Yet, the turmoil being experienced by the industry is much more about the stop-go of last year.
Rather than cause a retrenchment, the pandemic has helped accelerate the move to electrification.
The greatest spur, however, has undoubtedly been government legislation.
EU penalties on carmakers that fail to meet emission reduction targets are driving a mass migration from internal combustion engines (ICE) to hybrids and fully electric vehicles. After a slow start, European carmakers are adopting aggressive transition plans.
Volkswagen goes all in on electric vehicles
Just this past week, Volkswagen announced — to the joy of its shareholders, who piled in to push shares up 20% — that the German automaker aims to become the global leader in electric cars by 2025. The automaker is placing heavy bets on next-generation lithium-ion batteries, the Financial Times reported.
Volkswagen says it will sell 1 million electric or hybrid cars this year, a tenfold increase from 2019, with half being fully electric vehicles and the rest plug-in hybrids.
After what was a frigid month across the country, February housing starts declined in the US. February saw a historic chill in Texas and elsewhere in the region — in addition to inclement weather in other, traditionally colder parts of the country — that led to many losing power and a decline in natural gas production, among other impacts.
The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.
US housing starts fall 10.3% in February
With residential and commercial customers losing power across most of Texas last month, it’s not surprising that construction activity slowed.
According to the US Census Bureau’s latest report today, US housing starts reached a seasonally adjusted annual rate of 1.42 million. The February rate marked a 10.3% decline from the previous month.
Furthermore, the rate declined by 9.3% from February 2020.
Furthermore, single-family housing starts in February reached a rate of 1.04 million, or down 8.5% from January. In addition, the February rate for units in buildings with five units or more reached 372,000, the Census Bureau reported.
Building permits also decline
In addition, building permit authorizations declined in February by 10.8%, down to a rate of 1.69 million.
Meanwhile, single-family authorizations fell 10.0% to a rate of 1.14 million. Authorizations of units in buildings with five units or more reached a rate of 495,000.
This morning in metals news: the European Parliament recently voted on a resolution for a Carbon Border Adjustment Mechanism; China’s steel output reached nearly 175 million tons in January and February; and the US CRC price has widened the spread with the China CRC price.
European Parliam passes Carbon Border Adjustment Mechanism
Last week, the European Parliament passed a resolution for a Carbon Border Adjustment Mechanism.
“The European Parliament has sent a clear signal that a workable carbon border measure is of critical importance for the transition of industry towards climate neutrality,” said Axel Eggert, director general of the European Steel Association (EUROFER). “The measure must fill the gap of the carbon cost differential with global competitors and imports instead of replacing or reducing current levels of carbon leakage protection.”
Eggert added straight replacement of free carbon dioxide certificates for a border measure would be “bad policy.”
“Primary steelmaking makes up three-fifths of European production, and such producers would face carbon costs at least twenty times higher than global competitors exporting to the EU,” Eggert added. “This vote shows that the Parliament intends to defend manufacturing and jobs in Europe.”
China churns out 175M tons of crude steel in January, February
The Chinese steel sector produced 175 million tons of steel in January and February, according to National Bureau of Statistics data reported by Reuters.
Average daily output during the aforementioned period reached 2.97 million tons per day. The average came in higher than daily output in December 2020 and January-February 2020, Reuters reported.
US CRC widens gap with China CRC
The US CRC price has become increasingly expensive relative to the China CRC price.
US CRC closed Monday at $1,429 per short ton, or up 8.04% from a month ago.
Meanwhile, China CRC closed at $850 per short ton, for a spread of $579.
This morning in metals news: U.S. Steel announced the acquisition of patents from The NanoSteel Company, Inc.; meanwhile, China is eyeing stronger management of its mineral resources; and, lastly, Rio Tinto plans on building a new tellurium plant at its Kennecott mine.
“The NanoSteel Company designed and developed patented proprietary alloys which derive exceptional mechanical properties from their nano-scale microstructure, which creates a unique combination of extreme strength with the enhanced formability normally found only in low-strength mild steels,” U.S. Steel said in its announcement. “The NanoSteel® grades can be rolled thicker than other high-strength grades and are designed for automotive and heavy industrial applications where higher strength-to-weight ratios are essential.”
For the half-year ending Dec. 31, 2020, Lynas reported net profit of $40.6 million. That compared with net profit of $3.9 million in the same six-month period in 2019.
Furthermore, it reported EBITDA of $80.6 million during the second half of 2020, up from $44.2 million during the equivalent period the previous year.
“This half year demonstrated our ability to achieve strong results across all key financial metrics, while running production at 75% of Lynas NEXT rates,” Lynas CEO Amanda Lacaze said. “Despite ongoing uncertainty in the global economy and logistics/supply chain systems due to the effects of the pandemic, Rare Earths market settings were favourable and pricing for Rare Earths materials improved. We demonstrated our ability to capitalise on this upside during the period, with cost of sales maintained at $150.8m while achieving an increase in sales revenue to A$202.5 million.”
The half-year report also offered updates on several projects.
“Progress on Lynas 2025 projects continued,” the financial report stated. “A number of project milestones were achieved and critical path items secured for the Kalgoorlie facility during the period. The USA projects team continued to progress the Phase 1 planning and design work for a U.S. based Heavy Rare Earths separation facility. In line with Department of Defense Phase 1 milestones, we expect this Phase 1 work to be completed in the 2021 financial year.”
The automotive intelligence groups forecast a 3.3% increase year over year when adjusting for differences in selling days.
