China

Iron ore has had a volatile year.

Based on a forecast made by sector experts and research agencies, the coming year will not bring any cheer on that front.

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Much of the gloom and doom scenarios stems from the fact that two of the world’s fastest growing economies, China and India, have experienced slowing growth. As a result, demand for steel — of which iron ore is a crucial component – for infrastructure projects or automobiles is waning.

Ore prices went up in the first few months of this year, largely  because of supply disruptions in Brazil and Australia; when the supply chain recovered, prices fell. A slight uptake from China saw prices going up to $100 ton a month earlier this month, but experts now predict that upward movement might be coming to an end.

Indian steel major JSW Steel Ltd itself has said iron ore prices will start sliding from next year as demand wanes.

Join Managing Director Seshagiri Rao said prices may fluctuate between $80 and $85 a ton for the rest of 2019 before sliding to $60 to $65 next year, according to Bloomberg.

According to a report by Citigroup Inc, cited by Finance & Commerce, iron ore is looking at a potentially long slide in the coming years.

According to the report, prices will go down because of weakening demand in No. 1 buyer China, which will offset gains in consumption in other emerging markets (including India).

According to Ed Morse, global chief of commodity research, steel demand is “no longer going to be what it was,” and that no combination of India, Brazil and any other emerging-market country could replace the China market.

Faced with this kind of a situation, the Indian government has permitted the state-run Steel Authority of India Ltd. (SAIL) to sell 25% of its iron ore stock and to dispose off 70 million tons of low grade ore lying at mine heads across the country, the Business Standard reported.

According to the Indian Ministry of Steel, over 162 million tons of low-grade iron ore was available. However, regulations did not permit SAIL to sell these materials to domestic end-use companies.

The move, though, is being interpreted as an effort to reduce concerns regarding the expiry of mines.

Around 30 working iron ore mines are expiring on March 2020. In a tweet, the Ministry said it was giving permission to sell 70 million tons.

“Government of India has given permission to sell 70 million tonnes of sub grade minerals in the captive mines of SAIL,” the Ministry of Steel tweeted. “This would enable @SAILsteel to lead the way in ensuring availability of iron ore in the years up ahead for the steel sector. Thank you @MinesMinIndia.”

By this, the Indian government hopes SAIL will meet its own requirements, & also bridge the expected shortfall in domestic iron ore market.

The Mumbai-based financial services group Edelweiss Group says the decision highlights potential delays in the scheduled bidding process in the domestic ore market, the Financial Express reported.

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It said if this bidding is delayed, there could be a shortfall of at least 30–35 mtpa, even if SAIL manages to ramp up production. The government has allowed SAIL to sell iron ore to third parties from its captive mines for two years, Edelweiss noted. However, “infrastructure constraints and beneficiation issues” at customers’ end would constrain potential gains, according to Edelweiss.

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This morning in metals news, China’s aluminum production dipped in August compared with the previous month, China plans to bring its first domestically developed sources of medical cobalt-60 to the market and copper prices are down.

China Aluminum Production Falls

China’s August aluminum production fell compared with the previous month, Reuters reported.

The country saw its aluminum production fall 0.5% compared with July production, down to approximately 2.97 million tons, according to Reuters.

Sources of Cobalt-60 to Go to Market

China plans on bringing its first domestically developed sources of medical cobalt-60 to the market, state news agency Xinhua reported.

According to Xinhua, the cobalt-60 will be used to produce gamma knives used for cancer treatment.

Copper Prices Fall

Impacted by a slowdown in Chinese industrial activity, copper prices fell to start the week, Reuters reported.

Three-month LME copper slipped 1.5% down to $5,887 per ton.

As part of its energy planning — especially on the oil and gas front — India has been actively looking at its neighbors in the past few months for support and supply.

Besides Russia, the other countries India is looking to for fulfilling its energy requirements is the United Arab Emirates (U.A.E.), Saudi Arabia and Qatar.

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On a visit of the U.A.E. earlier in the week, Dharmendra Pradhan, India’s minister of petroleum and natural gas and minister of steel, met his U.A.E. counterpart,Minister of Energy and Industry Suhail Mohamed Faraj Al Mazroui, and a host of other leaders from the region for talks on energy.

Pradhan also addressed the opening session of the 8th Asian Ministerial Energy Roundtable in Abu Dhabi on Tuesday.

Addressing the delegates at this conference, the Indian minister said he was sure that the shift in global energy consumption to Asia would be a reality soon.

Anticipating that, he said it is necessary for the change to be “rooted in energy justice,” a very important component of the energy vision of the present Indian government, the Orissa Diary reported.

He forecast that within the next two decades, Asia would be driving global economic growth, meaning developing economies would drive 80% of incremental global growth. India and China would be in the driver’s seat, accounting for more than half of that growth, he argued.

