Industry News

A year and a half ago, I took aim at a story first reported in the New York Times touting the benefits of the “slow steam initiatives as put in place by leading shippers. “Slow steam refers to the shipping industry initiative designed to slow down ships to create greater fuel savings, as well as reduce greenhouse gas emissions.

A commentator to that original post suggested the initiatives began as a result of EU regulatory oversight and/or increased taxes on fuels used in the shipping industry. In other words, the shipping industry may have suggested the initiative to reduce taxes on fuel. Regardless of motive for the initiative, we suggested back then that manufacturing organizations could expect to receive some of the following “benefits (sarcasm intended):

  1. Manufacturers will need to adjust (upward) inventory levels to account for the longer lead times
  2. Manufacturers will run a higher risk of not meeting demand (e.g. fulfilling customer need)
  3. Finance costs will increase
  4. Increased WIP (work in process) due to decreased throughput

That original post elicited a comprehensive response from the head of corporate sustainability at Maersk Lines. That response suggested that Maersk makes up for the slow-steam initiative with additional value-added services specifically by finding or offsetting “the additional ocean transit elsewhere either on our side (we can do a lot more to increase efficiencies in connection with port arrivals as an example) or on our customers side, as well as by stressing that customers demand reliability “of equal or greater value than speed. But now a new study published by Centrx, BDP International and St. Joseph’s University measures the specific impact felt by manufacturers as a result of the slow steam initiative.

And the Survey Says¦

Of all the different potential impacts on businesses (freight rates, inventory levels, cash flow, production scheduling, customer service, competitive position or no impact), inventory levels impacted a majority of companies (52%), followed by customer service (ed. note: fulfilling customer need) (50%) and finally, production scheduling (45%). I failed to note production scheduling in my original hypothesis on the impact of these initiatives.

Other interesting findings include Asian manufacturers citing decreased customer service levels as their No. 1 supply chain impact, while the Europeans have noted greater impact from cash flow challenges when compared to North American and Asian Pacific manufacturers.

In response to “slow-steam, manufacturers have, according to the survey, undertaken a number of initiatives including: increased inventory levels, added technology to improve supply chain visibility and a greater number of strategy decisions (though the study provides no additional information on that last point).

Of course from a sourcing perspective, it should come as no surprise that manufacturing organizations have thought through how ocean carriers ought to use the fuel savings from these initiatives not surprisingly, the vast majority of firms stated that freight rates should decrease, though nearly half in the Americas noted the cost savings could go toward improved customer service on behalf of the steamship lines.

But perhaps the most interesting finding tells us more about how industry views ‘green policies’ in general: “When asked if the economic benefits of slow steaming are worth the cost and inconvenience, 50% of respondents agreed, 40% disagreed, and 10% had no opinion.”

–Lisa Reisman

Hot on the heels of our articles (here and here) a couple of weeks ago about China’s C919 sub-200-seat, single-aisle contender with Airbus’ A320 and Boeing 737, comes Russian Sukhoi’s single-aisle 100-seat SuperJet in competition with Bombardier of Canada and Embraer of Brazil.

Source: blog.flightstory.net

Not that serious aviation experts are really ranking the SuperJet on par with the established players just yet (certainly not more than they would place the C919 on par with the A320 or 737), but the rise of emerging market plane makers is an interesting trend which will have subtle yet far-reaching effects on the aerospace metals supply market in the decade ahead.

Show Me the Sukhoi

Arguably Russia’s Sukhoi has a better pedigree than China’s COMAC. Although seasoned travelers all have a scary domestic Russian flight story aboard an aging Tupulev to tell at dinner parties, the reality is Sukhoi did build some impressive military jets even if their commercial offerings left a lot (and I mean a lot) to be desired!

The firm claims it has orders for 176 of the new SuperJets on its books, including 15 for Mexico’s second-largest airline InterJet. The firm hopes to sell 800 and has sold 25 percent of the firm plus given marketing rights to Italian engineering firm Finmeccanica’s Alenia Aeronautica. Sales are being run out of Venice for non-former Soviet markets and application has been made for European certification.

