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This morning in metals news, positive Chinese economic data means good things for metals found in steel, a former Alcoa aluminum plant site in Tennessee is being redeveloped for a new purpose and copper demand from electric carmakers is set to surge in a big way over the next two decades.

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China Industrial Outlook Offers Boost

Postive indicators for Chinese industrial activity are yielding good news for steel-related metals, according to Reuters.

The official Purchasing Managers’ Index (PMI) jumped to 51.7 in August (from 51.4 the previous month), according to the report.

Alcoa Redevelops Old Plant Site

A former Alcoa aluminum plant site will soon be used for a new purpose.

According to a Knoxville News Sentinel report, the former Alcoa West Plant site in Tennessee will be lined with retail and office space.

Copper Cars

Certain metals will see their stocks soar as electric cars build momentum.

One of those metals, according to a report in The Street, is copper.

Free Download: The August 2017 MMI Report

Quoting a Bloomberg Intelligence analyst, the report says demand from electric carmakers could grow 6,100% by 2040.

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Hurricane Harvey touched down in Texas late last week — in the ensuing days, thousands were displaced as record rainfall of more than 50 inches blanketed some areas of Houston (the fourth-most populous city in the U.S. with a population of about 2.3 million).

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According to a USA Today report citing preliminary research from the firm AccuWeather, Harvey could become the costliest disaster relief effort in U.S. history, with a potential price tag of $160 billion.

It should of course be noted that, before anything else, the natural disaster’s human impact is of utmost importance. The New York Times reported the death toll has hit at least 30, according to Texas officials.

In addition to widespread flooding, property damage and displacement suffered by residents in the hurricane’s path, Harvey has also left an economic impact that will be felt for the foreseeable future.

Among other things, metals prices, oil prices and shipping have all been, or will be, impacted by Harvey.

Trade Impact

The Port of Houston is one of most important trading locations in the U.S. As a result of Harvey, the port was completely closed as of last Friday. According to the Port of Houston website, it will remain closed on Thursday.

“We will continue to work alongside local agencies and the USCG to determine when operations can safely resume,” an alert on the Port of Houston website read Wednesday.

According to data on the Port of Houston website, the port is ranked first in total foreign tonnage and ranks second in total tonnage. As the largest Gulf Coast container port, it handled 68% of U.S. Gulf Coast container traffic in 2016.

So, a total shutdown of the port is a big deal.

On the export side, 3% of total container volume exported last year came from steel and other metals (27,127 TEUs).

A larger percentage of total imports come in steels and other metals — 8.6%, or 76,853 TEUs, last year.

Meanwhile, the Port of Corpus Christi, the fourth-largest port in total tonnage, was also closed as of Tuesday.

The affected areas have an immediate need for supplies of all kinds, but transportation modes are at a general standstill for the moment.

Steel Stocks

Much of Houston has been hit by record rains, leading to flooding and stranding locals without food or supplies.

Although it won’t happen overnight, eventually the area will begin to rebuild in the wake of the damages caused by Harvey.

According to a report on the Nasdaq website, Houston receives between 30% and 35% of all U.S. steel imports, making it a pivotal point of access.

In the wake of Harvey, some U.S. steel companies saw their stocks rise. According to the report, shares of United States Steel Corporation jumped by over 2.5% on Tuesday, while Olympic Steel rose more than 1.5%.

Nucor and AK Steel Holding Corporation both saw their stock prices rise by over 0.5%.

However, it’s still early to determine the true damage to the steel industry caused by Harvey.

According to a Platts report, Harvey could have a similar impact to that of 2012’s Hurricane Sandy, particularly with respect to steel scrap.

Freight Service Disrupted

In addition to the disruption of port activity, rising water levels have taken a bite out of freight service.

As a result, a rise in trucking rates can be expected, according to freight analyst firm FTR Transportation Intelligence.

“Look for spot prices to jump over the next several weeks, with very strong effects in Texas and the South Central region,” said Noel Perry, a partner at FTR. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”

According to Steel Market Update, FTR predicted 10% of freight activity will be disrupted over the next two weeks.

