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This morning in metals news, the U.S. and China’s trade negotiations march on, China’s Tewoo Group sells copper at below market value and a U.S. aluminum executive says tariffs aren’t the answer.

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Work to Do

After the latest round of trade talks between U.S. and China late last week, there remains “significant work” on the road to a deal, Reuters quoted the U.S. Trade Representative as saying in a statement.

Meanwhile, Chinese state media hailed “new progress” in the talks.

Tewoo Group Sells Copper at Less than Market Value

According to a Bloomberg report, Chinese commodity trader Tewoo Group is selling copper at less than market value.

Per the report, the trader sold some copper to other trading houses at a premium of $10 per ton, compared with the $54 per ton premium in Yangshan.

Aluminum Executive Pans Tariffs

Lee McCarter, CEO of JW Aluminum, thinks tariffs are not the answer to the domestic industry’s challenges.

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According to a report in The Post and Courier, McCarter called for an end to the tariffs and for the U.S. not to simply replace tariffs on Canadian and Mexican steel and aluminum with quotas.

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This morning in metals news, the Aluminum Association called for the removal of aluminum tariffs on Canada and Mexico, Norsk Hydro offered another update on its operations one week after it was hit by a cyber attack, and Vale SA’s 4Q 2018 iron ore output increased 8.2%.

Aluminum Groups: Remove Aluminum Tariff Before Passage of USMCA

The Aluminum Association released a joint letter with the Aluminum Association of Canada and the Instituto Mexicano del Aluminio calling for the removal of the U.S.’s Section 232 aluminum tariff before ratification of the pending United States-Mexico-Canada Agreement (USMCA).

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USMCA, meant as the successor to the North American Free Trade Agreement (NAFTA), was signed by the three countries’ leaders late last year, but still must be ratified by each country’s legislature. The U.S.’s Section 232 tariffs on steel and aluminum remain in effect for its neighbors to the north and south.

As such, the tariffs are a key sticking point as the parties move toward approval of the agreement.

“The new USMCA cannot work as intended without reinstating exemptions for Canada and Mexico from the 232 tariffs,” the joint statement said. “The Section 232 tariffs are limiting access for North American aluminum producers to reach their suppliers and customers – and in some cases, their own subsidiaries and facilities. This will hamper continued investment for our industry, which has experienced solid growth and significant investment in recent years.”

The letter also argued against the imposition of quotas.

“Replacing a tariff with a quota on aluminum imports in North America would be highly detrimental,” the letter continued. “If there is a quota system for aluminum trade within North America, it will be difficult to ensure that downstream manufacturers of aluminum products will have access to the aluminum inputs they need. Because primary aluminum is a traded commodity on the London Metals Exchange (LME), metal traders would be competing with mid- and downstream producers who need value-added primary aluminum with specific characteristics for their manufacturing processes. Additionally, semi-fabricated aluminum products can cross borders several times before final production.

“In a worst-case scenario, product could get stuck on one side of the border when the quota has been filled. To avoid shortages, companies may be forced to stockpile the metal, tying up capital that could be used to pay employees or upgrade equipment and exacerbating the impact of a quota system.”

Norsk Hydro Offers Updates in Wake of Cyber Attack 

Norwegian aluminum maker Norsk Hydro last week was struck by a cyber attack, forcing operations to come to a halt.

A week on, the firm offered an update on its process to bring operations back online. According to a note on Hydro’s website, “most operations are running at normal capacity.”

“In the most affected business area, Extruded Solutions, production is now at 70-80%, except for the Building Systems business unit, where operations remain almost at a standstill,” the company said in a release.

The company’s primary metal sector is “running as normal, with higher degree of manual operations.”

Vale Posts Higher Iron Ore Output in 4Q

In the quarter prior to the fatal tailings dam breach at Vale SA’s Corrego do Feijao mine in Brazil, the company’s iron ore output rose 8.2%, Reuters reported.

