Market Analysis

auto sale

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The Automotive Monthly Metals Index (MMI) rose by 7.1% this month, as US auto sales were strong in February.

March 2021 Automotive MMI chart

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US auto sales

Ford Motor Co. reported its February US retail auto sales reached 163,520 vehicles, down 1.8% year over year.

Ford truck sales increased 10.2% year over year. Meanwhile, SUV sales ticked up 0.2%. Ford car sales fell 56.5%.

Ford’s estimated retail share in February reached 12%, up from 11.7% last year.

“Share gains came from trucks and new product offerings of Bronco Sport and the fully electric Mustang Mach-E,” Ford said.

Honda sales overall fell 11.4% to 106,328 vehicles. However, the automaker reported its best-ever February for Honda truck sales. Truck sales rose 5% year over year.

Electric vehicles (EVs) still represent a small percentage of Honda’s total sales. Nonetheless, the automaker reported EV sales rose 96.2%, with deliveries nearing 8,000 vehicles.

Nissan, which moved to quarterly reporting last year, in January reported Q4 2020 sales in the US fell 19.3% year over year.

US auto sales growth in February

Late last month, J.D. Power and LMC Automotive forecast sales growth in February.

The automotive intelligence groups forecast a 3.3% increase year over year when adjusting for differences in selling days.

“Despite challenges posed by inclement weather in most of the country, retail sales demand continues to be strong with the industry posting a second consecutive month of year-over-year gains,” said Thomas King, president of the data and analytics division at J.D. Power. “Typically, weather related sales disruptions are made up in the weeks following, so most of the sales lost at the beginning of February will be made up at the end of February and trail into early March.”

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Japan map

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Japan’s steel sector is facing tumultuous times.

But, in the short term, there are initial signs of it pulling through in 2021.

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Pandemic impacts on Japan’s steel sector

The COVID-19 pandemic contributed to the weakening of domestic needs. Furthermore, tepid global demand, cheaper exports by China and an ambitious net-zero emission target to develop cleaner steel have all come together to negatively affect the country’s steel sector.

According to an S&P Global Platts report, Japan’s iron and steel product exports fell 4.9% year over year to 32.14 million metric tons (MT) in 2020.

Quoting from data from the Japan Iron & Steel Federation, the report noted total exports to the US fell 30.5% year over year to 890,000 MT. That marked the fourth straight year of decline since reaching 2.06 million MT in 2016.

A slight recovery in December saw exports rise by 5% from November to 2.56 million MT. Hot-rolled wide strip steel accounted for the bulk of the ordinary steel products exported.

In fact, for the first time since 2009, as the S&P Global Platts report noted, Japan’s crude steel production fell below the 100 million MT mark.

Production fell 16.2% year over year to 83.19 million MT in 2020, according to the World Steel Association.

The country’s crude steel output fell 3.9% in January this year from a year earlier.

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supply chain chart

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When we first started reporting on global freight costs in Q4 last year, we expected that the pandemic bounce-back would probably be a relatively short-term effect, easing around the Chinese Lunar New Year. Around then, Chinese manufacturers closed down and the shipping industry had a chance to catch up on backlogs.

Unfortunately, in the meantime, the situation has not gotten better.

If anything, it has gotten worse.

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Supply chain woes

According to the Financial Times, the cost of shipping goods from China to Europe has more than quadrupled in the past eight weeks. Costs have hit record highs as a result of a shortage of empty containers disrupts global trade.

The post states the cost of shipping a 40-foot container from Asia to northern Europe has increased from about $2,000 in November to more than $9,000, quoting shippers and importers.

MetalMiner’s own research has found the worst increases are on the China to US West Coast and Northern Europe routes. Other origins, such as India, have doubled but not tripled since spring 2020, with the largest increase coming in the last 3-4 months.

The Chinese Lunar New Year closedowns barely happened this year. New COVID-19 outbreak containment measures in China encouraged Beijing to dissuade all but essential travel. As a result, a majority of workers in the cities were available to work over what would normally be a near two-week holiday period.

Product, therefore, continued to be delivered to the docks. Demand on shipping lines barely abated.

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Brent crude oil price chart

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The Brent crude oil price has continued a dramatic recovery this year.

Brent crude last week briefly crossed $66 a barrel (where it started 2020). A recovery in demand has stoked oil prices. That demand surge is largely coming from the prospects of an acceleration in transport activity as vaccine programs roll out.

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Brent crude oil and other commodities

Oil is, of course, not alone.

Many commodities have been boosted this year by both the reality and the expectation of increased demand.

Copper has been one of the stellar performers, topping $9,000 per metric ton for the first time since 2011. This largely seems to follow on the strength of rising electric vehicle demand. As such, it seems almost counterintuitive that an investment dynamic, electrification, that is driving one commodity, copper, to decade highs is also driving oil — whose greatest threat is electrification — to also rise strongly.

But that’s commodity markets for you. One common denominator for both is perceived tight supply, for oil in the short term and copper in the longer term.

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E.U. flag

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There is not a lot of chatter in the press about this yet, but speak to producers and consumers and you will hear plenty of complaints about the European aluminum market.