“Despite challenges posed by inclement weather in most of the country, retail sales demand continues to be strong with the industry posting a second consecutive month of year-over-year gains,” said Thomas King, president of the data and analytics division at J.D. Power. “Typically, weather related sales disruptions are made up in the weeks following, so most of the sales lost at the beginning of February will be made up at the end of February and trail into early March.”
This morning in metals news: US construction spending picked up in January; meanwhile, the Federal Register published the text of President Joe Biden’s latest executive order; and, lastly, the copper price came back down to close last week.
In its analysis, the DOC used sales information for Jiangsu Zhongji Lamination Materials Co., Ltd. and Xiamen Xiashun Aluminum Foil Co., Ltd.
“The Aluminum Association and its members are pleased that the Commerce Department continues to enforce vigorously the anti-dumping and countervailing duty orders on aluminum foil from China,” said Tom Dobbins, president and CEO of the Aluminum Association.
Dobbins said the unfair trade orders are “leveling the playing field.”
However, he also said it is “discouraging” that Chinese producers are exporting foil using unfair trade practices.
“Today’s announcement reinforces the need for continued vigilance to ensure that foil imports from China are competing fairly in the U.S. market,” he added.
The Department of Commerce calculated a combined anti-dumping and countervailing duty rate of 71.98% for Jiangsu Zhongji Lamination Materials.
Meanwhile, the DOC calculated a combined rate of 67.45% for Xiamen Xiashun Aluminum Foil Co.
The duties also apply to “other cooperative respondents” whose shipments the DOC did not analyze individually.
The calculations cover aluminum foil that came into the United States between Aug. 14, 2017 and March 31, 2019.
“The unfair trade orders on aluminum foil from China continue to be effective in ensuring fair competition with imports from China,” said John M. Herrmann, lead counsel to the domestic industry. “We will continue our efforts to ensure the effectiveness of these unfair trade orders, including aggressive efforts to identify and thwart schemes to evade enforcement of the orders.”
Meanwhile, the Department of Commerce late last year launched investigations related to aluminum foil imports from five other countries.
The DOC in October launched probes related to imports from Armenia, Brazi, Oman, Russia and Turkey.
The period of investigation runs from July 1, 2019, to June 30, 2020.
As we’ve noted in our Rare Earths Monthly Metals Index (MMI) series, rare earths supply has long been a point of concern for the US, particularly the Pentagon. (Recently, MetalMiner’s Stuart Burns delved into China’s overwhelming control of the rare earths processing market and indications Beijing is considering tighter rare earths export regulations.)
In that vein, the president’s latest executive order — his 33rd in just over a month in office, which the White House said he would sign Wednesday — aims to secure those critical supply chains.
The White House said the order focuses on six key areas:
the defense industrial base
the public health and biological preparedness industrial base
the information and communications technology (ICT) industrial base
the energy sector industrial base
the transportation industrial base
supply chains for agricultural commodities and food production
Whether the new Biden administration creates a more insightful or sophisticated approach to trade remains to be seen.
But, if nothing else, a new administration is a chance for a reset on policies that have not worked as intended under a previous administration.
Aluminum tariff policy
The previous administration’s Section 232 tariffs on aluminum of 10% were well intentioned. The tariffs aimed to try to reverse the decline in US domestic aluminium smelting capacity.
In recognition of aluminum’s role in defense and aerospace applications, the government viewed the growing level of imports as a threat to national security. As such, creating a barrier to imports intended to allow US smelters to operate profitably and encouraged firms to reopen idled capacity. Furthermore, the hope was that, in time, firms would open new smelters.
The previous decade had been brutal for the US aluminium smelting industry.
But even accepting that the COVID-19 pandemic made 2020 a far from typical year, it has become clear the tariff strategy has not worked on a number of levels.
While the inflationary cost of finished goods has been minor, the aluminum content even of a can of beer is a small fraction of the total product cost. It remains true that consumers have had to foot the bill.
It was always the intention that domestic producers would raise their prices to the import plus tariff price. The corresponding uplift was what was supposed to allow them to operate profitably again, to arrest the decline and reopen idled capacity.
Annualized production rose to 1.15 million tons at the end of 2018 from 750,000 tons a year earlier. The increase, however, proved short-lived. By the end of last year, national annualized production had fallen to 920,000 tons and capacity utilization to about 50%, Reuters reported.
Equally worrying the post states, there has been no new smelting capacity. The United States remains as dependent as ever on imports of primary metal.
Aluminum tariff and Canada
Buyers will remember the spike in prices that followed the reinstatement of tariffs on Canadian aluminium predicated on the “surge in imports,” as the Trump administration claimed at the time.
The reality was Canadian-origin metal had simply made up for the absence of Russian metal following Rusal’s pivot away from the US, largely to Asian markets, following the earlier sanctions on owner Oleg Deripaska. Russian imports collapsed from 725,000 tons in 2017 to only 136,000 tons last year. Shipments from Canada simply filled the gap, rising 10% in 2019.
The previous administration seemed to accept that imports from Canada should not be considered a strategic risk. Ultimately, it removed the tariff in September 2020.
But what of potential suppliers elsewhere? Would it not be of value to the US to widen its non-tariff supply base?
Biden rescinded permission to exempt the UAE recently for what seemed like political rather than national security reasons. China has never exported primary metal, so it remains irrelevant to this policy.
The years ahead
How the US handles imports of semi-finished products going forward will be the topic of a separate post. The US has inherited a fractious trade landscape as a result of the last few years.
It does so at a time of a fundamental re-evaluation of its trade priorities. Many would argue that re-evaluation is long overdue.
That re-evaluation includes its relationship with China. In that vein, the US is better off by working in cooperation with its allies and neighbors than the unilateral policies of the previous administration that have largely failed to deliver benefits.