As the year draws to a close, it’s a good time to take a look back at some of the commentary here on MetalMiner from this calendar year.

One such example is our coverage of the “skills gap” in U.S. manufacturing was the subject of a recent webinar hosted by Avetta with MetalMiner’s participation.

Earlier this year, I visited the Chicago Industrial Arts and Design Center, where I spoke with founder Matt Runfola, students and instructors about the state of the skills gap in the U.S. manufacturing sector.

Revisit the full story below (the original was published Aug. 23):

Standing on an otherwise quiet stretch of Ravenswood Avenue on Chicago’s North Side — with a green barrier of vegetation obscuring the Metra tracks on the other side of the street — one can hear faint sounds of hard work being done.

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The Chicago Industrial Arts and Design Center, located at 6433 N. Ravenswood Ave. in Chicago’s Rogers Park neighborhood. Fouad Egbaria/MetalMiner

In a building that was once home to the Chicago Radio Laboratory in the 1920s, 6433 N. Ravenswood Ave. in Chicago’s Rogers Park neighborhood is now home to the Chicago Industrial Arts and Design Center (CIADC).

Inside, one finds a variety of work being done by a diverse group of people: teenagers, retirees, artists, and individuals simply looking to learn how to make things or try something new.

Under the watchful eyes of instructors, high school students busy themselves in the welding shops, wielding welding torches as sunlight peeks cautiously into the workspace on a pleasant August morning.

On the second floor, students of all ages work with wood, carving and cutting and measuring amid the pervading aroma of sawdust.

Another floor up and one finds students learning the tricks of casting, with the results of that work scattered about the workspace: a defiantly clenched fist, stately busts and metallic chicken feet.

Founded in 2015 by Matt Runfola — a self-proclaimed steel guy who says his motto is “fabrication, fabrication, fabrication” — students come to the CIADC from as far north as the Illinois-Wisconsin border and as far south as western Indiana to learn how to weld, cast and woodwork under the tutelage of experts.

The workspace at 6433 N. Ravenswood Ave. houses tools like a CNC router, an English wheel, and casting molds of varying shapes and sizes.

In short, it is a place of innumerable possibilities, brought into the world by innumerable creative and technical decisions.

Chicago’s North Side is not exactly known for its industrial character — so how did this workspace across the street from Metra tracks come to be?

The CIADC’s creative missions finds its roots in the art of disassembly.

CIADC founder Matt Runfola shows off the nonprofit’s CNC router. Fouad Egbaria/MetalMiner

As a child growing up in rural upstate New York — “farm country” he notes, populated by “mechanical stuff galore” — Runfola enjoyed taking things apart.

“I just had an affinity for having my hands on stuff taking things apart,” Runfola said. “I raced motorcycles when I was young. Part of racing dirt bikes is you’re constantly breaking them, so it’s a lot of opportunity to pull them apart.

“I think it was with that the realization [came] that someone, somewhere designed everything on that motorcycle. I was very intimately involved with tearing that motorcycle apart and putting it back together week in and week out.”

That love of tinkering inspired a curiosity about design, eventually leading him to the Rochester Institute of Technology, where he got his bachelor’s degree in mechanical engineering.

Runfola wasn’t satisfied with “typical engineering” — he gravitated toward jobs that gave him access to shops where things are made, working on designing and prototyping.

“I started to whet my appetite with creativity,” Runfola said. “It was like ‘hey, design can be used to make things that I want to make, not just make things that other people made.”

That interest led him to the world of custom furniture and sculpture, which he worked in on the side. He also worked as a manufacturing engineer for a company that designs skateboards and snowboards.

But that experience prompted him to reconsider the best outlet for his passion.

“I realized at that time that the engineers, as much as we were making everything happen, we weren’t the creative geniuses behind the product,” he said. “It was marketing, and in that industry it’s very much marketing-driven.”

That realization brought him to Chicago, where he worked on the marketing side for Brunswick Corporation. Eventually, he moved on, pursuing a position as an introductory metal sculpture teacher.

“I really never looked back from that point,” he said. “I left the corporate world and focused for a number of years on my own product line of custom furniture … while I was teaching.”

That experience led him to open the CIADC as an outlet for those interested in metalworking, woodworking or casting, something he said was a “void” in the Chicagoland area.

In short, he founded the nonprofit to give people an “easier opportunity to explore the industrial arts.”

“People in high school, people outside of a university setting, do not have access to, not just working with their hands but working with their hands with these industrial processes,” he said.

During a tour of the facility, Runfola talked excitedly amid the clanging of metal and cutting of wood, lighting up when asked to explain the difference between TIG and MIG welding.

“We really go to great lengths to make it comfortable for people to cross the threshold to enter into our facility,” Runfola said. “We feel very strongly that once people are in a class and learning, 99% of people are going to fall in love with this type of work.”

