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This morning in metals news, the world’s top aluminum producer was flooded after Typhoon Lekima, Chinese cities did not meet targets to cut pollution and iron ore prices continue to slide.

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China Hongqiao Takes Damages After Typhoon

The world’s largest aluminum producer, China Hongqiao, was flooded over the weekend after Typhoon Lekima struck Shandong province, Reuters reported.

According to an affiliate, a wall at the firm’s aluminum plants was “immediately overwhelmed” by water flooding from the Xiaofu river Sunday night.

Chinese Cities Fail to Meet Pollution Curb Targets

China has continued its battle against pollution, but some cities have failed to meet their targets.

According to another Reuters report, China’s steelmaking province of Hebei is summoning the leaders of three cities — Handan, Hengshui and Xingtai — after they did not meet pollution curb targets during the first six months of 2019.

Iron Ore Continues to Fall

After reaching a five-year high earlier this summer, the iron ore price has quickly retraced in recent weeks.

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According to Bloomberg, the iron ore price fell toward the $80 per ton mark, led by concerns regarding slowing economic growth in China.

The Aluminum Monthly Metals Index (MMI) dropped two points this month to 84. Most of the prices tracked for the index dropped this month, with European prices dropping the most (by close to 7.5%). 

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LME aluminum prices fared best of all of the aluminum prices this month, posting a mild increase of less than 1%. Aluminum prices continued to move sideways in July, generally trading above $1,800/mt.

However, the price ended July weaker, then dropped — along with most industrial metals —  following the U.S. announcement of $300 million in new tariffs on China (effective Sept. 1).

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

SHFE aluminum prices moved sideways recently, but with some upward momentum evident and higher lows throughout the year.

Source: MetalMiner analysis of Fastmarkets

China produced 2.97 million tons of aluminum in June, down slightly from May’s production of 2.98 million tons. However, the June total was still up year on year by 1.3% up over May on a daily average basis, according to Reuters calculations. In May, production averaged 96,000 tons per day, and rose to 99,000 tons per day in June.

China’s higher daily production levels followed a jump in prices during May to around CNY 14,350/mt, which helped turned margins positive again for some smelters and fueled a production ramp-up.

China’s Zhongwang Holdings and its controlling shareholder, Liu Zhongtian, were recently charged with evading $1.8 billion in tariffs on aluminum imports. The company allegedly disguised the aluminum as pallets in order to evade the duties on U.S. imports from China.

Novelis Announces New High-Strength Automotive Aluminum Product

Novelis recently announced a new high-strength aluminum product for next-generation automotive body sheet design called AdvanzTM 6HS-s650.

According to the company, the advanced aluminum offers improved strength, lightweighting capabilities, formability, performance and structural integrity. The company estimates a 15-25% improvement over existing high-strength aluminum alloys. Compared with steel in similar applications, the end-weight outcome can be improved by 45%.

Novelis’ acquisition of Aleris faced new hurdles this month. European Union competition authorities required Novelis to offer concessions by Aug. 9. to gain approval for the $2.6 billion takeover.

U.S. Aluminum Premiums

The U.S. Midwest Premium dropped once again, but only slightly, to $0.17/lb. Softer demand in the U.S. still fails to offset supply tightness in the market, keeping premiums higher.

Source: MetalMiner Ind(X)SM

What This Means for Industrial Buyers

Demand weakness in most markets impacted the index this month. While macroeconomic uncertainty due to the latest trade situation recently impacted some prices, in the case of the weakening index, this came from a genuine downturn in demand.

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Actual Metal Prices and Trends

This month European prices decreased after increasing by around 2% last month. European commercial 1050 sheet and 5083 plate both dropped by 7.4% to $2,364/mt and $2,788/mt, respectively.

Korean prices also reversed and decreased this month after increasing in the 2% range in June. Korean commercial 1050 sheet, 5052 coil premium over 1050, and 3003 coil premium over 1050 all decreased in the range of 3-4% to $2.98, $3.15 and $3.02 per kilogram, respectively.

India’s primary cash price dropped by 2.9% to $2.03 per kilogram.

Chinese price movements were mixed and mild, holding essentially flat.

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The LME aluminum price gained the most, rising 0.8% to $1,807/mt.

This morning in metals news, the EPA reversed an Obama-era decision regarding an Alaskan mining project, the Federal Reserve issued its first rate cut since the financial crisis and a Chinese billionaire is alleged to have instituted a scheme to avoid $1.8 billion in tariffs on aluminum exported to the U.S.

