Articles in Category: Commodities

India’s coal story is something that we at Metal Miner have tracked over the years. It’s no secret that of late, the world’s largest coal producer, Coal India Limited (CIL), has been facing some measure of criticism for not being able to meet certain targets.

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Now comes a document drawn up by the monolith itself which says CIL was “trailing global peers” in operating performance and technology adoption, while taxes & freight constitute 25% and 34%, respectively, of the cost consumers pay, undermining the monopoly’s competitiveness.

The document, titled “Vision 2030,” is quick to add that the cost structure of the Indian coal sector is still favorable and that cost of production is a concern for only about 10% of the output, according to the Economic Times.

CIL has pointed out that for coal transported over a distance up to 100 km, it received only 56% of the costs paid by consumers for procuring dry fuel. Taxes, duties and levies were about 34%, followed by freight at 10%. For transporting coal up to 500 km, Coal India received 41% of the total payments made by consumers while taxes, duties and levies constituted 25%, followed by railways at 34%.

CIL feels that although it produces coal at competitive rates, its own operating process was letting it down.

The report says there is a “significant gap” in productivity norms of similar class of equipment in mines in India and those around the world. For instance, similar class of shovels in international mines is operated 40-50% more hours annually than at CIL.

Coming at a time when the state-run miner reported a 4.21% increase in its consolidated net profit for the quarter ending December 2017, beating street expectations, “Vision 2030” seems like a wonderfully self-deprecating piece of writing and self-actualization.

Production during the quarter stood at 152.04 MT, up from 147.73 MT in the same period the previous year. The one thing that seems to have worked in its favor was earnings from e-auctions, although fuel supply agreement (FSA) realizations were a drag.

This is all very fine, but the vexed problem of not enough coal reaching many of India’s power plants remains.

An assurance by Indian Coal and Railways Minister Piyush Goyal that the thermal power plants’ demand for coal will be met by adequate supplies in the next financial year is supposed to suffice for now. The Power Ministry has demanded 615 MT of coal and 288 rakes for thermal power plants in the next financial year. As of February 11, there were 52 thermal units that had less than seven days of coal stocks, according to data from the Central Electricity Authority.

The minister’s optimism stems from the fact that they would receive speedier environmental clearances for expanding coal mines in India. The Union Government is said to be tackling low coal stocks in over 50 power plants in the country.

To be fair to CIL, the recent emergence of renewable energy as a viable key substitute, and the promises made under the Paris Agreement have eaten into its revenue. Imported coal as a viable substitute is another challenge the company faces. Incidentally, one of the stipulated aims of CIL’s Vision 2030 was to assess the future demand scenario for the coal sector in India up to 2030.

While talking about emergence of renewable energy as a key substitute for coal, the study specifically delves into the massive growth of the Indian solar sector in last two years.

The total capacity addition in solar over the last two years has been more than 8 GW, an increase of approximately 200% in the installed capacity. “Efficient use of materials, improved manufacturing process, improvement in cell efficiency, and decrease in prices of solar inverters and other ancillary parts in the electrical system are expected to continue driving the competitiveness of solar,” the study noted.

The study estimates that the regulatory framework for access and extraction of coal will continue getting stricter, leading to increases in the cost of compliance. In 2015, India migrated to auction as a mechanism for allocation of coal resources for extraction.

About 50% of CIL’s total production comes from 15 opencast mines with a total production of 279 MTPA (million tons per annum). Remaining 452 CIL mines produce only 274 MTPA, or approximately 0.60 MTPA per mine.

India’s coal sector is regulated at several levels with the central government, provincial governments and various local agencies involved in supervising the industry.

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Much of what CIL said in its report is true. Power utilities in India are said to be already scouting abroad for coal mines, with some having met with success.