Certification will be one thing; widespread acceptance of Russian aircraft may be another. While passengers in emerging markets and discount airlines may be willing to compromise their trust in the plane maker for a lower fare, major western airlines may take longer to be persuaded. An article in the NY Times explains the firm has already had talks with Delta and SkyWest about possible sales, but buyers will be only too well aware that memories run deep of multiple plane crashes in the former Soviet block and those are the ones that hit the headlines. Although the new plane is said to look and feel like a modern airliner, with pleasant furnishings, bright lights and quiet, high bypass engines, it’s the accident record travelers will likely focus on.

Good For Russian Metal

Still, Sukhoi is something of a national champion and will receive considerable support. It is probable the plane will be produced in significant numbers and a slow acceptance may be engendered overseas. The return of volume aircraft manufacturing will encourage Russian aluminum and titanium producers to focus on domestic supply at the expense of exports. Europe has become reliant on Russian aluminum and titanium supply for a significant portion of their commercial market needs.

As Russian mills divert material not just to aerospace but to a robustly growing domestic economy, less material will be available for export, putting upward pressure on prices. Sukhoi’s regional SuperJet does not need to make major inroads into the US or even Europe to have an impact on both established players or the supply chain. Significant sales to cost-conscious new entrants in places like India or Indonesia could still amount to substantial sales, impact established plane builders’ prospects and affect the metal supply chain.

–Stuart Burns

Guest commentator TC Malhotra contributes from New Delhi.

Indian government-owned National Aluminum Company Limited (NALCO) has finally decided to commission its expanded refinery capacity this month, according to a Hindu Business Line article.

The company is enhancing production capacity at the refinery in Damanjodi, nearly 400 kilometers from state capital Bhubaneswar, from 1.58 million metric tons to 2.1 million metric tons, which will be further upgraded to 2.28 million metric tons.

The company has earlier estimated that the expansion plan may cost Rs 44 billion ($978.2 million), but now it is believed that the second phase of expansion could see a 10 percent cost increase.

Indian business daily Hindu Business Line has quoted B.L. Bagra, CMD of the state-owned company, as saying that though the additional cost would be recoverable from the original contractors, it is expected to be within 10 percent of the approved cost estimate.

The work at the refinery lagged after a Maoist attack there two years ago, forcing several contractors and their workers to leave.

Later this fiscal year, the refinery capacity will further be upgraded to 2.28 million metric tons when the additional equipment under the second phase is put to work.

NALCO is considered to have been a turning point in the history of the Indian aluminum industry. NALCO was incorporated in 1981 in the public sector to exploit a part of the large bauxite deposits discovered in the east coast of the country.

NALCO’s 1.58-million-ton alumina refinery, having three parallel streams of equal capacity, is located in the valley of Damanjodi in the eastern Indian state of Orissa. In operation since September 1986, the refinery is designed to provide alumina to the company’s smelter at Angul and export the balance alumina to overseas markets through Visakhapatnam Port.

Almost all the major players in the Indian aluminum industry have their own alumina plants. Besides Nalco, other major aluminum companies in India include government-owned Hindalco, Balco and Malco. Balco and Malco have already been acquired by private player Vedanta Resources.

Hindalco has plants at Renukoot, Belgaum and Murib the Renukoot in the northern state of Uttar Pradesh has alumina production capacity of 700,000 tons per year. Hindalco’s Belgaum plant is located in the south Indian state of Karnataka. The Belgaum unit currently has an alumina production capacity of 380,000 tons per year, while the Muri alumina plant in Jharkhand State has got an alumina capacity of 450,000 tons per year.

India is the world’s fifth largest alumina producer, with aluminum production of about 2.7 million tons, accounting for almost 5 percent of the total aluminum production in the world. India has about 3 billion tons of bauxite reserves, which account for almost 7.5 percent of the world’s 65 billion tons of reserves. Indian bauxite reserves are expected to last over 350 years.

In India, the industries that require aluminum mostly include power (44%), consumer durables, transportation (10-12%), construction and packaging (17%).

