This story of India’s coal shortage refuses to die down.

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For some years now, many parts of the country have been facing power cuts. Why? Because of a shortage of coal, which becomes even more acute in the monsoon season (which is just about ending in most parts of India).

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Northern provinces, including the country’s capital, New Delhi, and those in the central part are susceptible to coal-linked power interruptions, forcing industries to halt temporarily and wreaking havoc on the lives of ordinary people.

India’s single-largest supplier of coal for thermal plants, the state-run Coal India, finds itself at the receiving end because of supply issues, which it, in turn, says is due to unavailability of rail wagons. The firm accounts for about 80% of coal production.

Not only are power plants complaining of the coal shortage — other industries are now protesting loudly, too.

The Aluminium Association of India (AAI), for example, dashed off a letter to the federal government asking it to halt prioritizing coal supply to power plants.

A report in the Indian newspaper The Hindu said excluding other important industries from the coal supply chain was having a detrimental and cascading effect. The reaction comes after the government asked coal companies to send off supply to thermal plants first.

As expected, in these troubled days of import-export between the U.S. and the rest of the world, India’s coal imports shot up by 35% to 21.1 million tons (MT) in September this year, compared to 15.61 million tons in same period last fiscal, according to the Economic Times. Imports were largely of non-coking coal.

Government officials had hoped that this monsoon season it would be a different story compared to some of the previous years. The federal government had assured all that this time there was enough dry coal supply for power plants. At the end of the rainy season, the government’s claim was shown to be untrue.

Incidentally, Coal India registered 15.2% growth in coal production during the first quarter ended June 2018, amounting to 136.87 MT.

One can even claim that an indirect victim of the ongoing U.S.-China trade tariff war is India’s aluminum sector.

Because of the tussle, both countries are sending their aluminum scrap to India. In the AAI’s letter, it pointed out that aluminum smelting needs uninterrupted electricity. An outage of over 2 hours directly affected the functioning of the smelters for a temporary period, affecting bottom lines and yielding lower output.

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Coal India had sent 84% of its coal to power plants up till Oct. 12, sending 1.34 MT of coal per day to power plants in October.

Despite the turmoil of an escalating war of words and the prospect of a full-blown trade war, the price of iron ore has remained remarkably robust this year.

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As the primary ingredient in the most basic of manufacturing materials, steel, you may be forgiven for expecting demand would have been shaken by the prospects of tariff barriers stunting demand.

However, a number of data points support the picture of continued strong iron ore mine output and demand.

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A couple of weeks back, we covered ArcelorMittal’s takeover of Italy’s Ilva, Europe’s largest producer of flat-rolled carbon steel. We observed at the time that ArcelorMittal was one of a few firms capable of funding the cleanup and modernization of Italy’s polluting giant.

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But Ilva’s takeover comes at a price for ArcelorMittal. It’s more than just financial — this is strategic.

The European Union’s competition commission has ruled that their price for ArcelorMittal’s successful takeover of Ilva is the steel company must divest itself of four European steel plants to avoid an overly dominating position in the marketplace.

The firm that has negotiated preferred bidder status is our old friend Liberty House, owned by Sanjeev Gupta. We say “old friend” only in the sense we have written about Liberty House (or its parent company, GFG Alliance) on several occasions in the past, including when they picked up assets once owned by Tata Steel and, more recently, when they bid for Rio Tinto’s 280,000-ton-per-year aluminum smelter in Dunkerque, France.

GFG is becoming a major force in the production of both steel and aluminum in Europe, riding a wave of robust demand for both materials.

ArcelorMittal’s steel plants are all said to be profitable, comprising a major integrated works at Galati in Romania and Ostrava in the Czech Republic, along with rolling mills at Skopje in Macedonia and Piombino in Italy, with a total rolling capacity of some 8 million tons a year.

The acquisition will take Liberty to nearly 15 millions tons per annum of capacity, encompassing a full range of finished steels that includes; plate, hot-rolled coil, cold-rolled coil, galvanized sheet, tin plate, bar, wire rod and rail. The plants already serve both domestic and wider European markets, including automotive, construction, industrial machinery, and the oil and gas sectors. These four plants will double Liberty’s capacity and push it into the big league of European producers.

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No price has officially been put on the deal yet, as negotiations are ongoing, but Gupta is fast positioning himself as yet another Indian-origin entrepreneur of significant ability — let’s hope he maintains his focus on the metals industry and doesn’t wander off the turf he knows best.

