Articles in Category: Global Trade

This month, the Construction MMI (Monthly MetalMiner Index) dropped yet again. However, it declined slightly less than those seen in previous months. Altogether, the index is down 4.60%. Industrial metal, in general, continues to struggle due to China’s COVID lockdowns and supply chain issues.

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Industrial Metal and the US’ 2022 Construction Roller Coaster Ride

The US construction industry has had quite a year so far. In fact, a recent report attempted to demonstrate some of the trends, facts, and figures that affected the industry over the course of the pandemic. In general, the trends are up and down. However, despite a slow start to the year, the sector still anticipates 4.5% growth by the end of 2022.

Of course, there’s no shortage of roadblocks standing in the way. Increasing production costs over the past six months, limited industrial metal supplies, and smelter shut-downs in places like China are just some of the obstacles with which the US construction industry continues to grapple. However, this does not mean the projected growth numbers are out of reach.

Construction

In fact, in July alone, the US construction industry recently added nearly 32,000 jobs. Meanwhile, cities like New York City, Los Angeles, and San Francisco continue to expand at a rapid pace. That said, materials and real estate costs remain high. And even though US construction job openings are numerous, they aren’t necessarily filling up quickly. Indeed, a recent article noted that the number of unclaimed jobs could soon hit a breaking point. Last year, some 40% of these construction industry jobs remained unclaimed.

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The US Construction Industry is Hanging its Hat on the ILJA

The passage of the landmark Infrastructure Investment and Jobs Act represents a $1 trillion revenue opportunity for US Construction and engineering firms. In fact, data on global construction initiatives recently predicted that infrastructure will replace residential as the primary focus of US contractors.

For decades, Infrastructure has taken a back seat due to being far less lucrative than private contracts. Now, thanks to the ILJA, companies are lining up for contracts with the highest numbers since the 1950s. Their timing is perfect. According to the American Society of Civil Engineers, the infrastructure investment gap is now $2.5 trillion (spread out over a 10-year period). Specifically,  this number estimates the amount of investment needed to maintain American infrastructure in a good state of repair.

Poorly-maintained infrastructure represents a huge threat to everyone in the country and risks costing households thousands of dollars a year. And with the worst of the pandemic (hopefully) behind us, now seems like the perfect time to push for modernization. Moreover, with climate change already rearing its ugly head across the country, many feel we are long overdue for more efficient, less polluting infrastructure initiatives.

Source: Adobe Stock/SeanPavonePhoto.

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Chinese Construction Continues to Limp Along

We’ve talked before about China’s ongoing construction woes. Still, it’s hard to overestimate its vitality to China’s economy. Recently, it was revealed that Chinese steel demand was closing in on all-time lows. In fact, steelmakers were forced to raise their output cuts due to lack of demand actually pushing their profits into the negative.

According to S&P Global, excavator sales also declined for four months straight, a huge indicator of construction sector weakness. Debt also plagues the industry at large, and the government hasn’t been much help. Back in late July, Beijing announced a real estate fund to help ease developers’ debt-related woes. However, despite the $44 billion cash injection, the sector continues to barely limp forward.

It’s a “tale of two infrastructure policies,” and it will be interesting to see how both the US and Chinese approaches pan out. China’s construction industry grew 2% last year and 4% in 2020. At the moment, it’s predicted that the additional spending may push the sector up to 3% by the end of the year. Ultimately, only time will tell how the sector’s internal struggles will affect the rest of the world.

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Industrial Metal / Construction Prices and Trends

  • Bar fuel surcharges saw a ¢10 drop in price month-t0-month. Currently per mile, prices sit at ¢81.
  • US shredded scrap steel rose in price by 4.8% and sat at $447 per short ton at the beginning of August.
  • Chinese h-beam steel dropped by 9% and sat at $597.54 per metric ton on August 1st.

 

It’s no secret that Russia’s invasion of Ukraine has had a massive global impact. From the sanctions to the natural gas supply cutoffs, the economic toll is both catastrophic and far from over. Currently, economists and other experts are trying to predict how different parts of the world will react to the gas shortage. So far, estimates are not very cheerful.

Global LNG supply and demand is shifting amid the war in Ukraine

Gas Shortage Already Hurting Both Europe and Russia

Most people working in commodities industries know that the Nord Stream 1 pipeline, which runs from Russia into Germany, was turned back on at only 20% capacity. In their announcement, Russia blamed turbine problems for the initial shutdown of the vital gas supply pipeline. However, many speculate the supply reduction was a maneuver by Putin to extort European nations over their Ukraine invasion sanctions.

Whatever the reason, Germany remains dependent on this vital gas supply to power its industrial sector, as well as the heating of German homes during the winter months. Germany’s undisputed position as the economic leader of the EU complicates the situation even further. The ongoing gas shortage and forcing the country to tap into its reserves and shut down parts of its industrial sector could have dire consequences for Europe as a whole.

But does this mean Russia has the advantage?

In the short term, perhaps. However, experts remain skeptical of how the move will play out in the long run. For instance, the EU continues to work on ending all of its Russian oil imports by the end of the year. According to a team of Yale analysts, this would prove crippling to Russia’s already beleaguered economy.