–TC Malhotra

BMW has revealed details of just one of the projects they have been spending all those millions of euros of profit on recently. Building on test-bed trials they ran with electric Minis over the last couple years, BMW has released details of two concept cars which they hope will be sufficiently different from all the other EV and hybrid offerings out there to generate volume sales. Although the two vehicles fall under the same, Apple-like i-project designation, they are substantially different in many ways.

The compact four-seat i3 is an all-electric, largely urban vehicle which looks crushingly awful in the above photo of a test car courtesy of autoexpress.co.uk, but somewhat more attractive in the artist design image alongside its stablemate, the i8 below, from BMW themselves.

Both vehicles, while platforming many new ideas that have been gestating at BMW, have some notable design similarities. In particular, BMW states that the weight-saving by building the cars from carbon fiber on top of an aluminum chassis allows them to use significantly smaller and lighter (and therefore cheaper) lithium ion battery packs. We have to take them at face value here; it doesn’t sound intuitively obvious that the saving on a lighter battery pack is greater than the cost of carbon fiber + aluminum (minus what the body would have been using steel).

In addition, in the life cycle of the car, carbon fiber is a very expensive material, both to produce and to repair in the event of an accident, but maybe that is part of the issue — car producers don’t pay for repairs, but they do pay for the battery supplied with the car. Is it preferable to keep battery costs down at the expense of long-term repair costs? A US automotive blog site called autoblog advises the not-so-sexy i3 is powered by a 150-horsepower electric motor and a lithium-ion battery pack that reportedly provides up to 100 miles of range. The battery can be 80 percent recharged in one hour on a rapid charger or fully recharged in 6-8 hours on a 220v mains outlet. All that weight-saving is evident in the specs though; the i3 will weigh only 1270kg (2800lbs), a useful 250kg less than the Nissan Leaf, and is scheduled to come to market in 2013.

The more sexy i8 is a different concept, a two door 2+2 seat hybrid sports car with electric motors running the front wheels and a 1.5-liter turbo-charged three-cylinder petrol engine driving the 1480 kgs (3263lbs) car from 0-62 mph in just 4.6 seconds 0.3 seconds faster than the M3 Coupe and to a governed top speed of 155 mph via the rear wheels. Fuel consumption is said to be in the region of 90 miles per imperial gallon and deposits now will not see a delivered car before 2014.

Full details on both cars can be found on the BMW press site here. In addition, BMW in the UK has a clever graphic display showing how the carbon fiber body fits around motors and internal components connected to the aluminum chassis. As one would expect with a concept car, specifications are still limited.

BMW is, to its credit, taking the evolution of the car in a more holistic fashion than their peers. They are said to be pouring $100 million into research and development around the i-series inter-connectivity with the outside world. For example, the sat nav takes you to the closest parking spot to your destination and then seamlessly connects with an app on your mobile phone to navigate you through pedestrianized areas this is a European car, remember to your final destination. No doubt such innovations will be rolled out through all of BMW’s range, some even before the i-cars come to market. The question is, will BMW’s use of carbon fiber and aluminum eventually take over from their use of steel and aluminum as the primary method of automobile construction? That will be an interesting trend to follow over coming years as an aluminum man, I am just pleased to see my metal playing a role in both design approaches.

–Stuart Burns

Novelis, the global leader in producing rolled aluminum products, posted record profits last quarter totaling $62 million, compared with $50 million in the same period in 2010, according to a Novelis press release and conference call. Novelis has a pretty bullish outlook on the aluminum market, betting that demand will be hearty enough to sustain its plans for expansion worldwide.

The 24-percent year-over-year increase in profit and 16-percent year-over-year increase in adjusted EBIDTA (up to $306 million) puts Novelis in sound territory going into H2. Sales during the quarter were up 23 percent, to $3.1 billion. Novelis buys 3 million tons of aluminum per year. And according to their CEO Phil Martens, they’re just getting started.

“We are on track and on budget with all of our global expansion projects, including our Brazil and Korea mill expansions and our strategic automotive investment in the U.S., Martens said via press release.  “These expansions, coupled with our debottlenecking initiatives, will add 1,000 kilotonnes of additional capacity and position us well to meet our customers’ needs today and well into the future.”

