Articles in Category: Company News

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This afternoon in metals news, renegotiation efforts focused on the North American Free Trade Agreement (NAFTA) appear to be at a standstill, Chile’s state copper commission boosts its 2018 copper forecast and a European agency advises plane manufacturers to suspended their use of products from embattled Japanese steelmaker Kobe Steel.

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NAFTA Deadlock

The fourth round of renegotiation talks regarding the 23-year-old NAFTA concluded yesterday, but the U.S., Mexico and Canada appear to be no closer to a consensus.

According to Bloomberg, initial hopes for a quick resolution have fizzled, as talks will now be extended into 2018 (which was previously hoped to be avoided, given the scheduled elections in each country next year).

The next round of talks is scheduled for Nov. 17-21 in Mexico.

Cochilco Forecasts Copper at Nearly $3/Pound in 2018

Chile’s state copper commission, Cochilco, on Wednesday put out a forecast for 2018 including a prediction of the average global copper price hitting $2.95/pound.

The new forecast is up significantly from Cochilco’s mid-year estimate of $2.68/pound. Greater Chinese demand is cited as a supporter of the global price.

Kobe Steel Saga Continues

The fallout from the Kobe Steel data falsification scandal continues, as the European Aviation Safety Agency (EASA) advised plane manufacturers to suspend their use of products from the firm, the third-largest steelmaker in Japan, according to CNN Money.

According to the report, EASA advised those manufacturers to find alternative suppliers and conduct a “thorough review of their supply chain.”

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A number of global heavyweights use Kobe Steel products, including GM, Boeing, Ford and Toyota, according to the report.

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The United States International Trade Commission last week announced it is launching an investigation related to the importation of something that is often considered the wave of the future: automation systems.

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The USITC announced it launched a Section 337 investigation last Wednesday. Section 337 of the Tariff Act of 1930 determines whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States, including the infringement of a U.S. patent, copyright, registered trademark or mask work.

The investigations stems from a complaint filed Sept. 6 by Rockwell Automation, Inc., of Milwaukee, Wisconsin.

“The products at issue in the investigation include components used in the complainant’s industrial automation systems that bear the complainant’s Allen-Bradley® trademarks and that use the complainant’s copyrighted software and firmware,” the USITC announcement reads.

According to the complaint, the respondents allegedly violated Section 337 with respect to the importation and sale of “certain industrial automation systems and components thereof including control systems, controllers, visualization hardware, motion and motor control systems, networking equipment, safety devices, and power supplies that infringe trademarks and copyrights asserted by the complainant.”

In addition, Rockwell is asking for a general exclusion order, and cease and desist orders.

The following firms were listed as respondents in the case:

  • Can Electric Limited of Guangzhou, Guangdong, China
  • Capnil (HK) Company Limited of Hong Kong
  • Fractioni (Hongkong) Ltd. of Shanghai, China
  • Fujian Dahong Trade Co., Ltd., of Fujian, China
  • GreySolution Limited d/b/a Fibica of Hong Kong
  • Huang Wei Feng d/b/a A-O-M Industry of Shenzhen, China
  • KBS Electronics Suzhou Co., Ltd., of Shanghai, China
  • PLC-VIP Shop d/b/a VIP Tech Limited of Hong Kong
  • Radwell International, Inc., d/b/a PLC Center of Willingboro, NJ
  • Shanghai EuoSource Electronic Co., Ltd., of Shanghai, China
  • ShenZhen T-Tide Trading Co., Ltd., of Shenzhen, China
  • SoBuy Commercial (HK) Co. Limited of Jiangsu, China
  • Suzhou Yi Micro Optical Co., Ltd., d/b/a Suzhou Yiwei Guangxue Youxiangongsi d/b/a Easy Micro-optics Co. LTD. of Suzhou, Jiansu, China
  • Wenzhou Sparker Group Co. Ltd., of Wenzhou, China
  • Yaspro Electronics (Shanghai) Co., Ltd., of Shanghai, China

Free Download: The October 2017 MMI Report

USITC rules dictate that it will issue a target date for completion of the investigation within 45 days of launching one, meaning the Commission will set a target date by Nov. 25 in this case.