Gas Shortage

Indeed, strict sanctions on Russian commodity exports and global financial channels have already decimated the Russian Ruble. If Germany and other nations in the EU stick to their bottom lines and cut off Russian oil and gas supplies completely, the economic impact would be massive.

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Energy Security Fears Growing Across Asia

Nevertheless, the Nord Stream 1 capacity cut and European gas shortage continues to cause anxiety, even over in Asia. For instance, nations like South Korea and Japan remain on edge that Europe may begin hoarding whatever oil and gas supplies it can. Some experts speculate this would result in the Asian nationals directly competing with Europe for gas supplies.

That said, nations like Japan may not be affected as significantly as some expect. After all, most of Japan’s crude oil comes from the Middle East. Even so, their dependence on foreign oil imports in general puts them in a precarious position. With very few oil reserves of their own, places like Japan and Taiwan are still susceptible to changes in the global marketplace.

Seeking Alternatives to Russian Gas

Currently, Russia supplies about 40% of Europe’s natural gas. Even alternative gas lines such as the Yamal–Europe gas line originate in Russia, despite being connected to Germany through Poland. Luckily, Norway is taking steps to help its European neighbors, recently increasing production to help offset Russian gas and oil dependency. The UK has also worked out deals with Norway’s Equinor, who will be able to help supply gas for the next three winters. The US will also aid Europe with more LNG to assist in the upcoming winter months.

However, these options could be more band-aids than solutions. For instance, Germany’s anti-nuclear policy eliminates the chances that such energy could be used to heat homes or power industrial sectors. And with the winter less than six months away, the need for Germany and other European nations to find alternatives to Russian fuel is more vital than ever.

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Steel prices have waxed and waned more than usual this past year. MetalMiner has reported extensively on all of the various factors contributing to this unpredictability. Of course, you can’t ignore China’s rolling COVID lockdowns or the year-long supply chain hangups. However, we feel one of the biggest X factors for the global steel supply has been Putin’s disastrous war on Ukraine.

hot rolled steel

The War Limps Past the Five-Month Mark, Steel Supply Suffers

Back on February 24th, few analysts could have predicted the path the Russian invasion of Ukraine would take. For instance, Russian state news has largely played down the significant casualties suffered in the country’s recovery of the Donbas region. Meanwhile, foreign correspondents have repeatedly published reports about confused Russian troops, jury-rigged weaponry, and the embarrassing loss of the country’s flagship, the Moskva.

Despite these setbacks, Putin seems utterly committed to achieving his goals in Ukraine. This means the world at large cannot expect a return to normalcy anytime soon, particularly when it comes to economics. From sanctions to pipeline problems to commodities hangups, the war in Ukraine has made itself figurative “wrench” in the global trade machine. One of the most affected commodities, of course, is steel.

The War as of July 2022.
Source: Wikicommons

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A Dramatic Impact on Prices and Production

Ukraine stands as the world’s eighth largest producer and third largest steel exporter. Iron ore and other mineral resources are also abundant in Ukrainian soils. As a result, when the invasion first took place, steel prices took a significant leap upward. HRC, for instance, jumped from $974 a ton to $1185 in just over a week. Steel rebar followed suit, reaching $753 on March 7 after closing at $694 the day the war began.

Back in April, the CEO of Kyiv-based commodities site GMK Center, Stanislav Zinchencko, published his thoughts on the matter. Specifically, he mentioned how the war has significantly affected supply chains, leaving 90% of steel capacities non-operational. He went on to detail how the conflict had reduced export opportunities due to Russian warships blocking the Black Sea.

“About 1/3 of Ukrainian steel capacities are located in Mariupol – Azovstal and Ilyich Iron and Steel Works,” Zinhencko said. At the time, this was the hottest area of the war. As most of us know from the heavy news coverage, Azovstal has since been completely destroyed in a weeks-long siege. Ilyich was also heavily damaged. However, since Mariupol fell securely in Russian hands, its ability to produce or not produce remains a moot point.

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A Two-Sided Problem for Global Steel Supply

Against all odds, Ukraine is still producing steel, but at a reduced capacity. For example, at the end of April, we reported on Zaporizhstal, the country’s fourth largest steelmaker, as well as Kamet Steel in Dnipro. Both of these facilities have seen little, if any, impact from the war as of yet. For that reason, they are still producing much as they would in peacetime. In fact, in an effort to boost the country’s economy, the Biden administration lifted tariffs on Ukrainian steel exports in early May.

But all the (completely understandable) focus on Ukraine, it’s important to remember that there are two sides to the problem. Firstly, Russia remains the world’s third-largest steel exporter, shipping around 33.3 million metric tons in 2018. Secondly, as part of their sanction packages, the US and Europe have banned steel imports from the country in an effort to deal Putin an economic blow.

Unfortunately, there are still plenty of buyers for Russian steel. Still, as Bloomberg has reported, many of these nations demand huge discounts that dramatically reduce profitability. The Asian market, in particular, has developed a particularly strong appetite for cheap Russian metals, and beleaguered metals traders have been forced take what they can get.