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Vale’s 2018 iron ore output reached 384.6 million tons, according to the report.

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This morning in metals news, Aeris Resources Ltd. has put in a big offer for a Glencore mine in Australia, trade volumes at the Port of Brownsville increased 6.6% in 2018 and one consultancy says U.S. tariffs on aluminum have actually driven Chinese exports of the metal.

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Aeris Bids for Glencore Mine in Australia

According to a MarketWatch report, Australian firm Aeris Resources Ltd. has put in a $575 million offer for a Glencore mine in eastern Australia (the story was first reported by the Australian Financial Review).

According to a release from Aeris, funding for the offer has not yet been finalized.

“Broadly, the current offer by Aeris comprises $US575m in mix of cash (approximately US$525m) and Aeris shares (approximately US$50m) plus a royalty payable to Glencore,” the release stated.

Trade Volumes Rise at Port of Brownsville

The Port of Brownsville, located on the U.S.-Mexico border in southeastern Texas, had a banner year in 2018.

“The Port of Brownsville set new records in tonnage and total operating revenue in 2018, moving 11.3 million tons of diverse cargos with operating revenues of more than $24.2 million,” a release from the port stated. “The results, announced today at the annual State of the Port Address, reveal a 6.6 percent increase in cargos, a 25 percent increase in rail movements, and a 2.5 percent increase in operating revenues from the previous year.”

“Congratulations to our partners, customers, and port users who all contributed to these new high-
water marks,” said John Reed, chairman of the Brownsville Navigation District, in the release. “Steel was up, almost all petroleum categories were up, dry bulk cement and sugar were way up.”

China’s Aluminum Exports

According to consultancy Wood Mackenzie, the U.S.’s tariffs on aluminum have actually “encouraged” China to export aluminum, S&P Global Platts reported.

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Using Section 232 of the Trade Expansion Act of 1962, the U.S. imposed tariffs on imported steel and aluminum in March 2018. The tariffs sparked concerns from some countries, including the European Union trading bloc, regarding the possibility of diverted supplies of Chinese steel and aluminum disrupting their domestic sectors. (As a result, the E.U. earlier this year imposed new steel safeguards.)

In addition, in April 2018 the E.U. announced it would begin monitoring levels of aluminum imports to determine if the Section 232 tariffs would lead to increased import levels.

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This morning in metals news, Chilean miner Antofagasta expects a copper deficit this year, Polish lawmakers have proposed slashing the country’s mining tax and hackers have targeted Norwegian aluminum maker Norsk Hydro.

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Copper Deficit

Chilean miner Antofagasta forecasts a 2019 copper deficit ranging between 100,000 and 300,000 tons, Reuters reported.

“When we talk about the deficit, I don’t think it’s going to be a big one… it’s probably in a range between 100,000 and 300,000 tonnes,” CEO Iván Arriagada was quoted as saying.

Poland Mulls Cutting Mining Tax

According to another Reuters report, Polish lawmakers are considering cutting the country’s mining tax.

The tax — introduced in 2012 — primarily affects copper and silver producer KGHM, which is a major employer in the country, according to the report.

Norsk Hydro Hacked

The news turned from the announcement of a new Norsk Hydro CEO Monday to hacking on Tuesday.

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According to Reuters, the Norwegian aluminum maker suffered an attack by hackers that forced several plants to go offline.

Norwegian aluminum maker Norsk Hydro ASA has a new CEO for the first time in a decade.

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The firm announced Monday that CEO Svein Richard Brandtzæg will be stepping down after 10 years. Hilde Merete Aasheim, executive vice president and head of Norsk Hydro’s primary metal business area, was appointed Brandtzæg’s successor.

“I am honored, and I very much look forward to leading Hydro into the next chapter, together with 35,000 competent and engaged colleagues around the world,” Aasheim said in a company release. “I am confident that we have what it takes to turn a current challenging situation, for Hydro and for the global aluminium industry, into opportunities that will build the company for the future.”