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EPA Decision Undoes Obama-Era Ruling

The EPA issued a ruling that reversed an Obama-era ruling that had blocked an Alaskan mining project, CNN reported.

According to the report, the Pebble Mine project had previously been blocked because the EPA during the Obama administration determined the project would have adverse effects on the area’s fish habitat.

Fed Issues First Rate Cut Since 2008

As many had expected, the U.S. Federal Reserve on Wednesday announced its first interest rate cut since 2008.

The Fed and Chairman Jerome Powell have come in from criticism by President Donald Trump for previous rate increases, arguing they were hampering the economy’s momentum.

The rate decrease announced Wednesday come in at a quarter of a point, down to 2-2.25%.

“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the Fed said. “Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

Chinese Billionaire Accused of Scheme to Avoid $1.8B in Aluminum Tariffs

In a 53-page indictment released by a federal grand jury this week, a Chinese billionaire is accused of misrepresenting aluminum exports to the U.S. as pallets in an effort to avoid $1.8 billion in aluminum tariffs.

“The 53-page indictment alleges that China Zhongwang Holdings Limited, Asia’s largest aluminum extrusion company; Zhongtian Liu, the company’s former president and chairman; and several individual and corporate co-defendants lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China,” the U.S. Attorney’s Office of the Central District of California said in a release.

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According to the documents, the aluminum exports were simple extrusions, rather than pallets. The products, misrepresented as pallets in order to circumvent tariffs, were then sold “to related entities to fraudulently inflate the company’s revenues and deceive investors around the world,” the indictment alleges.

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This morning in metals news, copper dipped on Tuesday, Asian countries are dealing with a glut of steel from China and Heineken is feeling the impact of higher aluminum costs.

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Copper Slides

The LME copper price dipped Tuesday amid U.S.-China trade talks and a U.S. Federal Reserve meeting this week, Reuters reported.

LME copper dipped 0.2% to $6,008.50 per ton, according to the report.

Chinese Steel in Asia

Asian countries are feeling the weight of China’s steel oversupply on the heels of last year’s Section 232 tariffs.

China’s steel output jumped 9.9% year over year during the first half of this year, the Nikkei Asian Review reported. The tariffs, paired with China’s ever-rising output, have shunted China’s steel supplies elsewhere, including to other countries in Asia.

For example, Japan’s imports of Chinese carbon steel rose 73% year over year through the first five months of the year, according to the report.

Beer Blues

Despite higher sales, Heineken failed to reach estimates for first-half profits, Reuters reported, partially on account of aluminum packaging costs.

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Through the first half of the year, Heineken’s input costs surged 8.5%, an increase reflected primarily by higher aluminum packaging costs, according to Reuters.

The Audi e-tron. Source: Audi

Oslo-based Norsk Hydro has entered into an agreement with Audi to supply aluminum for the battery housing of the automaker’s first fully electric model.

The aluminum, Hydro says, is “processed and manufactured along the entire value chain in an environmentally conscious manner and under socially acceptable working conditions,” conditions which have been confirmed by the Aluminum Stewardship Initiative (ASI).

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According to Hydro, Audi received ASI certification for assembly of aluminum components late last year.

“This means that the aluminium sheets processed in the battery housing of the Audi e-tron are now demonstrably produced in a responsible manner along the entire value chain, from the extraction of the bauxite raw material to the end product,” Hydro said in a release.

“We are very proud to supply ASI-certified metal, especially for the Audi e‑tron, one of Audi’s flagships. We are constantly working on reducing our impact and that of our customers on the environment,” said Einar Glomnes, Hydro’s executive vice president. “This is an important milestone in our strategy of helping our customers to document the fact that they offer aluminium products that are procured and produced responsibly along the entire value chain.”

Audi is aiming to reduce its carbon dioxide emissions by 15% by 2025 (compared with 2015 emissions levels).

Even longer-term, Dr. Bernd Martens, a member of Audi’s Board of Management for Procurement and IT, said Audi wants to offer customers carbon-dioxide-neutral options by 2050.

To do that, we need a sustainable supply chain,” Martens said. “We therefore seek dialogue with our partners and, together with them, want to significantly reduce CO2 emissions along the entire value chain.”

In other news, Hydro reported its second-quarter earnings earlier this month.

Hydro reported underlying EBIT of NOK 419 million (U.S. $48.3 million), up from NOK 364 million (U.S. $42.0 million) in Q2 2018.

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“Alunorte reached 80-85 percent capacity utilization in June, within the targeted 75-85 percent capacity utilization for the state-of-art press filter technology,” President and CEO Hilde Merete Aasheim said in a prepared statement. “Paragominas and Albras are also ramping up successfully. This is a great achievement by the Brazilian organization.”