Still, China Remains the Biggest Factor in Steel Prices

Well-informed readers may have been taken aback by the steel prices reported earlier in this article. After all, HRC just closed at $855 after a stark decline from March highs. Meanwhile, Rebar has been on the decline since May and only started ascending again as of last week. Of course, the main reason for this has little to do with the war. Instead, it has to do with China.

Hot Rolled Coil

China’s construction industry has been contracting for years now, savaging demand for homemade steel goods and imports alike. To add fuel to the fire, the country currently has a massive surplus of the metal. After all, the country produces around 56% of the world’s crude steel. With Beijing rejecting calls to curb production and minimal demand at home or abroad, suppliers are sitting on a growing mountain of crude.

And here’s where it all ties together – with the war affecting trade so dramatically, normal metrics for evaluating the steel market no longer apply. As we stated several months ago, the steel market seems to have moved away from traditional supply-and-demand-based predictability. Instead, economists are rushing to produce new models that better reflect the 2022 marketplace.

For now, it’s a waiting game being played by some very stubborn participants.

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It’s no secret that China believes in the concentration of power. However, that philosophy extends far beyond governance. It also dramatically affects the way the country does business. For instance, earlier this week, we saw the inauguration of the state-owned and centrally administered China Mineral Resources Group. Many mining companies perceive the move as China attempting to exert more influence of iron ore prices. In fact, some have called it “one of the biggest shake-ups of the global iron ore market in more than a decade.”

iron ore stockpile

Indeed, the group will serve as a center point for virtually all of China’s mineral interests. This includes everything from investments in African mines to the buying of steel-making material from international suppliers. Those most affected, including mining giants Rio Tinto Group and BHP Billiton, have thus far refrained from commenting on the new development. In fact, experts believe that the CMRG’s emergence will have little to no effect on ore or steel prices globally – at least in the short term.

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What Exactly Will The New Group Do?

The new group’s business activities will cover activities like mining, iron ore processing, and the sale of metal ores. But that’s not all. Beijing plans for the CMRG to adopt market-oriented and law-based operations so that it can build itself into a world-class mineral resources company with global competitiveness and influence. Thus far, the organization has received capital to the tune of about US $4.3 billion (¥20 billion).

Beijing has always wanted more clout over pricing. Therefore, it’s likely that the primary aim of this new company is to even out the imbalance between global mining giants and China’s own steel industry. After all, let’s not forget that China imports approximately 1 billion tons of iron ore annually. In fact, out of its roughly 500 steel mills, only 10 contribute 40% of the national output production. Moreover, the responsibility of buying raw materials falls on each individual steel plant.

Logistics

According to this report, the China Mineral Resources Group could give Chinese buyers more bargaining power. The idea is that this could give them more leverage to demand lower prices. Leading Chinese companies China Baowu Steel Group, Ansteel, China Minmetals and Shougang Group will also be under the purview of this new Group. That said, the move to centralize its purchasing power may not immediately impact prices.

The Move Represents a Retaliation Against the Iron Ore Market

Ultimately, it’s important to remember that prior to 2010, iron ore prices in China were fixed. This was an annual process, and it was determined by the country’s biggest miners and steelmakers. However, once the Chinese iron ore market started to expand, floating prices came into play. This quickly led to complaints from  Chinese steel companies about the pricing mechanisms.

Then came the COVID pandemic. This significantly disrupted the supply chain, adding to China’s ongoing financial woes. In fact, the country has constantly accused the US and Australia of unfair pricing, claiming they were coordinating to hinder China’s global rise. Therefore, it’s fair to say that this new group is China’s “retaliation.” Of course, whether or not such a centralized attempt will work remains to be seen.

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MetalMiner follows the LME (London Metal Exchange) very closely, as it remains the largest commodities exchange for base metal options and futures. Recently, we mentioned how the LME had quietly withdrawn its precious metals contracts due to low liquidity. However, that’s only part of the story when it comes to dwindling LME stock.

LME Stock

Both LME Stock and Prices are in Freefall

Last week, Reuters published an article detailing how LME warehouses held only 696,109 tons of registered metal at the close of June. It’s the lowest amount of available LME stock this century, and it should be pushing prices into bullish territory. However, ongoing fears of a looming recession are having the opposite effect. In total, the LME index has slumped 31% from its April high point.

According to experts, LME inventories were cut in half over the first two quarters of the year. In fact, that June report represents a year-over-year drop of 1.67 million tons. Depending on who you as, it’s unlikely stocks or prices have hit bottom just yet. As of the time of the report, over 300,000 tons of the aforementioned estimate was still waiting to be offloaded. In terms of readily available supply, this means the LME sits at just around 390,000

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A Rare Rift Between Price and Supply 

It doesn’t take an economics degree to see what’s happening with prices and inventories is rare. One of the first things traders learn is that when stocks of a commodity decline, the price should rise. With the LME stock, we have the opposite happening. As mentioned, recession fears are a big part of this. However, it would be nearly impossible to list out all the factors contributing to this “perfect storm.”

