Before we head into the weekend, let’s take a quick look back at the week that was and the metals storylines here on MetalMiner, including the release of the January 2021 MMI, a look at what might happen to the iron ore price and much more.
Inauguration Day draws near for President-elect Joe Biden, leaving metals industry groups to wonder what happens next for President Donald Trump’s signature metals policy: Section 232 tariffs on steel and aluminum imports. Whether Biden ultimately chooses to maintain those measures or do away with them remains to be seen, but metals watchers will be eyeing those developments closely.
As for metals prices, some price gains slowed down amid the festive season, but some have resumed their upward ascent in early 2021. Copper, for example, crossed the $8,100 per metric ton threshold earlier this month.
Amid ongoing economic uncertainty, a falling dollar and the coronavirus pandemic, many market watchers are keenly interested in the fortunes of gold.
While numerous analysts predicted gold could reach $2,500 per ounce last year, that didn’t happen.
The gold price did reach as high as $2,034 per ounce in early August, inspiring speculation with respect to how much further the price had to run.
Gold cooled off in the ensuing weeks before heating up again throughout December and early January. The gold price reached $1,957 per ounce during the first week of January before retracing, dropping to $1,828 per ounce as of Jan. 10.
Meanwhile, the U.S. dollar — which generally correlates inversely with the gold price — hit a two-year low back in August (when gold reached its 2020 peak). From the beginning of November to early January, the dollar lost approximately 5% of its value.
However, the dollar has staged a small rally over the last week. The U.S. dollar index fell to 89.44 as of Jan. 5 before bouncing back to 90.47 on Jan. 11.
So what could drive the price this year?
“Physical demand could pick up in 2021,” MetalMiner’s Stuart Burns wrote last month. “China is forecast for potentially double-digit growth in 2021 with a strong tailwind from this year’s stimulus measures and a robust recovery in consumption.
“India, the other major physical gold market, does not look as positive. The country will likely have a slow vaccine rollout and is facing severe banking risks. That could hamper the Indian economy’s recovery in 2021. In turn, a slower recovery could impact consumer appetite for spending, with unemployment up and some sectors still struggling.”
This morning in metals news: U.S. steel capacity utilization reached 75.4% for the week ending Jan. 9; General Motors announced the launch of BrightDrop; and Rusal America announced a new line of aluminum additive manufacturing powders.
The U.S. steel sector’s capacity utilization rate reached 75.4% for the week ending Jan. 9, the American Iron and Steel Institute (AISI) reported.
The rate increased from 74.6% the previous week.
Production during the week ending Jan. 9 totaled 1.71 million net tons, up 3.6% from the previous week. However, output during the week declined 10.3% year over year.
General Motors launches new BrightDrop business
General Motors today announced the launch of a new business called BrightDrop, which it says will “offer an ecosystem of electric first-to-last-mile products, software and services to empower delivery and logistics companies to move goods more efficiently.”
Over the last year, COVID-19 restrictions have closed showrooms. Furthermore, Brexit has raised the prospect of trading tariffs with Europe. In addition, the government has repeatedly moved the goal posts on the sale of internal combustion engines toward the end of the decade.
A new trade deal with the E.U. allows tariff free access to the U.K.’s largest automotive export market. The announcement of the new deal on Christmas Eve proved a massive relief for the industry, according to Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), an industry body, as quoted in the Financial Times.
However, tariff-free does not mean barrier-free. Additional safety certification and much more onerous paperwork involved in the movement of goods between the U.K. and the E.U. will increase complexity for a U.K. supply chain intimately entwined with the E.U.
New clarity in 2021 for U.K. automotive industry
Nevertheless, the U.K. automotive industry is at least starting 2021 with better clarity than it endured through much of last year.
But one looming crisis the SMMT identified is the incomplete nature of the U.K.’s electric vehicle supply chain.
Specifically, the FT reports, the U.K. is going to need far more battery factories if it is to sustain a switch to electric vehicles in the decade ahead.
This morning in metals news: U.S. average gas prices fell to their lowest level since 2016 last year; the U.S. Treasury announced sanctions against Iran’s steel industry; and Ford Motor Co. released its Q4 2020 U.S. sales results.