In fact, on a recent visit, Poland’s Deputy Minister Marek Magierowski said his country’s expertise in mining, especially in coal, could help boost collaboration with India. Magierowski, who was in India for the Bangla Business Conference and the Raisina Dialogue, spoke about bilateral relations, Europe’s Russia problem and Poland’s Europe problem. The Minister also pointed out that for both nations, coal would remain important to their energy needs “despite the problems posed by regulations that have to comply with climate change.”

Liquefied natural gas. donvictori0/Adobe Stock

With major new projects coming onstream in Australia and the rising output from the U.S. shale producers, the global liquefied natural gas (LNG) market was widely predicted to enter a period of oversupply between 2015-2020, with total supplies growing almost 50%.

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But somewhat to everyone’s surprise, or delight if the tone of Royal Dutch Shell chief executive Ben Van Beurden is anything to judge by, “The LNG glut — conspicuously absent isn’t it?” he is quoted as saying in the Financial Times, a glut has failed to develop.

Rather than fall, LNG prices have remained robustly firm despite the predicted flood of new supply entering the market. The reason? The other side of the supply-demand equation has been outdoing itself.

Rising imports by China has been driving growth, pushing Asian prices above $11 per million British thermal units — a three-year high, reports say.

China raised its imports of the fuel by 50% last year to around 38 million metric tons, according to the Financial Times, after Beijing strengthened measures designed to control pollution from coal use, overtaking South Korea as the second-biggest importer globally, behind only Japan.

The Financial Times goes on to report that Pakistan, Egypt, Jordan and a host of other countries, including in Latin America and Europe, have also become buyers. Some, like Egypt, have faced temporary fuel supply problems at home. Others, like Lithuania, have been pleased to show they have an alternative to Russian pipeline supplies. As far as the U.S. industry is concerned, Mexico, Brazil and Argentina have taken a large proportion of U.S. LNG exports since they started up on the Gulf Coast two years ago.

But the U.S. has also been successful in developing a new kind of buyer.

Traditionally, LNG is sold on long-term contracts, directly to consumers. However, U.S. energy groups like Cheniere Energy have signed long-term supply deals with traders like Trafigura, who have joined other firms like Vitol, Glencore and Gunvor in securing long-term supply deals but developing a spot market for sales. The market as a whole benefits from the greater liquidity and price discovery that comes from a more active spot market; buyers benefit from having more supply options, particularly in the face of disruptions to their long-term supply contracts.

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The LNG market is evolving and maturing as the fuel replaces less environmentally friendly alternatives like coal and competes head on with nuclear on price. The strength of LNG demand is coming at a time of unprecedented rollout of renewable energy generation, which suggests LNG will have a long-term future as part of the energy mix in the next decade despite the uptake of wind and solar.

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This morning in metals news, China is aiming to meet its 2020 goal for steel capacity cuts this year, a new bottle technology makes aluminum bottles feel like plastic and copper output in the Democratic Republic of Congo rose significantly in 2017.

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Chinese Government Looks to Hit Capacity Cuts Two Years Early

The Chinese government plans to reach its previously set 2020 goals for steel capacity reduction this year, Reuters reported.

According to the report, the government plan called for the reduction of 150 million tons of steel capacity by 2020.

An Aluminum Bottle that Feels Like Plastic?

According to a report in Packaging World, one company has been working on a bottle innovation for about a decade that will produce aluminum bottles with the feel of plastic.

Betty Jean Pilon, president of Montebello Packaging, explained the company’s Ushape blow-molded bottle technology during The Packaging Conference, held Feb. 5-7 in Orlando, Florida.

“We know that Canada, the United States, China, and Brazil are the largest beverage markets in the world,” Pilon was quoted as saying. “They singlehandedly produce 100 billion bottles each year. The Europeans consume about 63 billion, the South Americans about 32 billion, and the rest of the world, approximately 20 billion. So that’s why we got into it.”

Congo Copper Output Up 6.9% in 2017

Copper output in the Democratic Republic of Congo shot up 6.9% in 2017, Reuters reported.

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The country produced 1.09 million tons of copper last year, according to the report, while its cobalt output rose 15.5% to 73,940 tons.