What does remain to be seen is whether or not this rare rift between price and supply will correct itself in the coming weeks. Back in June, Reuters reported that zinc stocks had all but disappeared from LME warehouses. Simultaneously, the price fell to a brand new low. As of this writing, they are hovering even lower – around $2,950.

One place we can look for an explanation is the supply chain, which has remained tight throughout the pandemic. In terms of lead, zinc, and tin, you can trace very significant supply disruptions for each metal. For instance, zinc smelters in Europe are shutting down due to energy costs. A major lead plant in Germany has yet to recover from a 2021 flood. Tin, on the other hand, has been in short supply for months due to coronavirus lockdowns.

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

Commodities in General Are Under the Microscope

Markets around the globe have been taking hits from all directions since the pandemic first appeared on the scene. Now, more than two years later, we’ve seen unprecedented inflation, spikes in grain and energy prices, and countless disruptions in supply and demand. Just recently, the LME suspended nickel trading after a spike in volatility, prompting at least two lawsuits.

The chaos has put commodities of all kinds under an international microscope. So far, it seems many regulators don’t like what they see. While metal and oil futures boast a lot of tracking and transparency, the same can’t be said of other important products. This has led some organizations to seek new rules that would give them more leeway to predict market vulnerabilities.

Risk Factor

So far, the Financial Stability Board, based out of Switzerland, has started scrutinizing commodities markets with renewed gusto. The same goes for The Bank of England, which is seeking more transparency on commodities trading in general. However, the investigations and any regulations stemming from them will take years.

In the meantime, the bulk of the pressure is on suppliers to fill those LME warehouses before the year’s end.

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It is not an idle question. For the last two decades, China’s infrastructure spending has been the engine of demand growth for steel, copper, and aluminum prices. So when the South China Morning Post reported that local governments sold 1.94 trillion yuan (US$289 billion) worth of bonds in June to fund infrastructure spending and boost economic growth, markets took note.

China aluminum

Grispb/Adobe Stock

The Chinese Government Remains Focused on Infrastructure

This news came on the heels of last month’s announcement from the top of China’s State Council. At that time, they said state banks would increase their credit lines to provide 800 billion yuan of funding for infrastructure projects.

Issuance so far this year has come to more than Rmb5tn, the SCMP reports. The majority, some Rmb3.4tn of this amount, came from special-purpose bonds specifically to fund infrastructure. Still, the figure represents 93% of the central government’s annual quota for such bonds. That seems to suggest that the second half of the year will see a sharp drop off.

However, a Financial Times Unhedged post quotes Bloomberg’s report that China’s Ministry of Finance is considering allowing local governments to sell Rmb1.5tn ($220bn) of special bonds in the second half of this year. This suggests that funding quotas will be exceeded this year as a whole.

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Copper and Aluminum Prices Could See a Boost

Setting aside the record infrastructure bond sales already completed, the projected above-quota infrastructure bond sales, the development banks’ infrastructure fund, and Unhedged estimates that those banks’ increased lending quotas come to Rmb2.6tn. That’s more than 2% of gross domestic product and enough to push the market bullish for metals.

On top of that, early indications suggest funds are not primarily intended for China’s beleaguered housing sector. Instead, they may go towards public works. In that case, rail electrification and power could be particularly beneficial for copper and aluminum prices.

Share prices among Indian aluminum and steel producers all rose last week on the news. In fact, they’re up over 5% in most cases as investors see the increased funding as positive for India’s metal exporters. But whether news stimulates metals prices or buoys share prices elsewhere remains to be seen. According to most experts, this will largely depend on whether the lift provided by the increased infrastructure spending is depressed by woes elsewhere.

China’s Economy Still Has Challenges to Face

China has been suffering rolling COVID lockdowns, and anecdotal evidence provided to MetalMiner suggests unemployment is becoming a serious issue. Against this unstable domestic backdrop, and with developed markets facing rising interest rates and the threat of recession, there are counterbalancing negatives at home and abroad.

Most metals markets were assessed as being in surplus during the first half of this year. In fact, aluminum moved from a deficit last year to a surplus this year despite historically low exchange inventory levels.

China has been an exporter of many metals despite tariff barriers dissuading energy-intensive aluminum and zinc exports. So if demand were to pick up in China, it wouldn’t take much for those exports to stop. Were that to happen, an inventory-starved market outside of China would feel a sharp pinch, despite recessionary limits to demand.

It is too early to call, but China’s recent moves suggest we should not count out their boosting growth by pumping money into the construction sector. If it happens, it may serve to support metals prices in the second half of the year and next.

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U.S. steel prices continued their decline this month alongside other steel markets. Hot rolled coil, cold rolled coil, and hot dipped galvanized prices all dropped beneath their early March bottoms. HRC prices, in particular, continue to close in on the $1,000/st mark, while plate prices saw their second consecutive month-over-month decline.The Raw Steels Monthly Metals Index (MMI) fell by 6.91% from June to July with all components of the Index showing declines. 

Know what to do when the market shifts. Related article: The Art of Timing Your Buy

U.S. and European Hot Rolled Coil Returns to Pre-War Levels.

