Aluminum

The Canadian government recently announced policy and regulation changes that it argues “will help improve Canada’s trade remedy system for all sectors.”

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Earlier this month, Canada announced changes to its anti-dumping policy, in addition to the establishment of a new aluminum import monitoring and a pledge to strengthen its existing steel import monitoring system.

“Amendments are being made to the Special Import Measures Regulations to ensure that an appropriate level of anti-dumping duties can be applied to goods that are dumped into Canada,” the Department of Finance said in a release.

“This will provide greater flexibility to the Canada Border Services Agency (CBSA) to address situations where there may be distortions in the price of the goods in the country of export. It clarifies alternative methods to calculate the costs of production of the imported goods, in cases where the price of inputs is distorted because of purchases made between affiliated companies or because of a particular market situation.”

Anti-dumping policy changes will also help the CBSA in its attempts to determine whether a product has been dumped.

“This will make it easier for the CBSA to compare the price of the goods imported into Canada with the price of the goods sold by the same exporter to a different country, to find whether there is dumping,” the Department of Finance said. “Changes will also allow the CBSA to better identify dumping that occurs in targeted patterns and is hidden by high prices.”

In addition, as of Sept. 1, 2019, certain aluminum products will be added to the Import Control List.

“Aluminum importers will be required to cite the GIP on CBSA import declarations in order to import the products into Canada,” the Department of Finance continued. “As a direct result of these changes, the industry and the Government will have access to more timely aluminum import data—making it easier to quickly identify whether global oversupply of aluminum is making its way to Canada.”

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Meanwhile, the Aluminum Association in the U.S. applauded the Canadian government’s announced reforms.

“Strong trade enforcement is absolutely essential to a fair, rules-based global trading system,” said Lauren Wilk, the Aluminum Association’s vice president for policy. “Including aluminum products in Canada’s import monitoring system will help government officials and the industry to identify trends in trade flows and address aluminum misclassification, transshipment and evasion of duties.

“The Aluminum Association has been a strong advocate for the creation of an aluminum import monitoring system in the United States to address similar issues in our country, and we look forward to working with the U.S. government to develop a program that will help ensure U.S. aluminum producers can compete on a level playing field within North America.”

Various sources are reporting both a slowing in demand growth and a fall in output for primary aluminum. So far this year, that combination has been led by a faster fall in output, pushing the market into a larger deficit position as the first half progressed.

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Reuters reported the results of a poll showing a forecast for a global aluminum deficit of 550,000 metric tons this year — down from an earlier estimate of 868,240 tons — as demand growth has recently slowed.

Inventory levels support estimates of a deficit.

Primary inventories in warehouses tracked by the Shanghai Futures Exchange (ShFE) are hovering at their lowest since April 2017, according to Reuters. LME stockpiles have improved recently, but are still down 22% from the beginning of the year.

Not surprisingly, futures markets in China are showing more resilience to a generally depressed commodities sector. The ShFE’s most-traded aluminum contract is at its highest since May 29, hitting 14,285 yuan ($2,022.02) a ton last week before easing to close at 14,200 yuan a ton.

The LME, on the other hand, has continued to drift lower over the last two weeks after failing to hold above $1,800 a ton in July.

The disparity in outlook is down to the domestic production situation in China.

New smelter startups have been delayed as Beijing is taking a hard line with aluminum producers, forcing those keen to open up new capacity to close corresponding capacity at older, less efficient plants. Summer production has at best been flat and first-half production is marginally down from last year’s level.

Investors have been encouraged as Typhoon Lekima stormed over Shandong province, causing widespread flooding. Although there are no reports yet of aluminum outages as a result of the typhoon, the expectation is some smelters will suffer flooding and/or power failures, resulting in lost production.

Consumption, however, is softening, both in China and the rest of the world.

Weaker automotive production is a significant factor, as trade worries are causing just that — worries — rather than a significant downturn in non-automotive consumption so far. Expectations are for a pickup in Chinese domestic primary production this fall as the impact of the flooding wanes and those delayed startups come onstream.

Meanwhile, consumption is expected to soften further in Europe and Japan as both areas flirt with stagnation at best or, possibly, outright recession (being the only remaining mature markets open to China after tariffs essentially shut off the U.S. market).

