Aluminum

The Trump administration’s Section 232 investigations have been getting all the headlines — but let’s not forget about Section 332.

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Earlier this month, the House Ways and Means Committee released the United States International Trade Commission’s (USITC) Section 332 investigation into the competitive factors affecting the U.S. aluminum industry. (A Section 332 entails a fact-finding investigation “on any matter involving tariffs or international trade, including conditions of competition between U.S. and foreign industries.”)

The lengthy report, which checks in at just over 600 pages, details the major competitive forces at play in the global aluminum market and how those forces impact the U.S. aluminum industry. Unlike its Section 232 counterpart, the 332 report — which focuses on 2011-2015 — predates the Trump administration. The Ways and Means Committee requested the report from the USITC in February 2016.

The report offers a sweeping, macroscopic view of the U.S. aluminum industry and the global picture, too. Like the Department of Commerce’s 232 probe, China figured prominently in the findings of the USITC survey.

Among the key points in the report is China’s role as the principal driver of the aluminum market during the time frame assessed (2011-2015). During that time, China’s production skyrocketed, so  much so that it became the world’s largest aluminum producer and consumer, and ranked second behind the U.S. in secondary unwrought production.

Source: Compiled by USITC staff from CRU Group.

Aluminum associations from the U.S., Canada and the European Union praised the USITC report. In a joint release Monday, the Aluminum Association of the United States, the Aluminium Association of Canada and European Aluminium all praised the report for touching on the industry’s biggest buzzword today: oversupply.

“The study details the government-sponsored rise of Chinese aluminum production in the global market and the effect of Chinese oversupply on global prices, which fell roughly 30 percent during 2011–15,” the joint release said. “Chinese government intervention in the form of programs and subsidized loans for electricity has played a significant role in China’s aluminum expansion.”

The release also reiterated the associations’ desire to work with the Chinese government to reach a “negotiated agreement” that would “result in measurable and consequent reductions in Chinese aluminum capacity and/or growth.”

Among other findings, the USITC report noted government intervention is high worldwide  (and not just from China).

The study also found the chief determinant of competitiveness for primary aluminum producers to be electricity costs, while for secondary and wrought producers the determinants were reliable scrap supplies and proximity to end markets.

Unsurprisingly, however, the study also found that China proved to be the exception to the aforementioned expectations for competitiveness.

“Despite having a fairly new aluminum industry, relatively high electricity costs in many regions, and a less developed consumer economy than many other countries where the industry is important, China is the world’s leading aluminum producer,” the report states.

While the aluminum associations of the U.S., Canada and Europe submitted a joint statement in support of the report’s findings, the U.S. industry might have more at stake than anyone. Per the report, “U.S. primary production capacity shrank more than in any other large producing country.”

“A combination of factors, including relatively high electricity rates; limited investments in new technologies; and currency appreciation have all contributed to the United States’ loss of competitiveness in this segment in recent years,” the report goes on to state.

As such, it’s not surprising that the U.S. aluminum industry is looking to the Department of Commerce’s Section 232 investigation for relief. U.S. aluminum smelters dropped in number from 23 to five in the last two decades. Some good news did come out recently when Alcoa announced July 11 that it would be partially reopening an aluminum smelter near Evansville, Ind.

With a delay in the announcement of the Section 232 steel investigation, however, the 232 aluminum announcement will likely be pushed down the road, as well.

The Aluminum Association CEO and President Heidi Brock was clear in a letter to Secretary of Commerce Wilbur Ross regarding requests to exclude certain Chinese products from any hypothetical 232 trade remedies.

“… we respectfully request that the Commerce Department recommend actions to the President under Section 232 to address China’s massive and growing overcapacity, without allowing for broad exclusions (with the exception of aluminum powder, as addressed previously by the Aluminum Association), and while protecting existing trading relationships with Canada and Europe,” Brock wrote in the letter dated July 18.

The letter came in response to a request from the Can Manufacturers Institute (CMI), which asked Ross to exclude aluminum can sheets and aluminum ingot — used for beverage cans — from tariffs or other trade protections that could result from 232.

Free Download: The July 2017 MMI Report

It might be a while before the Section 232 aluminum probe comes to a conclusion and policy recommendations are drafted. Whatever happens, it will be interesting to watch the dynamic between primary and downstream producers, who approach this debate with very different business needs. Similarly, the CMI request is just one of its kind — there will surely be others. How will the administration deal with these requests? Will it allow industry sub-groups, like the beverage lobby, to carve out exceptions?