Global hot rolled coil prices declined to pre-war levels in early July as China’s lockdowns and the prospect of a global downturn weighed on prices. U.S. steel prices saw the most sizable bounce from Russia’s invasion of Ukraine after a 5-month downtrend inverted in early March.

From the early March bottom, prices increased nearly 44% until the descent resumed in late April. At the start of July, prices stood nearly level with the March low. However, the decidedly bearish trend continued, unbothered by that threshold. Indeed, hot rolled coil prices dropped 48% from their October all-time high at the end of the first week of July.

Prior to the invasion, European hot rolled coil prices remained within a larger uptrend. Meanwhile, U.S. hot rolled coil prices more than quadrupled from their 2020 low until their peak. However, European prices rose at a more moderate pace and skipped the trend reversal seen by their U.S. counterparts. The invasion, nonetheless, triggered a sharp 12% jump from March to April. Still, the effect of the conflict appeared short-lived, as prices began to slump during April. By June, the pre-war uptrend had reversed, erasing gains as prices prices fell to their lowest level since January.

Chinese Hot Rolled Coil and Steel Prices Dropping Significantly

Meanwhile, Chinese hot rolled coil prices peaked long before their Western counterparts. The uptrend, which began in April 2020, saw a sharp reversal by mid-May of 2021. This was after Beijing issued warnings on price speculation. Although the following year saw multi-month periods of consolidation and uptrending, gains were wiped out before prices could overtake previous highs by more substantial declines. Thus, prices remained within a macro downtrend.

Nonetheless, ahead of the invasion, Chinese hot rolled coil prices saw three months of steady increases. The invasion appeared to trigger a 7.4% jump over the course of a week in early March, but the spike soon corrected. And though prices rebounded, they failed to overtake that early March high before the impact of lockdowns began to take effect, and the downtrend resumed. Prices now sit almost 21% beneath their March peak at their lowest level since November of 2020.

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Chinese Steel Sector In Crisis, Inventories Pile Up

While global prices continue to trend downward, Chinese steel prices sit substantially lower than their Western counterparts. Even before the most recent lockdowns, China’s property sector, a leading consumer of steel, saw property sales, investment, and new construction drop for months. According to the National Bureau of Statistics of China, the first five months showed year-over-year contractions of  31.5%, 4% and 30.6%, respectively.

In fact, May marked the eleventh consecutive month of decline for house and apartment sales. These declines occurred in spite of China’s efforts to bolster the beleaguered sector during the same period. According to Chinese state-owned Sina Finance, China made almost 500 regulatory changes and stimulus measures related to the property sector during the first half of 2022.

While lockdowns and zero-COVID policies did not cause the property sector downturn, they certainly worsened it. For China’s steel sector, the impact of both has translated to a substantial supply glut. Currently, demand remains weak and prices continue to slide. According to a recent Bloomberg report, data from the China Iron & Steel Association showed that while inventories fell slightly from record-highs reached in June, they remain 23% above the previous year. Plummeting demand amid strong output caused numerous steelmakers to become unprofitable and forced numerous mills to curb output.

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Ba.5 Arrives in Shanghai, Threatens Infrastructure Push

Theoretically, China’s “all-out” infrastructure push should benefit the steel sector. However, the recent detection of the highly-transmissible Ba.5 in Shanghai, alongside rising case counts, could put those projects at risk.

During the first five months of the year, outbreaks caused numerous disruptions to construction projects. And while the National Bureau of Statistics reports that China’s infrastructure budget rose by 6.7% during that time, its construction sector remained crippled by lockdowns and restrictions.

Meanwhile, excavator production and sales, which are leading indicators for Chinese construction activity, showed continued declines throughout the previous year. In fact, the China Construction Machinery Association (CCMA) showed a 30.5% year-over-year drop in excavator production during the first five months of 2022. In April alone, domestic excavator sales dropped 61% from 2021.

Hitachi Construction Machinery likewise showed consistent monthly year-over-year drops in Chinese demand for hydraulic excavators. On top of that, the company’s average operating rates fell over 7% year over year during the first five months.

Raw Steels MMI: Actual Prices and Trends

  • Chinese slab prices fell by 10.7% month-over-month to $723 per metric ton as of July 1. Meanwhile, the Chinese billet price decreased by 7.59% to $616 per metric ton.
  • Chinese coking coal prices dropped 9.25% to $467 metric ton.
  • U.S. three-month hot rolled coil futures fell by 9.63% to $882 per short ton. While the spot price dropped 22.72% to $1,034 from $1,338 per short ton. U.S. shredded scrap steel prices fell by 3.64% to $476 per short ton.

Metinvest, the Ukrainian steel production and mining group, recently began the process of restarting several of their Italian flats rolling mills. The factories had been offline for scheduled maintenance throughout May. And with global supplies strained, both Metinvest and the market are welcoming the much-needed additional steel production.