Loss-making balance sheets and cost-cutting in — or lax — oversight of health and safety can go hand in hand; they are often examples of poor management.

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The aforementioned also sometimes go hand in hand with state ownership – in both the developed and developing world.

So maybe it should come as little surprise that, according to a Financial Times report, there has been yet another fatal accident at a loss-making, state-owned Indian steel plant.

For foreign buyers of Indian steel, the red flag is loss-making, state-owned manufacturers also have some of the worse reputations of poor quality.

This latest incident is the announcement involving the death of nine workers and injury of 14 following a fire during maintenance at Steel Authority of India Ltd’s (SAIL) Bhilai plant early last week. The Bhilai plant, in the central state of Chhattisgarh, is the largest operation among SAIL’s plants, and is to be expanded from an annual output of 3.7 million to 6.6 million metric tons.

The Financial Times reports Bhilai had already been the site of one of India’s worst recent industrial accidents in 2014, when six people were killed and more than 30 injured by a gas leak. Two years before that, 19 people were killed in an explosion at the Visakhapatnam Steel Plant, another state-controlled company.

Although the private sector in India is making significant strides in terms of both quality, safety and good governance, the state sector continues to lag behind.

Last year, the British Safety Council estimated 48,000 people die annually in occupational accidents in India, often as a result of poor regulatory oversight, the Financial Times reports.

SAIL is not alone among Indian state enterprises with respect to safety issues — but being one the largest makes it also one of the worst.

The firm reported a net loss of Rs 2.8 billion ($37 million) for the year ending in March, its third consecutive annual loss. However, the Financial Times reports accidents have hit state-run companies in other sectors, notably power utility NTPC, where 43 people died from an explosion of a boiler in northern Uttar Pradesh state last year.

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State enterprises are big employers in India. As such, the government is slow to implement rapid change. Those jobs are clearly not without their risks and the lack of reform continues to not only affect profitability, safety and product quality.

The Stainless Steel Monthly Metals Index (MMI) traded sideways in October. The current index stands at 72 points, back at January 2018 levels.

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The sideways trend was created by a less volatile nickel price and lower domestic stainless steel surcharges, while stainless steel prices overseas inched higher.

As MetalMiner highlighted last month, the drop in the index comes as a result of a MetalMiner adjustment to a couple of metals that make up the Stainless MMI. The adjustment is not due to a dramatic fall in nickel or stainless prices.

LME Nickel

LME nickel prices traded lower in September, but then switched to a sideways trend in October.

Nickel prices were more volatile in September, showing two sharp movements (down and up) at the beginning and the end of the month. Despite the recent downtrend, nickel prices have remained in an uptrend since last summer (June-July), when prices started to increase sharply.

Source: MetalMiner analysis of FastMarkets

Global Nickel Tightness

The Philippines, the world’s top supplier of nickel ore, will start limiting the land mines can develop following new environmental rules.

Under these new rules, mines will have a 20-meter “buffer zone” or ban on metal extraction. Nickel miners will see production limits ranging from 50-100 hectares (123-400 acres).

President Rodrigo Duterte has advised miners to reforest areas where they operate to reduce environmental concerns. In addition, all small-scale activities in mountainous regions stopped after the Mangkhut typhoon.

According to government data, nickel ore output decreased by 10% in the first half of 2018 when compared to last year’s 9.43 million tons during the same time frame. The output drop came as a result of the suspension of 11 mines this year, which had zero output during this period.

Domestic Stainless Steel Market

Domestic stainless steel surcharges fell for the third time since the beginning of the year.

The 316/316L-coil NAS surcharge fell to $0.94/pound, while the 304/304L decreased to $0.65/pound.

Source: MetalMiner data from MetalMiner IndX(™)

The pace of stainless steel surcharge increases seems to have slowed this month, along with steel (and stainless steel) price increases.

However, stainless steel surcharges still remain well above 2015-2017 lows.

What This Means for Industrial Buyers

Stainless steel price momentum slowed down slightly this month. Stainless steel’s slower momentum seems to go together with slower domestic steel price momentum. However, nickel prices still remain strong.

Buying organizations may want to follow the market closely for opportunities to buy on the dips. To understand how to adapt buying strategies to your specific needs on a monthly basis, request a free trial to our Monthly Outlook now.

