Industry News

We know that 2011 began with a rocky start the Middle East uprisings in Egypt, Tunisia and Libya turned the status quo upside down, the sovereign debt of European nations such as Portugal, Ireland and Greece continues to stoke concerns, and the Japanese earthquake and tsunami in early March caused immense devastation and spawned global supply chain havoc, not to mention the huge debates on the future of nuclear energy

So where will the year go for specific metals? We took a survey of stories by metal to try and figure out what’s important and why:

Aluminum: Output’s up in China and US while prices stay afloat

According to Reuters, China’s daily aluminum production was up 12 percent in February compared to the year before. An official of the China Nonferrous Metals Industry Association also said earlier in March that China will continue to see an aluminum surplus in the next five years production will likely rise 24 percent in 2011 to 25 million tons. Meanwhile, the Aluminum Association reported that US production rose 10.5 percent last month compared to March of last year, and was up 4.8 percent from February’s annual production rate.

Why this is important: Although output looks to continue rising, prices should remain steady or even increase — because of Middle East concerns and worries about power supply in China. (Prices were up to $2720 by April 11, the highest since August 2008.)

Copper: Will China’s demand pullback affect Dr. Copper?

Key developments in the copper world over the last month or so included a number of moves by BHP Billiton (approving a $554 million investment at the world’s No. 1 copper mine in Chile to improve access to better ore grades, and intending to expand Australia’s Olympic Dam mine), according to Reuters.

Why this is important: The International Copper Study Group (ICSG) said at the end of March that “annual copper mine production capacity is expected to reach 24.1 million tons in 2014, rising at an average rate of 4.9 percent a year in the 2011 to 2014 period. So even though the short term demand in China looks uncertain, there is plenty of room for growth in the years to come. Prices should continue to be strong.

Steel: Apparent demand on the up and up

The World Steel Association is rather bullish on global steel demand in the next few years. According to Xinhua, the association says a record demand of 1.4 billion tons will hit in 2012, and its short-range outlook indicated increases in steel use by around 6 percent for both this year and next.

Why this is important: Steel prices may continue their upward momentum after down years after the crash in 2008, especially if the US housing market improves to augment Chinese consumption of the metal.

Gold: $1500 bucks an ounce??

Yep, the benchmark is here.

Why this is important: Stock markets are down all over the world, and S&P just downgraded the US’ debt rating, pushing gold higher if anything, gold’s activity serves as the counterpoint to where industrial commodities could be going. (It may not be pretty, but at least it may be able to tell us something.)

And finally, Silver: Quote of the Week

Perhaps just as astounding as gold’s rise is silver’s meteoric increase. At the CME Group Gold and Silver Dinner, Guy Adami, well known as the original Fast Money Five on CNBC, made it known that anyone betting against gold or silver in this extremely bullish market would lose out big time. He started off his keynote with this: “Anyone who is short silver is going to get their face ripped off.

Why this is important: Silver futures are trading at higher numbers (pushing 81,000 contracts the other day) than ever before, causing quite a stir in the investment community. Also, we must look to inflation control measures to see where metals positions may end up.

–Taras Berezowsky

[youtube]http://www.youtube.com/watch?v=1BDsC53j2_o[/youtube]

Mayor Richard M. Daley of Chicago touts local steelmaker A. Finkl & Sons Co. for staying in the city and retaining manufacturing jobs at a luncheon held by the Alliance for Illinois Manufacturing. Video: Taras Berezowsky/MetalMiner

Big news last week for the Chicago steel industry when US steel producer A. Finkl & Sons Co. received a hefty chunk of change — $20.5 million from the city’s Community Development Commission in TIF money to move operations to the former South Side site of Verson Steel (instead of picking up and moving to Canada). Tax Increment Financing (TIF) is a hot-button issue in Chicago, as many city officials, including outgoing Mayor Richard M. Daley, favor it as a way to incent local business development to spruce up blighted neighborhoods, while detractors say the property tax freeze that the government offers on these properties diverts money from local schools (yet somehow manages to get funneled into the pockets of Daley officials and their favorite developers).

