The U.S. raised tariffs on a wide variety of imports from China, amounting to approximately $200 billion in goods; the tariff rate on those goods increased from 10% to 25% as of 12:01 a.m. ET Friday, May 10.
Long advocates of left-wing sympathies, the Beeb — as the BBC is affectionately known in the UK — has for many years also been leading the charge on environmental issues. Not that we have any problem with having an environmental conscience — anyone watching the rapid the bleaching of the world’s barrier reefs can’t help but feel a part of themselves die in the process — but we would much rather see the BBC reporting on sound scientific data than listen to them pushing one political angle, like some mogul-backed, partisan media outlet.
So when a BBC article shouts “UK Parliament declares climate change emergency” you expect it is possibly hyperbole. What does the statement even mean, you may ask. Are we about to be inundated by a monsoon, fry in a heatwave, be washed away in a tsunami or blown away in a typhoon?
Apparently desperate to address something other than Brexit, the British government appears likely to commit the U.K. to an even tougher carbon emissions target than it already has — indeed, tougher than any other major economy in the world.
According to the Financial Times, the proposals build on the 2008 Climate Change Act, which targeted reducing emissions by 80% from 1990 levels by 2050. The U.K. is on track to achieve this, having made steady progress in the interim with emission levels falling more than 40% over the last 29 years.
But the last 20% will be the hardest if the U.K. seeks to achieve zero emissions. The rest of Europe has signed up to similar targets, but exempted certain key industries (such as agriculture, aviation and shipping).
True zero emissions represent a significant challenge, whatever politicians may say.
It will require a sweeping overhaul of energy use from homes to transport to even what we eat. It involves a pledge to phase out diesel and electric cars by 2040, quadruple energy supplies from low-carbon sources such as renewables and supplement a hydrogen economy where natural gas is currently used (80% of British homes are reliant on natural gas for heating and/or cooking).
Heavy carbon-emitting industries will have to adopt carbon capture technology, which has to date proved less than satisfactory and expensive to operate. Nevertheless, the government has already invested some limited funds in pilot projects and has undertaken to do more.
The tough ones will be aviation (an alternative to fossil-fueled jet engines is a long way off), shipping (which is moving to 0.5% low sulfur fuel but still remains a massive source of carbon emissions) and agriculture, which is probably the worst offender.
There is no known trick of science that stops a cow breaking wind and little that can be done about the acres of corn that need to be cultivated to feed that cow. The Committee on Climate Change acknowledges one of the biggest and hardest changes will be to humans’ diets. More plant-based and less animal- and fish-based protein would have a profound impact on carbon emissions but will take a fundamental shift in the wider population’s habits.
Still, some trends are in favor of the needed changes.
Electric cars are predicted to be cheaper to buy and run than petrol- or diesel-fueled vehicles by 2030 (if not before). Wind power is already said to be cheaper than natural gas, the Financial Times says, providing storage costs to achieve continuity are subsidized, but even that may cease to be necessary as battery technology improves and wind turbine costs continue to fall.
The committee’s report suggests the changes needed, spread over the next 20-30 years, need not be onerous or disruptive to growth; indeed, they may present significant opportunities for new technologies and for the industries that exploit these opportunities.
Whether the world has 30 years, none of us knows. The U.N. says we could have just 12 years to effect change before we reach a point of no return; they may, like the BBC, be trying to promote a project fear agenda to effect change (we really don’t know).
The International Maritime Organization’s (IMO) Jan. 1, 2020 deadline for shipping companies to use low-sulfur (0.5% max) fuel has been on and off in the news for months, but without much interest from those outside the industry or the environmental organizations that lobbied for its introduction.
But now, with the deadline just months away, the implications are becoming more apparent. Shipping lines are scrambling to fit scrubbers, but some are finding they have left it too late.
It currently takes some six weeks to retrofit a scrubber. With the surge in demand for scrubber equipment and a shortage of qualified engineers, yards are full of work over the next 12 months. Some 4.4 million twenty-foot equivalent units (TEU) in container ship capacity is taken out of service this year, according to JOC. That amounts to about 380 container ships and is already contributing to the worst on-time performance by carriers on the Asia-U.S. trades since 2012, the article reports.
In total some 550 box ships, totaling 6 million TEU, are due to be equipped with scrubbers — at a rate of about 30 vessels a month, consequently squeezing capacity.
Not all vessels are going for scrubbers, despite the current cost advantage.
