Articles in Category: Automotive

The Automotive Monthly Metals Index (MMI) picked up one point this month, rising for a reading of 87.

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U.S. Auto Sales

General Motors reported Q2 deliveries of 746,659 vehicles, marking a 1.5% decline on a year-over-year basis.

GM’s chief economist said U.S. light-vehicle SAAR for the first half of the year is expected to reach 17.0 million units.

“The U.S. economy continues to grow at a healthy pace. Jobs are plentiful and inflation remains low,” said Elaine Buckberg, GM’s chief economist. “Auto demand was better than anticipated in the first half and we expect strong performance in the second half of the year. If the Fed cuts rates, as widely expected, lower financing costs will provide further support to auto sales.”

Meanwhile, Ford Motor Co. is scheduled to announce its Q2 sales results at 9:15 a.m. ET on Wednesday, July 3.

Fiat Chrysler reported it had its best June in 14 years, posting total sales growth of 2%, tallying 206,083 vehicle sales. Ram pickup truck sales surged 56% in June to 68,098 vehicles and 179,454 vehicles in the quarter.

Total Honda sales fell 7.3% in June, while Nissan sales fell 14.9%. Hyundai sales were up 2% in June and rose 2% in the first half of the year. Subaru reported 61,511 vehicle sales in June, marking a 2.8% year-over-year increase.

Toyota sales fell 3.5% on a volume basis and increased 0.3% on a daily selling rate basis.

According to a monthly forecast released jointly J.D. Power and LMC Automotive, June retail sales were expected to fall 2.9% compared with June 2018, while total sales were forecast to drop 1.5% year over year.

Despite slumping sales this year, automakers have cashed in on higher average transaction prices. According to J.D. Power and LMC Automotive, new-vehicle prices are up 4% in the first half of the year compared with the first half of 2018.

“While the first half of 2019 is expected to deliver its weakest retail sales since 2013, the growth in prices has been nothing short of remarkable,” said Thomas King, senior vice president of J.D. Power’s data and analytics division. “Average transaction prices set a record during the first half, which has big implications for manufacturer revenues.”

GM Announces Michigan, Texas Investments

Last month, GM announced plans to invest $150 million in its Flint Assembly plant and $20 million at its Arlington Assembly plant.

At the Flint plant, the automaker aims to augment production of its Chevrolet Silverado and GMC Sierra models.

Meanwhile, the $20 million investment in the Texas plant aims to upgrade the plant’s conveyors in preparation for the rollout of the automaker’s new full-size SUVs. According to a GM release, the upgrades are expected to be completed next year.

Actual Metal Prices and Trends

The U.S. HDG price fell 6.9% month over month to $779/st as of July 1. The U.S. platinum bar price increased 1.7% to $834/ounce, while palladium surged 15.8% to $1,516/ounce.

U.S. shredded scrap steel fell 7.1% to $274/st. LME copper jumped 2.8% to $5,981.50/mt.

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Chinese primary lead ticked up 0.9% to $2,340.98/mt.

Jaguar Land Rover’s (JLR), decision to invest hundreds of millions of pounds to enable its Castle Bromwich plant in the U.K. to build electric cars, as reported by the Financial Times, is interesting on a number of levels.

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Specifically, for JLR it underlines the drastic steps the firm is being forced to take following a collapse of sales over the last 18 months. Buyers have turned away from JLR’s diesel engine lineup — some 50% of JLR’s models are diesel-powered — amid a backdrop of wider automotive sales slumps across Europe and in China.

Switching to petrol engines is but a stopgap for a manufacturer whose range is skewed heavily to larger, less fuel-efficient models.

European environmental standards will require manufacturers to meet a fleetwide average of 57 miles per U.S. gallon by 2021 – already a demanding target with high mix of diesels and a number of electric options in its range.

But with a switch to petrol and following recent suggestions by the E.U. that the limit should be ramped up to 92 mpg by 2030, JLR could struggle to survive.

So, switching to all-electric for some of its key models — like the replacement for the XJ, the flagship Jaguar saloon— is, while immensely challenging, the only viable option.

The challenge — and the source of JLR’s reluctance to build its existing all-electric I-Pace in the U.K. — has been the lack of a U.K. supply chain.

Many of the drivetrain components, like motors, were produced by third parties but are increasingly being made in-house, according to thedrive.com. The most significant factor, however, is the lack of a significant automotive battery maker in the U.K., the Financial Times reported.

