Articles in Category: Company News

Steel is the buzzword in India these days.

In addition to increased uptake, the revival in the steel cycle has also led to an unlikely output – many steel majors are now showing renewed interest in acquiring stressed Indian steel assets that have been put on the block for loan default.

Now, Indian steel is seeing an uptick in sales after almost a decade.

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The renewed interest in steel plants that are in a financial mess and have been put up for suitors is logical, analysts say, since most are going for approximately U.S. $600 per ton, while the rate to set up a new steel plant is almost about U.S. $800 per ton. Not to mention that buying an already up and running steel company means no hassles of taking government and other permissions.

What adds icing to the cake is many of these stressed assets are on the block for nothing else than the fact that most were set up at high costs, and other operational reasons.

Foremost in the race is Tata Steel Ltd., with its highest bid for the insolvent Bhushan Steel Ltd. and Bhushan Power & Steel Ltd. The former has offered to pay up to about U.S. $ 7 billion (Rs 45,000 crore) for Bhushan Steel and about U.S. $3.7 billion (Rs 24,500 crore) for Bhushan Power. Others are Numetal Mauritius, a company having VTB Bank as a majority shareholder and the Ruias as a minority partner, and ArcelorMittal for the stressed Essar Steel. Tata’s last major acquisition was the U.S. $13.5-billion Corus deal in 2007.

Tata Steel currently has 13 million tons per annum (MTPA) capacity; if it managed to grab the two Bhusan plants, it could add about 8.0 MTPA.

Bhushan Steel was sent for debt resolution by its lenders after the company failed to repay its dues worth about U.S. $8.62 billion (Rs 560 billion) under the Insolvency and Bankruptcy Code 2016.

But according to a report in The Hindu Businessline, there is now one hiccup in Tata’s path.

Bhushan’s lenders have invited the U.K.-based Liberty House to also submit its bid for the assets, well after the deadline, which was Feb. 8 this year. Only JSW Steel and Tata Steel had submitted bids by the deadline.

Quoting a Liberty House spokesman, the report said it had been invited by the lenders to bid for both the Bhushan assets, and would be doing so within a fortnight.

When asked why the company had failed to bid before the deadline, the spokesperson said Liberty House had been finalizing its India strategy.

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In mid-February, ArcelorMittal India Pvt Ltd (AMIPL) submitted its offer for Essar Steel, which includes a detailed investment plan to address the operational issues in Essar’s existing asset base. The company has expressed confidence that with its industry expertise and “renowned operating prowess,” it was best equipped to implement a successful turnaround, which would be beneficial to Essar’s stakeholders.

The British TV drama “McMafia” may not have reached U.S. shores yet, but viewers in the U.K. have been absorbed in the machinations of a fictional Russian family — with the ironic name of the Godmans — whose mafia past in Moscow catches up with them in their new lives in London.

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All things Russian, and particularly the activities of the richest among them, have therefore taken on a disproportionate interest in the British psyche of late, which may explain the plethora of articles across the British media this week on Russian tycoon Oleg Deripaska, the head of power and aluminium companies En+ Group and Rusal, and his unexpected plans to step down as CEO of the companies he formed.

You might be asking: since when does an oligarch voluntarily relinquish control of his empire? Well, possibly – rather like Vladimir Putin stepping aside in 2008 for his friend and colleague Dmitry Medvedev to take over as president – when you do not really relinquish control at all.

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

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  • What’s up with aluminum? After a strong 2017 the metal hasn’t seen as much upward movement as some other base metals. Our Stuart Burns looked into why that might be.
  • Meanwhile, the British steel industry could be due for a jolt of investment, leading to some signs of a recovery, Burns writes.
  • There’s a new name entering the electric vehicles fray, Burns writes, and it might not be a brand you’d associate with the automotive sector.
  • In light of the markets’ recent volatility, Irene Martinez Canorea surveyed the relationship between the VIX — the ticker symbol for the CBOE’s Volatility Index — and commodities.
  • In case you missed it, last Friday the Department of Commerce made public it Section 232 reports and recommendations on steel and aluminum (the reports had already been sent on to the president last month). Lisa Reisman and Irene Martinez Canorea broke down the reports and their implications for aluminum, specifically. Check out the three-part series at the following links: Part 1, Part 2 and Part 3.
  • Lithium is a material that’s both rare and increasingly coveted for applications like electric vehicle batteries. So, is the world doomed to run out of it, or will demand encourage investment in finding new supply? Burns delved into the matter earlier this week.
  • The U.S. International Trade Commission voted last week that imports of carbon and alloy wire rod from South Africa and Ukraine are injurious to the domestic industry.
  • We touched on Section 232 aluminum above — what about steel? Reisman added her thoughts on the steel investigation, ranging from capacity utilization rates to trade remedies to talks of a looming trade war.

