Author Archives: Stuart Burns

Cautious production increases by OPEC+ and a strong business cycle upturn have encouraged bullish sentiment about downward pressure on oil inventories and upward pressure on the oil price in the second half of the year, Reuters columnist John Kemp reports in a recent post.

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Oil prices ease as infections rise in major importers Japan, India

oil price chart

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But prices have eased off last week and into this one. Initially, this came as caution rose over the prospect of output increases from shale producers. More recently, however, resurgent coronavirus infections in India and Japan, both major oil importers, have weighed on prices.

Despite growing optimism in the US and, to a lesser extent, in Europe, India’s oil demand remains in doubt.

India has posted several days of record-setting COVID-19 cases, with expectations they are going to get even worse. Bloomberg reports that demand for fuels could plunge by 20% in April.

It seems likely that new lockdowns could be in place for several weeks or even months. In turn, that would seriously impact Indian demand.

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Earth Day concept

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Today is Earth Day, whatever that means for you. For once, though, the politicians are not adding to greenhouse gas emissions by flying around the world first class or, worse, in private jets to talk shop.

Rather, they are gathering virtually.

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Earth Day news

According to The New York Times, they will hear President Joe Biden commit the United States to cutting CO2 emissions nearly in half by the end of the decade.

It’s a target that would require Americans to transform the way they drive, heat their homes and manufacture goods, the post reports.

Although the time frame is longer, the new goal nearly doubles the pledge that the Obama administration made to cut emissions by 26-28% below 2005 levels by 2025. It also builds on the UK’s ambitious plans announced earlier this week.

Nathan Hultman, director of the Center for Global Sustainability at the University of Maryland, described the 50% goal as attainable. However, it will require “pretty significant action across all sectors of the American economy.”

Autos and energy generation are tipped as two of the major industries to feel the impact of the new target, if supported by new legislation.

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Unfortunately for all those who passionately support efforts by people like David Attenborough to force the world to confront climate change – regardless of where you stand on the issue on what is admittedly quite a wide platform – recent reports suggest we are now in the land of political signaling in environmental policy rather than earnest endeavor.

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UK makes major environmental policy shift (on paper, at least)

environmental policy

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As The Spectator reported yesterday, British Prime Minister Boris Johnson and Business Secretary Kwasi Kwarteng announced that the government would enshrine in law the target of cutting the UK’s carbon emissions by 78% by 2035.

That’s 15 years earlier than originally planned.

Why today make Britain a world leader in tackling climate change? Largely, because it is a nice commitment to be announcing in the run-up to the COP26 climate summit in Glasgow this year.

Ardent supporters of environmental issues, of course, welcome the news. However, it would require a lot of big lifestyle changes in terms of diet, transport and housing for the general public. Furthermore, left to government, it will cost both the state and individuals a lot of money.

Environmental policy in the US

Across the Atlantic, the Biden administration is in danger of going down the same road.

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We wrote about the copper market and what smelter treatment charges are telling us about mine supply — and, hence, refined metal supply this year.

Treatment and refining charges have collapsed. That is a sure sign that refiners are struggling to secure concentrate supply as mines’ recovery, largely due to COVID-19 effects, lags global industrial recovery.

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Zinc treatment charges

The story is somewhat similar for zinc treatment charges.

Reuters reports last year’s 10-year high smelter treatment charge of $299.75 per metric ton based on the expected surge in mine production failed to materialize. COVID-19 lockdowns rocked large supplier countries such as Peru and Mexico.

As a result, this year’s benchmark smelter terms have almost halved to $159 per ton, Reuters reported. That marks its the second-lowest level in a decade.

The last time treatment charges were this low, zinc rose to $3,596 per ton in 2018.

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Copper bulls who were betting on continued price rises — or, more importantly, copper consumers worried about escalating copper costs — may be looking at the copper price and wondering what is going on.

Prices hit over $9,600 per metric ton in late February but have since fallen back.

Although experiencing volatility, the copper price has traded in a roughly +/- 2% band just below $9,000 per metric ton since.

copper bars

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Copper price views

Bulls like Goldman Sachs argue this is just a pause, ignoring the build in LME stocks. Instead, it points to the collapse in smelter treatment charges as proof the market remains tight.

Low mine output results in tight concentrate supply. When that happens, smelter treatment charges chase the market down in an effort to secure concentrate to process. Treatment charges rise during times of plentiful concentrate supply and fall during times of concentrate famine, Reuters notes.

The contract treatment price for Q1 is $59.50 per ton, the lowest since 2011.

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Efforts to reduce Europe’s carbon footprint are many and varied, including in the European aluminum sector.