Perhaps the imposition of harder post-Brexit borders with the E.U. will encourage U.K. manufacturers to establish a major battery facility at some stage in the future — or, maybe, Castle Bromwich will be the last major automotive investment in the U.K.

Either way, for now sourcing major components from Europe is a brave move, particularly with so much uncertainty around about trade terms.

From a wider perspective, JLR’s investment suggests manufacturers do not believe politicians will carry through with such threats, despite all the current political posturing over a hard Brexit. It also suggests manufacturers believe there will be some form of a softer compromise that allows low-tariff or tariff-free trade with the E.U. and, more importantly, relatively free movement of goods. That, or some solution requiring only light touch border controls that allow just-in-time supply chains to continue to operate with levels of flexibility similar to the current regime.

All other U.K. car manufacturers are either keeping their cards close to their chests while waiting to see the outcome of the Oct. 29 deadline to leave the E.U., or are actively moving to Europe by announcing investment for new models will go into mainland European plants.

JLR’s move is against the current grain and raises the question of whether it has anything to do with the level of state financial support it has received, desperate as the government is to build momentum against the prevailing tide of lost investment to the E.U.

No automotive company invests in new facilities without going cap in hand to the government to see what help it can get; typically it is 9-10%, but it won’t be long before news leaks out of quite how much JLR has secured for Castle Bromwich.

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E.U. state aid rules set limits — but in a post-Brexit world, potentially anything could be agreed.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

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When you think of the United Kingdom, you don’t normally think “automotive powerhouse.”

Sure, the U.K. has a long and illustrious tradition of making some of the world’s most iconic motorcars.

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Think Rolls-Royce, Bentley, Jaguar, Lotus, Morgan and, my own favorite, Aston Martin. The U.K.  is also home to most of the world’s Formula One racing teams research, development and production facilities.

Yet, at a less glamorous but arguably more important level, the U.K. automotive industry is not only key to the country’s manufacturing base, it also operates as one of the most sophisticated and integrated supply chains in Europe.

As the graphic below from industry site SMMT illustrates, over 80% of U.K.-made cars are exported — over 50% of them into Europe, but the rest worldwide.

On the supply side, more than half of the parts used in making those vehicles come in from overseas, linking Europe into one large, integrated manufacturing supply chain.

Source: SMMT

Vehicle manufacturing is the U.K.’s second-largest manufactured product export, making up 11.4% of the total. By comparison, the U.S. has automotive exports ranked down at fifth at only 8.4% of exports.

So, when automotive production declines in the U.K., even for one or two months, it has a significant knock-on effect to the rest of the economy.

Arguably, the U.K. has not faced such a challenging period since its darkest days in the 1970s. According to the Financial Times, car production in May dropped by 15%, its 12th straight month of decline. Production for the domestic market was 25% lower than the same period last year, while export output dropped over 12%. All of this comes with the backdrop of a fundamentally cheaper exchange rate following the 2016 referendum to leave the E.U., which should have made U.K. exports significantly more competitive.

Source: Financial Times

Part of the reason for the decline, after years of bad press, has been buyers’ sudden change of heart regarding diesel engines.

Some manufacturers, like Jaguar Land Rover, were producing over 90% of their fleet with diesel engines and have been frantically trying to adjust to the market’s growing aversion to oil burners. But equally, it has to be said, carmakers are taking the opportunity to switch investments in new models from the U.K. to the E.U. mainland (in case the U.K. fails to secure a true free trade agreement with the E.U.).

Any form of partial free trade agreement that involves border checks and/or tariffs will have a detrimental impact on the ability of automotive companies to run an integrated, just-in-time supply chain with their European parts suppliers.

Automotive companies see this as a significant risk and, when faced with choices, have opted to favor investment in their European plants, even though the U.K. operations have traditionally performed more efficiently.

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In the unlikely event the U.K. concludes a true free trade agreement — by which I mean one, like now, that does not require border checks — it is possible some of this decline will be reversed.

However, it will take years before carmakers will have enough trust in the political relationship between the U.K. and E.U. to feel comfortable investing hundreds of millions in new models to be made in the U.K.

In the meantime, automotive is unlikely to get back to its recent 2017 peak.