Thus, he said, it is imperative that low income, low per capita energy-consuming countries have access to technology and capital for their energy efficiency and clean tech plans. In turn, that access would provide better energy security than short-term interventions in fossil fuel supply and price, he said.

India’s energy vision, he explained, is based on four pillars: energy access, energy efficiency, energy sustainability and energy security. Energy justice was a major objective of this plan, he added, for which India had undertaken many initiatives.

India’s per capita consumption of energy is quite low compared with the global average. Pradhan said the Indian government is trying to improve the country’s energy supply to rectify the disparity.

India is the third-largest energy consumer in the world, with its share of total global primary energy demand set to double to 11% by 2040.

India has already laid down over 16,000 kilometers of gas pipeline and an additional 11,000 kilometers is under construction. The country is also aiming to produce 175 GW of renewable energy by 2022, with a solar target of 100 GW by 2022.

On his visit, Pradhan met Al Mazroui here and discussed ways of strengthening bilateral hydrocarbon engagement between the two countries.

India wants the U.A.E.’s increased participation in Phase II of India’s Strategic Petroleum Reserves Program coming up in India’s Odisha and Karnataka provinces, Sify reported (the U.A.E. is already a partner in Phase I).

According to news agency ANI, on Sept. 9, Pradhan met his Saudi counterpart Prince Abdulaziz bin Salman in Jeddah and discussed ways to boost energy ties between the countries.

Significantly, just a week prior to the minister’s Gulf visit, it was announced on a visit of Indian Prime Minister Narendra Modi to Russia that a consortium of Indian companies led by state player ONGC Videsh would acquire a 49% stake in Russia’s Vankor cluster oilfields, Oil and Gas Eurasia reported.

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Modi Russian President Vladimir Putin agreed to the deal as part of a wider range of investment agreements signed at the Eastern Economic Forum in Vladivostok. It is worth noting the agreement comes after over three years of protracted negotiations with Russia. With this agreement in place, India is set to become a strategic player in this sector in the Arctic region.

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This morning in metals news, China announced some U.S. goods would be exempted from tariffs, steel production is down in the Great Lakes region and copper falls amid declining Chinese auto sales.

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China Announces Tariff Exemptions

The Chinese government announced Wednesday that it will exempt 16 types of U.S. goods from tariffs for one year as of Sept. 17, CNBC reported.

Among the products included in the list of exemptions are food for livestock, lubricants and cancer drugs, CNBC reported.

Steel Production Down in Great Lakes

Steel production in the U.S.’s Great Lakes region in the last week of August declined for the fifth straight week, the Times of Northwest Indiana reported.

Production for the week declined 1.17% from the previous week.

Copper Price Falls

Amid falling Chinese auto sales, the copper price approached a two-year low reached earlier this month, Reuters reported.

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LME copper was bid down 0.6% on Wednesday down to $5,793 per ton, Reuters reported.

The China Association of Automobile Manufacturers reported August automotive sales dropped 6.9% on a year-over-year basis.

GDP figures may be holding up well, but metal consumption in China suggests the global slowdown and the ongoing trade war with the U.S. are taking their toll on China’s manufacturing sector.

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Reuters reported top state primary aluminum producer Chalco is quoted as filing an 8% fall in output, with primary aluminum output of 1.89 million tonnes in the first half of the year, down from 2.06 million tons compared with the first half of 2018.

Overall, revenue actually rose 15% to 94.9 billion yuan, despite a 10% drop in the primary aluminum segment, helped by rising alumina output. Alumina output increased 3.2% year-on-year to 6.82 million tons, fueling a trading revenue increase of 23%.

But higher primary metal costs and weak prices in the primary sector hit profits. In the second quarter alone, Chalco’s net profit dropped 52.7% from a year earlier, while revenue was up 11.3% year on year.

In a separate Reuters article, the news source reported exports have also been hit, falling 4.3% in August from the previous month despite a weaker yuan. Unexpected production outages at two key smelters meant there was less metal available for overseas shipments following flooding at Hongqiao’s premises earlier last month and a separate outage in Xinjiang.

Last month, China exported 466,000 tons of unwrought aluminum, including primary metal, alloy and semi-finished products. The total was the lowest since February and was also down 9.9% from August 2018.

Supporting the aluminum picture, imports of unwrought copper — including anode, refined and semi-finished copper — products into China stood at 404,000 tons last month, Reuters reported, down 3.8% from the 420,000 tonnes in July and also down 3.8% year on year. The article went on to state the decline came despite copper prices in China being mostly high enough in August for traders to make a profit by buying on the London Metal Exchange, the global price benchmark, and selling on China’s Shanghai Futures Exchange (encouraging bookings of physical copper imports into China).

