This morning in metals news, steel prices in China are up and the government is looking to strike a balance, German company Thyssenkrupp isn’t in a rush to forge a merger with the European business of India’s Tata Steel and China responds to the U.S. Department of Commerce’s ruling this week regarding Chinese aluminum foil, which the DOC determined was being unfairly subsidized by the government.
On the heels of efforts to cut excess Chinese steel production, prices are rising — but the government is looking to strike a balance.
“For Beijing, it’s a tough situation: tackle steel overcapacity, rebalance economic growth, control environmental pollution and also manage market stability — especially in advance of a leadership shuffle due in the fall,” CNBC’s Sophia Yan writes.
No Rush to Merge, Thyssenkrupp CFO Says
Talks of a merger between the European businesses of Thyssenkrupp and India’s Tata Steel have hung around since last year.
They even seemed to get a boost in light of news reported yesterday about Tata’s plans to separate its British pension scheme from its businesses.
Also unsurprisingly, China had something to say about it, too.
The Chinese Ministry of Commerce wrote in a statement on its website that the DOC’s claims were “without foundation” and urged the U.S. to “act cautiously and make a fair decision to avoid any negative impact on the normal economic and trade exchanges between China and the U.S.”
On Tuesday, Secretary of Commerce Wilbur Ross announced the findings of the countervailing duties investigation, declaring that Chinese exporters of aluminum foil received countervailing subsidies of 16.56 to 80.97 percent. As a result, the U.S. could impose duties of up to 81 percent on Chinese foil in return.
This morning in metals news, the U.S. aluminum industry expressed support for the U.S. Department of Commerce’s ruling that Chinese aluminum foil is benefiting from government subsidies, Indian steel company Tata Steel is expected to detach its U.K. pension scheme from its business and, in consumer products news, a recent report says copper cocktail mugs may be causing food poisoning.
Per a DOC release, the Commerce Department “will instruct U.S. Customs and Border Protection to collect cash deposits from importers of aluminum foil from China based on these preliminary rates.”
“The United States is committed to free, fair and reciprocal trade, and will continue to validate the information provided to us that brought us to this decision,” Ross said. “The Trump Administration will not stand idly by as harmful trade practices from foreign nations attempt to take advantage of our essential industries, workers, and businesses.”
Per the release, imports of aluminum foil from China last year were valued at an estimated $389 million.
The Aluminum Association applauded the DOC determination.
“The association and its foil-producing members are very pleased with the Commerce Department’s finding and we greatly appreciate Secretary Ross’s leadership in enforcing U.S. trade laws to combat unfair practices,” said Heidi Brock, President and CEO of the Aluminum Association, in a prepared statement. “This is an important step to begin restoring a level playing field for U.S. aluminum foil production, an industry that supports more than 20,000 direct, indirect, and induced American jobs, and accounts for $6.8 billion in economic activity.
“U.S. aluminum foil producers are among the most competitive producers in the world, but they cannot compete against products that are subsidized by the Chinese government and sold at unfairly low prices.”
The ruling stems from the March 9 filing of antidumping and countervailing duty petitions by The Aluminum Association’s Trade Enforcement Working Group. The petition marked the first time the Aluminum Association has filed unfair trade cases on behalf of its members in its nearly 85-year history, according to the Aluminum Association release.
Tata Steel Inches Closer to Potential Merger
According to a BBC report, an announcement from Tata Steel regarding the separation of its British pension scheme from its businesses could be coming within days.
The pension scheme has been a “significant barrier” in merger talks between Tata and German steel producer ThyssenKrupp, according to the report.
According to the BBC, Tata “has been in negotiations with pension regulators and trustees” of the £15 billion British Steel Pension Scheme.
Health Officials Say Copper Cocktail Mugs Could Cause Food Poisoning
A recent report might give drinkers of Moscow Mules pause.
CBS News reported health officials in Iowa made the declaration that copper cocktail mugs — often used to drink the popular Moscow Mule cocktail — might cause food poisoning “after examining the poisonous nature of copper and copper alloys mixing with food.”
According to the report, makers of lithium-ion batteries are looking to add more nickel to their battery formulas instead of the increasingly costly cobalt.
As the report notes, electric vehicle demand is set to grow significantly in the coming years. As such, automakers will be looking to cut their production costs. According to Reuters, the price of cobalt has doubled over the last year, a product of high demand and supply shortage.
Political Instability, Violence in Congo
Speaking of supply, most of the world’s cobalt is mined in the Democratic Republic of Congo, according to the United States Geological Survey (USGS). According to USGS data, an estimated 66,000 metric tons of cobalt were mined in Congo in 2016 — or 54% of the 123,000 metric tons mined worldwide. China came in second last year of cobalt mined (7,700 metric tons), followed by Canada (7,300 metric tons).