Crain’s Chicago Business reported that the latest approval brings Finkl’s total government assistance to $31 million from the state and the city, which represents about 20 percent of their total spend on the new facility — $150 million. These new operations will boost Finkl’s capacity from a current 100,000 tons to nearly 500,000 tons when all is said and done a sizable boost to the local steel industry. Crain’s says the company will eventually employ up to 500 people at the new plant, and for now, the 350 jobs that the city of Chicago will keep make its TIF offer worthwhile. A Chicago Community Development Commission report mentioned in the article noted that Finkl also requested funds for job training funds, reflecting the conundrum of available industry positions with not enough qualified people to fill them.

But keeping steel mills like Finkl’s and other manufacturing businesses in Chicago and Illinois has been a top priority after Gov. Quinn’s tax hikes forced many companies to think twice about staying in-state. After all, according to the Alliance for Illinois Manufacturing (AIM), Illinois ranks second in number of manufacturers, representing $72 billion in gross regional manufacturing products. A big component of keeping companies in Chicago can be traced to Mayor Daley’s main mantra: let’s make business and government work together and not at cross-purposes, as evidenced by his penchant for privatization.

When the Baron From Bridgeport himself attended a luncheon held by AIM last week, honoring him with a Lifetime Achievement Award, he mentioned Finkl’s new project (among others) — check out the video above — making it clear that manufacturing is near and dear to his heart and so is China.

“It’s amazing how much they’ve adjusted [to become a leading global economy] in the last 20 years, Daley said.

He professed his love for the “inquisitiveness of the Chinese people and how dedicated to foreign investment they are. Daley mentioned that Chinese metal companies are also setting up shop in Chicago, thanks in no small part to his personal initiatives to make Chicago the most China-friendly city in the country.

Whether national partnership with the Chinese is bottom-line beneficial on a trade deficit basis, one thing is clear: getting Chinese companies to employ American workers and retaining the American (steel, etc.) companies paying domestic workers to compete globally is a winning situation, especially for a city with a rich industrial history like Chicago. Daley’s a big reason, through privatization and TIFs, that businesses have been able to at least consider working with or staying in the city over the past two and a half decades.

If you work in, buy from, or distribute to the metal industry in Illinois, leave a comment below tell us what you think!

–Taras Berezowsky

In the US, Europe and Japan, a well-established network of distributors provides a ready route to small and medium consumers for the major metals producers. In some markets such as Europe, manufacturers have a greater wholly owned presence among distributors while in the US it is largely populated by private or publicly owned corporations rather than the metals producers themselves. When working with clients looking to develop low-cost or emerging-market sourcing for the first time, we are sometimes asked why there is not the same network of distributors in Asian markets. Doubtless there are a number of factors, but our opinion has always been that a distributor market only develops when the end-user or consumers reach a critical mass, when there are a sufficient number of usually privately held manufacturing companies looking for the service role that distributors provide.

In state-dominated markets like China and India in the last decade, large sophisticated distributors — as we know them in the US or Europe — were slow to develop where the state could direct their producers to manufacture for major (also state-owned) consumers. But as small- to medium-sized consumers have grown in number and technological sophistication, and as the infrastructure has evolved to allow distributors to cover a reasonable geographic area arguably still a major hurdle in India — more sophisticated distribution firms have become established. Leading this trend have been some of the major western mainline distributors such as Reliance in South Korea, Ryerson in China and ThyssenKrupp Materials in just about every location around the globe.

Well, joining the trend is steel producer SSAB. Once considered a slightly stuffy Swedish steel producer, SSAB has developed into a major global player in the flat rolled products market with a mission to move from the commodity end of the market (the firm is, for example, a significant force in the North American steel plate market) to a supplier of higher-value steels. In a Financial Times article, the firm lays out its twin goals of moving its primary focus from the commodity to the specialty steel end of the market while also establishing itself in higher growth emerging markets. SSAB intends to do this by developing a network of service centers in Asia to capitalize on the region’s infrastructure boom and corresponding demand for high-strength and wear-resistant steels used in the manufacture of cranes, trucks and heavy excavators, according to the FT. The article goes on to outline the company’s plans to push up the proportion of its total revenues that are derived from niche grades of steel to about 60 percent by 2015, up from about 40 percent last year by setting up service centers in a range of countries including China, Malaysia, Vietnam and Indonesia that would be modeled on an existing center in Shanghai. Clearly it feels the existing service centers do not or cannot effectively market the firm’s products or service the major users’ needs.