The majority of vessels will opt to burn low-sulfur fuel oil, for which the premium is between U.S. $170 and $320 per metric ton over 3.5% sulfur fuel (apart from South America, where low-sulfur fuels already predominate and the premium is only $40/ton).
It costs between U.S. $5 million and $10 million for a scrubber system depending on the vessel and where it is fitted, plus greater maintenance and the downtime required for installation. But the price difference between low-sulfur fuel oil and heavy fuel oil can add U.S. $1 million to an Asia-Europe round trip for a ULVC.
Those opting not to fit scrubbers but pay the fuel premium are either biding their time by waiting for an installation slot or hoping the fuel premiums will fall. The change will likely also hasten the scrapping of older vessels deemed uneconomic to retrofit or operate at the higher fuel costs.
“Our comprehensive market engagement exercise has revealed strong support for the LME taking action on this important topic,” LME CEO Matthew Chamberlain said. “The LME’s role is now to appropriately balance the differing views of market stakeholders when implementing our requirements – and we are pleased to have been able to do so in today’s proposals. For example, based on the constructive feedback of civil society organisations, we have enhanced our transparency requirements, and at the same time, we have respected the views of producers who have called for more achievable timelines and a clearly-defined reporting process.”
The proposed rules call for every LME-listed brand to undertake a Red Flag Assessment — which is based on guidance from the Organization for Economic Co-operation and Development (OECD) — by the end of 2020. Brands flagged for potential sourcing issues would then be classified as a “higher-focus brand” and will be audited by the end of 2022.
More attention has been given to ethical sourcing in recent years. For example, much attention has been given to the sometimes murky cobalt supply chain and labor conditions in the Democratic Republic of the Congo (where a majority of the world’s cobalt is mined).
“Global consumers rightly demand action on responsible sourcing – and our industry must listen,” Chamberlain said. “The LME is taking action because it is the right thing to do, but also because the value of our market is based on providing metal which is acceptable to those consumers, and because the metals sector looks to us to provide leadership on these important topics. Our role will necessarily be to forge a consensus between the potentially divergent views of various stakeholders – and this role is never popular. Nevertheless, we are committed to playing our part in this movement.”
In October, the LME released a position paper related to responsible metals sourcing. That paper outlined a timeline for compliance, including specific standards for cobalt and tin.
“For cobalt and tin, chosen standards must be identified by the fourth quarter of 2019 and full compliance with standards will be required by the end of 2020,” the LME announced in October. “For all other higher-focus brands, standards must be identified by the fourth quarter of 2020 with compliance by the end of 2021. Non-compliant brands will be eligible for delisting once the relevant deadlines have been passed.”
The Renewables Monthly Metals Index (MMI) held flat this month, sticking at an MMI reading of 103.
Cobalt in … Missouri?
The St. Louis Post Dispatch reported an EPA agreement could open the door to cobalt mining at the site of an old lead mine.
On April 3, the EPA announced it had reached an agreement with Missouri Mining Investments, LLC, to “perform a removal action at Operable Unit 2 of the Madison County Mines Superfund Site in Madison County, Missouri. Operable Unit 2 consists of the Anschutz Subsite, also known as the Madison Mine.”
“Missouri Mining Investments plans to begin cobalt mining at the mine upon completion of the cleanup,” the EPA said in a prepared statement. “Under EPA oversight, Missouri Mining Investments will conduct supplemental characterization work, prior to developing a more detailed plan to consolidate and cover mine waste and contaminated soil at the site, and remove contaminated sediments from the Metallurgical Pond and other surface water ponds and streams within the property boundary.”
As Fuller notes, 2019 could be a banner year for LME cobalt futures volume.
“The London Metal Exchange (LME) cobalt contract launched in February 2010 and the exchange recently launched a new cobalt contract tied to Fastmarkets’ standard-grade cobalt price (the go-to benchmark on cobalt pricing for industrial buyers),” she noted.
She added that after fluctuations in the early years of the LME cobalt contract, volumes spiked beginning around November 2016.
Nucor Announces $1.3B Investment for Kentucky Steel Plate Mill
In other news, steelmaker Nucor Corporation announced late last month it would make a $1.35 billion investment toward building a new steel plate mill in Brandenburg, Kentucky.
The mill is expected to have an annual capacity of 1.2 million tons, according to a company release, and is expected to be fully operational in 2022.
The GOES MMI, the index for grain-oriented electrical steel (GOES), gained eight points for an April reading of 176.
The GOES coil price rose 4.4% to $2,423/mt.
