Commentary

The surprise announcement that PSA, holding company for the Peugeot, Citroën and DS brands, is in talks with General Motors to acquire GM’s European Opel and Vauxhall brands has set the cat among the pigeons in European capitals.

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One of the first justifications for any major merger or takeover is the opportunity for cost reduction from economies of scale and consolidation. PSA’s interest in the Opel/Vauxhall brands has some logic to it.

Constructeur Automobile Mondial?

Acquiring the brands would catapult PSA into the major league, closer to Volkswagen and Fiat in terms of automobile sales volume. Not surprisingly, the French publication Le Monde was one of the first to cover the story in depth (site est en francais, mes amis). As the newspaper explains, for GM, Opel and Vauxhall make up only 12% of the company’s production of roughly 12 million vehicles a year, but for PSA an additional 1.2 million units on top of the existing 1.9 million should create considerable opportunity for economies of scale, at least in the European market where PSA currently sells 1.9 million vehicles out of a total production of 3.1 million worldwide.

Will a deal selling Opel/Vauxhall to Peugeot mean more 308s? Source: Adobe Stock/mrivserg.

The worry in European capitals, though, is that those economies will be achieved by closing production facilities. With PSA 14% owned by the French government and Opel a major employer in Germany, the telephone lines between Paris and Berlin have no doubt been humming seeking reassurances that if European approval is to be given, no job losses will result in Germany or France. Read more

India produced 8.4 million metric tons of steel in January, registering a growth of 12% against the same period last year, according to data by the World Steel Association. India became one of the top major steel producers in the world, beating China whose production grew by 7.4%.

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The WSA report only props up what the government here has been saying for some time now, that India is making efforts to ramp up domestic steel and to ensure more consumers opt for it rather than other materials such as plastic.

India needs more scrap if it’s to meet its production goals. Source: Alumisource.

At a “Make In Steel” conference in the nation’s capital, New Delhi, Minister of Steel Chaudhary Birender Singh said steel demand grew 3.3% from April to December 2016, and growth was expected to continue in the coming months due to long-term government policies and an increase in infrastructure spending. Clearly, all of this is not mere lip service.

Steel Ministry officials and domestic steelmakers are optimistic that with more infrastructure projects coming up, demand will likely continue to increase.

The WSA predicted steel demand in India will grow at a rate of 5.7% in 2017.

To push demand, the government has used a combination of measures — incentives, imposition of various trade remedial measures such as minimum import prices, anti-dumping and safeguard measures and better quality control.

To increase consumption and production, it also unveiled a draft National Steel Policy 2017, to soon replace the National Steel Policy 2005. The policy aims to increase the domestic steel production capacity to 300 mmt from the current 85 mmt by 2030-31.

Now, as one more step in the process, it has decided to set up of two scrap-based steel plants, one in the west and the other in the north of the country, to boost production capacity. India has relatively few steel scrap-based electric arc furnaces (EAFs) of low capacity compared to similar-sized nations.

Over 40% of scrap available in the four states in northern India and around 67% of the scrap the western state of Gujarat was imported. Steel made out of scrap is expected to be of higher quality and could be used for expanding production of end-use products such as scientific instrument.

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Currently, India imports 6 mmt of scrap annually but will be able to produce 7.5 mmt of scrap by 2025 as supply from end-of-life cars and trucks, a major supply stream, is expected to grow.

The Department of Commerce placed preliminary countervailing duties on Turkish steel rebar imports today, the trade case is ongoing.

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Countervailing duties are placed on products found by Commerce to have been injuriously subsidized by foreign governments importing said products into the U.S. The definition of a countervailable subsidy is financial assistance from foreign governments that benefits the production of goods from foreign companies and is limited to specific enterprises or industries, or is contingent either upon export performance or upon the use of domestic goods over imported goods.

Commerce calculated a preliminary subsidy rate of 3.47% for the mandatory respondent Habaş Sinai ve Tibbi Gazlar Istihsal Endüstrisi A.Ş. (Habas).

