Articles in Category: Automotive

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Automakers and consumers fearing a new U.S. tariff on imported automobiles and automotive parts breathed a sigh of relief on Friday when President Donald Trump announced he would delay his decision on the matter for up to six months.

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The U.S. Department of Commerce launched a Section 232 investigation related to imports of automobiles and automotive parts in May 2018. Commerce Secretary Wilbur Ross submitted a report to the president in February, beginning the 90-day period by which the period is required to make a decision.

However, a day before the May 18 deadline, the president announced he would delay the decision and issued a proclamation directing United States Trade Representative Robert Lighthizer to begin a negotiation period with the European Union, Japan and “any other country the Trade Representative deems appropriate.”

“United States defense and military superiority depend on the competitiveness of our automobile industry and the research and development that industry generates,” the White House said. “The negotiation process will be led by United States Trade Representative Robert Lighthizer and, if agreements are not reached within 180 days, the President will determine whether and what further action needs to be taken.”

The investigation, like the probe of steel and aluminum imports, is predicated on determining whether the import levels constitute a threat to U.S. national security. The aforementioned proclamation notes domestic auto producers’ market share has fallen from 67% in 1985 to 22% in 2017, and that the volume of imports doubled during that period.

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, welcomed the delay in the tariffs.

“I’m glad President Trump decided to delay these tariffs,” Grassley said in a prepared statement. “As the president knows, I’m not a fan of tariffs. And I have serious questions about the legitimacy of using national security as a basis to impose tariffs on cars and car parts.

“I’ll continue to strongly support the Trump administration’s pursuit of trade negotiations with the European Union and Japan. I encourage Ambassador Lighthizer to pursue comprehensive trade agreements that benefit all Americans, including farmers, manufacturers and service providers.

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“In the meantime, I’m continuing to work on bipartisan legislation to update Section 232 to give Congress, which has constitutional authority to regulate international commerce, a meaningful role in the process.”

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This morning in metals news, the May 18 deadline for the president’s decision on potential new automotive tariffs is being pushed back up to six months, Chinese iron ore futures rose to a record high and the Trump administration reversed an Obama-era pause on mining in a northeastern Minnesota wilderness area.

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Pumping the Brakes

May 18 marked the statutory deadline for President Donald Trump to make a decision regarding whether or not to impose new tariffs on imported automobiles and automotive parts. The decision is prompted by a Section 232 investigation — launched in May 2018 — into whether those imports negatively impact U.S. national security.

However, the decision is being delayed by up to six months, CNBC reported.

China’s Iron Ore Futures Soar

China’s iron ore futures rose to a record high Thursday, Reuters reported, on the back of rising demand and tight supply.

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According to Reuters, the most-trade September iron ore contract on the Dalian Commodity Exchange rose by as much as 4.5% Thursday to reach 678.5 yuan ($98.62) per ton.

Trump Administration Opens Door to Potential Minnesota Copper Mining

The U.S. Interior Department this week renewed two mining leases near the Boundary Waters Wilderness area in northeastern Minnesota, leases which had been suspended under President Barack Obama, Reuters reported.

According to the report, the Bureau of Land Management granted the leases to Twin Metals Minnesota LLC, which is a subsidiary of Chilean copper giant Antofagasta.

The Raw Steel Monthly Metals Index (MMI) dropped 1.2% this month, down to an index reading of 80.

Weakness in the index once again came from U.S. domestic steel prices.

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U.S. prices showed weakness of late with HRC, CRC, HDG and plate prices dropping slightly again for the second month in a row.

Source: MetalMiner data from MetalMiner IndX(™)

This brings prices back down to around February levels, when these four forms of steel initially turned around from recent price declines (after reaching historical highs in April 2018).

A Comparison of U.S. and China Steel Prices

The spread between U.S. HRC and Chinese HRC narrowed between March and April, dropping to $161/st from $183/st in March.

Based on preliminary May numbers, the gap looks poised to close further, with a preliminary drop to $120/st based on early May prices.

