Author Archives: Fouad Egbaria

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

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  • Holidays in India mean an uptick in gold buying — our Sohrab Darabshaw covered India’s holiday gold surge.
  • The fourth round of renegotiation talks focused on the North American Free Trade Agreement (NAFTA) concluded earlier this week. We covered the latest round of talks, which by all accounts have the three negotiating teams at an impasse.
  • As the fallout continues from Kobe Steel’s quality data falsification scandal, our Stuart Burns wrote about what exactly might have gone wrong at Japan’s third-largest steelmaker.
  • The World Steel Association’s Short Range Outlook came out this week, predicting solid, albeit moderated growth for the global steel market.
  • Precious and base metals have been behaving similarly, our Irene Martinez Canorea wrote this week.
  • The U.S. International Trade Commission launched a new Section 337 probe related to automation systems.
  • The value of the U.S. dollar has a significant impact on the fortunes of a number of metals, our Stuart Burns explained.
  • And how about palladium? Burns also touched on the rise of the platinum group metal and its leapfrogging of platinum (for the time being).
  • It’s third-quarter earnings report time. Alcoa and Nucor were among the latest companies to announce their earnings for the latest quarter.

Free Download: The October 2017 MMI Report

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Although we have entered the fourth quarter of 2017, it’s the time of year during which companies update shareholders and other interested entities on their third-quarter performance.

Alcoa and Nucor were among the latest metals companies to announce their third-quarter earnings (on Wednesday and Thursday, respectively).

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Alcoa, which specializes in bauxite, alumina and aluminum products, reported third-quarter net income of $132 million, or $0.72 per share.

The company also posted $2.96 billion in third-quarter revenue, up from $2.86 billion in the second quarter.

The company raised its 2017 outlook for adjusted EBITDA  — or earnings before interest, tax, depreciation and amortization — to $2.4 billion, up from a previous estimate of $2.1 billion to $2.2 billion.

“Alcoa continues to benefit from favorable commodity markets, and we’ve raised our projections for profitability in 2017 and global aluminum demand growth for the balance of the year,” said Roy Harvey, president and chief executive officer, in a company release announcing the third-quarter earnings. “We continued to execute on our three strategic priorities — our strong cash generation aligns with our priority to strengthen the balance sheet, while our recent Rockdale announcement advances our priorities to reduce complexity and drive returns.”

The company is approaching a milestone, having initiated its run as an independent, publicly traded firm on Nov. 1, 2016.

“As we approach our first anniversary as an independent, publicly-traded company, we’ll continue to be guided by our three strategic priorities to further strengthen our Company and Alcoa’s foundation for the future,” Harvey said.

The company’s EBITDA got a boost earlier this month when Alcoa announced the termination of a power contract tied to its Rockdale Operations — fully curtailed since 2008 — in Texas. According to the release, beginning in the fourth quarter the termination is expected to result in an additional $60 million to $70 million in annual net income and adjusted EBITDA.

Growth in the aluminum market has added wind to the firm’s sails. As for supply, Alcoa expects the global market to be balanced for 2017, departing from its second-quarter projection of a slight surplus surplus.

“The improvement is mostly due to planned and actual curtailments in Chinese smelting capacity as well as increased Chinese demand,” the Alcoa release states.

Nucor Earnings Drop From Previous Quarter, But YTD Earnings Highest Since 2008

Nucor, meanwhile, announced Thursday consolidated net earnings of $268.5 million, or $0.83 per diluted share, for the third quarter of 2017. In the second quarter of this year, Nucor reported earnings of $323.0 million, or $1.00 per diluted share. As for the third quarter of 2016, it reported earnings of $305.4 million, or $0.95 per diluted share.

However, earnings through the first nine months of this year exceed those of the same time frame of every year since 2008, according to Jim Frias, Nucor’s chief financial officer.

For the period of January-September, Nucor reported consolidated net earnings of $948.4 million, or $2.94 per diluted share, compared with consolidated net earnings of $636.6 million, or $1.99 per diluted share, for the first nine months of last year.

“Nucor’s disciplined strategy for profitable growth is working,” Frias said during Nucor’s third-quarter earnings call on Thursday. “During the steel industry’s protracted downturn, we have invested aggressively to increase our capabilities for delivering value to our customers and profitable growth for our shareholders.”

Frias added that the third-quarter earnings decline from the previous quarter is largely attributable to lower capacity utilization rates and metal margins in its steel segment, in addition to an unplanned outage at its Louisiana DRI plant, which began in late July before operations resumed earlier this month.

Looking ahead, Frias said they see stable or improving conditions in a number of markets for 2018, including non-residential construction, automotive, energy, heavy equipment and agriculture.

“Although illegally traded imports remain at unacceptable levels, we are encouraged by the cumulative benefits of the U.S. steel industry’s successful trade cases,” Frias added.