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This morning in metals news, U.S. raw steel production went up last week, aluminum is heating up as China prepares for winter cuts to excess capacity and Kobe Steel’s data falsification scandal could stretch back a decade.

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Raw Steel Production Up 5.4%

U.S. raw steel production for the week ending Oct. 14 was up 5.4% from the same week in 2016, according to weekly data from the American Iron and Steel Institute (AISI).

Production for the week amounted to 1,744,000 tons, up from 1,655,000 for the same time frame in 2016.

Aluminum Heating Up

It’s been a big year for aluminum — and with Chinese winter cuts to excess capacity on the way, the aluminum price could continue to rise.

According to a Reuters report, China is preparing to reduce its aluminum smelting capacity by one-tenth by the end of the year.

Kobe Steel Scandal Could Go Back More Than 10 Years

The data falsification scandal plaguing Japan’s third-largest steelmaker could go back more than a decade, according to a Bloomberg report.

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According to the report, Kobe Steel will cooperate with the U.S. Department of Justice. A company executive quoted in the report told Bloomberg that data falsification at the firm has likely been happening for over a decade — stretching further than Kobe’s admission of falsification dating back to 2007.

What Went Wrong at Kobe?

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Few topics, apart from metal prices of course, prompt more debate in the office of MetalMiner than supply chain issues.

So it should come as no surprise that hot on the heels of our article reporting last week’s news regarding Kobe Steel’s admission of falsifying quality data should be a more in depth analysis of what exactly went wrong — and, maybe more importantly, why it went wrong.

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The “what” is still difficult to pin down.

On the one hand, many sources, even highly respected sources like The Economist, say products were certified as having properties – such as a level of tensile strength – that they did not in fact possess.

Yet this does not square with the response of many of Kobe’s customers.

Aerospace firms like Boeing and Mitsubishi Heavy Industries who used affected products on the recent H-2A satellite launch vehicle, and automotive clients like Toyota, Honda, Nissan, Ford and GM, have variously said their preliminary findings are no material exhibiting properties outside of the standards has been used.

If that is the case (and it is still early days), what we could have is a case of incorrect procedures being employed, such as Nissan’s recall of 1.2 million cars after finding unqualified inspectors had been conducting safety checks.

Bloomberg explored the ongoing threat of substitution of steel with aluminum in automotive applications and the transport industry’s relentless pursuit of lower weight – and hence thinner materials – as somehow a reason for Kobe Steel falsifying data. But there is no evidence the quality issue has anything to do with weight reduction, or specifically new, thinner grades of steel.

The Money Argument

One angle in trying to understand why it happened is to follow the money.

There could be an argument that quality control can be the first casualty of a firm struggling for profitability. Kobe has not fared well in the face of a highly competitive international steel market, particularly in Asia.

As this chart courtesy of Morningstar shows, the share price has been in decline since the start of the decade.

Source: Morningstar

Without focusing on the 30% decline in the last week, the firm has been making rising losses in 2015 and 2016, although part of this has been down to provisions against bad debts according to the latest company accounts.

Could cost-cutting have been to blame? Possibly. Bloomberg quotes a spokesman for the company who said pressure to meet delivery deadlines was one reason behind the failure. But as the firm has said the falsification involves only 4% of its shipments, between September 2016 and August 2017.

The fact that there have been no specific reports of defective parts and no carmakers have yet to issue recalls or warnings to stay off the road could be just a case of luck that defective parts have gone to less critical applications or it could be that end users have run their own assessment and concluded chemical and mechanical properties met minimum standards. The period quoted does correspond to the loss-making period at Kobe, but does not square with admissions made by the firm.

A Reuters report article stated “Kobe had fabricated data to show its products met customer specifications” when in fact the material did not. It also quoted the company in saying “The misconduct involved dozens of staff and possibly stretched back 10 years.” That would not have passed multiple audits and inspections, not just by ISO but even more rigorous audits by automotive and aerospace end users. These statements, though, are general admissions and do not specifically state what was hidden or changed.

A Culture Issue?

