Aluminum

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This morning in metals news, global aluminum associations are calling for action on market-distorting activity, China’s semi-finished steel imports skyrocketed in September and Freeport-McMoRan reported its 3Q 2019 results.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Aluminum Associations Demand Reforms

Yesterday, we noted steel associations around the world are asking governments to tackle the challenge of steel excess supply.

Now, aluminum associations are asking for reforms of their own, particularly in an effort to tackle activities that distort markets.

Jean Simard, president and CEO of the Aluminium Association of Canada; Gerd Götz, director general of European Aluminium, and Ryan Olsen, vice president of business information and statistics for the Aluminum Association, released a joint statement asking for action on the matter.

“Given the extent and duration of the harm suffered by the aluminium industry, we are calling for swift, focused and decisive action on market-distorting behavior and excess capacity in both the upstream and downstream sectors,” they said. “On behalf of our respective member companies, we stand ready to support Governments and international organizations with our knowledge, data and commitment to articulate improved trade rules and to restore normal market functions so that all producers throughout the aluminum value chain can compete under conditions of fairness and transparency.”

China’s Semi-Finished Steel Imports Jump in September

China’s imports of semi-finished steel increased in September amid new restrictions earlier this year on scrap imports, Reuters reported.

According to the report, China imported 370,000 tons of semi-finished steel in September, which marked a 418% year-over-year increase.

Freeport’s Copper Sales Fall in 3Q

Miner Freeport McMoRan reported its third-quarter financial results Wednesday, reporting an adjusted net loss of $8 million.

Sales of copper and gold in the third quarter were down on a year-over-year basis “reflecting anticipated lower mill rates and ore grades as PT Freeport Indonesia (PT-FI) transitions mining from the open pit to underground,” according to the firm.

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Third-quarter copper sales reached 795 million pounds, down from 1.0 billion pounds in 3Q 2018. Gold sales totaled 243,000 ounces, down from 837,000 ounces in 3Q 2018.

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.”

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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An interesting article in the Financial Times this week struck a chord with us at MetalMiner where we often debate how we see metals and manufacturing will go. As such, we often try to shoot holes in oft touted but poorly researched “trends” found in the popular media or espoused by politicians.

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One that crops up repeatedly is the inevitability of electric vehicles (EVs) burying the internal combustion engine (ICE), a proposition with which the Financial Times article would agree, it seems.

Anyone reading the mainstream media can be forgiven for thinking EVs are the fastest-growing sector of the automotive market. We are often bombarded with new model launches but, also, the ramifications of this surging demand are painted as an imminent threat to price stability for a host of key battery metals, like lithium, cobalt and nickel, or motor metals, like copper.

Indeed, the only trend said to be supporting copper prices is “surging” EV demand.

As the FT observes, EV numbers are growing.

Worldwide, some 5.1 million EVs were on the roads by the end of 2018, an increase of 2 million from the year before. Global sales of EVs are likely to be between 2.4 million and 2.9 million this year.

EV sales, however, are still being outstripped by growth in fuel-guzzling SUVs.

The between 7 million and 8 million EVs that should be on the road by the end of 2019 represent less than 0.1% of the 1.1 billion cars and other light vehicles that use internal combustion engines. Some 85 million ICE vehicles were sold worldwide in 2018 and, even from this much higher base, SUVs are experiencing rapid growth in outright numbers.

After growth of over 20% a year earlier in the decade, global demand growth for SUVs is now stabilizing — but at a high level of market share.

In the U.S., SUVs account for 45% of new car sales, the Financial Times reports.

But the trend is not limited to the U.S.

In Europe, SUVs take 34% of new sales, in China 42% and in India 23% the article advises, equating to some 25 million to 30 million annual SUV sales worldwide. While some of these may be hybrids, anyone who owns an SUV hybrid will know they are far from fuel efficient; in fact, they rarely even approach the level of fuel efficiency the manufacturers claim in their glossy sales brochures.

The reality is, despite governments and even oil companies pouring millions into infrastructure and commitment from traditional manufacturers — like all product lines having an EV version by 2020 or 50% of the fleet being EV by some future date) — Joe Public is not voting with his or her wallet to buy them. At least, not in enough numbers to drive a meaningful switch to EVs.

Indeed, the statistics suggest the switch is to larger, gas-guzzling SUVs, rather than EVs.

