Aluminum

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This morning in metals news, U.S. raw steel production went up last week, aluminum is heating up as China prepares for winter cuts to excess capacity and Kobe Steel’s data falsification scandal could stretch back a decade.

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Raw Steel Production Up 5.4%

U.S. raw steel production for the week ending Oct. 14 was up 5.4% from the same week in 2016, according to weekly data from the American Iron and Steel Institute (AISI).

Production for the week amounted to 1,744,000 tons, up from 1,655,000 for the same time frame in 2016.

Aluminum Heating Up

It’s been a big year for aluminum — and with Chinese winter cuts to excess capacity on the way, the aluminum price could continue to rise.

According to a Reuters report, China is preparing to reduce its aluminum smelting capacity by one-tenth by the end of the year.

Kobe Steel Scandal Could Go Back More Than 10 Years

The data falsification scandal plaguing Japan’s third-largest steelmaker could go back more than a decade, according to a Bloomberg report.

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According to the report, Kobe Steel will cooperate with the U.S. Department of Justice. A company executive quoted in the report told Bloomberg that data falsification at the firm has likely been happening for over a decade — stretching further than Kobe’s admission of falsification dating back to 2007.

Before we head into the weekend, let’s take a look back at the week that was. 

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  • In case you missed it, our October MMI report is out. Make sure to check out the free PDF download for the rundown on the last month for our 10 MMI sub-indexes: Automotive, Construction, Aluminum, Copper, Renewables, Rare Earths, Raw Steels, Stainless Steels, GOES and Global Precious.
  • Also, our Annual Outlook is out, too. Check it out for a comprehensive look ahead to 2018.
  • Coal India Ltd. is looking to diversify beyond coal, Sohrab Darabshaw wrote earlier this week.
  • Aluminum officials are in “wait-and-see mode” when it comes to the ongoing Section 232 probe vis-a-vis aluminum imports. The investigations into the national security impact of aluminum and steel imports were launched in April and have a January statutory deadline; at that point, Secretary of Commerce Wilbur Ross must present President Donald Trump with a report and recommendations.
  • Glencore bet big on zinc — and won, our Stuart Burns writes.
  • Although oil prices are well below 2014 numbers, supply cuts in some cases have seen the price start to climb. Are more cuts on the way, further constraining global supply and driving up prices? Burns wrote about the subject and what OPEC Secretary General Mohammad Barkindo called a “rebalancing process.”
  • In big news, Kobe Steel is in hot water for a data falsification scandal, one which threatens the firm’s credibility among consumers and manufacturers. The scandal has already had major financial ramifications, as the company’s share price has been in free fall since the news hit.

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Aluminum industry officials restated a long-held stance that in the U.S. Department of Commerce’s Section 232 investigation into aluminum imports, China should be the primary focus of any trade action.

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During a roundtable conference Wednesday, Oct. 4, in Washington D.C., Michelle O’Neill, Alcoa’s senior vice president for global government affairs and sustainability (and newly elected chairwoman of the Aluminum Association); Ganesh Paneer, vice president and general manager of Automotive North America for Novelis; and Garney B. Scott, president and CEO of Scepter, answered questions about the state of the aluminum industry and outstanding trade legislation in the Department of Commerce.

O’Neill said the Aluminum Association will soon release a new statistical review of the aluminum market through 2016.

Citing shipment figures, O’Neill said overall demand is high, with shipments of aluminum from the U.S. and Canada up 40% from the trough of the recession in 2009 and “within striking distance “of record shipment numbers in 2005-2006. In that same vein, Paneer noted aluminum’s growing market share in the automotive market as another indicator of the versatile metal’s strength.

Despite these figures, however, the officials reiterated concerns about leveling the global trade playing field.

Scott, O’Neill’s predecessor as chairman of the Aluminum Association, said one of the Association’s biggest efforts is ensuring U.S. aluminum producers, recyclers and fabricators get to operate in a “predictable regulatory environment” and in a “rules-based global trading system internationally.”

In that vein, Scott referred to the levels of aluminum coming into the U.S.