Back to The Economist, who quote Toshiaki Oguchi of Governance for Owners Japan, a corporate-governance lobby group, who said “Japanese workers are ethical, but tend to hide wrongdoing rather than confront management. Kobe Steel ignored at least one whistle-blower who sounded the alarm over its substandard metal.” Maybe what we have here is a cultural issue, a minor non-conformance was covered up or divergence from the standard procedure was allowed to happen, no one was reprimanded, it happened again and over time so that gradually circumventing proceedures became common practice.

A report in the Japan Times just prior to the weekend supports this position, cataloguing both corporate wrongdoing and quality issues. For example, in 2006, Kobe was involved in a data fabrication scandal after an internal investigation found that data on soot and smoke released by one of its plants had been falsified frequently over a period of 30 years. In 2008, Kobe Steel subsidiary Nippon Koshuha Steel Co. was found to have cheated on steel inspection data. In 2016, shoddy legal compliance led to another quality-control issue at subsidiary Shinko Wire Stainless Co.

Both affiliates were listed among the data falsifiers in this year’s scandal.

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The Japan Times went on to say production units skipped inspections and engaged in unspecified data fabrication because they were under pressure to meet delivery dates and win more orders, leading to compromises on quality.

So much for kaizen and Japan’s much-lauded pioneering adoption of Deming’s principals of quality improvements.

This situation illustrates the clash of two cultures, the open culture of continual improvement which demands a no-blame admission of every failing in the interest of rectifying and improving, coming up against a corporate culture in which executives could not admit failure to meet internal deadlines.

In this clash, quality lost.

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This morning in metals news, Kobe Steel’s share price continues to plummet in the wake of its data falsification scandal, London copper hits a three-year high and palladium is having a strong 2017.

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Kobe Steel Shares Hit Lowest Price Since 2012

Kobe Steel, Japan’s third-largest steelmaker, continues to see its share price drop on the heels of its data falsification scandal.

The fallout from the scandal has already seen Kobe lose approximately $1.8 billion in market value, Reuters reported.

On Friday, Hiroya Kawasaki, Kobe’s chief executive, said about 500 companies received falsely certified products from Kobe, which was more than double a previously released number, according to the Reuters report.

LME Copper on the Rise

London copper is on the way up again, this time rising to hit a three-year high, Reuters reported.

The metal eclipsed the $7,000 mark, powered in part by good news on the Chinese economy, according to the report.

Palladium Powered by Automotive Demand

Recently, the palladium price recently eclipsed that of platinum for the first time in 16 years.

It’s been that kind of year for palladium.

Free Download: The October 2017 MMI Report

According to a CNNMoney report, 78% of palladium demand this year came from the automotive market.

Before we head into the weekend, let’s take a look back at the week that was. 

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  • In case you missed it, our October MMI report is out. Make sure to check out the free PDF download for the rundown on the last month for our 10 MMI sub-indexes: Automotive, Construction, Aluminum, Copper, Renewables, Rare Earths, Raw Steels, Stainless Steels, GOES and Global Precious.
  • Also, our Annual Outlook is out, too. Check it out for a comprehensive look ahead to 2018.
  • Coal India Ltd. is looking to diversify beyond coal, Sohrab Darabshaw wrote earlier this week.
  • Aluminum officials are in “wait-and-see mode” when it comes to the ongoing Section 232 probe vis-a-vis aluminum imports. The investigations into the national security impact of aluminum and steel imports were launched in April and have a January statutory deadline; at that point, Secretary of Commerce Wilbur Ross must present President Donald Trump with a report and recommendations.
  • Glencore bet big on zinc — and won, our Stuart Burns writes.
  • Although oil prices are well below 2014 numbers, supply cuts in some cases have seen the price start to climb. Are more cuts on the way, further constraining global supply and driving up prices? Burns wrote about the subject and what OPEC Secretary General Mohammad Barkindo called a “rebalancing process.”
  • In big news, Kobe Steel is in hot water for a data falsification scandal, one which threatens the firm’s credibility among consumers and manufacturers. The scandal has already had major financial ramifications, as the company’s share price has been in free fall since the news hit.

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This morning in metals news, NAFTA renegotiation talks continued with the U.S. aiming to tighten automotive content rules in favor of North American-made metals, Allegheny Technologies Incorporated (ATI) commented on its Q3 earnings and Alcoa reached an early termination agreement for a power contract tied to one of its Texas smelters.

