Author Archives: Fouad Egbaria

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This afternoon in metals news, European steel demand is expected to grow 2.3% this year, Bloomberg takes a look at the Trump administration’s “Made in America” pledge and Freeport-McMoRan is working with the Indonesian government to resolve a mining permit dispute.

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European Steel Demand to Grow 2.3%: Eurofer

The European steel association Eurofer predicts 2.3% growth in 2017 for European steel demand, according to a Reuters report.

The European steel industry is worth about 170 billion euros a year, according to the report.

Made in America?

Among other things, President Donald Trump has pushed a “Made in America” agenda, aiming to boost domestic industry.

But, in practice, has there been a rise in U.S.-based production? A Bloomberg report outlines the reality of rising steel imports and pipeline contracts increasingly being won by Russia’s Evraz.

Freeport, Indonesia Look to Settle Permit Dispute

Richard Adkerson, chief executive of copper miner Freeport-McMoRan Inc., said on Wednesday that the miner wants to avoid arbitration vis-a-vis a mining dispute in Indonesia.

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Freeport is looking to renew the permit for its Grasberg copper and gold mine.

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Stakeholders of all stripes have weighed in on the North American Free Trade Agreement (NAFTA) this year, as renegotiation talks have now gone through four rounds.

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Negotiators from the U.S., Canada and Mexico most recently met Oct. 11-17 for a fourth round of talks in Arlington, Virginia. Despite progress on some issues, the talks overall seem to have hit an impasse.

As a result, the talks appear set to extend into 2018, which was previously hoped to be avoided, as elections are scheduled next year in each country. Among other things, U.S. proposals of a sunset clause and tighter automotive rules of origin have led to friction, as the U.S. attempts to negotiate what it considers to be a more beneficial deal while Canada and Mexico hope to preserve the deal (while also modernizing it for the 21st century).

According to a trilateral statement released by the Office of the United States Trade Representative, the negotiating parties made some progress on a few issues.

“Building on the progress made in prior rounds, the United States, Canada, and Mexico have now substantively completed discussions in the Chapter on Competition,” the statement reads.

“Additionally, negotiators made progress in several other negotiating groups, including customs and trade facilitation, digital trade, good regulatory practices, and certain sectoral annexes.”

However, it’s clear the parties are still far apart on a number of other issues.

In Oct. 17 remarks, Ildefonso Guajardo Villarreal, Mexico’s economy secretary, cautioned that negotiations must yield a “win-win-win” result, and that none of the parties want to end the process “empty-handed.”

“Working together, we can find the necessary balances to achieve a NAFTA consistent with the reality of our economies and societies,” he said.

While a number of groups — namely, U.S. workers associations — have petitioned the Trump administration to point out the negative impacts of NAFTA, others have worked to tout the agreement’s positive impacts.

Auto associations are among the latest to petition the administration in that latter capacity.

According to a Reuters report, major automakers, suppliers and auto dealers are launching a coalition to convince President Trump not to withdraw from the trade agreement (a threat the president has made on more than one occasion this year).

According to the report, auto trade associations representing General Motors, Toyota Motor Corp, Volkswagen AG, Hyundai Motor Co and Ford Motor Co, among other major automakers, on Tuesday launched the “Driving American Jobs” coalition, which includes an advertising campaign that aims to showcase the positive impacts of NAFTA on the automotive sector and the American workforce.

“American automakers are driving the revival of American manufacturing,” said Governor Matt Blunt, President of the American Automotive Policy Council (AAPC), in a prepared statement. “When you examine the data there’s no question that NAFTA has helped advance the global competitiveness of the U.S. auto industry sector. Now we have an opportunity to strengthen North America as a manufacturing powerhouse with a modern NAFTA that maintains the features that are working and makes improvements to benefit American workers and jobs. We look forward to working with the coalition, the Trump administration, members of Congress and all stakeholders to ensure American autos remain competitive in our global economy.”