According to the release, Brandtzæg will remain with the company through the end of the year in an advisory capacity to Aasheim and the company’s technology board.

Reuters reported Brandtzæg had asked for an early retirement.

“It’s been a very hard year for (him), no doubt. It’s been a very demanding situation in Brazil,” Norsk Hydro Chairman Dag Mejdell told Reuters.

The Norwegian firm has struggled with embargoes on production at its Alunorte alumina refinery in Brazil following a heavy rainfall and flooding in February 2018 at the refinery.

Last year, Brazilian authorities ordered the firm to cut production at the refinery by 50% amid questions about a new bauxite residue disposal area; the Alunorte refinery resumed production at 50% capacity in October after briefly having shut down operations completely.

“The impact of the rainfall event in Barcarena, Brazil, in February 2018, has been thoroughly investigated through public agencies, professional reports from internal and independent third-party as well as public hearings,” the company said in its annual report for 2018. “Environmental authorities have confirmed that there were no leaks or overflow from Alunorte’s bauxite residue deposits.

“However, we did recognize a need to strengthen the robustness of the plant, and we have increased water treatment capacity to prepare the plant for future climate and weather changes. Our clear ambition is to make Alunorte the benchmark in our industry, ensuring sustainable operations and social development in the communities around us.”

Norsk Hydro last week announced its financial results for 2018, reporting net income of 4,232 NOK ($505 million), down from 9,184 NOK ($1.07 billion) in 2017. The firm’s share price also took a hit in 2018, closing at 39.21 NOK ($4.58) from a 2017 closing price of 62.35 NOK ($7.29).

“The curtailment at Alunorte has weakened our financial results and progress of our improvement program,” the annual report stated. “In addition, different tariffs and sanctions have influenced global markets and trade flows over the past year, also affecting our industry.”

Norsk Hydro added that the production embargoes on the Alunorte alumina refinery remain in effect.

“Hydro is in dialogue with all the relevant authorities, at the local, regional and national level in Brazil,” the company stated in its annual report. “We continue to seek a common agreed solution, so we can resume normal operations, using the new and modern deposit area and the state-of-the-art press filters. At the time of authorizing this report, the production embargoes on Alunorte remains in force. The timing with regards to when the embargoes may be lifted remains uncertain.”

The firm expects ramping back up to 75-85% capacity will take about two months (once the embargoes are lifted), adding that the “timing of a return to full production capacity at Alunorte depends on the commissioning process of DRS2 and the press filters.”

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Revenue from the company’s bauxite and alumina operations last year fell to 2,282 million NOK ($266.6 million) from 3,704 million NOK ($359.2 million) in 2017.

Source: Toyota

Automaker Toyota last week announced a push to increase its previous investment pledge in the U.S.

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Last week the automaker announced it would up a 2017 pledge to invest $10 billion in the U.S. over five years, increasing the investment up to $13 billion.

“These latest investments represent even more examples of our long-term commitment to build where we sell,” said Jim Lentz, chief executive officer for Toyota Motor North America, in a company release. “By boosting our U.S. manufacturing footprint, we can better serve our customers and dealers and position our manufacturing plants for future success with more domestic capacity.”

In addition to the wider pledge, Toyota announced investments totaling $750 million in five states: Alabama, Kentucky, Missouri, Tennessee and West Virginia. The investments include “production capacity increases and building expansions at Toyota’s unit plants in Huntsville, Alabama, Buffalo, West Virginia, Troy, Missouri and Jackson, Tennessee.”

An investment of $288 million aims to increase annual engine capacity from 670,000 to 900,000 by the end of 2021 at its Huntsville, Alabama plant, and will include the addition of 450 new jobs.

A $238 million investment at its Georgetown, Kentucky plant will see to the commencement of production of the Lexus ES 300h hybrid in May, with production of the RAV4 hybrid beginning in 2020.

