The Aluminum Monthly Metals Index (MMI) increased by 2.4% for this month’s MMI value.
Want more from MetalMiner? We offer exclusive analyst commentary in our weekly, monthly, or quarterly updates – all metals, no sales fluff. Sign up today.
SHFE, LME arbitrage
LME and SHFE aluminum prices traded sideways this past month.
The LME price reached $1,818/mt on Sept. 1, a level it had not reached since January 2020.
Meanwhile, the SHFE price reached CNY 14,960/mt on Aug. 24. However, the SHFE aluminum prices continued to move higher than the LME price.
Throughout the month, SHFE prices were approximately $360/mt to $415/mt higher than the LME price. Some of the arbitrage has occurred due to the weakening of the U.S. dollar, which makes the Chinese price appear higher.
Chinese imports remain high
The price arbitrage between the LME and the SHFE continues.
China became a net importer for the first time in July. The country imported 440,000 tons in July, according to the General Administration of Customs.
July imports rose by 35.5% from the previous month and by 570% from July 2019.
The arbitrage and increase of aluminum imports in China led to the decline of LME warehouse stocks to 1.55 million tons by the end of the month.
On the other hand, Chinese exports are down 11% from August 2019 (despite a slight increase in August). However, exports reached a four-month high at 395,424 tons. The downtrend is mostly due to weak demand overseas, as most countries are still in the early recovery phases of the coronavirus pandemic, while China seems to be ahead.
This morning in metals news: India is looking to curb its imports of copper and aluminum; Rio Tinto and Turquoise Hill reached a financing agreement for the Oyu Tolgoi underground mine project; and Germany’s steel industry needs state aid.
Per the report, India is particularly targeting imports from China and other Asian countries. Among the proposed measures is a requirement for importers to register with the government.
Rio Tinto, Turquoise Hill reach financing deal
Miner Rio Tinto and Turquoise Hill have reached a financing deal toward the completion of the Oyu Tolgoi underground mine in Mongolia.
“The MOU agreed today with TRQ provides a clear funding pathway for the completion of the Oyu Tolgoi Underground Project,” said Arnaud Soirat, Rio Tinto’s chief executive of copper and diamonds. “We will continue working with TRQ and the Government of Mongolia to progress the underground project, which has the potential to unlock the most valuable part of the mine for the benefit of all stakeholders.”
Rio Tinto has a 50.8% stake in Turquoise Hill.
With the current development schedule, Turquoise Hill expects the massive copper-gold mine will be the world’s third-largest copper producer at peak metal production in 2025.
IG Metall head says German steelmakers need state aid
2020 has been a difficult year for Europe’s steelmakers.
Already battling imports, European steelmakers have struggled on the heels of the coronavirus pandemic and its resulting impact on demand.
In Germany, IG Metall head Joerg Hofmann said the country’s steelmakers need state aid, Reuters reported. In addition, German steelmakers need to form alliances in order the facilitate the transition to greener fuels for blast furnaces, Hofmann argued.
Several metals prices have been on the rise this year, powered in part by China’s demand recovery (among other factors, including a weakening dollar). Copper, in particular, has been a fast riser this year.
Aluminum, however, has not been as strong.
Over the last month, the LME three-month aluminum price has gained 4.62%, according to MetalMiner data.
However, since the start of the year, the price is actually down 2.8%.
Rising production levels won’t necessarily help support the aluminum price.
The July total marked a 2.8% increase from the 5.30 million metric tons produced in June. Production totaled 5.41 million metric tons in July 2019.
Estimated Chinese production reached 3.13 million metric tons, up 3.3% from the 3.03 million metric tons produced in June. Production in July 2019 totaled 3.06 million metric tons.
Meanwhile, production in the Gulf Cooperation Council (GCC) countries reached 488,000 metric tons in July. The July total marked a 3.0% increase from the previous month.
Production in east and central Europe totaled 349,000 metric tons, up 2.6% from the previous month.
North American production reached 333,000 metric tons in July, up slightly from the 330,000 tons the previous month.
Asian production ex-China reached 343,000 metric tons in July, up from 337,000 tons the previous month.
Aluminum tariff goes into effect
Earlier this month, President Donald Trump announced the reimposition of the 10% Section 232 aluminum tariff on some Canadian aluminum.
Citing a rise in imports from Canada, the Section 232 tariff targeted Canadian non-alloyed, unwrought aluminum.
The reimposed tariff went into effect Aug. 16, despite criticism from domestic industry groups, including the Aluminum Association.
Trump initially levied the Section 232 tariffs on steel and aluminum in March 2018. After an initial exemption, the tariffs were eventually applied to imports of the metals from Canada.
However, in May 2019, the tariffs on Canadian steel and aluminum were rescinded as part of ongoing talks over the successor to NAFTA (the United States-Mexico-Canada Agreement, which went into effect July 1, 2020).
Following on from an investigation started in February, the European Commission has launched an anti-dumping investigation into imports of aluminum flat-rolled products from China.
The trade group European Aluminium made the formal complaint to the European Commission.
According to Aluminium Today, the products under review include: sheets; coils; coiled strips; aluminum circles of a thickness of 0.03 mm to 6 mm; and aluminum plates over 6 mm.
Interestingly, not included in the investigation will be: aluminum cans; body panels for automobiles; and aircraft parts of a thickness greater than 0.8 mm (for which Chinese penetration of the European market is substantially lower).
“It’s obvious that Chinese firms aren’t respecting the global rules of free and fair trade, and the numbers show they are dumping more and more products on our market,” Aluminium Today quoted European Aluminium Director General Gerd Gotz as saying. “The volumes of excess capacity they have built up are so massive, they could replace the entire European aluminium production.”