Last quarter, the company posted 767,000 tons of shipments, up 3 percent from the 746,000 tons during the same quarter in 2010.

Looking Ahead

Later, during a conference call, Martens said that Novelis “expects aluminum demand from the auto industry to increase by 25 percent by 2015, with demand from the electronics sector growing 10 percent to 15 percent and demand from the beverage can sector growing 4 percent to 5 percent. Although electronics and beverage can demand has slowed down in Europe, they’re still quite bullish on the car industry; furthermore, they indicated that expansion plans would not be hampered by global volatility surrounding stock and commodity markets.

One should look no further than my colleague Lisa’s series on The Car Wars to see that aluminum sheet and coil are taking more prominent places in the various sectors, replacing steel in the auto sphere and glass in beverage packaging.

Of course, one must also keep an eye on the rising demand and increase in price of aluminum scrap. A big part of Novelis’ strategy is to increase their use of recycled aluminum scrap from 34 percent now to 80 percent by the end of the decade, as Senior Vice President Erwin Mayr told us at the Harbor Aluminum Outlook Conference. (For an excellent rundown of Novelis’ macro outlook, click here.)

A recent WSJ article highlights the scrap shortages in copper and steel markets, as well as in aluminum, saying that it may not be until the end of the decade that we see replenishment in global scrap supply. US shredded steel scrap is up about 33 percent since last year, and finished HRC is up 25 percent, according to the article.

If anything, Novelis’ sheer size and reach across the globe is a good indicator that industrial demand in the aluminum market should only grow, as the replacement factor and rate of recycling both drive its popularity. While a good thing for producers (including the likes of competitors Alcoa and Norandal), buyers should make sure they have forward sourcing strategies firmly in place to ride out any price increases.

–Taras Berezowsky

TC Malhotra contributes to MetalMiner from New Delhi.

India’s coal reserves have been assessed at about 286 billion tons this year, about 3.25 percent higher than the previous year’s 276.8 billion tons, according to a published report.

Citing the National Inventory on Indian Coal Resources published by the Geological Survey of India, the Indian newspaper Business Line reported that of this, the Geological Survey estimates proven reserves to be 114 billion tons, or 40 percent of the total reserves. The latest proven reserves represent a 3.6 percent increase over the previous year’s 110 billion tons.

According to the report, at current level of production of about 550 million tons, the coal reserves will last for more than 100 years, Coal Minister Sriprakash Jaiswal told the upper house of the parliament (Rajya Sabha) in a written reply.

However, exploration is a continuous process and new resources get added year on year, Jaiswal was quoted as saying.

How Coal Plays Into Indian Metals Production

India is the third-largest producer of coal in the world. However, the country’s domestic consumption is large and as a result, India net imports coal to meet the needs of power companies, steel mills and cement producers.  Furthermore, non-coking coal reserves make up about 85 percent while coking coal reserves are the remaining 15 percent.

India’s coal demand is expected to increase multifold within the next five to 10 years, due to the completion of ongoing power projects, and demand from metallurgical and other industries.

Government-controlled Coal India Limited (CIL) dominates the domestic coal supply market with an 80 percent market share, although some industrial consumers, typically in the power and steel sectors, have access to captive mines.

CIL’s non-coking coal production has grown by 3.7 percent annually between 2007 and 2011, below the rate of coal-fired capacity additions (7.2 percent annually over the same period). Its production target for 2012 is 452 million metric tons, only marginally up from 431 million tons recorded in the 2011 fiscal year.

Despite all this, the Indian coal ministry projects a coal supply shortfall of up to 142 million tons in 2012.

The Big Picture

Estimates put proven reserves worldwide at more than 847 billion tons. There are recoverable reserves in around 70 countries, with the biggest reserves being in the US, Russia, China and India. Other important coal producing countries include Australia, India, South Africa, and Russia.

China is the largest producer of coal in the world, while the United States contains the world’s largest ‘recoverable’ coal reserves (followed by Russia, China, and India).

India has the fourth-largest reserves of coal in the world. Coal deposits here occur mostly in thick seams and at shallow depths. Indian coal has high ash content (15-45%) and low calorific value.

