Industry News

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This morning in metals news, U.S. Steel announced Thursday it plans to invest more than $1 billion at its Mon Valley Works facilities, Australian iron ore exports bounced back in April after being impacted by tropical cyclones in March and the zinc price fell to its lowest level in 2 1/2 months.

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U.S. Steel Announces $1B Investment

U.S. Steel announced today that it plans to invest more than $1 billion to build a “new sustainable endless casting and rolling facility” at its Edgar Thomson Plant in Braddock, Pennsylvania, and a cogeneration facility at its Clairton Plant in Clairton, Pennsylvania.

“The cutting-edge endless casting and rolling technology combines thin slab casting and hot rolled band production into one continuous process and will make Mon Valley Works the first facility of this type in the United States, and one of only a handful in the world,” the steelmaker said in a release.

First coil production is expected in 2022, the company said.

Australian Iron Ore Exports Pick Up

The Australian iron ore sector was impacted in late March by a pair of tropical cyclones that battered Western Australia, disrupting exports of the steelmaking raw material.

However, exports of iron ore from Australia did bounce back in April, Reuters reported.

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According to Reuters, exports rose 20% month over month in April, rising to 69.1 million tons of iron ore.

Zinc Price Falls

Zinc prices fell to their lowest levels since mid-March, Reuters reported, on concerns regarding demand and rising inventories.

On Space Launch Complex 576-E at Vandenberg Air Force Base in California, Orbital Sciences workers monitor NASA’s Glory upper stack as a crane lifts it from a stationary rail for attachment to the Taurus XL rocket’s Stage 0.
Source: NASA

Following investigations regarding the cause of two launch failures in 2009 and 2011, NASA pointed the finger this week on faulty materials from aluminum manufacturer Sapa Profiles, Inc. (SPI).

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“NASA Launch Services Program (LSP) investigators have determined the technical root cause for the Taurus XL launch failures of NASA’s Orbiting Carbon Observatory (OCO) and Glory missions in 2009 and 2011, respectively: faulty materials provided by aluminum manufacturer, Sapa Profiles, Inc. (SPI),” NASA said in a release.

“LSP’s technical investigation led to the involvement of NASA’s Office of the Inspector General and the U.S. Department of Justice (DOJ). DOJ’s efforts, recently made public, resulted in the resolution of criminal charges and alleged civil claims against SPI, and its agreement to pay $46 million to the U.S. government and other commercial customers. This relates to a 19-year scheme that included falsifying thousands of certifications for aluminum extrusions to hundreds of customers.”

According to NASA, the failed Taurus XL missions resulted in a loss of more than $700 million and “years of people’s scientific work.”

Upon investigation, NASA concluded the crafts’ launch vehicle fairing, a “clamshell structure that encapsulates the satellite as it travels through the atmosphere,” had failed to separate on command.

“From NASA’s investigation, it is now known that SPI altered test results and provided false certifications to Orbital Sciences Corporation, the manufacturer of the Taurus XL, regarding the aluminum extrusions used in the payload fairing rail frangible joint,” NASA said. “A frangible joint is a structural separation system that is initiated using ordnance.”

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SPI, now known as Hydro Extrusion Portland, Inc., recently pleaded guilty to one count of mail fraud and reached a settlement with the Department of Justice’s Civil Division to pay $46.9 million.

SPI is owned in a 50-50 share purchase agreement between Norwegian conglomerate Orkla ASA and Norsk Hydro, after Hydro acquired a 50% interest in SPI in 2017 for NOK 27 billion.

“As part of the share purchase agreement between Hydro and Orkla ASA, Orkla ASA will indemnify Hydro for 50 percent of the liability in relation to the DOJ’s investigations,” Norsk Hydro said in a release April 23. “As communicated in Hydro’s 2018 Annual Report on March 15, 2019, a charge of NOK 157 million has been included in Hydro’s Q4 2018 figures related to the agreement with DOJ.”

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This morning in metals news, the copper price got a boost from optimism stemming from the resumption of trade discussions between the world’s top two economies, the CEO of Australia’s Fortescue was bullish about the Chinese steel sector and British Steel received a £100 million government loan.

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Copper Price Picks Up

As it has been wont to do throughout the U.S.-China trade talk saga, the copper price was supported by Wednesday’s restart of trade talks in Beijing between the two economic superpowers.