Last year, SSAB earned only 6 percent of its total $6.4 billion in sales from Asia, with about half coming from Europe and the rest mainly from North and South America, the FT said. But in what it terms ‘niche’ products, such as specialty steels, the percentage from Asia was double those from other markets underlining the demand Asia has for specialty steels. Much of this growth will come from Asia to the benefit of US exports, since much of the “quench and tempered material (which is particularly strong and hard) comes from one of its plants in Mobile, Ala., in the US. Global sales of specialty and high-strength steels are expected to be about 20 million tons this year, worth about $30 billion, according to the article.

To what extent SSAB’s competitors — such as JFE, Nippon, ArcelorMittal and Dillinger Hutte — will follow in setting up service centers in Asia is doubtful, but for SSAB the policy and the objective appear on the face of it to have a lot to commend it.

–Stuart Burns

Events at Fukushima in Japan have put the spotlight not just on nuclear power as a source of energy, but on the storage of nuclear waste. Some of the gravest dangers at Fukushima resulted from spent fuel rods held in cooling tanks that lost fluid and overheated. The world is awash with spent fuel rods being stored in this manner, usually for up to five years while the rods cool to the point were they can be moved, but often for much longer as utility operators struggle to find long-term storage solutions. The Japanese experience has added an additional dynamic to debates in the US about finding a long-term solution and encouraged members in both houses of Congress to try to overcome President Obama’s cancellation of the Yucca Mountain project in Nevada.

According to the Global Security News Wire, the U.S. House Energy And Commerce Committee has started an investigation into the Obama administration’s cancellation of the project while South Carolina and Washington have filed a suit in federal court saying the government has reneged on decades-old commitments to create a long-term store. Opposition to Yucca Mountain within the state of Nevada is probably strong enough to make the project an unworkable solution; as has been shown elsewhere, the support of the local population is key to overcoming planning approval.

In the UK, where the country has been accumulating waste since its first reactor came online in 1956, plans to build a 1000-meter (3300-foot) deep repository in the country’s northwest county of Cumbria has taken a long time, but a decision is expected shortly. Support has built over time such that three communities expressed an interest in the project being sited close to their towns, but then Cumbria has long had ties with Britain’s nuclear reprocessing industry at Sellafield and has become comfortable with the industry being part of its backyard.

Similarly, a Financial Times article describes even more advanced plans to build a depository some 500 meters underground in Sweden in 1.9 billion-year-old rock formations. After 15 years of consultation, two local communities are so keen for the $2.8 billion investment to be made near their towns that they are competing for the project and the jobs that go with it. Under the plan, waste would be buried in copper canisters 500 meters underground, set on granite bedrock with a clay buffer above. The store would be designed to take 6,000 copper canisters containing the used fuel. Building is due to start in 2015 and the first capsules buried by 2020. As in the US, financing has already been raised through a levy on nuclear power.

And therein lies much of the annoyance felt by US states like South Carolina; the US government has been raising the funds for nuclear disposal via $0.0001/KwHr surcharge for years. It doesn’t sound like much but the fund is already at US$24 billion and yet is perversely ring-fenced for the Yucca Mountain project preventing use for other potential solutions such as dry cask storage. According to the WSJ, the US has generated roughly 70,000 metric tons of nuclear waste”enough to fill a football field more than 15 feet deep, according to the Government Accountability Office. The GAO has projected that number will more than double to 153,000 metric tons by 2055 and yet a 2003 report by the Energy Department said it would cost just $7 billion to move all of the movable spent fuel then at U.S. nuclear reactors to dry casks. That is a fraction of the cost of the Yucca Mountain project, which has been estimated at $100 billion, and while not a solution for tens of thousands of years (unless the casks are in a deep depository like Yucca), it is certainly a solution for hundreds of years until technologies develop to make alternative arrangements.