Both flat rolled and extruded products are facing serious supply issues. However, whether they will be short-lived or prove more persistent is not yet clear.

Are you under pressure to generate aluminum cost savings? Make sure you are following these five best practices

European aluminum market challenges

On flat rolled, manufacturing has not bounced back with the vengeance some as some hoped. However, it has recovered quite strongly in some sectors. Automakers and consumer durables have sought to catch up from the first half of last year, which saw a collapse in demand and output.

Automotive manufacturers, in particular, are struggling to get enough material. This comes despite some car output slowing because of a lack of semiconductors. Hard alloy 5000 series sheet deliveries are out to July-August production at some plants. Extended lead times and rising LME prices — now above $2,200 per metric ton this week — are encouraging distributors to overorder. In short, this is further exacerbating the problem.

Extrusion confusion

If anything, the position with extrusions is even worse.

The loss or denial of Chinese supply as a result of countervailing duties has, as intended, pushed demand onto domestic suppliers. There appears to be a shortage of metal right from the primary ingot end of the supply chain.

Billet casters are complaining they can’t get enough ingot. As a result, they are putting extrusion clients on allocation or, at a minimum, advising they will be able to meet their contractual quantities but no more.

In conversations with MetalMiner, extrusion mills have advised they are looking outside of Europe for billet supplies. Some have said they are looking to the Middle East and even Asia.

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tariffs headline over $100 bills

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Whether the new Biden administration creates a more insightful or sophisticated approach to trade remains to be seen.

But, if nothing else, a new administration is a chance for a reset on policies that have not worked as intended under a previous administration.

Aluminum tariff policy

The previous administration’s Section 232 tariffs on aluminum of 10% were well intentioned. The tariffs aimed to try to reverse the decline in US domestic aluminium smelting capacity.

In recognition of aluminum’s role in defense and aerospace applications, the government viewed the growing level of imports as a threat to national security. As such, creating a barrier to imports intended to allow US smelters to operate profitably and encouraged firms to reopen idled capacity. Furthermore, the hope was that, in time, firms would open new smelters.

The previous decade had been brutal for the US aluminium smelting industry.

By 2017, capacity utilization had fallen to 37%, according to Reuters.

Many hailed the strategy as a savior for the smelting industry. However, consumers would ultimately have to pay the bill.

Are you under pressure to generate aluminum cost savings? Make sure you are following these five best practices

Flaws in the plan

But even accepting that the COVID-19 pandemic made 2020 a far from typical year, it has become clear the tariff strategy has not worked on a number of levels.

While the inflationary cost of finished goods has been minor, the aluminum content even of a can of beer is a small fraction of the total product cost. It remains true that consumers have had to foot the bill.

It was always the intention that domestic producers would raise their prices to the import plus tariff price. The corresponding uplift was what was supposed to allow them to operate profitably again, to arrest the decline and reopen idled capacity.

Annualized production rose to 1.15 million tons at the end of 2018 from 750,000 tons a year earlier. The increase, however, proved short-lived. By the end of last year, national annualized production had fallen to 920,000 tons and capacity utilization to about 50%, Reuters reported.

Equally worrying the post states, there has been no new smelting capacity. The United States remains as dependent as ever on imports of primary metal.

Aluminum tariff and Canada

Buyers will remember the spike in prices that followed the reinstatement of tariffs on Canadian aluminium predicated on the “surge in imports,” as the Trump administration claimed at the time.

The reality was Canadian-origin metal had simply made up for the absence of Russian metal following Rusal’s pivot away from the US, largely to Asian markets, following the earlier sanctions on owner Oleg Deripaska. Russian imports collapsed from 725,000 tons in 2017 to only 136,000 tons last year. Shipments from Canada simply filled the gap, rising 10% in 2019.

The previous administration seemed to accept that imports from Canada should not be considered a strategic risk. Ultimately, it removed the tariff in September 2020.

But what of potential suppliers elsewhere? Would it not be of value to the US to widen its non-tariff supply base?

Biden rescinded permission to exempt the UAE recently for what seemed like political rather than national security reasons. China has never exported primary metal, so it remains irrelevant to this policy.

The years ahead

How the US handles imports of semi-finished products going forward will be the topic of a separate post. The US has inherited a fractious trade landscape as a result of the last few years.

It does so at a time of a fundamental re-evaluation of its trade priorities. Many would argue that re-evaluation is long overdue.

That re-evaluation includes its relationship with China. In that vein, the US is better off by working in cooperation with its allies and neighbors than the unilateral policies of the previous administration that have largely failed to deliver benefits.

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copper bars

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Copper seems to be a one-way bet the last six months.

The copper price has risen from a low of $4,371 per metric ton in March last year to $8,631 per metric ton Friday on the LME.

According to Reuters, Goldman Sachs and Citi are doubling down on their bull calls for the copper market. The banks have raised their 12-month price target to $10,000 per metric ton.

Copper price drivers

Exchange-traded stocks are low. China has been buying voraciously as its economy bounced back from the early spring 2020 lockdown.