U.S. HRC Prices and the U.S.-China Price Spread

Source: MetalMiner data from MetalMiner IndX(™)

Compared to HRC, the spread between CRC prices remains relatively flat, with a drop of just a few dollars between March and April. However, the gap looks to narrow more significantly based on early May prices, with a gap of $223/st (down from April’s $240/st price difference).

Waning Demand in Steel-Intensive Sectors

Construction and housing showed some weakness recently, according to the most recently available U.S. Census Bureau figures.

Total construction spending for March dropped below February by 0.9%, totaling around $1,228 billion. Additionally, the sector looks flat since last year, with this March’s figure coming in below last March, when expenditures on construction totaled $1,293 billion, marking a 0.8% drop.

Q1 expenditures look essentially flat compared with last year, with a 0.2% increase.

The durable goods sector has showed strength, with new orders up for four of the previous five months through March, according to the U.S. Census Bureau, with orders for transportation equipment growing the most.

Reuters reported lower auto sales for April, with the sales decline attributed to rising prices and fewer incentives offered, especially on lower-end models.

In addition, consumers turned to the used market in larger numbers this year due to higher prices, as costs of new vehicles increased this year.

What This Means for Industrial Buyers

Steel prices showed weakness lately, with the monthly index on a gentle decline during the past two months.

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Actual Raw Steel Prices and Trends

U.S. HRC futures spot and 3-month prices both declined this month, in excess of 5%, both at $654/st.

Korea’s scrap steel price, currently at $150/mt, dropped significantly after a similarly sizable increase last month, with both the increase and subsequent drop in excess of 16%.

Chinese prices showed some strength, although not across the board. Most notably, Chinese HRC prices increased by 5% to around $600/mt, while steel billet increased over 3% to $551/mt.

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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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The Automotive Monthly Metals Index (MMI) dropped two points this month, down to a reading of 91 for May.

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U.S. Auto Sales

General Motors and Ford Motor Co. have turned to a quarterly sales reporting schedule, moving away from the traditional monthly reporting model. GM made the switch last year, with Ford following suit earlier this year.

However, the two automakers recently announced Q1 earnings. GM reported net revenue of $34.9 billion, down 3.4% year over year, and income of $2.1 billion, up 93.2% year over year (GM’s first-quarter sales fell 7% year over year). Ford, meanwhile, reported net revenue fell $1.6 billion to $40.3 billion, while income fell $600 million to $1.1 billion (Ford’s first-quarter sales fell 1.6% year over year).

Similarly, Fiat Chrysler announced earlier this month that it will start reporting on a quarterly basis beginning Oct. 1. For April, Fiat Chrysler sold 172,900 vehicles in the month compared to 184,149 vehicles in April 2018, a decrease of 6.1%.

In other news for the automaker, Reuters reported Friday that Fiat Chrysler entered into a $307.5 million settlement with about 100,000 U.S. owners of Fiat Chrysler diesel vehicles because of illegal software that caused the vehicles to emit excess emissions.

U.S. Honda sales edged up 0.1% in April, with car sales down 3.4% and truck sales up 3.1%.

“As industry sales continue to level off, we are increasing our share of the market through the strength of our car and truck lineups and our disciplined approach to sales,” said Henio Arcangeli Jr., senior vice president of automobile sales at American Honda Motor Co. “The compact SUV segment remains a bright spot for both Honda and Acura brands in 2019, with CR-V the outright retail sales leader in the industry’s largest segment, and the Acura RDX the fastest growing model in the compact luxury SUV segment in 2019 and the top-selling retail model.”

Nissan sales rose 9% year over year, with Nissan Altima sales up 59%.

Toyota sales fell 4.4% on a volume basis and 8.6% on a daily selling rate basis. Toyota recently announced Novelis Inc. would supply it with aluminum automotive body sheet for the new 2019 RAV4.

Hyundai reported auto sales picked up 1% to 55,420 vehicles in April 2019.