However, the unstable political situation in Congo could continue to affect supply, making the metal even pricier. Political unrest recently led to a wave of bloodshed in the country, sparking fear of a return to the civil wars of the 1990s, The Guardian reported.
This is all without even getting to the ethical concerns present in the Congolese cobalt mining world. As noted by numerous media reports, significant chunks of mining revenue tend to go missing via corruption linked to President Joseph Kabila. All in all, the rising demand in cobalt has not benefited the Congolese people. A 2015 IMF report showed the country was experiencing significant economic growth, but poverty reduction lagged behind.
On top of all this, the conditions for Congolese cobalt miners add another ethical concern to the mix, one which big multinational brands will have to answer to with respect to their supply chains. For example, a Sky News report revealed workers as young as 4 working in the Congolese cobalt mines in deplorable conditions.
While the status of cobalt on the marketplace is obviously not the most important takeaway from the grim situation in the DRC, cobalt production has fallen this year amid the unrest, The Guardian reported, leading to a 90% rise in the price of the metal and a peak of $61,000/ton in July.
Actual Metal Prices and Trends
U.S. steel plate rose 3.9% to $754/short ton. U.S. GOES coil dropped to $2,494/metric ton.
Chinese steel plate rose 9.8% to $584.31/mt. Chinese silicon also picked up a price gain, increasing 1.6% to $1,531.39.
The U.S. Department of Commerce. qingwa/Adobe Stock
This morning in metals news, the still-pending Section 232 investigations into steel and aluminum imports, raw steel production is up 2.7% in the U.S. year-over-year and aluminum has reached its highest point in 2.5 years.
Uncertainty Growing in Aluminum Market
It’s not exactly surprising that some in the aluminum and steel industries are feeling anxious about the Section 232 investigations, still unresolved, initiated by the Trump administration in April.
According to a report in Platts, that’s exactly how some are feeling on the aluminum side. Not only that, the uncertainty is making what was already considered a volatile aluminum market even more volatile.
Another potential consequence of the investigation? The cost of downstream products could go up, according to industry sources cited by Platts.
Raw Steel Production Down From Previous Week, Up For the Year
The American Iron and Steel Institute released its weekly raw steel production data on Monday, and the numbers are both up and down.
For the week ending Aug. 5, production was down 0.4% from the previous week ending July 29. Production for the week ending Aug. 5 amounted to 1,762,000 tons.
Production for the year to date, however, was up 2.7%, with 53,870,000 tons produced through Aug. 5 this year.
The Rare Earths MMI continued its steady climb back up toward 2015 levels, hitting 23 for our August reading. After hitting 29 in April 2015, the sub-index fell as low as 16 last year before slowly climbing back up this year with an uptrend that began in March.
Most of the heavy hitters in the sub-index posted price increases, namely Chinese neodymium oxide, which rose a whopping 21% in July.
Rare-earth metals continued the uptrend which began in the spring. As our Irene Martinez Canorea wrote last month, China produces 85% of rare earth metals, meaning Chinese production overwhelmingly dictates the direction of this sub-index.
Western Australian Premier Mark McGowan told the ABC the mine was the first of its kind outside of China. Mining has already begun at the site, according to the report, and approximately 60,000 tons of ore per year are expected to be extracted during the pilot stage of the project.
South Africa is another player in the rare-earths market. Canorea wrote last month: “South Africa could play a strategic role in rare-earth metals supply. The Steenkampskraal mine claims to have the highest grades of rare-earth elements in the world. Moreover, the mine had previously been in operation between 1952-1963, according to its website, and appears to be putting in place all of the equipment and permits needed to bring the mine to production. Rising prices will help. Nevertheless, China remains the global price setter for rare earths.”
But, back to China. The price of these rare-earths metals, which are used in a wide range of technologies, are expected to rise.
Also per the Nikkei Asian Review, the price of neodymium hit $65 per ton, marking the first time it had eclipsed the $60 price point in two years.
Electric vehicles are among the applications for rare-earth metals. As technology improves and more affordable electric models hit the market, the demand for these metals can only be expected to rise.
Meanwhile, in the U.S., the CEO of the only remaining rare-earths mine in the country urged the White House to nationalize the mining operations, located in Mountain Pass, California. Whether that can or will happen remains to be seen, but any effort to revive the operation faces significant challenges from China’s overwhelming dominance of the market.
This morning in metals news, some think copper’s hot 2017 could run out of steam, copper stabilized after hitting a two-year peak recently and Asian battery makers are looking to use more nickel instead of cobalt.
According to U.S. Census Bureau data released Aug. 1, total construction spending in June is estimated at $1,205.8 billion, down from the revised total of $1,221.6 billion in May.
However, the June spending figure is 1.6% above the June 2016 estimate of $1,186.4 billion. In the first six months of this year, construction spending amounted to $577.0 billion, or 4.8% percent above the $550.5 billion for the same period in 2016.