Metinvest’s plate and hot rolled coil mill Ferriera Valsider, resumed operations in early July. Meanwhile, their plate roller mill, Trametal, has been back online since June. In an end-of-month update on its operations, Metinvest provided insight into how the factories’ restarting might affect the marketplace. They also outlined plans for future expansion in the face of the ongoing war.

steel production

photollurg/Adobe Stock

Ferriera Valsider and Trametal Capacities for Steel Production

According to the June 30th statement, Ferriera Valsider, located in northeast Italy’s Veneto region, can roll 750,000 metric tons per year of hot rolled coil in 1.8-20mm gauges. The site can also produce up to 1,570mm widths for construction if needed.

Valsider also has 500,000 metric tons per year capacity to produce quarto plate in 12-200mm gauges. On top of that, the site can also facilitate a 3,000mm maximum width. Applications for that product include boiler and pressure vessels, shipbuilding, construction, and feedstock for pipes.

Metinvest’s Trametal plant rests in the Friuli Venezia Giulia region, also located in Northeastern Italy. According to the tech report, that facility can roll 600,000 metric tons of quarto plate in 4-150mm gauges per year.

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Plant Maintenance Cycles Were Moved Up From August

Both the Valsider and Trametal plants shut down for maintenance in May. According to a report by the Interfax-Ukraine news agency on May 18th, maintenance normally takes place in August. However, one analyst told MetalMiner that poor market conditions for flat products in Europe, energy costs, and other woes led Metalinvest to move up their dates.

Steel Production

Indeed, official offers on hot rolled coil in northern Europe were €900 ($940) per metric ton exw in late June. This was down from €1,010-1,050 ($1,050-1,095), according to our trading source. This meant that buyers seeking larger tonnages could easily reach €850 ($885) against the official offers.

The War in Ukraine a Major Factor in Steel Production

Though energy costs have risen sharply against market demand, the need to source slab for rolling from elsewhere besides Ukrainian plant Azovstal is forcing Metinvest’s hand on many decisions. Most will remember that the Mariupol-based Azovstal plant was supplying the Italian rolling assets with slab before Russia invaded Ukraine on Feb. 24.

However, in a major news story, the plant came under heavy fire back in March. Soon after, it was also the site of an 82-day siege by Russian forces and those from the breakaway Donetsk People’s Republic (DNR). As forces attacked the port city, both Azovstal and the adjacent Ilyich Iron & Steel sustained heavy damage.

Steel Production

However, due to the ongoing conflict, the extent of the damage remains unclear, as does any hope of the plants coming back online. “There is no plan to restart while the area is under Russian occupation,” our inside analyst added.

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Metinvest Looking to Expand Further in the Short Term

Recently, Metinvest announced they were considering the construction of a new steelmaking plant in Bulgaria to bolster steel production. According to the Ukrainaian publication Ukrrudprom, the group wants to harness iron ore from its sites in the Dnipropetrovsk region.

“But, again, in order to do this, you need to be sure that we will be able to supply ore from Kriviy Rih to these countries,” said CEO Yuriy Ryzhenkov. “This is possible, but not guaranteed. We are considering different scenarios and technology strategies.”

Meanwhile, Metinvest continues to produce iron ore at its Central GOK at reduced capacity utilization. The group also plans to suspend production at the Ingulets and Northern GOKs from July 1 into the middle of the month. Those sites are in or near Kriviy Rih, in the Ukrainian part of the Dnipropetrovsk region.

Ryzhenkov did not give any indication as to what a prospective plant would cast or roll or what kind of financial commitment it would entail. However, our inside analyst believes slab to be the most likely variant. They also stated that the prospective plant’s site would likely be close to Metinvest’s longs roller Promet Steel, which lies about 25 kilometers from the port city of Burgas.

Planning Steel Production Around the Russian Invasion

Promet Steel also plans to restart operations in mid-July. This, after difficulties in acquiring needed billets from Ukrainian asset Kamet Steel prompted the Bulgarian plant to suspend operations in mid-June

Steel Production

“There have been changes in logistical routes and supply chains in the country, as well as high transportation costs to deliver goods to end customers,” a Metinvest representative stated. “Stocks of iron ore and steel products have accumulated throughout the group’s supply chain, while there have been significant delays in Metinvest’s goods crossing the border with the European Union.”

Kamet Steel, on the other hand, is in Kamianske. This is near Dnipro, a city largely unaffected by Russia’s military invasion of Ukraine. The plant sits on the banks of the river of the same name, which exits into the Black Sea at Kherson, a city now under Russian control.

Metinvest halted one of Kamets Steel’s three blast furnaces in April, leaving only one operating at present. When fully operational, Kamet can pour up to 3.5 million metric tons per year of crude steel. It then casts the product into square and round billet for commercial sale or for rolling into 1.8 million metric tons of long products.

Promet rolls 800,000 metric tons per year of rebar in 8-40mm diameters on Mill 3000, and can also produce merchant bar, including angles, flats, and rounds.

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The Rare Earths MMI (Monthly MetalMiner Index) declined more sharply in July than in June. Compared to last month’s drop of 0.64%, July’s Rare Earths index dropped a total of 3.80%. Meanwhile, both the US and Europe are frantically searching for new sources of rare earth elements.

