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This morning in metals news, Chinese steel prices are dropping, Rio Tinto is leading the copper charge in Australia’s Great Sandy Desert and Asian aluminum prices are coming down.

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Chinese Steel Market

Chinese steel prices are entering a bear market, according to a Reuters report.

Steel prices hit a five-month low Monday, Reuters reported.

MetalMiner’s Take: U.S. steel-buying organizations ought to watch China’s demand very carefully now, as price trends in China lead price trends in the U.S.

Lower oil prices combined with sluggish Chinese demand does not bode well for the industrial metal’s long-term bull market. The dramatic shift in oil prices and lower metal pricing coming out of China represent two significant variables tracked by MetalMiner with respect to calling a bull or bear market.

December forecast subscribers will be the first to learn whether or not MetalMiner will change its long-term outlook. A shift in outlook would also signify a switch in sourcing strategies.

Copper in the Desert

Rio Tinto is leading the way when it comes to copper mining in the remote Great Sandy Desert of Western Australia, Reuters reported.

According to the report, the miner has put in 30 exploration licenses for the area, leading to speculation that Rio has possibly made a significant discovery in the area.

Aluminum Prices Dropping

Asian aluminum prices are on the downswing, including in Japan, according to the Nikkei Asian Review.

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Aluminum ingot prices in Japan in October were approximately 10% lower than in the U.S., according to the report.

MetalMiner’s Take: It is arguable whether the fall in Asian aluminum prices is a result of U.S. tariffs or a slowing of metal demand in Asia.

Prices in Europe have been supported by high prices European mills are achieving in the U.S. market, so the same should have been true for Asian suppliers in general.

Only Chinese mills are facing exceptional tariff barriers; mills in South Korea, Taiwan and Japan do not face the same obstacles. Chinese production is sliding and primary aluminum output has been falling this quarter, which some analysts are chalking up to an early onset of environmental controls for the winter heating season. If the market were being artificially constrained, domestic Chinese prices would rise as a result in the tighter market — but that is not the case.

Domestic prices have remained broadly stable, suggesting the market is slowing due to lower domestic and regional demand.

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A move to hammer out a new trade agreement between the Association of Southeast Asian Nations (ASEAN) and other associated free trade agreement (FTA) countries has left India’s steel, manufacturing and other industries somewhat jittery.

The country’s steel sector has been working overtime trying to make the Narendra Modi-led government understand its concerns, pointing to the loopholes in existing FTAs with Korea and Japan, as a case in point.

This lobby feels that although these FTAs were meant to promote bilateral trade, they were heavily skewed in favor of the other country. That’s exactly what this lobby feels will happen under the Regional Comprehensive Economic Partnership (RCEP).

For now, the signing of the RCEP has been deferred until early 2019. The new trade agreement, once signed, will cater to almost half of the world’s population, and will impact steel, pharmaceuticals, e-commerce, food processing, agriculture, and food security, just to name a few things.

Signatories will include the 10 ASEAN member countries, plus China, Japan, South Korea, India, Australia and New Zealand. Needless to say, the RCEP is being closely monitored by the U.S. and other global trade lobbies.

At the end of the first round of meetings, a joint statement issued said negotiations on goods and services market access, and on investment reservation lists had “advanced significantly” with all RCEP participating countries (RPCs) engaged in a series of bilateral and plurilateral negotiations throughout the year.

“There has been a genuine effort by RPCs to progress market access negotiations while recognizing that different RPCs have different sensitivities toward each other,” the statement reads.

It added the participating countries were within reach of concluding market access negotiations to meet the goals in the Guiding Principles and Objectives for Negotiating the RCEP, but some work was needed to close the remaining gaps.

Steel giants such as Jindal Stainless have already made their apprehensions known. Abhyuday Jindal, managing director of Jindal Stainless, is nervous that India could agree to zero tariffs on steel import. And who will benefit from it? China, of course, he says, once again flooding Indian markets with cheap steel.

“Inclusion of stainless steel products in RCEP will result in a huge surge in imports from China,” Jindal said in a company release on the RCEP developments. “This will make operations for domestic producers non-viable, thereby resulting in long-term losses. This may result in immediate shut down of small scale units and will simultaneously cascade into the organised sector. Significant investments made by domestic industry in capacity building worth Rs 35,000 crore would stand in jeopardy. Once operational, RCEP will turn India into a nation of traders alone, defeating the visionary ‘Make in India’ concept.”

Hectic consultations were on for some time between the various trade bodies, and then inter-ministerial talks between the Indian Commerce Ministry, and the Heavy Industry, Textiles and Steel Ministries. The latter are trying to have the Commerce Ministry exclude certain products from the tariff elimination list under the RCEP.

