Articles in Category: Company News

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This morning in metals news, China is looking to the World Trade Organization (WTO) to make its case with respect to the ongoing aluminum foil dispute with the U.S., copper and nickel are up, and Kobe Steel executives are deciding whether or not to resign.

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China, the U.S. and the WTO

According to a Reuters report, China has asked the WTO report for consultations regarding the recent U.S. Department of Commerce antidumping decision on Chinese aluminum foil.

China’s Ministry of Commerce submitted the request for supplementary consultations under the WTO dispute resolution mechanism on Nov. 3, according to the report.

Copper, Nickel Rise With EV Optimism

Copper and nickel saw their fortunes rise on Monday, according to Reuters, backed by optimism regarding the electric vehicle market, pollution crackdown in China and global economic strength.

Nickel rose 10% last week to hits its highest price since June 2015.

Kobe Execs Consider Resignation

According to a Reuters report, Kobe Steel executives will decide whether or not to resign following the results of an independent probe into the firm.

Free Download: The October 2017 MMI Report

The firm also plans on releasing an internal report regarding the company’s quality data falsification scandal, which has seen the company’s share price plummet in recent weeks and significantly dented the firm’s credibility in the global market.

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This morning in metals news, a rival of Kobe Steel has taken orders from Kobe customers, a Chinese metals magnate grapples with governmental control and 3D printing can strengthen stainless steel.

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UACJ Snaps Up Kobe Orders

Japanese aluminum fabricator UACJ Corp — a rival of Kobe Steel, currently suffering the fallout of its quality data falsification scandal — has come out a winner where Kobe has lost.

According to Reuters, UACJ has picked up orders from customers of Kobe. Mitsuru Okada, president of UACJ, said the company has received orders to replace Kobe products that were sold to  manufacturers of cars, planes, trains and more.

Hongqiao Chairman Faces Tightening State Control

Zhang Shiping, chairman of the world’s largest aluminum producer (China Hongqiao), may be faced with increasing state control of business going forward.

A Bloomberg report Wednesday outlines some of the challenges Shiping and his firm face.

Strengthening Stainless

According to a report in Science magazine, 3D printing can double the strength of stainless steel.

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The development could have far-reaching implications — namely, a way to print tough and flexible stainless steel and, moreover, faster and cheaper production of things like rocket engines or parts for nuclear reactors and oil rigs, according to the report.

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This morning in metals news, growth in China’s steel industry has slowed down significantly, U.S. steel production was up 8.6% year-over-year and a Russian firm launches a new copper and gold mine near the Chinese border.

Chinese Steel PMI Falls to 6-Month Low

The Chinese steel Purchasing Managers’ Index (PMI) fell to a 6-month low this month as the government attempts to curb pollution, according to a Reuters report.

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This month, the PMI dropped to 52.3 from 53.7.

U.S. Steel Production Up 8.6%

Through the month of September, U.S. steel production was up 8.6% year-over-year, according to a report by the Northwest Indiana Times.

According to the report, citing stats from the World Steel Association, steel output rose by 5.6% internationally in September compared to September 2016.

Russia’s Norilsk Opens New Mine Near Chinese Border

The Russian firm Norilsk Nickel has launched a new copper, iron and gold mine near the Chinese border, according to Reuters.

The project, situated about 250 miles by rail from the border, will send iron ore exports to China.

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Chinese copper demand continues to be strong. According to the report, Shanghai copper futures have surged 18% this year.

The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, the U.S. Department of Commerce issued a ruling that has U.S. aluminum interests applauding, the London Metal Exchange might be considering deferring a plan to charge fees on over-the-counter contracts and Kobe Steel pulls its full-year profit forecast as the fallout from its data falsification scandal continues.

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DOC Issues Affirmative Ruling in Aluminum Foil Antidumping Case

On Friday, the DOC announced that it had found exporters of aluminum foil from China sold their product at prices that resulted in preliminary dumping margins of 96.81% to 162.24% to be applied, “based on factual evidence provided by the interested parties using the Department’s standard non-market economy dumping methodology.”

The petitioner is the Aluminum Association Trade Enforcement Working Group.

Not long after the announcement, the Aluminum Association applauded the DOC’s decision.

“Following the positive preliminary countervailing duty determination this summer, the association and its foil-producing members are very pleased with this finding that again underscores the Commerce Department’s commitment to combatting unfair trade,” said Heidi Brock, president and CEO of the Aluminum Association, in a prepared statement.