Coal accounts for about 67 percent of the total energy consumption in India. The energy derived from coal in India is about twice that of energy derived from oil, as opposed to the rest of the world, where energy derived from coal is about 30 percent lower than energy derived from oil.

The use of beneficiated coal has gained acceptance in steel plants and power plants located at a distance from the pithead.

Growth Should Continue

The World Economic Outlook released by the International Monetary Fund confirms the likely continued high growth trajectory of Asia.   Along with China, India is likely to be an important part of this economic growth.

The International Energy Agency has consistently demonstrated India’s continued status of being a key consumer of fossil fuels, both now and in the future.

–TC Malhotra

With stock markets the world over plummeting last week (the Dow lost more than 500 points, the biggest single-day drop since December 2008), there may seem to be nothing but dark days ahead. If manufacturing numbers (PMI, etc.) are any indication, growth is elusive.

By this token, the U.S. and global auto production and sales numbers may tell us a lot about where steel, aluminum and lead may be headed in H2. Although sales and profits at certain auto companies in the US have been reported higher than expected, the global outlook may not look so good.

The Big Three US automakers all reported positive sales; GM’s sales increased roughly 8 percent (214,915 total light vehicles), Ford was up 9 percent (177,419), and Chrysler/Fiat’s sales spiked 20 percent (111,439), according to Ward’s auto data.

However, the prospect of US economic recovery is looking dim these days, if you listen to the talking heads of these companies. “Chrysler’s U.S. sales chief, Reid Bigland, called the market “tougher than a cheap steak,” while his equivalent at General Motors Co, Don Johnson, said “consumer confidence is pretty fragile right now because of everything that’s happened in the past few months,” as quoted in a Reuters article.

Look To Incentive Spending?

And that’s why incentive spending by these carmakers in the US and Japan may be taking more of a front seat, according to Reuters. Based on information from Edmunds, the car research firm, domestic auto manufacturers may look to increase incentive spending to match that of Japanese brands. Toyota and Honda’s spending is much higher, since the tsunami set back their production this past spring, and

“Japanese brands increased incentive spending about 25 percent to $1,990 per vehicle from June to July, compared with a 4.5 percent rise to $2,919 per vehicle by the U.S. automakers, according to Edmunds.

However, these deals surely cut into profits, and GM, for one, proved that it didn’t have to rely on them in July. According to an AP report, GM was able to pull back its rebates in the wake of the Japanese disaster, since Toyota and Honda’s inventories were down. The report cites that GM’s incentive spending per vehicle fell 20 percent to $3,022 in June, according to TrueCar.com. That led to GM doubling its profit to $2.5 billion in Q2.

But many are saying that won’t last. Mainly, raw materials prices continue to trend higher, and that cost allowed GM to raise its prices. However, that may not be sustainable. On the flip side, if steel prices soften in H2 this year, profits may decrease again, coupled with the still-stagnant consumer demand likely to continue.

Global Slowdown

Globally, car sales are either mediocre or falling in China and India, the two largest auto markets in Asia. The Chinese Association of Auto Manufacturers (CAAM) reported only a 0.65 percent increase in production and 1.4 percent increase in sales in June, according to their website. (This is crucial for GM, whose China sales are key to their health.) Increases in both production and sales seem to have leveled off to match corresponding months in 2010, continuing the softening growth trend in China:

Source: CAAM

And in India, car prices are getting much higher due to interest rate increasing, prompting their national auto association to drastically downgrade sales and production — MetalMiner’s TC Malhotra detailed this scenario in a recent post.

All of this points to perhaps much lower auto demand in the second half of this year. We’ll wait to see what effect Japanese restocking will have in the fall, as well as how the rolled steel and aluminum prices are trending. On the consumer side, if the unemployment rate drops significantly in H2 and brings spenders back into the auto market, then we could have a different outcome.

–Taras Berezowsky

The US car industry has certainly bounced back.

Washed clean of massive debts and supported by some $60 billion of government money, two of the Big Three have successfully reorganized themselves into a very different industry from the last decade. More fleet of foot, Ford managed it, just on their own.

