Market Analysis

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The U.S.’s rise as an oil producer is well-documented, but the U.S. Energy Information Administration’s (EIA) latest report marks another milestone for the domestic sector.

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According to the EIA, the U.S. now exports crude oil to more nations than it imports from.

In 2009, the U.S. imported oil from as many as 37 sources in a given month, according to the EIA. Meanwhile, through the first seven months of 2019, the largest number of import sources in a given month was 27.

In terms of exports, the U.S. exported oil to as many as 31 destinations per month through the first seven months of 2019.

“This rise in U.S. export destinations coincides with the late 2015 lifting of restrictions on exporting domestic crude oil,” the EIA said. “Before the restrictions were lifted, U.S. crude oil exports almost exclusively went to Canada. Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and July 2019, U.S. crude oil production increased by 2.6 million b/d, and export volumes increased by 2.2 million b/d.”

Demand abroad for light-sweet crude oil has fueled the U.S.’s rise as an oil exporter.

“Several infrastructure changes have allowed the United States to export this crude oil,” the EIA said. “New, expanded, or reversed pipelines have been delivering crude oil from production centers to export terminals. Export terminals have been expanded to accommodate greater crude oil tanker traffic, larger crude oil tankers, and larger cargo sizes.”

As noted in MetalMiner’s Annual Outlook, in addition to the strength of the U.S. dollar and China’s economy, oil prices constitute a key price driver for metals.

OPEC’s daily basket price reached $59.50 per barrel on Monday.

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According to a Reuters report, OPEC and its allies are considering whether to extend previously agreed upon supply curbs in an effort to support flagging oil prices.

Two features of Chinese political and industrial policy have been consistent over the years: the willingness to plan long term and deep pockets to finance those plans.

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A major state-owned steelmaker and mining company, Sinosteel, has epitomized this in western Australia.

The steelmaker has bought into the region’s lower-grade iron ore resources back in the last decade, in what was seen at the time as a potential rival to the country’s largest iron ore producing region further north at Pilbara.

A collapse in iron ore prices largely brought a halt to not just Sinosteel’s ambitions but those of joint venture partners and competitors Mitsubishi. During the five-year life of Mitsubishi’s Stage 1 operations at nearby Jack Hills, it produced and shipped around 1.8 million tons of lump and fines DSO each year.

Jack Hills, owned by Mitsubishi via its Crosslands subsidiary, was closed in 2015. Sinosteel’s Weld Range also closed, set to be a $2 billion iron ore project in the region when the Oakajee deepwater Port and 570-kilometer rail project was also shelved following cost blowouts that forced up proposed port fees, Reuters reported.

It was hoped Mitsubishi would come to the rescue when it paid A$325 million for the balance 50% stake in Oakerjee that it did not own.

But as iron ore prices continued to slide, the project was shelved — until now.

Following a year in which iron prices have been at their highest since 2014, Sinosteel has acquired Oakerjee and Crosslands (pretty much for free, by all accounts). Reuters reported Sinosteel will control both the port tariffs and the Weld Range mine, not to mention other iron ore assets in the region, assuming Oakajee’s port and rail assets are ever built.

Officially, there are no current plans to construct the deep-water port at Oakajee, nor the network of railways that were going to connect it to the iron ore mines at Jack Hills, Weld Range and related assets.

But documents filed with the Australian Securities and Investments Commission last week show two Sinosteel subsidiaries are the buyers, the article reports. The documents suggest the two subsidiaries paid the just $3 each for their respective 50% stakes in Oakajee Port and Rail, the company that owns the studies and intellectual property for the Oakajee railway network and deep-water port.

One of the Sinosteel subsidiaries was also said to have been transferred all shares in Crosslands Resources, the company that holds the nearby Jack Hills iron ore project. Crosslands is reliant on Oakajee Port and Rail building the port and rail infrastructure to get its product economically to market; so, without the port, the assets is essentially a dead duck.

Maybe not surprisingly, ASIC documents say Crosslands was sold for nothing.

On the face of it, it’s a huge loss for Mitsubishi, which had spent hundreds of millions buying into the related projects and investing in Jack Hills. Meanwhile, it’s a zero cost gain for Sinosteel, but it now leaves the Chinese with the need to invest the best part of A$10 billion to develop the port, rail infrastructure and mines.

With much of the local resources in the form of low-grade magnetite ore, investment will be needed to process the ore from 30-50% purity to 65-70% concentrate, an energy-intensive process that has historically made magnetite deposits largely uneconomical in western Australia.

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Sinosteel may therefore decide to sit on its asset until iron ore prices rise and/or the technology to reduce energy requirements in the concentration process makes the region’s magnetite more economical.