Toyota is also investing in its Bodine Aluminum plant in Missouri toward the goal of producing an additional “864,000 cylinder heads for Toyota’s New Global Architecture (TNGA),” up from the current level of more than 3 million cylinder heads per year. The automaker is also investing in its Tennessee aluminum plant, namely for equipment and a building expansion to double its annual capacity of hybrid transaxle cases and housings to 240,000.

Toyota also plans to double its capacity of hybrid transaxles to 240,000 by 2021 at its West Virginia plant.

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Earlier this month the automaker reported its February U.S. sales were down 5.2% year over year. For the first two months of the year, Toyota’s U.S. sales are down 5.9% compared with the same time period in 2018.

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This morning in metals news, U.S. Trade Representative Robert Lighthizer on Tuesday said the U.S. is working on a “practical solution” to lift the steel and aluminum tariffs on Canada and Mexico, China is expected to have a 2.65-million-ton copper deficit this year, and a preliminary report on iron ore miner BHP’s train derailment in November said operators mistakenly applied brakes on the wrong train.

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USTR: U.S. Aims to Remove Steel, Aluminum Tariffs on Canada, Mexico While Preserving Gains for U.S. Industry

The United States-Mexico-Canada Agreement (USMCA), the successor to NAFTA, still must be ratified by the legislatures of the three countries.

A hangup toward that end is the fact that the U.S.’s Section 232 tariffs on steel and aluminum remain in effect for Canada and Mexico. The two countries have indicated they would not approve the deal without removal of the tariffs. Likewise, some U.S. politicians have argued for the removal of the tariffs for the U.S.’s northern and southern neighbors.

On Tuesday before the Senate Finance Committee, U.S. Trade Representative Robert Lighthizer said the U.S. is working on a “practical solution” to remove the tariffs while preserving gains the U.S. steel and aluminum industries have made in the last year.

“What I’m trying to do is a have a practical solution to a real problem … get rid of tariffs on these two, let them maintain their historic access to the U.S. market which I think will allow us to still maintain the benefit of the steel and aluminum program,” he was quoted by Reuters as saying.

China’s Copper Deficit

China is expected to post a copper deficit of 2.65 million metric tons this year, S&P Global Platts reported.

The report, citing data from a Beijing Antaike Information forecast, said copper demand is expected to rise 3% to 11.5 million metric tons, with production at 8.85 million metric tons.

Preliminary Report: Brakes Applied on Wrong Train in BHP Train Derailment

According to a preliminary report investigating the derailment of a BHP iron ore train in November, operators applied the brakes to the wrong train, Reuters reported.

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Per the report, the Australian Transport Safety Bureau will release a final report on the incident later this year.

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This morning in metals news, the Canadian government announced it is rolling out $100 million in funding for its domestic steel and aluminum industries, copper moves toward a seven-month high, and Vietnam’s steel exports to the U.S. increased in 2018.

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Canadian Steel, Aluminum Get a Boost

The Canadian government has announced it will offer $100 million in funding to small- and medium-sized aluminum and steel firms in the country, the CBC reported.

The U.S.’s Section 232 tariffs on steel and aluminum remain in place for NAFTA partners Canada and Mexico. Those tariffs are the primary point of contention as the successor to NAFTA — the United States-Mexico-Canada Agreement (USMCA) — still needs to be ratified by the three countries’ legislatures.

Copper Continues Hot Streak

The copper price moved toward a seven-month high on Tuesday, Reuters reported.

LME copper jumped 1% to $6,472.50 per ton, according to the report.

Vietnam Steel Sector Grows

Despite the U.S.’s aforementioned Section 232 tariffs, one southeast Asian country saw its steel exports to the U.S. rise last year.

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According to an S&P Global Platts report, Vietnam’s finished steel exports to the U.S. surged 48% in 2018 compared to 2017.