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U.S. Looks for Stricter Auto Content Rules

Trade negotiators from the U.S., Canada and Mexico are in Arlington, Va., until Oct. 17, engaged in a fourth round of talks focused on the North American Free Trade Agreement (NAFTA).

According to a Reuters report this morning, the U.S. is seeking stricter rules for automotive content, demanding a higher percentage of the materials — including aluminum and steel — that go into automotive manufacturing should come from North America.

According to the report, the proposal — which includes aluminum, steel, copper and plastic resins — would place those materials on the auto parts tracing list for the first time in the history of the 23-year-old trilateral trade agreement.

ATI Expects Q3 Results to Meet July Outlook

ATI commented on third quarter financial results on Thursday, and announced a non-cash net of tax charge of $114 million, or $(1.05) per share, for goodwill impairment related to the Cast Products business.

“Excluding the goodwill impairment charge, we expect our third quarter 2017 results to be in line with our outlook provided in July,” said Rich Harshman, ATI’s chairman, president and chief executive officer, in a company release.

Alcoa Announces End of Power Contract Agreement

On Friday morning, Alcoa announced power provider Luminant Generation Company LLC has terminated the electricity contract tied to Alcoa’s Rockdale Operations in Texas.

The smelter at Rockdale has been fully curtailed since the end of 2008, according to the Alcoa release. The termination of the contract was effective Oct. 1.

Free Download: The October 2017 MMI Report

Alcoa expects an annual improvement to net income and adjusted EBITDA of $60 million to $70 million as a result of the contract termination, beginning in the fourth quarter of 2017.

Who would have thought it — a major Japanese corporation caught falsifying inspection and quality data?

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Japanese standards have come to be accepted as a byword for quality in the manufacturing industry — but it would seem in a world where even Germany’s premier automotive giants can cheat and deliberately mislead customers, so can the Japanese.

Who can you trust, consumers down the supply chain must be asking, if even Japanese and German manufacturers are prepared to lie and falsify quality assurance data?

The latest scandal to rock Japan’s manufacturing sector is an admission by the country’s third-largest steel producer, Kobe Steel, that for potentially up to 10 years they have been falsifying quality data.

As these goods have gone into aerospace, construction, automotive and transport applications, the only saving grace seems to be that checks so far suggest the material supplied has met the standards expected.

But as the investigation is in its early stages, there is plenty of scope for worse scenarios to unfold.

Some 20,000 tons of metals delivered to about 200 customers are said to have been affected this year, with not just steel but also aluminum and copper goods involved. The Financial Times reported products affected included: 19,300 tons of aluminum plate and extrusions; 2,200 tons of copper strip and pipe; and 19,400 cast and forged aluminum parts for customers such as Boeing, Toyota, Honda, Mazda, Mitsubishi Heavy Industries – maker of regional jets and the H-2A satellite launch vehicles.

Boeing issued a statement saying, “Nothing in our review to date leads us to conclude that this issue presents a safety concern, and we will continue to work diligently with our suppliers to complete our investigation.” That, however, hasn’t saved the share price from taking a pummeling.

Kobe shares are down over 40% this week. The cost of protecting the company’s bonds has quadrupled over the same period.

Source Financial Times

The company is desperately trying to get a handle on how widely and for how long the falsification of paperwork has been going on, and whether it also extends to Kobelco, the group’s maker of construction equipment.

Unfortunately for Japan Inc, Kobe is not alone in its misdemeanors.

Two weeks ago, carmaker Nissan recalled nearly 1.2 milliom vehicles that had been certified by unauthorized technicians. Last year, Mitsubishi Motors admitted to having overstated mileage figures for eight vehicles in its range.

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Is it too much to expect major corporations to tell the truth? They certainly trade on their brand image as reliable and high-quality manufacturers.

Such failures make something of a mockery of Western firms’ often disparaging comments about the quality of emerging-market competitors when their own systems and procedures appear little better.

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This morning in metals news, the world’s top copper producer expects a moderate rise in the metal’s price going forward, the Aluminum Association announces new leadership and Kobe Steel continues to reel from its data falsification scandal.