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Actual Stainless Steel Prices and Trends

Both Chinese 304 stainless steel coil increased by 0.85%, while the Chinese 316 stainless steel coil price increased this month by 0.88%.

Chinese Ferrochrome prices decreased this month by 0.35%, down to $1,841/mt.

Nickel prices also increased slightly this month, rising 0.23% to $12,600/mt.

MetalMiner’s precious metals index, tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe, bounced back in October after several months of declines.

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The Global Precious Monthly Metals Index (MMI) registered a value of 83 for its October 2018 reading, up 2.5% from 81 last month, stanching the bleeding — last month’s level had not been seen since January 2017.

The U.S. platinum bar price had its own bounceback after having dropped last month. Platinum rose to $814 per ounce, up from $777 per ounce in September. However, U.S. palladium bar built up a two-month upward price trend by breaking the $1,000 per ounce level for the first time in eight months, rising to $1,070 per ounce.

This extends palladium’s historic premium to platinum for yet another month.

Palladium Bubble?

John Dizard, writing in the Financial Times, contends that platinum’s once-cheaper cousin is ripe for the bubble it seems to be creating.

“The best investment bubble propositions incorporate the familiar and the incomprehensible,” he writes.

The largest single application for palladium, as MetalMiner readers well know by now, is to help convert toxic gases within catalytic converters. “Therefore, we have something familiar to investors (cars) and something incomprehensible (the physical chemistry of catalytic converters) — perfect conditions for a bubble,” Dizard concludes.

Much of the bubble conditions can be explained by “Dieselgate” — read about it in the full article (paywall) — but speaking of palladium bar prices, as we were just a bit ago, those aren’t what auto buyers should really be tracking: sponge is where it’s at.

“Could it be that the automakers will run into a supply squeeze and be forced to buy palladium bars of the sort represented by Nymex futures? Not exactly,” Dizard writes. “The automakers actually buy a semi-manufactured product called ‘sponge’, which is palladium (or platinum) particles used to coat a ceramic matrix inside the emissions system. There is a separate, over-the-counter market for palladium sponge.”

Ultimately, “if you follow the quotes for palladium sponge, you can see whether the ‘sponge premium’ over the price of bar metal indicates a real shortage of the industrial product,” according to Dizard.

Gold Supply Chain in South America: Treacherous

We recently came across a recent white paper entitled Illegal mining in South America and financial risk – Taking the shine off gold, co-authored by Jesse Spiro and Brian Huerbsch.

Evidently, the promise of huge profits based on higher gold prices – and fueled by rampant corruption — have created a continentwide supply chain problem. According to the authors, the issue plagues Colombia, Peru, Bolivia, Brazil, Ecuador and Venezuela.

The core of the problem is a major risk for gold-buying organizations — the ongoing threat of murky supply chain traceability.

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You’ll be able to read more about it, including our breakdown of what gold-buying companies should do to mitigate risk, later this week on our sister site, Spend Matters.

The Raw Steels Monthly Metals Index MMI again traded sideways this month.

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This marks the third consecutive month the index has held at 89 points. The current Raw Steels MMI is at May 2018 levels.

Domestic steel prices have decreased sharply and steel price momentum seems to have slowed. Prices traded lower in September and continued the downtrend in October. Buying organizations may want to remember that domestic steel prices have remained at more than seven-year highs this year.

Source: MetalMiner data from MetalMiner IndX(™)

All forms of steel fell in September. HRC, CRC and HDG showed weaker momentum. Meanwhile, plate prices held stronger in September. Plate prices had the support of low metal availability.

However, plate prices started to lose momentum and decrease at the end of the month.

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The Indian province of Goa, known world over for tourism, was once also a well-known destination on India’s mining map.

But legal, environmental and political issues ensured the stoppage of mining operations there in 2012.

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Though operations did resume to a degree in 2015, things have not picked back up speed to pre-2012 levels.

All that has now led Manohar Parrikar, Goa’s chief minister, to write to the Government of India (GoI), asking it to fast-track the complete resumption of mining in Goa.

The chief minister, in his letter to Indian Minister for Mines Narendra Singh Tomar, has said Goa’s mining sector needed an immediate “legislative cure,” according to a report in The Statesman.

What he has sought is an amendment of the Mines and Minerals (Development and Regulation) Act. This will mean that current lease holders can continue mining. It would also allow the postponement of auction of the iron ore leases.

The Indian government is perturbed by the slowing down of the overall mining sector in India.

