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The May Aluminum Monthly Metals Index (MMI) increased six points. Skyrocketing LME aluminum prices drove the subindex value increase. The current Aluminum MMI subindex stands at 100 points, 6.4% higher than in April.

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LME aluminum price momentum recovered strongly in April. LME aluminum prices reached a more than seven-year high.

Source: MetalMiner analysis of FastMarkets

LME aluminum prices fell slightly at the end of the month. However, this movement appears as a price correction from previous highs. LME aluminum prices increased again at the beginning of May, showing a strong uptrend.

The Reasons for Aluminum Volatility

LME aluminum price volatility came as a result of U.S. sanctions levied April 6 on Russian companies and their owners.

Russia is the world’s second-largest aluminum producer (accounting for 6% of world production). Therefore, the sanctions created the alarm of supply shortages in the U.S., along with all international markets outside China.

However, the U.S.Treasury Department delayed the first due date for the sanctions until Oct. 23, at which point investors must divest or transfer debt and equity and industrial metal buyers must wind down pre-existing long-term contracts.

The delay in the aluminum sanctions eased LME aluminum prices; however, the market has tightened significantly.

SHFE Aluminum

Given the current alarm bell around aluminum and aluminum product shortages outside China, the country may see increased exports, despite U.S. tariffs. Therefore, market observers will want to follow SHFE aluminum prices closely.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese SHFE prices traded similarly to LME prices. However, the degree of the SHFE price increase appears to be less sharp.

Chinese SHFE stocks fell for the first time in nine months (since June 2017) to 970,233 mt, according to exchange data.

U.S. Domestic Aluminum

As a result of the ongoing uncertainty in the aluminum market, U.S. aluminum Midwest premiums increased again to $0.19/pound, climbing to a more than three-year high.

At the end of April, the country-specific aluminum (and steel) tariff exemptions for the E.U., Canada and Mexico were extended until June 1. The decision came  just hours before the temporary exemptions from the tariffs expired.

The final agreements have not yet been released, but the government suggested that quotas will replace tariffs. This action could ease U.S. Midwest premiums.

What This Means for Industrial Buyers

The LME aluminum price retracement in April presented buying organizations with a good opportunity to buy some volume, as prices increased again later in the month.

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Adapting the right buying strategy becomes crucial to reduce risks. Given the ongoing uncertainty around aluminum and aluminum products, buying organizations may want to take a free trial now to our Monthly Metal Buying Outlook.

The Copper MMI (Monthly Metals Index) increased one point in May. Stronger LME copper prices led the increase.

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LME copper prices recovered previous price momentum and increased in April. At the beginning of last month, LME copper prices fell. At this point, buying organizations had an opportunity to buy some volume.

LME copper prices then recovered and moved toward the $7,000/mt level. LME copper prices have also risen so far this month.

Source: MetalMiner analysis of FastMarkets

Despite a falling copper short-term trend at the beginning of 2018, LME copper prices remain in a long-term uptrend. Therefore, buying organizations can expect further copper price increases.

In May, most of the prices that comprise the Copper MMI basket increased. LME copper rose by 1.5% this month. Indian copper prices increased by 1.33%, while Chinese primary copper prices increased further by 2.03%. Prices of U.S. copper producer grades 110 and 122 rose by 1.06%. Meanwhile, the price of U.S. copper producer grade 102 increased by 1.01%.

Copper Bullish Narrative

The fundamentals also support LME copper prices. Forecasts suggest copper demand will grow this year, while copper mine supply appears unsecured. Therefore, the balance for demand and supply in 2018 could result in a deficit, as it previously did in 2017.

Mitsubishi Materials Corp., Japan’s third-biggest copper smelter, might increase refined copper production by 7% in the April-September period this year. Production in this period will reach 187,374 tons. The increased production comes as a result of stronger domestic copper demand, mainly in the automobile and semiconductor sectors (where copper is used).

The pace of copper demand growth will likely increase and  continue until 2020 due to  construction in anticipation of the Olympic games.

India’s copper consumption has increased over the last few years. Local demand has grown  at a 7-8% rate per year. If the country’s consumption rate increased, India will become a net importer of copper by the end of March 2020.