Or, will the hypothetical trade response include a blanket measure against all Chinese products, regardless of type?

That remains to be seen. What is still certain, however, is that many in the U.S. aluminum industry are looking for help from Section 232.

Whether they’ll get it also remains to be seen.

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This morning in metals news, the EU is planning to impose heavy duties on steel from several countries, copper is down on gains by the U.S. dollar and June was a good month for U.S. service center  shipments of steel and aluminum.

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EU Gets Defensive on Steel

In the world of trade measures, most eyes are on the U.S.’s Section 232 investigations into steel and aluminum imports. However, the U.S. is certainly not the only entity looking to protect its products.

The European Union plans to impose heavy duties on hot-rolled coil steel from Russia, Ukraine, Iran and Brazil, a measure to counter what it sees as unfairly low prices, Reuters reported Wednesday.

According to documents seen by Reuters, the EU plans on imposing duties of up to 33%. Just last month, the EU imposed duties of 35.9% on Chinese steel, according to the report.

Dollar Up, Copper Down

Copper had a strong start to the week, hitting its highest price since early May, but that optimism has started to temper.

Prices of the metals trended downward Wednesday after the U.S. dollar rose, Reuters reported.

The metal struggled to hold onto gains above $6,000, even with good news regarding Chinese demand, Danske Bank analyst Jens Pedersen told Reuters.

Steel, Aluminum Shipments Up in June

U.S. steel shipments were up in June, according to a Metals Service Center Institute report released Tuesday.

Shipments in June 2017 increased by 1.1% from June 2016. In addition, steel product inventories decreased 4.9% from June a year ago.

Free Download: The July 2017 MMI Report

Aluminum shipments were also up compared with the same month last year. Shipments of aluminum products increased by 10.3% from the same month in 2016. Inventories of aluminum products increased 0.2% from June a year ago.

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This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

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According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

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Aluminum prices have been in the spotlight since the beginning of the year.

Since June 2016, aluminum prices have risen. However, for the past three months, they have traded somewhat sideways.

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Source: MetalMiner analysis of fastmarkets.com data

From a technical perspective, aluminum prices are trading in what is called a wedge formation, with prices fluctuating between the two main blue lines drawn in the chart above. Because the top line descends from a previous uptrend, which characterizes a bull market, this movement could suggest a market top. By observing aluminum prices this month, the market will show us whether aluminum has reached the top of its bull run and will fall, or if it will continue to rise.

If prices fall below the bottom blue line, it will signal to us that a major trend reversal has started. We would also expect to see heavier trading volumes for any shifts in trend. If not, prices will likely continue to move in a sideways direction. This statements works for both the upper and lower limits.

These types of triangle trading patterns show us when to buy on the dips when prices appear in their lower limit. Aluminum has counted two buying dips since prices began to fluctuate in May and June. As prices fluctuate between the triangle limits, a potential third dip could appear if prices retrace to $1,865.

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What This Means for Industrial Buyers

Although industrial metals remain bullish, commodities have shown a recent downtrend revealing price weakness.

Buying organizations that need to make aluminum purchases would do well by monitoring aluminum prices closely and taking action if prices break move outside the blue lines, as discussed in detail in our Monthly Metal Buying Outlook.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

China’s campaign to cut environmentally polluting steel, aluminum, power generating and similar industries, like cement plants, is understandably catching the headlines.

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For producing industries like steel and aluminum, the cutbacks have supported prices. The expectation is the closures made this year will accelerate during the November to March heating period, when there will be forced closures of plants, even some that have passed the environmental tests.

All this has supported the expectation that there will be supply shortages in the face of an economy that continues to grow strongly and where recent PMI data supports current growth levels persisting at least through to the end of the year.

Yet while the headline announcements are all about capacity cuts, a recent Reuters article illustrates they are only part of the story.

Read more

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The announcement this week that Norwegian aluminum firm Norsk Hydro had agreed to buy the 50% of extrusion company Sapa that it did not already own from its partner Orkla probably makes good sense for all parties concerned.

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Norsk Hydro and Orkla took on Sapa in 2013 as a joint venture, but the Norwegian consumer goods company Orkla was never an obvious fit to be owning aluminum extrusion mills. Meanwhile, Norsk Hydro, with its significant position at the primary end of the market, makes a natural buyer for downstream assets, particularly if it carries the strong brand name of an established producer like Sapa.

The $24 million deal is said by the Financial Times to value Sapa at $3.2 billion. Assuming the deal passes regulatory approval, it will make Hydro the second-largest Norwegian company, trailing only the energy group Statoil.

The markets seem to agree with the logic of the deal. Orkla’s shares rose 2.44% on the news while Hydro’s rose a more modest 0.74%. But while Hydro said it planned to make $24 million of synergies a year from the deal, analysts said it really only made sense if the Norwegian group could achieve more cost savings over time.

While Hydro is a very significant primary and flat-rolled products producer, it is only through its shareholding in Sapa that it has held any significant position in extrusions. The purchase will allow Hydro to justifiably call itself a vertically integrated aluminum producer with a broad product range rivaling the likes of Alcoa and Rusal.

No doubt a question in the minds of many Sapa employees and of their clients is whether the purchase will result in a cutback of Sapa’s global operations.

On the back of an upturn in aluminum prices, both Norsk Hydro and Sapa have been doing well lately. However, the aluminum industry faces headwinds from excess Chinese production and price pressure from resulting Chinese exports. One benefit of the purchase mentioned by the Financial Times was that of European consolidation in the face of excess Chinese supply.

With no comment from the company yet, both employees and customers may justifiably be wondering what that means for them.

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This morning in metals news, European steel association Eurofer predicted increased steel demand in its Monday forecast, but also sounded a cautionary note regarding the U.S. potentially imposing steel tariffs (as a product of the Department of Commerce’s Section 232 investigation); Norwegian metals company Norsk Hydro inks a $3.2 billion deal to buy a 50% stake in aluminum products maker Sapa; and LME copper stabilized Monday after U.S. jobs report news.

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Demand To Go Up … But Eurofer Wary of Section 232 Tariffs

Eurofer, the European steel association, offered a mix bag of news in its Monday steel forecast.

On the one hand, it predicted an uptick in demand for steel, according to Reuters. According to the report, the forecast predicts a 1.9% rise in apparent EU steel demand, to 159 million tons, up from a previously forecasted 1.3%.

On the other hand, Eurofer sounded a warning note regarding the potential for “market distortions,” including tariffs, like the ones the U.S. Commerce Department may impose on steel and aluminum imports at the conclusion of its Section 232 investigations.

“In particular, measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions,” Eurofer director general Axel Eggert said in a statement quoted by Reuters.

Norsk Hydro Buys Aluminum Products Maker Sapa

Norwegian metals firm Norsk Hydro, in a deal worth $3.2 billion, bought a 50% stake in aluminum products maker Sapa, Reuters reported Monday.

Norsk Hydro’s acquisition allows it to spread its business across the value chain — the Norwegian firm makes primary aluminum from scratch, while Sapa presses, cuts and shapes it, according to the report.

Sapa, which has 22,400 employees and in 2016 recorded sales of 53 billion crowns ($6.84 billion), has been jointly owned by Orkla and Hydro since 2013, according to Reuters.

LME Copper Steadies

Copper prices stabilized Monday after news of a solid U.S. jobs report inspired optimism in a U.S. economic recovery, Reuters reported Monday.

This follows June’s news of expansion in Chinese manufacturing, which also buoyed prices by virtue of increased demand for the metal.

Since late June, copper prices have been consolidating in the range of $5,800-$5,965, according to the report.

For more on copper, come back to check out Irene Martinez Canorea’s Copper MMI piece this afternoon, which will survey the month that was and market trends for the metal.

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It’s hard to believe that 2017 is already more than halfway in the books. As we celebrate the Fourth of July, let’s take a brief look back at the top five most-viewed stories here at MetalMiner from January through June.

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Top 5 Stories of the First Half of 2017

  1. 3 Reasons Why Steel Prices Will Rise Well Into 2017. This piece was a hit with readers, raking in the most page views of any story through the first six months of this year. With the steel industry awaiting the Trump administration’s Section 232 verdict, prices are in a bit of a holding pattern (for now).

  2. The Land Rover Defender Will Rise From the Ashes… With an Aluminum Frame. Stuart Burns’ piece on the Land Rover Defender revved up interested with readers.

  3. Military Grade Aluminum? The Ford F-150 Debate Continues. What exactly does the term “military-grade” mean in the context of automobiles? This post from the tail end of 2016 continued to draw reader interest well into 2017.