For example, a recent report by the Centre for Monitoring Indian Economy (CMIE) pointed out that foreign direct investment (FDI) inflows had slowed down significantly, from U.S. $659 million in 2014-15 to about $36 million at the end of 2017-18. Mining’s overall contribution to FDI had declined from 2.06% to 0.08% in the same period.

For Goa, specifically, there were hopes expressed earlier that mining would resume full-scale by Oct. 1 this year, especially because even the province’s local government had unanimously passed a resolution a few months ago seeking the intervention of the Indian federal government. This resolution asked the government to suitably amend the local laws to allow mining leases to be operational till 2037, and also amend the central laws.

In 2015-16, for example, only 7 million tons of iron ore were exported, while the following year it rose to 20 MTA, the ceiling set by the Supreme Court of India.

But the local government’s decision to fast track the renewal of leases without following basic laid down rules led to mining coming to a complete halt from March 2018.

One of the affected mining companies is the Anil Agarwal-owned Vedanta Group. To express support for the chief minister’s demand, Agarwal recently tweeted “concern” over the imports of natural resources, and suggested that iron ore mining in Goa be restarted.

In his tweet, the executive chairman said iron ore exports worth billions from Goa had stopped, all of which had contributed to the value erosion of the Indian rupee versus the U.S. dollar.

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In a tweet, which tagged Prime Minister Narendra Modi, Agarwal added there was an urgent need to resume mining in Goa.

The Renewables Monthly Metals Index (MMI) lost one point this month, falling for an October MMI reading of 103.

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Rare Earths Removed From Final Tariff List

The U.S. Trade Representative’s office announced a list of Chinese products worth $200 billion that would be targeted for tariffs, a list that included a number of important materials for high-tech applications (including cobalt, cobalt oxides, cobalt sulfates and cobalt chlorides).

The final list, however, which went into effect late last month, did not include a number of rare earths materials that showed up on the original list.

However, a number of cobalt products remained on the final list.

Harnessing the Power of the Sea

As interest and demand in renewable energy continues to grow, so, too, is innovation in the field.

Physics World recently reported on the development of a device that serves to triple the amplitude of a water wave.

According to the report, the circular device deploys vertical metal sheets to concentrate the wave in a shallow space.

Renewable Momentum

Speaking of interest in renewable energy, a Stratfor report surveys the rise in interest at the corporate level.

While listing corporations that have announced intentions to shift toward renewable energy (or have already done so), the report name drops a couple of metals industry players.

“For instance, metals giant Alcoa sources 75 percent of the energy required for its smelters from renewables, while mining giant Rio Tinto acquires just under half of its energy from such sources,” the report states.

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Actual Metal Prices and Trends

Japanese steel plate fell 2.1% to $755.73/mt. Korean steel plate fell 0.2% to $675.67/mt. Chinese steel plate also posted a slight drop, falling to $716.11/mt.

U.S. steel plate fell 0.5% to $992/mt.

U.S. grain-oriented electrical steel coil dropped 10.3% to $2,478.

Chinese neodymium fell 0.4% to $59,311.60/mt. Chinese silicon also fell, down to $1,499.17/mt. Chinese cobalt cathodes fell 0.4% to $96,790.80/mt.

The Automotive Monthly Metals Index (MMI) held flat this month, holding for a reading of 96 for our October MMI.

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U.S. Auto Sales

General Motors, which now reports sales on a quarterly basis, reported a Q3 year-over-year sales decline of 11%.

“The U.S. economy and auto industry remain strong,” GM Chief Economist Elaine Buckberg said in a release. “A new United States-Mexico-Canada trade agreement will reduce uncertainty for the auto industry and all three countries. Consumer confidence is high and rising, thanks to the robust job market, faster wage growth and the boost to take-home pay from tax reform. We believe 2018 will be the fourth year in a row with total industry sales above 17 million units.”

Meanwhile, Ford Motor Co., after a solid Augustreported September sales were down 11.2% year over year, with drops even in its truck and SUV sales of 9.9% and 2.7%, respectively. Ford car sales were down 25.7% in the month.

Fiat Chrysler, on the hand, reported a 15% increase compared with September 2017 sales.

“Our Ram and Jeep brands propelled both our retail and total sales to their highest levels in 18 years,” said Reid Bigland, head of U.S. sales, in a prepared statement.

Honda’s U.S. sales were down 7.0% year over year, while Nissan was down 12.2%.

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