Private construction spending amounted to $940.7 billion, 0.1 percent below the May total of $941.3 billion.
Meanwhile, public construction spending amounted to $265.1 billion, or 5.4% below the revised May estimate of $280.3 billion. Included within public spending was: educational construction ($67.5 billion), 5.5% below the revised May estimate of $71.4 billion, and highway construction ($82.4 billion), 6.6% below the revised May estimate of $88.2 billion.
Last month’s MMI report covered concerns from builders regarding rising materials costs. A couple of the heavy hitters in this basket of metals, Chinese rebar and H-beam steel, posted price increases.
Should the Section 232 investigation yield tariffs or quotas on steel imports, that could drastically impact how construction firms do business. Of course, if President Trump’s comments to the Wall Street Journal last week are any indication, we could all be waiting for a while before any Section 232 verdicts are handed down.
Construction Firms Grow
The Architecture Billings Index (ABI) released monthly by the American Institute of Architects also reports good news for the construction industry.
The ABI rose from 53.0 in May to 54.2 for June (anything over 50 equates to billings growth).
“Despite growth in inquiries into new projects and the value of new design contracts dipping slightly in June, firms continue to report robust backlogs averaging 5.9 months and indicate a steady supply of work in the pipeline,” the June ABI report states.
According to the ABI, Northeast firms reported billings growth for the first time in three months. By region, the South led the way with an ABI score of 54.8, followed by the West (53.1), Midwest (51.9) and Northeast (51.5).
By sector, residential construction led the way (57.1), followed by institutional (52.6) and commercial/industrial (52.1).
Actual Metal Prices
Chinese rebar rose to $594.71/metric ton, while Chinese H-beam steel rose to $547.14/mt. Chinese iron ore rose 0.9% to 78.06/dry metric ton. Chinese aluminum bar, meanwhile, fell slightly to $2,166.25/mt.
U.S. shredded scrap steel fell 2.4% to $288/short ton.
European aluminum 1050 sheet fell 1.3% to $2,731.23/mt.
The sub-index reached the 90-plus threshold for the first time since the February reading, when it jumped to 92.
Although automotive sales have fallen off the record pace seen in 2016, the basket of metals in this sub-index posted strong price gains throughout July. U.S. hot-dip galvanized (HDG) steel rose 1.3%, while U.S. platinum and palladium bars posted increases of 2.3% and 3.4%, respectively.
U.S. Automotive Sales Down From 2016 Figures
General Motors sales fell 15.5% in July compared with July 2016, according to Autodata Corp sales data released Tuesday. In the year to date, GM’s sales are down 3.9% compared with the same time frame in 2016.
GM is not the only automotive brand to see lagging U.S. sales this year.
Ford‘s July sales were down 7.4% in July compared with July 2016, and down 4.3% in the year to date compared with the same time frame in 2016. Fiat Chrysler sales were down 10.5% in July compared with July 2016, and 7.2% in the year to date.
Even Tesla, riding high off the hype from the forthcoming Model 3, saw its July sales fall 5.2% below its July 2016 figures. Even so, Tesla’s year-to-date sales are 34.7% higher than its sales for January-July 2016.
Honda also posted sales drops in July (1.2%) and in the year to date (0.2%). Volkswagen, still dealing with the PR quagmire of Dieselgate, saw its July sales fall 2.6%, although its sales are up 5.9% for the year to date.
Several automakers down the sales list did post sales jumps in July compared with July 2016. Subaru (6.9%), Toyota (3.6%) and Mitsubishi (1.7%) posted sales increases, while luxury vehicle brands Ferrari (20.7%) and Maserati (31.1%) also saw increases (albeit on relatively small volumes).
The automotive market is just one industry sector that could be affected by trade measures that could come about as a result of the U.S. Department of Commerce’s Section 232 investigations into steel and aluminum imports.
Of course, those investigations have yet to reach a resolution.
Last week, President Donald Trump told the Wall Street Journal that “we don’t want to do it at this moment,” in reference to trade actions involving steel imports.
So, for now, that policy track seems to be stuck in park. With January deadlines for both the steel and aluminum investigations — per requirements set forth in Section 232 of the Trade Expansion Act — the steel and aluminum markets could remain in limbo for several additional months.
Feeling the Electricity
As electric car technology continues to advance, so, too, is consumer interest.
One model drawing consumer interest in the forthcoming Tesla Model 3. According to a report in CNNMoney, the Model 3, billed as a more affordable electric vehicle option, is garnering more than 1,800 net reservations each day. Tesla CEO Elon Musk told analysts Wednesday that the total reservations for the new model had reached around 455,000, including cancellations.
The base Model 3, without add-ons, is listed at $35,000 and has a range of 220 miles, according to the Tesla website.