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Metals have suffered considerable volatility this month with prices sliding, then recovering, then sliding again at the end of last week. Metals markets are not alone in this — equities have been on a slide and many are beginning to ask if this is the end of the bull market that has stretched back nearly nine years.

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It is a bull market that has seen a convergence of rising commodities prices and rising equities, laying waste to the previous case that investments in commodities is a counter-cyclical move to equities.

A few harbingers of doom have been calling for an end to the equities run for months, if not the last couple of years, caused it has been variously expected by rising interest rates, a collapse in the Chinese property or debt markets, the implosion of the E.U. or another southern European state’s debt crisis – the list goes on.

What finally seems to have spooked the market – and we are not calling an end to the bull run, as this could well prove to be a correction – is inflation.

Reuters reported last week that U.S. job growth surged in January and wages increased further, recording their largest annual gain in more than 8 1/2 years. This has led to expectations that inflation will rise this year as the labor market hits full employment, Reuters reports.

Average hourly earnings have risen to 2.9%, the largest rise since June 2009, from 2.7% in December. The robust U.S. employment report underscored the strong global demand, and raised the fear that with employment low inflation could resurface. The hot labor market will add pressure on the Fed to raise rates faster and earlier than previously anticipated, increasing borrowing costs not just in the U.S. but globally. Rising rates means a stronger dollar, as investment funds flow back into the U.S. to seek higher returns. A stronger dollar also means lower commodity prices – the two invariably move in opposite directions, as we have frequently observed before.

But John Authers, speaking in the Financial Times, refines the argument, saying the selloff came as the market feared massive bets placed on a low level of volatility, on the assumption the status quo would continue through 2018, were undermined by the rate rise scenario, and that those bets will turn into massive losses, not just for the speculators but the banks providing finance behind them. The biggest selloff since 2011 and the second-highest volumes this decade suggest auto trades kicked in as the market fell exiting positons and shorting the market. Authers states the Vix volatility index hit 37.32 on Monday, its highest level since the Chinese currency devaluation of August 2015. That exceeded the levels reached during the Greek debt crisis of 2015 and after the 2016 Brexit referendum.

Nor does he expect volatility to now subside. Markets are twitchy and while there is plenty of liquidity ready to step in and buy on the dip, this will only add to significant swings up and down.

Markets’ next crunch point will the new Fed chairman Jerome Powell’s March rate review to see the degree of hawkishness the market can expect from the new administration.

Meanwhile, commodities in general will experience complex dynamics. A stronger dollar will undermine prices and contributed in part to falls in the price of crude and gold last week, but robust global demand and rising global GDP will be supportive of metals prices, particularly for supply-constrained markets like lead and nickel.

In fact, so tight is the lead market that treatment and refining charges in China are said to have fallen to zero this month as smelters fight to secure supplies.

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Volatility, therefore, appears to be the order of the day. Consumers looking to cover positions should look to buy on dips until trends reassert themselves or a new direction becomes clear.

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This morning in metals news, Rusal saw its fourth quarter 2017 aluminum production rise, commodities generally escaped the brunt of Monday’s market plummet and European steel demand is set to rise in 2018.

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Rusal Aluminum Production Jumps

According to Platts, Rusal’s Q4 2017 aluminum production rose 1.5% year over year.

Rusal’s production was up 1.4% from its third quarter total.

Commodities Avoid Fallout from Monday Meltdown

Despite the historic Dow market drop on Monday, commodities made it through relatively unscathed on account of strong demand, Bloomberg reported.

European Steel Growth to Rise in 2018

According to the European steel association Eurofer, Europe’s steel sector will see increased growth this year but also will be threatened by imports, Reuters reported.

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According to the report, apparent steel consumption in the European Union is expected to increase by 1.9% this year.

Coca Cola’s new lineup of Diet Coke flavors. Source: The Coca-Cola Company Image Library

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

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According to a recent report from the U.S. Geological Survey, the U.S. mining industry produced $75.2 billion in minerals in 2017.