Rare Earth Elements

Online Influence Group Causes Rare Earth Elements Uproar

This past week, news broke that a Chinese influence group created a smear campaign against Western Rare Earth miners. These influencers, speculated to be a pro-Chinese political group, carried out their campaign on social media. Some experts say this was to lower opinions about US mining corporations in favor of Chinese mining sources. How, exactly? The idea was to get environmentalists angry enough to protest en masse.

Experts also speculate that the same group has been responsible for other online campaigns in the past. Still, their efforts were largely in vain. Even so, it managed to shine a light on the feud between China and its Western adversaries over rare earth resources.

US and China

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Understanding the US’ Rare Earth Dependence

Near the end of June, another story surfaced detailing how the US is attempting to shake China’s firm grip on the global rare earth supply. It’s no secret to anyone in the metals industry that the battle between China and the US over metal resources has continued for a long time. However, with global supply squeezed from COVID-19 supply chain shortages and the war in Ukraine, the rivalry between the US and China is more intense than ever.

Though China controls most of the global rare earths supply nowadays, that title used to belong to the United States. Unfortunately, China has managed to stamp out almost all other global rare earth competitors.

US vs China

Over the past 30 years, the US started outsourcing supply more and more. This ultimately created a dependence on China and several other countries for resources that have only gone up in demand. The real question is whether or not this dependence runs deep enough to prevent the US from breaking away from China’s rare earths grip.

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US Finding Alternatives to Chinese Rare Earths

Despite China’s dominance in the global industry, the US has been attempting to find other rare earth sources. In a Reuter’s article posted last week, the US and Europe are collaborating to end their dependence on Chinese and Russian supplies. The article also details how the two world powers are striving to meet demand for rare earths while keeping climate initiatives in mind.

These efforts also strive to bring dependence away from countries of concern like Russia, who’s still invading Ukraine. In short, the US and Europe plan to stick to their guns with Russian sanctions, and this means that new supply sources must be found – and fast. Of course, electric vehicle demand continues to grow worldwide, further complicating supply and demand issues.

Metal Mining

However, a light shines at the end of this particular tunnel. The US Department of Defense recently invested heavily in a brand-new plant. This facility will source rare earth minerals from Australia, then import them to the plant for separation. If the US and Europe continue to find alternatives to Chinese and Russian rare earths, the sourcing problem won’t be as horrible as some are anticipating.

Indiana’s ARC Bumping up Rare Earth Production

The American Resources Corporation, based out of Fishers, IN, recently put out a press release discussing its brand-new rare earths initiative. The raw materials supplier stated that it would invest US $2 Million into its “reELEMENT” project. The initiative aims to bump up the corporation’s stake in the battery metals and rare earths game. American Resources was traditionally a company that provided raw materials to steel manufacturers. However, it recently branched out into the rare earths market.

If successful, this move could give the US some relief from Chinese rare earth dependence. However, the core issue isn’t the separation and purification of rare earths. Instead, it’s that the US, and other countries, need the raw elements themselves. Of course, COVID-19 restrictions have impacted China heavily in terms of raw resources. Russian, on the other hand, is more of a political problem. And while an initiative like American Resource’s will certainly help, it is more of a “band-aid” than a solution.

Rare Earth Elements

New Information Released Regarding Mining Projects in Malawi

Along with China, numerous parts of Africa are known to have abundant rare earth resources. Could this help alleviate the global supply pinch? It’s entirely possible. In fact, Mkangos, a company that scouts out rare earth elements in Africa, recently announced that they made major headway with their Songwe Project. The long-term DFS (definitive feasible study) aims to mine numerous rare earth elements, separate them in Mkangos plants, and nurture Mkangos‘ rare earth magnet recycling interests.

After almost two decades of operation, Mkangos hopes to get the project operational in the very near future. Once the Songwe Project reaches full momentum, it will regularly produce large amounts of neodymium, praseodymium oxides, dysprosium, and terbium oxides. All in all, the project has a rather-optimistic goal of hitting 5,954 tonnes of rare earths per year. Should they realize this, it would go a long way towards alleviating the global rare earths crisis.

Rare Earth Monthly Trends, Facts and Figures

  • Praseodymium oxide took a slight price hit, falling 1.55% to $144,077.16 per metric ton.
  • Dysprosium fell a bit more drastically by 4.85% to $365.62 per kilogram.
  • Chinese neodymium also fell slightly. The price decreased 0.9% to $176,177.25
  • Terbium oxide dropped around the same amount as dysprosium did. There was a 4.14% decrease leaving terbium prices at $2,665.05 per kilogram.

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The Automotive MMI (Monthly Metals Index) experienced another decline from June to July. After a -6.53 drop last month, the 30-day price change jumped to -7.77%. As with the previous months, the automotive industrial metal marketplace has been plagued by problems. Curiously enough, it’s supply – not demand – that can’t make any headway towards normalization. Below, we’ll discuss some of the latest news affecting the global automotive marketplace.