Gas Prices Rise

As a result of an overall glut in global production, gas prices have come down significantly since 2014, when the gas price in some metropolitan areas exceeded $4 gallon.

However, the average national gas price has increased as a result of Harvey and shutdowns of refineries in Corpus Christi and Galveston. As of Wednesday afternoon, the average national gas price stood at $2.40 gallon, up from $2.37 on Monday, according to AAA. The average price had already risen $0.04 to $2.37, which AAA said Monday was one of the largest one-week surges this summer.

According to AAA, about one-quarer of Gulf Coast refining capacity was taken offline, according to forecasts by Oil Price Information Service (OPIS), which equated to about 2.5 million barrels per day.

“Despite the country’s overall oil and gasoline inventories being at or above 5-year highs, until there is clear picture of damage and an idea when refineries can return to full operational status, gas prices will continue to increase,” said Jeanette Casselano, AAA spokesperson, in a prepared statement.

Time to Rebuild

Rescue missions continue in the Houston area, as officials move residents in flooded areas to shelters. According to the Washington Post, 32,000 people have taken refuge in 231 shelters, with many volunteers need to help clean out damaged homes.

“We expect a many-year recovery in Texas, and the federal government is in this for the long haul,” said Elaine Duke, acting secretary of the Department of Homeland Security, to the Washington Post.

The damage won’t be contained to Texas, however. According to the National Hurricane Center, Harvey touched down again, this time in southwestern Louisiana at 4 a.m. today.

More than 12,400 employees from more than 17 federal departments and agencies are working together in support of the ongoing response to damages resulting from Hurricane Harvey and subsequent flooding across Texas and Louisiana, according to the Federal Emergency Management Agency (FEMA).

When all is said and done, affected communities will have a long road to recovery. Many will eventually return to homes either damaged beyond habitability or totally destroyed.

Houston is the largest U.S. market for newly constructed homes, and demand for materials used in home construction will surge as communities transition from rescue and recovery mode to begin the arduous rebuilding process.

The question is: When will that transition happen?

For now, government agencies on the ground are prioritizing the primary disaster relief effort, and it’s unclear when resources can eventually be shifted to construction.

The pipe and tube market, in particular, is well represented in the Houston area, which offices for the multinational firm Vallourec. The Port of Houston took in nearly 40% of iron and steel pipe and tube imports through the first six months of the year, according to ustradenumbers.com.

Earlier this week, the Committee on Pipe and Tube Imports sent a letter, obtained by CNBC, to the Trump administration, urging it to move forward with trade remedies in the Section 232 investigation of steel imports. According to the letter, over 60% of current U.S. demand for pipe and tube materials is supplied by foreign producers.

The request tied into the ongoing situation in Houston.

“Based on the amount of imports flooded into America now we will not be able to help rebuild Houston,” Robert Griggs, president and CEO of Trinity Products, told CNBC.

“Not one U.S. pipe company will get a lick of work in rebuilding Houston. It will all go to China. The president needs to level the playing field and make it fair. The way it is now, American steel pipe companies will lose the opportunity to rebuild Houston.”

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This morning in metals news, it was a mixed Monday for base metals in China; in Arizona, the copper industry, environmentalists and recreation groups are at odds; and a Washington State aluminum smelter’s future remains uncertain.

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Nickel, Zinc, Lead All Fall

It was not a great Monday for Chinese base metals linked with the steel markets, Reuters reported.

According to the report, nickel, zinc and lead posted the biggest drops, while copper gained by 0.9%.

Multinational Company Wants to Mine in Ironwood Forest National Monument

Mining firm Asarco wants permission to set aside 11,000 acres of the Ironwood Forest National Monument for it to mine copper, according to an Associated Press report.

That request has received some pushback. U.S. Rep. Raul Grijalva, whose district includes much of Ironwood, emphasized the importance of preserving public land.

“The reason Ironwood was designated was to protect its habitat and protect its land in perpetuity,”  Grijalva told the AP. “There are no private rights to public property.”

On Again, Off Again

The Alcoa aluminum plant in Wenatchee, Wash., has had a wobbly existence since the turn of the century.