Fortescue appears to be making progress in that direction, Reuters reported, at its Iron Bridge property, halving the energy inputs by improved efficiencies. Even so deep pockets and a willingness to play the long game will be needed by Sinosteel if the region is ever to see its potential realized.

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U.S. raw steel production for the week ending Oct. 19 slowed, with the sector’s capacity utilization rate checking in just below the important 80% mark, all coming as steel prices continue to fall — in some cases, to late 2016 levels.

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Capacity utilization for the U.S. steel sector during the week ending Oct. 19 checked in at 79.6%, according to the American Iron and Steel Institute (AISI).

Production for the week reached 1.84 million tons, down from the 1.88 million tons produced during the equivalent week in 2018 (at a capacity utilization rate of 80.1%).

Meanwhile, production during the week ending Oct. 19 picked up 1.1% from the previous week, when production reached 1.82 million net tons at a capacity utilization rate of 78.7%.

Production for the year through Oct. 19 checked in at 77.9 million net tons, at a capacity utilization rate of 80.3%. The year-to-date production marks a 2.8% increase compared with the same period in 2018, when the rate was 77.5%.

The steel capacity utilization rate remains above the 80% mark for the year, but it has been sliding in recent weeks.

U.S. steel price have showed no signs their slide is nearing an end.

The U.S. HRC price is down 12.63% over the last month, reaching $498/st — dropping below the $500/st mark for the first time since late 2016.

The U.S. CRC price is down 8.99% over the last month, down to $688/st, also its lowest since late 2016.

U.S. HDG is down 9.26% to $745/st.

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Meanwhile, plate, which recently lagged behind the other forms of steel, has showed a more moderate decline over the past month. The U.S. plate price is down 1.49% to $727/st, bringing it down to January 2018 levels.

The World Steel Association is set to report September steel production figures later this week.

In its recently released October Short Range Outlook, the World Steel Association forecast global steel demand would rise 3.9% this year, but just 1.0% next year amid slowing overall growth, trade uncertainty and weakness in the automotive sector.

According to the International Aluminum Institute, global aluminum production totaled 5.16 million tons in September, down from 5.33 million tons in August and 5.30 million tons in September 2018.

Despite the decline in production, prices have not received a boost — in fact, the LME aluminum price per pound is hovering at around $0.78 per pound.

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Top producer China saw its production levels dip again last month.

Chinese aluminum production totaled an estimated 2.88 million tons, down from 2.97 million tons in August and 3.01 million tons in September 2018.

North American aluminum production reached 310,000 tons, down from 321,000 tons in August and flat compared with September 2018 production.

Asian production ex-China reached 363,000 tons, down from 374,000 tons in August and 364,000 tons in September 2018.

GCC production totaled 456,000 tons, down from 469,000 tons in August but up from the 437,000 tons produced in September 2018.

Production in eastern and central Europe totaled 344,000, down from 356,000 tons, but up from the 332,000 tons produced in September 2018.

Western European production totaled 276,000 tons, down from 286,000 tons in August and the 312,000 tons produced in September 2018.

In terms of prices, LME three-month aluminum is down 2.86% over the last month, down to $1,731/mt.

“LME aluminum prices weakened in September, despite looking stronger early on in the month,” MetalMiner’s Belinda Fuller explained earlier this month. “Less robust manufacturing and economic indicators hurt some industrial metal prices this month, including aluminum. The stronger U.S. dollar also resulted in weaker prices.

“LME prices look close to possibly dropping below yet another critical price level, $1,700/mt, after clearly breaking the $1,800/mt support level since last month.”

Chinese aluminum prices have also been on the decline of late. SHFE primary cash aluminum recently fell to 13,960 CNY per ton, down from 14,280 CNY per ton a month ago, according to MetalMiner IndX data.

LME prices have picked up slightly in recent days, but not substantially. With Chinese production now posting monthly declines for two straight months, it remains to be seen if that supply-side activity will have a supportive impact on prices.

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So far, that doesn’t seem to be the case.

Of course, the demand picture must also be figured into any industrial metal’s forecast. The IMF recently downgraded its 2019 global growth forecast to 3%, its lowest level since the financial crisis — an ill omen for demand of a wide range of goods, including industrial metals.

Automotive demand for aluminum — among other metals — is a large source of the metal’s overall demand. As the IMF’s World Economic Outlook released this month notes, a slowdown in No. 1 automotive market China has weighed on aluminum prices.

Referring to the period between February and August of this year, the IMF noted, “The price of aluminum fell by 6.6 percent because of overcapacity in China and weakening demand from the vehicle market there.”

A growing copper supply is not exactly what copper producers wanted to hear, as a new mine with a 100-year life span has been announced.

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Prices have been depressed all year, with worries about deteriorating trade and surplus supply weighing on sentiment.