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If that is the case what does that say about metals demand?

It suggests, as far as the automotive market is concerned, it will continue to be driven by steel and aluminum, with support for copper — but not the tsunami of imminent demand for lithium ion batteries, as some have touted.

The Aluminum Monthly Metals Index (MMI) dropped by one point again this month, this month down to an MMI reading of 82.

However, rather than universal price weakness like last month, price declines in China pulled the index down (along with a milder drop in LME prices).

All other prices in the index increased, although some of the gains were relatively small (i.e., under 1%).

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LME aluminum prices weakened in September, despite looking stronger early on in the 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.

Source: MetalMiner analysis of London Metal Exchange (LME) and FastMarkets

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.

SHFE Aluminum Prices Lost Ground in September

Over the course of 2019, SHFE aluminum prices continued to show sluggish upward momentum, constrained by the CNY 14,500/mt price level.

Source: MetalMiner analysis of Fastmarkets

However, during the past one month, SHFE prices dropped:

Source: MetalMiner analysis of Fastmarkets

The price drop looks somewhat mild, as it looks to be within the range of normal price fluctuations for the metal over the past year.

Around mid-month, news of slowing economic growth in China led to a stalling of price momentum for some key industrial metals, including aluminum.

However, not all the recent news from China indicated manufacturing is slowing.

The Caixin Purchasing Managers Index (PMI) clearly jumped into the expansionary zone, as reported in this month’s MetalMiner Monthly Outlook.

China’s National Bureau of Statistics’ (NBS) competing PMI also edged up to 49.8 (compared with August’s reading of 49.5). In particular, the production subindex jumped to 52.3, while the new orders index increased to 50.5 — both marking expansionary readings.

Recently, the Chinese government implemented fiscal measures expected to help maintain higher growth rates through improved banking sector liquidity. Expected beneficiaries of the measures include the construction industry and small businesses.

Demand in the automotive sector remains weak, adding to aluminum price weakness (as pointed out by MetalMiner’s Stuart Burns in a recent article). The government implemented measures to help improve traditional car sales; so far, the data do not show an uptick in sales as a result of these measures, which rely on implementation at the local government level.

Strong U.S. Dollar Suppresses LME Prices

One effect of slowed growth in other major countries pertains to the continued upward trend in the dollar’s value, which grew stronger vis-a-vis other major currencies.

This compounds with China’s decision to devalue the yuan in early August, which translates into yet lower prices.

Key raw material input costs have also dropped.

Therefore, producers — particularly producers in China — have a greater buffer against lower prices, allowing them to lower prices while maintaining margins. As such, those producers can then continue to produce, even at lower prices.

Additionally, when Chinese domestic prices stay the same or decline in dollar-denominated prices, increased sales volume may be the result. Chinese producers can therefore benefit without effectively offering any actual price discount. In the worst-case scenario — the case of rising prices — the alteration in the exchange rate slows the rate of increases in dollar-denominated prices.

Vietnam Announces Tariffs on Aluminum Imports from 16 Chinese Companies

Based on the findings of an investigation launched in January, Vietnam announced it would impose anti-dumping duties on some aluminum products from 16 Chinese companies.

The tax will range from 2.49% to 35.58% for five years, starting from Sept. 28, 2019.

U.S. Aluminum Premiums

The U.S. Midwest Premium increased marginally, placing it firmly at $0.18/pound, indicating supply tightness continues in spite of weaker demand.

What This Means for Industrial Buyers

Aluminum price momentum stalled in September.

Recent Chinese currency devaluation and a stronger dollar means lower prices — for now.

Industrial buying organizations need to keep an eye on the bigger picture; should demand firm up in the fall, price momentum may still turn around.

Buying organizations interested in tracking industrial metals prices with embedded forecasting should request a demo of MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term aluminum price trends should read MetalMiner’s Annual Metal Buying Outlook.

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Actual Metal Prices and Trends

Chinese prices in the index moved lower overall this month.

Chinese aluminum primary cash and scrap prices decreased by 2.9% and 2.8% respectively, to $1,955/mt and $1,762/mt.

Chinese aluminum billet and bar prices posted 0.2% declines, falling to $2,056/mt and $2,150/mt, respectively.