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This morning in metals news, China’s copper imports fell in February, U.S. Steel won an award sponsored by the Department of Energy and General Motors rolled out its last Chevy Cruze this week.

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Copper Imports, Aluminum Exports Down in China

China’s February copper imports fell to their lowest level in 11 months, Reuters reported, while copper concentrate imports rose to an all-time high.

Meanwhile, China’s aluminum exports fell 37.9% in February compared to the previous month, according to the report.

U.S. Steel Wins DOE Award

U.S. Steel won an award from the High-Performance Computing for Manufacturing Program sponsored by the Department of Energy, which will allow the company to “expand the company’s manufacturing capabilities for advanced high-strength steel.”

“The goal of the winning project, drafted by researchers Evgueni Nikitenko and Susan Farjami at U. S. Steel’s Research and Technology Center in Munhall, Pa., is to enhance the company’s hot strip mill model used in creating AHSS,” a U.S. Steel release stated. “This type of steel is used by automakers to manufacture economically lightweight vehicles to meet increasing fuel efficiency requirements while maintaining exceptionally high safety standards.”

According to the release, the project research will take place at the Lawrence Livermore National Lab, which will receive $300,000 to collaborate with U.S. Steel.

End of the Cruze

Per its announcement late last year, General Motors idled its Lordtown, Ohio assembly plant earlier this week, where the automaker rolled out its last Chevy Cruze vehicle.

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According to NBC News, the closure will lead to the elimination of nearly 1,700 hourly jobs by the end of the month.

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The March Aluminum Monthly Metals Index (MMI) increased again this month, rising 2.3% for an index value of 88, up from February’s value of 86.

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LME aluminum prices ended February near the price at the month’s outset, thus ending only slightly higher month on month following a dip in price around mid-month.

The LME price ended at $1,913/mt and once again failed to breach the long-term price resistance point of $1,970/mt during February. In the early days of March, the price dropped further to around $1,872/mt during trade at the start of the first full week.

Prices show weakness in that the slope of increase has continued to decline as the year progresses.

Source: Fastmarkets

SHFE prices have flattened out. The metal currently is moving in a sideways price trend on the back of a strengthened pricing pattern (when compared with generally falling prices in China since September).

Source: MetalMiner analysis of Fastmarkets

Prices appear constrained by high levels of Chinese production of both alumina and aluminum, in addition to weakening Chinese domestic demand. During 2018, Chinese aluminum production increased by 9.9%, rising to 72.53 million tons.

Recently, the Chongqing-based Bosai Group restarted Chalco’s Nanchuan alumina plant that closed in 2014 due to low alumina prices. According to a recent Reuters article, Bosai leased the plant from Chalco for the next 15 years with alumina production underway and the first production to come off the line very soon. This will add to raw alumina supply and may contribute to further price declines as the new supply comes online.

U.S. Domestic Aluminum

Meanwhile, the U.S. Midwest Premium rose slightly in February to $0.19/pound, and still remains at a historic high. Even with the rising premium, ingot prices continue to trend lower due to strong supply.

The LME Western European Aluminum Premium stayed flat, coming in at $75/mt in February, while the LME East Asian Aluminum Premium also stayed flat at $85/mt.

What This Means for Industrial Buyers

During February, aluminum prices continued to trend sideways.

Industrial indicators show a weaker domestic economy in China, which could constrain price increases.

LME warehouse stocks increased quite a bit into the new year, also likely dampening price increases. SHFE warehouse stocks also remain sizable from a longer-term perspective, with some restocking increasing volume into 2019.

These factors suppress aluminum price increases, even in an uncertain macroeconomic trade environment.

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Actual Aluminum Prices and Trends

Both LME and SHFE aluminum prices continued trending sideways during the past month. While the U.S. Midwest Premium nudged upward this month and remains high, it is offset by strong supply.

India’s primary cash price increased 9.9% this month, while China’s primary cash price increased 2.1%. Korean prices fell this month in the 3-4% range.