Articles in Category: Product Developments

Liquefied natural gas . donvictori0/Adobe Stock

Natural gas has long been promoted as a less-polluting alternative to coal and less-costly alternative to nuclear power.

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Its green credentials are not whiter than white, but relative to coal, modern combined cycle gas turbine power plants (CCGT) are highly efficient, emit low levels of pollution and crucially can be turned on and off quickly to provide intermittent or peak power demands, in addition to balancing more variable sources (such as renewables).

The Non-Nuclear Option?

After Fukushima, many major economies have moved away from nuclear.

In addition to Japan’s near complete shutdown of its nuclear generating capacity, Germany followed suit. Even France, long a champion of nuclear power, has said less of its generating capacity will be met by nuclear in the future.

The expectation was that natural gas would be the natural successor to nuclear power, as countries took an increasingly responsible view to reducing carbon emissions. But despite a surge of investment in natural gas liquefaction facilities and the construction of new liquefied natural gas (LNG) carriers, the growth in LNG consumption has been much lower than expected.

LNG Demand Drops in Europe

In fact, some markets are going backwards, the FT reports.

Natural gas demand in Europe is 12% lower than it was 10 years ago. Chinese and Indian demand continues to grow, but the dramatic gains by solar power and wind, where costs have fallen 85% since 2009, have severely limited the prospects for natural gas as a power source.

Indeed, India’s entrenched coal industry and coal-based electricity generating capacity means its future is likely to be predominantly solar and coal — not natural gas at all.

China, like Europe, has adopted renewable power (particularly wind) on the basis of cost, as costs have tumbled for both solar and wind (again, particularly wind) to below the cost of natural gas.

As new supply-side capacity comes onstream, the market for natural gas has shifted from long-term contracts signed prior to new LNG facilities even being started to a competitive spot market; yet even here, prices are not low enough to spur a significant switch from renewables investment to gas.

Only in the U.S., where shale gas prices are low, has natural gas consumption risen significantly. However, even that is more geared toward chemicals feedstock and to supply exports rather than to meet rising demand due to power generation.

Looking Ahead

The future, at least over the next few years, is not any rosier for gas producers.

U.S. production is rising, Russia is opening up new resources in the north and is looking to export more, projects in Australia have created a major competitor to Qatar and Middle Eastern suppliers. Meanwhile, the world’s second-largest reserves in Iran are waiting for investment to bring them to market. The Financial Times suggests new finds in the eastern Mediterranean by Israel, Egypt, and off East Africa may never see sufficient investment to develop liquefaction and export, and are destined only for local consumption.

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This is not exactly music to the ears of aluminum producers for whom LNG liquefaction and regasification plants and the construction of LNG carriers has been a particularly profitable niche industry over the last decade. LNG gas codes call for controlled chemistry and manufacture that has created a higher value add industry for more sophisticated and capable producers.

Despite steel producers’ best endeavors, aluminum continues to make inroads into the industry’s previously unassailable position as construction material of choice for the automotive industry.

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Stronger and, hence, thinner grades of steel allow automotive body formers to find new applications for steel where aluminum seemed like the obvious choice. However, at best this is slowing the uptake of the light metal, not turning the situation around.

Novelis’ announcement that it is bringing its automotive alloy Advanz 6HF – e/s200 to North America after successful development and uptake in Europe only re-enforces the impression that both steel and aluminum producers are innovating and investing like mad — but aluminum is gradually winning market share.

And it is not hard to see why. Aluminum has lower mechanical properties than steel when compared on samples of the same thickness, but has the far lower weight, 2.7g/cm3, compared to 7.85g/cm3. This means thicker sections or parts can be formed while still achieving substantial weight gains.

Novelis Advanz 6HF – e/s200 is one of a range of alloys the firm has developed broadly based on the 6000 series with careful control of alloying elements and production giving enhanced properties. But in some applications producers have developed 7000 series alloys as used by the aerospace industry in aircraft wings and bodies to achieve even higher properties.

7000 series alloys are harder to form and more expensive but have even higher mechanical properties — circa 600MPa compared to circa 300Mpa for 6000 series — and allow automakers to achieve better weight gains. In an Aleris presentation, the company illustrated how the use of 3.5 millimeter thick 7000 series alloy in the manufacture of B pillars achieved the same safety crash performance as 2 mm boron UHS steel, but resulted in a 40% weight saving.