The plant first shut down in 2001, reopened in 2004 and shut down again in 2015, affecting the local working population.

With prices of aluminum ingots rising, could it mean the return of jobs there? The Seattle Times reported on the plant, its future and the locals whose livelihoods are linked with the plant’s future.

Free Download: The August 2017 MMI Report

Given that the total number of U.S. aluminum smelters in operation has declined from 23 in 1993 to six today, Wenatchee is just one example of a town hit by the decline of the U.S. aluminum smelting industry. Whether it, and other plants like it, can come back on stream remains to be seen. Of course, how the Trump administration concludes its Section 232 investigations of steel and aluminum imports will have a significant impact.

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Before we head into the weekend, let’s look back at some of the top stories on MetalMiner this week.

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• Our Stuart Burns wrote about the world’s largest aluminum producer, China Hongqiao Group, and the substantial controversy it has courted on its rise to the top.
• Mining company BHP Billiton announced a $2.46 billion investment this past week, which is much better than “overpriced M&A adventures,” Burns wrote.
• The bell sounded on the first round of North American Free Trade Agreement (NAFTA) negotiations in Washington, D.C. Can the U.S. find a way to tackle its trade deficits? Negotiators have proposed a fairly ambitious schedule for the remainder of the calendar year. The next round of talks was scheduled for Sept. 1-5 in Mexico.
• Money is flowing from different places and to different places, as Burns wrote in his analysis of the changing makeup of global capital flows.
• Indian aluminum production is expected to grow in the next 2-3 years to meet domestic demand, according to a recent report.
• U.S. steel imports are up through the first seven months of the year compared to last year.
• The U.S. seems to be blaming its trade deficits on trade deals — but that might not be accurate.
• On Tuesday, the Department of Commerce issued a preliminary determination on biodiesel imports from Argentina and Indonesia.

Free Download: The August 2017 MMI Report

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This morning in metals news, August has been a record month for aluminum trading in China, Japanese steelmakers’ shares are down and Chinese steel showed signs of recovery Thursday.

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Big Month for Aluminum Trading in China

According to Bloomberg, even with time to spare August has already been the heaviest month of aluminum trading ever in China.

China has undergone a series of supply-side reforms aimed at reducing oversupply, reducing pollution and alleviating pressure from abroad (particularly the U.S., which has pending Section 232 steel and aluminum investigations).

The Bloomberg report notes China is “shutting down unlicensed aluminum production capacity estimated by Citigroup Inc. to be about 4 million metric tons a year.”

Japan Steel Shares Down

Meanwhile, shares for Japanese steelmakers are down, according to a Reuters report.

The shares backtracked because the country’s biggest producer of steel, Nippon Steel, agreed on price cuts for the six months through September with Toyota Motor.

Chinese Steel Futures Looking Bright

According to a Reuters report, Chinese steel futures bounced back Thursday based on domestic demand spurring positive investor sentiment.

A dip in the temperature is expected to yield more construction and, thus, greater steel demand, the report says.

Rebar futures have surged this year by 50%, according to Reuters.

Free Download: The August 2017 MMI Report

BHP Billiton’s decision announced last week to approve a capital expenditure of U.S. $2.46 billion for the Spence Growth Option (SGO) at the Spence open-cut copper mine in Chile should come as no surprise given the roll copper has been on this year and the forecasts of supply shortages toward the end of the decade.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Whether criticism from activist investors Elliot Advisors had anything to do with the decision is doubtful, but comments from CEO Andrew Mackenzie on announcing the investment may well have had one eye on shareholder approval.

The investment will “create long-term value for shareholders in one of our preferred commodities,” the Financial Times quotes him as saying.

Elliott this week disclosed it has a 5% stake in the U.K.-listed shares of the miner, up from a 4.5% position held mostly in derivatives. The fund, founded by billionaire Paul Singer, is right when it says BHP has underperformed rivals and spent billions on mistimed acquisitions.

It is wrong in its solution, however, by demanding the firm return more money to investors through dividends and buybacks and to review an exit from its U.S. shale business.