In April, Vedanta Resources Plc, one of India’s biggest copper smelters, had its renewal of consent to operate its copper smelting plant rejected. The plant remains closed due to scheduled maintenance. The company planned to double capacity at the smelter to 800,000 tons per year. This closure may create more copper imports over the next few months.

Has the EV Boom Lost Its Relevance?

Despite the EV boom that pushed some base metal prices up in 2017, copper demand corresponding to this electric-vehicle sector does not appear strong enough.

Copper demand for the EV sector could reach 1.5% of global copper consumption in 2018. The EV demand for copper will likely increase up to 3% in five years.

Chinese Scrap Copper

Since the announcement of the ban on copper scrap in China last summer, MetalMiner has followed Chinese copper scrap prices closely.

Source: MetalMiner data from MetalMiner IndX(™)

LME copper prices and Chinese copper scrap prices follow the same trend. Both appear to be in a long-term uptrend. However, the latest LME copper price increase appears sharper than Chinese copper scrap prices.

In addition, the spread between Chinese copper scrap prices and LME copper prices appears wider. The wider the spread, the higher the copper scrap consumption — and, therefore, the price. However, this equation may not play out as formulated here, depending on the U.S. Section 301 investigation. The investigation could lead to an additional 25% tariff to copper electric conductors and copper winding wire. Chinese copper products and buying organizations purchasing those could see price increases.

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What This Means for Industrial Buyers

LME copper prices recovered from their previous lows and increased in April, remaining in a long-term uptrend. Therefore, buying organizations could expect further copper price increases.

Buying organizations reading the Monthly Metal Outlook had the opportunity to identify the buying signal at the beginning of April and reduce price risks by purchasing some volume.

For those who want to understand how to reduce risks, take a free trial now to MetalMiner’s Monthly Outlook.

Be assured there will be a next crisis — there always is, sooner or later.

It is the nature of economic cycles that markets get out of balance and have to readjust. That sounds like rather a benign process, but of course we all know there is plenty of pain and many casualties when it happens.

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An interesting article in The Economist analyzes the reasons why market crises arise and, from that, where it believes the next one is developing.

To quote the report, financial crises tend to involve one or more of these three ingredients: excessive borrowing, concentrated bets, and a mismatch between assets and liabilities.

The crisis of 2008 was so serious because it involved all three — big bets on structured products linked to the housing market, and bank-balance sheets that were both overstretched and dependent on short-term funding.

The Asian crisis of the late 1990s was the result of companies borrowing too much in dollars when their revenues were in local currency. The dotcom bubble had less serious consequences than either of these because the concentrated bets were in equities; debt did not play a significant part.

As for the next crisis? The Economist report indicates the cause of the next one is probably lurking in corporate debt.

Read more

MetalMiner’s Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, held steady for April and remained at an index value of 88 for the second straight month.

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Ultimately, all else being equal, we can attribute the subindex’s stasis to the divergence in platinum and palladium price movement.

While the U.S. palladium price bounced back from last month, gaining 1.2%, the U.S. platinum price dropped for the third straight month, according to the MetalMiner IndX. (The U.S. gold price, meanwhile, contributed to the stasis by dropping to its lowest price of 2018, and U.S. silver hardly budged from April to May.)

Palladium remains at a premium to platinum for the seventh month in a row.

Palladium and Platinum Forecast

The U.S. bar prices of both platinum-group metals (PGMs) held above $900 per ounce for the May 1 MMI reading, which is directly in line with analysts’ views on the palladium’s outlook as of a few weeks ago.

In mid-April, Stephanie Aymes, head of technical analysis at Societe General, told Reuters, “Palladium should find support at $900.”

“The short-term ongoing rebound could fetch the 200-day moving average at $973/980, and this will decide on the extension (or not) of the recovery,” she told the news service.

In a more recent Reuters survey that polled 28 analysts and traders, the consensus outlook appears a bit higher for the metal. The average palladium price view for 2018 was $1,039 per ounce, and $1,040 per ounce for 2019.

“We forecast demand growth in palladium to moderate in 2018 after two years of strong growth driven by autocatalyst demand,” Deutsche Bank analyst Nicholas Snowdon was quoted as saying. “While we forecast autocat growth to continue, other elements of industrial demand are likely to decline in response to higher prices.”

“We expect that 2018 could be the year of peak palladium prices in the foreseeable future as market deficits begin to decline,” he continued, as quoted by Reuters.

