Commentary

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It’s a story of two democratic countries and the policies they pursue vis-à-vis energy.

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So while the U.S. under President Donald Trump is kind of trying to revive its coal industry, far away India is doing the opposite – embracing clean energy with a vengeance and relying on it for much of its energy needs.

That’s one of the many reasons why India has also managed to beat the U.S. to the number two position in the renewable energy investment index released recently by UK-based accountancy firm Ernst & Young. China has continued to remain on top of this list, while the U.S. is now third. This is an annual ranking of the top 40 renewable energy markets in the world.

Those who prepared the report said that industry-friendly policies laid down by the Indian government, along with increasingly attractive economics, had changed the entire climate of the renewable energy sector of India.

Under Trump, the U.S. is seeing a shift in its energy policy. The president has issued orders to roll back many of the previous administration’s climate change policies, revive the U.S. coal industry and review the Clean Power Plan. Compare this to India’s neighbor China, which has announced that it would be spending $363 billion on developing renewable power capacity by 2020. Read more

The U.S. dollar got a boost after the presidential election as markets were encouraged by prospects of lower taxes, fiscal stimulus and deregulation that would accelerate growth of the American economy.

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But this month, the dollar has fallen sharply, hitting a seven-month low. A weaker dollar gave some relief to depressing commodity markets.

Commodity index (in black) rises as Dollar index (in green) falls. Source: MetalMiner analysis of stockcharts.com

Why then is the dollar losing its luster now?

First, the dollar had steadily risen for three consecutive months. It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.

Selling intensified after the recent political turmoil around President Donald Trump as investors worry over political stability in the U.S. Investors also worry that under these political turbulences, the Trump administration will struggle to implement the pro-growth initiatives that markets had taken for granted. Finally, the euro appreciated against the dollar as political risks in Europe eased following the French elections.

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US Dollar Index could bounce back up soon. Source: MetalMiner analysis of stockcharts.com data

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What happens when an illegal business practice becomes so common and virtually accepted that it ultimately gets difficult to break?

Many U.S. manufacturers would argue that we’re in a period of global trade that features one such practice: trade circumvention. The most slippery aspect of ferreting out circumvention is first defining which segment of industry gets harmed the most, before even knowing what to do about it. Is it the upstream sector, including primary steel, textiles or plastics production? Or the downstream sector, such as the residential washing machine business?

MetalMiner Executive Editor Lisa Reisman makes the case that the lines between upstream and downstream manufacturing have blurred in this new report, Rules-Based Trade Remains Critical to Manufacturing Health.

But first we must understand the basics. Here’s an excerpt from that paper defining the landscape of trade circumvention in a short primer.

What is Trade Circumvention?

According to the Organization for Economic Cooperation and Development, circumvention refers to “getting around commitments in the WTO such as commitments to limit agricultural export subsidies. It includes: avoiding quotas and other restrictions by altering the country of origin of a product; measures taken by exporters to evade anti-dumping or countervailing duties.”

Four steel producers filed a petition last September, charging China with circumventing anti-dumping and countervailing duty orders for corrosion-resistant carbon steel and cold-rolled carbon steel by sending substrate materials to Vietnam for processing and re-export. The claim appears to be supported by trade data (as shown by an spike in Vietnamese cold-rolled and CORE imports after November 2015 while the same Chinese imports drastically decreased after duties were imposed on the latter, for example). Read more

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Last month, China announced plans to build a new megacity from scratch. Since the city will be twice the size of New York City, analysts expect the project to require huge amounts of steel and other industrial metals such as aluminum and copper.

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According to Citi Research analysts, 12-14 million tons of extra steel will be required annually to build this new development. Since the country’s current domestic demand is about 700 million tons, that would lift Chinese steel demand by 2% per year over the next 10 years.

But are the analysts correct? Should we expect a steel demand boost over the next 10-15 years?

Although building this city from scratch will indeed require a lot of steel, analysts are making the mistake of missing the forest for the trees. The key driver for steel demand in China is the net migration from the countryside to cities. It doesn’t really matter whether China builds a new megacity or it expands its city limits. The key measure is the rate of urbanization in the country at a national level.

Urban and rural population in China. Source: China’s Economy book by Arthur R.Kroeber

China’s urban share has grown quickly over the past two decades since its rural population peaked in 1995. Last year, China’s urban population share reached 57.9%. The share, however, is still small given the country’s income level. Read more

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

Looks like the tide has finally turned.

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Extending that metaphor is easier now than it’s ever been for us writing on this topic: the reshoring of American manufacturing from abroad — and specifically, the net gains in jobs that we’ve been seeing in 2016 and early 2017 as compared with the trends in the early 2000s.

(I envision the emigrating jobs huddled together for warmth on a seaworthy vessel, with Shanghai getting smaller in the distance as the Pacific waves toss the boat ever closer toward Long Beach… if only it were that poetic.)

Back to reality. The Reshoring Initiative has just released its 2016 Data Report, and the numbers seem to tell a rosy story. According to the report press release, “in comparison to 2000-2003, when the United States lost, net, about 220,000 manufacturing jobs per year to offshoring, 2016 achieved a net gain of 27,000.”

“The numbers demonstrate that reshoring and FDI are important contributing factors to the country’s rebounding manufacturing sector,” the release concluded.