“We continue to have a serious issue with the aluminum supply coming into the U.S.,” he said. “Last year saw record levels of imported aluminum into North America and more specifically the United States. The 13.1 billion pounds of imports accounted for more than half of U.S. supply.”

Scott further zeroed in on the problem, noting that while imports in general aren’t always a negative, the volume of imports from China continues to be a problem for the U.S. aluminum industry.

“While this industry has many responsible trading partners and does not view all imports as a problem, we do take issue when we see imports surg2ing from a country like China that operates outside the bounds of our global system of rules-based trade,” Scott said.

Imports from China have increased 200% since 2012, Scott said, and in the year to date are up 30%.

“These imports are a direct result of metal overcapacity,” he said.

He added that a negotiated agreement between the U.S. and Chinese governments is needed.

Recently, the Commerce Department opted to defer the issuance of a preliminary antidumping duty determination in its investigation of aluminum foil from China. Underpinning the deferral was a desire to incorporate information regarding the ongoing study of China’s non-market economy status. According to a Commerce Department release, rulings on China’s status and on aluminum foil will come no later than Nov. 30.

As for Section 232 — the administration’s investigation into the national security implications of aluminum (and steel) imports — there hasn’t been much chatter since the early summer, when an announcement appeared to be coming, but the administration’s self-imposed June deadline came and went.

“We’re in wait-and-see mode,” Scott said regarding the Section 232 investigation.

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According to the law, once a Section 232 investigation is launched, the secretary of commerce has 270 days to present findings and recommendations to the president, which makes for January deadlines for both the pending aluminum and steel investigations.

As for the ongoing talks geared toward renegotiating the 23-year-old North American Free Trade Agreement (NAFTA), Scott emphasized the industry’s trade ties with Mexico and Canada, adding that the industry isn’t looking for a “significant amount of changes” with respect to NAFTA.

Trade negotiators from the U.S., Canada and Mexico recently met in Ottawa in late September for a third round of negotiations focusing on NAFTA.

This morning in metals news, the Environmental Protection Agency (EPA) announced it will take steps to repeal the Obama-era Clean Power Plan, copper hit a four-week high and two Russian tycoons are selling a 3% stake in aluminum giant Rusal.

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Obama Initiative to Curb Emissions to be Rolled Back: EPA

The EPA announced Monday that it would begin to take steps to roll back the Obama-era Clean Power Plan, which sought to bring down emissions from power plants, The New York Times reported.

While constituting a loss for the environment, the measure marks a win for industry. (For a review of the costs associated with the plan, our Taras Berezowsky delved into the issue in this 2015 post.)

Scott Pruitt, head of the EPA, made the announcement in Kentucky yesterday.

“The war on coal is over,” Pruitt said, as quoted by The New York Times. “Tomorrow in Washington, D.C., I will be signing a proposed rule to roll back the Clean Power Plan. No better place to make that announcement than Hazard, Ky.”

The repeal proposal will be filed with the Federal Register today. The EPA announced its launch of a review of the plan on April 4.

Copper Bounces Back

After a cooling down in September, copper has hit a four-week high, Reuters reported.

The uptick comes as a function of expected supply shortages in China, according to the report.

Rusal Stake to Be Sold Off

Russian tycoons Mikhail Prokhorov (who also owns the NBA’s Brooklyn Nets) and Viktor Vekselberg are selling a 3% stake in aluminum giant Rusal, Reuters reported.

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The value of the 3% stake is worth $341 million based on Rusal’s closing price Tuesday, Reuters reported.

The Aluminum MMI remained flat this month, holding at 97 for our October reading.

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After skyrocketing in August, aluminum prices took a breather in September, as attention turned to other base metals, like zinc.

Source: MetalMiner analysis of FastMarkets

Aluminum traded sideways in September. This trading pattern suggests resilience, as aluminum prices digest price gains and become strong again to continue the uptrend. Trading volumes continue to support the current rally, driving aluminum prices to a five-year-high in September.