Whether for reasons to ensure the industry’s long-term prosperity or to reduce the country’s balance of payments, the government is now imposing tough fuel efficiency standards. By 2025 US car-makers will have to get 54.5 miles per gallon, on average, from their fleets, about twice the current level. As the Economist points out, if tougher standards had been set back in the 90s, arguably the Big Three would have been better able to cope with a competitive range of vehicles in the early part of this century; but that rather overlooks the host of other problems GM, Chrysler and (to a lesser extent) Ford were carrying into 2008.

The EPA champions the tougher standards, and it says, “Together, they will save American families $1.7 trillion dollars in fuel costs, and by 2025 result in an average fuel savings of over $8,000 per vehicle. Additionally, these programs will dramatically cut the oil we consume, saving a total of 12 billion barrels of oil, and by 2025 reduce oil consumption by 2.2 millions barrels a day”as much as half of the oil we import from OPEC every day. The standards also curb carbon pollution, cutting more than 6 billion metric tons of greenhouse gas over the life of the program”more than the amount of carbon dioxide emitted by the United States last year.

All this may sound like meddlesome big government, but if there is one thing the Big Three proved, you cannot trust them to make the long-term strategic decisions necessary for their own survival. They are driven too much by this year’s car sales and the next facelift.

Globally the car industry is facing massive over-capacity. The car industry can produce 94 million cars a year, against global demand of 64 million, according to another Economist article. As the article points out, annual sales growth in China is forecast to fall from 30 percent to around 10 percent from this year as other parts of the country follow Beijing’s move to restrict the number of cars in the city. That will both squeeze Western firms selling into China, but in the medium term it will encourage Chinese manufacturers to look abroad for sales growth. Globally the whole industry needs to rationalize, but with employment and automotive production so closely linked in Europe, it is unlikely much of a dent will be made in the estimated 30 percent over-capacity in that market.

The UAW, bargaining with the Big Three this month, is therefore going to be more about keeping jobs and finding common ground than the confrontation of old. All in labor costs have fallen from $76/hr to something above $50/hr as part of the agreement reached when GM and Chrysler went into Chapter 11. All three firms are now making money before exceptional items, all the more remarkable when you consider the US will buy only some 13 million cars this year against a peak of over 17 million just a few years ago, as this graph produced from data provided by WardsAuto.com shows.

Graph: MetalMiner. Data: WardsAuto.com

The trend to make fewer cars and to make smaller cars (by extension, more fuel-efficient cars tend to be somewhat smaller) has led to reduced demand for steel and other metals, which is unlikely to come roaring back as the trend to weight saving continues.

But alongside that has been a marked increase in the use of alternative materials, aluminum being a major beneficiary. This will likely accelerate if European experience is anything to go by. Europe trails the US in so many ways, but in automotive design many of today’s trends in the US were started five or ten years ago in Europe or Japan. There, as more recently in the US, government mandate has increasingly set the longer-term agenda for the car industry. Let’s hope they have got enough right to ensure the long-term survival of our major players on both sides of the pond.

–Stuart Burns

TC Malhotra contributes to MetalMiner from New Delhi.

In an attempt to secure mining leases, Indian mining companies such as NMDC, MOIL and Sesa Goa plan to foray into metal and alloy production.

According to a Business Line report, mineral-rich states like Karnataka and Chhattisgarh are looking at value addition as a pre-condition for granting new mining leases and renewing existing ones.

The report states that the National Mineral Development Corporation (NMDC) has plans to invest Rs 150 billion ($33.3 million) to set up a 3-million-tons-per-year unit at Nagarnar in Chhattisgarh State.

NMDC is India’s largest iron ore producer and exporter, producing about 30 million tons of iron ore from three fully mechanized mines in Chhattisgarh and Karnataka states. It also operates the only mechanized diamond mine in the country at Panna in Madhya Pradesh state.

Manganese (Ore) India Limited (MOIL) has also decided to set up two ferro-alloy units through joint ventures with Steel Authority of India (SAIL) and Rashtriya Ispat Nigam Limited (RINL). The proposed ferro-alloy plant with SAIL in Chhattisgarh will have a capacity of 106,000 tons, while the one with RINL in Andhra Pradesh State will produce 57,500 tons. MOIL is India’s largest producer of manganese ore by volume.