For platinum, the polled analysts expect the metal’s price to continue its “historically unusual discount” to palladium through 2019. For the balance of this year, platinum is forecast to see an average price of $983 an ounce.

“Platinum continues to face headwinds from the diesel emission scandal,” Julius Baer, analyst at Carsten Menke, is quoted by Reuters as saying. “The share of newly sold diesel cars in Europe’s five biggest markets kept on falling during the first quarter.”

Platinum’s other demand source — the jewelry market — has also taken a hit, especially in China.

Gold Price at Its Lowest for 2018

Global gold demand for Q1 2018 appeared to be the lowest quarterly reading since 2008, according to the World Gold Council. Mainly driven by waning investor interest in gold bars and gold-backed ETFs, the price followed suit.

The U.S. gold price ended up at $1,314.90 per ounce for the May 1 MMI reading, its lowest this calendar year.

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On the supply side, the money that exploration firms are spending to discover new ounces of gold — to the tune of $54.3 billion allocated over the next decade, according to S&P Global Market Intelligence — has not resulted in more new discoveries over the last decade, compared to the previous 18 years.

The Construction Monthly Metals Index (MMI) increased four points, up to 95 for our May MMI reading. 
Within the basket of metals, Chinese rebar was down slightly on the month, while Chinese H-beam steel jumped 5.4%.

U.S. shredded scrap steel rose 3.0%. European aluminum sheet jumped 4.9%. Chinese aluminum bar jumped 8.2%.

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U.S. Construction Spending

The U.S. Census Bureau released its monthly report on U.S. construction spending earlier this week, covering spending in March.

March spending was estimated at a seasonally adjusted annual rate of $1,284.7 billion, or 1.7% below the revised February estimate of $1,306.4 billion.

The March figure, however, represents a 3.6% increase from the March 2017 estimate of $1,239.6 billion. Through the first three months of the year, construction spending is up 5.5% compared with the same period in 2017.

As for private construction, it came in at a seasonally adjusted annual rate of $987.5 billion, 2.1% below the revised February estimate of $1,009.1 billion.

Under the private construction umbrella, residential construction was at a seasonally adjusted annual rate of $536.8 billion in March, 3.5% below the revised February estimate of $556.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.7 billion in March, or 0.4% below the revised February estimate of $452.5 billion.

Meanwhile, public construction came in at an estimated seasonally adjusted annual rate of $297.2 billion, holding just about flat from the revised February estimate of $297.3 billion. Educational construction was at a seasonally adjusted annual rate of $73.1 billion, down 0.1%. Highway construction was $91.0 billion, up 1.2%.

Billings Increase Slows, According to ABI

According to the monthly Architecture Billings Index (ABI), put out by the American Institute of Architects, billings increased in March, albeit at a slower rate than previous months.

The billings ABI for March came in at 51 (anything greater than 50 indicates growth). The ABI has now posted increases for six consecutive months.

According to the ABI report, the March increase “indicates that the majority of architecture firms are still continuing to experience improving business conditions.”

This month’s report included polling of architecture firm leaders regarding the Trump administration’s Section 232 tariffs and their impact on architecture firms.

According to the report, 24% responded they had already seen “specific consequences” from the proposed tariffs.

“This share was highest for firms located in the West and Midwest regions of the country (32 percent and 28 percent reporting that they have seen consequences, respectively), as well as for firms with an institutional specialization (27 percent),” the report states. “Firms located in the Northeast were least likely to have already seen an impact, with just 13 percent of respondents from that region indicating such.”

Respondents also addressed the potential for future impacts. An overwhelming 91% said they expect to see an at least minor impact as a result of the tariffs.

Many respondents expressed concerns about rising costs of construction materials. According to the report, 53% agreed that it is “very likely” that construction costs will increase for most projects.

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Broken down by four regions, growth was highest in the West, which boasted an ABI reading of 53.4. Trailing the West were the South (53.2), Midwest (50.7) and the Northeast (49.0) regions.

The Automotive Monthly Metals Index (MMI) tracked back slightly this past month, losing one point to fall to a reading of 102 for our May MMI, as U.S. auto sales dropped in April.

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Within the basket of metals, U.S. HDG got a slight boost, as domestic steel continues to ride a wave of, at the very least, short-term support from the Trump administration’s Section 232 measures.

