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India’s aluminum sector finds itself in a state of flux.

Secondary aluminum makers in India are not upset by the import levies announced by U.S. President Donald Trump, but have expressed concern at the inverted duty structure perpetuated by the Indian government itself.

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On the other hand, India’s largest aluminum producer wants the government to cap the quantity of imports of low-cost semis, wire rods and scrap from China and the U.S., as the percentage of inbound shipments in domestic demand is steadily going up.

As has always been the case, the primary and secondary producers are once again at loggerheads.

In all this, the sector, which is not yet on the core sectors list, has demanded a new policy itself, which the government says it is contemplating.

The Metal Recycling Association of India (MRAI), a representative body of the secondary aluminum producers, recently issued a statement urging the government to bring basic customs duty on imports of aluminum scrap to zero from 2.5%. This was in response to a move by the Aluminium Association of India (AAI), which wants the duty to be raised to 10%. MRAI feels the move of a hike will take away jobs of thousands of people working in the downstream & ancillary industry, (MRAI) said in a statement.

Ongoing exports of primary aluminum have upset the secondary producers more than the Trump tax. This lot claims the skewed duty structure has squeezed capacity utilization and affected margins.

In all this, the largest producer of aluminum, Hindalco, has asked the government to impose quantitative restrictions on imports in the near term.

A Bloomberg Quint report quoted Satish Pai, managing director and CEO, as saying the government should move to duty safeguards eventually, adding that while quantitative restrictions will be helpful in the short term and are allowed under the World Trade Organization regime, safeguards will take at least six months.

Hindalco has asked the government to limit imports based on the average of the last three years of imported quantity.

In this kind of tax regimes, India’s aluminum industry is barely remaining competitive because it has the highest production costs for aluminum among the largest producers (including Canada, Russia, the Middle East and China). Other hurdles include high power costs, which drove smelter metal’s cost 73% higher in the last 15 years compared with a 64% rise in the price of aluminum on the London Metal Exchange.

As India strives to meet its economic growth targets, aluminum is becoming increasingly critical for its infrastructural needs. In India, aluminum consumption is pegged at 2.5 kg per capita. To reach the global average of 11 kg per capita, India must up annual consumption by 16 million tons.

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Experts in India are calling for the government to formulate a National Aluminium Policy (NAP) focusing on holistic short- and long-term visions, identifying growth targets for demand augmentation and capacity addition.

The Trump administration’s Section 232 investigation led to new steel and aluminum tariffs on China, but an even bigger trade decision is looming.

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In August 2017, the Office of the U.S. Trade Representative (USTR) launched a Section 301 probe, which sought to assess unfair Chinese trade practices with respect to technology transfer and intellectual property. The office’s findings led to additional tariffs on some 1,300 Chinese products valued at $50 billion. In early July 2018, a first tranche of $34 billion in tariffs went into effect, with the remaining $16 billion being approved in August. In addition, President Donald Trump instructed USTR Robert Lighthizer to draw up a list of additional Chinese products, worth approximately $200 billion, to potentially target for duties.

The proposed product list includes exports from vaccines to nuclear reactors to numerous forms of metals used by manufacturers. With such an extensive list of potential new duties, companies have their work cut out for them identifying supply-chain risks, especially with China’s deep integration into the murky lower tiers of many supply chains.

To help assess the risks and recommended preventative strategies, MetalMiner sat down with Bindiya Vakil, CEO and founder of Resilinc, to discuss the implications of the Section 301 investigation and how supply-chain risk and resiliency solutions such as hers are helping companies prepare for impacts.

For businesses looking to navigate the tariffs and be proactive about limiting their exposure to risk, Vakil says it’s all about one thing: data.

Read more

Even if U.S. steelmakers have been slow to add capacity following President Trump’s tariff protection, it would seem foreign steel makers are willing to commit to domestic U.S. production.

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The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.

The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.

Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.

According to the Financial Times, domestic U.S. steel producers are, not surprisingly, doing rather well from the tariffs.

The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).

The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.

Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.

U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”

Well, that was last year; this year is something very different.

Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.

It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.

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According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.

The August Monthly Metal Index (MMI) report is in the books.

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This month saw all 10 of our MMI subindexes posting declines. U.S. steel prices continue to hover around seven-year highs, but the rest of the metals complex (more or less) has been down of late.

Here are a few highlights from this month’s round of MMI reports:

  • U.S. auto sales were down for many major automakers last month, but Fiat Chrysler saw its sales grow 6% year over year.
  • U.S. construction spending dropped 1.1% in June from the previous month.
  • U.S. steel prices continue to be at seven-year highs, but price momentum slowed last month and many forms of steel are trading sideways.
  • Copper prices have been sliding for the past couple of months, but a labor standoff at BHP Billiton’s Escondida mine in Chile could offer price support (if the union at the mine ultimately goes on strike).