The effort includes a website, www.drivingamericanjobs.com, which touts the trade agreement’s benefits to the sector and the American workforce, including a section of “American worker stories.”

“The American worker is in the middle of the greatest manufacturing comeback of all time,” the website’s homepage reads. “We’re winning with NAFTA. Tell Washington: Don’t change the game in the middle of a comeback.”

The effort comes on the heels of an Oct. 10 letter, undersigned by 310 local and state chambers of commerce, addressed to President Trump.

“We look forward to working closely with you and your Administration to grow the economy and create jobs through free and fair trade,” the letter concludes. “To help facilitate that growth, we urge you to support America’s workers, farmers, ranchers, and businesses of all sizes by protecting and preserving the deep economic ties and benefits the United States continues to enjoy under NAFTA.”

In a release from the U.S. Chamber of Commerce, U.S. Chamber President and CEO Thomas J. Donohue underscored the aforementioned sentiment.

“We’ve reached a critical moment, and the Chamber has had no choice but to ring the alarm bells,” Donohue said. “Let me be forceful and direct. There are several poison pill proposals still on the table that could doom the entire deal.

“The U.S. business community will stand up for an important agreement that makes North America stronger and more prosperous.”

Free Download: The October 2017 MMI Report

A fifth round of renegotiation talks is scheduled for Nov. 17-21 in Mexico City.

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This morning in metals news, the chairman of Chinalco says Chinese aluminum demand growth will stay ahead of the country’s GDP, a hedge fund is suing Barclays for over $850 million related to copper trading losses and a Chinese investor is placing big bets on copper.

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Chinese Aluminum Demand Growth

According to Chinalco, China’s biggest state-run aluminum producer, consumption of the metal will  grow 9-10% this year, Reuters reported.

According to the report, strong downstream demand is a primary factor behind the uptick.

Ge Honglin, chairman of Chinalco, told Reuters that demand growth is expected to rise faster than the country’s GDP in 2018. China is targeting GDP growth of around 6.5 percent this year, but has not yet set a 2018 goal, according to the report.

Red Kite Suing Barclays

A hedge fund is suing for over $850 million related to losses in copper trading, Reuters reported Monday.

The hedge fund, Red Kite, is suing Barclays, alleging that it manipulated the copper market and ultimately resulted in $850 million in losses for the hedge fund.

Futures of Chinese Copper

There has been a sharp rise in Chinese copper futures bets — why?

According to one source quoted by Kitco, a private coal mining industry investor in China, Gelin Dahua Futures Co Ltd, is behind the surge.

Free Download: The October 2017 MMI Report

Gelin Dahua holds more than 35% of the open interest in copper contracts for the first half of 2018 on Shanghai Futures Exchange (SHFE), per exchange data referenced by Kitco.

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This morning in metals news, the Kobe Steel saga continues, an Indian steel firm’s stock is up amid acquisition buzz and London copper holds steady.

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Kobe Steel Faces Another Test

The fallout from Kobe Steel’s quality data falsification scandal continues, and according to Reuters there are concerns about the Japanese firm’s outstanding liabilities.

According to the Reuters report, the third-largest Japanese steelmaker has $3.3 billion cash in hand and $7.01 billion in debts as of the end of March.

Bhushan Steel Stock Surges

Indian firm Bhushan Steel saw its stock rise after news of a potential acquisition by ArcelorMittal, according to the Economic Times.

The Indian company’s stock rose 20% Monday amid buzz that ArcelorMittal joined the bidding, according to the report.

Copper Trades Steady

Copper has experienced a significant upward trend in October, rising from $6,518 on Sept. 20 to $7,008 on Oct. 20.

The metal did experience a dip last week, however, falling from $7,061 last Monday to $7,008 on Friday.

Free Download: The October 2017 MMI Report

On Monday, copper held steady, according to Reuters, trading at $6,950.

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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.”

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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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