The LME primary three-month price dropped by 1.5% this month to $1,720/mt, adding to the 3.4% drop the month prior.

European commercial 1050 sheet and 5083 plate both increased by 2.6% to $2,456/mt and $2,799/mt, respectively.

India’s primary cash price increased 1% to $1.96 per kilogram.

Korean commercial 1050 sheet, 5052 coil premium over 1050, and 3003 coil premium over 1050 all increased by less than 1% – reversing last month’s mild decrease of less than 1% — down to $2.97, $3.14 and $3.02 per kilogram, respectively.

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The Automotive Monthly Metals Index (MMI) held flat this month for an MMI reading of 85.

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U.S. Auto Sales

The Big 3, which now all report sales on a quarterly basis, released sales figures for the third quarter.

General Motors reported third-quarter deliveries of 738,638 vehicles, marking a 6.3% year-over-year increase.

Negotiations between GM and the United Automobile Workers (UAW) union entered their third week this week, UAW rejected the latest GM offer on Sept. 30, according to a UAW statement.

“This proposal that the Company provided to us on day 15 of the strike did not satisfy your contract demands or needs,” UAW Vice President Terry Dittes said in a release. “There were many areas that came up short like health care, wages, temporary employees, skilled trades and job security to name a few.  Additionally, concessionary proposals still remain in the company’s proposals as of late last night.”

Earlier this month, MetalMiner Executive Editor Lisa Reisman weighed in on a lingering strike’s potential impact on steel prices.

“Given that the U.S. market consumes about 110 million tons annually, and GM’s share represents about 8% of domestic steel production, it would take a 39-day strike to lower demand by 1 million tons, or 1%,” she wrote.

As of Thursday, Oct. 3, the strike has reached its 18th day.

Ford reported third-quarter vehicle sales of 580,251, down 4.9% on a year-over-year basis. However, Ford truck sales increased 8% year over year.

Fiat Chrysler’s third-quarter sales were flat compared with Q3 2018.

Honda sales were down 14.1% in September compared with September 2018 sales.

Toyota reported sales fell 16.5% in September on a volume basis and by 9.2% on a daily selling rate basis. Nissan’s September sales fell 17.6% on a year over year basis.

According to a jointly released forecast by J.D. Power and LMC Automotive, accounting for fewer selling days, September vehicle sales were down 7.8% compared with September 2018.

Ford, Mahindra Team Up

Ford recently announced a joint venture partnership with India’s Mahindra, which will aim to “develop, market and distribute Ford brand vehicles in India and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world.”

Ford will own a 49% controlling stake in the joint venture, with Mahindra owning a 51% stake.

“Ford and Mahindra have a long history of working together, and we are proud to partner with them to grow the Ford brand in India,” Ford’s Executive Chairman Bill Ford said in a release. “We remain deeply committed to our employees, dealers and suppliers, and this new era of collaboration will allow us to deliver more vehicles to consumers in this important market.”

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Actual Metal Prices and Trends

The U.S. HDG price fell 3.8% month over month to $804/st as of Oct. 1.

LME three-month copper was essentially flat, moving to $5,640/mt. U.S. shredded scrap steel fell 13.6% to $254/st.

The Korean aluminum 5052 coil premium rose 0.6% to $3.14 per kilogram.

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Aluminum consumers have watched the primary ingot price drift gradually lower since the beginning of this year.

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There have been peaks and troughs, of course, as the price is buffeted by trade news, mill outages or exchange rate movements.

Broadly speaking, however, our sideways market has been one of gradual decline.

As the price approaches the psychologically significant $1,700 per metric ton level, some will be wondering: can we expect resistance and a floor, or could prices continue down?

Read more

GM workers earlier this month went on a nationwide strike, the first since 2007 at the Big 3 automaker. Photo by Jeffrey Sauger for General Motors

This morning in metals news, the nationwide General Motors strike has entered its third week, Norsk Hydro is opening a new aluminum research lab and Thyssenkrupp announced a new CEO will take over Oct. 1.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

GM Strike Continues

Earlier this month, the United Automobile Workers (UAW) union announced a nationwide strike at General Motors, the first for the automaker since 2007.

Now, the strike is entering its third week, as negotiations between the union and GM continue.

“We are standing strong and standing together on #SolidaritySunday!” UAW said in a statement released Sunday.