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The information was published in the USGS’s annual Mineral Commodities Survey.

Source: U.S. Geological Survey

In the import market, the U.S. was 100% reliant on outside sources for some raw and processed mineral materials, including rare earths, manganese, niobium and vanadium. The report adds that in 2017 the U.S. was 100% reliant on imports for 21 commodities — up from 100% reliance on imports for 11 commodities in 1984.

U.S. metal mine production in 2017 hit an estimated $26.3 billion, up 12% from 2016. Despite higher prices for metals, domestic production was actually lower than the previous year, the report states.

In that vein, for the aluminum sector — which is anxiously awaiting the results of the Trump administration’s Section 232 investigation of aluminum imports — 2017 proved to be another down year in terms of production.

Primary aluminum production fell for the fifth straight year, according to the USGS report, dropping 12% to reach its lowest level since 1951. Meanwhile, aluminum imports increased by 16% (a shade above the 15.5% increase in steel imports).

Which states led the way in mining production last year? Eleven states produced more than $2 billion in non-fuel mineral commodities. Those states were, in descending order: Nevada, Arizona, Texas, Alaska, California, Minnesota, Florida, Utah, Missouri, Michigan and Wyoming.

On the precious metals front, new gold mines opened in late 2016 and 2017 in Nevada and South Carolina. The South Carolina mine opening — rather, reopening — marked the first gold mine to open east of the Mississippi River since 1999. Gold was discovered at the Haile Gold Mine site, located in Lancaster County about 55 miles south of Charlotte, in 1827, according to the company website. The mine is currently owned by global mining firm OceanaGold.

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Metals used for high-tech applications like electric vehicles, including cobalt and lithium, saw their prices skyrocket in 2017. According to the report, the average lithium price jumped 61% last year, while cobalt prices more than doubled.

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The base metal trendline appears to have shifted sideways this month after skyrocketing at the end of 2017. Market observers can take comfort knowing that after a meteoric rise, it takes time for the price to “digest” previous gains.

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Source: MetalMiner analysis of StockCharts

Base metals prices remain in a more than two-year uptrend, and both base metals and steel seem to have additional upward momentum. MetalMiner expects more movement to the upside this year.

Some analysts have suggested a possible peak for base metals this year. When markets change from bullish to bearish, prices tend to move in a sideways trend. However, macroeconomics do not support the bearish case. For example, copper could face a double supply disruption caused by Chilean copper mines and the opaque supply chain of the scrap sector.

Despite the possibility that the base metals rally could actually have started to peak, the evidence of the bulls still seems to outweigh the case for the bears. No current indicators signal the end of this bullishness for base metals.

Instead, some of the warning signals tracked by MetalMiner strongly support a sustained bullish future for base metals.

The U.S. Dollar

The U.S. dollar fell to a more than three-year low this month. The U.S. dollar fell below previous minimums, which also suggests weakness. A weaker U.S. dollar typically correlates with a bullish market for both commodities and base metals. Therefore, this seems like a strong supportive fact for base metals in 2018.

Source: MetalMiner analysis of StockCharts

Commodities

Similar to base metals, commodities also traded more sideways this month than they did in December. However, we would expect this movement because the CRB index skyrocketed in December.

Source: MetalMiner analysis of StockCharts

Oil prices, which make up one of the largest elements of the CRB index, remain in a strong uptrend since June. Oil prices breached our long-term resistance level in November and climbed further in both December and January. Crude oil prices, currently around $63/barrel, could continue to climb  this year.

What This Means for Industrial Buyers

In December, buying organizations had some opportunities to buy some volume before base metals skyrocketed. With January’s slower price momentum, buying organizations may still want to identify appropriate price signals to better plan purchases.

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To learn more about how to better plan ongoing purchasing requirements given metal price volatility, take a free trial now to our MetalMiner Monthly Outlook.

