and recreation groups are at odds; and a Washington State aluminum smelter’s future remains uncertain.

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Nickel, Zinc, Lead All Fall

It was not a great Monday for Chinese base metals linked with the steel markets, Reuters reported.

According to the report, nickel, zinc and lead posted the biggest drops, while copper gained by 0.9%.

Multinational Company Wants to Mine in Ironwood Forest National Monument

Mining firm Asarco wants permission to set aside 11,000 acres of the Ironwood Forest National Monument for it to mine copper, according to an Associated Press report.

That request has received some pushback. U.S. Rep. Raul Grijalva, whose district includes much of Ironwood, emphasized the importance of preserving public land.

“The reason Ironwood was designated was to protect its habitat and protect its land in perpetuity,”  Grijalva told the AP. “There are no private rights to public property.”

On Again, Off Again

The Alcoa aluminum plant in Wenatchee, Wash., has had a wobbly existence since the turn of the century.

The plant first shut down in 2001, reopened in 2004 and shut down again in 2015, affecting the local working population.

With prices of aluminum ingots rising, could it mean the return of jobs there? The Seattle Times reported on the plant, its future and the locals whose livelihoods are linked with the plant’s future.

Free Download: The August 2017 MMI Report

Given that the total number of U.S. aluminum smelters in operation has declined from 23 in 1993 to six today, Wenatchee is just one example of a town hit by the decline of the U.S. aluminum smelting industry. Whether it, and other plants like it, can come back on stream remains to be seen. Of course, how the Trump administration concludes its Section 232 investigations of steel and aluminum imports will have a significant impact.

The abrupt rise in the aluminum price this month has caught many by surprise.

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Aluminum had been trading sideways for much of this year. Although the market was rife with rumors that China intended to close smelter capacity that was not carrying the required permits and approvals, most treated the prospect that such curtailments would be pursued with any rigor with some skepticism.

Past attempts to curtail excess production capacity among China’s manufacturing industry have been poorly pursued and often frustrated by local State governments keen on maintaining employment and tax revenues.

This time does genuinely seem to be different.

That realization finally set in when China Hongqiao, the world’s largest aluminum maker, confirmed it would cut annual capacity of 2.68 million metric tons, about 30% of its total, this month.

Following restrictions last month that the Shanghai Futures Exchange (SHFE) put on the trading of iron or steel futures by raising margins, speculators were looking for new investment opportunities just as concerns about aluminum supply became widespread. The rapid rise in the aluminum price, leading the Shanghai Futures Exchange to a six-year high, is now recent history.

According to the Financial Times, JP Morgan is forecasting that prices have another $100 per ton to rise in the fourth quarter, despite aluminum inventories in China more than quadrupling so far this year.

Although Beijing is following its policy of closing un-permitted production with considerable vigor, the resulting high prices are encouraging every smelter that has approvals to operate at 100% capacity. As a result, production has never been so high, with much of the surplus metal going into store.

Trade unions at producers outside of China who have been suffering by the flood of semi-finished Chinese aluminum exports called earlier this year for a global forum to address the issue. But before such a forum can be gathered, it seems likely that China’s high SHFE aluminum price may curtail exports as domestic mills struggle to compete internationally based on high-priced domestic primary aluminum.

Citigroup estimates China’s unlicensed aluminum production capacity to be in the region of 4 million tons a year — more than 10% of China’s total 2016 output.

The price rises have undoubtedly been exacerbated by speculator activity, as hot money has flowed into aluminum and zinc. The aluminium price is up 27% in Shanghai and 23% on the LME, with the zinc price rise not far off at 24% in Shanghai, driven by the same fundamental concerns over shrinking supply. Some skepticism remains about how vigorously Beijing will pursue its policy of closing “polluting industries” in the northern provinces during the winter heating period. But following the miscalculation of how robustly environmental enforcement would be pursued this summer, the market is rapidly reassessing the prospects of significant closures during the November-March period.

In reality, China is not short of primary aluminum, stocks are considerable and although demand is rising, supply is adequate. The narrative of supply shortages is a strong one that speculators seem intent to run with for as long as they can.

Under the circumstances, Citi may well be right that the current firm trend has some way to run and we can expect higher prices in Q4 and H1 of next year.

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This morning in metals news, August has been a record month for aluminum trading in China, Japanese steelmakers’ shares are down and Chinese steel showed signs of recovery Thursday.

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Big Month for Aluminum Trading in China

According to Bloomberg, even with time to spare August has already been the heaviest month of aluminum trading ever in China.

China has undergone a series of supply-side reforms aimed at reducing oversupply, reducing pollution and alleviating pressure from abroad (particularly the U.S., which has pending Section 232 steel and aluminum investigations).

The Bloomberg report notes China is “shutting down unlicensed aluminum production capacity estimated by Citigroup Inc. to be about 4 million metric tons a year.”

Japan Steel Shares Down

Meanwhile, shares for Japanese steelmakers are down, according to a Reuters report.

The shares backtracked because the country’s biggest producer of steel, Nippon Steel, agreed on price cuts for the six months through September with Toyota Motor.

Chinese Steel Futures Looking Bright

According to a Reuters report, Chinese steel futures bounced back Thursday based on domestic demand spurring positive investor sentiment.

A dip in the temperature is expected to yield more construction and, thus, greater steel demand, the report says.

Rebar futures have surged this year by 50%, according to Reuters.

Free Download: The August 2017 MMI Report