Many younger students come into the shop not exactly knowing what they’re getting themselves into, Runfola said, but once they realize they can safely handle material to produce something of their own creation, it gives them satisfaction.

Cam White, 15, a high school student, is relatively new to the CIADC.

“In Chicago, it’s really hard to find places to do woodworking and metalworking,” she said during her third day of classes at the CIADC. “I was researching it because I wanted to do more hands-on things.”

Student Cam White, 15, concentrates in the metalworking shop. Fouad Egbaria/MetalMiner

White said woodworking was her primary interest, but she opted to take metalworking class to try something new. White said she isn’t sure if she would want to pursue a career using the skills she’s learning in the shop, but she does want to have her own home shop someday.

White said that among her friends, her interest in this type of work is unique.

“They’ll say ‘oh that’s cool,’ but they’re not interested in it,” she said. “They’re more interested in me doing it than actually them doing it.”

White said she’s not a “technology person,” adding that the type of “old school” work done in the shop might not appeal to other people in her age group.

“Now with all the industrial stuff and all the gaming and coding and stuff you can do in that realm, more of my friends lean to that side and less of woodworking and shop-type things,” she said.

Meanwhile, Tom Bittman, 70, retired after a career in commercial banking, first took classes at the CIADC in the fall of 2018.

“I enjoy making things,” he said. “I have a lifelong hobby of woodworking. I’ve taken some classes in woodworking at other places as well.”

While surfing the Internet, Bittman came across the CIADC and decided to check it out. Like White, he decided to try something new — after taking woodworking classes last fall, he delved into metalworking this spring.

“It’s a learning thing for me,” he said. “It’s entertainment, it’s learning, it’s a little adventure doing something new someplace new with new people.”

Last year, Bittman said he learned about all the ins and outs of woodworking, including cutting and shaping, in addition to use of the various machines in the shop.

“It’s the same thing with metal — just very different,” he said, laughing.

Of course, without dedicated, competent instruction, some students’ desire to learn could wane.

A bust on display in the third-floor casting shop. Fouad Egbaria/MetalMiner

Olivia Jade Juarez, 27, works as an instructor and manager of CIADC’s welding and forging shop.

Jade Juarez studied sculpture during her time in art school using a wide range of materials, but did not work with metal much at that time.

Out of school, however, she worked at the Anderson Ranch Arts Center in Colorado, which had a sculpture department largely focused on metalworking tools.

Working as an assistant there, she had to quickly familiarize herself with the tools and techniques of metalworking.

Fortunately, she picked it up quickly.

“There’s this perception that metalworking is really rough and tumble and everything is super heavy,” she said. “I quickly realized there is a little bit of that, but it is more than anything precision and patience.”

She later worked as an assistant for metals sculptor Vivian Beer for a year, after which she decided to move back to her hometown Chicago.

She heard about the CIADC based on a recommendation from someone at Anderson Ranch, admitting that she first came to the center to use the space for her own work. However, she decided to take a class and eventually spoke with Runfola about taking on a teaching job at the center.

Jade Juarez said her favorite type of student is one who comes in with no experience.

“I’ve had a few elderly people come in and just to see them — it’s almost as if they renew themselves a little bit just to be handling flames and fire and welding, forging,” she said. “It’s really exciting to see them realize that they can still do things like that and that it’s not that far out of reach.”

Companies in industries that need workers to do these types of things — metalworking, in particular — are hoping that more people reach that realization.

The “skills gap” is something often bandied about these days — that is, that there are not enough skilled workers to fill manufacturing jobs in the U.S.

According to a skills gap study by Deloitte and The Manufacturing Institute, 2.4 million jobs could go unfilled between 2018 and 2028 as a result of the skills gap, amounting to a potential economic impact of $2.5 trillion.

Runfola said the CIADC’s mission is not necessarily to give people the skills to move into careers in these types of fields. However, he did express hope that the pendulum will swing back in manufacturing’s direction.

“When it comes to skilled workforce and filling the voids, people are realizing that being in the trades is not because you can’t do anything else,” Runfola said. “I think that’s an important thing that people are realizing again.

“It’s almost like we knew that mid-2oth century and the latter part of the 20th century, but somehow we started forgetting that.”

In an increasingly tech-driven world, part of that drive to remember will depend on drawing interest from younger people, like White.

Whether it’s kids in the city or the suburbs, Runfola argued very few of them have the opportunity to do this type of work, at home or in school. To that end, Runfola noted the center offers a scholarship program based on financial need, through which qualifying families can receive 80% off tuition.

“That’s one way that we’re trying to remove roadblocks and get as many teens as possible in here,” Runfola said. … “Right now it’s about piquing their curiosity so at least it’s on their radar.”

Jade Juarez said the idea of making things is perhaps being lost among people in her generation.

“There’s a lot of things you buy that are already made,” she said. “There isn’t much critical thought or questioning about how things are made anymore.