The rally has also taken place on the Shanghai Futures Exchange (SHFE), which follows the same trends as the LME. Late last month, aluminum prices reached a six-year-high on the SHFE.

However, aluminum recovered strength during the first week of October. Aluminum prices — and other base metals, like copper and zinc — posted gains during the first week of October. Aluminum prices could break a new resistance level again. Trading volumes remain heavy, which means that aluminum strength may continue this month.

From a domestic market perspective, the natural disasters of Hurricanes Harvey and Irma supported aluminum prices. Aluminum demand will receive a boost in the mid-term, as automotive production will likely not slow down as previously predicted.

Even if automotive production does not increase, automotive material substitution will prevent aluminum production from dropping. Aluminum demand will likely also receive a lift in demand from screen, window and patio enclosures damaged by the storm.

Indian Aluminum Market Trends Up

When talking about aluminum, most analysts, including this publication, talk about China, which remains the 800-pound aluminum gorilla.

According to the International Aluminum Institute (IAI), China accounted for up to 53.3% of aluminum production in August. U.S. and Asia ex-China (where India is included) each account for 6.8% of primary aluminum production. Even though that number appears drastically lower than China’s, it still represents a nice slice of the proverbial pie. Therefore, metal-buying organizations will want to pay attention to India.

The Indian primary aluminum cash price has been in an uptrend since the beginning of 2016. When comparing this chart with the LME aluminum (see chart above), Indian prices rallied twice, in January and August of this year.

Although Indian prices decreased slightly in September, a strong uptrend continues for the Indian aluminum market.

Source: MetalMiner analysis of MetalMiner Index

As our own Sohrab Darabshaw reported last week, “A recent report by professional services agency KPMG has said demand for non-ferrous metals, including aluminum and copper was likely to grow around 8% over the next five years.”

Therefore, it makes sense for buying organizations to monitor the Indian aluminum market.

What This Means for Industrial Buyers

As aluminum remains in a bullish market, adapting the right buying strategy becomes crucial to risk reduction and knowing when to buy.

A deeper analysis of aluminum markets will be released this week via our free Annual Metals Outlook Report.

Actual Aluminum Prices and Trends

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After two months of a breathtaking industrial metals price rally, September has shown pretty significant price pullbacks for August’s outperformers (nickel and copper).

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Some prices have increased by more than 18% (copper) over the past two months, so these pullbacks should come as no surprise.

However, when many analysts study this kind of a chart such as the one shown below, some might scream bloody murder and declare a full on nickel bear market.

Source: MetalMiner analysis of FastMarkets

And we can’t lie — nickel prices fell sharply this month on heavy trading volumes. On the other hand, prices went up with about the same momentum last month. Now, prices appear at levels last seen in August.

Looking at the nickel outlook, rising stainless steel demand has boosted nickel prices so far. As reported by Ingrid Sternby, senior research analyst at Blenheim Capital Management, approximately two-thirds of world nickel demand comes from stainless mills.

UBS has increased its stainless demand growth to 3.5% for 2017 and 6.2% for 2018.

What is Going on With the Other Base Metals?

To better understand this short-term downtrend, let’s take a look at the price trends for other base metals.

Copper has retraced and the general downtrend has slowed down this month. However, the CRB commodities index has increased, something we had suggested might happen and something that signals a potential bull run.

Even if the chart for nickel looks bearish, some other base metals are still supporting the base metals bullish sentiment. Aluminum and zinc, which both started the rally this summer too, have shown resilience this month. Therefore, the nickel price downtrend does not equate to bearish sentiment (or changing an organization’s buying strategy).

Aluminum price. Source: MetalMiner analysis of FastMarkets

Zinc price. Source: MetalMiner analysis of FastMarkets

What Does This Mean for Buying Organizations?

Buying organizations will want to understand price signals together with trading volumes to properly react and adapt buying strategies to price changes.

MetalMiner will publish a free Annual Outlook Report this week that will summarize the drivers and price trends for 2018.

Free Download: The September 2017 MMI Report

However, consider subscribing to our Monthly Metal Buying Outlook in order to get the most out of this report and better understand the buying strategies.