“We appreciate Secretary Ross’s leadership in enforcing rules-based global trade. U.S. aluminum foil producers are among the most competitive producers in the world, but they cannot compete against products that are sold at unfairly low prices and subsidized by the Government of China.”

According to the DOC release on the announcement, in 2016 imports of aluminum foil from China were valued at an estimated $389 million.

Change of Plans?

According to Reuters, the LME might be having a change of plans vis-a-vis fees on over-the-counter contracts. The LME last month it would institute the new fees in January, but is now considering deferring them.

According to the report, LME CEO Matt Chamberlain said the exchange is trying to balance out the costs of trading on and off exchange.

Kobe Steel Holds Earnings Forecast

On the heels of the Japanese steelmaker’s quality data falsification scandal, the firm has decided to withdraw its full-year profit forecast, according to the BBC and other media reports.

Free Download: The October 2017 MMI Report

Kobe Steel, Japan’s third-largest steelmaker, has seen its shares drop more than 30% as a result of the scandal.

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

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Free Download: The October 2017 MMI Report

The U.S. Department of Commerce. qingwa/Adobe Stock

This afternoon in metals news, the U.S. Department of Commerce issues an affirmative preliminary ruling on carbon and alloy steel wire rod, Kobe Steel loses a quality seal on its copper products and the U.S. International Trade Commission launched a Section 337 investigation of amorphous metal and amorphous metal cores.

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DOC Issues Affirmative Ruling

The U.S. Department of Commerce announced Wednesday evening that it had issued an affirmative preliminary ruling in its antidumping duty investigation of carbon and alloy steel wire rod.

The investigation targets those products coming from Italy, Korea, South Africa, Spain, Turkey, Ukraine and the United Kingdom, with the DOC finding “that producers/exporters in these countries have sold carbon and alloy steel wire rod in the United States at less than fair value,” according to a DOC release about the announcement.

Kobe Steel Loses Quality Seals

The latest setback for embattled Kobe Steel, Japan’s third-largest steelmaker? The firm lost the quality seal for its copper products, the BBC reported.

The Japanese company continues to struggle on the heels of a quality data falsification scandal.

USITC Looks into Amorphous Metal

The U.S. International Trade Commission announced Wednesday that it launched a Section 337 investigation of amorphous metals and amorphous metal cores, which are used in things like electric transformers.

Free Download: The October 2017 MMI Report

According to the USITC release regarding the announcement, the investigation is based on a complaint filed by Metglas, Inc., of Conway, SC, and Hitachi Metal, Ltd., of Tokyo, Japan, on Sept. 19, 2017.

Last week, MetalMiner examined the latest graphite electrode surcharge announced by two mills. Outokumpu and AK Steel published a new surcharge starting with November shipments of 30 Euro/mt and $13.20/mt respectively.

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The mills cite rising graphite prices as the culprit. MetalMiner analyzed the electric arc furnace (EAF) production process along with graphite prices, and concluded that the surcharge does not appear justified.

MetalMiner reader Franck Fraudeau from Safe Metal provided us with some data, which we have used to conduct additional analysis.

Rising Graphite Electrode Prices

Fraudeau reminded us that the new surcharge came as a result of an increase in graphite electrode prices, not graphite prices. According to Fraudeau, graphite electrode prices tend to fall between the $2,000-3,000/mt range. Prices today stand at $13,000/mt.

Let’s re-examine the cost to produce one metric ton of graphite electrodes.

Source: Graftech

Needle coke, a crude oil derivative, accounts for 40-44% (depending on the year) of the cost to produce one metric ton of electrodes. Graftech, one of the leaders in graphite electrode production, prices graphite electrodes to their customers along two parameters:

  • Base price, which tends to vary in a range depending on the graphite electrode diameter and properties.
  • Energy surcharge, which includes the volatile changes of raw materials, utilities, freight and manufacturing costs. This surcharge changes depending on crude oil prices. If Brent crude oil climbs above $90/barrel, then a surcharge goes into effect for each dollar above the $90 barrel level.

Brent Crude Oil prices. Source: TradingEconomics

Brent crude oil prices have remained below the $90/level since the end of 2014. Therefore, this surcharge has not caused the increase in graphite electrode prices; in fact, the increase comes down to the base price.

Needle coke comes from either petroleum or coal. Needle coke prices increased from $450/ton to $3,200/ton in one year. For graphite electrodes, coal is commonly the raw material.