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The prospects this year for a rise in aluminum prices remain poor. However, if demand holds up and supply continues to be constrained, it could set the scene for a gradual rise next year, particularly if a resolution to the trade war is miraculously agreed.

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India’s National Aluminium Company (NALCO) has had expansion plans on the anvil for some time now.

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Towards this goal, it has started taking the first steps.

Part of this effort is the indigenization of technology and equipment specific to the aluminum sector. It is a commonly known fact that only is India’s per capita aluminum consumption is low as compared with other countries, and much of the industry is dependent on imports and foreign technology.

A few days ago, the state-owned company signed a joint venture agreement with another public sector undertaking, the Mishra Dhatu Nigam (MIDHANI), to set up a high-end aluminum alloys plant for manufacturing of plates, sheets and more, the Business Standard reported.

MIDHANI and NALCO will, at least at the start, be equal shareholders in the joint venture company, according to the Business Standard.

NALCO has lined up a multibillion-dollar fund to increase capacity, get into new areas (like mining and tech), and step up coal production.

Under this funding plan, it is on the way to setting up an alumina refinery stream that is likely to be commissioned in 2021-2022.

But a more recent move by the company has caught the media’s attention in India.

According to The Financial Express, NALCO will soon set up a technology division.

The aim of the new division is to research and develop indigenous technologies for making equipment that will cater to the domestic aluminum industry. The board has already cleared the proposal; now the proposal is before the mines ministry.

All this is part of the government’s “Make In India” plan. Initially, it will collaborate with foreign suppliers to develop technology and expertise. Then, it will link up with domestic fabricators to manufacture equipment that will largely be India-specific.

The Financial Express reported said engineers will be studying technologies and engineering available across the world, particularly in Australia and Brazil.

A few weeks ago, NALCO, Hindustan Copper Ltd and Mineral Exploration Co Ltd (MECL) signed an agreement to set up a 40:30:30 joint venture company called Khanij Bidesh India Ltd (KABIL) to establish a supply chain for critical and strategic minerals in India.  Pralhad Joshi, minister of Coal, Mines and Parliamentary Affairs, in a statement before Parliament said while KABIL will ensure the mineral security of the nation, it will also help in realizing the objective of import substitution.

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India’s per-capita aluminum consumption at 3 kg, compared with the global average of 11 kg, is extremely low. Projections indicate consumption would go up at a compounded annual growth rate of 7.5% to reach 10 million tons per year by 2031-32, according The Financial Express.

Source: The Coca-Cola Company

This morning in metals news, beverage maker Coca-Cola has announced it will shift to aluminum cans for its Dasani water brand, the U.S. Department of Commerce announced it found evidence of dumping of refillable stainless steel kegs from Mexico and China still plans to send trade officials to Washington next month for talks.

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Coca-Cola Announces New Dasani Packaging

In an effort to reduce plastic use and increase the use of recyclable materials, Coca-Cola announced plans to shift its Dasani water brand’s packaging from plastic bottles to aluminum.

“Updates to DASANI’s packaging line-up are designed to reduce plastic waste and increase the use of recycled and renewable materials in the United States, while ensuring that all DASANI bottles continue to be fully recyclable,” the company said.

Under the beverage maker’s proposed “World Without Waste” program, it aims to produce make its bottles and cans with an average of 50% recycled material by 2030. The company will roll out the water brand in aluminum cans in the northeastern U.S. in the fall (and 2020 everywhere else), and aluminum bottles in mid-2020.

U.S. Rules on Stainless Steel Keg Dumping Case

The U.S. Department of Commerce announced it had found evidence of dumping with respect to imports of stainless steel kegs from Mexico.

According to the department, the kegs were sold at less than fair value in the U.S. at a rate of 18.48%.

Last year, imports of the kegs from Mexico were valued at $13.4 million, according to the Department of Commerce.

China to Continue with Planned September Meetings

Despite the recent U.S. announcement of tariffs on an additional $300 billion in Chinese goods, Chinese trade officials still plan to visit Washington in September as planned, Bloomberg reported.

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However, according to a source cited by Bloomberg, China is unlikely to make concessions next month.

Zerophoto/Adobe Stock

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.

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