Three-month LME copper moved up 0.2% Wednesday to $6,426 per ton, Reuters reported.

Fortescue CEO Optimistic About Chinese Steel Production

While some economic indicators suggest the Chinese economy is slowing down, China’s steel sector does not appear to be following that trend, according to Fortescue CEO Elizabeth Gaines.

Fortescue is one of the world’s largest iron ore producers. In 2018, China posted a record 928.3 million tons of crude steel production.

“When it comes to China, what we’ve really seen, particularly in that first quarter, is strong growth in steel production,” Gaines said while appearing on CNBC’s “Capital Connection.”

Gaines added that based on conversations with customers in China, she expects steel production growth in China to come in at 3-4% this year.

British Steel Gets £100M Loan

The BBC reported British Steel has secured a £100 million loan from the government to pay off its E.U. carbon bill.

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As the report notes, amid Brexit uncertainty, the European Commission last year opted to suspend U.K. firms’ access to free carbon permits — which can be used to pay for emissions bill or can be traded to raise money — under the E.U. emissions trading system.

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The Office of the United States Trade Representative (USTR) released its annual Section 301 report late last week, covering intellectual property protection by U.S. trading partners and its so-called Notorious Markets List.

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The Trump administration utilized Section 301 of the Trade Act of 1974 to impose heavy duties on Chinese goods last year, to the tune of $250 billion worth of imports. The move came on the heels of long-standing U.S. criticism of what it sees as China’s unfair trade practices, including forced technology transfer and intellectual property violations, among others. (China retaliated last year with $110 billion worth in tariffs on U.S. goods.)

“The Special 301 Report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights,” a USTR release stated.

According to the release, countries presenting the “most significant concerns regarding IP rights” are placed on either the Priority Watch List or Watch List. In total, the report identifies 36 countries qualifying for inclusion on either of the two lists.

The countries listed under Priority Watch were: Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine and Venezuela.

Meanwhile, the Watch List included: Barbados, Bolivia, Brazil, Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Paraguay, Peru, Romania, Switzerland, Thailand, Turkey, Turkmenistan, the United Arab Emirates, Uzbekistan and Vietnam.

“These trading partners will be the subject of increased bilateral engagement with USTR to address IP concerns,” the USTR release stated. “Specifically, over the coming weeks, USTR will review the developments against the benchmarks established in the Special 301 action plans for countries that have been on the Priority Watch List for multiple years. For such countries that fail to address U.S. concerns, USTR will take appropriate actions, such as enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization or other trade agreement dispute settlement procedures, necessary to combat unfair trade practices and to ensure that trading partners follow through with their international commitments.”

The full Section 301 report can be read here.

The report also features a Notorious Markets List, which includes markets “reported to engage in and facilitate substantial copyright piracy and trademark counterfeiting.” The report identifies 33 online markets and 25 physical markets under the Notorious Markets List.

“This activity harms the American economy by undermining the innovation and intellectual property rights of U.S. IP owners in foreign markets,” the USTR said. “An estimated 2.5 percent, or nearly half a trillion dollars’ worth, of global imports are counterfeit and pirated products.”

The physical markets section of the report highlights China’s role in the distribution of counterfeit products.

“As in past years, several commenters continue to identify China as the primary source of counterfeit products,” the Notorious Markets List report states. “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price) and 87 percent of the seizures by CBP in 2017.

“Some Chinese markets, particularly in larger cities, have adopted policies and procedures intended to limit the availability of counterfeit merchandise. However, these policies are not widely adopted and enforcement 32 remains inconsistent.”

The full report on the Notorious Markets list, including full listings for each online and physical market, can be found here.

The U.S. Chamber of Commerce issued a statement on the heels of the USTR’s release of the special report, calling global IP laws “under-developed” despite “steps in the right direction.”

“Despite steps in the right direction, overall global IP laws remain under-developed, denying cutting-edge American businesses a return of fair value on their innovations and creativity, and leaving many countries unprepared to meet the challenges and opportunities of a 21st century knowledge economy,” said Patrick Kilbride, the U.S. Chamber of Commerce’s senior vice president of the Global Innovation Policy Center, said in a prepared statement. “Lack of enforcement to protect copyright rights-holders; misuse of competition enforcement; price controls; compulsory licenses; and undermining IP protections through multilateral organizations favor domestic commercial interests at the expense of innovators, creators, and consumers around the world.”