Readily available data would suggest Yucca isn’t quite in the same league as the Swedish location, but is far and away the US’ front-runner. Deep geological disposal requires sites to be highly stable and have no running water due to the risk of container corrosion and possible contamination of ground water in a resulting leak. An alternative to Yucca would need to show the same qualities of extreme dryness found in that area of Nevada and although the site is near a fault line, it is thought to be inactive and several old volcanoes in the vicinity have not been active for a million years. The US does have a similar site in New Mexico, but so far it has only been used for military spent fuel materials.

The subtleties of alternative storage methods may not be the focus of the general public — they will merely want to be assured that whatever the authorities decide as the way forward is indeed a secure, safe and lasting solution, and not an exercise of kicking the can down the road (as we have been doing since the 1980s). For sure though, a storage leak in the US like Japan has suffered would almost certainly put back the industry here by decades just as Three Mile Island has put a moratorium on new reactor builds for the last thirty years.

–Stuart Burns

Although analysts and investors expected aluminum to gradually keep rising, absolutely no one expected the shocking increase in aluminum price — trading on the LME today, it nearly doubled to $4,927 per ton, a record high by a mile.

MetalMiner sources had a hard time determining the exact factor(s) for the spike, but what we’re finding is that the metal is experiencing unprecedented demand due to global turmoil and unrest. Alcoa, for example, will certainly have to raise their prices again — quite a bit, indeed — after already raising their prices in March.

Aluminum is not the only metal making huge waves; copper is up a whopping 27 percent, and nickel and zinc both posted huge price gains.

More on these astronomical increases and the developing causes here.

Just today, the WTO dispute settlement panel essentially voted in favor of several allegations from the EU that the US provided subsidies to Boeing Co. for civilian aircraft that weren’t in compliance with SCA (Subsidies and Countervailing Measures) Agreement rules. This resulted in, the European Communities allege, unfair export advantages for Boeing.

In the most telling passage of the ruling, the panel split the difference between faulting US subsidy and fully siding with the EU:

The Panel upheld the European Communities’ claims that: (a) some of the measures maintained by the States of Washington, Kansas, Illinois and municipalities therein, the NASA aeronautics R&D measures, some of the DOD aeronautics R&D measures, and the FSC/ETI and successor act subsidies, constituted specific subsidies.   The Panel estimated the total amount of these subsidies between 1989 and 2006 to have been at least $5.3 billion;  (b) the FSC/ETI and successor act subsidies constituted prohibited export subsidies; (c) some of the specific subsidies (i.e. the NASA and DOD aeronautics R&D subsidies, the FSC/ETI and successor act subsidies and the Washington State and municipal B&O tax subsidies) caused adverse effects to the European Communities’ interests in the form of serious prejudice, finding that the effect of these subsidies was displacement and impedance (or threat thereof) of Airbus large civil aircraft from third country markets, significant price suppression and significant lost sales.

The panel suggested that the US remove some of the subsidies, which could make a dent in Boeing’s operations in certain states. The EU, mainly on behalf its own home aircraft juggernaut, Airbus, had claimed the subsidies were worth $19.1 billion between 1989 and 2006, but the panel’s drastically reduced estimate, as detailed above, only came to at least $5.3 billion. (The WSJ article on the matter, incorrectly denotes these figures in Euro.) Boeing is undoubtedly one of the larger industrial aluminum and titanium buyers in the world; will this ruling be a major blow to their global ability to compete? Probably not. Nonetheless, it’s another significant mini-battle in the “Airliner Wars between Boeing and Airbus.

–Taras Berezowsky

Regular readers will be familiar with our previous predictions that one result of the seemingly relentless rise in copper prices compared to some competing metals like aluminum is the inevitability of product substitution. Some applications are easier than others in which to substitute copper, and one of the hardest has been electrical wiring. Even though aluminum has many advantages, not least being it now costs a third the price of copper, substitution on a large scale has so far been limited largely to long-distance suspended power transmission cables where the lower weight of aluminum has been a major benefit even before metal cost is taken into account.