There  an existing countervailing duty on rebar from the Republic of Turkey (79 Fed. Reg. 65,926 (Dep’t Commerce Nov. 6, 2014). This new countervailing duties investigation on rebar from Turkey covers only rebar produced and/or exported by those companies that are excluded from the 2014 Turkey order. Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its initial lead findings for February, and found that in 2016, supply exceeded demand in the global market for the refined metal.

Furthermore, lead inventories reported by the London Metal Exchange, Shanghai Futures Exchange and consumers and producers during that same period of time increased, as well.

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The ILZSG report elaborated: “There was a sharp decrease in Australian lead mine output mainly as a consequence of the closure of the Century mine in 2015 and cutbacks in output at some Glencore operations. Production was also lower in India and Mexico. However, these reductions were partially balanced by a rise in China resulting in an overall global decline of 1.3%.”

However, world refined lead metal production actually increased 2.4% in 2016. This was mostly attributed to the Republic of Korea (South Korea) commissioning a new primary lead plant in 2015.

Lead Price Momentum on High in 2017

According to a recent piece from our own Raul de Frutos, after a strong run in 2016, lead prices pulled back to close the year. However, prices have since recovered and Raul predicts they will trade at $2,800 by the end of this year.

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“(Lead prices) are currently below $20 per metric ton, from $80 just three months ago. In this respect, lead is playing catch-up with its cousin zinc, in which the deficit for refined metal is more obvious. In 2017 investors will be closely monitoring China’s numbers. The slump in treatment charges and the fact that China must get serious about controlling industrial metals output to solve its pollution problem could result in lower lead refined output this year.”

How will lead and base metals fare this year? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

The showdown between global copper miner Freeport-McMoran, Inc. and the Indonesian government got a little hotter this week.

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Arizona-based Freeport majority-owns the world’s second-largest copper mine, Grasberg in Indonesia. The company has been trying to get a new permit from the Indonesian government to continue exporting copper concentrates for the last six months. On Monday Freeport said it would not accept terms of a deal the government offered that would allow it to resume shipments of copper concentrate that have been idled since January 12.

One More Year… Then Give Up Your Mine

Friday the Indonesian government offered Freeport a new, one-year deal that would allow the company to continue exports but only if it agrees to new rules requiring it to build a new copper smelter in Indonesia within the next five years and also agree to switch to an operating license, the terms of which would require Freeport to, eventually, give up control of Grasberg.

Kennecott Copper Mine

Open pit copper mines such as Rio Tinto’s Kennecott in Utah could increase production and increase sales if Grasberg stays closed. Source: Adobe Stock/Photofly.

Freeport CEO Richard Adkerson, naturally, turned down that offer and said the company is unwilling to revisit the terms of its 30-year contract to mine at Grasberg, which accounts for about a third of Freeport’s annual copper production and 40 to 50% of its worldwide assets. He also said Freeport would consider going to arbitration if it can’t settle this dispute within 120 days. Read more

One of the major gripes about environmental legislation is that while the West creates ever stricter laws and ever lower emissions targets, many parts of the world completely flout agreements or do not even sign up to them in the first place.

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The steel industries of Europe and the U.S. frequently complain that they must meet tough emission targets that their competitors in China, India and elsewhere can avoid either because their governments have not signed up to such restrictions, or because they simply are not enforced.

The True Cost of Air Pollution

Well, finally after years of complaints it appears the tide is turning but tragically it has come about due to an appalling loss of life that is only just being recognized. Air pollution alone causes 6.5 million early deaths a year the Guardian newspaper reports. That is double the number of people lost to HIV/AIDS, tuberculosis and malaria combined, and four times the number killed on the world’s roads. In Africa, air pollution kills three times more people than malnutrition. Read more

This week President Donald Trump began to deliver on his campaign promises to deregulate industry and unshackle American manufacturing, using the Congressional Review Act, a 1996 law that empowers Congress to review, by means of an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule the regulation.

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First up, Congress passed a law under the CRA that rolled back an Obama administration rule that would have required oil, gas and mineral extraction companies to disclose payments made to governments. The Securities and Exchange Commission rule never went into effect and exploration companies and industry organizations such as the American Petroleum Institute, said it put natural resource companies at a competitive disadvantage to foreign firms by disclosing too much of their contract terms.