Kilbride also highlighted the pending United States-Mexico-Canada Agreement (USMCA), saying the “USMCA and the forthcoming FTAs provide an opportunity to strengthen IP protections around the world.”

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“We applaud the negotiation team on the completion of the USMCA and urge Members of Congress to recognize the benefits of the agreement,” Kilbride added. “GIPC benchmarked the USMCA against the IP standards included in the U.S. Chamber’s International IP Index. The research reveals a significant improvement from the original NAFTA, which scored a mere 48 percent while the USMCA scored 80 percent.”

The USMCA must be approved by each country’s legislature before the agreement can go into effect.

Miner Glencore reported its Q1 2019 production figures this week, showing own-sourced copper production dipped 7% year over year, while cobalt production surged 56% year over year.

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Glencore’s copper production totaled 320.7 kt in Q1 2019, while cobalt production reached 10.9 kt.

According to the miner, the reduced copper output is explained by: reduced metal production in Australia due to flooding in Queensland; the impact of “safety-related stoppages and smelter outages at Mopani”; and the Alumbrera open-cut depletion and sale of Punitaqui in the second half of 2018.

While cobalt production is up, the miner has dealt with elevated levels of uranium in cobalt mined at its Katanga operation in the Democratic Republic of the Congo; as a result, Katanga made no cobalt sales in Q1, according to the company announcement.

“From April 2019, the export and sale of a limited quantity of cobalt, complying with appropriate regulations, was allowed to resume,” the company said. “Such resumption of exports remains subject to the relevant DRC export procedures, which include continued monitoring by the relevant authorities.”

Glencore’s zinc production in the quarter ticked up 8% to 262.3 kt, aided by the restart of the Lady Loretta mine in Australia. However, the total was weighed down by lower production at Kazzinc in Kazakhstan, stemming from a “safety-related investigation” at one mine.

Nickel production, meanwhile, fell 10% to 27.1 kt, impacted by severe weather in Canada.

Ferrochrome production of 402 kt held flat year over year, while coal production moved up 8% to 33.2 million tons.

The miner’s updated fiscal year 2019 guidance calls for 1,460 kt (+/- 30) of copper production, compared with the full-year 2018 production total of 1,454 kt.

Cobalt guidance came in at 57 kt (+/- 4), up from 42.2 kt in 2018. Zinc guidance checked in at 1,195 kt (+/- 30), up from 1,068 kt in 2018. Nickel production was 128 kt (+/- 5), compared with 124 kt in 2018.

Ferrchrome guidance was 1,640 kt (+/- 25), compared with 1,580 kt in 2018. Coal guidance was 145 million tons (+/- 3), compared with 129 million tons in 2018.

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Oil guidance of 5.5 mbbl (+/- 0.2) marked an increase from 4.6 mbbl for 2018.

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The International Maritime Organization’s (IMO) Jan. 1, 2020 deadline for shipping companies to use low-sulfur (0.5% max) fuel has been on and off in the news for months, but without much interest from those outside the industry or the environmental organizations that lobbied for its introduction.

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But now, with the deadline just months away, the implications are becoming more apparent.  Shipping lines are scrambling to fit scrubbers, but some are finding they have left it too late.

It currently takes some six weeks to retrofit a scrubber. With the surge in demand for scrubber equipment and a shortage of qualified engineers, yards are full of work over the next 12 months. Some 4.4 million twenty-foot equivalent units (TEU) in container ship capacity is taken out of service this year, according to JOC. That amounts to about 380 container ships and is already contributing to the worst on-time performance by carriers on the Asia-U.S. trades since 2012, the article reports.

In total some 550 box ships, totaling 6 million TEU, are due to be equipped with scrubbers — at a rate of about 30 vessels a month, consequently squeezing capacity.

Not all vessels are going for scrubbers, despite the current cost advantage.

The majority of vessels will opt to burn low-sulfur fuel oil, for which the premium is between U.S. $170 and $320 per metric ton over 3.5% sulfur fuel (apart from South America, where low-sulfur fuels already predominate and the premium is only $40/ton).

