One of the world’s leading producers of low-carbon aluminum, UCRusal, announced a new collaboration with Japanese automotive component manufacturer Kosei, signifying yet another step in its over 30-year journey.
Last week, the Russian aluminum giant Rusal said Kosei had selected it to be its global supplier of high-quality aluminum alloys.
Kosei, set up in 1950, designs and manufactures vehicle wheels and autoparts. The firm operates from seven countries.
In the last 30 years, Rusal has proved to be a key partner of Kosei. Rusal has supplied the Japanese company with primary foundry aluminum alloys. Kosei uses in the material in factories in India, Japan, Thailand, and the US.
This morning in metals news: US industrial production picked up in January; global aluminum output also rose in January; and, lastly, General Motors reported a milestone in the construction of a new battery cell manufacturing plant in northeast Ohio.
US industrial production rises
US industrial production rose by 0.9% in January, the Federal Reserve reported.
Furthermore, manufacturing output rose by 1.0%. Meanwhile, mining output picked up by 2.3%.
Industrial sector capacity utilization reached 75.6%, up by 0.7 percentage point. The rate, however, is down 4.0% from the long-run average from 1972-2020.
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.
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.
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.
This morning in metals news: Novelis announced the commercial availability of a new class of high-strength automotive aluminum; meanwhile, the United States Geological Survey updated its Mineral Deposit Database for niobium; and the global aluminum market surplus more than tripled from 2019 to 2020.
Novelis announces new high-strength automotive aluminum
Atlanta-based Novelis today announced it will offer a new “ultra-high-strength” automotive aluminum solution.
The product, Novelis AdvanzTM 7UHS-s701, offers “lightweighting potential of up to 40% over existing ultra-high strength, hot-formed steel solutions.”
“The s701 technology represents the future of high-strength material in automotive applications and offers a clear alternative to the most advanced high-strength steel products,” said Philippe Meyer, senior vice president and chief technology officer at Novelis. “Aluminum is already the material of choice for lightweighting, and now we are offering a solution that helps automakers design even safer, lighter and better performing vehicles.”
“Niobium is vital to many sectors of our infrastructure and manufacturing economy, and the United States is 100 percent reliant on other countries for it,” said Jeff Mauk, USGS lead scientist for USMIN. “Updates to our database can help weigh the potential for domestic niobium production against the need for future trade agreements.”
This morning in metals news: the Coalition of American Metal Manufacturers and Users called on the Biden administration to rescind the Section 232 steel and aluminum tariffs; meanwhile, the Energy Information Administration forecasts US energy-related CO2 emissions to rise after the mid-2030s; and, lastly, US President Joe Biden spoke this week with Chinese President Xi Jinping.
CAMMU urges Biden to ends Section 232 tariffs
The Coalition of American Metal Manufacturers and Users (CAMMU) sent President Joe Biden a letter Wednesday urging him remove the Section 232 tariffs on steel and aluminum.
In 2018, former President Donald Trump imposed the tariffs of 25% for steel and 10% for aluminum.
“By taking action to terminate the Trump tariffs, your Administration can prevent U.S. manufacturers from shutting down production lines, laying off workers, and potentially even closing their doors,” CAMMU said in the letter. “By contrast, the ripple effects of allowing these Section 232 tariffs to remain are substantial. Our member companies report not only record steel prices, but also delivery times stretching 12-16 weeks, causing significant disruptions.”
As we noted previously, however, Biden reversed Trump’s decision to rescind the tariff on aluminum from the UAE (a move he made on his final day in office).
The Aluminum Monthly Metals Index (MMI) increased by 2.1% this month, as LME aluminum prices traded sideways and the US reinstated the Section 232 aluminum tariff on imports from the United Arab Emirates.
U.S. aluminum reinstates aluminum tariff on UAE
On Feb. 1, President Joe Biden reinstated the 10% aluminum tariff on imports from the United Arab Emirates.
Former President Donald Trump had lifted the aluminum tariff on his last day in office. The reinstated aluminum tariff went into effect Feb. 3.
The reinstatement suggests that it is unlikely the Biden administration will remove the aluminum tariffs imposed by the previous administration. However, as of today, no further decisions were announced on aluminum tariffs.
In addition, Biden’s “Buy American” plans could impact the U.S. domestic aluminum market. The plan will likely promote the manufacturing of essential components in construction, appliances and electronics in the US.
These measures are welcomed at the primary production level. However, not all end-product manufacturers are on board, as they claim these government interventions will artificially inflate the Midwest Premium.
The new administration also announced the delay of the effective date of the Aluminum Import Monitoring and Analysis (AIM) system that the U.S. Department of Commerce created. The Department of Commerce originally said the system would be available Jan. 25. However, it is delaying the launch until March 29. Licenses will not be required for covered aluminum imports until the new effective date.
