Market Analysis

China has previously been cast in a sinister role with respect to restricting the production and export of critical rare earth metals, usually salts, used to produce a host of products. Those products include magnets for consumers electronics and electric cars, defense equipment and advanced ceramics.

But while the country deliberately created a near monopoly position in the global rare earths refining market, it created a horrendous environmental problem in the process.

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Rare earths consolidation and rising prices

rare earths loaded on cargo ship in China

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In an effort to clean up its environmental act and to gain better control over what had become a wild west mining and refining landscape, Beijing engineered consolidation in the industry to fewer but larger entities.

However, that’s when the criticism started, as China capped exports, causing a spike in prices.

That was largely short-lived. Prices returned to earth after a spike in 2017. However, prices have been rising strongly again this year due to surging demand, both within China and without.

Prices are up between 20-50% this year alone. Surging demand has fueled a bidding war for supplies in a constrained market. With China holding some 85% of global refining capacity and the only mine to refined products supply chain, it not only has a unique position but a unique responsibility in the market.

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Just as global steel producers have slowed in the past few months, global aluminum production has also dropped and aluminum prices recently touched a 13-year high.

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Global aluminum production drops

aluminum ingot stacked for export

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Amid surging aluminum prices, global aluminum production dropped in August, the International Aluminum Institute reported this month.

Global production totaled an estimated 5.70 million metric tons, down from 5.73 million metric tons the previous month.

However, output increased from the estimated 5.52 million metric tons in August 2020.

China, the top producer of aluminum in the world, churned out an estimated 3.30 million metric tons in August. That marked a decline from 3.33 million metric tons.

Meanwhile, production within the Gulf Cooperation Council rose from 496,000 metric tons to 504,000 metric tons in August.

Asian production ex-China held flat at 384,000 metric tons.

North American production fell 5.4% from 333,000 metric tons to 315,000 metric tons.

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Global crude steel production fell by 1.4% year over year in August, the World Steel Association reported.

Do you know which market conditions are best with different steel contracting mechanisms? Check out our best practices on this topic.

Global crude steel production falls, including in China

Chinese steel factory

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Global crude steel production fell by 1.4% to 156.8 million metric tons in August, the World Steel Association reported earlier this month.

The total marked a 2.7% decline from 161.1 million metric tons in July.

Meanwhile, top steel producer China saw a decline in output for the third consecutive month. China produced 83.2 million metric tons in August, down 5.3% from 86.8 million metric tons.

Furthermore, China’s output fell from 95.9 million metric tons in August 2020. Beijing has implemented steel productions curbs, which have helped send iron ore prices downward. In addition, China has pushed forward with consolidation of its massive steel sector.

For the year through August, however, China’s production totaled 733.0 million metric tons, up 5.3% year over year.

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This morning in metals news: Intel on Friday broke ground on two new chip factories in Arizona; meanwhile, a spill Sunday at from a U.S. Steel plant in Northwest Indiana led to the closure of beaches in the area; and, lastly, the aluminum price has taken a breather during the second half of the month but remains elevated.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page.

Intel breaks ground on semiconductor factories

semiconductor and automobile

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The automotive sector continues to struggle with the global shortage of semiconductors.

As such, Intel is looking to fill some of the gap in the U.S.

Last Friday, Intel broke ground on two new semiconductor factories in Arizona.

“Advanced domestic chipmaking capacity and capabilities are critical for the sake of both economic and national security,” Intel said. “The United States has lost ground in semiconductor manufacturing and is at risk of falling farther behind.”

Furthermore, the two news fabs will be fully operational in 2024.

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Russia’s 15% export duty on steel has not impacted market prices for flat-rolled products, either coming into the European Union or rolled within the 27-member bloc, market participants told MetalMiner.

“The Russian [steelmakers] are absorbing it completely,” one trading source said of the export duty.

A second trader noted a similar situation.

“The export tax has nothing to do with the customer here. That is the producers’ issue,” that source noted.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your steel buy.

Russia export duty after two months

Russia exports

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Their comments followed Russian Federal Government’s Decree No. 988 of June 25. The decree imposed a 15% export duty from Aug. 1 to Dec. 31 on all steel exports – finished and semi-finished – from the country and also the wider Eurasian Economic Union. That includes not only Russia, but also Armenia, Belarus, Kazakhstan and Kyrgyzstan. It also includes observer states Moldova, Cuba and Central Asian state Uzbekistan.

The duty also applies to certain base metals, including copper, nickel and low-grade aluminum products.

Federal government officials claimed then that sharply rising steel prices in Europe, Russia’s second-largest export market, were translating to higher steel prices at home.

The European Union is also Russia’s second-largest destination market for steel exports, including finished, semi-finished and tubular products. Those exports exceeded 4.02 million metric tons in 2019, the analyst said.

That number was down 20% on the year from 5.17 million metric tons, yet the bloc retained its place as Russia’s second-largest export market.