As MetalMiner readers know, we keep tabs on commodities like oil insofar as they can be price drivers for metals. In short, oil price increases are often supportive of metals prices. (Readers can learn more about our analysis in the most recent update to our Annual Outlook.)
Unsurprisingly, given the slowdown in travel last year stemming from the onset of the COVID-19 pandemic in the U.S., the average gas price fell to its lowest level since 2016, the Energy Information Administration (EIA) reported.
Per the EIA, the average gas price dropped to $2.17 per gallon.
Meanwhile, in mid-March 2020, before the declaration of a national emergency, the average stood at $2.38 per gallon.
U.S. levies sanctions on ‘key actors’ in Iran’s steel sector
The U.S. Treasury on Tuesday announced sanctions on several firms in the Iranian steel sector, in addition to a Chinese supplier of graphite electrodes.
The Treasury announced sanctions on China’s Kaifeng Pingmei New Carbon Materials Technology Co., Ltd. (KFCC), which sold graphite electrodes to Pasargad Steel Complex, the Treasury said.
The automaker said the quarter marked its best fourth-quarter retail sales since 2007.
“GM outperformed the industry in the quarter and the full year by a significant margin because our manufacturing and supply chain teams and dealers helped keep people safe at work and our launches on track,” said Steve Carlisle, executive vice president and president of GM North America. “Extraordinary teamwork has set up everyone to succeed in 2021 as the economy continues to recover and we further ramp up truck and SUV production.”
Furthermore, average transaction prices set fourth-quarter and full-year records, GM reported, at $41,886 and $39,229, respectively.
Meanwhile, Fiat Chrysler reported Q4 U.S. sales of 499,431 vehicles, or down 8% year over year. The automaker’s full-year sales in 2020 declined by 17% compared with the previous year.
“The work undertaken by our dealers was nothing less than heroic given the challenges they faced this year,” U.S. Head of Sales Jeff Kommor said. “The fourth quarter provided a strong springboard heading into 2021. Looking ahead, we anticipate an exciting year that will include a variety of new vehicles. Just in the first quarter alone, we will be offering the Ram 1500 TRX, Jeep Wrangler 4xe, Jeep Wrangler Rubicon 392, the refreshed Dodge Durango and the refreshed Chrysler Pacifica.”
Nissanreported Q4 sales of 243,133 vehicles, down 19.3% year over year. The automaker’s full-year sales, meanwhile, declined by 33.2% year over year.
This morning in metals news: Ford Motor Co. and Mahindra announced the mutual decision to end joint venture talks; the Energy Information Administration released its quarterly coal report; and, finally, the zinc price has retraced.
A previously announced joint venture between Ford Motor Co. and Mahindra will not be going through, the companies announced recently.
The two companies had reached a deal back in October 2019, with a long-term expiration date of Dec. 31, 2020.
“According to the companies, the outcome was driven by fundamental changes in global economic and business conditions – caused, in part, by the global pandemic – over the past 15 months,” Ford said in a prepared statement. “Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities.”
Meanwhile, Ford said its independent operations in India will continue “as is.”
This morning in metals news: the Department of Commerce announced the rollout of a new Aluminum Import Monitoring and Analysis system; meanwhile, in steel, ArcelorMittal announced added capacity in Canada for the production of automotive structural and safety components; and finally, the United States Geological Survey reported mine waste in the eastern Adirondacks could be a source of rare earth element materials.
DOC announces creation of Aluminum Import Monitoring and Analysis system
A development for which the U.S. aluminum sector has long been waiting is finally here.
The Department of Commerce announced today the imminent launch of a new Aluminum Import Monitoring and Analysis (AIM) system. The system will facilitate the DOC’s collection and publication of aluminum import data.
The system is modeled after the system for steel imports, the Steel Import and Monitoring Analysis (SIMA) system.
“AIM represents yet another step forward for the Administration’s America First trade agenda,” Secretary of Commerce Wilbur Ross said. “The new program will enable Commerce and the public to better detect potential transshipment and circumvention involving aluminum products – helping to ensure that domestic producers can compete on a level playing field.”