Actual Metal Prices and Trends
The price of Japanese steel plate fell marginally on a month-over-month basis to $771.64/mt as of April 1. Korean steel plate rose 2.2% to $599.87/mt. Chinese steel plate rose 0.4% to $645.03/mt.
U.S. steel plate held flat at $997/st.
The U.S. grain-oriented electrical steel (GOES) rose 3.1% to $2,432/mt.
The Chinese neodymium price fell 4.8% to $55,490.40/mt, while silicon fell 0.3% to $1,534.37/mt. Chinese cobalt cathodes dropped 0.3% to $99,063.40/mt.
A report released jointly by Global Energy Monitor, Greenpeace India and the Sierra Club said the Indian government continued to support thermal power plants when they were being cut down elsewhere in the world.
Little love is lost between the present dispensation in India and Greenpeace.
Since the 2014 election of current Prime Minister Narendra Modi Government was elected din 2014, it has come down against Greenpeace’s climate campaign that concentrated on coal mining and thermal power generation. In fact, the internationally-known NGO was also labeled “anti-national” for opposing coal mining in Central India forests. In addition, its accounts were frozen twice and its license to operate was revoked.
The report, titled “Boom and Bust 2019: Tracking the Global Coal Plant Pipeline” said there was a 20% drop in newly completed coal plants, a 39% fall in new construction and a 24% cut in plants in pre-construction activity, year on year.
Yet, despite such “unfavorable market conditions for coal power,” the Indian government persisted with investments in new coal-fired plants, The Business Standard report quoted Pujarini Sen of Greenpeace India as saying.
The metal’s price hit an eight-month high this month, helped over the line by the Federal Reserve dropping plans for further interest rate hikes this year.
But much of the rise seems to be on the back of positive investor sentiment over falling LME inventory and the expectation the rise of electric car demand will strain copper supply.
Firstly, those inventories.
Apart from a large delivery earlier this month, copper has been on a steady decline, as the below graph from Kitco illustrates.
Inventory on the CME and SHFE has similarly run down, not surprisingly as the market has been in deficit to the tune of 265,000 tons per annum in 2017 and 387,000 tons last year according to the International Copper Study Group as cited by Reuters.
The World Bureau of Metal Statistics disagrees, however, saying the copper market recorded a surplus of 496,000 tons in January-December 2018, which followed a surplus of 138,000 tons for the whole of 2017.
It just goes to show, statistics are not always the precise game statisticians would have us believe.
Copper’s strength is somewhat harder to fathom when set against the backdrop of generally poor forward indicators.
PMI numbers in the world’s largest consumer, China, fell below 50 into contraction territory in December and stayed there in January, according to Reuters, with those of Germany not looking much better. Both picked up a little in February, but were hardly bullish.
Citibank, though, remains in the bull camp, according to Reuters, espousing the tight market and rising demand for electric vehicles and the infrastructure to support them (notably in China).
The argument goes the introduction of far stricter carbon dioxide emissions limits that will kick in next year in Europe — coming on the heels of consumers turning away from diesel after Volkswagen’s pollution-cheating Dieselgate scandal, which has hit demand for diesel-powered vehicles — means manufacturers have no alternative other than to move into electric cars en masse.
The emission standards alone require manufacturers to reduce emissions the average from 130 grams of carbon dioxide per kilometer to 95 grams of carbon dioxide per kilometer from 2020.
According to Ferdinand Dudenhoffer, head of the Center Automotive Research in Germany, until recently carmakers turned primarily to diesel to bring down their emissions averages, but “there is no going back to diesel, so they have no other choice but to speed into the electrical era.”
Investor sentiment does not have to be accurate to move markets — you just need enough people believing the market is heading in a certain direction to make it move.
Whether copper investors are right about the demand from electric vehicles remains to be seen, as there have been false dawns before.
This morning in metals news, copper prices were up slightly Monday, Tokyo Steel held prices steady for the fourth straight month and Rio Tinto responds to criticism about carbon emissions stemming from its customers’ operations.
Kiyoshi Imamura, managing director of Tokyo Steel, was quoted as saying that domestic construction demand was “sluggish due to higher inventories and delays in some projects because of shortage of labour and some materials.”
Rio Answers Emissions Criticism
Rio Tinto has faced some criticism from environmental activists, who have called for the iron ore miner to bear more responsibility for the emissions caused by the miner’s customers.
Rio, however, says it can’t be held responsible for what customers do with their iron ore, the Australian Financial Review reported.
On the one hand there is a broad green or environmental lobby, which rightly shouts out the risks of rising global temperatures and the link greenhouse gases play in that rise.