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Consumers have looked aghast at rising aluminum prices this year and wondered how much longer it can continue.

The explanation that global economies are bouncing back from pandemic lockdowns has encouraged many to hope that once supply chains are restocked, demand will ease and aluminum prices will fall.

But several sources are suggesting the tightness of the aluminum market is more deep-seated.

Each month, MetalMiner hosts a webinar on a specific metals topic. Explore the upcoming webinars and sign up for each on the MetalMiner Events page. The next webinar is scheduled for Thursday, Sept. 30

Aluminum prices and the demand picture

aluminum ingot

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Inventory supply chain restocking is driving demand in North America and Europe. That process has been exacerbated by a nightmare global logistics market hampering deliveries and pushing up costs.

But a Reuters article points the finger firmly at a supply-side squeeze, principally in China and to a lesser extent among Western producers.

According to the post, China is in the grip of a power crunch. A shortage of coal supplies, toughening emissions standards and strong demand from manufacturers and industry have pushed coal prices to record highs and triggered widespread curbs on usage.

As a result, China has implemented rationing during peak hours in many parts of the country. Some residential customers are facing cuts and outages.

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Just over a year ago, MetalMiner commented on the acquisition of most of ArcelorMittal USA’s assets by Cleveland-Cliffs (including potential impacts on steel prices).

Source: MetalMiner

At the time, the MetalMiner analyst team suggested, “The deal strengthens the company’s position in the automotive sector. The company likely controls 60%-65% of exposed auto sheet supply (think steel used on the outside of a car).” The analyst team continued, stating, “Biggest loser? Automotive OEMs like General Motors, Ford, Honda and Toyota.”

Fewer suppliers always results in less competition. Always.

Also as predicted by MetalMiner and confirmed by several people familiar with the matter, Cleveland-Cliffs has implemented firmwide standard pricing across all of its assets. As such, any “lower” pricing available previously in the market — through AK Steel, for example — now sells at the ArcelorMittal price (seemingly higher price level). MetalMiner identified that as an obstacle to automakers at the time. The reduction of three behemoth integrated mills to two drastically lowers competition.

At the same time, all of the steel mills have taken a very disciplined approach to adding (or rather, not adding) capacity to the market. The headline capacity utilization rate remains well above 80%. However, the numbers relate to the actual lines in operation, not total U.S. steelmaking capacity.

According to Bloomberg, U.S. steel consumption is estimated to reach 104 million tons this year and 108 million tons in 2022. However, domestic production was forecast to reach 87 million tons, a shortfall of 17 million tons.

Interested in additional perspectives on steel buying strategies outlined in this article? Join Lisa and Don on Thursday September 30 at 11:30 

Steel producers enjoying record profits amid strong steel prices

Meanwhile, Nucor expects record earnings in the third quarter of 2021. The chart below shows pre-pandemic quarterly market conditions using Q1 2019 compared with Q1 2021.

In short, two of the largest producers by capacity have both seen record earnings.

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U.S. steel imports totaled an estimated 2.5 million metric tons in August, the Census Bureau reported Friday, as U.S. steel prices continue to post gains.

The August total marked a decline from 2.7 million metric tons in July.

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Steel imports slow in August but remain up in year to date

steelmaking in an EAF

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Despite the decline in U.S. steel imports from July to August, imports in the year to date remain up from last year.

Through July, U.S. steel imports totaled 16.2 million metric tons, up from 13.7 million metric tons for the same period in 2020.

Imports of blooms, billets and slabs fell from 902,920 metric tons in July to 602,114 metric tons in August. Imports of oil country goods fell from 162,509 metric tons to 106,650 metric tons.

Meanwhile, imports of cold-rolled sheets fell from 157,524 metric tons to 147,330 metric tons.

Wire rod imports also fell from 101,768 metric tons to 79,203 metric tons.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

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.

Week of Sept. 20-24 (China’s property market and steel prices, global copper mine production and much more)

Chinese steel factory

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This morning in metals news: Alcoa said it plans to restart its Alumar aluminum smelter in Brazil; meanwhile, the Energy Information Administration forecasts hydropower generation will fall by 14% this year; and, lastly, European automakers are looking to bypass China in their rare earths supply chains.

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

Alcoa to restart Alumar smelter

Alcoa logo

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Alcoa this week announced plans to restart its Alumar aluminum smelter in Brazil.

The smelter has been fully curtailed since 2015. The facility has annual capacity of 268,000 metric tons.

“The process to restart the idle capacity will begin immediately,” Alcoa said. “The first molten metal is expected in the second quarter of 2022, and the full 268,000 mtpy of capacity is expected to be operational in the fourth quarter of 2022. By 2024, the Alumar smelter will be powered with 100 percent renewable energy.”

Hydropower hit by drought

Speaking of renewable energy, the EIA forecasts hydropower generation to decline by 14% this year.

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