“There’s a really deep disconnect between what you end up having or using and what the raw materials started out as. I think the culture is very different now — it’s just ordering stuff.”

While the modern consumer culture allows for ease of purchasing items at a click, the result is a dwindling self-sufficiency, she argued.

“Not many people know other people who are welders or carpenters or just people in the trades,” she said.

She argued one simple way to help reverse the decline of the skilled labor workforce is to reintroduce shop classes into high schools (she noted she did not have a shop class at her high school).

“Then you have that seed or a memory of having built something, so that later on when it’s more of a financial decision, you’re not going in completely blind,” she said. “I really hope that it shifts back.”

While craft work is not quite the same as the industrial trades, she called it a sort of “sister or brother” to it; she said a rise in do-it-yourself (DIY) projects is an encouraging sign of a general interest in making things.

“That kind of hunger for learning … could be cultivated more,” she said. “It doesn’t have to be a hobby or this quirky thing you do, it can be your career.”

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While there is no easy answer or quick solution to the skills gap in the U.S., Runfola hopes the CIADC can do its part in its own small way.

“High-value manufacturing is flexibility, it’s being able to change product lines quickly and efficiently and you’ve got people that can adapt very easily,” he said. “In our small way, I feel that’s what we’re equipping people that come out of our classes with, that versatility.”

Manufacturing trends are often discussed in large, impersonal numbers: a skills gap of 2.4 million, for example (not much less than the population of the city of Chicago).

As such, attempts at reforming the system are often placed in the context of Big Change, whether it’s government-subsidized programming, changes in high school curricula or private sector spending on professional development.

While it may be true that such changes are needed to combat the so-called skills gap, the conditions for Big Change can sometimes be produced through incremental efforts on the ground.

“I feel like I was given throughout my whole career trajectory … I was given opportunities to learn, to be exposed to new things, to have people be patient with me,” Runfola said. “I feel like that’s what we’re doing here.”

Vertical integration may play well in classic corporate HBR (Harvard Business Review) circles, but steel industry observers may have a hard time envisioning the synergies Cliffs outlined in its merger announcement and presentation Dec. 3, creating a best-in-class, EBITDA-maximizing combined Cliffs-AK Steel entity!

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

To us, the best rationale for the deal appears on slide 14, outlining AK Steel’s short-term debt position:

If you buy the notion that Cliffs can swallow AK and convert that company’s debts to its own and save on interest expense, then score one for the deal!

So why would Cliffs buy AK Steel?

A compelling reason appears on slide 11:

Despite AK Steel’s relatively improved financial performance under the leadership of CEO Roger Newport, if AK Steel represents ~30% of Cliff’s annual iron ore sales, Cliffs faces significant “customer concentration risk.” In other words, the health of AK Steel would significantly — negatively — impact Cliffs.

Forget about “renewal risk” — let’s just call it “customer risk.”

Cliffs would be hosed without a healthy AK Steel!

What about AK’s Ashland Works?

We continue to see different public announcements from AK Steel about the cost of Ashland Works. The Ashland Works facility today operates a hot-dipped galvanizing line (the blast furnace was idled nearly four years ago).

According to comments from AK Steel directly, “…the company announced it would close the ‘largely-idled’ Ashland Works facility by the end of 2019 to ‘increase utilization’ at its other U.S. operations. The plant employs 230 people and the closure would yield approximately $40 million in annual cost savings, according to the company.”

But by keeping it open, as detailed by Cliffs, the Ashland Facility, “Eliminates up to $60m of closure-related costs.” The Ashland facility will instead undergo a conversion, which it says, “Potentially provides a compelling, low-capex, high-return opportunity to be a significant merchant pig iron supplier in the Great Lakes.” (We presume U.S. Steel and ArcelorMittal will avail themselves of this compelling offering.)

So, we’re not sure if keeping Ashland Works open saves money or if closing it does.

We won’t pontificate over the “AK Steel best-in-class position in non-commoditized steel” for a variety of reasons that we have previously covered here in our GOES MMI series. (Or the fact that the rise of electric vehicles will start to make a dent in the need for the kinds of automotive exhaust grades, such as 439 and 441, produced by AK Steel.) We acknowledge AK does have a strong position in ultra-high-strength steels.

So, the real question comes down to the “synergies” outlined by Cliffs.

Does the margin Cliffs generates — approximately $30/$40 per short ton for every pellet produced and sold to AK — translate to an EBITDA jump of that same amount for steel products sold by AK, such that they leapfrog the EAF producers, as Cliffs suggests?

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Well, now isn’t that the $1.1 billion question?

Europe is sometimes — often, even — chided for its slow decision-making, which is seen by many as a product of being a “Club of 27” and the need to gain consensus for coordinated action.

But a recent FT article describes an impressively fast response to Europe’s realization that it is being left behind in the lithium battery industry and, by extension, the wider Electric Vehicle (EV) market.

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The EU car industry had assumed up to a couple years ago that batteries would become a commodity and were low on the list of priorities in developing a competitive domestic EV industry. But although carmakers have invested billions in developing models and technologies around EV automobiles, the European car market remains almost totally reliant on imports for batteries despite the fact that nearly 40% of the vehicle value is said by the FT to be the batteries.

For an industry that is the backbone of European manufacturing, that is a staggeringly exposed position to be in. Even the 3% that are made in Europe are mostly by Asian-owned companies.

Global production is dominated by Japan’s Panasonic, South Korea’s Samsung and CATL and BYD of China, the FT reports, with China by far the largest, as this chart courtesy of the FT illustrates.

But that is all about to change.

With €1 billion of funding from Volkswagen, Goldman Sachs and Ikea, a company called Northvolt will launch its first factory at Vasteras in Sweden as a dress rehearsal for a much larger Gigafactory in Skelleftea, in northern Sweden, where production should start in 2021.

Supported by cheap loans from the European investment bank and state aid from the EU, the Skelleftea plant is projected to cost up to €4 billion, but will be bigger than Tesla’s Nevada Gigafactory producing some 40 gigawatt hours of capacity by 2024, or some 2 billion individual battery cells, the FT reports. That should be enough for some 500,000 to 600,000 electric vehicles a year with the first phase of capacity already sold out to European carmakers.

Some may question the sense in locating the factory just south of the Arctic Circle, far from car plants, but the rationale is it can access cheap hydropower. As a result, the plant’s energy costs will be a quarter to a third of those available to its competitors in China.

To form a truly integrated supply chain, however, the EU’s European Battery Alliance (EBA) will need to develop mine supply and lithium refining. Although potential mining projects in some 10 EU countries have been identified, the upstream end of this supply chain remains the farthest from self-sufficiency.

Europe’s move to EVs is being driven more by legislation than customer demand. Much as it is in the U.S., the public remains deeply skeptical of the technologies’ ability to deliver a seamless replacement for the internal combustion engine.

Yet a combination of ever more stringent emission standards on manufacturers, tax penalties and incentives on consumers will bolster support of ventures like Northvolt bringing battery making closer to home — and the market will shift to EVs during the next decade, whether Joe Public wants it (or even believes it) today.

In previous downturns, Beijing has taken a range of stimulus measures to keep the economy growing robustly; as a result, it has contributed positively to global GDP and commodity prices.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

But this time around Beijing seems to have a greater tolerance for slowing growth.

While stimulus measures are expected as early as December, the Financial Times reported, they are not expected to be on the scale of those seen in 2008-2009 and 2015-2016.

Freya Beamish, an analyst at Pantheon Macroeconomics, is quoted by the Financial Times as saying China’s stimulus in the 2018-2019 period will be equivalent to about 7% of GDP over the two-year period. Measures taken in 2015 and 2016 were worth 10% of GDP, while the 2008-09 stimulus amounted to 19% of GDP, according to an OECD estimate.

Beijing appears constrained by a number of factors, policy-driven and economic, in what it can do and how far it can go.

Office space is at an all-time high in some Chinese cities, forcing the delay and cancellation to high-profile skyscraper projects and more general office developments, the Financial Times reported.

Following a surge in new residential housing starts earlier this year, growth has since moderated and is expected to slow further in 2020. Beijing seems reluctant to undermine the currency by further monetary easing and is particularly sensitive to avoiding property price rises by stoking demand.

The Financial Times reports that Chinese states and municipalities are already heavily indebted and banks are reluctant to increase bad debts. While infrastructure lending is the most likely form of stimulus, it will probably not be on the same scale as previous measures.

A former Chinese bank official is quoted as saying that due to previous infrastructure investments, “Cities and provinces are having trouble financing new projects as they must spend a significant portion of their cash-paying off debt.” Possibly as a result of this, investment spending grew by only 3.4% in the first three quarters of this year.

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This moderation in appetite for further stimulus coming on top of the cooling housing market undermines the case made in a recent article we reviewed suggesting steel prices could be set for a recovery, extrapolating on the apparent recovery of the Chinese steel sector.

If the Financial Times is correct in its analysis above, any current strength in Chinese — and, by extension, southeast Asian — steel prices could be relatively short-lived.

byrdyak/Adobe Stock

In the age of the “skills gap” in manufacturing, how do manufacturers find the right talent for their open positions?

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Furthermore, what can be done to close that gap?

Supply chain risk management firm Avetta recently hosted a webinar, “The War for Contractor Talent,” with MetalMiner’s participation. The discussion zeroed in on the skills gap in the U.S., including the gap’s potential causes and impacts, plus what can be done to close it going forward.

MetalMiner Co-founder and Executive Editor Lisa Reisman was joined by Matt Runfola, founder of the Chicago Industrial Arts and Design Center, and Brett Armstrong, director of business development at Avetta.

To listen to the full discussion, visit Avetta’s webinar page.

Help Wanted

The so-called skills gap is massive, as is the need for talent.

“There are 4.6 million manufacturing jobs to be filled by 2028,” said Reisman during the webinar, citing data from Deloitte, The Manufacturing Institute, Accenture and the Bureau of Labor Statistics. “Imagine, 2.4 million of them may go unfilled, which is a shocking number to me.

“The other piece that is interesting is the impact of not having the workers that are required within the manufacturing sector — that forecast and impact on the economy in general is quite substantial.”

According to the data prepared by Avetta, approximately $454 billion of economic activity could be at risk by 2028 if qualified manufacturing workers are not found.

To put that into perspective, that figure would account for a whopping 17% of the U.S.’s forecasted manufacturing GDP of $2.67 trillion.

Furthermore, 30% of executives at large U.S. companies predict a loss of business due to labor shortages, in turn leading to a decline in productivity growth and, eventually, a decline in the standard of living by 2030, according to data included in Avetta’s webinar presentation.

Building Interest in a Manufacturing Career

What exactly is happening in the manufacturing sector? Why are companies sometimes struggling to fill open positions?

According to Deloitte and IndustryWeek, 52% of 18-24 year-olds have a minimal interest in a manufacturing career, while 61% indicate they would rather pursue a “professional” career — this despite the fact that 91% of students and working professionals find work after completing apprenticeship programs.

On the other hand, from a hiring perspective, 42% of manufacturers have a “strong affinity toward outsourcing employees” in order to increase productivity and speed up the hiring process; however, this strategy comes with potential risks, including declines in product quality.

Given the skills gap and apparent lukewarm interest in manufacturing from those in the age 18-24 demographic, what kind of impact is that having on the sector?

That is a question Runfola thinks about quite a bit, as he runs the Chicago Industrial Arts and Design Center, which offers technical classes for students of all ages. At the center, students can learn a variety of skills, including welding, casting and woodworking, in addition to proficiency with a wide range of industrial equipment.

Runfola defined the skills gap as the difference between the skills that are required on the manufacturing floor versus what skills an employee comes to the floor already having.

As a result, the labor pool available for hire shrinks by virtue of the lack of these skills.

“There’s a smaller pool of qualified people to choose from and that means that a lot of companies must resort to hiring larger unskilled workforce,” Runfola said. “It also means companies must spend more time training employees on the job — and that’s time and money. If someone doesn’t come in with a specific skill set that you require, that means that you have to bring them up to speed and that means the job isn’t being carried out as effectively as it could be right from the start.”

Another consequence of this hiring model is higher turnover, Runfola posited, as those without the necessary skills likely won’t be as invested in the work as those who come to the manufacturing floor armed with the needed skills.

In Runfola’s view, in order to start to bring more young people into the sector, they need to be exposed to manufacturing processes at an early age.

“We need to get, whatever we call, industrial arts or vocational training, or career and technical education, back into the secondary school system,” he said. “These young adults need to know what their options are before they make a decision to go to school or enter the workforce.

“The good news with this is we’re being helped out quite a bit with the maker movement, the do-it-yourself movement, and even the STEM and robotics movement in school systems. So students are getting a taste of manufacturing or making things again, but we need to instill it more solidly in the school curriculum.”

Armstrong said in order to reduce the labor shortage, much is dependent on the culture of the organization looking to hire.

“There’s almost got to be a paradigm shift within organizations that they’re willing to invest in the third parties that they have coming onsite,” Armstrong said. “That’s something that we’re definitely seeing. When you consider the training that has got to take place and even the computer-based training that Avetta can offer, those are all great opportunities to pull new workers in and to ensure that they’ve got the appropriate skill sets and all of the training in place in order for them to be successful.”

What Happened to Trade Schools?

Speaking of education, trade schools are often the subject of much debate and discussion about whether we as a nation are adequately funding and advertising them (particularly as an option for young people).

Runfola called it a “demand and supply issue.”

Given the demographic statistics cited by Reisman, Runfola said there is “not enough demand to warrant a lot of certification schools.”

“I think that’s one of the issues,” Runfola said. “We have deemphasized so much the importance of, let’s just say, manufacturing or vocational-type careers, that most kids don’t think there’s value in it, and there’s a lot of kids that don’t even understand what that means to be in the manufacturing sector.”

The Importance of Contractor Management

In addition to simply finding the right workers, it is also crucial for companies to make sure their houses are in order with respect to contractor management.

Armstrong cited an example of a crew of workers who, while disassembling a construction crane, had prematurely removed pins that secured sections of the crane’s mast together, which contributing to the crane’s toppling under minor wind gusts.

“It put the enterprise organization who had hired those third-party workers to come onsite in significant risk,” Armstrong said. “One of the things we found at Avetta is that any time there is a safety-related event, first of all, we don’t ever want to see that. But when it does happen, it is typically not the third party that’s been invited to come onsite who makes their way to the news — instead, it’s that large enterprise organization. Their logo is the one that makes its way to the headlines and ultimately presents some type of risk to shareholder value.”

Procurement in Contractor Management

Armstrong said he has noticed a shift in how procurement interacts with stakeholders, noting an increasing emphasis on being a “value-added partner.”

“Typically, when Avetta’s brought in to work with an organization, it’s through one of two channels: either through safety or through procurement,” Armstrong said. “I would say that that shift has really started to take place in the last five years.”

That trend has accelerated in recent years, with procurement gaining a more visible presence at the table.

“The stakeholders that we now see sitting around the table would include procurement, purchasing, safety, operations, legal, risk … even the executive level as they start to consider the potential impacts of hiring the wrong party and what that could do to the organization itself,” Armstrong said.

Editor’s Note: For those interested in downloading the full webinar on-demand, visit Avetta’s webinar page


Editor’s Note: This article has been corrected to reflect the most recent AISI capacity utilization rates and the price delta between the ROW and the US.

Judging by the plunging share price of steel producers and the collapse in steel prices from $1,006 per ton just over two years ago to $557 now, it would seem that Steelmageddon — the term famously coined by Bank of America Merrill Lynch — is upon us.

Or is it?

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

A recent Fortune article puts steel producers at fault for rushing to restart idled capacity and even investing in new facilities following President Donald Trump’s imposition of a 25% import duty in 2018.

The measure did meet its objective of lifting capacity utilization from 73% to 80%, as domestic steel mills became more competitive behind the tariff barrier. Though utilization rates dipped in late August through mid-October, they have since come back above 80%.

If that were the end of the story, it is possible steel producers would still be able to play the market by maximizing sales with their 25% buffer against imported steel.

As exemptions have been granted to major trading partners such as Canada and Mexico, that has minimized the benefits of the tariffs for domestic producers. Initially, U.S. producers were at best only 1-2% below the price of imported steel, taking the majority of the 25% as increased profit.

But today, the price delta between the ROW and the U.S. is virtually nonexistent.

Some would argue a global trade war waged by the president, specifically but not exclusively with China, has also contributed to a slowing of steel demand. The counter-argument suggests that while we have seen a drop from 2018, the reality is that we might be at the end of a long-running expansionary business cycle that would have seen slower demand anyway.

The article argues the rise in domestic steel prices has made some U.S. manufacturers less competitive for both domestic sales and their exports. But our own data suggests that 12 out of 18 manufacturing sectors in 2018 had record profits, despite tariffs.

Now, steel plants are being idled again as oversupply is depressing prices below the level seen even before the imposition of the 25% import tariff.

CNN reported U.S. Steel recently announced it would temporarily shut down a blast furnace at its venerable Gary, Indiana facility, another at a facility near Detroit and idle a third plant in Europe due to weak demand and oversupply.

Steel producers’ earnings have headed south in lockstep with falling demand.

Fortune states the combined earnings of U.S. Steel, AK Steel, Steel Dynamics and Nucor tumbled more than 50% in the first two quarters of this year. Capacity utilization dipped back below the 80% target primarily in September and October but has since recovered to 81.6% according to the latest AISI data for the week ending Nov. 2 and year-to-date capacity utilization reached 80.3% compared with 77.5% from a year ago.

The basis of the Section 232 justification was that the U.S. needed to maintain a level of investment and capability in the steel industry as a matter of national security, that certain steels were critical for military and strategic requirements.

Although the defense secretary at the time, James Mattis, said the military needed just 3% of U.S. production of steel and aluminum and that imports didn’t hinder its ability to protect the nation, there are some countries – the U.K. is an example — where the domestic steel industry has been allowed to wither so significantly that it now relies on imports of critical defense materials, like steel, for the hulls of its nuclear submarines.

A better counter would be to question whether tariffs were and remain the best way to protect investment and capability in those strategic areas of production.

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Either way, a global slowdown, coupled with a rush to return capacity to production, has created an oversupplied market in which steelmakers have suffered.

Nor will demand return anytime soon if the World Steel Association is correct.

The association forecast U.S. steel demand will slow to 1% in 2019 (from 2.1% growth last year). In 2020, growth is expected to crawl to just 0.4%, quite possibly prompting the closure of yet more mills and a return to pre-tariff levels of profitability and capacity utilization.

That’s not what the market or the industry wanted. However, to answer the headline, until we see a crash in the steel capacity utilization rate, it’s hard to argue Steelmageddon has arrived.

The aluminum price is a contrary thing, isn’t it?

For months, aluminum prices have been falling on the basis that demand is waning due to slowing global growth (particularly in top consumer China).

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China’s gross domestic product growth slowed again to 6.0% year over year in the third quarter, its weakest pace in almost three decades, Aluminium Insider reports. Citing a Reuters poll, the report notes industrial activity is expected to have shrunk for the sixth month in October, quoting a Reuters poll, suggesting hardly any relief from slowing global demand and the trade war.

The latest economic data from the E.U. and the U.S. also indicate slowing growth, with Germany flirting with a recession in the manufacturing sector. Although the aluminum market was estimated to be in deficit last year and this, a Reuters poll suggests it is likely to flip into a surplus of 304,000 metric tons next year — almost a 1 million ton turnaround from the 658,500-ton estimate for this year.

The article went on to say the consensus among major producers is that global aluminum demand growth will be flat (around zero) this year. Norsk Hydro predicts demand outside China will fall by 1-2%, meaning global demand is likely to fall by 0.5%. Alcoa took a similarly pessimistic view.

So why has the aluminum price currently taken a run-up to nearly $1,800 per metric ton on the back of, Reuters reports, supply fears?

It would seem investors are somewhat jittery and struggling to read the fundamentals.

Talk of Rio Tinto having to reduce output (or worse, shut its New Zealand smelter due to high power costs) and China’s second-place Chalco closing 200,000 tons of capacity in Shandong for the same reason seem to have stoked fears a number of smelter cutbacks could lead to a shortage.

Investors also view falling LME and SHFE inventories as a sign of a tightening market.

Aluminum stocks in SHFE warehouses dropped to their lowest level since March 2017 at 278,736 tons, while LME aluminum inventories dipped to their lowest since Sept. 30 at 956,200 tons, according to Reuters.

On the flip side, top consumer China is importing more and more remelt alloy ingots as part of its raw material product mix, which is finding its way through to increased exports of low-priced semi-finished products. China exported 4.37 million tons of mostly semi-aluminum products in the first nine months of the year – 2.8% more than in the previous year.

Primary production may be marginally down, but China is still supplying the world with semis, depressing activity at domestic extrusions and rolling mills in Japan, Europe and, by extension, the U.S.

Although the U.S. doesn’t import Chinese extrusions or billet, material supplied from elsewhere that has been displaced by Chinese metal does find its way in. Extruders are suffering, as illustrated by the low billet premiums prevailing in the U.S. right now.

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While some polls have suggested aluminum prices could be back over $1,800 per ton next year if current conditions prevail, that looks unlikely.

More than just sentiment is being depressed by the trade war. With little chance of a resolution this side of the presidential election, manufacturing is unlikely to recover strongly enough to materially impact the supply-demand balance anytime soon.

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India is right in the middle of its annual festival season that carries on until the year’s end — as is customary, all eyes are on the purchase patterns for gold and silver during the festival of Diwali.

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When the country emerged from Diwali time, initial data showed that purchase numbers were down compared to the previous year.

Or, if you are an eternal optimist, the numbers this year were “not as bad” as predicted.

Experts like Surendra Mehta of the India Bullion and Jewellers Association (IBJA) had but a few days ago painted a picture of doom and gloom, forecasting gold buying would fall by 50% compared to Diwali 2018.

But guess what? The IBJA found out that its prediction had not come true.

Ajay Kedia, director of Kedia Advisory, said gold buying fell 25% this year, LiveMint reported.

Consumers had purchased about 30 tons of gold on a single day of Diwali called “Dhanteras,” down by an average 10 tons as compared to the last few years.

According to sales figures provided by other agencies in the business, pre-Diwali Dhanteras sales of gold and silver had dropped by about 40%.

According to the Confederation of All India Traders (CAIT), about 6,000 kg of gold was estimated to have been sold till evening on Dhanteras day, compared with 17,000 kg of gold sold on the same day in 2018.

CAIT’s Gold and Jewelry Committee Chairman Pankaj Arora was quoted by India Today as saying there was a decline of business from 35-40%.

Anantha Padmanaban, chairman of the All India Gem and Jewellery Domestic Council (GJC), told the same reporter they expected sales, in volume terms, to fall 20% compared with last year; however, sales in terms of value would be the same as last year because of higher prices.

Different figures, but all confirm one basic thing: gold and silver purchases were definitely down as compared to previous years, as feared.

The reasons for Indians losing some interest in bullion this year are:

  • Rising international prices
  • Increasing value of the U.S. dollar against the Indian rupee
  • Liquidity crunch in the Indian market
  • Rising unemployment
  • Increase in import duty on gold and other expensive metals

The benchmark gold futures in Mumbai touched a record U.S. $562 per 10 grams (Rs 39,885) in early September and were more than 20% higher than last year. Experts believe these prices could test approximately U.S. $580 over the next year.

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India is the second-biggest market for gold, after China.