Similarly, Chairman and CEO John Ferriola touched on this year’s “renewed surge of illegally traded imports into the U.S.,” citing the 27% year-to-date market share for finished steel imports.

“Nucor continues to believe significant work remains to be done to achieve free and fair trade for U.S. manufacturers,” Ferriola said. “More specifically, it’s time for comprehensive and broad-based remedies that address the illegal foreign trade practices that have materially weakened our nation’s economic vitality.”

He also added that Nucor applauds the U.S. International Trade Commission’s affirmative ruling Oct. 5 regarding washing machine imports (stemming from a petition filed by Whirlpool). A public hearing on remedies with respect to the case was held yesterday, Oct. 19.

In other company developments, last month Nucor announced its board of directors had approved a new steel bar micro mill project. Nucor is considering the states of Nebraska, Kansas, Missouri, South Carolina and Florida for the project.

Free Download: The October 2017 MMI Report

Other metals companies also have earnings announcements on the horizon. AK Steel will announce its third-quarter earnings Oct. 31.  U.S. Steel‘s third-quarter earnings call is scheduled for 8:30 a.m. EDT on Nov. 1.

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This morning in metals news, Japanese carmakers tested the safety of Kobe Steel products, palladium outshines gold and the global nickel deficit widened in August.

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Kobe Steel Materials Pass Safety Checks

Toyota, Honda and Mazda gave Kobe Steel, Japan’s embattled third-largest steelmaker, a touch of good news Thursday by saying its products are safe, despite the recent data falsification scandal.

According to a report in The New York Times, the products fell short of advertised standards, but met with regulators’ standards (as well as those of the carmakers).

Palladium Continues Charmed Run

The palladium price recently eclipsed that of platinum for the first time since 2001 — and the metal’s rise has people taking notice.

The upward trend for palladium has even caught the eye of the gold industry, according to the Financial Times.

Our Stuart Burns covered palladium’s rise in his post earlier this morning.

Nickel Market Showed 6,700-Ton Deficit in August

The nickel market deficit deficit rose to 6,700 tons in August, according to data released by the International Nickel Study Institute.

Free Download: The October 2017 MMI Report

Global production was 176,800 tons, with demand at 183,500 tons.

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This afternoon in metals news, renegotiation efforts focused on the North American Free Trade Agreement (NAFTA) appear to be at a standstill, Chile’s state copper commission boosts its 2018 copper forecast and a European agency advises plane manufacturers to suspended their use of products from embattled Japanese steelmaker Kobe Steel.

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NAFTA Deadlock

The fourth round of renegotiation talks regarding the 23-year-old NAFTA concluded yesterday, but the U.S., Mexico and Canada appear to be no closer to a consensus.

According to Bloomberg, initial hopes for a quick resolution have fizzled, as talks will now be extended into 2018 (which was previously hoped to be avoided, given the scheduled elections in each country next year).

The next round of talks is scheduled for Nov. 17-21 in Mexico.

Cochilco Forecasts Copper at Nearly $3/Pound in 2018

Chile’s state copper commission, Cochilco, on Wednesday put out a forecast for 2018 including a prediction of the average global copper price hitting $2.95/pound.

The new forecast is up significantly from Cochilco’s mid-year estimate of $2.68/pound. Greater Chinese demand is cited as a supporter of the global price.

Kobe Steel Saga Continues

The fallout from the Kobe Steel data falsification scandal continues, as the European Aviation Safety Agency (EASA) advised plane manufacturers to suspend their use of products from the firm, the third-largest steelmaker in Japan, according to CNN Money.

According to the report, EASA advised those manufacturers to find alternative suppliers and conduct a “thorough review of their supply chain.”

Free Download: The October 2017 MMI Report

A number of global heavyweights use Kobe Steel products, including GM, Boeing, Ford and Toyota, according to the report.

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The United States International Trade Commission last week announced it is launching an investigation related to the importation of something that is often considered the wave of the future: automation systems.

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The USITC announced it launched a Section 337 investigation last Wednesday. Section 337 of the Tariff Act of 1930 determines whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States, including the infringement of a U.S. patent, copyright, registered trademark or mask work.

The investigations stems from a complaint filed Sept. 6 by Rockwell Automation, Inc., of Milwaukee, Wisconsin.

“The products at issue in the investigation include components used in the complainant’s industrial automation systems that bear the complainant’s Allen-Bradley® trademarks and that use the complainant’s copyrighted software and firmware,” the USITC announcement reads.

According to the complaint, the respondents allegedly violated Section 337 with respect to the importation and sale of “certain industrial automation systems and components thereof including control systems, controllers, visualization hardware, motion and motor control systems, networking equipment, safety devices, and power supplies that infringe trademarks and copyrights asserted by the complainant.”