A Reuters report last week suggests relief is in sight for Western manufacturers of aluminum semi-finished products under pressure from growing Chinese exports.

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Headlining how China’s semi-finished aluminum exports fell for a third straight month in August, the article cites punitive duties imposed by the United States and India on Chinese aluminum foil as a reason for the decline. Semi-finished exports stood at 360,000 metric tons last month, Reuters reported, quoting revised customs data. That figure is down 3.2% on the same month a year ago and down 7.7% from 390,000 tons in July.

Although the monthly export figure is the lowest since February 2017, the first eight months of this year still showed a 5.2% increase versus the same period in 2016. Further data seemed to conflict with the argument that the foil duties were the cause of the decline in recent months. January to August foil exports were up 10.1% at just under 800,000 tons. Although they have dropped in recent months – down 4.9% year-over-year and down 6% from July, those drops only account for 5-6,000 tons per month of lost semis exports. The vast majority, 30,000 tons per month of reduced exports, are coming from extrusions.

Quoting Paul Adkins of AZ China, the report identified a substantial 29% slump in exports of extruded aluminum bars, rods and profiles as the main cause for the overall falls in semis exports despite an increase in flat rolled numbers. The main culprit appears to be U.S. tariff action against extrusions and helps explain why Chinese extrusion mills have been so aggressive in Europe in recent weeks, dropping conversion premiums for extrusions (possibly in an attempt to make up for lost sales to the U.S.).

With Chinese extrusion mills on less than 30-day delivery schedules they are clearly not overly busy. This suggests that although domestic demand has been steady, it has not been as strong an influence on primary metal prices as investor appetite for bidding up the futures markets would suggest. That has more to do with environmentally motivated capacity curtailments creating a narrative of shortages — resulting in speculators building strong net long positions and substantial primary metal prices rises — than it does any genuine tightness in supply.

An Aluminium Insider article discussing the findings of a report called the China Beige Book by a private, China-based analyst raises questions about the sustainability of recent rapid price rises and if they are based purely on the premise of reduced supply.

The study states that, despite numbers released by Beijing, overall capacity in the aluminum market has experienced a net rise over the last six consecutive quarters. At the same time, the economy is experiencing a slow-down. “Sector-wide growth took a dive across the board—revenue, profits, output, export orders, volumes, hiring, capex, borrowing, wages, and sales prices,” explained the report, suggesting perceptions of tight supply are misplaced and speculator-driven.

Free Download: The September 2017 MMI Report

If that is the case, European extruders may not be alone in facing increased competition this winter from China’s semi-finished product mills, as they seek to secure markets for a wide range of semi-finished products propelled by a cooling domestic market.

India has bucked the global trend where non-ferrous metals are concerned.3

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A recent report by professional services agency KPMG has said demand for non-ferrous metals, including aluminum and copper was likely to grow around 8% over the next five years.

Titled “India Non-ferrous metals industry: Building the future,” the report added that the expected demand growth in the non-ferrous metals industry would be even better than the “healthy trend” observed in the last five years.

“Over 2016-17 to 2021-22, the demand for these metals is expected to grow by around 8% in line with strong economic prospects, thrust on manufacturing sector, healthy growth in key end-use segments further aided by rising usage intensity,” the report states.

What’s more, the report said India had also registered strong growth in recycling of metals, a major step forward for an otherwise unregulated sector. It said over time, the share of recycled metals had increased considerably and was almost equivalent to the global level.

But KPMG added a note of caution, saying legislative intervention was required to contain the level of scrap imports that still dominated the globe.

It’s no secret that globally, the non-ferrous metal industry faced a turbulent time owing to a number of factors, including the global economic growth slowdown at large, as well as the slowdown of the Chinese economy, in particular, along with the high raw material prices.

But India went the other way.

The KPMG report added that “strong resilience in the Indian economy” had resulted in its non-ferrous metal industry outpacing the global trend. Apart from a strong demand base and future potential, India was rich in terms of raw material reserves coupled with a relatively low-cost structure of production, thereby providing huge opportunity for the development of non-ferrous metals industry in India.