Iron ore mine

Deregulation via the CRA will help minerals mining and exploration. Source: Adobe Stock/nikitos77.

Metals producers and other companies dependent on minerals to make their products generally supported the repeal. Another potent input for the creation of metals is coal and Trump followed up the CRA action by signing a bill that quashed the Office of Surface Mining’s Stream Protection Rule, a regulation to protect waterways from coal mining waste that officials finalized in December. Regulators spent most of Obama’s administration eight years writing the Stream Protection Rule and it was effectively wiped away with the stroke of Trump’s pen thanks to the CRA.

The House has passed several CRA resolutions, and the Senate has so far sent three of them to President Trump so far, but there are at least 10 CRA bills still moving through the House and Senate. Until now, only one CRA resolution had ever been passed and signed into law: the Occupational Health and Safety Administration’s workplace ergonomics rules, in 2001.

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If Trump and the republican Congress continue to use the CRA to roll back rules, they could potently erase much of the regulation that business organizations have said hamstrung them for the last eight years.

Using the CRA to roll back regulations would certainly make it easier for Trump to deliver on his promises of smarter, better regulations for industries such as manufacturing and mining. Using it also helps the Congress keep up a commitment from an early Trump executive order that it must repeal two regulations for every new one. We could see a slew of deregulation actions to allow Congress to “bank” new regulations if it needs to pass a law to, perhaps, create a new definition of what a countervailable subsidy is for companies to petition the Commerce Department to allow it to place duties on foreign imports.

Much to the delight of not only its executives and employees but both the global steel sector and even stock markets, the Luxembourg-based steel giant ArcelorMittal has posted its first annual profit in more than five years, registering the biggest jump in earnings in the same period.

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The world’s largest steelmaker by output swung from a $7.9 billion net loss in 2015 to a net profit of $1.8 billion last year. Read more

Donald Trump’s November victory ignited the steepest stock market rally from election day to inauguration for a first-term president since John F. Kennedy won the White House in 1960.

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The S&P 500 index, a broad measure of the performance of large U.S. companies, climbed 6% since election day. Wall Street has not posted such a strong run from a president’s first-term election win in more than half a century, when the S&P 500 climbed more than 8% after JFK beat then vice-president Richard Nixon.

Stock market performance since election of a new US president. Source: Financial Times.

Over the same time frame, only the advance following Bill Clinton’s second election stands with JFK in topping the Trump run. Additionally, Wednesday’s fifth-straight record-high close for each of the major U.S. equity indexes matches a streak last seen in January 1992. The Philadelphia Federal Reserve Bank even said its manufacturing index soared in February to a 33-year high, in another indication of improving business sentiment in the wake of the Republican election sweep. Read more

A lighted underground tunnel in a nickel mine

Nickel prices increased early in February with hedge funds and speculators hurrying to close bets against the metal with the Philippines moving ahead with regulations on its mining industry.

According to a recent report from the Financial Times, nickel’s climb was directly attributed to the closure of 21 mines along with the suspension of another six pits, including the nation’s largest gold mine.

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The Philippines is the world’s most significant source of unprocessed nickel ore, along with being a major supplier to China, the news source stated. A renewed emphasis on environmentalism led to Philippines’ President Rodrigo Duterte appointing a like-minded resource minister to investigate the nation’s mining industry.

“My issue here is not about mining, my issue here is about social justice,” Regina Lopez, natural resources secretary, said during a recent briefing. “Why is mining more important than people’s lives?”

Nickel Price Outlook for 2017

Lopez pointed at the mine closures, which account for nearly half of the nation’s nickel output.

“We are very pleased to see the Philippines taking this action while allowing proper mining companies which adhere to better environmental practice to continue,” analysts at SP Angel told the Financial Times, adding the whole nickel supply chain was an “environmental disaster”.

“The huge growth of ore exports into China for the production of nickel pig iron disrupted the nickel industry in recent years while causing massive environmental disruption in the mining areas and at the nickel pig-iron furnaces.”

How will nickel and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: