Industry News

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This morning in metals news, miner Rio Tinto has advanced work on its Oyu Tolgoi copper and gold mine project, the U.S. is reportedly considering rolling back some tariffs against China, and Novelis announced its quarterly financial results.

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

Rio Tinto Reaches ‘Significant Milestone’

Earlier this year, MetalMiner’s Stuart Burns weighed in on delays at Rio Tinto’s massive Oyu Tolgoi project in Mongolia, citing possible delays of 16-30 months.

This week, however, the miner offered positive news, announcing the completion of a portion of the project.

“Rio Tinto has achieved a significant milestone at the Oyu Tolgoi mine in Mongolia with the completion of Shaft 2, which enables the acceleration of work on the underground development,” the miner said. “Shaft 2, a 10 metre diameter shaft sunk to approximately 1.3 kilometres below the surface, has now entered into the final stages of commissioning.

“This is a critical piece of infrastructure and will enable a step change in terms of delivering the underground mine. Shaft 2 can carry 300 people per cage cycle versus a maximum of 60 people per cage cycle through Shaft 1. The 48 tonne capacity cage can now be used to support logistics, transporting supplies and components for development of the mine.”

Tariff Talks

Among other issues, tariffs remain at the center of the trade dispute between the U.S. and China.

China has asked the U.S. to drop tariffs in exchange for an initial deal. In that vein, according to several media reports, the U.S. is considering rolling back approximately $112 billion worth in tariffs on Chinese goods toward a first-phase trade deal.

Novelis’ Net Income Rises 31% YoY

For the second quarter of Novelis’ fiscal year 2020, the firm reported net income of $160 million, marking a 31% year-over-year increase.

Adjusted EBITDA reached $374 million, up 5% year over year.

In addition, Novelis’ acquisition of Aleris Corporation is expected to close in the coming months.

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

“On July 26, 2018, Novelis announced it signed a definitive agreement to acquire Aleris Corporation,” the company said. “Having received conditional approval in the European Union, as well as a clear path forward for approval in the U.S., Novelis continues to work closely with the Chinese State Administration for Market Regulation to receive its approval. The company expects to close the transaction by January 21, 2020, the outside date under the merger agreement.”

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To an external viewer, the wheels can appear to grind slowly at the world’s oldest metal exchange.

But the years have taught the London Metal Exchange about the danger of hasty rule changes — often made for the best of intentions, such changes can lead to unexpected consequences.

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In addition, as the LME is at pains to point out, the exchange’s network of warehouses operates in numerous locations around the world, each with distinct laws and regulations; new rules not carefully though out could contravene those differing sets of laws.

As frustrating as it can sometimes be to the trade, the LME’s cautious approach to changes designed to improve the experience for buyers, sellers, and stakeholders of the market — such as warehouse operators — is a methodology that in the long run mitigates the risk of “unintended consequences.”

The LME’s recent changes take just such a cautious approach.

After consultation far and wide, the LME released a Press Office statement Friday that outlined three main changes, plus additional commentary on what was proposed but the LME felt was too early to implement.

Broadly, the first change is intended to improve logistical optimization and is designed in part to guard against the structural queue model. The Queue-Based Rent Capping (QBRC) period has been extended from 50 to 80 days over a nine-month period and is intended to allow warehouse operators to compete more effectively for metal.

Queues have been probably the most sensitive issue the LME has had to address in the years since the financial crisis, so extending the permitted period took some consideration.

The exchange says it remains vigilant to such incentives not out-bidding or distorting physical market premiums and has instigated a reporting regime to monitor such risks. The LME intends to freeze rents and FOT load out charges until 2027-28 to mitigate the gulf between LME and non-LME warehouse rates.

On the topic of off-warrant stocks, the exchange is implementing a reporting regime intended to increase transparency and allow the market “to trade on the basis of a more holistic view of metal availability” – a move many of us welcome.

The LME intends to do this by requiring reporting for any metal in LME-registered sheds and/or under agreements in which the owner has a right to warrant metal in the future but is currently not on warrant.

Although the identity of the off-warrant metal owners will not be revealed, warehouse companies will gather and report the tonnage data periodically. There will still be some material that is not stored in exchange warehouses and where the owner is willing to pass the option of ever delivering such metal onto the exchange — but that is likely to be the exception.

Ultimately, the LME remains the market of last resort, as such is an option any investor would want to retain.

Do not, however, expect this data to be instantly available.

The LME caveats its plans by saying it will not release the data unless and until it is satisfied that the data is reliable and accurate – that could mean months, possibly a year, of monitoring.

Finally, of less interest to metal consumers is the seemingly arcane practice of so-called “evergreen rent deals,” whereby the owner retains an interest in warehouse rent on warrants they have sold on.

Going forward, this practice is only to be allowed on metal that is placed on warrant for the first time, not for warrants that are already registered and sold on. The intention is to incentivize metal coming onto the exchange but avoid a largely pointless ongoing cost that adds nothing to market efficiency.

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As we said in the opener, these changes are an opening gambit and remain subject to monitoring and, if necessary, adjustment should any of the changes prove counterproductive or should additional steps be required.

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This morning in metals news, Workday is acquiring sourcing and procurement firm Scout RFP, the Italian government and ArcelorMittal are butting heads over the latter’s intention to pull out of its Ilva contract and the U.S. might not have to impose tariffs on imported automobiles.

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

Workday Acquiring Sourcing and Procurement Firm Scout

MetalMiner sister site SpendMatters has all the news regarding Workday’s acquisition of sourcing provider Scout RFP for $540 million.

According to Workday, a finance and HR solutions provider, closing on the deal should occur by Jan. 31, 2020.

Check out other SpendMatters coverage of the acquisition, including Jason Busch’s analysis of the acquisition and background information on the companies.

Italy, ArcelorMittal Clash Over Ilva

On Tuesday, ArcelorMittal sent a letter to Italian firm Ilva detailing its intention to terminate a previously announced deal to purchase the struggling steelmaker.

ArcelorMittal closed on the deal Oct. 31, 2018.

“The Agreement stipulates that, in the event that a new law affects the environmental plan for the Taranto plant so as to materially impair the ability to operate it or to implement its industrial plan, the Company has a contractual right to withdraw from the Agreement,” ArcelorMittal said. “Effective on 3 November 2019, the Italian Parliament has removed the legal protection necessary for the Company to implement its environmental plan without the risk of criminal liability, thus justifying the withdrawal notice.”

However, Italian Prime Minister Giuseppe Conte pushed back, arguing the contract must be respected and that he won’t “bend” on the issue, Reuters reported.

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U.S. Auto Tariff Deadline Draws Near

A deadline is fast approaching.

This month, President Donald Trump will have to decide whether to impose tariffs on imported automobiles and auto parts, much to the chagrin of European automakers.

The decision comes pursuant to the processes of Section 232 of the Trade Expansion Act of 1962 — the same statute used to impose tariffs on imported aluminum and steel based on national security concerns.

Secretary of Commerce Wilbur Ross, however, cited conversations with automakers in the E.U. and Japan in noting the U.S. may not need to impose the new tariffs, Bloomberg reported.

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This morning in metals news, miner Antofagasta lowered its full-year copper guidance by 20,000 tons, a new favorite has emerged in the British Steel sweepstakes and the U.S. unemployment rate was unchanged in October.

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

Antofagasta Lowers Copper Guidance Amid Supply Disruptions

Protests and labor stoppages in Chile have impacted copper production in the country, the world’s top copper producer.

Antofagasta announced it was lowering its full-year copper guidance from a range of between 750,000 to 790,000 tons down to a range of 750,000 and 770,000 tons.

“Further to the 3Q 2019 Production Report announcement on 23 October 2019 and following the unrest in Chile, all of the Company’s mines are now back in operation,” the company said. Disruptions of the mines’ supplies mainly affected Los Pelambres whose access road was blocked. This, combined with some damage to ancillary infrastructure outside Los Pelambres’ perimeter, is estimated to have an impact on the Company’s full year production of approximately 10,000 tonnes of copper, including the 5,000 tonnes previously disclosed.

“At Antucoya, labour negotiations have been successfully concluded with the union ending the strike which started on 16 October. The impact on copper production is estimated at approximately 4,000 tonnes.”

New Favorite in British Steel Bidding

Following the failure to reach a deal with Ataer Holding, an arm of the Turkish military pension fund OYAK, a Chinese firm has emerged as the favorite to take over the insolvent British Steel.

According to The Guardian, Jingye is “extremely interested” in making a bid for the U.K.’s second-largest steelmaker, which was forced into liquidation in May.

Unemployment Rate Holds Steady

According to the latest jobs report from the Bureau of Labor Statistics (BLS), the U.S. unemployment rate held steady at 3.6% in October.

In October, nonfarm payroll employment increased by 128,000 jobs, according to the BLS.

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However, jobs declined in the motor vehicles and parts manufacturing sector due to strike activity (namely, the 40-day General Motors strike, which recently concluded).

Employment in manufacturing dropped by 36,000 in October. Employment in the motor vehicles and parts manufacturing sector fell by 42,000.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals coverage here on MetalMiner, which included a PwC report on mining and metal deals, global steel production, lead and zinc forecasts, and an automotive merger of PSA Groupe and Fiat Chrysler.

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

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This morning in metals news, the United Auto Workers (UAW) union has a tentative labor deal with Ford, the U.S. Office of Inspector General says the Section 232 tariff exclusion process needs more transparency and U.S. Steel officially completed the acquisition of a 49.9% ownership stake in Big River Steel.

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

UAW Announces Tentative Ford Deal

Not long after UAW members voted to ratify a new labor deal with General Motors late last week, the union now appears to be close to finalizing a deal with Ford.

In a statement this week, the UAW said it had reached a tentative agreement with Ford.

“Our national negotiators elected by their local unions have voted to recommend to the UAW-Ford National Council the proposed tentative agreement,” UAW Vice President Rory Gamble. “Our negotiating team worked diligently during the General Motors strike to maintain productive negotiations with Ford. The pattern bargaining strategy has been a very effective approach for UAW and its members to secure economic gains around salary, benefits and secured over $6 billion in major product investments in American facilities, creating and retaining over 8,500 jobs for our communities.”

Ford confirmed UAW’s announcement but did not provide further details.

“Ford can confirm the UAW’s announcement that the UAW and Ford have reached a proposed tentative agreement on a four-year contract,” said Bill Dirksen, vice president for labor affairs at Ford. “Further details will be provided at a later date.”

IG: More Transparency Needed in Section 232 Exclusions Process

U.S. importers have been applying for Section 232 tariff exclusions over the last year — a process that has come in for criticism.

Criticism has focused on the Commerce Department’s capacity to process the thousands of applications and accusations that some domestic firms are asserting an outsized influence on the Commerce Department’s decisions with respect to exclusion requests.

In a letter and management alert to Commerce Secretary Wilbur Ross, Carol Rice, assistant inspector general for audit and evaluation, shared her office’s concerns.

“Attached is a management alert regarding a lack of transparency that contributes to the appearance of improper influence in decision-making for tariff exclusion requests under Section 232 of the Trade Expansion Act of 1962, as amended,” Rice wrote. “Issues regarding this topic came to our attention during fieldwork for the ongoing audit of the Bureau of Industry and Security’s and International Trade Administration’s processes and procedures for reviewing and adjudicating Section 232 exclusion requests.”

The Inspector General’s office initiated an audit of the process Oct. 29, 2018. The management alert lists some of the findings unearthed by the audit, which include:

  • Evidence of an “unofficial appeals process”
  • Communications with an objector “prompted a change in internal review criteria”
  • No documentation for off-record conversations between “interested parties and Department officials”

U.S. Steel Finalizes Big River Steel Deal

U.S. Steel has finalized its $700 million acquisition of a 49.9% ownership stake in Arkansas-based Big River Steel (initially announced Oct. 1).

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“Today is a true milestone for our 118-year old company,” said David B. Burritt, president and CEO of U. S. Steel. “The closing of our investment in Big River brings us one step closer to creating a differentiated, world-competitive company that can offer our customers, employees and stockholders the ‘best of both’ integrated and mini mill steel making technology. We have done more than make an investment in the newest and most advanced flat-rolled mill in North America … we have invested in the future of U.S. Steel. We are gratified by the positive response we have received from our stakeholders recognizing the strategic rationale of this transaction since we announced it on October 1. We now look forward to executing the next phase of our strategy with our new partners at Big River.”

The board of France’s PSA, owner of Peugeot, has given chief executive Carlos Tavares approval to launch a full-scale merger with Fiat Chrysler Automobiles, creating one of the world’s largest carmakers, the Financial Times reports.

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

The FCA board is expected to follow suit, paving the way for the companies to pursue a deal that would create a combined group with a market value in excess of €44 billion (U.S. $48 billion).

Shares in FCA have risen some 7% since the merger was back on the table last week in anticipation of a successful outcome, Peugeot shares have barely moved. Both movements — or lack thereof — are in sharp contrast to the preceding year, during which Peugeot’s shares have risen 38% and FCA’s just 1%.

Peugeot’s Tavares has earned widespread praise for his turnaround of car maker Opel — formerly owned by General Motors — since 2017.

FCA shareholders are maybe hoping he can do the same for them.

Read more

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This morning in metals news, the Federal Reserve has cut interest rates for the third time this year, AK Steel released its third-quarter financials and 16 steel industry associations praised the work of the Global Forum on Steel Excess Capacity.

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

Fed Cuts Rates Again

For the third time this year, the Federal Reserve announced a downward adjustment to its federal funds rate.

The Fed lowered its federal fund target rate range by one-quarter of a percentage point, down to 1.50-1.75%.

“Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said in a release. “Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

In a pair of tweets, President Donald Trump again criticized the Fed and its chairman, Jerome Powell.

“People are VERY disappointed in Jay Powell and the Federal Reserve,” Trump wrote. “The Fed has called it wrong from the beginning, too fast, too slow. They even tightened in the beginning. Others are running circles around them and laughing all the way to the bank. Dollar & Rates are hurting our manufacturers. We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is! We will win anyway.”

AK Steel Releases 3Q Results

Ohio-based AK Steel announced adjusted EBITDA of $86.9 million in the third quarter, down from $160.8 million in 3Q 2018.

Net sales of $1.5 billion in the third quarter marked a 12% year-over-year decrease.

“Our third quarter results were essentially in line with our expectations despite a challenging environment,” CEO Roger K. Newport said. “We continued to make solid progress in our strategy to focus on higher-value business during the quarter. As we look to 2020, we are excited about our prospects, particularly in automotive where we expect meaningful market share growth.”

Steel Associations Applaud GFSEC Members’ Work on Excess Capacity

A group of 16 steel industry associations around the world released a statement praising the work of members involved in the Global Forum on Steel Excess Capacity and asking for that work to continue.

In addition, the associations “called upon the few dissenting members to reconsider their current position as quickly as possible.”

“According to the latest OECD information, there are 440 million metric tons of steel excess capacity in the world today. This is an increase of 6.5 percent over last year,” the groups said in a joint statement. “Governments of steelmaking economies worldwide must redouble their efforts to address this persistent global excess capacity in the steel sector, eliminating the support measures that cause it, and implementing strong rules and remedies that reduce excess capacity. We call on governments to continue the work on the issue of steel excess capacity without delay.”

China has been critical of the forum, arguing that it has done enough to work toward addressing the issue of steel excess capacity, the South China Morning Post reported.

The U.S. has also been critical of the forum, claiming it has not been effective.

“The decision by a vast majority of Global Forum members to continue the work of the Forum beyond 2019 is a recognition that severe excess capacity is a continuing crisis,” the Office of the United States Trade Representative said Saturday. “The Global Forum’s policy prescriptions and information-sharing process will not alone resolve the crisis of excess capacity in the global steel sector. This will only happen when those that have created the problem take concrete steps toward true market-based reform. Participation in the Global Forum process is a signal of each member government’s commitment to adhere to principles intended to ensure market-based outcomes.”

In 2017, the USTR said the forum “has not made meaningful progress yet on the root causes of steel excess capacity.”

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The groups issuing the call for continued action were: Steel Manufacturers Association (SMA), American Iron and Steel Institute (AISI), EUROFER (the European Steel Association), Canadian Steel Producers Association (CSPA), CANACERO (the Mexican Steel Association), Alacero (the Latin American Steel Association), Brazil Steel Institute, The Japan Iron and Steel Federation (JISF), European Steel Tube Association (ESTA), Specialty Steel Industry of North America (SSINA), South African Iron and Steel Institute (SAISI), The Cold Finished Steel Bar Institute (CFSBI), Indian Steel Association, Association of Enterprises UKRMETALURGPROM (Ukraine), Russian Steel Association, and The Committee on Pipe and Tube Imports (CPTI).

The British government has ended negotiations with the Turkish company Ataer Holding regarding its bid to buy British Steel, the Steel Times reported.

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Ataer owns almost 50% of Erdemir, Turkey’s biggest steel producer, and is also the investment vehicle of Oyak, the Turkish Armed Forces Assistance Fund (the pension fund for the Turkish armed forces, the article reports).

The British government has voiced concerns about Ataer’s links with the Turkish government and has now opened the bidding process for British Steel up to other interested parties.

The Financial Times suggests conditions Ataer had demanded, such as price cuts from suppliers, had also proved a hurdle in the negotiations.

Either way, the ten-week exclusivity period is not going to be extended and the bidding process is again open to all comers.

Although suggestions that Sanjeev Gupta’s Liberty House, which already owns steelmaking facilities in Rotherham and Stocksbridge in South Yorkshire and employs some 5,500 people across 30 sites, is mooted as a preferred buyer, the company previously said it would want to close Scunthorpe’s two blast furnaces and invest in new electric arc furnaces. That is a move unions fear could lead to job losses, while the government probably fears will cost them support money in one form or another.

However, Liberty remains the preferred bidder by most in the industry despite a return to the table by Chinese steel producer Jingye.

Hebei-based Jingye produces hot-rolled ribbed bars, round steel bars, medium-thick plates and hot-rolled coil; as such, it carries considerable manufacturing experience across Scunthorpe’s product range.

Although it has only produced steel since 2002, Jingye is among the top 300 firms by size in China and is said to be involved in real estate, finance, trade, pharmaceutical, hotels and tourism, according to a local newspaper closely following the prospects for the U.K. plant.

Whether Jingye would be a better steward for British Steel than Ataer Holidings is debatable.

Both firms have a strong presence in steel production, if not via the holding companies then via subsidiaries within the group.

But so did Tata Steel, the previous owners of British Steel, before it was sold to Greybull Capital in 2016 — for a nominal £1 — and eventually led to British Steel’s collapse.

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Most would agree a U.K.-based and owned firm like Liberty would make more sense, even if it doesn’t have the deep pockets a state-owned overseas firm could bring.

But British Steel’s ongoing uncertainty reflects the economic challenge all steel producers in Western markets face in trying to remain viable against cheap imports, while still operating in a high-cost base like the U.K.

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This morning in metals news, South Korea will no longer seek to benefit from special treatment granted to developing countries vis-a-vis WTO rules, iron ore exports from Australia’s Port Hedland are surging and Rio Tinto has commissioned new press filter technology at its Quebec alumina refinery.

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

South Korea to Give up Seeking Developing Country Treatment

According to a Reuters report citing South Korea’s finance minister, the country will give up seeking the special treatment afforded to developing countries.

“The government decided not to seek special treatment as a developing country from future negotiations at WTO,” Finance Minister Hong Nam-ki was quoted as saying.

Developing country status is self-designated; however, other WTO members can challenge a country’s claim to the status.

Earlier this year, the White House released a memorandum calling for reforms to developing country designations.

“While some developing-country designations are proper, many are patently unsupportable in light of current economic circumstances,” the memorandum stated. “For example, 7 out of the 10 wealthiest economies in the world as measured by Gross Domestic Product per capita on a purchasing-power parity basis — Brunei, Hong Kong, Kuwait, Macao, Qatar, Singapore, and the United Arab Emirates — currently claim developing-country status.  Mexico, South Korea, and Turkey — members of both the G20 and the Organization for Economic Cooperation and Development (OECD) — also claim this status.”

Through the first half of 2019, South Korea accounted for 9% of U.S. steel imports (1.3 million metric tons).

Port Hedland Iron Ore Exports Rising

Iron ore exports from Australia’s Port Hedland are expected to hit a record high this fiscal year, according to a Bloomberg report.

According to the report, iron ore volumes from the port last year reached 508.5 million tons.

Rio Tinto Announces New Press Filter Tech at Quebec Refinery

Rio Tinto has commissioned new press filter technology at its Vaudreuil alumina refinery in Quebec.

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“The new filter presses will deliver environmental benefits by moving the refinery to dry stacking of bauxite residue and extend the life of the operation, which supports 1,000 jobs in the Saguenay-Lac-St-Jean region,” the company said. “The presses will ramp up to being fully operational in early 2020.”

The new presses will be able to dry bauxite residue — preparing it for storage — in just 17 minutes, according to Rio Tinto, down from the three years it currently takes to dry the material.