For the industry overall, MarketWatch reported April sales fell 6.1%, down to their lowest level since October 2014.

Tesla, Panasonic Relationship Under Stress

MetalMiner’s Stuart Burns last month touched on the TeslaPanasonic relationship after Panasonic announced it would not invest in an expansion of Tesla’s Nevada Gigafactory.

The Japanese firm manufactures battery cells for Tesla’s EV batteries.

“Output was meant to double next year, but after citing financial reasons the two companies have said they intend to increase production from the existing equipment rather than invest in more capacity,” Burns wrote. “Tesla’s record as a mass manufacturer has come in for considerable criticism over the last 18 months, first with repeated delays in deliveries of the Model 3 and now apparent significant underutilization of the battery plant.”

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Actual Metal Prices and Trends

The price of U.S. HDG fell 4.4% month over month to $881/st as of May 1. U.S. platinum bars rose 4.5% to $886/ounce. U.S. palladium bars fell 2.6% to $1,365/ounce.

Chinese primary lead fell 1.7% to $2,482.06/mt. LME copper dropped 0.9% to $6,435/mt. U.S. shredded scrap steel fell 3.3% to $321/st.

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Not surprisingly, the most alarmist headlines were run by the most biased of news channels: the BBC.

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Long advocates of left-wing sympathies, the Beeb — as the BBC is affectionately known in the UK — has for many years also been leading the charge on environmental issues. Not that we have any problem with having an environmental conscience — anyone watching the rapid the bleaching of the world’s barrier reefs can’t help but feel a part of themselves die in the process — but we would much rather see the BBC reporting on sound scientific data than listen to them pushing one political angle, like some mogul-backed, partisan media outlet.

So when a BBC article shouts “UK Parliament declares climate change emergency” you expect it is possibly hyperbole. What does the statement even mean, you may ask. Are we about to be inundated by a monsoon, fry in a heatwave, be washed away in a tsunami or blown away in a typhoon?

Apparently desperate to address something other than Brexit, the British government appears likely to commit the U.K. to an even tougher carbon emissions target than it already has — indeed, tougher than any other major economy in the world.

According to the Financial Times, the proposals build on the 2008 Climate Change Act, which targeted reducing emissions by 80% from 1990 levels by 2050. The U.K. is on track to achieve this, having made steady progress in the interim with emission levels falling more than 40% over the last 29 years.

But the last 20% will be the hardest if the U.K. seeks to achieve zero emissions. The rest of Europe has signed up to similar targets, but exempted certain key industries (such as agriculture, aviation and shipping).

True zero emissions represent a significant challenge, whatever politicians may say.

It will require a sweeping overhaul of energy use from homes to transport to even what we eat. It involves a pledge to phase out diesel and electric cars by 2040, quadruple energy supplies from low-carbon sources such as renewables and supplement a hydrogen economy where natural gas is currently used (80% of British homes are reliant on natural gas for heating and/or cooking).

Heavy carbon-emitting industries will have to adopt carbon capture technology, which has to date proved less than satisfactory and expensive to operate. Nevertheless, the government has already invested some limited funds in pilot projects and has undertaken to do more.

The tough ones will be aviation (an alternative to fossil-fueled jet engines is a long way off), shipping (which is moving to 0.5% low sulfur fuel but still remains a massive source of carbon emissions) and agriculture, which is probably the worst offender.

There is no known trick of science that stops a cow breaking wind and little that can be done about the acres of corn that need to be cultivated to feed that cow. The Committee on Climate Change acknowledges one of the biggest and hardest changes will be to humans’ diets. More plant-based and less animal- and fish-based protein would have a profound impact on carbon emissions but will take a fundamental shift in the wider population’s habits.

Still, some trends are in favor of the needed changes.

Electric cars are predicted to be cheaper to buy and run than petrol- or diesel-fueled vehicles by 2030 (if not before). Wind power is already said to be cheaper than natural gas, the Financial Times says, providing storage costs to achieve continuity are subsidized, but even that may cease to be necessary as battery technology improves and wind turbine costs continue to fall.