In addition, Rockwell is asking for a general exclusion order, and cease and desist orders.

The following firms were listed as respondents in the case:

  • Can Electric Limited of Guangzhou, Guangdong, China
  • Capnil (HK) Company Limited of Hong Kong
  • Fractioni (Hongkong) Ltd. of Shanghai, China
  • Fujian Dahong Trade Co., Ltd., of Fujian, China
  • GreySolution Limited d/b/a Fibica of Hong Kong
  • Huang Wei Feng d/b/a A-O-M Industry of Shenzhen, China
  • KBS Electronics Suzhou Co., Ltd., of Shanghai, China
  • PLC-VIP Shop d/b/a VIP Tech Limited of Hong Kong
  • Radwell International, Inc., d/b/a PLC Center of Willingboro, NJ
  • Shanghai EuoSource Electronic Co., Ltd., of Shanghai, China
  • ShenZhen T-Tide Trading Co., Ltd., of Shenzhen, China
  • SoBuy Commercial (HK) Co. Limited of Jiangsu, China
  • Suzhou Yi Micro Optical Co., Ltd., d/b/a Suzhou Yiwei Guangxue Youxiangongsi d/b/a Easy Micro-optics Co. LTD. of Suzhou, Jiansu, China
  • Wenzhou Sparker Group Co. Ltd., of Wenzhou, China
  • Yaspro Electronics (Shanghai) Co., Ltd., of Shanghai, China

Free Download: The October 2017 MMI Report

USITC rules dictate that it will issue a target date for completion of the investigation within 45 days of launching one, meaning the Commission will set a target date by Nov. 25 in this case.

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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.

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The World Steel Association released its October 2017 Short Range Outlook (SRO) — its assessment of the global steel market — on Monday.

For the most part, the latest SRO relates good news for the global market.

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“In 2018, we expect global growth to moderate, mainly due to slower growth in China, while in the rest of the world, steel demand will continue to maintain its current momentum,” said T.V. Narendran, chairman of the World Steel Association’s Economics Committee, in the report.

According to the SRO, global steel demand will reach 1,622.1 million tons (Mt) in 2017 and 1,648.1 Mt in 2018. Excluding China, demand is expected to grow 2.6% this year and 3.0% next year.

Dr. Nae Hee Han, the World Steel Association’s director of economic studies and statistics, wrote on Monday that while the numbers in the SRO are mostly positive, there are a few caveats.

First, she wrote, the growth of emerging economies did not meet previous SRO estimates set in April.

“A number of emerging economies did not perform as well as expected in 2017 due to short term disruptions caused by ongoing reform initiatives or political factors,” Nee Han wrote.

On the other hand, developed economies — the European Union, Japan and the United States — performed better than expected. But Nee Han explains that emerging economies will experience greater growth in 2018, partially as a result of reform initiatives, including the Goods and Services Tax (GST) system in India, energy and tax reform in Mexico, exchange rate reforms in Argentina and Egypt, and fiscal reforms in GCC countries.

As for the sustainability of the current growth trend, Nee Han writes that it might not be a long-term thing.

“Secondly, the worldsteel Economics Committee at its most recent meeting in Amsterdam a month ago was in agreement that the current momentum is driven mostly by cyclical rather than structural factors,” she wrote. “We do not find the improved growth figures to be sustainable in the long term: China’s continued deceleration, megatrends such as aging populations, a shift to a circular economy and increasingly stringent environmental regulations continue to weigh against steel demand.”

Another optimism-mitigating factor listed by Nee Han is the statistical anomaly that is China’s 2017.

“In 2017 China closed most of its illegal induction furnace capacity, which up until now had not been included in official statistics,” Nee Han explains. “With this closure, the demand satisfied from these producers is now being met by the official sector. This shift of demand explains the forecasted jump in the Chinese growth rate in 2017 – the technical effect of the underestimated 2016 base.”

Around the World

Demand for finished steel is variable around the world, but, for the most part, is forecasted to increase this year and next in most regions.

In the North American Free Trade Agreement (NAFTA) bloc, there is an expected 4.9% year-over-year increase in demand (or 138.7 Mt) and 1.2% increase in 2018 (140.4 Mt).

Meanwhile, the report forecasts a 2.5% jump this year in the EU (162.1 Mt) and 1.4% increase next year (164.3 Mt).

In the Commonwealth of Independent States (CIS) bloc, which includes Russia, there is an expected 3.6% increase in 2017 (51.1 Mt) and 3.8% next year (53.0 Mt).

In the Asia and Oceania region, there is an expected 9.3% growth in 2017 (1,098.8 Mt) and 1.1% in 2018 (1,111.1 Mt).

In Africa, there is an expected 1.6% drop in demand this year (37.0 Mt) and a 3.3% jump next year (38.2 Mt).