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This morning in metals news, U.S. Steel announced it would idle some of its facilities, China has lowered its tariff rates on countries other than the U.S. and General Motors recently announced a $150 million investment in its Flint Assembly plant.

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U.S. Announces Plant Idlings

U.S. Steel announced this week it would continue a planned maintenance outage at one facility and would temporarily idle a blast furnace at its Gary Works facility.

“In response to current market conditions, we are taking actions aligned with our strategy by adjusting our global blast furnace footprint,” the steelmaker said in a release. “We are idling two blast furnaces in the United States and one blast furnace in Europe to better align our global production with our order book.”

The steelmaker will continue a planned maintenance outage at its Great Lakes B2 blast furnace, which started last week.

“Based on current market conditions, we expect the B2 blast furnace to remain idled after the completion of the planned outage,” the company said.

In addition, the steelmaker will idle a south blast furnace at its Gary Works facility.

“As a result of these footprint actions, we expect to decrease monthly blast furnace production capacity by approximately 200,000 – 225,000 tons beginning in July,” the company added. “If both furnaces remain idled for the remainder of the year, we expect full year Flat-Rolled shipments to third party customers to be approximately 11.0 million tons.  We will resume blast furnace production at one or both idled blast furnaces when market conditions improve.”

China Lowers Tariffs on Other Countries

As the U.S. and China move toward a resumption of trade talks this month, China has lowered its tariff rates for some other countries, CNBC reported citing an analysis by the Peterson Institute for International Economics.

According to the report, since the start of 2018 China’s tariffs on U.S. goods have increased to 20.7%, which tariffs on products from other WTO countries has fallen to an average of 6.7%.

The full Peterson Institute for International Economics analysis can be found here.

Last month, the U.S. raised tariffs on $200 billion of Chinese products, to which China responded with tariffs on $60 billion in U.S. goods.

GM Announces Flint Assembly Investment

Automaker GM recently announced plans to invest $150 million in its Flint Assembly plant aimed at expanding its full-size pickup truck production capacity.

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Last month, GM announced an expansion of pickup production at its plant in Fort Wayne, Indiana.

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Before we head into the weekend, let’s take a look at the week that was and some of the metals storylines here on MetalMiner:

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This morning in metals news, the oil price could slide further, Liberty Steel made an acquisition in Pennsylvania, and the E.U. adopted binding targets for zero- and low-emission vehicles in public procurement.

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Oil Price Slide

After rising to around $75/barrel in April, the Brent crude price has come off of late, leading some to wonder how much further the oil price has to go.

Rainer Michael Preiss, executive director of Taurus Wealth Advisors, told CNBC the oil price could plunge to $45 barrel if U.S.-China trade tensions escalate.

However, the price got a jolt Thursday on the heels of an incident in the Gulf of Oman in which two tankers were damaged — media reports have referred to the incident as possible attacks, although that assessment is not yet confirmed and no group has claimed responsibility.

The Brent crude price was up 2.73% as of 10:23 a.m. CDT.

Liberty Steel Acquires Johnstown Wire Technologies

Liberty Steel, a subsidiary of steel tycoon Sanjeev Gupta’s GFG Alliance, announced this week it had expanded its U.S. footprint with the acquisition of Johnstown Wire Technologies in Johnstown, Pennsylvania.

“The 250-worker advanced manufacturing facility at Johnstown will complement Liberty’s melting and rolling operations at Georgetown, South Carolina and Peoria, Illinois and, combined with its scrap processing plant in Tampa, Florida, will firmly embed the business along the full value chain in the U.S. steel market,” Liberty Steel said in a prepared statement.

Clean Vehicles

As part of the bloc’s ongoing efforts aimed at curbing harmful emissions from automobiles, the E.U. announced it had adopted binding targets for zero- and low-emission vehicles in public procurement.

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“The new rules will increase market certainty, stimulate innovation and promote the global competitiveness of European industry,” an E.U. release stated. “Clean vehicles will play a key role in cutting greenhouse gas emissions and air pollutant emissions, helping the EU to meet its Paris Agreement commitments.”

Steven Husk/Adobe Stock

Every set of data in the U.K. prompts a surge of reports from two groups.

On the one hard, there are those inclined to stay in the E.U. who assert the very prospect of Brexit is damaging the economy. On the other, there are those inclined to leave, stating it is the delay that is causing uncertainty and the sooner Britain leaves, the sooner the economy will recover.

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What neither side argues about is that the economy is slowing.

Coupled with that, foreign direct investment (FDI) is collapsing at a time when, due to the weak exchange rate, British assets must represent a cheap bargain to foreign buyers.

Yet, according to the Financial Times, cross-border data shows capital entering the U.K. has fallen by 30% since the Brexit referendum, while investment into the E.U.’s other 27 countries in the three years since the referendum has surged 43% up to the first quarter of 2019.

About $340 billion of capital has been invested in the 27 remaining E.U. states in that period, up from $237 billion in the previous three years, according to the Financial Times. Yet, over the same period, the capital invested by foreign firms in greenfield projects in the U.K. dropped by $36 billion to $85 billion. The data tracked greenfield investments and did not include mergers and acquisitions  — which are also down, as it happens — because greenfield investments tend to drive greater productivity gains and contribute to national GDP growth.

Job creation has also grown in the E.U., the paper reports, with more than 1.2 million jobs created in the EU27 in the past three years as a result of new FDI — 474,000 more than the number of jobs created in the previous three years, according to the FT. About 53,000 of the rise in jobs was the result of U.K. companies creating operations in the rest of the E.U., particularly in information and communications technology and the electronics sectors, with about 150,000 jobs created in the EU27 in the three-year period, marking a 30% increase. By contrast, the U.K.’s job growth in such sectors has dropped by 28% during the period.

Maybe not surprisingly, GDP growth has slowed in the U.K. over recent months, in part as a result of low investment. The bigger reasons, it would seem, is uncertainty among U.K. exporters’ European clients — witness British Steel’s demise, which it blamed on a falloff in European orders.

GDP growth in Britain contracted by 0.4% in April, mostly as a result of the dramatic fall in car production from planned pre-Brexit shutdowns. Manufacturers had announced temporary shutdowns in expectation of disruption after the planned March 29 exit date from the E.U. However, by the time Britain’s departure from the E.U. was delayed in March it was too late to reverse the plans.

Car production fell by 24% in April, the biggest drop since records began in 1995. While some pundits are predicting it will bounce back, closures by Honda, JaguarLandRover, Nissan, Ford and others suggest a new normal has been reached, making production unlikely to recover if European supply chains are ruptured by a no-deal, hard Brexit.

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If a deal is struck and there is some certainty that just-in-time supply chains can continue to function much as before, it is possible some recovery may occur. Nonetheless, some of these plant closures are permanent and, deal or no deal, suggest carmaking in Britain may struggle to ever recover to previous levels.

The Automotive Monthly Metals Index (MMI) dropped five points, down to a June MMI value of 86.

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U.S. Sales

Fiat Chrysler’s May sales increased 2% year over year, reaching 218,702 vehicles for the month.

“On a year-over-year basis we have increased our average transaction prices by more than $3,000 a vehicle and still managed some notable sales increases,” said Reid Bigland, Fiat Chrysler’s U.S. head of sales. “In its first full month on sale, our all new Jeep Gladiator pickup truck delivered more than 2,500 vehicle sales, our Ram pickup truck sales soared 33 percent and the Jeep Grand Cherokee delivered its best May sales ever.”

Meanwhile, Honda’s U.S. sales fell 4.9% year over year, down to 145,532 vehicles, with Honda sales down 5.9% and Acura sales up 5.7%.

Nissan sales reached 131,983 vehicles in May, up 0.1% year over year.

Toyota sales jumped 3.2% year over year to 222,174 vehicles in May. Toyota hybrid sales jumped 44.7%, while Lexus hybrid sales were up 40.1%.

Ford Motor Co., which announces sales on a quarterly basis, last month announced it would cut 7,000 jobs, amounting to 10% of its salaried workforce, CNN reported.

General Motors, meanwhile, which also reports on a quarterly basis, announced last month it is in talks with Workhorse Group Inc. to sell the automaker’s plant in Lordstown, Ohio.

“We remain committed to growing manufacturing jobs in the U.S., including in Ohio, and we see this development as a potential win-win for everyone,” GM CEO and Chairman Mary Barra said in a release. “Workhorse has innovative technologies that could help preserve Lordstown’s more than 50-year tradition of vehicle assembly work.”

According to a forecast by J.D. Power and LMC Automotive, May new-vehicle retail sales were projected to fall 3.1% from May 2018.

“May is one of the highest volume months of the year and its performance typically indicates how the year will play out,” said Thomas King, senior vice president of the data and analytics division at J.D. Power. “The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles. Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend which is one of the busiest car-buying periods of the year.”

Xinhua: China Auto Sales Projected to be Flat in 2019

Meanwhile, state-run news agency Xinhua reported auto sales in China are expected to finish approximately level with last year.

According to Xinhua, auto sales in China are forecast to hit 28.1 million units in 2019. Citing a report jointly released by the China Association of Automobile Manufacturers and other parties, passenger vehicles sales are forecast to reach 23.7 million units, similar to last year.

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Actual Metal Prices and Trends

U.S. HDG fell 5.0% month over month to $837/st as of June 1. U.S. platinum bars fell 7.4% to $820/ounce, while U.S. palladium bars fell 4.1% to $1,309/ounce.

U.S. shredded scrap steel fell 8.1% to $295/st.

LME copper fell 9.6% to $5,820/mt.

Chinese primary lead fell 6.5% to $2,320.48/mt.

In spite of their status as precious metals, the automotive industry accounts for a high percentage of platinum and palladium demand annually, making the pair essentially industrial metals.

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Given that a high percentage of demand generated from the automotive industry relates to the use of the metals within the catalytic converter, as the automotive market moves more fully toward electric powered vehicles, demand will likely decline for both metals.

Meanwhile, according to Reuters, even though palladium- and platinum-heavy fuel cell technology in the electric car market is on the rise, the growth in this area is unlikely to offset falling autocatalyst demand.

Given that prices for palladium soared of late, let’s take another look at palladium price trends, along with its close substitute platinum.

Palladium, Platinum Price Trends Compared with the Dollar Index (DXY)

Given that metals and the dollar index (DXY) tend to move in opposite directions, we can see that palladium prices gained quite a bit more value than expected when looking at the DXY trend line against the palladium trend line in light blue below.

Source: MetalMiner data from MetalMiner IndX(™) and Yahoo.com

On the other hand, platinum’s price movement in the U.S. looks much more in line with what we might expect when compared with the relative performance of the U.S. dollar. Therefore, although platinum prices historically exceeded palladium prices, platinum prices still trend fairly close to the expected (recent) value, while palladium prices started to look inflated. Platinum prices peaked in 2008 at more than $2,000 per ounce.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the price difference in the U.S. between the two metals, or spread, as shown by the purple line in the chart above, we see that the spread between the two flip-flopped in late 2017 to early 2018. The spread surged since last year, hitting a peak around March 1, 2019. More recently, the spread has moved sideways at around $500 per ounce.

Do Chinese Palladium and Platinum Prices Drive U.S. Prices?

Given that China consumes a high percentage of palladium, we could expect that Chinese prices lead U.S. prices.

Source: MetalMiner data from MetalMiner IndX(™)

A look at the price trend lines between the two countries does in fact show a high correlation in prices between the two countries, especially long term.

More recently, U.S. and Chinese platinum prices continued to move in a tight band together.

Chinese palladium prices, on the other hand, trend above U.S. prices, with the gap growing in 2019 – not surprising given that China leads demand for the metal globally.

Source: MetalMiner data from MetalMiner IndX(™)

The zero line in the chart above indicates where the two countries’ prices are equal. At points above zero, the Chinese price is higher. The price difference tended to amount to U.S. $25-$50 per ounce, but increased into 2018. During the past few months, the difference decreased again slightly, but still looks somewhat high historically.

Source: MetalMiner data from MetalMiner IndX(™)

The chart above shows the spread between Chinese and U.S. prices. When the spread value is under zero, U.S. prices are higher.

The spread between U.S. and Chinese platinum prices tends to lean toward the U.S. having the higher price. However, since 2016, the prices trended very close together. U.S. prices started to look relatively more expensive again in 2019.

What This Means for Industrial Metal Buyers

For industrial metal buyers looking to track palladium prices, the Chinese price offers a solid proxy of what we might expect with regard to the future behavior of palladium prices.

While the price indicates slightly weaker Chinese demand of late, prices for palladium remain at historically high levels.

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Platinum prices, however, remain somewhat low historically. The recent performance against the DXY does not necessarily suggest the metal is undervalued. However, given that platinum can serve as a substitute, it’s doubtful the price will stay suppressed long term, as high palladium prices will drive a push toward substitution.