It is true that coal prices have increased since the beginning of 2016. However, prices were higher at the end of 2016 than they are today.

Coal prices. Source: TradingEconomics

The Role of Coal

The whole surcharge hinges on an increase in one of two raw materials needed to make needle coke: coal.

As mentioned, the producers of electrodes can use the substitute material, oil, which of course has traded flat. Graphite electrode production is currently controlled by only a few companies, such as SGL Group and Graftech, each with substantial operations in the U.S., and China-based Fangda Carbon.

North American global market share is approximately 45%, of which the U.S. controls around 70%. Europe controls around 25%, while China has an approximate 20% share of the electrode market.

However, needle coke production is mainly located in China.

Thus, the ongoing capacity closures that the Chinese government has developed to curb pollution will also threaten needle coke supply. (Source: Research Nester Subscription Required)

Graphite Electrode Market Suppliers

There are three major companies supplying the U.S. graphite electrode market: SGL Group (21% domestic market share); SDK (a Japan-based company with 35% of domestic market share) and GrafTech (22% of domestic market share). Other countries — Japan, India, Russia and China — account for the other 22% U.S. market share.

Contracts and purchases are based on a bidding process, but generally these three companies supply most of the domestic market. In 2016, SDK tried to buy SGL Group, but the U.S. started a complaint against both groups in September 2017, claiming that it limits market competition. By joining forces, the two firms would account for 56% of the domestic market, resulting in decreased market competition.

It’s possible — and we have not done the research — that the European market relies more on needle coke made from coal and not oil, hence the real rise in prices for electrodes to European companies (including Outokumpu). North American electrode producers may have a competitive advantage by using oil instead of coal.

According to Roskill, “The graphite electrode industry is oligarchical with very few companies having the production technology. Prices are set by the major players including US company, GrafTech International, and Chinese company, Fangda Carbon New Material, which together, account for around 22% of global capacity for graphite electrodes, as well as other major companies in Japan, China, India, Russia and Germany.”

Producers Ought to be Asking…

  1. Are GrafTech and SGL using oil, which has traded sideways to flat for all of 2017, instead of coal? (Maybe they have used product substitutes?)
  2. It appears as though the European market is supplied differently from the U.S. market. Whereas U.S. stainless and steel producers can buy electrodes domestically, European firms rely upon Chinese mills for these materials and the Chinese are cracking down on high-polluting industries.
  3. Moreover, China has both higher coal as well as oil prices (versus the U.S.), making product substitution in the electrode-making process untenable.

Our New Calculation

Even if needle coke prices have increased, margins appear wider than before.

Are graphite electrode companies trying to pressure steel and stainless producers to lock in forward using today’s spot prices? Probably.

And if we were on the negotiating team for EAF producers, we would put some pressure on the electrode producers to use oil-based derivatives versus coal.

The table below models the COGS of graphite electrodes shown at the beginning of this article. Based on current needle coke prices using 40% as the cost basis, we can see the producers’ cost has increased from $1,240/mt to $8,900/mt. The current sale price indicates the prices for graphite electrodes, as reported by Safe Metal.

Thus the needle coke price increase has a significant impact on the overall margins of the electrode producers.

Source: MetalMiner analysis of Safe Metal content

Although needle coke prices have increased, as shown in the table above, graphite electrodes can be produced using crude oil. In fact, GrafTech’s most recent annual report specifically states that one of its U.S. facilities produces petroleum needle coke.

How Does This Impact Steel Prices?

Since steelmakers deploy two different processes to produce steel (EAF or BOF blast oxygen process), we might expect to hear some noise from the EAF steel producers.

However, we suspect the EAF producers have long-term contracts for electrodes. Steel EAF producers may have locked purchases and contracted supply on a 6-12 month basis, as contracts are settled in the graphite electrode industry.

Some Turkish EAF producers have changed steel production times (for example, at nights, when electricity is cheaper) as they consider this increase an operational cost and and have adjusted steel prices.

Did stainless steel producers buy forward for their electrode requirements? We’d like to think so. Why have some mills, such as Outokumpu, announced the surcharge for Mexico and Canada and not the U.S. market? Was AK Steel caught short by not locking up raw material supply, or does AK want to try and capture additional margin from customers with a surcharge?

Some in the industry have started to question the logic behind the electrode surcharge, stating that the most recent base price increase should cover this increased cost. Why hasn’t it?