That said, downstream products, such as copper wire and aluminum foils, were still being dominated by imports, as the downstream industry is relatively undeveloped in India.

China, with its sheer population as well as advancement of manufacturing, was the largest consumer of non-ferrous metals and majorly influences the dynamics of the industry. But the recent slowdown in that country has significantly impacted the global industry in terms of supply and demand, trade, prices and profitability. The country accounts for 52% of the global aluminum consumption. In Asia, consumption showed a declining trend in Japan, but was counteracted by higher demand from India and the Middle East. The report said North America had also firmed up since the global financial crisis. Prices had recovered because of supply cuts in China and a healthy demand growth.

In India, with steady growth in demand, non-ferrous metals were being consumed in several emerging applications offered by defense, aerospace, hybrid and electric vehicles, railways, and more, requiring complex design (be it large aerostructure parts or miniature structural components). However, lately there has been technological disruption in multiple industries, including metals, such as metal additive manufacturing or 3D printing, which offered the possibility of complex parts production at a faster pace and lower cost, the report observed. There were a number of industries which were increasingly using these technologies to revolutionize the manufacturing process.

A well-developed non-ferrous metals industry is vital for any developing country, as it provides important raw material to many industries that are the pillars of economic development. With the increasing usage of these metals in several existing and emerging applications, coupled with new technologies, there is a paradigm shift that can change the way non-ferrous metals are consumed in the future.

The KPMG report provides a glimpse of opportunities that are available for the development of the non-ferrous metals industry in India, which is riding strong economic growth momentum.

With a slew of reforms undertaken by the government, the end-use sectors of non-ferrous metals —automotive, electricals, packaging, consumer durables, railways, ports and inland waterways, roadways and renewable energy  — were expected to experience a strong growth trajectory.

However, certain metals were characterized by import, especially downstream products such as copper wire and aluminum foils, because of various reasons, including the undeveloped downstream industry, global competition and quality availability.

Aluminum

During 2011-12 to 2016-17, the demand for aluminum posted a CAGR of 5.4% led by a healthy growth recorded by the electrical and automotive sectors, which constitutes 60-65% of the total consumption of aluminum.

Primary aluminum demand was generally met through domestic supply, but there was considerable import of downstream products from China and the Middle East. Many players in the aluminum downstream industry were suffering from a lack of proper infrastructure and technology to efficiently process the raw material into high-quality products.

Significant capacity addition has taken place over the past five years due to implementation of various capacity addition plans by the major players. During 2011-12 to 2016-17, capacity has increased from 1.9 million tons per annum to 4.1 million tons per annum.

Copper

Demand for primary copper grew at a CAGR of 14% over the past five years, owing to the robust growth in the electrical sector and consumer durables.

Although India was a net exporter of copper, there was a significant proportion of import of downstream products. Many players in the copper downstream industry faced challenges such as outdated technology, improper infrastructure, high set-up cost, high funding cost and lack of skilled professionals.

During 2011-12 to 2016-17 copper imports, constituting mainly downstream products and alloys, grew at a CAGR of 15.4%.

Zinc

Demand for primary zinc in India was based on the growth of the steel market, which accounts for 70% of the total demand. It was mainly used in galvanizing and coatings of iron and steel to protect it from corrosion.

Free Download: The September 2017 MMI Report

During 2011-12 to 2016-17, demand for zinc grew at a CAGR of only 3%, mainly because of a surge in imports of galvanized steel.

In order to control imports, the government imposed a minimum import duty on certain steel products, in addition to a safeguard duty and anti-dumping duty.

In 2016-17, India’s imports of galvanized and coated steel fell by 47% compared to the previous year as a result of these supportive government policies.

Other government initiatives, such as the Smart Cities Mission, modernization of railways and the construction of highways were expected to boost the infrastructure industry, which uses galvanized steel for durability and endurance.

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.

Free Download: The September 2017 MMI Report

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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