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A while back I was called by a journalist at a prominent paper and asked what I thought about the lithium market. Was it another rare earth metals story – limited supply and rapidly escalating demand? Or, worse, was the world simply going to run out of lithium in the face of surging battery demand and, either way, where did I see prices going?

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My position was the world is not short of lithium. It is abundant as an element — it is, or was at the time, just short of scaled-up extraction projects. So no, I did not see the world running out of lithium but that a healthy run-up in prices would encourage more investment and, hence, increased supply – maybe a less dramatic version of the financing that became available for Mountain Pass after the run-up in REM prices.

Interestingly, the journalist did not print any of my comments — fair enough, as they did not support his position that the world is running out of lithium.

Since then, the prices have indeed doubled. The Financial Times reports the price for lithium carbonate from South America has hit $14,500 a ton over the past two years, quoting Benchmark Minerals Intelligence.

Source: Benchmark Minerals Intelligence via the Financial Times

Much of the excitement is due to the rise in electric vehicles (EVs) and hybrids, and although there is no futures market in Lithium – prices are set in long term contracts – buyers have to contend with a bullish supply market as battery makers scramble to cover forward under long term agreements, as the rise in prices affirms.

Indeed, not only product prices but the share prices of producers is set in large part by predictions on the uptake of electric and hybrid cars.

Back to the main thrust of the Financial Times article, Sociedad Química y Minera de Chile (SQM) is up for sale following regulators enforcement of a sale by parent PotashCorp as a prerequisite of aquiring its Canadian rival Agrium. SQM accounts for more than 20% of the world’s lithium supply, making it one of five companies that dominate the global market alongside China’s Ganfeng, Tianqi Lithium, FMC and Albemarle, while its lithium division accounts for 60% of SQM’s profits – arguably a high price regulators are demanding PotashCorp pay to acquire Agrium. But that depends very much on what price the market puts on SQM, which in turn depends on how bullish bidders feel about the prospects for electric and hybrid transport.

PotashCorp could conceivably be getting out at the peak.

According to the Financial Times, quoting consultancy Wood Mackenzie, if electric vehicles reach 5% of car and light truck sales globally by 2025 from their current level of 2%, then lithium prices will fall to $6,900 a metric ton by 2025. However, if that share, including plug-in hybrids, climbs to 12% by 2025, lithium prices will remain at current levels and then move toward a long-term price of $13,600 a ton, the consultancy forecasts. This suggests lithium prices and the share prices of major lithium producers are highly dependent on a very uncertain metric.

Source: Frost & Sullivan via the Financial Times

Uptake of electric cars has consistently underperformed expectations, so exceeding SQM’s current valuation of about $4.7 billion requires a big and bold bet on EVs and hybrids. The Financial Times quotes Ben Isaacson, an analyst at Scotiabank in Toronto, who said SQM’s share price reflects lithium prices well above the marginal costs of production, “which isn’t realistic.” The lithium price will fall to a long-term average of between $8,000 and $10,000 a ton, he forecasts. “This should be bought at a discount (to the current lithium price) — this should not be bought at a premium,” he said.

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With new projects coming onstream in Australia, the U.S. and elsewhere, supply will increase, but so too, of course, will demand. But at current prices, the money is chasing new resource development and EV uptake appears to be lagging.

As one investor is quoted by the Financial Times as saying, “Why would you buy a $5 billion stake in a resource that is geologically abundant?”

Well, my point exactly.