The committee’s report suggests the changes needed, spread over the next 20-30 years, need not be onerous or disruptive to growth; indeed, they may present significant opportunities for new technologies and for the industries that exploit these opportunities.

Whether the world has 30 years, none of us knows. The U.N. says we could have just 12 years to effect change before we reach a point of no return; they may, like the BBC, be trying to promote a project fear agenda to effect change (we really don’t know).

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

In the meantime enterprising firms have the opportunity to develop new products and services to meet what is already becoming a relentless process of change.

Every cloud has a silver lining.

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This morning in metals news, the Aluminum Association released a report panning aluminum import quotas, Republican senators urged President Donald Trump not to impose tariffs on imported automobiles and U.S. automotive sector layoffs in 2019 have surged.

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Aluminum Association Comes in Against Quotas

The U.S.’s Section 232 tariffs on steel and aluminum remain in effect for trading partners Canada and Mexico, with whom negotiations continue vis-a-vis the United States-Mexico-Canada Agreement (USMCA).

The extant tariffs are a sticking point in the approval of the agreement, which would succeed the 1994 NAFTA if passed.

One option on the table is for the U.S. to rescind the tariffs but apply quotas on imports of the metals from the two countries. The Aluminum Association, however, panned the idea of quotas in a one-page report released recently.

“Quotas will make it harder for aluminum companies to grow and invest in the U.S.,” the report states. “Instead of across-the-board tariffs or quotas on responsible trading partners, the U.S. aluminum industry needs targeted trade enforcement and tough negotiations to address subsidized overcapacity in China.”

Republican Senators Ask Trump Not to Impose Section 232 Auto Tariffs

In May 2018, the U.S. Department of Commerce initiated a Section 232 investigation into imports of automobiles and automotive parts.

With the mandated report from Commerce Secretary Wilbur Ross already in hand, the ball is now in the president’s court.

However, according to Bloomberg, a number of Republican senators Thursday urged Trump not to impose new tariffs on imported automobiles. The deadline for Trump’s decision falls May 18.

In a statement on his website, Senate Finance Committee Chairman Chuck Grassley related that he impressed upon Trump the importance of passing the USMCA.

“I was glad to be able to share with President Trump how farmers and businesses in Iowa are eager for Congress to pass USMCA,” Grassley said. I want to be able to help President Trump get a victory on trade and help him keep his promise to get a better deal for American workers and farmers. I urged President Trump to work with us get past the steel and aluminum tariffs issue so USMCA can become law in the United States, Mexico and Canada. The USMCA is a historic achievement for President Trump. Lifting metal tariffs on Canada and Mexico will help the broader U.S. economy realize the agreement’s full benefits and will help a strong economy grow even stronger. I’ll continue to work with my colleagues in Congress and the Trump administration to make sure the tariffs go so USMCA can replace NAFTA and become law this year. We should keep in mind that tariffs are a tax on Americans and we shouldn’t undermine the benefits of historic tax reform with tariffs.”

Auto Layoffs Double

According to MarketWatch, layoffs in the U.S. automotive sector for the first four months of 2019 hit 19,802, more than double the total of layoffs in the sector for the same period in 2018.

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

In addition, auto sales continue to cool. According to the report, April sales fell 6.1%.

In the aftermath of the Section 232 tariffs on steel and aluminum going into effect in March 2018, we heard and read a lot about some of the largest American OEMs and their business challenges.

For example, Ford Motor Company’s claim that the tariffs cost the automaker $1 billion in profits last year.

But what’s not known or reported as much in the mainstream is what manufacturers have been doing to strategically mitigate tariff risk, or how their various business units and organizations put practices in place to hedge against that risk.

“We’re flexible, and we can move quickly now that we have started to qualify additional materials,” said Matt Marthinson, VP Supply Chain at JB Poindexter & Co., Inc. “So I like our chances much better than where we were just two years ago.”