“UAW members across the country will continue to stand strong together until GM ensures fairness and economic justice for workers.”

Norsk Hydro Opens Aluminum Research Lab

Norwegian firm Norsk Hydro is opening a new aluminum research lab in Sweden, at which it will “test new types of aluminium alloys and their extrudability for eventual use in applications that are innovative and which can help customers reduce their carbon footprint.”

“The Extrusion Test Center is located adjacent to Hydro’s product application lab in Finspång, and includes a new aluminium extrusion press and metal casting facilities,” Hydro said. “The investment extends and complements the company’s global research and product application capabilities toward the growing market for sustainable aluminium solutions.”

New CEO Taking Over at Thyssenkrupp

Earlier this month, MetalMiner’s Stuart Burns delved into the challenges faced by German steelmaker Thyssnkrupp, including its efforts to spin off its profitable elevator business and its departure from the German blue chip DAX index.

The shakeup doesn’t stop there, however, for the German firm.

The company announced the termination of CEO Guido Kerkhoff’s mandate; Kerkhoff will be replaced by Martina Merz as of Oct. 1.

Kerkhoff’s tenure as CEO ends after just over a year, having been appointed to the role in July 2018.

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“I would like to thank the employees of thyssenkrupp for their support, which I received especially last year,” Kerkhoff said in a prepared statement. “My goal has always been making thyssenkrupp successful again. It was therefore a matter of course for me last year to take responsibility for the company at a particularly difficult time. I am convinced that the strategic realignment we announced in May will be a success. The company is close to my heart, so I wish Martina Merz, the new Executive Board and all employees all the best for the future and a successful future for the company.”

It is hardly surprising that En+, owners of Russian aluminum producer Rusal, are pressuring the LME to force other aluminum producers to disclose their carbon footprint.

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Rusal finds itself in the fortunate position of all its smelting capacity being powered by renewable hydroelectric power. When by fair means or foul En+ came to acquire much of Russia’s primary aluminum assets in the years after the collapse of the Soviet Union, the fact the majority of its power came from hydro was of little consequence beyond the benefit it was a reliable power source and one not subject to fluctuating global energy prices in the way that coal, natural gas or oil can be.

But in those days, global warming and corporate environmental responsibility was in its infancy. Now, the producer’s carbon footprint is a very significant contributor to its brand strength — either a huge asset, if it is near zero, or a huge negative if the firm has a significant negative carbon footprint.

Rusal has made efforts in recent years to close its few aging coal-powered generating facilities and invested in its hydro plants, both for energy security and because it had the vision to see that a total reliance on near zero-emission hydropower was a potential major brand strength.

Firms are demanding their supply chain measure and report their carbon footprint and are becoming increasingly sensitive to the contribution this makes to the carbon footprint of their own products and services.

With the vast energy demands inherent in aluminum production, aluminum consumers are often more aware than other industries about these metrics. Some producers, like Rusal and Norsk Hydro, can supply material with a very low-carbon signature because of their primary smelters’ power sources, while Novelis’s scrap-based supply chain has a significantly lower carbon footprint than semi-finished manufacturers sourcing raw material from most conventional primary supply chains.

Others based on coal and using older technologies can produce up to 20 tons of carbon dioxide for every ton of aluminum, according to the Financial Times.

Nor is the aluminum industry alone.

Just last month, Forbes listed 101 corporations pledging to improve their environmental credentials, notably their carbon footprint (but also sustainability in various forms).

These firms and their shareholders are not, on the whole, spending hard-earned dollars to achieve such goals out of altruism; they are an example of the old idiom nothing gets done unless someone can make money out of it.

These firms see burnishing their image by such means as likely to boost sales. Whether they are part of the minority that denies we even have a climate change problem is not, from a business perspective, relevant. The vast majority of their customers do increasingly believe we have a problem and are willing to make purchases decisions on the basis of their supplier’s image as a sustainable and environmentally responsible company.

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So, En+ lobbying the LME is a move to maximize what they rightly see as an opportunity to position themselves as the lowest carbon content major supplier in the marketplace. To the extent that they are successful, it will translate directly to the bottom line in enhanced sales and security as a preferred supplier.

They are not alone in their exploitation of such opportunities, but you have to admire the way they are showing much of the rest of the industry the way.

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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.