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This morning in metals news, Japan urges caution in steel Section 232, Kazakhstan’s output of a number of metals jumped month over month in January and Russian billionaire Oleg Deripaska will step down as president of Rusal and En+ Group.

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Japanese Steel Industry Asks for Caution in U.S. Section 232 Case

The Japanese steel industry called for caution from the United States in its upcoming Section 232 decision on steel, and appealed to the principles of free trade in the process, Reuters reported.

According to Kosei Shindo, chairman of the Japan Iron and Steel Federation, the recommendations laid out in the U.S. Department of Commerce’s Section 232 steel report — which was released Friday — “violate the principles of free trade.”

Kazakhstan’s Cooper, Steel, Zinc Output Up in January

Output of copper, steel and zinc rose in Kazakhstan last month, according to Reuters.

Copper output, for example, jumped 11.1% year over year, according to the report.

Russian Billionaire to Step Down as President of Two Companies

Russian billionaire Oleg Deripaska will step down as president of Rusal and En+ Group, Reuters reported.

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The decision comes on the heels of En+ becoming a publicly listed company after a share sale in November, according to the report.

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This morning in metals news, the Indonesian government is considering whether or not to extend the copper export contract with Freeport McMoRan, Reliance Steel and Aluminum announces its fourth quarter earnings.

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Indonesia Considers Copper Contract Extension

The Indonesian government will consider whether or not to extend a copper concentrate export contract with the Freeport McMoRan mine, Reuters reported.

According to the report, Freeport’s current export permit will expire Feb. 16.

Aluminum Tariffs Could Mean Pricier Beer?

President Trump has met with lawmakers this week to discuss potential tariffs on steel and aluminum imports.

One lawmaker, Wisconsin Republic Ron Johnson, pointed out tariffs on aluminum could have an impact on the price of beer, as tariffs could lead to a higher cost to can.

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Reliance Steel and Aluminum Announces Q4 Earnings

Reliance Steel and Aluminum released its Q4 earnings results this week. In Q4, revenue jumped 15.5% year over year to reach $2.38 billion.

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This morning in metals news, JFE Holdings Inc. in Japan plans to spend $6 billion on upgrades in the coming years, the Congressional Steel Caucus asked the administration for guidance on the Section 232 action timeline and Shanghai copper posted its biggest price jump since October.

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Japan’s JFE Holdings Looks to Lighter Steel

The parent company of Japan’s second-biggest steelmaker has plans to spend $6 billion to upgrade domestic facilities, according to a Reuters report.

JFE Holdings President Eiji Hayashida said the upgrades will focus on increased demand for lighter steel for the automotive industry, according to the report, in addition to materials for electric cars.

Congressional Steel Caucus Wants Clarity on 232 Timeline

On Monday, President Trump said he was “considering all options” on the Section 232 investigations of steel and aluminum imports.

According to the Northwest Indiana Times, the Congressional Steel Caucus has asked the administration to loop it in on a potential timeframe for 232-related action.

Shanghai Copper Posts Big Jump

The price of copper on the Shanghai Futures Exchange (ShFE) jumped by the biggest amount since October, Reuters reported.

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The most-traded April copper contract rose 1.8% to $8,323.87 per ton, according to the report.

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This morning in metals, several companies are looking to buy the distressed Essar Steel India Ltd., copper prices bounced back up and gold prices are up.

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Essar Steel on the Market

Companies like ArcelorMittal and VTB Group are vying for embattled Indian firm Essar Steel, according to a Bloomberg report.

Essar is the largest Indian firm going through the country’s insolvency proceedings, according to the report.

Copper Prices on the Way Up

Prices of the metal picked up Monday after hitting two-month lows last week, according to Reuters.

The price picked up on account of a weaker U.S. dollar and more stable global markets, according to the report.

Gold Prices Rise

Prices of the precious metal picked up on Monday, according to Reuters, but inflation data due Wednesday could put a lid on the rise.

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The spot gold price hit $1,318.54/ounce as of 1329 GMT on Monday, according to the report.

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This morning in metals news, the American Iron and Steel Institute (AISI) reported finished steel imports accounted for 26% of the U.S. market, analysts expect the index that measures market volatility to come back down and General Motors reported strong 2017 earnings.