Anglo American’s $5 billion copper project at Quellaveco in Peru could potentially hold enough reserves to supply a century of production, according to company CEO Mark Cutifani, as reported by the Financial Times.

The article reports the extensive ore body has so far only been defined to a depth of 400 meters. However, with ore grades at over 1%, the mine’s economics are solid.

Further drilling will be required to map the full extent, but preliminary sampling suggests mineralization could extend to 1,000 meters, the company says.

Quellaveco is due to start production in 2022. Once it reaches full capacity, it will produce an average 330,000 tons a year of copper in its first five years; in the company’s words, it will be a license to print money, the Financial Times reported.

Two adjacent mines in the same area have been in production for more than four decades at much greater depths than Quellaveco’s current boundaries, suggesting mineralization is far more extensive than current sampling has identified.

Copper demand is widely expected to rise in the coming decade due to the electrification of cars and the expansion of renewable energy. Currently, however, the market is oversupplied, with RC/TC charges at smelters depressed and little to support prices.

A recent upturn has reversed, as Antofagasta averted a labor strike, reaching a labor agreement with the union at its Los Pelambres mine. Prices subsequently resumed their weak showing, as supply fears quickly eased.

Supply from Quellaveco will not hit the market for some years, even assuming Anglo American manages to bring its project to production on time, which is by no means certain. One of its other major projects, its iron ore mine at Minas Rio, was severely delayed and horribly over budget, for example.

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The company has performed better under Cutifani. The timing for Quellaveco to reach full production in the early to mid-part of the next decade may indeed significantly improve the firm’s prospects if, as widely expected, copper prices have recovered by then.

The October 2019 Monthly Metals Index (MMI) report is in the books.

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This month, just one of the Monthly Metals Indexes (MMIs) increased, while six declined and three held flat.

Some highlights from this month’s MMIs:

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The inevitable has happened.

For some months now, copper industry experts in India have been predicting India would become a net importer of copper during this fiscal year.

Well, that has happened.

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For the first time in 18 years, India turned into a net copper importer. The primary factor behind the shift is the permanent closure of Sterlite’s 400,000 ton per annum smelter in South India from May 2018.

Two other major players, along with Sterlite, dominated primary copper production in India: state-owned Hindustan Copper and privately held Hindalco Limited. With Sterlite gone from the picture, there is now a shortfall of almost 40% between supply and demand.

The Times of India quoted Urvisha Jagasheth, research analyst at CARE Ratings, saying in a report that domestic production of refined copper had grown at a CAGR of 9.6% during fiscal years 2014-2018. Production fell by 46.1% during FY 2019 due to the Sterlite closure.

Faced with no other option, those requiring copper, like cathode ray tube producers, turned to importing refined copper.

During the nine months in FY 2019, India imported refined copper from Japan which accounted 71% of the country’s copper imports, followed by the Democratic Republic of the Congo (7%), Singapore (6%), Chile (4%), South Africa (4%), Tanzania (3%), Switzerland (1%) and UAE (1%), the Financial Express reported.

Meanwhile, in the other direction, India exported refined copper to China (75%), Taiwan (10%), Malaysia (7%), South Korea (6%) and Bangladesh (3%) during the same period.

CARE said in an earlier report in the Business Standard that there was intense pressure from domestic buyers because of the increasing demand from the power sector, what with the Indian government’s emphasis on renewable energy. Soon, adding to this mix, manufacturers of hybrid and electric cars will also become major buyers of copper.

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“We estimate domestic refined copper demand to increase by 7-8 per cent (including consumption of scrap) by the end of FY20,” the CARE report said.

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It was always going to be a challenge, but British entrepreneur James Dyson has a reputation for taking on what may appear to be insurmountable challenges and winning.

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He disrupted the old order in the vacuum industry with his revolutionary designs starting in 1993. Dyson then went on to dominate hand dryers, air coolers and air purifiers — in fact, just about anything involving moving air and used electric motors.

Maybe that was the core expertise he felt would give him an edge in the electric car market. His firm’s expertise in electric motors and investments in new battery technologies includes its $90 million investment in Sakti3, a U.S.-based solid-state battery startup.

But after deep soul searching, the firm announced this month it was pulling the plug on its EV division, both at its U.K. headquarters and its brand new facility in Singapore.

Dyson has sunk some $200 million in its U.K. facility alone, including a new test track and building out a team of over 500 engineers and designers it largely hopes to retain in other areas.

Likewise, the Singapore facility is to be repurposed for the development and manufacture of consumer products (most of the 1,200 employees there will be retained).

Expensive as the investments to date have been, the Telegraph reported the management team decided it would be nothing to the losses on the $2.5 billion planned to bring the firm from an initial batch of working prototypes to full-scale production of 10,000 vehicles per year.

So what went wrong, you may ask?