A Midwest-based trader told Construction & Demolition Recycling that demand for aluminum scrap remains high at secondary smelters that supply the automotive industry in the US
Chad Kripke, an executive vice president of Kripke Enterprise, a nonferrous scrap brokerage firm, confirmed that many sellers are relying on the spot market rather than signing contracts for 2021. This signals that it is a seller’s market.
This market environment is due to the reduced flows of scrap, which has caused spreads to tighten. As a result, secondary producers are opting to purchase scrap at what they might view as high prices rather than risking a lack of material.
Besides the U.S. Midwest Premium Futures, the platform now includes prices for some of the most common forms of aluminum sheet and coil. It includes prices for: 1100 H14, 3003 H14, 5052 H32, 5083 H321, 6061 T6 and 6061 T651.
Price data goes back to Jan. 1, 2020.
Actual metals prices and trends
The Chinese aluminum scrap price increased 0.4% month over month to $2,067/mt as of Feb. 1. Meanwhile, LME primary three-month aluminum increased 0.4% to $1,988/mt.
Korean commercial 1050 aluminum sheet remained flat at $3.30/kg. However, its European equivalent increased 8.3% to $2,948/mt.
Chinese aluminum billet and aluminum bar rose 0.4% to $2,389/mt and $2,489/mt, respectively.
Chinese primary cash aluminum dropped 2.4% to $2,365/mt. Meanwhile, its Indian counterpart declined 2.2% to $2.24/kg.
This morning in metals news: US mines produced approximately $82.3 billion in minerals in 2020; meanwhile, the United States International Trade Commission launched a Section 337 investigation related to batteries; and, lastly, aluminum prices have been dropping.
US mines produced $82.3 billion in minerals in 2020
The totaled marked a decline of $1.5 billion from 2019.
“Decision-makers and leaders in both the private and public sectors rely on the crucial, unbiased statistics and data provided in the Mineral Commodity Summaries to make business decisions and determine national policy,” said Steven M. Fortier, director of the National Minerals Information Center. “Industries—such as steel, aerospace and electronics—that use nonfuel mineral materials created an estimated $3.03 trillion in value-added products in 2020, which represents a 3% decrease from that in 2019.”
The US, however, continues to be heavily import-dependent for many raw and processed minerals. According to the USGS, imports made up more than half of US consumption of 46 nonfuel mineral commodities. Furthermore, the US was totally import-dependent for 17 of those.
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USITC launches Section 337 battery investigation
The USITC announced it had launched a Section 337 probe involving potential patent infringements related to batteries, citing 13 Chinese firms as respondents in the case.
It is too early to talk of the direction US-India relations will take under US President Joe Biden’s administration.
But Indian trade circles are keeping a close eye on trade-related developments with a hopeful eye.
Hopes for better US-India relations
Much of the hope for better US-India relations focuses on the desire that the US will focus more on its bilateral ties with India because of the former’s strained relation with China, and why the US would benefit from such a move.
China will be on the new US administration’s mind as it assesses the Indo-US trade relationship. For now, though, the Biden administration has made it clear it would not considering any new free trade deals. Furthermore, it’s unclear whether the Biden administration will maintain or rescind existing Section 232 steel and aluminum tariffs.
The two countries have a lot going on together. The two have a robust bilateral trade. Through the first 11 months of 2020, the U.S. imported goods from India worth $46.3 billion and exported about $24.6 billion in goods. In addition, the countries have cooperation in defense and an ever-increasing reliance on each other in the field of energy.
The appointment of four Indian-Americans to senior posts in the Department of Energy (DOE) is being seen as a positive. Energy expert Tarak Shah was appointed as the department’s chief of staff, making him the first Indian-American to serve in the position. The DOE said the new leaders will direct policy and enact Biden’s vision for “bold action on the climate crisis.”
This morning in metals news: the Aluminum Association outlined the issues it hopes the Biden administration will take on; in addition, Alcoa recently reported its Q4 2020 and full-year results; and, finally, the oil price retraced slightly this week.
Aluminum Association: aluminum can be part of ‘American comeback’ story
“We congratulate President Biden and look forward to working with him and his team in the coming months and years,” said Tom Dobbins, president and CEO of the Aluminum Association, in a release. “During this challenging time for our nation, it is critically important that we all work together toward renewal and recovery. A strong and growing domestic aluminum industry can play a role in the American comeback story.”
The brief refers to energy, environment, infrastructure, recycling and trade as key areas for aluminum.
“The single biggest threat to U.S. aluminum remains unfairly subsidized overcapacity in China,” the brief states. “Strong, targeted trade enforcement is vital to the U.S. aluminum industry’s ability to compete on a market-based, level playing field. The Aluminum Association supports renewed cooperation with traditional trading partners and allies to address this perennial issue.”
Furthermore, the Aluminum Association cited the need to improve recycling levels from consumer applications.