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Copper on the Rise

The price of copper is set to experience moderate increases, according to the mining minister of Chile, Reuters reported.

Aurora Williams, the mining minister of Chile (the world’s top copper producer), said Wednesday that there will be moderate increases in the metal’s price, but not enough to push it above $3/pound for the year.

According to the Reuters report, copper exports reached $3.18 billion in September, their highest level in nearly three years.

Changing of the Guard

The Aluminum Association announced new leadership on Wednesday.

Michelle O’Neill, senior vice president of senior vice president of global government affairs and sustainability at Alcoa, was elected as Aluminum Association Chair, becoming the first woman in the association’s 84-year history to hold the position. She replaced Garney Scott, president and CEO of Scepter, Inc., following a two-year term.

Kobe Steel Data Scandal Continues

It’s difficult to quantify lost trust, but it’s a problem Kobe Steel, Japan’s third-biggest steelmaker, is dealing with now on the heels of a data falsification scandal.

Now, the chief executive of the company is admitting the scandal is a serious hit on the company’s image, one that leaves it with “zero credibility,” The Guardian reported.

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According to The Guardian’s report, General Motors is the latest manufacturer to check whether its cars contain falsely certified parts or components sourced from Kobe Steel.

There are reasons why miners — indeed, all producers across industries — seek to dominate market share.

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The biggest reason? Being able to influence the market.

Yes, economies of scale come with size and in the case of mines to metal integrated trader Glencore that dominance in the zinc market gives them influence over not just mine output but concentrates, tolling and refining in a way that is not rivaled by any other firm.

Nor is the firm too kind to do things by halves — when they decide on an acquisition, on a market move, on a position, they do it decisively and with conviction.

In October 2015, Glencore sent shock waves through the market by cutting a third of its output, some half a million tons, to address what was widely seen as an oversupplied market and to stabilize prices. It worked — in just two years, the price has risen from $2,000/ton at the start of 2015 to $3,300/ton today.

LME zinc price, from October 2015 to October 2017. Source: LME

A Financial Times article states Glencore’s Australian Mount Isa and McArthur River operations took the brunt of the 2015 supply cuts, with output reduced by 380,000 tons. In total, the Glencore shutdowns removed 3.5% of global mine production, as the miner curtailed output from mines in Australia, Peru and Kazakhstan. In the meantime, end-of-life closures at Century in Australia and Lisheen in Ireland helped tighten the market.

Arguably Glenore’s action, while painful for zinc consumers, have in the long run done the zinc market a favor.

The rise in prices has supported the case for investment in new mines, such as Gamsberg and Duglad, due to come online towards the end of the decade. But even miners recognize you can have too much of a good thing, and limiting further price rises would not only help consumers but would help mitigate the demand destruction that comes from prices rising too fast and too far.

With that in mind, will Glencore look to bring back some, or all, of its idled capacity in 2018?

The firm continues to bet big on zinc, announcing last week its plans to increase its stake in Peru’s Volcan Cia Minera SAA, Bloomberg reports. With new mines due to come on stream in 2019 and 2020, supply constraints to the zinc market will eventually ease somewhat. Doubts remain, however, whether they will be enough to see the market in surplus.

Deshnee Naidoo, chief executive officer of Vedanta’s zinc unit, said a more sustainable zinc price would be $2,500-2,800 per metric ton. Others may argue with her, but Glencore has shown it can move markets and has the means — like Saudi Arabia did in the 1990s and 2000s with oil — be the swing producer, stabilizing a market for the benefit of both producers and consumers.

Traders often get a bad press for short-termism and the blind pursuit of profit, but Glencore has shown it acts in the longer term, too, and is capable of taking a strategic view of the market, of taking short-term losses in the pursuit of longer-term gains. The firm is uniquely positioned in the zinc market to act as a benign stabilizing element, keeping prices at a profitable but not demand-destructive level.

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It is clearly not as simple to regulate mine supply as it was oil supply for Saudi Arabia. You cannot turn off a mine like you can the spigot of a pump.

But with so many diverse zinc resources, Glencore is in a better position that any to smooth out the dips and peaks, for the sake of its shareholders and for the market as a whole.