In Central and South America, the report forecasts a 2.5% jump this year (40.4 Mt) and 4.7% jump next year (42.3 Mt).

Construction and Automotive Sectors

What about industry sectors, like construction and automotive?

According to the SRO, construction growth in developed countries, which has been relatively slow since the 2008 economic recession, is “now showing more positive signs both in the residential and commercial sectors due to rising incomes and improving investment sentiments.”

Free Download: The October 2017 MMI Report

As for the automotive sector, the report states that despite a strong 2017 overall, growth could moderate in the U.S. and China, a trend that is “likely to extend to other countries in 2018.”

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This morning in metals news, Kobe Steel’s share price continues to plummet in the wake of its data falsification scandal, London copper hits a three-year high and palladium is having a strong 2017.

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Kobe Steel Shares Hit Lowest Price Since 2012

Kobe Steel, Japan’s third-largest steelmaker, continues to see its share price drop on the heels of its data falsification scandal.

The fallout from the scandal has already seen Kobe lose approximately $1.8 billion in market value, Reuters reported.

On Friday, Hiroya Kawasaki, Kobe’s chief executive, said about 500 companies received falsely certified products from Kobe, which was more than double a previously released number, according to the Reuters report.

LME Copper on the Rise

London copper is on the way up again, this time rising to hit a three-year high, Reuters reported.

The metal eclipsed the $7,000 mark, powered in part by good news on the Chinese economy, according to the report.

Palladium Powered by Automotive Demand

Recently, the palladium price recently eclipsed that of platinum for the first time in 16 years.

It’s been that kind of year for palladium.

Free Download: The October 2017 MMI Report

According to a CNNMoney report, 78% of palladium demand this year came from the automotive market.

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Trade negotiators from the U.S., Canada and Mexico are back at it again, working to tweak — or in some cases, totally alter — the North American Free Trade Agreement (NAFTA).

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Representatives from the three countries came together beginning last week for the fourth round of talks focused on the renegotiation of NAFTA, the 23-year-old trilateral trade deal.

The talks started Oct. 11 in Arlington, Va., and are scheduled to continue until Oct. 17.

U.S. Trade Representative Robert Lighthizer issued a statement opening the fourth round of talks.

The officials are scheduled to work on two dozen discussion topics during this round of talks, and recently finished a chapter on competition. According to a USTR release, the updated NAFTA Competition Chapter “goes beyond anything the United States has done in previous free trade agreements.”

“I am pleased to welcome back Secretary Guajardo, Minister Freeland, and their teams to continue negotiations here in Washington,” Lighthizer said in the prepared statement. “Thus far, we have made good progress, and I look forward to several days of hard work.”

Even so, cracks seem to be forming in the dialogue that threaten the stability of the talks and, consequently, the agreement.

As has been mentioned before, President Donald Trump reportedly nearly withdrew the U.S. from the trade deal in April until talks with the Mexican and Canadian leaders convinced him otherwise.

In recent months, Trump has resumed with threats against the deal, which he once called possibly the worst trade deal ever. Renegotiating the deal has always been a primary goal for Trump, with the understanding that should a favorable deal fail to materialize, he would withdraw the U.S. from it.

So far, the threats to withdraw from the deal have been just that: threats.

However, those threats have seemed to pick up as negotiations have continued. And when it come to negotiations, reports indicate a number of the U.S. delegation’s proposals are not going to go over well with their fellow NAFTA partners.

On Thursday, Reuters reported that the U.S. negotiating team suggested any approved deal should include a five-year sunset clause, meaning the deal would have to be effectively re-approved by all three countries in five years or it dissolves.

Naturally, this has a number of stakeholders feeling nervous, as such a sunset clause, businesses argue, creates uncertainty. With increasingly interconnected and entrenched supply chains, business interests view a sunset clause as a non-starter, as do Canada and Mexico.

In other policy proposals, Reuters reported Friday that the U.S. is pushing stricter rules on automotive content, particularly with respect to aluminum, steel, copper and plastic resins, in an effort to up the level of automotive materials sourced in North America.

As the talks continue, United Steelworkers again urged the administration to consider workers.

“It’s no surprise that business groups are concerned that NAFTA’s outsourcing provisions may be dramatically altered, and that provisions might be included to develop an agreement that is fairer to workers,” a USW release last week said. “Organized labor is working with the Administration to advance proposals that will promote growth and opportunity for workers in all three countries. A deal that achieves those goals would be worthy of our support.

“Businesses have set the agenda for far too long and the result has been rising trade deficits, lost jobs, devastated communities and rising income inequality.”

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The talks are scheduled to wrap up tomorrow, Oct. 17. According to the USTR, a trilateral press event including Lighthizer, Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of Economy Ildefonso Guajardo Villarreal.

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

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

  • 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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