The deferment may have given Modi some space, especially going into an election year as it is. The RCEP, if it happens, is being seen in Indian trade and media circles in direct contrast to Modi’s “Make In India” program.

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This morning in metals news, the Mexican ambassador to the U.S. told news agency McClatchy he expects the U.S. to lift its steel and aluminum tariffs, world aluminum production jumped in October, and Norilsk Nickel says it is willing to work with London-listed Kaz Minerals on a copper project in Russia.

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Goodbye, Tariffs?

In an interview with McClatchy, the Mexican ambassador to the U.S., Geronimo Gutierrez, said Mexico expects the U.S. will lift its tariffs on steel and aluminum vis-a-vis Mexico after the signing of the United States-Mexico-Canada Agreement (USMCA).

The USMCA is slated to supersede the North American Free Trade Agreement (NAFTA). The U.S. first reached a deal with Mexico, with Canada coming on afterward. However, despite the deal reached at the end of September, the U.S. tariffs on steel and aluminum remained in effect with respect to imports from Canada and Mexico, which has remained a primary sticking point for the two countries in the weeks following the USMCA announcement.

The two countries initially won temporary exemptions from the Section 232 tariffs this spring, but the exemptions were allowed to expire as of June 1.

MetalMiner’s Take: One of the most frequently asked questions from MetalMiner readers involves how long the Trump administration would maintain the Section 232 tariffs.

Throughout much of the year, MetalMiner has said the tariffs will remain in place for the mid-term (6-9 months). USMCA will likely result in some modifications on 232, either through exemptions or quotas. Despite a potential 232 adjustment for USMCA, MetalMiner believes the tariffs will remain intact.

Aluminum Production Rises

Global aluminum production in October jumped 4% year over year, according to International Aluminum Institute data released today.

October production reached 5.4 million net tons, up from 5.2 million net tons in October 2017.

Norilsk Nickel Indicates it Could Work With Kaz Minerals

As reported by the Financial Times, palladium and nickel giant Norilsk Nickel has said it is willing to partner with Kaz Minerals on the latter’s Baimskaya copper project in Russia’s Chukotka region.

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The London-listed Kaz Minerals purchased the Baimskaya project in August for $900 million in cash and shares.

According to a Kaz release at the time, the Baimskaya project is “one of the world’s most significant undeveloped copper assets with the potential to become a large scale, low cost, open pit copper mine.”

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This morning in metals news, Tokyo Steel plans to raise plate prices, Rio Tinto says new aluminum capacity is needed outside of China and copper prices tick upward.

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Plate Prices Rise

Tokyo Steel plans to raise heavy plate prices by 2.5% in December, according to a Reuters report. The steelmaker had not raised heavy plate prices since January, the report noted.

MetalMiner’s Take: Plate prices have always had their own price dynamics separate from the other forms of flat rolled steel (such as HRC and CRC).

Plate prices in the U.S. have remained fairly well-supported compared to the other forms of steel, so it should come as no surprise that in markets with strong construction demand, like Japan, mills would announce price increases.

Interestingly, Chinese plate prices have started to slip, but those dynamics could change based on environmental curbs, whether the Japanese plate price increases stick and Chinese demand.

U.S. metal-buying organizations will want to pay close attention to these price dynamics in Japan and China.

Aluminum Capacity

Rio Tinto Group says the world needs new aluminum capacity outside of China in the coming years, Bloomberg reported.

Copper Price Rises

Prices of LME and SHFE copper increased Monday, Reuters reported, on the heels of positive sentiment stemming from comments made by President Donald Trump regarding tariffs on China.

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During a press briefing Monday, Trump said the U.S. might not need to impose further tariffs on China, the world’s top copper consumer.

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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• Tata Steel is looking to unify its brand, as it has been a busy year on the M&A trail for the Mumbai-based firm.
• In case you missed it, we released the November Monthly Metals Index (MMI) report earlier this week, with news and analysis on our 10 metals subindexes.
• Ford had a down sales month in China, where automotive demand on the whole has been cooling.
• Tata Steel announced its financial results for the most recent quarter, which was a strong one for the firm.
• Liberty House has sealed a financing deal to acquire Rio Tinto’s Dunkerque aluminum smelter in France.
• Another industry group weighed in on the much-criticized Section 232 tariff exclusion request process.
• MetalMiner’s Stuart Burns earlier this morning checked in on the sliding oil price and what it means for commodities.

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This morning in metals news, Chilean state copper agency Cochilco again trimmed its average copper price prediction for the year, China’s state-owned aluminum producer Chinalco is looking abroad and oil prices are up for the second straight day.