Energy-intensive industrial processes like steel, aluminium and cement manufacturing make up a significant chunk of carbon emissions. A carbon tax as crafted in the EU’s Carbon Border Adjustment Mechanism (CBAM) is seen as a major plank in shutting out or penalizing producers outside the bloc with high carbon

loadings. In turn, the mechanism thereby supports domestic producers with much lower carbon footprints.

Does your company have an aluminum buying strategy based on current aluminum price trends?

European aluminum sector expresses opposition

An SBGlobal article cites European Aluminium Association data, saying the carbon footprint for primary aluminum production in China is, on average, three times more carbon-intensive than producing the same aluminum in Europe.

E.U. flag

Andrey Kuzmin/Adobe Stack

Yet, due to subsidy and support, China has come to dominate global aluminum production this century. Meanwhile, European aluminum output has declined.

China produced 37.3 million metric tons of primary aluminium last year. That marked 57% of world output of 65.3 million metric tons. Meanwhile, Western Europe produced just 3.3 million metric tons, or 5%, with some 30% of capacity lost since 2008.

Yet, opposition to a CBAM program has come, surprisingly, from the European aluminum industry itself.

European Aluminium, representing some 80% of producers across 30 European nations, with some 600 plants, said it is united in fearing a CBAM may be difficult to calculate. It also argues it could disrupt value chains and encourage carbon leakage by driving downstream producers out of the EU, providing no incentive to their decarbonization.

Crucially, Europe is a net importer of aluminium. The EU imports about 50% of its primary ingot, principally from Norway, Iceland, Russia, the UAE and Mozambique.

The region also imports a very significant percentage of its semi-finished aluminium. Much like the US, domestic production is nowhere near enough to meet domestic demand. Europe’s supply chains are complex and varied, from bauxite through to semi-finished products.

Therein lies the problem.

Unintended consequences

The European Aluminium Association and its members are worried there will be multiple and profound consequences, implications and distortions to the supply chain if certain countries are penalized with a carbon tax.

The industry prefers more targeted action. For example, the EU Commission’s action against Chinese flat rolled product producers for subsidized and unfair pricing has resulted in tariffs added to those imports this week. As we have reported recently, the new tariffs will range between 19.3% and 46.7% and affect commercial flat-rolled aluminium products, depending on the producer, while the probe continues. If upheld as expected, the rates will hold for five years from October 2021.

Industry decarbonization efforts

State or superstate action aside, the industry is making its own decarbonization efforts. Customer and investor sentiment, rather than legislation, are spurring those efforts.

Just this week, En+ Group, owner of Russian giant Rusal, announced in a press release a major breakthrough in refining technology producing 99%+ pure aluminium with industry’s lowest carbon footprint. The company said the metal contained less than 0.01 tons of CO2 equivalent per tonne of metal. It produced the metal using the company’s new-generation inert anode electrolysers, located at the Krasnoyarsk Aluminium Plant.

The statement reiterated En+’s goal of being net-zero by 2050. It also aims to reduce emissions by at least 35% by 2030.

The technology replaces standard carbon anodes with inert, non-consumable materials – ceramics or alloys, which results in a major reduction of emissions from the smelting process. Not only are carbon emissions down by 85%, but the technology reportedly releases oxygen in the process of aluminum production. One inert anode cell can generate the same volume of oxygen as 70 hectares of forest, the group claims.

That being the case, Rusal would probably welcome a CBAM. The firm would have gotten preferred status even before the new technology was proven. With 100% of Rusal’s aluminum now made from hydropower, it already had one of the lowest carbon footprints in the industry.

But the takeaway here is market forces are driving dramatically lower carbon content in European aluminum. Ultimately, that trend may prove a more dynamic influence than industrywide catch-all legislation, like the CBAM.

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green hydrogen

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Whether we agree with the rationale or not, the carbon footprint of everyday materials like steel and aluminum is becoming an increasingly important component of consumers’ purchasing decisions.

In the US, some states — like California — have mandated purchasing departments for state projects to report the carbon footprint or CO2 content of the products they buy. The move aims to measure and, if possible reduce, carbon content.

But in the US such moves are still patchy and largely state-led. Meanwhile, meaningful direction from the new Biden administration on the issue is still largely in development.

MetalMiner should-cost models: Give your organization levers to pull for more price transparency, from service centers, producers and part suppliers. Explore the models now.

Europe aims to reduce emissions

In Europe, the EU is coordinating moves to reduce greenhouse gas emission by the steel sector. The EU is providing funding for research and support in the form of infrastructure, such as hydrogen gas supply networks.