Automated Transport Trucks On Hold
In addition to electric-powered vehicles, automation is also considered the wave of the future.
But what about automated trucks delivering goods across the highways of America?
The report states that in a recent ABI Research survey, 44% of respondents were not aware of the use of automated vehicles for transport.
That doesn’t mean automation isn’t picking up steam overall. The study notes that 30% of all U.S. companies plan to incorporate robotics into their operations next year.
Actual Metal Prices
U.S. HDG steel rose to $805/short ton. U.S. platinum and palladium bars also rose, to $939/ounce and $876/ounce, respectively. U.S. shredded scrap steel, however, fell 2.4% to $288/st.
Korean 5052 aluminum coil rose $0.04 to $3.41/kilogram.
On the LME, primary copper rose by 7.8% to $6,381/metric ton. The metal was boosted to a two-year high, primarily a result of a weaker dollar and the possibility of increased Chinese demand, Reuters reported.
Chinese primary lead also posted a price increase, growing 3.3% to $2,694.90/mt.
This morning in metals news, Indian steel company JSW Steel Ltd. could partner with a Japanese firm to acquire distressed Indian companies, steel import permit applications fell 12.3% in the U.S. last month and Chinese aluminum capacity cuts are sending prices up.
Steel Tycoon Sajjan Jindal Open to Partnership with JFE
A deal might be in the works between Indian and Japanese companies.
Bloomberg reported Sajjan Jindal and his JSW Steel Ltd.would be open to investment from the Japanese firm JFE Holdings Inc., per JSW Joint Managing Director Seshagiri Rao. According to the report, JSW is looking to acquire distressed companies in India.
With plants in southern and western India, JSW is looking to expand into the eastern half of the country.
Steel Imports Permit Applications Fall in July
According to the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, steel import permit applications fell 12.3% in July compared with the previous month.
According to a release from the American Iron and Steel Institute (AISI), in July the largest finished steel import permit applications for offshore countries were for: South Korea (333,000 net tons, down 14% from June preliminary), Turkey (211,000 net tons, down 36%), Japan (149,000 net tons, up 20%), Germany (144,000 net tons, up 24%) and Taiwan (136,000 net tons, down 17%).
Through the first seven months of 2017, the largest offshore suppliers were South Korea (2,261,000 net tons, down 5% from the same period in 2016), Turkey (1,681,000 net tons, up 11%) and Japan (935,000 net tons, down 12%).
Chinese Capacity Cuts Lead to Rising Aluminum Prices
The longevity of the positive effects of China’s capacity cuts has been debated here and elsewhere. In some cases, capacity cuts have simply given way to new capacity elsewhere, effectively negating the initial cuts’ support of aluminum prices.
For now, however, the most recent round of aluminum capacity cuts in China has been good news for the metal’s price, which has risen in recent days.
Talk of tariffs stemming from the Trump administration’s Section 232 investigations of steel and aluminum imports has seemingly softened over the last couple of weeks, but the overall trade dynamic between the to countries remains tense.
First, President Trump told the Wall Street Journal last week that “we don’t want to do it at this moment” in reference to trade actions on steel imports resulting from the administration’s Section 232 investigation.
Section 232 of the Trade Expansion Act of 1962 gives the Secretary of Commerce authority to conduct comprehensive investigations to determine the effects of imports of any article on national security. The investigations were announced open in April. By law, the investigation must be concluded, including a submitted report, within 270 days of its opening.
More recently, a shift toward a negotiated agreement seems to be gaining favor. According to Inside U.S. Trade ($), Secretary of Commerce Wilbur Ross suggested “voluntary” agreements, according to House Ways & Means Committee members who met with Ross on July 27.
However, in terms of getting any additional clarity on what the administration plans to do, the committee members left the July 27 briefing without much of that.
“I don’t think that there was a lot of clarification,” Richard Neal (D-MA) told Inside U.S. Trade.
The deadlines for the Section 232 investigations are well down the road (not until January), but, until then, talk is likely to continue about what the administration will or won’t do, in addition to what other relevant parties could do in retaliation.
In similar news, the administration and many in the U.S. steel industry have pointed to China’s excess capacity as the major problem for the domestic industry, leading to suggestions of tariffs or quotas targeting China (but also affecting other steel-producing countries).
Talk of trade remedies against China, however, hasn’t just been limited to steel and aluminum.
Bloomberg reported earlier today that the Trump administration could go after China for perceived intellectual property violations.
According to the Bloomberg report, the administration is considering invoking another article — Section 301 of the Trade Act of 1974.
In essence, Section 301 is the mechanism by which the U.S. can respond to countries in violation of trade agreements or engaging in unfair trade practices. The move would further increase tensions between the U.S. and China, particularly in light of Trump’s admonishments of China for not doing enough to rein in North Korea.