Unfortunately, at the same time, many in that lobby claim a switch to a zero-carbon future would be simple.
On the other hand there are complete naysayers who do not even accept there is a climate change issue to address, let alone have any interest in finding less environmentally polluting options.
Governments rarely help; in fact, the U.S. is actively rolling back previous legislation, apparently in a perverse belief that if you say something is fake news enough, it actually does become fake news.
In many other countries, governments act with varying degrees of commitment, but at times appear to promote one solution while still supporting another cause of pollution in a different part of the economy. As a result, policies are not joined up.
Oil majors can hardly be said to be neutral in this debate, but their periodic reports are the subject of so much scrutiny that they have to be reasoned and their assumptions have to be logical or they would suffer ridicule.
So, when Andy Brown, Shell’s upstream director, told The Telegraph that zero net emissions are technologically and economically possible by 2070, his comments at least bare scrutiny.
He went on to add electric power would have to jump fivefold by that time. Wind and solar would have to increase by 50 times. It would require 10,000 Carbon Capture Sequestration (CCS) projects able to sequester six gigatons of carbon each year, accompanied by sweeping reforestation for such a goal to be reached, even over such an extended timeframe.
In the intervening decades, global temperatures may well have risen past the point of no return.
Ranged against that goal is the relentless demand for autos around the world. The same article points out a chilling statistic: Americans have roughly 900 cars per thousand head of population, yet the current figure is closer to 150 for China and 25 for India — and these rising nations aspire to The American Dream as much as anyone.
However, we should not fall into the same trap as many when looking at global warming; automobiles plays their part, but it is a relatively small part. Transportation — trucks and ships — play a bigger role, and the agricultural industry is even larger. If humans were to switch to a plant-based diet, we would buy ourselves decades to combat climate change.
Even so, for the energy industry, transportation and petrochemicals remain the focus. In an industry that operates on decade-long investment planning, it is no surprise that firms are changing priorities with increasing speed.
Saudi Aramco plans to switch 2 million to 3 million barrels per day to petrochemical production over the next 10 years, and potentially 7 million barrels per day over two decades. This is a staggering amount, The Telegraph observes — Saudi Arabia’s entire oil exports in January were 7.2 million barrels per day. The Kingdom is also launching a $150 billion dash for lower-polluting natural gas, with plans for production to reach 23 billion cubic feet per day within a decade, equal to 60% of today’s global market for liquefied natural gas.
The following graph, courtesy of The Telegraph, illustrates the motivation for the shift in priorities.
Source: The Telegraph
Rarely has the energy industry been at such a crossroads and never has the oil industry faced such an uncertain future. Even in the febrile market of the early 1970s following what was then deemed an energy crisis did oil companies seriously doubt there would be a need for their product in the decades to come.
But today there are genuine questions facing planners about what product mix oil companies should optimize for by the middle of this century, let alone what the landscape will look like 10 years from now.
Climate change and its effects are of great concern — governments are aiming to hit short- and long-term clean energy targets and curb pollution, many individuals are striving to live greener lives and automakers are beginning the transition toward electric vehicles.
Climate change has already had — and will continue to have — major impacts on our lives and ecosystems around the world.
Of course, as a result of all this, climate change will also have a significant impact on trade and the flow of goods (which, from a metals perspective, can only serve to drive up prices).
A 2009 report by the World Trade Organization and the United Nations Environment Programme included a brief section identifying two primary impacts of climate change on trade.
“First, climate change may alter countries’ comparative advantages and lead to shifts in the pattern of international trade,” the 2009 report states. “This effect will be stronger on those countries whose comparative advantage stems from climatic or geophysical reasons. Countries or regions that are more reliant on agriculture may experience a reduction in exports if future warming and more frequent extreme weather events result in a reduction in crop yields.”
The report also noted climate change’s impact on supply chains: “Second, climate change may increase the vulnerability of the supply, transport and distribution chains upon which international trade depends. … Extreme weather events (such as hurricanes) may temporarily close ports or transport routes and damage infrastructure critical to trade. Transportation routes in permafrost zones may be negatively affected by higher temperatures, which would shorten the length of time that roads would be passable during winters.”
Fast forward almost a decade, when the recent National Climate Assessment outlined the impact of climate change on various aspects of life, including transportation, air quality, land use and water, among other categories. The assessment is mandated by the Global Change Research Act of 1990, which requires the U.S. Global Change Research Program to submit a report to Congress and the president no less than every four years.
As many are by now aware, the ramifications of climate change — and inaction in the face of it — are dire.