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Copper Price Prediction Falls

Chile’s state copper agency, Cochilco, lowered its average copper price prediction for the year, Reuters reported.

According to the report, it downgraded its prediction by $0.03 to $2.97/pound.

Chinalco Looks Abroad

Amid challenges at home, the state-run aluminum major Chinalco is looking elsewhere to buttress its business.

According to a Bloomberg report, the global aluminum market is set to swing from a deficit to a surplus in 2019, which will put pressure on the aluminum producer (in tandem with rising prices of raw materials).

Bloomberg cites Chinalco’s deputy general, Ao Hong, who said the firm is looking into an Indonesian alumina project.

Oil Prices Rise Again

The oil price made gains for the second straight day Thursday, Reuters reported.

After exceeding the $80/bbl mark in September — its highest level since 2014 — the price has come off in the last six weeks.

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According to the report, OPEC is considering a cut of up to 1.4 million barrels per day next year to head off a further plunge in the price.

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A financing deal was recently struck between steel tycoon Sanjeev Gupta’s GFG Alliance with international banks for the purchase of Rio Tinto’s Dunkerque aluminum smelter in France, one of Europe’s largest smelters. The Liberty House Group is a part of the GFG Alliance.

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The term loan secured on standard financial terms provides five-year committed funds, Liberty said in a press release. Analysts say the development clears the way for the deal to be formally completed before the end of November.

Gupta, the executive chairman of the GFG Alliance, was quoted as saying, “This transaction allows us to press ahead with our plans to develop Dunkerque, to expand production and create added-value downstream operations. This agreement underlines the support of the banking community for GFG’s vision for economic and environmental sustainability.”

The agreement comes after a series of talks which also involved getting the French government’s approval, plus garnering long-term power price contracts.

According to GFG Alliance, there will now be more investments in the property after the plant is eventually acquired. Previously, Liberty House acquired an aluminum wheels facility in Chateauroux. With these purchases the firm will position itself as a major integrated manufacturing business, producing metals and components for the automotive and other growing industries in France.

The Dunkerque smelter boasts an annual capacity of 270,000 tons. The smelter was commissioned in 1991 and later purchased by Alcan, which was then purchased by Rio Tinto about a decade ago.

Liberty is part of the GFG Alliance, a global group of energy, mining, metals, engineering, logistics and financial services businesses, headquartered in London. GFG has additional hubs in Dubai, Hong Kong, Singapore, Sydney, Paris and New York, and a presence in around 30 countries worldwide. The GFG Alliance has a turnover exceeding U.S. $15 billion, and features integrated industrials and metals businesses under the Liberty banner.

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Recently, Liberty Steel announced an agreement to deal with ArcelorMittal to acquire three European steel plants, signaling another major expansion by the British-owned Liberty Steel.

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This morning in metals news, China’s October steel output hit a record high, workers and management at U.S. Steel have reached an agreement on a four-year labor deal and the Aluminum Association in a letter criticized the Department of Commerce’s tariff exclusion process.

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Steel Output Jumps Ahead of Cuts

According to a Reuters report, steel output in China surged in October before winter cuts take hold.

China’s steel output hit 82.55 million tons in October, according to the report, up from 72.36 million tons in October 2017.

MetalMiner’s Take: China’s record production output and low capacity utilization rates will continue to put price pressure on global steel markets. Historically, the winter production curbs really don’t dent the glut of excess steel produced by China. MetalMiner pays careful attention to Chinese steel prices, which have largely weakened.

Excess capacity and sluggish demand suggest a weaker global steel price environment. Buying organizations will want to pay careful attention to actual emissions cuts to see if Chinese prices will rise.

Steelworkers OK Four-Year Contract at U.S. Steel

Steelworkers at U.S. Steel have agreed on a four-year labor deal, the Pittsburgh Post-Gazette reported.

According to the report, the contract covers 16,000 workers and includes a 14% wage increase over the four years.

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Aluminum Association Says Exclusion Process ‘Undermines’ Domestic Industry

The Aluminum Association penned a letter this week in which it criticizes the now much-maligned tariff exclusion process, saying it “undermines” the domestic aluminum industry.

The letter — addressed to Hillary Hess, director of the Bureau of Industry and Security’s Regulatory Policy Division — says the “inherent uncertainty of the product exclusion process is actually adding an unnecessarily prolonged cost burden to our members and their customers and chilling investment in the aluminum industry, rather than promoting domestic production.”

“The status quo is therefore undermining the intent and the underlying national security rationale of the Section 232 remedy,” it continues.

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Tata Steel on Tuesday released its financial results for the quarter ending Sept. 30.

