Before we head into the weekend, let’s take a look back at the week that was and some of the metals coverage here on MetalMiner, including: steel prices, commodities markets, precious metals, the U.S.-China Phase One trade deal and the Senate’s approval of the United States-Mexico-Canada Agreement.
The successor to the 1994 North American Free Trade Agreement, dubbed the United States-Mexico-Canada Agreement (USMCA), has now made its way through both chambers of the U.S. Congress.
In December, the White House and House Democrats reached a deal over revisions to the USMCA, yielding an overwhelmingly bipartisan 385-41 vote Dec. 19 that sent the deal over to the Senate.
On Thursday, the Senate voted 89-10 to approve the USMCA via the United States-Mexico-Canada Agreement Implementation Act. Sen. Pat Toomey was the only dissenting Republican vote.
This morning in metals news, aluminum maker Alcoa released its financial results for Q4 and 2019, an Ohio steel plant touts investment that it says will bring new jobs and a Pittsburgh-based metals manufacturer says it will have to close a facility unless it wins a steel tariff exemption.
Alcoa releases quarterly financials
Aluminum maker Alcoa reported a net loss of $303 million ($57 million excluding special items) in Q4 2019.
Fourth-quarter revenue came in at $2.4 billion, down from $2.6 billion the previous quarter and $3.3 billion in Q4 2018.
“In 2019, we acted to further strengthen Alcoa, completing the divestiture of uncompetitive assets, modernizing labor agreements in three countries, implementing a new operating model, and making quick progress on the asset review process we announced last quarter,” Alcoa President and CEO Roy Harvey said.
“While the market in alumina and aluminum challenged us, we maintained a strong cash balance of nearly $900 million and drove operational stability,” Harvey said. “Also, our low-cost, top-tier bauxite and alumina segments both set new annual production records based on our current portfolio.”
The escalation in U.S.-China trade relations appeared to take a brief pause Wednesday when U.S. President Donald Trump and Chinese Vice Premier Liu He signed what has been billed as a “Phase One” trade agreement between the world’s two largest economies.
“Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade as we sign Phase One of the historic trade deal between the United States and China,” Trump said in opening remarks during the signing ceremony Wednesday, adding the deal would begin to “right the wrongs of the past.”
Over the past two years, following the launch of a Section 301 investigation in August 2017, the U.S. has imposed a total of approximately $370 billion in tariffs on Chinese goods, with China responding with tariffs of its own at each step of the way amounting to $110 billion.
Before we head into the weekend, let’s take a look back at the week that was and some of the metals coverage here on MetalMiner, including: a natural gas transit deal between Russia and Ukraine; aluminum prices; the impact of escalating U.S.-Iran tensions on oil prices; and the copper demand picture.
- MetalMiner’s Stuart Burns on a five-year natural gas transmission agreement between Russia and Ukraine.
- Sohrab Darabshaw delved into what lies ahead for the Indian steel sector in 2020 amid numerous challenges.
- Burns weighed in on trade tensions ahead of this year’s U.S. presidential election.
- China holds a prominent place in the discussion of potential global growth in 2020.
- U.S. auto sales were projected to come in down 1.7% in 2019.
- November construction spending in the U.S. jumped 4.1%.
- Aluminum prices made gains during the final month of 2019.
- Burns also looked at oil price movements on the heels of escalating tensions between the U.S. and Iran.
- As MetalMiner’s Belinda Fuller noted, copper price gains are being capped by uncertain demand.
- Speaking of U.S.-Iran tensions, Darabshaw surveyed their impact on precious metals prices in India.
- Stainless steel surcharges fell last month, while nickel prices made slight gains.
The Aluminum Monthly Metals Index (MMI) bounced off last month’s three-year low with a three-point increase to 86. All prices in the index increased by more than 3%.
LME aluminum prices increased in December and surpassed $1,830/mt in early January.
Now analysts are watching to see if lackluster demand will allow recent increases to stick.
According to recent data from the International Aluminum Institute, global aluminum production in November totaled 5.19 million tons, down from 5.35 million tons the previous month.
Production in November was also down on a year-over-year basis compared with 5.33 million tons produced in November 2018.
China’s production drops
No. 1 producer China churned out an estimated 2.88 million tons in November, down from 2.98 million tons in October and 3.04 million tons in November 2018.
Around the world
Elsewhere, production from Gulf Cooperation Council (GCC) countries totaled 481,000 tons, down from 494,000 tons the previous month and up from the 432,000 tons produced in November 2018.