The blame for the drop in demand is laid at China’s bruising trade war with the United States, driving a fourth straight month of contraction in factory output in August, according to an official survey.

China is not alone, of course.

U.S. manufacturing output has remained positive, albeit slower than a year earlier. However, early indicators, like the Institute for Supply Management survey, showed a contraction in August — the first since 2016, according to Bloomberg. That suggests at least parts of the manufacturing landscape are facing rising headwinds; we would be complacent to think the consequences of the trade war are falling solely on China.

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Western Europe is also slowing fast. German manufacturing is arguably already flirting with recession as a consequence of a slowing Chinese economy.

Just as a rising tide lifts all boats, falling global GDP correspondingly depresses prospects for all.

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This morning in metals news, China’s trade activity with respect to aluminum and copper slowed in August, Nucor announced Chairman and CEO John Ferriola will be retiring at the end of the calendar year and residents of an Arizona town expressed staunch opposition to a proposed aluminum recycling plant.

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China’s Aluminum Exports, Copper Imports Fall

China’s imports of copper and exports of aluminum fell in August as the trade war with the U.S. escalated with the most recent exchange of tariffs.

China’s copper imports fell 3.8% in August compared with the previous month, Reuters reported, while aluminum exports fell 4.3% compared with July totals.

Nucor CEO to Retire

Nucor Chairman and CEO John Ferriola will retire at the end of this year, the company reported.

Ferriola has served as chairman since 2014 and CEO since 2013.

Nucor’s Board of Directors elected Leon J. Topalian, 51, to be president and chief operating officer, effective Sept. 5, 2019. Topalian will succeed Ferriola as CEO on Jan. 1, 2020.

Residents Oppose Proposed Arizona Aluminum Recycling Plant

Locals in the Arizona farming town of Wenden have come out in opposition to an aluminum recycling plant proposed for the town, azcentral.com reported.

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According to the report, residents urged officials from the Arizona Department of Environmental Quality not to grant an air-quality permit for the proposed Alliance Metals plant.

The Rare Earths Monthly Metals Index (MMI) held flat this month, checking at an MMI value of 22.

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U.S. Looks to Australia for Rare Earths

China’s dominance of the global rare earths market is well-documented, a fact the U.S. defense sector has grappled with in light of the elements’ use in a variety of high-tech capacities (including military applications).

In that vein, the Pentagon announced late last month that it has engaged talks with Australia regarding the possibility of hosting a rare earths processing plant in the country, Reuters reported.

According to the report, China accounts for more than 80% of global processing capacity of rare earths, a list of 17 elements that includes 15 lanthanide series elements (plus yttrium and scandium).

Ellen Lord, the Pentagon’s under secretary of defense for acquisition and sustainment, was quoted as saying that the U.S. is exploring several options to expand its rare earths footprint, of which Australia presented “one of the highest potential avenues,” Reuters reported.

Given the U.S. (and the rest of the world’s) dependence on China for rare earths, the U.S. has held back on imposing tariffs on the elements, even as it has levied hundreds of billions of tariffs on Chinese industrial products and ordinary consumer goods.

Lynas Corp Signs MOU with Western Australia City

Lynas Corp, the Australia firm that holds the title of world’s largest rare earths producer outside of China, last month scored a victory when the Malaysian government opted to extend the miner’s license to operate in the country.

The decision came after many months of uncertainty regarding the prospects of renewal, as the Malaysian government expressed concerns about waste disposal at the firm’s operations.

Although the government extended Lynas’ license, the renewal came in at a term of six months, shorter than the usual renewal period. Lynas reported receipt of the operating license renewal Aug. 22.

More recently, Lynas announced Sept. 6 that it had signed a memorandum of understanding with the Western Australia city of Kangoorlie-Boulder for “the review and due diligence of potential sites” for its new cracking and leaching plant.

“We are very pleased to announce this MOU with the City of Kalgoorlie-Boulder,” Lynas CEO Amanda Lacaze said in a prepared statement. “Kalgoorlie has a rich mining history and continues to work with industry to develop the region and its communities. Lynas already employs graduates from the WA School of Mines which is located in Kalgoorlie and we look forward to continuing this partnership.

“Access to infrastructure and a skilled workforce makes it an attractive investment destination and with this MOU we can further assess the suitability of potential sites in Kalgoorlie for our Cracking & Leaching plant.”

In other Lynas news, the company announced Australian conglomerate Wesfarmers would not continue to pursue a potential takeover bid initially announced in 2018.

Wesfarmers issued a proposal to purchase Lynas for $2.25 per share in March, conditional on several factors that included the renewal of the rare earths producer’s Malaysian operating license.

However, Lynas announced Aug. 22 that Wesfarmers did not intend to progress with its proposal.