Hydro’s Alunorte refinery had been operating at 50% capacity since early 2018, when Brazilian authorities imposed production constraints after a spill at the plant. In May, Brazilian authorities gave Hydro the green light to resume full production at the Alunorte refinery.

That the aluminum market is in a deficit is a widely accepted fact — but it still remains hard to see in practice.

Usually when markets are in deficit, prices rise. Primary aluminum as quoted by the LME, however, has been at best sideways for the last year or more. Prices have gradually softened within the $1,700-$1,900 per ton range, although a recent run-up has seen prices north of $1,800 per ton this month.

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The problem is the shortfall between production and consumption has been made up from two notable sources.

The first is a gradual leakage of metal stored in off-market stock and finance deals by the financial community. The second is a rising tide of semi-finished metal from China that has depressed prices and caused uncomfortable competition for producers in the rest of the world (outside the U.S., at least).

Chinese semi-finished exports are seen as the release valve for excess domestic Chinese production in a market that produces half the world’s aluminum. The approximately 5 million tons per annum of Chinese exports is significant for the rest of the world, but still a fraction of China’s total output.

By comparison, western Europe consumed just over 5 million tons of flat-rolled and 3 million tons of extrusions in 2016-2017, according to European Aluminium, a trade body, underlining what a significant impact China’s exports can have when they flood mature markets like Europe.

This ready supply of semi-finished metal but more restricted supply of primary metal is one reason why delivery premiums, like the U.S. Midwest Premium, have remained elevated at over $400/ton.

The U.S. has to import much of its primary aluminum in the process, incurring Section 232 duty costs, delivery costs and opening the rather closed market to a speculative environment that has seen futures trades outnumber physical trades. The net result is an elevated Midwest Premium cost to consumers compared to western Europe or Japan (the other two main ROW markets).

But there is a change happening to the global aluminum market.

Read more

The short-term fundamentals for aluminum do not look promising, if Alcoa’s latest report is to be believed.

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The major primary producer is struggling to create positive net cash flow, a measure of the firm’s ability to pay down its substantial debt, reporting a negative free cash flow of U.S. $7 million on its $2.7 billion second-quarter revenue. The firm posted a net loss of $402 million, or $2.17 per share, although it should be added this included a $319 million one-off cost to divest its interest in the Ma’aden Rolling Company (MRC) in Saudi Arabia (plus $81 million in other special items).

Beyond Alcoa’s ongoing woes, its comments regarding the current state of the market and its view of the second half of this year make interesting reading.

New York investment bank Jefferies is quoted as saying a primary aluminum capacity overhang globally and limited supply constraints are concerns going forward, especially in an environment where demand is likely to be relatively weak.

The aluminum price has drifted lower this year, depressed more by investor fears of a slowing global economy and, in particular, by the impact of the ongoing trade war on the world’s top producer and consumer, China.

In the case of alumina, a small market surplus has the bank concerned prices will continue to drift lower yet, even at current levels of around $350/ton spot. Primary producers’ margins are under pressure, with the LME price in the $1,750-$1,850/ton range. The bank says prices of around $2,100/ton are needed to provide an adequate return; if alumina prices and primary aluminum prices do not find a more equitable equilibrium, more smelter closures may ensue.

Alcoa is currently trying to close or sell two smelters in Spain, following closures across Europe over the last decade in France, Germany, Italy, the Netherlands and Britain.

Yet in the medium term, prospects for aluminum look promising.

Global demand is growing, albeit not at the level it was earlier in the decade. The market remains undersupplied, as demand is exceeding production to the tune of some 1.5 million-1.7 million tons per year.

The shortfall is being met by shadow stocks held by the stock and finance trade, which built up following the financial crisis of 2008 and are gradually returning to the market. In Jefferies’ estimation, global inventories are reaching lows not seen since 2007. So far, this has not impacted either metal prices or investor appetite for the metal.

Looking ahead, S&P is quoted as predicting prices will average $2,000/ton and $2,100/ton for 2020 and 2021, saying the longer-term fundamentals are robust, underpinned by expectations of a continued supply deficit, low inventory and solid aluminum demand growth globally.

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Whether S&P’s longer-term optimism trumps Alcoa’s short-term gloom remains to be seen. Much will depend on global growth and mature markets avoiding a recession in 2020.

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Global aluminum production reached 5.25 million metric tons in June, the International Aluminum Institute reported Monday.

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The June total marked a decline from the 5.43 million metric tons produced in May and the 5.33 million metric tons produced in June 2018.