Understandably the more critical the application, the greater the challenges that need to be overcome. Automotive cabling is one such application. Copper in car cabling is a tried and trusted technology that has proved reliable over the 10+ year life cycle of a modern car. Components may fail but the wiring loom rarely does; if there’s a problem, it is usually a design fault and not a material failure. But engineers at BMW in conjunction with the University of Munich (TUM) are working to find solutions to a number of challenges in using aluminum not just for conventional autos, but more importantly, for fully electric vehicle applications where demands and temperatures may be even higher.

Some of the issues the team is addressing are related to the way aluminum behaves over time. For example, as a TUM press release states, aluminum has a tendency to creep particularly at high pressure, meaning connectors would loosen over time. Even at lower temperatures, a paper by Austin Weber in Assembly Magazine explains that aluminum will flow when placed under constant pressure, so even if secured under twice the crimping pressure of copper, in time it will become loose as the metal flows from the pressure points.

Another issue is oxidation. Wherever it is exposed to the air, aluminum will oxidize; indeed, it is one of its strengths in that the oxidation layer protects the metal against further corrosion — unlike rust on steel, which remains porous. But oxidized aluminum does not conduct as well as pure aluminum, so conducting surfaces need to be formed in such a way that an oxidation layer cannot form. The BMW/TUM team are putting a lot of work into connection boundaries and are coming up with some innovative solutions that they believe will provide reliable wiring configurations over a minimum ten-year vehicle life span.

Nor should the efforts being expended be seen simply as a drive to reduce metal costs. The team firmly believes the lower weight of aluminum will allow the reduction of vehicle weights resulting in lower fuel consumption and emissions. Although an approximately 60% greater cross section of aluminum wire is required than copper for the same conductivity, the weight reduction is still about a third. Nevertheless, so demanding are the approval processes, the team believes it could still be the latter part of this decade before we see all aluminum-wired electrical vehicles on our roads.

In the meantime, Sumitomo is starting small and working its way up. An article in Interconnection World reports on how Sumitomo Electric has already developed low-voltage aluminum-wired harnesses for use in Toyota’s new Ractis line of conventionally powered sub compacts. The Sumitomo Group says it developed the lightweight wiring harnesses using thin aluminum wires with twisted wire structures to ensure reliability of electrical connection. As so often happens, where Toyota leads others eventually follow, and it seems probable we should factor in automotive wiring to become a major driver of aluminum consumption in the years ahead.

–Stuart Burns

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We recently posted a guest blog piece on why Indian steel firms are investing in established steel firms outside of their home country rather than domestically, in what is probably the second-fastest steel market after China. The main conclusion was that domestic red tape and planning delays drove the Indian steel firms to look for easier expansion opportunities abroad in spite of the growth prospects at home.

Well, no such reservations appear to prevail at Gerdau Steel, Latin America’s biggest steel company. According to the Financial Times Gerdau is planning to sell more than R$3.8 billion (US$2.2bn) of stock, fueling speculation that it may be about to buy part of a Brazilian rival to take advantage of the country’s civil construction boom. The cash generated would be on top of an internally generated cash surplus of R$2.2 billion the firm was sitting on at the end of last year. In spite of intense competition of cheap Asian steel imports fueled by the strong real and a booming domestic market (particularly in construction), analysts suspect that the company might be preparing to buy a stake in Usiminas, the country’s biggest producer of flat steel products.

Gerdau and Usimas’ specialty is in long products, specifically reinforcing bars, flats   and general long products whereas the main imports are in flat rolled products used by the automotive and white goods markets. Long steel output increased 7 percent month-on-month in February, the paper said, while flat steel production was only 3 percent higher over the same period, according to figures from the Brazilian Steel Institute. As if to underline the strength of the Brazilian market data from IHS Global Insight, a US economics consultancy, in another article this week showed that Brazil has overtaken the UK in a league table of manufacturing economies. Brazil is now sixth, rising from eighth in 2009 on the back of a rise in manufacturing output last year of 9.9 percent, also putting it ahead of South Korea.