Technologically, the firm had the creative talent and the financial strength to probably deliver on a viable end product, although deadlines were slipping (particularly for the key solid-state battery technology).

But the economics, on the basis of just 10,000 premium vehicles per year, was becoming increasingly tenuous, with new models flooding the market from established manufacturers like Volkswagen, BMW and Jaguar Land Rover. Even Tesla, which had a dominant head start in the premium EV car market, is struggling as competitors rush into an arguably oversupplied market.

Reports that Dyson will have to pay back government grants for research and development are probably premature. The firm only drew down £5 million of a £16 million facility and is clear its R&D investments in battery technology will continue unabated.

The suggestion is Dyson may yet come back to the EV market if it can perfect the solid-state battery technology needed for extended range, greater performance and the rapid charging seen as the holy grail by all EV and battery manufacturers.

In batteries, Dyson retains a significant core competency it will use not just for an eventual return to EVs, but for its whole range of battery-powered appliances.

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For now, the firm’s withdrawal is unlikely to be the only casualty in the rush for EVs.

The construction may be simpler than internal combustion engine vehicles, but the technologies are developing so fast that even mainstream automakers are going to make wrong moves.

If nothing else, Dyson’s decision shows it is capable of swallowing its pride and taking hard decisions before the situation becomes untenable; however, they won’t be the last to be dashed on the rocks of a disruptive new technology.

Manufacturers today are grappling with a shortage of people.

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Much ink has been spilled about the contemporary skills gap, which has forced manufacturers to go to new lengths to fill positions in their operations.

Given the shrinking labor pool for manufacturers, who continue to need tech-savvy workers to keep their operations humming, what can they do to find them in a world in which they’re increasing harder to find?

An upcoming MetalMiner webinar will delve into that very topic; those interested can register for the free webinar here.

Scheduled for 10 a.m. MDT on Oct. 24, MetalMiner Executive Editor Lisa Reisman will be joined by Matt Runfola, executive director and founder of the Chicago Industrial Arts and Design Center, and Brett Armstrong, director of business development for Avetta, for a webinar titled “The War For Contractor Talent: How Manufacturers Can Find the Workers They Need (and Fast).”

Those interested in participating in the free webinar can register online here.

In the free webinar, Reisman will delve into what companies should do to address the aforementioned talent gap, while Runfola will share his insights regarding what changes need to be made to facilitate a workforce that fits the modern manufacturing climate.

Earlier this year, MetalMiner visited the CIADC to chat with Runfola about the CIADC’s mission.

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

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Armstrong will weigh in on how businesses can find 100% compliant contractors, thus mitigating risk and improving productivity.

The World Steel Association forecast global steel demand will rise 3.9% in 2019 and by 1.7% in 2020.

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According to the World Steel Association’s October Short Range Outlook (SRO), global steel demand in 2019 is forecast to reach 1,775.0 million tons and 1,805.7 million tons in 2020.

As for China, Chinese steel demand is forecast to rise 7.8% in 2019 but by just 1.0% in 2020.

Saeed Al Remeithi, chairman of the World Steel Association’s Economics Committee, overviewed some of the factors at play in the global steel demand picture.

“The current SRO suggests that global steel demand will continue to grow in 2019, more than we expected in these challenging times, mainly due to China,” he said. “In the rest of the world, steel demand slowed in 2019 as uncertainty, trade tensions and geopolitical issues weighed on investment and trade. Manufacturing, particularly the auto industry, has performed poorly contracting in many countries, however in construction, despite some slowing, a positive momentum has been maintained.”

Despite trade headwinds and slowing economic growth overall, China’s steel demand is forecast to have a solid 2019, before dropping in 2020. The country’s manufacturing and automotive sectors have struggled; according to the China Association of Automobile Manufacturers (CAAM), China’s automobile production dropped 12.1% on a year-over-year basis through the first eight months of the year.

“We expect the Chinese economy to worsen in the later part of 2019 and in 2020 with the unresolved trade tensions adding further pressure,” the SRO stated. “It is unlikely that the Chinese government will reintroduce substantial stimulus measures as it continues to hold a balance between containing the slowdown and pushing forward its economic restructuring agenda. Selective mild stimuli focused on infrastructure and strengthening consumer purchasing power through tax cuts is more likely.  The auto industry could benefit from such stimulus in 2020.  China’s steel demand is expected to see growth of 1.0% in 2020.”

In the developed world, steel demand is forecast to contract slightly in 2019 after a 1.2% increase in 2018.

Meanwhile, in developing countries (ex-China), the growth picture is mixed.

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“Growth of steel demand in the emerging economies excluding China is expected to slow down to 0.4% in 2019 due to contractions in Turkey, MENA and Latin America,” the SRO states. “But the growth is expected to rebound to 4.1% in 2020 due to infrastructure investments, especially in Asia.”