Industrial Metal

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Dude, Where’s Our Cars? U.S. Automotive Industrial Metal Tighter Than Ever

Recently, Cox Automotive revised their sales predictions for the rest of 2022. Though all the figures are not yet in, they set their June sales forecast at 13.8 million. This is up from the previous month’s 12.7 million units but far below what we saw in 2021. As if that weren’t bad enough, the company’s current yearly forecast for new vehicle sales remains lower than we saw in 2020.

How can a “recovering” industry fail to meet mid-pandemic numbers? Cox was quick to cite inventory as the major driver of the buying slowdown, but analysts certainly aren’t ignoring the worsening global economy. According to Cox’s Senior Economist, Charlie Chesbrough, they have demand, particularly for electric vehicles. However, the roadblocks between raw material suppliers, manufacturers, and consumers just keep multiplying.

Industrial Metal

Last month, Cox also sounded the alarm about monthly car payments, which had hit a shocking average of $712. Of course, even buyers seeking used vehicles are getting pinched by price increases. Many experts say that it’s frustrating to see so much demand and no supply. In fact, some think it’s only a matter of time before most buyers simply throw in the towel on their new car prospects.

Will this give the supply side the chance to catch up or just toss another wrench into the industry’s sputtering machine?

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Manufacturers Think the Chip Shortage May Stretch into 2023 (or 2024)

One of the main factors hamstringing global auto supply is the ongoing semiconductor shortage. Unfortunately, hopes of seeing any relief in this area were dashed yet again at the World Economic Forum this Spring. There, Intel CEO Pat Gelsinger stated that supply problems would most likely continue into at least 2023. He subsequently admitted that 2024 would be more likely.

As with most other commodities, the shortage of microchips is a multifaceted problem. During the pandemic, home electronic sales went through the roof. However, factories were also forced to slow production or shut down entirely. As the Law of Supply and Demand reared its familiar head, it wasn’t long before shortages, and price increases became the norm.

Then came the invasion of Ukraine. This drastically affected the supply of neon gas, which is essential to the conductor market. Russia, on the other hand, supplies between 25% and 30% of palladium, another semiconductor necessity. As sanctions on the country began to roll out, the palladium did the opposite.

Russia VS Ukraine

GM Removing Non-Essential Functions

Of course, Gelsinger’s announcement was only surprising to industry outsiders. Auto manufacturers have been scrambling for months, trying to find a way to build cars around the shortage. GM removed heated seats from many of the vehicles, telling customers they’d reinstall the feature as soon as chips became available. Other companies started limiting secondary non-essential functions altogether.

But the news isn’t all gloom and doom. McKinsey & Company recently published an article detailing how the Automotive Industry could circumvent the problem. Though they admit that there are no “short-term” solutions, the company sees the post-pandemic shortage as a chance to shore up supply lines for the future. If chip suppliers and car companies use this as a learning opportunity, it could be the last time we see scarcity on this scale.

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Industrial Metal and Cars: The Future is Electric

Despite all the issues plaguing the Automotive marketplace and industrial metal, it’s hard to ignore the fact that we’re in the middle of a tech revolution. A new CBS poll recently found that 59% of Americans are considering buying an electric vehicle. Moreover, sales of hybrids and EVs doubled last year, setting a new record of 6.6 million units.

Electric Vehicle

An electric car charging in California

Of course, this shift was intended to created interest in new technology or a desire to live “more green.” Instead, it’s largely the result of anger and outrage over skyrocketing gas prices. In that way, it’s less like the move from horses to cars at the beginning of last century. Unless the impetus back then was a major surge in the cost of oats.

But it’s important to keep things in perspective. These types of shifts are normally good economic news, presenting opportunities for companies of all kinds to produce new, exciting products and services to support them. For instance, Sony and Honda announced a joint BEV venture. French car giant Renault wants to re-imagine their Alpine sports car with fully electric capabilities.

What’s the Verdict?

The takeaway: more and more people want off gasoline. And whether they go into the future happily or begrudgingly, they are going nonetheless. This means a lot for metals commodities, especially battery-related minerals like lithium, cobalt, and nickel. It means a lot for battery companies, who are pressured by the market to produce newer, better, and more effective products.

Lastly, it means a lot for the balance of the global economy and industrial metal. In the very near future, having oil reserves might not be the economic and international relations “blank check” it used to be. Will it be great? Will it be a disaster? It’s impossible to tell. But one thing’s for sure: it will be different. For those who aren’t enjoying 2022 very much, “different” might be good enough.

Automotive MMI: Actual Metal Prices & Trends

  • Korean aluminum experienced no price change this month per kilogram, compared to June’s slight price drop.
  • Chinese lead prices dropped further this month, falling around 1.86% per metric ton.
  • US shredded scrap steel took another hit this month as well. Priced dropped an additional 3.64% per short ton.
  • Palladium bars, like many precious metals, followed a downward trend in July. Prices fell 4.51% per ounce.
  • Platinum bars followed suit with palladium taking a price hit. The price per ounce fell 7.46% per ounce.
  • LME copper dropped a staggering 13.49% per metric ton.
  • US HDG steel took a most drastic hit, plummeting 14.55% per short ton.

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