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Read about all of the above and much more by downloading the August 2018 MMI Report below:

The spike in aluminum prices this quarter, caused by the initial announcement of sanctions on Oleg Deripaska and his investments, is an issue anyone in the aluminum sector will be only too well aware of.

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Prices spiked in days and were associated with a number of other supply constraint worries. Sharp rises in conversion premiums have not relaxed even though the primary aluminum price has since eased back to where it was just before the announcement.

The price increase and supply-chain panic was a result of the sanctions announced by the Office for Foreign Assets Control (OFAC). Prices fell back as OFAC granted a stay of application until late October 2018, allowing consumers to adjust supply agreements accordingly.

Source: Bloomberg

While the market is aware first-hand of the impact, what is only just becoming clear is the impact on the main supplier from Deripaska’s group: Rusal.

According to the Financial Times, drawing on the most recent Q2 company filing, inventories had risen to $2.88 billion at end the of June, from $2.41 billion in December as the company produced 939,000 metric tons of primary aluminum and alloys in the three months to June, but only sold 783,000 tons. Both first-half 2018 production and sales are down from a year earlier, largely due to the Q2 sanctions, even though the company continues to operate profitably.

Although Rusal is looking to boost output of value-added goods (VAGs), as they call processed products, they sharply cut back production of foil, powders and other VAG products in April for fear of not being able to shift production if sanctions were sustained.

As it happens, most global consumers restarted deliveries after a few weeks, but many in the U.S. are still reluctant to touch Rusal product – primary or VAGs – as the October crunch date looms.

Source: Bloomberg

2019 annual contracts are usually negotiated in September, ahead of the October LME week, and in preparation for supplies starting in January of the following year. Unless there is certainty that the OFAC sanctions will be lifted or some form of exemption will be granted to Rusal despite what happens to Deripaska, Rusal will again face restricted sales options going forward.

The case against Deripaska is already severely impacting any trade with entities in which he or his holding company En+ Group have a stake, as banks carry out exhaustive checks on every payment, causing delays of weeks on some transactions.

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Those consumers with other supply options will conclude it is just not worth the effort and switch to alternative sources, further crimping capacity availability in the market and pushing up conversion premiums even, if the primary metal price has yet to respond.

The August Aluminum Monthly Metals Index (MMI) fell two points last month. The current Aluminum MMI index now stands at 93 points.

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LME aluminum prices fell in July. However, the rate of the declines has slowed. Price changes do not appear to be sharp and selling trading volume remains weak. The price decrease looks like a retracement after the peak in April due to Russian sanctions.

Source: MetalMiner analysis of FastMarkets

LME aluminum prices have fallen again toward the stiff support level that aluminum prices had during 2017 and 2018. LME aluminum prices fell towards that support level in December 2017, in April 2018 and back again in July 2018. However, aluminum prices rebounded each time (and again in July) from that level.

How aluminum prices react to this stiff support level will give some insight on upcoming aluminum price movements. Buying organizations will want to follow aluminum price movements closely to identify the perfect moment to buy forward and lock prices.

Chinese Aluminum

Chinese aluminum output increased by 1.6% in June, according to the National Bureau of Statistics.

The gradual ramp-up of new smelting capacity has increased production. The daily output figure increased to 94,000 tons in June versus the previous 90,000 in May, signaling an increase of 0.8% year on year.

Chinese increased exports received a boost from a favorable price arbitrage, with a weaker yuan. Exports reached 510,000 tons in June, the second-highest figure on record.

U.S. Domestic Aluminum

As a result of the ongoing uncertainty in the aluminum market, U.S. aluminum Midwest premiums have skyrocketed this year.

August’s premiums, however, have started to decrease, sitting at $0.19/pound. The current premium has slid to April 2018 levels, but still appear close to its four-year high at $0.20/pound.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Despite the recent downtrend, the LME aluminum price trend suggests a continuation of the bull market that started last year.

Adapting the right buying strategy is crucial to reduce risks. Buying organizations that want to start doing so now may want to take a free trial now to our Monthly Metal Buying Outlook.

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Actual Aluminum Prices and Trends

The metals in the Aluminum MMI basket generally fell this month.

LME aluminum prices decreased this month by 3.88%, with a closing price in July of $2,076/mt. Meanwhile, Korean Commercial 1050 sheet traded flat in August, with a reading of $3.57/kilogram.

Chinese aluminum primary cash prices increased by 0.361%, while China aluminum bar fell 5.33%. Chinese aluminum billet prices also decreased 5.33% this month, to $2,197/mt.