As if to reinforce Novelis’ announcement, competitor Aleris has just opened its new $400 million auto body sheet production centre in Lewisport, Kentucky, and started delivering product to customers. Like Novelis, the firm uses primarily scrap as its feedstock, boosting its green credentials. Aleris produces a range of proprietary alloy grades with enhanced properties over common 6061 grades specifically tailored for a variety of automotive applications. The 6000 series is the industry’s grade family of choice, as they sit comfortably between cheaper and less strong 5000 series and stronger but more expensive (and often harder to form) 7000 series.

In Europe, manufacturers like Audi are going Body in White — meaning the whole structural body shell, plus closing panels like hood, trunk and doors, as wholly or largely in aluminum.

Not surprisingly, this is more at the premium end of the market, where the pressure to improve fuel economy from larger engines is greatest and where higher margins can more readily absorb the cost of using aluminum.

But you do not need deep research to show the direction — Repair and Drive in a recent article quoted a Ducker Worldwide study that predicted that aluminum doors will have gone from virtually zero use as a material in 2014 to 25% of the North American fleet in 2020.

Underlining how rapid the uptake is underway, the consulting firm also estimated 71% of hoods would be aluminum by 2020, up from 50% in 2015, and bumper beams would grow from 33% aluminum in 2015 to 54% in 2020, the article explained.

The current administration’s adverse reaction to broader climate change policies is not the issue here. Automotive is a global business and U.S. manufacturers need to be at the forefront of design and material use to maintain their global positions. The legislation for ever higher fuel efficiency is going to remain a relentless one-way dynamic, encouraging automotive construction to use ever lighter materials and aluminum producers to continue to innovate with alloys and production processes to meet the industry’s demand.

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For now, the focus is on improved 6000 series; in time, more components will justify the use of 7000 series alloys. Either way, the industry has shown it is willing to spend big bucks to stay in what is proving to be a very lucrative race.

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

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

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

Rising Graphite Electrode Prices

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

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

Source: Graftech

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

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

Brent Crude Oil prices. Source: TradingEconomics

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

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

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

Coal prices. Source: TradingEconomics

The Role of Coal

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

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

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

However, needle coke production is mainly located in China.

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

Graphite Electrode Market Suppliers

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

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

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

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

Producers Ought to be Asking…

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

Our New Calculation

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

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

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

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

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

Source: MetalMiner analysis of Safe Metal content

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

How Does This Impact Steel Prices?

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

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

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

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

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

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

One could say it’s slightly ironic that an industry championed in the U.K. as an area of expertise to be taken to the world is in practice dominated here by a Danish company, Dong Energy.

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The industry is offshore wind turbines — and I make the distinction between onshore and offshore because many countries have been early adopters of wind turbines. The U.S. invested $14.5 billion in wind power project installations in 2015, and China leads the world in onshore wind generating capacity. Offshore, however is only just taking off — no pun intended.

The principal driver in offshore’s growth is cost, according to an article from Wind Energy Update: “Danish company Vattenfall’s record low offshore wind price of 37.2 ore per kWh (49.9 euros/MWh; $53/MWh) for the 600 MW Kriegers Flak project last year showed how falling costs and new tenders are spurring intense price competition in the offshore wind market.”

Cost reductions are being driven in part by the development of ever larger turbines, more practical off shore than on shore, where aesthetic objections are more frequent with giant wind turbines accused of spoiling the landscape. Wind also blows more consistently off shore, increasing the utilisation rate of offshore turbines closer to that of conventional power sources. Read more

This doubtful week, a Stanford economist made the bold proclamation that electric vehicles will completely displace their petrol and diesel counterparts by 2025, and India’s plan to triple steel production by 2030 was met with more than a few raised eyebrows.

Grand Plans

AdobeStock/yuratosno

Speaking of India, its ascent as a promising market for renewable energy has been truly impressive. Consultancy EY recently published its 2017 Renewable Energy Country Attractiveness Index (RECAI), and India took the number two spot, beating out the U.S., which slipped to third place.