Free Download: The October 2017 MMI Report

Please feel free to share any of your thoughts with us privately at research@metalminer.com or leave a public comment.

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This afternoon in metals news, European steel demand is expected to grow 2.3% this year, Bloomberg takes a look at the Trump administration’s “Made in America” pledge and Freeport-McMoRan is working with the Indonesian government to resolve a mining permit dispute.

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European Steel Demand to Grow 2.3%: Eurofer

The European steel association Eurofer predicts 2.3% growth in 2017 for European steel demand, according to a Reuters report.

The European steel industry is worth about 170 billion euros a year, according to the report.

Made in America?

Among other things, President Donald Trump has pushed a “Made in America” agenda, aiming to boost domestic industry.

But, in practice, has there been a rise in U.S.-based production? A Bloomberg report outlines the reality of rising steel imports and pipeline contracts increasingly being won by Russia’s Evraz.

Freeport, Indonesia Look to Settle Permit Dispute

Richard Adkerson, chief executive of copper miner Freeport-McMoRan Inc., said on Wednesday that the miner wants to avoid arbitration vis-a-vis a mining dispute in Indonesia.

Free Download: The October 2017 MMI Report

Freeport is looking to renew the permit for its Grasberg copper and gold mine.

Having shunned London back in 2010 — opting for partial listings on the much smaller Paris Bourse and in Hong Kong — Rusal’s majority owner, En+, is finally turning to London.

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The earlier float flopped and turnover has been low in Paris ever since, but Rusal’s prospects have revived on the back of a rising aluminum price and some ambitious plans to complete a new smelter.

Rural has steadily paid down debt, but not fast enough for Oleg Derispaska who, conscious that debt nearly bought the company down just a few years ago, probably feels the time is right to tap into a buoyant stock market to raise some cash.

Not that we are talking about a major float here, but Rusal’s parent En+ Group (owner of 48% of Rusal stock along with the hydro-electric power plants that serve the company’s smelters) is only looking to raise $1.5 billion by listing between 15.8% and 18.8% of En+ shares. Such a return would value the group at up to $10 billion, according to The Times.

The float has major shareholder Glencore’s vote of approval, as it has agreed to swap its 8.75% stake in Rusal for En+ shares after the IPO, allowing En+ stake in Rusal to rise to 56.88% as a result.

Chinese conglomerate Chinese Energy Company Limited (CEFC) is also said to be a cornerstone investor in the floatation amid a wave of enthusiasm among Chinese corporations for stakes in Russian assets. CEFC took a $9 billion stake in Russia’s Rosneft just last month.

Apart from paying down debt, En+ is said to be looking to fund the completion of major capital expansion projects.

The firm is betting rising demand and curtailments in China will provide long-term support for current prices and is looking to expand both hydro and smelter capacity. Next year should see the completion of an expansion at the Boguchansk smelter and resumption of the Taishet aluminum smelter (which was halted some years ago when the aluminum price collapsed).

After spending some $800 million getting the project to an intermediate stage, it will need about the same again to finish it. According to Reuters, the first line of the smelter, with annual capacity of 430,000 tons, will now be built by 2020.

Free Download: The October 2017 MMI Report

The En+ IPO is one of several coming to a resurgent London market and should tap into a willing investor appetite for commodity assets expected to have strong growth into the next decade.

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This morning in metals news, the Kobe Steel saga continues, an Indian steel firm’s stock is up amid acquisition buzz and London copper holds steady.

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Kobe Steel Faces Another Test

The fallout from Kobe Steel’s quality data falsification scandal continues, and according to Reuters there are concerns about the Japanese firm’s outstanding liabilities.

According to the Reuters report, the third-largest Japanese steelmaker has $3.3 billion cash in hand and $7.01 billion in debts as of the end of March.

Bhushan Steel Stock Surges

Indian firm Bhushan Steel saw its stock rise after news of a potential acquisition by ArcelorMittal, according to the Economic Times.

The Indian company’s stock rose 20% Monday amid buzz that ArcelorMittal joined the bidding, according to the report.

Copper Trades Steady

Copper has experienced a significant upward trend in October, rising from $6,518 on Sept. 20 to $7,008 on Oct. 20.

The metal did experience a dip last week, however, falling from $7,061 last Monday to $7,008 on Friday.

Free Download: The October 2017 MMI Report

On Monday, copper held steady, according to Reuters, trading at $6,950.