China led the way with 2.96 million metric tons produced in June, down from the 3.05 million metric tons produced in June 2018.

Asian production ex-China reached 360,000 metric tons, down from 368,000 tons in June 2018.

Production in the Gulf Cooperation Council (GCC) countries reached 449,000 metric tons, up from 437,000 metric tons in June 2018.

Production in east and central Europe reached 344,000 metric tons, up from 333,000 metric tons in June 2018.

In western Europe, production reached 284,000 metric tons, down from 310,000 metric tons in June 2018.

North American aluminum production hit 314,000 metric tons, up from 303,000 metric tons in June 2018.

African production hit 135,000 metric tons, down from 140,000 metric tons in June 2018.

South American production reached 95,000 metric tons, up from 88,000 metric tons in June 2018.

In other aluminum news, aluminum producer Alcoa announced the planned restart of its Aluminerie de Bécancour Inc. smelter in Quebec, Canada, after it reached a six-year labor agreement with the United Steelworkers Union.

The smelter, majority-owned by Alcoa, has an annual capacity of 413,000 tons. The restart is scheduled to begin Friday, July 26, and is expected to be complete during the second quarter of 2020, the company said.

The company forecast a global aluminum deficit ranging between 1.0 million tons and 1.4 million tons for 2019, down from last quarter’s forecast of a range of 1.5 million tons and 1.9 million tons.

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In addition, the company forecast global aluminum demand growth ranging between 1.25-2.25%, down from a previous forecast of 2-3%. The decline in the growth forecast was “driven by lower demand in both China and the world ex-China due to trade tensions and macroeconomic headwinds,” the company said.


This morning in metals news, Steel Dynamics announced the site of a planned new flat-rolled steel mill, Norsk Hydro says aluminum demand is falling in Germany and Canadian aluminum producers are enjoying boosted profits on the heels of the removal of the U.S.’s Section 232 tariffs.

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Steel Dynamics Announces Texas Site for New Mill

Sinton, Texas, will be the home of Steel Dynamics’ new flat-rolled steel mill, the company announced Monday.

“Our planned new EAF flat roll steel mill will be the most technologically advanced facility existing today,” President and CEO Mark D. Millett said. “Our team has selected a suite of technologies based on our proven history of success, that should allow us to achieve steel grades previously out of reach to thin-slab casting technology, while sustaining the low-energy and low-Carbon footprint that is at the core of our steelmaking operations. Based on casting capability of up to 84 inches wide and up to a 5.5-inch cast thickness, it will be the world’s largest thin-slab facility.”

Hydro: Aluminum Demand Slowing in Germany

Aluminum producer Norsk Hydro said aluminum demand in Germany is declining amid slowdowns in the country’s automotive and construction sectors.

Norsk Hydro CFO Eivind Kallevik told CNBC Tuesday that the performance of the automotive and construction sectors in Germany has led to lower aluminum demand.

Canadian Aluminum Operations Enjoy Post-232 World

In other aluminum news, Canadian aluminum operations are enjoying higher profits since the U.S. removed its Section 232 tariffs vis-a-vis imports from the country (and Mexico).

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According to Reuters, among those producers with Canadian operations reaping the benefits are Rio Tinto and Alcoa. Alcoa CFO William Oplinger last week said the company expects an annual benefit of approximately $200 million as a result of the removal of the tariffs.

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This morning in metals news, Bosnia’s only aluminum smelter is closing, President Donald Trump comments on U.S.-China trade talks and the United States Trade Representative (USTR) is pursuing competition-related concerns with respect to the U.S.-Korea Free Trade Agreement (KORUS).

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Bosnian Aluminum Smelter to File for Bankruptcy

The only aluminum smelter in Bosnia is closing, Reuters reported.

According to the report, the closure could impact a total of 10,000 jobs.

Trump Criticizes China on Agriculture

With U.S.-China trade talks underway again this week, Trump commented on Twitter this morning on the proceedings to say China is “letting us down” with respect to promises to purchase U.S. agricultural goods.

Trump and Chinese President Xi Jinping recently met during the G20 Summit in Japan, on the heels of the two countries’ trading of tariffs during a rocky May.

USTR to Voices Competition Concerns in KORUS

The USTR announced this week it is looking into “competition-related concerns” related to KORUS, the U.S.’s free trade agreement with South Korea.

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“The United States is calling for actions by Korea to improve procedures in competition hearings held by the Korea Fair Trade Commission (KFTC),” the USTR said in a release. “These shortcomings have denied U.S. parties certain rights, including the opportunity to review and rebut the evidence against them.”