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Steel Import Market Share 26% in January

According to the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, steel import permit applications for January totaled 2.914 million net tons (NT), up from  17.7% from the 2.475 million permit tons recorded in December, according to an AISI report. It was up 18.9% from the December final imports total of 2.45 million NT.

According to AISI, finished steel imports occupied 26% of the market share in January.

Analysts Expect VIX Index to Drop After Early-Week Spike

The CBOE VIX index — the index which measures market volatility — spiked early this week as a massive selloff sent the Dow Jones plunging on Monday and Tuesday.

According to a Bloomberg report, however, analysts expect the index to come back down — albeit not as low as previous lows — indicating relatively low volatility.

GM Reports Strong 2017 Earnings

General Motors had a strong 2017, following on the heels of the a strong 2016, according to a company release this week.

The automaker reported full-year 2017 EBIT-adjusted of $12.8 billion.

“Results were driven by strong performance in North America, improvement in GM International led by strong equity income in China and a return to profitability in South America, sustained growth of GM Financial and an intense focus on costs,” the release stated.

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For the fourth quarter, GM posted EBIT-adjusted of $3.1 billion, up 18.7% year over year.

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Noble Group, the Singapore-listed trading group, started in 1986 by ex-Phibro trader Richard Elman, once had aspirations to rival commodities trader and miner Glencore and oil trading giant Vitol.

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But this week the firm narrowly avoided bankruptcy in a refinancing deal which sees Elman lose control as his creditors take a debt-for-equity swap and holders of $400 million of perpetual bonds are almost being wiped out with a $15 million payout, less than $0.04 on the dollar.

All the traders hit the financial rocks when the commodities markets collapsed earlier in the decade, but some moved swiftly to sell assets, pay down debt and slash costs – think Glencore, which today is thriving and cautiously back on the acquisition trail.

Noble, according to The Telegraph, made some bad hires and instead of cutting its cloth, it carried on with a debt-fueled acquisition spree that started at the turn of the decade but was increasingly facing cash flow issues.

As markets weakened, debt costs became crippling. The firm’s share price was hit last year by critical reports emanating from an obscure firm called Iceberg Research, rumored to be run by an ex-Noble employee, which accused the firm of using “aggressive” – though not illegal – “accounting” to “avoid large impairments and fabricate profit.”

The crux of Iceberg’s case, according to The Telegraph, was that Noble booked profits in advance that were higher than the actual cash it received. Noble’s cash flow declined and, despite launching a $500 million rights issue backed by Elman and China’s sovereign wealth fund, the China Investment Corporation, the shares continued to slide.

Today, they are down 96% from their level in February 2015.

It appears as if the firm will survive, but in a much-reduced form, focusing on trading thermal coal, liquid natural gas and dry bulk freight in Asia, largely retrenching to it roots as a supplier of coal from Indonesia to China, where Elman started the firm in 1987 in Hong Kong with just $100,000.

Elman’s story is not just a classic tale of rags to riches; it has similarities to the origins of many great trading houses.

Aged just 15, he started in a scrap yard in the U.K. and moved out to Hong Kong as the market began to open up in the 1960s. His first venture was sold to Phibro in 1972, yet he continued to work for them for over 10 years before starting Noble. According to The Telegraph, after listing in Singapore in 1997, a wave of acquisitions followed, notably the grains business of Swiss trader André & Cie in 2000.

Money was cheap and Noble went on to buy up warehouses, coal mines, ports in Argentina, and stakes in iron ore miners in Brazil and Australia. By 2010, it had a market cap of $10 billion (£7 billion) and a presence in 40 countries. Maybe Elman hung onto the reins too long, maybe he didn’t bring in enough depth of experience at board level to manage the transition to global player and challenge some of the decisions made. There may yet be a Hollywood interpretation of events in the years to come – it would make quite a story.

But vindictive as Iceberg Research’s campaign appears, they may well have been right in terms of reporting and underlying profitability. The resulting collapse in the share price only brought to light the lack of cash flow cover and poor profitability.

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Good governance makes strong companies, however tempting the idea of short cuts may at times seem.