  4. 2017 Steel Market Outlook: Strong Demand for Flat Products Expected. Everybody wants to know: What’s the deal with steel? After Donald Trump’s presidential election, many in the steel industry expected a boost accompanying a proposed uptick in infrastructure projects. Of course, much has happened since this post went live in early January — namely, the Trump administration’s announcement of an investigation into steel imports, using Section 232 of the Trade Expansion Act.

  5. 3 Reasons Why Aluminum Prices Will Rise in 2017. While steel has been the subject of much of the metal industry’s focus this year, aluminum is also being investigated under Section 232.  This post from January predicting a rise in aluminum prices was a popular one with readers.

    Free Download: The June 2017 MMI Report

There seems little doubt and even less debate that the tragic fire at Grenfell Tower in London was, if not caused by, then certainly greatly exacerbated by the aluminum cladding on the outside of the building.

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The original fire was started by an exploding refrigerator on the fourth floor of the 24-story public housing block. The residents thought they had the fire under control, but the refrigerator was positioned against an external wall. Flames then escaped out of the window and ignited flammable insulation between the building’s external aluminum cladding and the original external wall.

Source: The New York Times

As the diagram shows, taken from an excellent evaluation of the tragedy in The New York Times, the highly combustible insulating polyethylene panels positioned between the old wall and the external cladding acted like a chimney, funneling heat and flames vertically.

Within a few minutes, what had started as a minor fire engulfed the whole building and incinerated the floors above.

Although the total number of dead may never be known — some of the occupants were illegal immigrants and, as such, unregistered — and is potentially even unknown to anyone outside of the flat they were occupying, it is believed about 79 people died.

Hard questions are rightly being asked: Why was cladding installed that included insulation that was known to be flammable?

What isn’t being as widely debated in the U.K. yet is the contents of that New York Times article highlighting that the use of such flammable materials is forbidden in the U.S. and many European countries — yet, for reasons that are not entirely clear, those materials are permitted in the U.K.

Lax Regulations Played a Role in Tragedy

The cladding itself does not appear to be the sole culprit.

Grenfell Tower was clad, according to The New York Times, with an aluminum product known as Reynobond PE, consisting of two sheets of aluminum sandwiching an insulating core. Reynobond PE is made by Arconic (formerly known as Alcoa). Arconic has been selling Reynobond PE in the U.K. for years, but takes a different marketing approach in the U.S. and much of Europe.

In the U.S., fire regulations insist that polyethylene sandwich Reynobond should not be used in buildings taller than about 33 feet, that being the height firefighters’ ladders can readily reach. The firm’s literature clearly states that non-flammable or fire-resistant insulating materials should be used on buildings over this height.

Yet despite repeated warnings over the years, British building regulations, rather than tightening up in this area, seem to have been relaxed.

In the case of Grenfell Tower, the installation material used between the wall and the external cladding was also made of a very similar, highly combustible plastic to that used in the panel sandwich core. When the fire from the exploding refrigerator escaped out of the window, it was able to readily access this exposed installation, allowing an inferno to rapidly establish itself between the cladding and wall, and rising up 25 stories, gutting everything above the fourth floor. In the process, the cladding also caught fire, showering burning debris on firefighters and those seeking to escape the building below.

The aluminum itself is unlikely to have reached a temperature at which it would have caught alight, but with the melting point of about 660 degrees Celsius and fire authority estimates of temperatures exceeding 1,000 degrees Celsius in the upper parts of the tower, the aluminum panels will have readily melted in the heat. Aluminum does not burn until nearly 7,000 degrees Fahrenheit, or nearly 4,000 degrees Celsius, but with the panel surfaces melting it provided no protection to prevent the flammable sandwich core from igniting along with the insulation installed in the space between the panel and the wall.

Whether aluminum cladding can survive from this disaster in the U.K. as an architectural product specified on new and existing buildings remains to be seen. Even if totally fire-resistant insulation were specified, it would be a brave architect that clad a new residential building with aluminum panels in the future.

Free Download: The June 2017 MMI Report

The tragedy is that the 79 deaths and the huge cost of upgrading some 600-plus similar high-rise buildings in the U.K. could have been avoided if the British fire regulations had drawn on experience bitterly learned from earlier fires in the U.S., Europe and elsewhere.