The Indian primary cash price fell by 3.27% to $2.07/kilogram.

The Renewables Monthly Metals Index (MMI) dropped three points for an August MMI reading of 105.

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BHP Getting Into Cobalt

Miner BHP Billiton has plans to ramp up its production of a cobalt product used in electric vehicle (EV) batteries, Bloomberg reported.

Per the report, the miner has had success in producing cobalt sulphate alongside its nickel product at its Western Australia operation, according to an interview with Asset President Eduard Haegel.

Questions about cobalt supply and price volatility persist, but a miner of the size of BHP looking to expand its presence in the sphere is an indicator of the metal’s importance and, thus, the level to which the EV market is coveted.

Speaking of Cobalt Prices…

The price of the coveted metal has come off a bit of late, but that might just be a short-term blip.

According to the Toronto-based Sherritt International Corp — a miner with operations in Cuba, Madagascar and Canada — the softening of cobalt prices should reverse as demand continues to pick up, particularly vis-a-vis the growing EV sector, Reuters reported.

Plate Prices

According to a report in the Hellenic Shipping News, shipbuilders in South Korea are asking steelmakers to freeze shipbuilding plate prices.

According to the report, the Korea Offshore & Shipbuilding Association is asking for the freeze because price hikes threaten their survival, as declining orders and increased competition from China have weighed on the Korean shipbuilding sector.

Thick steel plate prices jumped $44/ton in the first half of the year, according to the report.

Actual Metals Prices and Trends

Japanese steel plate fell 1.0% month over month to $715.62/mt. Korean steel plate rose 1.6% to $682.89/mt. Chinese steel plate fell 4.4% to $707.51/mt.

U.S. steel plate jumped 5.2% to $986/st.

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Chinese neodymium fell 4.0% to $60,182/mt. Chinese silicon fell 2.8% to $1,511.89/mt. Chinese cobalt cathodes fell 2.8% to $97,612.20/mt.

The Raw Steels Monthly Metals Index (MMI) fell one point further this month, dropping to 89 from the previous 90 reading.

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The Raw Steel MMI has returned to May 2018 levels. The slight drop came as a result of slower domestic steel price momentum.

Domestic steel prices still remain at a more than seven-year high. However, the pace of the increases seems to have slowed recently. Domestic steel prices — with some exceptions — are mostly trading sideways, and some steel forms have started to drop slightly.

Source: MetalMiner data from MetalMiner IndX(™)

Plate and HRC ended higher last month, while CRC and HDG prices dropped. Long lead times in Q2 and Q3 combined with supply shortages have supported domestic steel prices. However, lead times seem to be shortening now, which may causes prices to drift lower.

Historical steel price cyclicality could cause prices to move lower at some point. Domestic steel prices have stayed in a sharp uptrend since January 2018. Prices may begin to come off slightly at some point this year.

Chinese Steel Prices

So far in August, Chinese steel prices have increased. Chinese steel prices appear to be in recovery and have started an uptrend, after a slight downtrend, since the beginning of the year.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese steel prices tend to drive U.S. domestic steel prices. Therefore, buying organizations may want to keep a close eye on pricing.

Domestic Shredded Scrap

Shredded scrap prices traded sideways this month. Scrap prices commonly follow the same trend of domestic steel prices.

Scrap prices have been in an uptrend since the beginning of the year (along with steel prices). The pace of the increases appears to be less sharp, but scrap price movements this year appear to be less volatile than steel prices.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to closely follow price movements to decide when to commit mid- and long-term purchases.

Buying organizations looking for more clarity on when to buy and how much to buy may want to take a free trial now to our Monthly Metal Buying Outlook.

Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 4.34%, falling to $815/st.

Chinese steel billet prices decreased again this month by 4.05%, while Chinese slab prices fell 2.1% moving to $626/mt.

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The U.S. shredded scrap price closed the month at $371/st, trading flat from last month.

The Automotive Monthly Metals Index (MMI) retraced four points, hitting 99 for our August MMI reading.

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U.S. Auto Sales

July was a down month for Ford, which saw its U.S. sales drop 3.1%. Ford car sales were down 27.7% year over year, and 15.7% in the year to date.

However, truck sales continue to shine, with sales rising 10.2% in July.

“And when you look at the underlying economy, it remains very healthy, and that would be indicative of what we’re seeing in the truck market, with F-Series posting gains and vans posting very big gains for Ford Motor Company,” Ford Sales Analyst Erich Merkle said.

It was a different story for Fiat Chrysler, which reported a 6% sales increase compared with July 2017. According to a company release, its Jeep brand had its best July ever, with retail sales up 16%.

Honda reported an 8.2% year-over-year drop, but touted its growing truck sales.

