Articles in Category: Automotive

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Norsk Hydro’s Alunorte refinery. Source: Norsk Hydro

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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The Automotive Monthly Metals Index (MMI) fell one point this month for a September MMI reading of 85.

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U.S. Auto Sales

General Motors continues to report on a quarterly basis; in July, the automaker reported its second-quarter deliveries were down 1.5% on a year-over-year basis.

Similarly, Ford Motor Co. is scheduled to announced its third-quarter earnings Oct. 23.

Fiat Chrysler has also moved to quarterly reporting, with its first quarterly report coming out Oct. 1.

Meanwhile, August proved to be a record-setting month for Honda in the U.S. Honda sales surged 17.6% on a year-over-year basis, setting four all-time monthly sales records in the process, including for its model CR-V and Passport models. Car sales were up 19.8%, while truck sales increased 16%.

Toyota Motor North America also reported a strong month, with overall sales up 11.3% on a volume basis and 7.4% on a daily selling rate basis. The Toyota division notched their best-ever August sales figure, rising 12.3% on a volume basis, while Lexus division sales increased 4.6% on a volume basis.

Nissan saw its August sales jump 13.2% compared with August 2018.

A joint forecast by J.D. Power and LMC Automotive indicated total August vehicle sales were expected to reach 1.62 million units, up 5.0% from August 2018.

“August will be a blockbuster month for the industry,” said Thomas King, senior vice president of J.D. Power’s data and analytics division. “Sales are expected to post the largest year-over-year gain since December 2016. Strong volumes coupled with higher average sales prices means that consumers will spend more purchasing new vehicles in August than any month in history.”

However, King noted that reported figures for August also include prolific Labor Day weekend sales.

“Rising manufacturer incentives are contributing to August’s strong results, but the industry sales reporting calendar is primarily behind the large gains,” he continued. “This year, the Labor Day holiday will fall within the time period manufacturers use to report August sales, unlike typical years when the Labor Day weekend falls into September sales results. Labor Day is one of the most heavily shopped periods of the year, with consumers motivated by heavy discounts on outgoing model-year vehicles and new 2020 model-year vehicles arriving in showrooms. Last year, more than 237,000 vehicles were sold during the Friday-Monday holiday period.”

United Auto Workers Members Vote to Authorize Strikes at Big 3

Earlier this week, the United Auto Workers union announced its members had voted overwhelmingly in favor of authorizing a strike, thus giving the union’s president and executive board the authority to call for a strike if contract negotiations with the Detroit Big 3 fail.

“No one goes into collective bargaining taking a strike lightly. But it is a key tool in the tool belt as our bargaining team sits across from the company,” UAW President Gary Jones said. “Ultimately, the company holds that destiny in their hands as they bargain. Clearly the UAW stood up for them in a very dark time, now that they are profitable it is time for them to stand up for all of us.”

According to the UAW, the vote percentages in favor of authorization checked in at:

  • FCA: 96%
  • Ford: 95.98%
  • General Motors: 96.4%

On Tuesday, the UAW announced it had selected General Motors to begin the negotiating process.

“Mary Barra said from the outset of these talks that we will stand up as we tackle a changing industry,” Jones said of the GM CEO. “We are ready to stand strong for our future.”

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Contracts with the Big 3 automakers expire Sept. 14.

Actual Metal Prices and Trends

U.S. HDG rose 2.8% month over month to $836/st as of Sept. 1.

LME primary three-month copper dropped 5.3% to $5,637/mt. U.S. shredded scrap steel jumped 14.4% to $294/st. Korean 5052 aluminum coil premiums fell 1.0% to $3.12/kg.

Automotive markets just about everywhere are in decline this year.

The question is: to what extent is this a cyclical downturn as opposed to a structural shift?

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The Financial Times article reported Indian passenger vehicle sales fell 31% last month from the same time a year earlier, according to the Society of Indian Automobile Manufacturers. It was the worst month since the turn of the century in a dismal spell that has seen sales fall 20% or more for four consecutive months, while sales have failed to rise for more than a year.

India’s economy is slowing, with GDP growth falling to a five-year low of 5.8% in the first quarter of 2019. In addition, a liquidity squeeze caused by a crisis in its shadow banking sector is choking off consumer demand and business expansion.

The article goes on to explain that about 40% of new car loans came from these shadow banks, making liquidity tight. Although a reduction in India’s high car taxes — the government levies a 28% goods and services tax on cars, with the effective rate including other duties rising as high as 48% for some vehicles — is a possibility, it is unlikely the new administration’s cash-strapped budget could afford it.

Significant as India’s car market is — as recently as last year, India’s motor market was thought to be on course to overtake Germany and Japan and become the world’s third-largest, the Financial Times reported – Germany’s is even larger.