A company like that has to be flexible — as a large-volume metals buyer, JB Poindexter is the largest truck manufacturer in the U.S. of Class 3 through Class 7 trucks, including the majority of UPS, FedEx, U.S. Postal Service, Penske and Ryder trucks across North America, according to Marthinson.

In a conversation with Lisa Reisman on our current podcast series, “The Maker-to-User Trend in the Time of Tariffs,” Marthinson lets listeners in on how an established transportation industry manufacturer with significant exposure to commodity risk views the tariff landscape, both now and into 2020.

Listen in!

According to his company bio, Matt Marthinson is the leader for the Supply Chain transformation initiative at JBPCO, which includes partnering with the business owners to consolidate and leverage spend across all business units. He has over 25 years of comprehensive business achievements and expertise in Lean Manufacturing Operations, Production Planning, Materials Management, Procurement, Transportation and Logistics, Sourcing and Supply Chain with Kaiser Aluminum, Honeywell, Alcoa and Hubbell Incorporated, most recently as vice president of strategic sourcing. Learn more here.

Maker-to-User in the Time of Tariffs: Background

After the U.S. Commerce Department’s Section 232 findings in early 2018, President Donald Trump took action — and the rest is history.

This new podcast series takes a closer look at the U.S. manufacturing landscape in our present time of trade tariffs, and how manufacturers themselves are affected by the tariffs (winners and losers).

For example, just over 90% of manufacturing industry respondents in a recent, informal MetalMiner poll indicated that the Trump tariffs have hurt their respective businesses, via increased material costs, inventory woes and longer lead times, among other effects.

However, other manufacturers — for example, Honda — have posted healthy profits over the last year.

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Ultimately, we’re interested in what all of this means for the “maker-to-user” trend that we’ve seen gain steam the past several years.

For an excellent primer on the “maker-to-user” movement and trends, download our free white paper on the topic here.

Listen to more episodes and follow the MetalMiner Podcast here.

Source: Tesla

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

Reports that Panasonic is stepping back from its commitment to develop its Reno, Nevada Gigafactory with Tesla have the note of warning about them suggesting all is not well with Tesla or for sales of its new Model 3 batteries, which the new factory was designed to make, according to TechCrunch.

But Tesla blames lowered deliveries of the Model 3 on delivery problems to Europe and China, not lack of demand.

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The firm further suggests its upcoming launch of its lease option on the Model 3 in North America will substantially increase demand.

That may be so, but the row back raises questions as accuracy of the original predictions for the Gigafactory and, by extension, for wider battery demand.

The Reno facility has been a partnership between the Japanese battery giant Panasonic and Tesla, with Panasonic making the battery cells and Tesla incorporating them in its Model 3 battery packs and energy storage products, Powerwall and Powerpack.

Together, the companies have invested U.S. $4.5 billion in the facility. According to Reuters, they had been planning to expand the plant’s capacity to the equivalent of 54 gigawatt hours (GWh) a year in 2020 from 35 GWh at present, according to a report in FinFeed.

However, as of July 2018, the plant was only reported to be running at an annualized run rate of 20 gigawatt hours of capacity.

TechCrunch also cast doubts on how successfully the plant is being run. The outlet notes that as of November, Panasonic had 11 production lines operating at Gigafactory 1 and that the company planned to add two more lines by the end of the year to bring total capacity up to 35 gigawatt-hours — but it is unclear if that was reached.

Output was meant to double next year, but after citing financial reasons the two companies have said they intend to increase production from the existing equipment rather than invest in more capacity. Tesla’s record as a mass manufacturer has come in for considerable criticism over the last 18 months, first with repeated delays in deliveries of the Model 3 and now apparent significant underutilization of the battery plant.

Tesla’s Gigafactory was meant to be America’s answer to a growing Chinese dominance in battery production.

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

The firm will not be alone in seeking answers to why the project is apparently performing so poorly. Simple delays in Model 3 deliveries appear to be only part of the problem.