But of course, it’s not that easy. Major policy changes will have to be made or improved to continue the reshoring trend (which is still in its early stages), according to Harry Moser, founder of the Reshoring Initiative.

In a way, the U.S. should aspire to host conditions like those in Germany, Moser told me, including a supportive government, VAT, low healthcare costs, and an appreciation of the benefit of local sourcing. Read more

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It isn’t an idle question. Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum.

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A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide – but particularly for those in the transportation or more energy intensive sectors.

But despite rising last year following the agreement on the parts of OPEC and major non-OPEC oil producers to limit output, the price has since fallen back so consumers are not surprisingly wondering where it goes from here.

Just this month the two architects and key players in last year’s agreement, Saudi Arabia and Russia, announced they would continue with the agreement, set to shortly expire, until March 2018 and indeed will accelerate cuts to reduce near record inventories. It should be said the announcement still must be officially agreed at next week’s meeting of OPEC ministers in Vienna.

While initially slow to contribute, Russia has stepped up cut backs of late and combined non OPEC cuts are said to be some 255,000 b/d in April, but others such as Brazil and Canada are expected to increase output in Q2 and the USA has added substantially since last year. According to Oilprice.com, U.S. oil production has risen to approximately 9.3 million barrels a day and is projected by the EIA to reach 10 million barrels a day by 2018. Read more

The headline of this article from The Telegraph provocatively reads “The end of petrol and diesel cars? All vehicles will be electric by 2025, says expert.”

However passionately the argument is made, the 2025 deadline that comes from a report entitled “Rethinking Transportation 2020–2030” by Stanford University economist Tony Seba is almost certainly wildly optimistic. Nevertheless, it makes a good headline, and The Telegraph loves nothing better than good attention grabber.

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Seba is well known for his challenging and — some would say — self-publicising proclamations. But the basic logic of his argument that a combination of trends and converging technologies will have a transformational effect on the energy and transportation markets sometime in the next decade is probably out only in terms of timing.

Long a vocal advocate for renewable technologies, the professor has repeatedly pointed to the falling cost of solar power supported by wind, hydro and, in some cases, geothermal and biomass as sounding the death knell for conventional carbon fuels such as coal, oil and natural gas. In that respect, his case is hard to argue against.

As an outlier, the British government remains stubbornly committed to subsidising a nuclear power station at Hinckley Point at a cost of around £92.50/MWh ($120/MWh) — when even in the overcast U.K., solar was being won at £71.00/MWh in 2015 and prices have fallen further since.

Wind power can be even cheaper, at least in windy Britain. Although it is widely acknowledged that the power delivery from both wind and solar is intermittent, renewables can be made increasingly viable through a combination of improving storage technology and greater integration of power grids and smart technologies allowing transmission companies to partially even out the generation and consumption over a wider area. Read more

Tin supply is tight on the London Metal Exchange, but is this an isolated issue or just one example of a more far-reaching dilemma?

Writing for Reuters, Andy Home cites LME tin at its lowest level in 20 years, but it’s important to look closer as any comparison to two decades in the past is null and void as the global metals market and LME’s place in it are so different now.

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Home writes: “Unsurprisingly, low inventory is once again generating tightness across short-dated time-spreads, extending a pattern that has been running for a couple of years now.”

He adds that tin price is underperforming as well, currently trading just under $20,000 per ton. This is a 5% decrease when compared to the start of the year, placing it with nickel as the worst performer among significant LME metals.

However, Home writes that there is now more tin inventory in Shanghai Futures Exchange warehouses than in the LME system. Read more

So much has been written in recent months about China and the Chinese aluminum market that we are in danger of losing sight of the performance of major producers outside of that market.

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The position of producers like Alcoa and Rusal arguably have more impact and more significance for Western consumers than those behind the tariff barrier walls of China’s borders. The Financial Times reported last week that Rusal (still the world’s second largest producer, according to Statista) is in robust health and has reported rising profits on the back of stronger first quarter prices.

According to the FT, net profit for the first three months of the year was $187 million, up 48% from $126 million in the same period last year, on the back of 20% rise in revenue to $2.3 billion. While not quite reaching analysts’ predictions, it allowed the firm to reduce debt levels and encouragingly was achieved on the back of only a modest 0.7% increase in production to 910,000 metric tons. Likewise, alumina production was up a correspondingly small 0.9% to 1.889 million tons.

Costs, however, have remained a bugbear with electricity prices, transportation – principally railways, and other raw material costs rising in Q1, in part due to rising commodity prices but also due to a 6.7% strengthening of the ruble.

Nevertheless, demand growth remains robust, and supply outside China remains relatively tight with the forward market spreads not favouring the roll-over of stock and trade storage of primary metal with only a 3.5% margin over 18 months.

Much will depend on China going forward and how seriously Beijing continues to pursue its policy of clamping down on environmental non-compliance and limiting new smelter investment. Aluminum demand in China grew at 7.5% in the first quarter, according to Aluminium Insider, and it is growing at 5.0% in the rest of the world.

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Prices may have slipped back of late but that was probably to be expected after the surge of enthusiasm following Beijing’s clampdown. As the realisation sinks in that China’s winter heating period closures are still six months away, some softening is to be expected.