Share buybacks reward current investors, but do nothing for the firm’s long-term growth. If you are a short-term activist after a quick buck, buybacks have a lot of appeal.

If you are a pension fund, life insurance company or other long-term investor you want to see a 10- to 20-year growth strategy, not a quick buck.

The investment in Spence represents just that kind of solid long-term bet on copper demand.

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You don’t come from near obscurity to become the largest aluminium producer in the world, seemingly overnight, without courting some controversy — but China Hongqiao Group seems to have garnered more than its fair share.

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The company is mired in allegations of misreporting profits, underreporting power costs and saddled with massive debts built up as the company went on a spending spree opening new smelters and buying rivals, the company. According to the South China Morning Post, net debt has surged to 62 billion yuan (U.S. $9.3 billion) at the end of last year, or 137% of Hongqiao’s shareholders’ equity. That is up from 97% two years earlier.

Unable to raise more capital on the markets following the suspension of shares earlier this year, the firm has had to turn to Citic Group, founded in 1979 to handle China’s overseas investments and run directly by the central government.

Hongqiao has enjoyed Citic’s support for some years as the investment conglomerate has funded previous acquisitions for the group. China Hongqiao Group will get a HK$8 billion (U.S. $1.02 billion) financial lifeline from Citic Group to repay bank loans, following its agreement to sell 806.6 million new shares and U.S. $320 million of convertible bonds to Citic and the conglomerate’s unit CNCB (Hong Kong) Investment. If they are fully converted into shares this could give Citic up to 13.3% of Hongqiao, making the conglomerate the smelter’s second-largest shareholder, the South China Morning Post reports.

The Fast Rise and Criticism

China Hongqiao Group’s rise has been dramatic.

With an installed capacity of 6.46 million tons, the firm has overtaken domestic rival Chalco and Rusal to become the world No. 1.

But the achievement is not without its critics.

Read more

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 August MMI Report is out. Metals like copper and aluminum hit record highs, and nine of our 10 sub-indexes posted upward movement as a result of a strong July. Will that momentum continue? Check back next month for the September MMI report.
• Many have predicted a decline for iron ore prices, but as our Stuart Burns wrote on Monday, reports of its demise have been greatly exaggerated. A weak U.S. dollar, combined with strong equities and global GDP, have helped keep iron ore performing well, not to mention Chinese steel and the wider metals market. Read through for Burns’ assessment of the iron ore market.
• In India, a boom of bauxite production is expected, wrote our Sohrab Darabshaw. In fact, it is expected to more than double by 2021. How is that possible? One reason, Darabshaw writes, is “increased domestic demand for aluminium, which will largely be sourced from the quintupling of land under mining lease in the Odisha province (which has the bulk of India’s bauxite reserves).”
• One commodity almost everyone is interested in is oil. On Tuesday, Burns wrote about the future of oil prices. But, since this is MetalMiner, after all, those prices also have an effect on metal markets.
• Everyone loves a good M&A story, and Burns had one earlier this week on the ongoing talks between Indian steel giant Tata Steel and Germany’s ThyssenKrupp. Plus, he touches on ArcelorMittal’s takeover of Italy’s Ilva. Burns writes: “For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.”
• How about zinc? Burns wrote about the metal’s rise to $3,000, and the reasons behind zinc’s price hitting its highest point since 2007.
•  Last week was a busy one for the U.S. Department of Commerce, which handed down preliminary determinations in countervailing duty investigations for both Chinese aluminum and silicon coming from a trio of countries.
• Back in India, steel exports are on the rise as the Indian government’s protectionist measures seem to be paying off for its domestic industry.
• Lastly, representatives of the U.S., Canada and Mexico began talks on Wednesday regarding renegotiation of the North American Free Trade Agreement (NAFTA), the trade deal instituted in 1994. The U.S. is focused on, among other things, bringing down ballooning trade deficits with the two countries (particularly Mexico). The talks are scheduled to continue until Sunday, so check back for updates on the proceedings.

Free Download: The August 2017 MMI Report

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India’s protectionist measures to safeguard its steel industry seem to be paying off.