In a recent post, our ex-colleague Jeff Yoders wrote a fine piece on efforts by ArcelorMittal to commercialize reductions in the carbon content of an initially small proportion of its output — just 2% or 600,000 tons per annum — by issuing certificates, which certify the reduction in carbon footprint of their steel that can be used by customers who need to report the carbon content of their supply chain or those that face carbon taxes.

The vouchers allow buyers to show an offset of Scope 3 emissions, which can come from anything in a company’s value chain.

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aluminum ingot stacked for export

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In a recent webinar MetalMiner ran for key clients, we posed a question regarding the recent rise of aluminum physical delivery premiums: what was behind rises and would they last?

Physical delivery premiums are a significant cost to consumers. It can be a cost that is hard to hedge except for large consumers with access to exchange-traded financial hedging instruments.

So, understanding what is driving higher premiums is helpful in terms of judging the likely trajectory of future metal costs.

Are rising MW premiums causing concern? See how service centers take advantage of that. 

Rising aluminum physical delivery premium

There are several platforms for reporting physical delivery premiums. For the US, the CME is the probably the best.

Reuters illustrated the relentless rise of the aluminum physical delivery premium since the start of Q4 2020. The Midwest Premium is now back above $400 per metric ton, a level not seen in two years.


If it is any consolation to our US readers, North America is not alone in seeing rising costs.

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A recent Telegraph article suggests the West is sleepwalking into missing the next industrial revolution as China voraciously buys up raw material assets around the world. Those assets include securing its future supplies of cobalt, copper, lithium and other metals. The aforementioned comes in addition to its current domination of rare earth metals.

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China leads in race for raw materials

electric vehicle charging

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Although the Telegraph article focuses on the UK, the UK is not alone.

Other European countries, and even the US, are only just catching on to the perilous state of most Western economies’ reliance on very limited, and often hostile, supply sources for raw materials.

As the article reports, it takes seven years to plan and build a mine. In the last four years, China Molybdenum has plowed into the Democratic Republic of Congo’s 350 kilometer copper belt. The firm paid $2.6 billion (£2 billion) four years ago for the Tenke Fungurume mine from Freeport McMoRan.

It then expanded its empire in December, paying another $550 million for Freeport’s nearby Kisanfu mine. The mine gave it access to a further 6.3 million metric tons of copper. In addition, the mine offers access to 3.1 million metric tons of cobalt.

Chinese companies now dominate mining in the central African country that produces 70% of the world’s cobalt.

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In a surprise move last week, OPEC+ announced a further gradual relaxation of the group’s 2020 emergency 9.7 million barrels per day cut in oil output, causing the oil price to briefly retreat.

In December, OPEC+ had intended to ease the curb by about 500,000 barrels per day each month in 2021.

Brent crude oil price chart

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However, in the face of still weak demand, it postponed the easements.

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Oil price and supply

Meanwhile, in January Saudi Arabia surprised the market and its OPEC+ partners. The kingdom announced a voluntary additional cut of 1 million barrels per day. As a result, its output went to just over 8 million barrels per day b/d from its quota of 9 million barrels per day.

But the Kingdom has now announced it intends to gradually bring that back. It will increase production by 250,000 in May, 350,000 in June and 400,000 in July.

Since last year the 9.7 million b/d of OPEC+ cuts have been reduced to about 7 million barrels per day.

Output, however, remains well below pre-pandemic levels.

The latest announcement stated producers will collectively increase output by 350,000 barrels per day in May. They will add another 350,000 barrels per day in June and around 441,000 barrels per day for July, according to a report in the Financial Times.

Combined, Saudi Arabia and OPEC+’s amount to some 2 million barrels per day in the run-up to the summer.

Subdued demand as third wave of lockdowns hits parts of Europe

Demand is recovering. However, large parts of Europe are in a third wave of lockdowns; demand there remains subdued.

OPEC appears sensitive to not spooking the market and keen to minimize too much damage to the oil price.

The move surprised markets that were expecting no change, but the Brent crude oil price continued to trade around the $63 mark. The price has been at around that level for the last three weeks.

Major oil consumers like India and China will likely welcome the move. Greater output will be seen as one less support mechanism for higher prices this year. reports the move by OPEC+ in bullish terms, saying the market sees it as a vote of confidence in rising demand and that constraints on the market remain.

The US shale industry will likely see a further erosion of output this year, according to BloombergNEF last week. Output may shrink by another 485,000 barrels per day by the end of 2021 as producers focus on debt reduction and dividends over growth, according to the report.

For now, OPEC’s feared resurgence of shale oil has not materialized.

But as the battered and bruised fracking industry recovers, don’t count it out.

If the oil price remains at $60 per barrel or above, shale oil is profitable. One thing we do know about the industry is that, sooner or later, profit will justify a return of investment and growth.

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