Sesa Goa, which operates major mines in Karnataka, has also acquired the assets of Bellary Steel and Alloys Ltd (BSAL) in Bellary for Rs 2.20 billion ($48.8 million). BSAL was building a half-million-ton/year unit and has 700 acres of land in Bellary. Sesa Goa is India’s largest private-sector producer and exporter of iron ore.

Under the new mining policy, Chhattisgarh state decided there would have to be a greater value addition by the mining companies that hold leases for mines estimated to have 65 percent of the iron ore deposits in the state.

About 20 percent of India’s iron ore reserves are found in Chhattisgarh, mainly in the hilly pockets of Bastar region.

Chhattisgarh also has vast reserves of coal, iron ore, bauxite, dolomite, limestone, quartzite, and diamond.

In December 2008, the Karnataka state government unveiled its new mining policy aimed at banning iron ore exports and encourage value addition of the product.

While announcing the new mining policy, the state government said that issuance of any new licenses will be “pre-conditioned to value addition in the state without destabilizing the state’s forest wealth and bio-diversity.

One of the highlights of the new policy is that no new licenses would be granted to export minerals without value-add. Furthermore, there would be no renewal of existing licenses for exports, but those who have valid export permits can continue exporting.

The new policy has 13 objectives, including progressive features such as adoption of modern techniques in mining, transparency in granting mineral licenses and emphasis on value addition.

The government will give priority to the applicants that propose establishment of industries for value addition within the vicinity of the mineral-bearing areas, the policy said.

–TC Malhotra

Last week, the US Department of State published a statement on Section 1502 of the Dodd-Frank legislation regarding conflict minerals traceability and due diligence. Specifically, the statement urges companies to “begin now to perform meaningful due diligence with respect to conflict minerals. In addition, the State Department endorsed the guidance issued by the Organization for Economic Co-Operation and Development (OECD) that contains a five-step framework companies will need to consider. This framework includes the following:

  1. Establish strong company management systems
  2. Identify and assess risk in the supply chain;
  3. Design and implement a strategy to respond to identified risks;
  4. Carry out independent third-party audit of supply chain due diligence at identified points in the supply chain; and
  5. Report on supply chain due diligence.

OECD Guidance

Readers can download the OECD guidance here.

The State Department statement also specifically mentions that companies can rely on the “documented representations of suppliers further upstream so long as the company had taken care in implementing the five-step framework. Finally, the statement also gives a nod of acceptance to the use of industry-wide initiatives to “effectively discharge the due diligence recommendations contained in the guidance.

What we find of particular interest, however, involves the fact that the Department of State released the statement, but the government agency primarily responsible for the development of the regulations (as well as the enforcement) is the SEC (Securities and Exchange Commission).

We turned to our resident conflict minerals expert, Lawrence Heim of The Elm Consulting Group International for his thoughts on the significance of the statement from the State Department and the potential impact on the rules eventually promulgated by SEC. According to Heim, the law mandates that State work with the SEC.

However, Heim said, “Just because the State Department puts forth this statement, does it mean that SEC is painted into a corner? In short, he says no, the SEC can choose to take a different approach, but the reality is that so much momentum and political pressure from NGOs (non-governmental organizations) around the OECD document might make it difficult for the SEC to withstand the pressure. “At the same time, Heim continued, “the SEC will have to look at the OECD document and identify potential areas of conflict with existing SEC audit/auditor standards.

Regardless of the text on the final rules, Heim probably has it right when he says, “Companies should no longer be in a ‘wait and see’ mode. Basic planning, assessment and program development can and should begin now. If nothing more, companies should evaluate whether the OECD Guidance is the appropriate reference point. As we pointed out in an earlier post, that guidance contains a number of pitfalls and auditor impairments that may deter its use by many companies.

MetalMiner will continue to update readers on the development of the conflict minerals rules as per the SEC.

For more background on the legislation, click here to register and download a MetalMiner legislative guide.

–Lisa Reisman

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