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As reported consistently by AG Metal Miner, the Indian government, responding to the call of its steelmakers, had time and again imposed various forms of anti-dumping measures and fines to stop cheap imports of steel — especially from the world’s steel manufacturing leader, China.

Along with the U.S. and Brazil, India was said to be one of the world’s leading initiators of anti-dumping investigations, according to the World Trade Organization (WTO).

Well, now, all this has resulted in India’s steel exports doubling to 8.2 million tons and imports have been slashed by about one-third in 2016-17.

As per a report by the Press Trust of India (PTI), quoting from portions of the released Economic Survey, the rise in exports of steel could also wipe away the excess capacity built up in the steel sector. The mid-year survey by the government said steel imports had declined in 2016-17, while exports of steel had doubled.

Alloy imports dipped by 36.6% to 7.4 million tons in 2016- 17 against 11.7 million tons in the previous fiscal year. Exports doubled to 8.2 million tons last fiscal year, over 4.1 million tons in the corresponding year.

The news was welcomed by steel companies like Tata Steel. T.V. Narendran, managing director for Tata Steel India and South East Asia, told newsmen that steel demand in India was increasing, making it just right to make future investments. Stability was being witnessed in the steel sector globally, though it had faced some problem two years ago, Narendran told reporters.

Ironically, much of Indian steel joy stems from its traditional rival China, where there’s been a visible improvement in the economy — which meant much of its steel being produced was once again being used within the country. It was against the backdrop of China’s economic slowdown that the global steel industry had faced distress due to decline in global demand.

The Indian survey report said, in response to the dumping of cheap imports, the government in 2016 introduced a host of measures like raising Basic Customs Duty, imposition of Minimum Import Price (MIP) and anti-dumping duties in order to shield domestic producers. The government imposed the MIP for steel in February 2016 for a period of one year.

On April 12, 2016, India initiated countervailing duty investigation concerning imports of certain hot-rolled and cold-rolled stainless steel flat products originating in China.

According to the WTO, India’s share in total global steel exports increased from 1.1% in 2000 to 2.8% in 2016. During this period, China’s share in total steel exports rose from 3.7% in 2000 to 19.2% in 2016. Japan’s share in total steel exports in 2000 which was 12.2%, but fell to 9.1% in 2016.

Free Download: The July 2017 MMI Report

Meanwhile, the U.S. share in total steel imports was 17.0% in 2000, but has since come down to 12.1% in 2016.

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This morning in metals news, European aluminum maker Constellium moves its U.S. offices from New York to Baltimore, copper and aluminum take a step back, and AK Steel announces a price hike.

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Constellium to Set up Shop in Baltimore

European aluminum firm Constellium announced it will move its U.S. corporate offices from New York to Baltimore, The Baltimore Sun reported Wednesday.

According to a statement from Constellium, at least 25 senior management and executives will be relocated to the new Baltimore office by the end of 2018.

Constellium, which has its corporate headquarters in Amsterdam and two additional corporate offices in Paris and Switzerland, produces aluminum products for a wide range of industries, including aerospace, automotive, transportation, defense and packaging.

Copper, Aluminum Fall Back

After recently hitting multi-year highs, copper and aluminum fell on Thursday.

According to Reuters, the drop is the result of investors who “locked in profits from a steep rally amid doubts about future demand in top metals consumer China.”

Speculator activity has seen the LME index rise 16% from early June, according to the report.

AK Steel Announces Price Hike

Effective immediately, AK Steel will raise the price for all carbon flat-rolled steel products by a minimum of $30 per ton, according to a report on Nasdaq.com.

Since last August, AK Steel’s shares have risen 5%, compared with 21.8% for the industry, according to the report.

Despite that disparity, AK Steel had a strong second quarter, topping earnings and sales estimates, according to the Nasdaq report.

Free Download: The July 2017 MMI Report

The company reported net income of $61.2 million (or 19 cents per share), up 253.7% from net income of $17.3 million (or 8 cents) recorded in the prior-year quarter, the report says.  The company also recorded net sales of $1,557.2 million for the quarter, up 4.3% from the year-ago quarter, exceeding the Zacks Consensus Estimate of $1,530 million.