It costs between U.S. $5 million and $10 million for a scrubber system depending on the vessel and where it is fitted, plus greater maintenance and the downtime required for installation. But the price difference between low-sulfur fuel oil and heavy fuel oil can add U.S. $1 million to an Asia-Europe round trip for a ULVC.

Those opting not to fit scrubbers but pay the fuel premium are either biding their time by waiting for an installation slot or hoping the fuel premiums will fall. The change will likely also hasten the scrapping of older vessels deemed uneconomic to retrofit or operate at the higher fuel costs.

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As a result, shippers can expect rates to rise this year and next — either as a result of reduced capacity or lines paying higher bunker premiums (or both).

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This morning in metals news, Mexico’s Senate approved changes to the country’s labor laws, Chinese iron ore futures notched their fifth consecutive monthly gain and U.S. steelmaker AK Steel reported its first-quarter earnings.

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Mexico Passes New Labor Laws

As NAFTA partners Canada, Mexico and the U.S. work toward approval of the United States-Mexico-Canada Agreement (USMCA), billed as the successor to NAFTA, Mexico’s Senate approved revisions to the country’s labor laws that addressed some of the U.S.’s complaints vis-a-vis low pay rates in the country.

Bloomberg reported the Mexican government passed the changes Monday, including granting workers the right to vote on unions and labor contracts via secret ballots.

United States Trade Representative Robert Lighthizer applauded the move by the Mexican government.

“The USMCA includes the strongest, most advanced, and most comprehensive labor obligations of any U.S. trade agreement,” he said in a prepared statement. “I commend the Mexican Congress and President Lopez Obrador for passing historic labor reforms as part of this agreement and thank President Trump for making strong labor commitments in the USMCA a top priority. These reforms will greatly improve Mexico’s system of labor justice and are exactly what labor leaders in the United States and Mexico have sought for decades. As we move forward with the ratification of USMCA, the Trump Administration will work closely with members of the United States Congress and the Mexican government to ensure these reforms are implemented and enforced.”

Article 23.3 of the UMSCA text addresses labor rights, including “freedom of association and the effective recognition of the right to collective bargaining.”

The legislatures of the three countries must approve the USMCA before it can go into effect.

Chinese Iron Ore Futures Rise

Iron ore prices have been riding a hot streak so far this year, aided by supply-side disruptions in Australia and Brazil.

In addition, Chinese iron ore futures have picked up steam, too, notching their fifth straight month of gains this month, Reuters reported.

According to the report, the most-traded iron ore contract on the SHFE jumped 2.1% to 639 yuan ($94.84) per ton.

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AK Steel Reports 1Q 2019 Earnings

Ohio-based AK Steel unveiled its first-quarter earnings this week, reporting adjusted EBITDA of $160.9 million, up 36% year over year.

Including a $77.4 million charge associated with the firm’s closure of its Ashland Works, AK Steel posted a net loss of $4.5 million in the country, and an adjusted net income of $72.9 million when excluding the Ashland Works special item.

After a chilly February for U.S. housing starts, starts were down again in March.

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According to a monthly report released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, privately owned housing starts in March were at a seasonally adjusted annual rate of 1,139,000.  March starts were down 0.3% from the revised February estimate of 1,142,000. Furthermore, March starts were down 14.2% from the March 2018 rate of 1,327,000.

According to the report, single‐family housing starts in March reached 785,000, down 0.4% from February’s 788,000. Meanwhile, the March rate for units in buildings with five units or more was 337,000.

On the other hand, the decline in housing starts moderated significantly from February. February housing starts plunged 8.7% compared with January. Winter weather is always factor to consider when assessing housing starts early in the year; however, it remains to be seen if the recent declines are part of a growing trend, or if starts will pick up as weather conditions become more amenable to construction.

On the other hand, U.S. housing starts increased from February to March in both 2017 and 2018.

Privately‐owned housing units authorized by building permits in March reached a seasonally adjusted annual rate of 1,269,000, marking a 1.7% decrease from the revised February rate of 1,291,000. March permits were down 7.8% from the March 2018 rate of 1,377,000.

Single‐family authorizations reached 808,000, down 1.1% from the revised February figure of 817,000. Meanwhile, authorizations of units in buildings with five units or more hit a rate of 425,000 in March.