“For the first time in our company’s history, the Honda brand is on pace this year to sell more light trucks than passenger cars,” said Henio Arcangeli Jr., senior vice president of the American Honda Automobile Division, in a release. “Honda’s unique flexibility within our U.S. manufacturing operations has played a critical role in our ability to adjust our production mix and capitalize on the market’s shift toward light trucks.”

Toyota reported its July sales were down 6.0% year over year, but noted July marked its best month ever for light-truck sales.

General Motors no longer reports sales on a monthly basis, instead opting earlier this year to report on a quarterly basis.

Pumping the Brakes?

Late last month, President Donald Trump and European Commission President Jean-Claude Juncker met at the White House, a meeting that yielded an agreement of sorts to pump the brakes on new tariffs.

However, cars were exempted from the agreement between the two leaders.

A U.S. Section 232 investigation into imports of automobiles and automotive imports is still ongoing. The Department of Commerce launched the investigation using the Section 232 statute — also used to impose steel and aluminum tariffs — in late May and a public hearing was held July 19.

GM Seeks Exemption for Buick Envision SUV

Although the Trump administration has yet to impose new tariffs on imported automobiles, General Motors has asked that its Buick Envision SUV, which is made in China, be exempted from any new tariffs, the Detroit Free Press reported.

Most of GM’s sales of the SUV model come from China, according to the report, and the company argues production in the U.S. would thus not be feasible.

Earlier this summer, GM expressed its opposition to the imposition of new automotive tariffs, saying they would lead to job losses and would impact the automaker’s competitiveness in the global marketplace.

Actual Metal Prices and Trends

It was an overall down month for prices within the automotive basket of metals.

U.S. HDG steel fell 0.7% to $1,103/st. U.S. platinum bars fell 1.8% to $837/ounce, while palladium bars dropped 2.1% to $928/ounce.

Chinese primary lead dropped 14.7% to $2,722.87/mt. LME copper fell 6.1% to $6,236.50.

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U.S. shredded scrap steel held steady at $371/st. Korean aluminum also held steady, sticking at $3.75/kilogram.

The Construction Monthly Metals Index (MMI) lost three points this month, hitting 90 for our August MMI reading.

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U.S. Construction Spending, Employment

According to U.S. Census Bureau data, U.S. construction spending in June fell 1.1% from the previous month.

Spending in June hit $1,317.2 billion, down from $1,332.2 billion in May. However, the June spending time marks a 6.1% increase from the June 2017 spending total of $1,241.3 billion.

For the first six months of the year, spending hit $619.9 billion, marking a 5.1% increase from the same period in 2017.

Broken down further, private construction spending hit a seasonally adjusted annual rate of $1,019.8 billion, or 0.4% below the revised May estimate of $1,023.9 billion. With private construction, residential construction hit $568.3 billion in June, down 0.5% from the revised May estimate of $570.9 billion. In addition, nonresidential construction was down 0.3%, amounting to $451.5 billion in June.

As for public construction, spending in June hit $297.4 billion, 3.5% below the revised May estimate of $308.3 billion. Under the umbrella of public construction, educational construction was  down 11%, amounting to $67.9 billion. Highway construction was down 1.3%, hitting $93.9 billion for the month.

Meanwhile, according to preliminary Bureau of Labor Statistics (BLS) data, construction employment hit 7,222,000 in June, up from 7,209,000 in May.

Billings Growth Slows

Architecture billings growth continued in June, according to the Architecture Billings Index (ABI), but the pace of growth slowed last month. Nonetheless, June marked the ninth straight month of billings growth.

The June ABI hit 51.3, down from the previous month’s 52.8 (any reading above 50 indicates growth).

By region, however, the billings landscape was a mixed bag.

The South region posted a 57.4, while the Northeast posted modest growth with a reading of 50.2. The Midwest and West lagged behind, however, with readings of 49.8 and 46.9, respectively.

In this month’s survey of industry professionals, many indicated rising expenses was a concern.

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“More than nine in 10 firms (92 percent) indicated that they are concerned to some degree about managing the costs of running their firm at the present, with 52 percent reporting that it is a major concern, and 40 percent reporting that it is a minor concern,” the ABI report states. “Small firms tended to be less concerned about firm expenses than large firms, although firms of all sizes were generally concerned.”

Actual Metal Prices and Trends

The U.S. shredded steel scrap price held flat at $371/short ton.

Chinese rebar fell slightly, dropping 0.2% to $623.84/metric ton. Chinese H-Beam steel fell 6.0% to $606.22/mt.

European commercial 1050 sheet aluminum fell 4.4% to $2,867/mt.

Chinese iron ore PB fines fell 2.8% to $77.06/dry metric ton.