Production in east and central Europe totaled 345,000 tons in November, down from 356,000 tons in October and 332,000 tons in November 2018.
Meanwhile, in western Europe, production totaled 282,000 tons in November, down from 286,000 tons the previous month and the 310,000 ton produced in November 2018.
North American production totaled 311,000 tons in November, down from 316,000 tons in October and 318,000 tons in November 2018.
As for alumina production, global output reached 10.92 million tons in November.
China’s aluminum production totaled 5.78 million tons in November.
In other alumina news, Norsk Hydro said power outages impacted its operations at Paragominas and Alunorte (its Brazilian alumina refinery). The firm said a transmission tower overturned Dec. 18, causing the outages.
As a result, production at Alunorte was temporarily reduced to 50-70% “to prolong the lifetime of the bauxite inventories.”
The LME aluminum price reached $1,1816/mt as of late last week, up 4.22% from the previous month, according to MetalMiner IndX data.
(To revisit 2019 in aluminum news, check out our most-viewed aluminum-centric posts of the previous year.)
The Aluminum Monthly Metals Index (MMI) held relatively flat this month, with a one-point increase to 83, as the majority of prices in the index showed mild increases.
LME aluminum prices generally moved sideways during November and were unable to generate strong upward price momentum due to slower recent economic growth rates and uncertainty over demand in early 2020.
While prices have not gained as much value recently — even compared to early November highs — prices have not dropped as low either.
During the past month, prices dropped back below the $1,800/mt level after trading above that level during the first week or so of November, but still found support firmly above the $1,700/mt level.
Overall macroeconomic conditions continued to restrain price increases.
SHFE aluminum prices continue sideways
SHFE aluminum prices continued to move firmly sideways during the past month.
Since March, prices traded in a firm band between CNY 13,500/mt and CNY 14,500/mt.
The sideways trend looks set to continue. However, prices recently hit some progressive lows, (although the drops look mild):
Aluminum production in China will most likely continue to grow much faster than demand, according to a webinar by analysts at Shanghai Metals Market (SMM).
In 2020, China’s output of primary aluminum looks set to increase by 2.5% to 36.44 million metric tons (after contracting by 1.51% this year).
This year, capacity totaled around 40.69 million tons, with actual production of around 35.1 million tons on an annualized basis.
Aluminum consumption in China will increase by 0.3% next year to 36.19 million metric tons, after declining by 1.48% this year.
Increased use of aluminum in autos will not be enough to absorb China’s rising production
According to a report prepared for the International Aluminum Institute on long-term automotive use in China earlier this year, aluminum demand for use specifically within the sector in China will increase from an estimated 3.8 million tons in 2018 to 10.7 million tons by 2030, based on a compound annual growth rate of 8.9%.
Let’s put that in perspective.
This past October, Chinese production totaled just around 3.0 million tons.
High production levels likely to constrain price increases into early 2020
Surplus production could continue to weigh on prices next year, resulting in a price drop below $1,700/mt, particularly early in the year.
Once prices drop further, the rate of smelter closures will likely increase, thus relieving downward price pressure.
However, at this time prices continue to trade near break-even levels, likely delaying announcements of production closures into Q1 2020.
What this means for industrial buyers
Aluminum price momentum remained stalled overall this month, with most index prices holding sideways or making only mild gains.
A return of price momentum cannot be ruled out for Q1 2020, especially if both the automotive and manufacturing sectors see a strong global recovery.
Buying organizations interested in tracking industrial metals prices with ease, including embedded forecasting, will want to request a demo of the MetalMiner Insights platform.
Buying organizations seeking more insight into longer-term aluminum price trends may want to read MetalMiner’s Annual Metal Buying Outlook.
Actual metal prices and trends
This month, China aluminum scrap prices increased once again, rising by 2.4% to $1,849/mt. Chinese aluminum primary cash prices also increased again, by 1% to $1,994/mt. Chinese aluminum billet and bar prices saw increases of around 0.4%, to $2,049/mt and $2,144/mt, respectively.
Korean prices dropped back this month by around 3%. Korean commercial 1050 sheet came in at $2.95/kilogram. The 5052 coil premium over 1050 was $3.12/kilogram and the 3003 coil premium over 1050 was $2.92/kilogram.
The LME primary three-month price increased by 0.8% to $1,761/mt.