Many in the Indian media have started writing off gold as an investment option for Indians, but as someone who has tracked this metal over the years, allow me to say this – they will eventually be proven wrong.

The Indian love affair with gold is not over and won’t be for a long time coming.

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Much like Saudi Arabia has been considered the swing producer for crude oil, mining giant Glencore can be considered a swing producer for certain key commodities.

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For example, earlier this year the miner announced it would shut its Mutanda copper and cobalt mine in the Democratic Republic of the Congo (DRC) after a precipitous 65% fall in prices made continued operation uneconomic.

Source: TradingView

The DRC produces about 60% of the world’s cobalt, much of it coming from mines owned by Glencore and China Molybdenum. The market saw Mutanda’s closure as a significant loss of supply and the price has recovered some 45% since August.

The price has recovered so much so that Glencore’s competitor Trafigura feels it worth a punt on rising demand for copper and cobalt from the electrc vehicle (EV) market.

Whether its optimism is well-placed remains to be seen.

EV sales stalled in the U.S. and China this summer, according to InsideEVs, with only Europe showing continued robust growth, as the below graph shows:

Source: Inside EVs

According to the Financial Times, Trafigura is betting that the Mutoshi mine, which is owned by DRC-based company Chemaf, can become a competitive producer, just as demand starts to rise on the back of a global rise in EV sales.

Trafigura is looking to contribute financing in return for marketing rights on the cobalt. Mutoshi hopes to produce 16,000 tons of cobalt annually by the end of next year, should financing be put in place.

The article quotes consultancy forecasts that cobalt demand for lithium-ion batteries will increase from 75,000 tons in 2019 to 152,000 tons in 2024 — a whopping 100% increase — no doubt predicated on a return to double-digit EV growth in the U.S. and China.

With gas prices low and the economy cooling, that may be a big ask for the U.S. However, if Beijing were to offer sufficient incentives via subsidies, it is possible demand could pick up in the world’s largest EV market.

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The success of Trafigura’s bet in part presupposes Glencore does not decide to restart Mutanda; what Glencore giveth, Glencore can taketh away.

Anyone who argues the U.K. has not been impacted by its decision three years ago to leave the European Union only has to look at the figures to see how wrong that argument is.

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The Financial Times reported this week that the U.K. narrowly avoided a recession this summer, as Q2’s contraction was followed by a minuscule bounceback in Q3 thanks to a pick-up in services, which grew at 0.4%.

Manufacturing, however, as anyone in the metals industry will know only too well, remained in recession, contracting by 0.7% in August compared to last year, according to the Financial Times.

Commentators put this down to uncertainty over what Brexit will look like and when it will happen, hindering plans for investment and creating an atmosphere of uncertainty and retrenchment.

Set this against a possibly more worrying trend for the U.K. and you have to ask what the longer-term prospects are for the economy.

An earlier Financial Times article this week explored the longer-term fall in productivity that has held back wealth creation since the financial crisis.

In the U.K., productivity has stagnated since the 2008 financial crisis, the Financial Times reported, failing to recover as it typically does following contractions.

Moreover, it has weakened since the 2016 Brexit referendum and contracted in the past year; productivity contracted in the second quarter at the fastest pace in five years.

According to the Financial Times, many economists and businesspeople point to the lack of business investment as a reason for deteriorating productivity. Business investment has barely expanded since the second quarter of 2016 and contracted 0.4% in the three months to June, suggesting Brexit and falling productivity are a conjoined crisis, with one supporting the other.

Businesses have preferred to hire workers than invest, so unemployment is low and that’s what grabs the headlines, but the inability to increase the value of goods and services produced per hour of work limits what companies can afford to pay their workers — so, living standards stagnate.

Utilities and construction were the only sectors that recorded a rise in productivity, while output per hour fell 1.9% in the manufacturing sector and by 0.8% in the services sector. Services account for about 80% of the U.K.’s economy.

Source: Financial Times

Nor is the U.K. simply suffering the same problem as everyone else.

Since the second quarter of 2008, the U.K.’s lack of productivity growth contrasted with an average 9% expansion in labor productivity for the 36 member countries of the OECD.

It is hard to see what will break the cycle.

Supporters of Brexit talk about the U.K. being transformed into a low-tax tiger, like Singapore, post-Brexit.

Realistically, most see that as unlikely.

Even if taxes were to be dramatically reduced, with the expected new immigration controls and low unemployment, labor could begin to get tight and wages could rise sharply. If that were not accompanied by a sharp uplift in GDP, the U.K. could be caught in a deflationary trap, with low-cost, tax-free imports causing major disruption to domestic producers.

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No wonder the issue of Brexit has the public and politicians so divided.

Unaware, as most are, of the U.K.’s low productivity growth, the long-term impact has been the very stagnation in living standards that has in part fueled the desire to leave the E.U. and search for a brighter future.

Good luck with that.