Yet, declines are dramatic in Germany, too.

Source: ING Bank

Germany’s problems are more nuanced.

Domestic production has been hit by the delayed introduction of the new worldwide light vehicle test procedure, which caused severe disruption to German automotive production and shipments.

But matching the introduction of the China 6 emission standard has also caused a downturn in Germany’s largest automotive export market: China.

To underline the importance of the market, ING Bank reported that in 2018 almost one-quarter of all cars sold in China were German. BMW and Daimler recorded more than one-third of their total car sales in China. For Volkswagen, the share is even bigger (40%).

Yet new car sales in China have fallen for 13 months in a row, a slump that started in the second half of 2018 when the trade war between China and the U.S. began to heat up, according to ING.

The trade war has been a factor. U.S. customs duties on Chinese goods worth U.S. $250 billion (with U.S. $300 billion to follow Sept. 1) and Chinese customs duties on U.S. goods worth U.S. $110 billion, car and car parts from China are being taxed at 27.5% in the U.S. since July 2018. U.S. autos are subject to China’s standard tariff rate of 15%.

Given that some German car manufacturers actually export U.S.-produced cars to China, there has been a clear and direct impact of the trade conflict on the German car industry.

But that is only part of the story.

The switch to China 6 meant consumers held off buying the older models despite a major distributor push to discount old stock.

But the industry worries China could be going through a structural shift.

According to ING, China is already the largest ride-hailing market in the world, with over 459 million customers and a turnover of around U.S. $53 billion. By comparison, where it all started in the U.S. there are currently 66 million users generating U.S. $49 billion in turnover.

To put things into perspective, one-third of the Chinese population already uses alternative mobility solutions, while in the U.S. the figure is around 20% and in the E.U. it is just 18%. Further, while in the U.S. ride-hailing is used occasionally by a car owner, in China many users are not yet on the car ownership ladder; as ride-hailing becomes more widespread, those users may elect never to become car owners.

According to JustAuto, new vehicle sales in China fell by 4.3% to 1.81 million units in July from 1.89 million units a year earlier, according to wholesale data released by the China Association of Automobile Manufacturers. This includes all vehicle types, passenger vehicles and commercial vehicles, with the cumulative seven-month total at 14.13 million units – down by 11.4% from the 15.96 million units sold in the same period of last year.

Jeff Schuster, president of global forecasting at LMC Automotive, is quoted in Europe’s Autonews as saying global light-vehicle sales will decline 2.6% in 2019 to 92.2 million units. Through 2025, he doesn’t see more than 2% growth as the mature markets of western Europe, the U.S., Japan and Korea contract in volume over the next five to seven years. Only electric vehicle production as a subset — coming from a very low base — is set to rise.

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The industry’s current downturn is in part cyclical and production will recover regionally as consumer confidence and access to credit improves.

At the same time, there is a structural shift happening that will impact the industry’s long-term future and create significant challenges for global western carmakers in the years ahead.

Zerophoto/Adobe Stock

Since April this year, the Indian automobile sector has been seeing signs of a slowdown in sales. This has led to job cuts and expressions of concern from some major domestic steel producers.

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The slump in the sales of four- and two-wheelers has forced companies and ancillary automotive supply units to either shut down factories for specific hours (even days) or axe shifts, leading to a reduction in both temporary and permanent workers.

Auto sales for the June quarter are at their lowest in almost two decades, according to the Business Standard, only adding to the worries of domestic flat steel producers.

Many producers are now wondering what the immediate future holds for them.

There are no signs of any immediate revival in auto sales, especially after some economy experts warned of a coming recession in India.

Added to this is the Indian government’s new drive to bring in electric vehicles. Some major automobile companies, already on the path of a switch to electric, have stopped manufacturing diesel vehicles.

Yet, there are steel and automobile industry experts who are downplaying the drop in sales.

T.V. Narendran, CEO and managing director of Tata Steel, told the Business Standard recently that the platform economy (for example, Uber and Ola) is a bigger disruptor than electric vehicles. In his opinion, as more and more people took to cab-hailing apps, the need to have their own vehicles would come down, he said.

In the June quarter, the total sales of cars, sport utility vehicles and vans declined 18.4%, the largest drop since a 23.1% drop in the third quarter of 2000-01. Every segment of the auto industry reported a double-digit decline.

A recent report in India’s national daily, The Hindustan Times, said automobile ancillaries in and around Jamshedpur, where Tata Steel’s main plant exists, were facing tough times due to a series of block closures in Tata Motors in the past month because of a market slowdown. A local association leader told the paper that about 30-odd such ancillary “steel sector companies” were on the verge of closing down, even as a dozen others had already downed their shutters.

The report quoted Inder Agrawal, president of the Aditaypur Small Industries Association, as saying that recession in the auto sector is always cyclical and that he expects things to normalize after September.

According to media reports, because of the automobile sector slowdown, steel companies were diverting products towards alternative segments, such as renewables, oil and gas, and structural steel.

Flat and long steel products are two categories which find application in the auto and infrastructure sectors, respectively.

A report by news agency Reuters said India’s JSW Steel Ltd had acknowledged that a weaker steel market coupled with a drop in global demand and a local slowdown could impact the turnaround time for its newly acquired Monnet Ispat assets. The report, though, added that JSW’s chairman downplayed any substantial impact on financials.

On the sidelines of the company’s annual meeting, Sajjan Jindal, co-chair of JSW Steel Ltd, said his company had always said it could take about two years to turn around and it would try and do it within that time frame.

He called the present slowdown in the automotive sector as “temporary” and was hopeful the sector will bounce back.

Another Reuters report, as published on the Al Jazeera website, said the auto industry has sought tax cuts and easier access to financing for both dealers and consumers to revive the industry.

The report quoted Automotive Component Manufacturers Association of India (ACMA) Director-General Vinnie Mehta as saying the sector was experiencing a “recessionary phase.”

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India’s automobile sector employs over 35 million people, directly and indirectly, according to the report.

Steven Husk/Adobe Stock

The Automotive Monthly Metals Index (MMI) fell one point this month for an August reading of 86.

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U.S. Auto Sales

Nissan reported July sales in the U.S. of 98,880 units, down 9.1% on a year-over-year basis.

Honda’s sales ticked up 1.9% to 141,296 units, with its car sales up 1.8% and truck sales up 2.1%.

Toyota Motor North America reported July sales were up 0.2% on a volume basis, but down 3.8% on a daily selling rate basis compared with July 2018.

Meanwhile, earlier this year Fiat Chrysler announced it would shift to quarterly sales reports, following other Detroit automakers General Motors and Ford Motor Company.

Fiat Chrysler did report its second-quarter financial results, reporting adjusted EBIT in North America of €1.57 billion, up €168 million from Q2 2018. Fiat Chrysler’s North American shipments fell 12% due to dealer stock reductions, according to the automaker.

“We continue to deliver strong performance in North America and LATAM. Robust demand for our new products, along with steps we’ve taken to exert discipline across all of our businesses, have generated the momentum to achieve our full-year 2019 guidance,” CEO Mike Manley said in a prepared statement.

General Motors announced Q2 2019 income of $2.4 billion, up 1.6% on a year-over-year basis. In addition, this week GM announced it would open a $65 million parts processing facility in Burton, Michigan, a suburb of Flint. According to GM, the facility will employ more than 800 hourly and salaried workers.

In this month’s J.D. Power and LMC Automotive forecast, July new-vehicle retails sales in the U.S. were expected to fall compared with July 2018. Meanwhile, total sales were forecast to fall 1.8% compared with July 2018.

The seasonally adjusted annualized rate for total sales was forecast to reach 16.7 million units this year, which would come in approximately flat compared with 2017, according to J.D. Power and LMC Automotive.

“July will be another month of modest sales declines—but with high vehicle expenditures—as the average new vehicle sales price exceeds $33,000, up over $1,400 from July 2018,” said Thomas King, senior vice president of J.D. Power’s data and analytics division.

According to J.D. Power, the rise in prices is being driven by “consumers paying more for recently launched SUVs and more attractive interest rates on new vehicles that help keep monthly payments affordable when purchasing more expensive vehicles.”

The Sales Climate in China

Recently, MetalMiner’s Stuart Burns weighed in on the challenges automakers are facing in China, the world’s largest automotive market.

As Burns explained, some foreign automakers are operating at remarkably low percentages of capacity in China.

“The Financial Times reported Ford’s plants in China operated at only 11% of capacity during the first six months of this year, as the firm’s car sales plunged to 27% of the same period last year,” Burns explained.

“Meanwhile, Peugeot owners PSA’s plant in Chang’an produced just 102 cars — yes, you read that right, 102 cars — in the first half of the year, meaning its capacity utilization was below 1%. The firm’s other joint venture with Dongfeng Auto ran at just 22% of capacity, the article reported, as sales were just 62% of the same H1 period last year.”

On the other hand, Japanese automakers and premium European brands have fared well, Burns noted.

“Japanese carmakers, for example, remain strong,” Burns wrote. “Honda and Toyota are both running extra shifts to maintain better than 100% capacity. Premium European brands are doing well, with Daimler’s Beijing Benz joint venture running close to 90% capacity while BMW Brilliance is running at 96%. If it were just the sale of low-end cars that were suffering, you would expect the Japanese carmakers and Volkswagen to also see a similarly sharp downturn, but they are not.”