India had been number nine in 2013, before Narendra Modi, who views developing renewable energy to wean India off coal as a top priority, became prime minister. Modi aims to boost India’s renewables capacity to 175 GW by 2022 (currently capacity stands at 57 GW).

India has similarly high ambitions for steel, as Sohrab Darabshaw reported earlier this week. The country aims to triple its steel production capacity by 2030, which would mean adding 182 million tons of capacity. Read more

Earlier this decade, there was no lack of hype around electric and hybrid cars. Sales were expected to take off, driving demand for lithium, nickel, cobalt and a host of rare earth elements above supply.

That was, in part, motivation for a rare earths bubble, but demand have remained manageable as high sales of electric vehicles have failed to materialise. In reality, electric and hybrid cars have gained traction only gradually as the range of EVs grew and as hybrids struggled to make dramatic improvements in fuel efficiency resulting from advances in internal combustion, particularly diesel engine technology.

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Sooner or later, however, a combination of improving technology and pressure from legislation forcing changes in buyer choices should result in electric vehicles merging into the mainstream. A sure sign that the day is drawing nearer would be when established main brands set targets for themselves.

Well, this week Volkswagen did just that. The Financial Times covered an announcement made by Herbert Diess, head of the VW brand (the largest part of the VW Group), that the brand would sell one million electric cars by 2025 and leapfrog Tesla as the world’s premier volume EV manufacturer. As part of VW’s central plan, the FT reports, the firm is going to sell electric cars at the price of today’s diesel models and intends the entire electric fleet to be profitable from day one. Read more

10 years ago, the concept of self-driving cars seemed the stuff of science-fiction. Today, self-driving cars are not an uncommon sight in some cities and the U.K. government has just approved their trial operation between London and Oxford in a bid to bring the technology more rapidly to market.

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Companies like Google, Uber, Apple and a host of mainstream automotive giants are all investing hundreds of millions of dollars to bring the technology to reality. Over a few brief years, we as the general public have begun to accept the statistics that self-driving cars are dramatically safer than those is piloted by human beings.

Flying car!

Why don’t we have flying cars yet? They’ve been promised by science fiction for decades. Source: Adobestock/Sergeysan.

As a result, acceptance by both the public and the insurance industry is now almost a given for the probable implementation by the end of this decade. But what of flying cars? A concept equally the stuff of science fiction for 70 years or more that now thanks to the dreams and deep pockets of Silicon Valley entrepreneurs may be becoming a reality sooner than we think.

Uber has announced plans to demonstrate flying vehicles by 2020 in Dubai and in the Dallas Fort Worth area, with full scale operations by 2023 the Financial Times reports. Unlike its efforts in self driving cars where Uber has spent hundreds of millions of dollars to develop the technology in-house for flying cars the ride-hailing service is forming partnerships with established aerospace firms like Brazil’s Embraer, Bell Helicopter; Mooney, a Texas-based light aircraft manufacturer and Aurora flight sciences, a Virginia-based drone maker. Like Uber’s taxi service, the firm sees flying taxis as being initially human piloted but later autonomous as the technology and FAA approval permits. Construction of four landing pads will begin in the Dallas Fort Worth area within the next year the FT reports and as part of the Dubai Road and Transportation Network Study into flying cars, Uber expects to have a demonstration service running there to coincide with the World Expo in 2020. Read more

Philadelphia Energy Solutions Inc., the largest refiner on the U.S. East Coast, will not be taking any rail deliveries of North Dakota’s Bakken crude oil in June, a source familiar with delivery schedules told Reuters on Tuesday, a sign that the impending start of the Dakota Access Pipeline is upending trade flows.

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At its peak, PES would have routinely taken about three miles’ worth of trains filled with Bakken oil each day. But after the $3.8 billion Dakota Access Pipeline begins interstate crude oil delivery on May 14, it will be more lucrative for producers to transport oil to refineries in the U.S. Gulf Coast.

Alcoa Moves Headquarters Back to Pittsburgh

Alcoa Corp. announced today that the company’s expansive Pittsburgh, Pa., office will soon serve as its global headquarters again, a decade after its predecessor, Alcoa Inc., left for New York City.