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It’s been great going for India’s state-owned National Aluminium Company (NALCO). Its revenues in sale of alumina are up by 30% year-over-year and it has reported a 94% jump in net profit.

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The company has now lined up some new projects.

According to reports, NALCO is said to be contemplating a high-end aluminum products plant by availing technology from foreign suppliers. The project is intended to provide for future applications of aluminum in bullet trains, aerospace and electric vehicles, all three of which are coming to India.

T.K. Chand, NALCO’s chairman and managing director, was quoted as saying that the technology for high end aluminum products plants was not available in India, so Nalco was in talks with potential suppliers in the U.S. and Russia to avail their technologies. The company had already floated an Expression of Interest (EoI) to select the technology supplier.

If successful, the proposed plant is likely to come up within the aluminum park at Angul in Odisha province.

Earlier this month, the aluminum major inaugurated three major projects at a total cost of about U.S. $94 million (Rs 660 crore). One was a bauxite mine, the second a 18.5 MW power unit at alumina refinery, Damanjodi and a nanotechnology-based defluoridation plant at Angul.

The aluminum park that Chand referred to was being developed jointly by NALCO and state-owned Odisha Industrial Infrastructure Development Corporation.

NALCO has signed a memorandum of understanding (MOU) with the Indian Defense Ministry Public Sector Unit Mishra Dhatu Nigam Ltd for the manufacture of high-end aluminum alloys.

Aluminum is not only in the weapons and aerospace sector but also in vehicles (especially electric vehicles).

In an interview with The Economic Times recently, Nalco’s CMD spoke of his plans to make the company a  1-million-ton aluminum player by 2020. He said NALCO’s capacity today was at 4.6 lakh ton, of which, this year, it would be producing around 4.2 lakh (420,000) tons. In 2018-2019, the company planned to ramp up production to 4.6 lakh (460,000) tons. The addition of a new smelter would take it to over 1 million tons for aluminum.

When asked for the reason behind NALCO’s alumina sales volume jumping by 30% year on year, Chand replied that the increase in revenue, particularly in alumina, came because of change in NALCO’s strategy. Earlier, the company would sign a long-term agreement for sale of alumina in the international markets, but it did not give much benefit in case of a rising market. Thereafter, with the market price going up, it had switched strategy of spot tenders. This was what led to the prices increasing from U.S. $280 to as high as $527.

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Growth in volume was also achieved since NALCO was able to achieve a 100% capacity utilization of aluminum refinery.

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Amongst a plethora of news, comment and opinion, it is often like struggling through a jungle when trying to get clarity on the commodities landscape. Sometimes, there is almost too much information.

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So, an analysis in the Financial Times entitled “Five things to watch as Brent crude oil nears $70” makes a refreshingly simplified but no less comprehensive summary of the key issues currently driving the oil price.

The crude oil price rise has been relentlessly rising for the last 3-4 months and while plenty of opinion has been espoused — in these columns too, I should add — about the moderating effect of U.S. shale oil on global supply (and hence, prices), the reality is so far the impact has been minimal. Prices have continued to show stubborn resistance to any such moderation.

Iran has certainly been a factor. Opinions differ as to how much impact unrest in the region has contributed to price rises. However, as the third-largest oil producer in OPEC, contributing to some 4% of global supply, civil unrest was a reminder that nothing can be taken for granted.

In practice, protests had no impact on oil output. The street protests have now subsided, but Iran remains a source of tension in the region, with an antagonistic stance towards Saudi Arabia with respect to its military intervention in Yemen providing the potential for a flare-up. Oil output in the region generally has suffered some setbacks, with output in Kurdistan dropping after Baghdad took back control of disputed oilfields in October.

Output elsewhere has remained restrained in those countries participating in the Saudi-Russian led coalition to reduce inventories, but question marks remain as to how well they will stick to the deal as the oil price remains firm in 2018. Many may believe the heavy lifting is done and treasuries now deserve replenishing.

Not so fortunate to have a choice is Venezuela, which is quietly imploding.

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