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Tata Steel reported profit after tax (PAT) of 31.16 billion rupees (USD $430.8 million) in the quarter, more than triple that of Q2 2017, when it hit 10.18 billion rupees (USD $140.7 million).

“Tata Steel Group has delivered extremely strong results this quarter driven by robust operational performance and favorable business conditions in India,” CEO and Managing Director T.V. Narendran said in a release. “This quarter, despite a seasonally weaker period, we sold 4.32 million tons across Tata Steel Standalone and Bhushan Steel. This demonstrates our strong customer relationships and the strength of our marketing franchise.

“We continue to work on our strategy of increasing our Indian footprint as we ramp up operations at Bhushan Steel and implement our 5 mtpa expansion at Tata Steel Kalinganagar.”

In May, Tata announced the acquisition of a 72.65% stake in Bhushan Steel via India’s Corporate Insolvency Resolution Process. According to the quarterly earnings report, Bhushan’s deliveries jumped 34% quarter over quarter, up to 1.14 million tons, with Tata citing “improved marketing strategy” in reduction of inventory.

“The integration of Bhushan Steel is progressing well; our focus is on improving maintenance and safety practices at the plants which will improve plant reliability and help ramp up volumes,” the earnings release states.

Earlier this week, MetalMiner’s Sohrab Darabshaw reported on Tata’s efforts toward unifying its brand amid its acquisitions, which this year also included Usha Martin, a producer of steel wire rope based in Kolkata.

“Tata Steel signed definitive agreement to acquire Usha Martin Limited’s steel business comprising 1 MTPA long products manufacturing capacity, an operating iron-ore mine, an underdevelopment thermal coal mine and captive power plants,” Tata’s earnings release states. “This acquisition provides a rich basket of long products comprising wire rods, specialty bars, and blooms. Tata Sponge Iron Limited, a subsidiary of Tata Steel, is carrying out this acquisition.”

In other developments, Tata’s planned joint venture in Europe with German firm Thyssenkrupp is under review by Europe’s competition authorities, as MetalMiner’s Lisa Reisman noted Monday.

In a release, the European Commission stated it is analyzing concerns that the merger “may reduce competition in the supply of various high-end steels.” The release makes specific mention of automotive steel, metallic coated steel for packaging and grain-oriented electrical steel.

“Steel is a crucial input for many of the goods we use in our everyday life, and competitive steel prices are vital for the European economy,” Commissioner Margrethe Vestager said in the prepared statement. “Industries dependent on steel employ over 30 million people in Europe and we must be able to compete in global markets. This is why we will carefully investigate the impact of the planned combination of Tata Steel’s and ThyssenKrupp’s steel businesses on effective competition in the steel markets.”

The European Commission has until March 19, 2019, to make a decision with respect to competition concerns stemming from the merger.

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The merged European operation would become the second-largest steelmaking entity in Europe, behind only ArcelorMittal.

Amid rising trade tensions this year, automotive sales in China have been trending downward, a point emphasized by Ford Motor Co.’s recently released China sales figures for October.

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The Detroit automaker on Tuesday released its October sales numbers for the Chinese market, showing total sales of 58,204 units. The October sales total marked a 45% year-over-year decline.

The October marked marked the second-straight month of sales dropping in excess of 40% year over year (sales fell 43% year over year in September). August sales dropped 36% year over year.

“As part of our 2025 Plan, Ford is rolling out its first wave of our exciting new vehicles, designed especially to meet the needs of Chinese customers,” said Anning Chen, president and CEO of Ford Greater China, in a release. “The all-new Ford Focus and new Escort hit showrooms this month and the all-new Territory will follow soon. We believe our future product line-up will help us to regain our sales momentum in this important market and serve as a testament to our commitment to China.”

The down October sales total continued what has been a down year in the Chinese market.

In the year to date, the automaker has sold 642,593 units, marking a 31% decline from the January-October 2017 period.

Broken down further, the Changan Ford Automobile brand — a 50:50 joint venture between Ford and Changan Automobile — saw its October sales fall 58% year over year and drop 43% in the year to date. Jiangling Motors Co. saw its October sales fall 17% year over year and 8% in the year to date.

Meanwhile, the Lincoln brand, while down in October, has come in on the positive side of the ledger for Ford this year.

Lincoln sales were down 6% year over year in October, but are up 3% in the year to date. Earlier this year, Reuters reported Ford’s Lincoln brand plans to build as many as five new vehicles in China by 2022.

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Last month, Reuters reported automotive sales in China fell in September by the greatest amount in nearly seven years. September sales in China fell 11.6% year over year, according to the report.