As for completions, privately‐owned housing completions in March reached a seasonally adjusted annual rate of 1,313,000, down 1.9% from the revised February estimate of 1,338,000. However, March proved to be a more productive month on a year-over-year basis, as completions increased 6.8% compared with March 2018’s rate of 1,229,000.

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Single‐family housing completions in March reached 938,000, up 11.9% from the revised February rate of 838,000. For units in buildings with five units or more, the March rate reached 364,000.

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The World Steel Association released its March global crude steel production report, detailing global crude steel production rose 4.9% year over year.

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March 2019 production reached 155.0 million tons. For the first three months of the year, production reached 444.1 million tons, up 4.5% compared with the first quarter of 2018.

Asia produced 312.9 million tons of crude steel, marking a 7.0% increase over the first quarter of 2018. Elsewhere, E.U. production reached 42.3 million tons of crude steel in the first quarter of 2019, marking a 2.0% decrease. North American crude steel production in Q1 reached 30.7 million tons, up 4.0% year over year.

China’s crude steel production for March 2019 hit 80.3 million tons, up 10.0% year over year. China’s program of winter production cuts ran from November through March, but Reuters earlier this month reported the country’s top two steelmaking cities, Tangshan and Handan, announced they would extend the production cuts.

India produced 9.4 million tons of crude steel in March 2019, falling 1.0% from March 2018. Japan’s production hit 9.1 million tons, holding flat from March 2018. South Korea’s production rose 2.8% to 6.3 million tons.

In Europe, Italy’s crude steel production fell 0.3% to 2.3 million tons, while France’s rose 2.3% to 1.4 million tons. Spain also produced 1.4 million tons, good for an increase of 5.9%.

The U.S. produced 7.8 million tons of crude steel in March 2019, marking a 5.7% year-over-year increase. According to the American Iron and Steel Institute (AISI), the U.S.’s adjusted year-to-date production through April 20 hit 29.95 million net tons, at a capability utilization rate of 81.9%. Production during that aforementioned period was up 6.9% from the equivalent period in 2018, during which the capability utilization rate was 76.4%.

Ukraine’s production spiked 15%, up to 2.0 million tons, while Brazil’s fell 8.6% to 2.8 million tons.

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Turkey’s production continued to decline, falling 11.7% in March down to 3.0 million tons. Turkey has struggled with shrinking export markets in the face of the U.S.’s Section 232 tariffs and the E.U.’s steel safeguard measures passed earlier this year.

According to a release on the China Iron and Steel Association website, the president of the Turkish Steel Exporters’ Association Adnan Aslan recently said Turkish steel exports could decline to 15-16 million metric tons in 2019, down from 21.4 million metric tons in 2018. In addition, Aslan highlighted the importance of tapping into new markets for the Turkish steel sector, including Southeast Asia, West Africa and Latin America.

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This morning in metals news, the China Iron and Steel Association issued a statement on the negative impact of excess steel capacity, the U.S. dollar reached a nearly two-year high and U.S. Treasury Secretary Steven Mnuchin said U.S.-China trade talks are in their “final laps.”

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CISA on Supply-Side Reform

The China Iron and Steel Association said the country was “far from achieving its tasks” with respect to tackling excess production, Reuters reported.

“Keeping the balance between demand and supply is a key premise for maintaining the stabilization of the steel market,” CISA was quoted as saying.

Beijing has undertaken widescale production curbs in recent years in an effort to mitigate pollution from steelmaking facilities. This past winter, however, the government opted against the blanket cuts mandated during the winter of 2017-18, instead allowing local authorities to set reduction targets. Despite the efforts, China produced a record 928.3 million tons of steel in 2018.

Dollar Surges

The U.S. dollar firmed, approaching a 23-month high, Reuters reported.

The U.S. dollar historically has an inverse relationship with a number of metals; that is, when the U.S. dollar rises, metals prices fall (and vice versa).

Heading for the Finish Line

The U.S. and China may be getting closer to a resolution to their long-simmering trade conflict, which has escalated over the past year to the tune of a combined $360 billion in tariffs on each other’s goods.

U.S. Treasury Secretary Steven Mnuchin told The New York Times the two parties were getting to the “final laps” of the process.

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Negotiations are scheduled to continue this week in Beijing, following by another negotiating session in Washington, D.C.