Recognizing the direction of flow and going with it is certainly a good survival tactic, particularly with respect to diesel engines.
So the move by European truck makers to tackle the challenge of a continent-wide commitment to decarburization should be seen as a refreshing attempt to mold the narrative and future landscape rather than refusing to acknowledge the direction of travel.
Diesel engines, electric vehicles and lower emissions
The European Union has plans to reduce CO2 emissions by 50% by the end of the decade.
Transport will play a big part in that.
Automotive car manufacturers, driven by challenging targets, have and continue to invest billions to develop viable electric vehicles. In some cases, they are also exploring alternatives such as fuel cells.
However, the truck industry has so far concentrated on producing ever more fuel-efficient, lower-emission diesel engines.
Daimler, Scania, Man, Volvo, Daf, Iveco and Ford have signed a pledge to phase out traditional combustion engines and focus on hydrogen, battery technology and clean fuels.
The report says the industry will spend between €50 billion and €100 billion on new technologies to achieve this goal. First, they plan on introducing biofuels, which have a carbon capture and storage component. Having already taken CO2 out of the atmosphere, they are said to be more carbon neutral than fossil fuels. However, they will migrate over the next twenty years to hydrogen fuel cells and batteries — or, likely, a combination of both depending on how technologies and investment in infrastructure develops.
Under the coordination of the E.U. carmakers’ association ACEA, they are working with the German-funded Potsdam Institute for Climate Impact Research to consider the best technologies and approaches to follow – and, no doubt, where to lobby for state support to aid the process.
Carbon tax disincentive
One key area already identified is a higher carbon tax in the E.U. The industry says that to realistically incentivize investment they have to disincentivize the advantages currently enjoyed by internal combustion engine (ICE) systems. “If politicians continue to subsidize fossil fuels, it will be very difficult for us, we need to change the behavior of our customers, and of our customers’ customers,” Scania chief executive Henrik Henriksson told the Financial Times.
It goes without saying that, in the meantime, the customer is going to end up paying for this. A higher carbon tax will be borne by the trucking industry and its users, not by truck manufacturers.
As costs rise for ICE engine systems (e.g., diesel), the industry will find demand will fall for ICE engines. In turn, demand will rise for EV or fuel cell alternatives. Of course, that will only happen if they are deemed viable in terms of range, reliability and speed of refueling.
As a trucker observed to me the other day, “I covered 250,000 miles in the last three years, if I went electric it would currently take me six years because I would spend half my time sitting in truck stops recharging!”
That’s why many believe the future for heavy transport will be hydrogen fuel cells with battery back-up or support.
However, two challenges need to be resolved.
The first is an adequate infrastructure of refuelling stations, at least on major roads and motorways.
The other is the development of clean energy electrolysis splitting water. Currently, most hydrogen comes from natural gas making it essentially a fossil fuel.
Still, as we have seen with auto EVs, first technology needs to be developed. Then, costs have to be reduced. Gradually, the most viable solutions emerge.
At least Europe’s truck makers are trying to coordinate investment and agree on a common direction — that’s an encouraging sign.
“We were able to maintain our industry-beating sales momentum despite quirks in the reporting calendar and added COVID-19 challenges,” said Randy Parker, vice president of national sales at Hyundai Motor America.
U.S. auto sales forecast to nearly match 2019 levels in November
According to the most recent automotive forecast released by J.D. Power and LMC Automotive, new-vehicle retail sales were forecast to drop 0.7% in November when accounting for changes in selling days.
Meanwhile, for total U.S. auto sales, the forecast included a 3.5% decrease when adjusted for selling days.
“November 2020 is a prime example of why accounting for selling day differences is important in measuring comparable sales performance,” said Thomas King, president of the data and analytics division at J.D. Power. “After two consecutive months of year-over-year retail sales gains, a quirk in the November sales calendar will result in new-vehicle retail sales appearing to fall 12%. This year, November has three fewer selling days and one less selling weekend compared with 2019. When these calendar quirks are accounted for, new-vehicle retail sales are expected to almost match 2019 levels.”