There is really no end in sight to Brazil’s construction boom, with the Soccer FIFA World Cup in 2014, the Olympics in 2016 and massive offshore oil construction projects in the pipeline for much of this decade. Taken in the longer term, should Gerdau decide to bid for part or all of Usiminas, one has to say it will probably prove to be a good investment looking at the trajectory of the Brazilian construction market.

–Stuart Burns

Any OEM or supplier currently purchasing tin, tungsten, tantalum or gold must now demonstrate via a third party audit that it (and its supply chain) does not source these metals from the DRC. The legislation, passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, will likely impact at least 1200 companies that already must comply with SEC regulations, and will now have to also file a Conflict Minerals Report. Experts suggest that for a second group of companies — suppliers to SEC-regulated companies — the number impacted could reach 12,000.  The legislation requires the use of private sector independent auditors. In short, the law “is aimed at conflict materials that are incorporated into a product necessary to the functionality or production of a product.

The SEC has announced it will publish the final rules on April 15. MetalMiner will continue to publish information regarding the legislation and how companies can comply.

In the meantime, feel free to download the MetalMiner Conflict Minerals Legislative Guide to learn important details not mentioned above.

Please review our General Disclaimer for additional details on how we use your information.

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Looks like there’s quite a development in US-China trade relations this week, as we continue to learn more about how the WTO ruled in an anti-dumping case that has a history all the way back to 2007 bottom line, the news is not so good for the US. Ultimately, this anti-dumping ruling could be another hit to the US economy amidst what is seen by many as a broken trade system.

The WTO’s appellate body, composed of the seven people who hear appeals from reports issued by panels in member-country disputes, ruled on March 11 that the US had unlawfully imposed anti-dumping and countervailing duties on Chinese steel in 2007 namely circular welded carbon quality steel pipe (“CWP) and light-walled rectangular pipe and tube (“LWR). (The US also slapped higher duties on woven sacks and car tires.) The tariffs ranged up to 20 percent on these items, and the Commerce Department’s (USDOC) case for imposing the duties rested on the fact that China operates as a non-market economy. According to the China Economic Review, China based its appeal on the claim that the US couldn’t impose “two different classes of duties – antidumping and anti-subsidy – on the same goods.

The ruling panel dissected that particular claim, calling it “double remedies, according to the dispute settlement page on WTO’s Web site:

“The Appellate Body completed the legal analysis and found that, by declining to address China’s claims concerning double remedies in the four countervailing duty investigations at issue, the USDOC had failed to fulfil [sic] its obligation to determine the “appropriate amount of countervailing duties within the meaning of Article 19.3 of the SCM [Subsidies and Countervailing Measures] and that, therefore, the United States acted inconsistently with its obligations under Article 19.3.

(To be clear, the term “double remedies doesn’t simply refer to the fact that both an anti-dumping and a countervailing duty are imposed on the same product; but instead to the circumstances in which the dual imposition results in the “offsetting of the same subsidization twice.)

But the biggest sticking point was the fact that the USDOC pursued its anti-dumping impositions based on classifying China as a non-market economy (NME). According to a Reuters piece republished by Business Day, keeping tabs on the domestic prices (of steel, for example) of a state-controlled economy such as China’s is much murkier than for regular market economies. Selecting surrogate prices, a contentious practice, is what the USDOC has been forced to do and obviously this has backfired. This treatment by the USDOC contradicts an earlier promise by the US to recognize China as a market economy (recognition that the WTO doesn’t give China until 2016).

Industrial metals are still at the center of most cases (the base metals sector accounted for the greatest percentage of new initiations and new measures applied, according to a WTO report at the end of last year). The US imposed new duties on oil country tubular goods stainless alloy products used for drillpipe, casing pipe and tubular applications in the petrol industry and prestressed concrete steel wire strand from China in the first half of 2010.

To have the WTO rule against the US in this case is certainly a blow, mostly in that it ostensibly gives credence to China’s nebulous mix of government and business or, more aptly, government-controlled business which is ever-harder for free trading economies to combat. While MetalMiner tries to avoid out-and-out China bashing, it would seem that it’s only getting tougher to level out the playing field between these two trading partners. Seems like 2016, as far as WTO equanimity is concerned, can’t get here fast enough.

–Taras Berezowsky

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