“Wesfarmers remains focused on delivering value to its shareholders through disciplined capital allocation within our divisions and when considering new investments,” Wesfarmers Managing Director Rob Scott was quoted as saying.

In April, Lynas’ board rejected a $1.1 billion takeover bid from Wesfarmers.

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Actual Metal Prices and Trends

The Chinese yttrium price fell 4.0% month over month to $31.37/kg as of Sept. 1. Terbium oxide fell 3.6% to $547.27/kg.

Neodymium oxide rose 4.6% to $45,036.70/mt.

Europium oxide dipped 4.0% to $30.68/kg. Dysprosium oxide fell 1.4% to $266.32/kg.

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Global crude steel production in July grew, but the rate of growth slowed considerably last month.

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Production from the 64 countries reporting to the World Steel Association totaled 156.7 million tons in July, up 1.7% compared with July 2018.

The production growth in July marked a decline from the previous month, when year-over-year production growth reached 4.6%. Meanwhile, year-over-year production growth in July 2018 reached 5.3%.

Source: World Steel Association

China’s steel production has also dropped significantly.

After reaching year-over-year production growth of 12.7% in April, growth dropped to 10% for May and June. In July, however, growth plummeted to 5%.

China’s crude steel production for July 2019 totaled 85.2 million tons. No. 2 producer India produced 9.2 million tons of crude steel in July 2019, marking a 1.7% increase compared to July 2018.

Japan’s production 8.4 million tons of crude steel marked a 0.4% decline from July 2018. South Korea tallied crude steel production of 6.0 million tons, down 2.1% from July 2018.

U.S. production reached 7.5 million tons, up 1.8% compared to July 2018.

According to the American Iron and Steel Institute, U.S. steel production for the year through Aug. 24 increased 4.4% compared with the same period of 2018. Production for the period this year totaled 63.5 million tons.

The U.S. steel sector’s capacity utilization rate for the period reached 81.0%, up from 77.3% for the same period in 2018. By region, production during the week ending Aug. 24 reached:

  • Northeast: 202,000 tons
  • Great Lakes: 681,000 tons
  • Midwest: 204,000 tons
  • Southern: 719,000 tons
  • Western: 71,000 tons

Elsewhere, Brazil’s crude steel production in July plunged 20.7% to 2.4 million tons, while Turkey’s production fell 10.6% to 2.9 million tons.

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Crude steel production in Ukraine fell 1.7% to 1.8 million tons.

President Donald Trump’s suggestion that the U.S. could buy Greenland from Denmark was met with incredulity in Nuuk, Copenhagen and across Europe.

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“Greenland is not for sale. Greenland is not Danish. Greenland belongs to Greenland. I strongly hope this is not meant seriously,” Greenland Prime Minister Mette Frederiksen said during a visit to the territory on Sunday, as reported by The Times.

The prime minster added, “Thankfully, the time where you buy and sell other countries and populations is over. Let’s leave it there. Jokes aside, we will of course love to have an even closer strategic relationship with the United States.”

Frederiksen is said to have rejected Trump’s proposal, describing the notion of selling Greenland as “an absurd discussion.”

Strangely, Trump seems to have taken affront that the 58,000 population of Greenland did not want to be bought and sold like chattels. He then tried to lean on Denmark by commenting on how the U.S. protects Denmark and, as a result, should be more willing to sell its semi-autonomous territory (Greenland governs itself but relies on Denmark for its defense and foreign policy).

After being flatly refused by both Nuuk and Copenhagen, President Trump reacted in an apparent fit of pique, canceling his planned trip to Denmark next month.

Crass as the handling of this idea has been, it is not the first time the U.S. has tried to buy its massive neighbor.

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This morning in metals news, Chinese iron ore futures fell to their lowest level in 10 weeks, JP Morgan weighed in on the impact of tariffs on U.S. consumers and Tokyo Steel has decided to hold its prices steady for September.

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Iron Ore Slide Continues

Chinese iron ore futures fell to a 10-week low, Reuters reported.

Iron ore prices surged to five-year highs earlier this summer, but have plunged since then.

According to Reuters, the most-traded iron ore contract on the Dalian Commodity Exchange closed down 4.3% to 589.50 yuan per ton.

Tariff Impact

According to an analysis by investment bank JP Morgan, the Trump administration’s tariffs to date have had an average per-household impact of $600, CNN reported.

However, if the Trump administration goes through with the recently announced 10% on $300 billion in Chinese goods, that impact will rise to $1,000 per household.

Tokyo Steel Stands Pat on Prices

Tokyo Steel announced it will hold prices steady for September, Reuters reported.

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According to the report, the announcement marks the second straight month of price freezes from Tokyo Steel.