European commercial 1050 sheet and 5083 plate both increased mildly again this month, by 0.3% and 0.9%, respectively, to $2,482/mt and $2,862/mt.
India’s primary cash price increased by 0.5% to $1.87 per kilogram.
Global aluminum production in October totaled 5.39 million tons, according to a recent report by the International Aluminum Institute.
Global production through the first 10 months of the year reached 53.04 million tons, down 0.9% from the 53.51 million tons produced during the first 10 months of 2018.
Of that total, China produced 3.01 million tons, which marked a decline from the 3.13 million tons produced in October 2018. However, China’s October production jumped compared with September’s 2.92 million tons.
Elsewhere, production in the Gulf Cooperation Council (GCC) countries totaled 494,000 tons in October, up from the 478,000 tons in September and the 450,000 tons produced in October 2018.
North American production totaled 316,000 tons, up 1.9% from the 310,000 produced in September but down from 323,000 tons in October 2018.
Western European production totaled 286,000 tons in October, up from 276,000 tons the previous month and down from 321,000 tons in October 2018.
Production in east and central Europe totaled 356,000 tons in October, up form 344,000 tons in September and 343,000 tons in October 2018.
MetalMiner’s Stuart Burns weighed in on aluminum demand and prices last month.
“China’s gross domestic product growth slowed again to 6.0% year over year in the third quarter, its weakest pace in almost three decades, Aluminium Insider reports,” Burns wrote. “Citing a Reuters poll, the report notes industrial activity is expected to have shrunk for the sixth month in October, quoting a Reuters poll, suggesting hardly any relief from slowing global demand and the trade war.
“The latest economic data from the E.U. and the U.S. also indicate slowing growth, with Germany flirting with a recession in the manufacturing sector. Although the aluminum market was estimated to be in deficit last year and this, a Reuters poll suggests it is likely to flip into a surplus of 304,000 metric tons next year — almost a 1 million ton turnaround from the 658,500-ton estimate for this year.”
Despite slowing growth and lagging demand around the world, aluminum prices had previously shown signs of upward momentum, surging past the $1,800/mt threshold in the first half of November.
However, since hitting $1,820/mt as of Nov. 8, the LME three-month aluminum price has lost some steam. The LME three-month aluminum price dropped to $1,738/mt in the run-up to Thanksgiving, according to MetalMiner IndX data.
Meanwhile, the International Aluminum Institute also released alumina production figures Nov. 26.
China’s estimated production of alumina — a key aluminum making material — totaled 6.08 million tons in October, up from 5.88 million tons in September but down from the 6.16 million tons produced in October 2018.
Global alumina production totaled 110.3 million tons through the first 10 months of 2019, up 1.9% from 108.2 million tons produced during the equivalent period in 2018.
The normally pragmatic Netherlands has been strangely agitated recently, as both the construction and agricultural industry have protested on the streets of the capital, the Hague, against the government’s measures for combating nitrogen and PFAS-based pollution.
In itself this would barely be newsworthy for MetalMiner if it weren’t for the impact it is having on an already subdued metals industry.
Even before the widespread disruption to the Dutch construction industry, demand for steel and aluminum was suffering from depressed German industrial consumption, largely due to a downturn in the automotive market.
But in the Netherlands, the government is struggling to resolve an issue with nitrogen emissions permitting, which Reuters reports are four times the E.U. average per capita in the small and densely populated Netherlands.
Although 61% of emissions are coming from agriculture, a sizable portion also comes from the construction industry – a big consumer of aluminum and steel products.
The impact is particularly damaging, as the country has been enjoying a boom in infrastructure and housing investment of late.
As a result of a fiasco over how permits are assessed, a review is underway and, in the meantime, new permits have been withheld, leading to delays and project uncertainty.
Aluminum extruders estimate the European market is down at least 20% from last year as a result. With steel prices also waning, participants across the supply chain are reducing inventories, adding further to the fall in demand being experienced by producers.
Lead times have come in and order books are weak, as many in the steel and aluminum supply chains find themselves overstocked relative to ongoing demand. The double whammy of weak automotive demand now being exacerbated by a fall in construction activity has caught many by surprise.
The government in the Netherlands will no doubt resolve its permitting issues. However, a return to last year’s robust level of activity is unlikely to bounce back quickly and producers remain pessimistic about demand next year.
In the meantime, prices are likely to remain under pressure and lead times will remain short into 2020.