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Alcoa said in a statement that its headquarters in New York would be one of seven offices in the U.S., Europe and Asia that would shut in the next 18 months in a cost-cutting initiative. Alcoa had kept its offices in Pittsburgh’s North Shore even after it moved the headquarters to Manhattan, with the bulk of its administrative functions remaining in Pittsburgh. Now, the Pittsburgh presence will once again serve as the company’s international headquarters.

India’s renewable energy sector just got bigger thanks to an investment from U.K.-owned CDC Group  of up to $100 million to support renewable energy projects.

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The announcement was made by the U.K.’s Secretary of State for Business, Energy and Industry Strategy Greg Clark at the inaugural India-U.K. Energy for Growth Dialogue in New Delhi on April 6. He also met with India’s Minister for Power, New & Renewable Energy, Coal and Mines, Piyush Goyal, to talk about large-scale, private sector investments between the two countries in the area of energy.

The two ministers agreed that on the power and renewables front, the focus will be on the introduction of performance-improving smart technologies, energy efficiency and accelerating the deployment of renewable energy.

For some time now, CDC Group Plc, the U.K. government’s development finance institution, has made its known that it seeks to set up its own renewable energy platform focused on the eastern part of India, and even neighboring countries such as Bangladesh.

The finance institution is contemplating leveraging its experience in running Globeleq Africa, a company in which it acquired a majority stake in 2015, for green energy investments in Asia. Globeleq has a 1,200-megawatt gren power generation capacity spread across Côte d’Ivoire, Cameroon, Kenya, South Africa and Tanzania.

As reported by MetalMiner, India aims to generate over half of its electricity through renewable and nuclear energy by 2027. The world’s largest democracy published a draft 10-year national electricity plan in December, which said it aimed to generate 275 gigawatts of renewable energy, and about 85 gw of other non-fossil fuel power such as nuclear energy, by the next decade. This would make up 57% of the country’s total electricity capacity by 2027, more than meeting its commitment to the Paris Agreement of generating 40% of its power through non-fossil fuel means by 2030.

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India has been taking massive forward strides in the renewable energy sector. Already, as per one estimate, it is set to overtake Japan as the world’s third-largest solar power market in 2017.  Taiwanese research firm EnergyTrend predicted that the global solar photovoltaic demand was expected to remain stable at 74 gw in 2017, with the Indian market experiencing sustained growth. The country was expected to add 14% to the global solar photovoltaic demand, the equivalent of the addition of 90 gw over the next five years.

Arconic Inc. said today that Klaus Kleinfeld has stepped down as chairman and chief executive officer, leaving the specialty metals company after heavy pressure from activist investor Elliott Management Corp.

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Kleinfeld’s departure came after he sent an unauthorized letter to Elliott Management that Arconic’s board said showed poor judgement. The internal battle between Kleinfeld and Elliott had been going on ever since the company was created by a split with the commodity aluminum production half of what used to be Alcoa, Inc., that company is now Alcoa, Corp.

Kleinfeld was appointed CEO of Alcoa, Inc. in May 2008 and shepherded the combined company through the commodities down-cycle. Leaving with Arconic was supposed to be a path to consistently higher profits, without the threat of commodity cycles harming the bottom line. But, as we have noted before, Alcoa Corp. has been flying high along with all other commodity aluminum producers ever since while Arconic has not been able to take advantage of the higher price of commodity-grade products.

Pruitt-Led Obama Rewriting Coal Plant Emission Rules

The Trump administration is moving to rewrite Obama-era rules limiting water pollution from coal-fired power plants. Scott Pruitt , the administrator of the Environmental Protection Agency , sent a letter announcing his decision to a coalition of energy companies that lobbied against the 2015 water pollution regulations.

The EPA’s regulations would have required utilities, by next year, to cut the amounts of toxic heavy metals in the wastewater piped from their plants into rivers and lakes often used as sources of drinking water. Arsenic, lead and mercury and other potentially harmful contaminates leach from massive pits of waterlogged ash left behind after burning coal to generate electricity.

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The Utility Water Act Group petitioned Pruitt last month to reverse course on the regulations, which they claim would result in plant closures and job losses. Pruitt responded Wednesday, saying he would delay compliance with the rule while EPA reconsiders the restrictions. EPA will also request that the U.S. Court of Appeals for the Fifth Circuit freeze ongoing lawsuits filed over the rules by energy companies.