Many bulls are touting the green revolution story as reasons to buy. Automakers’ announcements of impending ends to the internal combustion engine and a total switch to electric has fueled projections of soaring demand.

Meanwhile, a lack of new mine investment over the last few years leaves the supply landscape short of new projects to meet projected demand.

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

Reasons for pause

But not everyone is buying into the relentless rise in the copper price — at least not in the short term.

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list of commodities prices

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Investment banks love a super cycle.

It spurs irrational investment and sucks in unwary investors. Furthermore, it encourages passive funds to up their allocation, even if only by fractions of a percent.

But with some $14 trillion invested in US equities alone, even a modest increase in passive investments into ETFs would reap significant rewards in fees.

As such, it may be not surprising that the big boys — like JP Morgan, as reported in Bloomberg, and Goldman Sachs, as reported in the Financial Times (admittedly focused more on oil) — are calling the start of the next commodities super cycle.

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Commodities super cycle?

On the face of it, they appear to have some foundation.

As a separate post in the Financial Times observes, metals, agricultural and oil commodity indices have risen up to 40% since last July.

In part, this is due to a surge of interest in green-energy projects.

The EU, US and China have all promised to spend big. Hydrogen projects alone could receive €30 billion from the EU.

Copper has rallied to eight-year highs, around $8,375 per ton. The metal is benefiting from strong Chinese demand and the prospects for a more rapid transition to electric vehicles gains momentum. Glencore is quoted as saying world copper demand will double by 2050 and that mine investment is insufficient,

All of that certainly makes for a bullish landscape.

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earnings sign

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While the first half of 2020 posed significant challenges for metals manufacturers and end users alike, some firms have showed signs of recovery in the ensuing months and into 2021.

In the second quarter, steel demand suffered. Automotive manufacturers idled production in North America for a period of about two months last year, beginning in the tail end of the of the first quarter.

Nucor forecasts strong Q1 2021

The Charlotte-based steelmaker said it expects its first-quarter earnings could exceed $900 million.

By comparison, Nucor reported net earnings of $20.3 million in Q1 2020. In Q2 2020, the steelmaker reported net earnings of $108.9 million.

“We are encouraged by positive economic trends and the robust demand we are seeing across our markets,” Nucor President and CEO Leon Topalian said. “We currently expect our first quarter 2021 results to significantly exceed Nucor’s previous record for quarterly net earnings, set in 2008. As we move through 2021, we remain focused on building on our momentum, meeting and exceeding our customers’ needs, and delivering sustainable value creation for Nucor stockholders.”

Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.

Rising prices

Earlier this month, Nucor Tubular Products announced a price hike in a letter to customers.

The company announced an at least 12% hike for sprinkler pipe products. In addition, A53 products would rise by at least $140.

“This increase is a result of rising raw material costs, strong demand, and volatility of transportation costs,” Nucor said in the price increase notice. “New orders, quotes and contracts not previously confirmed by Nucor will be subject to this increase.”

Overall, this quarter will likely prove much stronger than Q4 2020.

“The Company’s sheet, plate, bar and structural mills continue to forecast increased profitability in the first quarter of 2021 as compared to the fourth quarter of 2020,” Nucor reported. “Realized prices and shipment volumes have increased for Nucor’s steel mills in the first quarter as compared to the fourth quarter of 2020.”

In addition, Nucor said rising raw materials prices will boost the performance of that segment. Nucor owns the David J. Joseph Company, a scrap brokerage. The steelmaker also produces direct reduced iron (DRI), a steelmaking input.

US steel price gains

US steel prices have continued to rise well into 2021.

Hot rolled coil (HRC) closed Wednesday at $1,156 per short ton, or up 9.78% from a month ago. Meanwhile, cold rolled coil (CRC) is up 15.24% to $1,331 per short ton. Hot dipped galvanized (HDG) is up 11.29% to $1,439 per short ton.

Plate price gains have not been as significant; however, plate is up 5.28% to $1,036 per short ton.

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rare earths loaded on cargo ship in China

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Although presented as the evil machinations of an enemy state, a recent Financial Times article lays out the rare earths dilemma China faces.

Rare earths in the crosshairs

Rare earths industry executives made unofficial statements indicating Chinese government officials had asked them how badly companies in the US and Europe, including defense contractors, would be affected if China restricted rare earth exports during a bilateral dispute.

The conversations should be seen against the backdrop of moves last month by the Ministry of Industry and Information Technology.

The ministry proposed draft controls on the production and export of 17 rare earth minerals from China. Although China doesn’t control the world supply of mined ores, it does dominate the refining into useable salts and metals, controlling about 80% of global supply.

Nonetheless, the country itself remains at risk to unstable ore supplies from countries like Myanmar. That may help explain Beijing’s tacit support for the recent military coup there.

The US even sends its ores to China for refining. That’s not because it doesn’t have the technical knowhow; the US simply lacks the facilities. Furthermore, China is more willing to tolerate the environmental damage from the dreadfully polluting refining process.

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

Rare earths supply dependence

This lack of refining capacity leaves the US and most of its Western allies horribly exposed.

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