Rising flat-rolled imports from China
Flat-rolled aluminum imports from China into the E.U. included in the scope of the investigation increased from 171,000 metric tons in 2016 to 330,000 tons last year. In 2019, the market share of these imports from China reached more than 12%. Market share had doubled compared to four years ago, according to Aluminium Today.
In a recent report, the OECD stated global aluminum companies have received up to USD 70 billion in different forms of support over the 2013-2017 period.
Notably, 85% of the documented subsidies went to just five Chinese firms.
The green argument
Individuals and businesses around the world are devoting more and more to the carbon footprint of the aluminum industry. In that vein, some point to the environmental impact of aluminum production in Europe versus China (and the world at large).
Meanwhile, the global average is 17kgCO2e per kg of aluminum. The Chinese average is 20kgCO2e per kg of aluminum.
The investigation will take up to 15 months. As such, the E.U. is unlikely impose measures before March 2021 at the earliest.
In the meantime, importers will no doubt start diversifying supply sources to protect their supply chains. The trade will not want to be left with metal in the system when the E.U. makes a decision.
The impact is likely to be felt during the second half of this year as buyers diversify away from Chinese sources.
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
Furthermore, the tariff comes in a time when beverage makers are struggling with an aluminum can shortage.
For the buyers out there, if you are under pressure to generate cost savings in aluminum, steel or anything else, make sure you are following these five best practices.
But the tariff storyline is but one thread in the world of metals.
Before we head into the weekend, let’s take a look back at the week that was:
The Aluminum Monthly Metals Index (MMI) increased by 5% for this month’s MMI value.
SHFE prices stronger than LME prices
LME and SHFE aluminum prices continued to trade up.
The LME price reached $1,783/mt on Aug. 10, a six-month high. Meanwhile, the SHFE price reached CNY 14,820/mt on Aug. 3, a year-to-date high.
However, the SHFE aluminum price has continued to diverge from LME aluminum prices since April, with the SHFE being higher than the LME.
As a consequence, LME warehouse stocks have remained above 1.6 million tons since mid-June. These are the highest levels seen since May 2017.
The elevated stock level is due to a combination of low raw material prices and the high cost of shutting down primary smelters. This is in line with the estimated market surplus for January to May of 908,000 tons, as reported by the World Bureau of Metal Statistics.
Record imports amid strong Chinese aluminum demand
The price arbitrage between the LME and the SHFE, along with the strong Chinese demand, have incentivized traders to purchase aluminum at the discounted price overseas.
As a consequence, China imported 816,592 metric tons of aluminum, up 219.2% year on year for the first half of the 2020. In June alone, China imported 490% more than a year ago, reaching an 11-year high.
Reuters reported that Antaike, the China Nonferrous Metal Industry Association’s research department, revised its 2020 aluminum consumption by 1.7%. Antaike’s new estimate is 36 million tons, compared to the previous estimate of 36.6 million tons.
Since China’s demand for aluminum does not seem to be declining, it is set to be a net importer of primary aluminum this year, closing at 400,000 tons.
Last year, China was a net exporter at 1,000 tons.
Trump reinstates tariff on some Canadian aluminum
On Aug. 6, President Donald Trump reimposed a 10% tariff on some Canadian aluminum products to protect U.S. industry from excessive imports. The tariff applies to raw, unalloyed aluminum produced at smelters. The tariffs do not apply to downstream aluminum products.
However, data released Aug. 5 by the U.S. Census Bureau showed overall primary aluminum imports from the U.S. to Canada declined about 2.6% from May to June. In short, that means imports are below levels seen as recently as 2017.
As a result, the U.S. market might see an increase in the MW premium, which will feed through to higher semi-finished prices. The MW aluminum premium is currently $0.12/lb.
After the tariff announcement, Canada pledged to impose retaliatory tariffs on C$3.6 billion (U.S. $2.7 billion) worth of U.S. aluminum products. During a news conference, Deputy Prime Minister Chrystia Freeland said the countermeasures would be put in place by Sept. 16 to allow for consultations with industry.
Are rising MW premiums causing concern? See how service centers take advantage of that.
Actual metals prices and trends
The Chinese aluminum scrap price rose 7.6% month over month to $1,963.42/mt as of Aug. 1. LME primary three-month aluminum rose 6.2% to $1,722/mt.
Korean commercial 1050 aluminum sheet fell 3.7% to $2.79/kg, while its European equivalent rose 5.2% to $2,449.43/mt.
Chinese aluminum billet rose 6.5% to $2,144/mt. The price of Chinese aluminum bar rose 6.3% to $2,240.02/mt.
Chinese primary cash aluminum rose 4.6% to $2,132.53/mt. Indian primary cash aluminum increased 2.7% to $1.88/kg.
The rate marked an increase from 59.3% the previous week. Even so, the rate marked a steep decline from the previous year, when it reached 79.1%.
Production for the week ending Aug. 8 totaled 1.35 million net tons, up 2.0% from the previous week. However, production for the week fell 26.5% year over year.
Furthermore, production for the year through Aug. 8 fell 20.1% year over year.
In March 2018, the U.S. initially imposed Section 232 steel and aluminum tariffs. Then, in May 2019, the U.S. rescinded the tariffs for imports from Canada and Mexico.
However, late last week, Trump announced the reimposition of the tariff for some aluminum coming from Canada.
Alcoa told the Post-Gazette the move would “cause unnecessary disruption” and “further distort the market.”
This morning in metals news: the Aluminum Association of Canada reported the country’s aluminum exports to the U.S. have declined; Great Lakes region steel production is down this year; and the International Tin Association commented on Yunnan province’s tin stockpiling initiative.