Actual Metal Prices and Trends

U.S. HDG rose 4.4% month over month to $813/st as of Aug. 1. LME three-month copper fell 0.5% to $5,950/mt.

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U.S. shredded scrap steel fell 6.2% to $257/st. Korean 5052 aluminum coil premium fell 3.7% to $3.15/kg.

freshidea/Adobe Stock

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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MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Automotive executives running carmaking joint ventures in China must be asking themselves regarding the current performance situation: is it a downturn in the lower end of the car market or backlash against trade war?

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The Financial Times reported Ford’s plants in China operated at only 11% of capacity during the first six months of this year, as the firm’s car sales plunged to 27% of the same period last year.

Meanwhile, Peugeot owners PSA’s plant in Chang’an produced just 102 cars — yes, you read that right, 102 cars — in the first half of the year, meaning its capacity utilization was below 1%. The firm’s other joint venture with Dongfeng Auto ran at just 22% of capacity, the article reported, as sales were just 62% of the same H1 period last year.

Source: Financial Times

The collapse in sales comes particularly hard as foreign firms have been making such stellar returns from the China market.

Volkswagen and General Motors’ Chinese sales accounted for 38% and 23% of the companies’ respective pre-tax profits last year, so losses will be particularly painful.

Both firms have fared better than Ford and OSA, though. Volkswagen reported a 6% year-on-year sales decline in the first quarter of the year, while sales for GM fell 10%. Capacity utilization has so far held up well, staying above the critical 80% (the generally accepted break-even line). The Financial Times reported the Shanghai GM joint venture is running at 88% capacity, but Volkswagen’s venture with FAW Group achieved only 77% in the first half of this year.

Source: Financial Times

The connection to trade wars comes not just from the probable cause for the collapse in sales, but the disparity among producers.

Japanese carmakers, for example, remain strong. Honda and Toyota are both running extra shifts to maintain better than 100% capacity. Premium European brands are doing well, with Daimler’s Beijing Benz joint venture running close to 90% capacity while BMW Brilliance is running at 96%. If it were just the sale of low-end cars that were suffering, you would expect the Japanese carmakers and Volkswagen to also see a similarly sharp downturn, but they are not.

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None of the major carmakers is ready to call time on the massive Chinese car market just yet. At some 23 million cars a year, it remains by far the largest single market, but it is an increasingly challenging market in which to make money.

The Audi e-tron. Source: Audi

Oslo-based Norsk Hydro has entered into an agreement with Audi to supply aluminum for the battery housing of the automaker’s first fully electric model.

The aluminum, Hydro says, is “processed and manufactured along the entire value chain in an environmentally conscious manner and under socially acceptable working conditions,” conditions which have been confirmed by the Aluminum Stewardship Initiative (ASI).

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According to Hydro, Audi received ASI certification for assembly of aluminum components late last year.

“This means that the aluminium sheets processed in the battery housing of the Audi e-tron are now demonstrably produced in a responsible manner along the entire value chain, from the extraction of the bauxite raw material to the end product,” Hydro said in a release.

“We are very proud to supply ASI-certified metal, especially for the Audi e‑tron, one of Audi’s flagships. We are constantly working on reducing our impact and that of our customers on the environment,” said Einar Glomnes, Hydro’s executive vice president. “This is an important milestone in our strategy of helping our customers to document the fact that they offer aluminium products that are procured and produced responsibly along the entire value chain.”

Audi is aiming to reduce its carbon dioxide emissions by 15% by 2025 (compared with 2015 emissions levels).

Even longer-term, Dr. Bernd Martens, a member of Audi’s Board of Management for Procurement and IT, said Audi wants to offer customers carbon-dioxide-neutral options by 2050.

To do that, we need a sustainable supply chain,” Martens said. “We therefore seek dialogue with our partners and, together with them, want to significantly reduce CO2 emissions along the entire value chain.”

In other news, Hydro reported its second-quarter earnings earlier this month.

Hydro reported underlying EBIT of NOK 419 million (U.S. $48.3 million), up from NOK 364 million (U.S. $42.0 million) in Q2 2018.

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“Alunorte reached 80-85 percent capacity utilization in June, within the targeted 75-85 percent capacity utilization for the state-of-art press filter technology,” President and CEO Hilde Merete Aasheim said in a prepared statement. “Paragominas and Albras are also ramping up successfully. This is a great achievement by the Brazilian organization.”

Hydro’s Alunorte refinery had been operating at 50% capacity since early 2018, when Brazilian authorities imposed production constraints after a spill at the plant. In May, Brazilian authorities gave Hydro the green light to resume full production at the Alunorte refinery.

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.