Elsewhere, LME copper bounced back 1.5% month over month, while U.S. shredded scrap steel jumped 3.0%. Meanwhile, Korean aluminum coil dropped 3.7%.

Also, palladium continues to trade at a premium to platinum, which, as we’ve now been saying for many months, isn’t typical. Our September MMI marked the last reading in which platinum traded at a premium to palladium.

U.S. Auto Sales

The first quarter was a good one for automakers in the U.S. market. As we reported last month, General Motors saw its March sales jump 15.7% year over year, while Ford was up 3.5% and Fiat Chrysler up 13.6% (just to name a few).

Sales in April, however, slowed down.

April saw 17.15 million units sold, down from 17.04 million units in April 2017, according to Reuters. Meanwhile, Ford saw its April sales drop 4.7% compared to April 2017.

As for top seller General Motors, the automaker recently announced it would no longer announce sales data on a monthly basis, instead reporting on a quarterly schedule. According to the Reuters report, estimates show GM’s April sales coming in anywhere between flat to a 0.8% drop.

A Strategy Shift for Ford

The U.S. auto market’s No. 2 seller, Ford, made a big announcement regarding its North American lineup.

For some time now, appetite has been high for trucks in the U.S., as sales data have showed. With that in mind, during the company’s recent Q1 earnings release, it announced that it would phase out a number of of its traditional sedans in what marks a narrowing of its offerings in the market.

“For example, by 2020, almost 90 percent of the Ford portfolio in North America will be trucks, utilities and commercial vehicles,” Ford’s Q1 earnings release states. “Given declining consumer demand and product profitability, the company will not invest in next generations of traditional Ford sedans for North America. Over the next few years, the Ford car portfolio in North America will transition to two vehicles – the best-selling Mustang and the all-new Focus Active crossover coming out next year. The company is also exploring new ‘white space’ vehicle silhouettes that combine the best attributes of cars and utilities, such as higher ride height, space and versatility.”

Mark LaNeve, Ford’s vice president for U.S. marketing, sales and service, noted 75% of Ford’s commercial sales are in trucks and vans.

Chinese Auto Sales

The Wall Street Journal last month reported Chinese auto sales posted a 4.7% year-over-year rise in March.

Meanwhile, Ford saw its Chinese sales drop significantly in March. Reuters reported Ford’s March sales in the country were down 11% year over year.

As for Japanese automaker Nissan, which posted a 28% year-over-year drop in U.S. sales last month, Bloomberg Gadfly speculated whether that could be part of a deliberate pullback from the U.S. market in favor of another market: China.

NAFTA Auto Developments

U.S. Trade Representative Robert Lighthizer said this week that he hopes to reach a deal on restructuring the North American Free Trade Agreement (NAFTA), the trilateral trade deal in place since 1994, sometime this month. Negotiators from the U.S., Mexico and Canada have engaged in talks on NAFTA since last fall, so pessimism regarding a tidy resolution this month is probably warranted.

Nonetheless, a point of contention in the NAFTA dialogue has been the issue of automotive rules of origin; that is, the percentage of automotive parts for a vehicle that must originate in North America.

Reuters reported earlier this week that a recent U.S. proposal called for a 75% mark for automotive parts, which would be up from the current 62.5% but down from a previous U.S. proposal of 85%. As part of the debate, Lighthizer has also applied pressure on Mexico to raise automotive workers’ wages in the country.

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According to the report, however, a deal on automotive content is still far off. Reuters quoted Eduardo Solis, president of the Mexican Auto Industry Association, who said the latest U.S. proposal was “not acceptable.”

Following intense lobbying by French President Emmanuel Macron and German Chancellor Angela Merkel — plus, it must be said, the whole European steel industry and many consumers in the U.S. — U.S. President Donald Trump has announced a delay in the imposition of steel and aluminium tariffs on Canada, Mexico and, crucially, the European Union until June 1.

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The temporary exemptions from tariffs on these countries were set to expire today. At the same time, agreements for permanent exemptions for Argentina, Australia and Brazil have been made.

According to The Telegraph, the U.S. granted temporary relief to European producers from 25% tariffs on steel and 10% levies on aluminium only up to May 1but has now extended by a further 30 days while it tries to ring concessions out of its partners in NAFTA and with the E.U.

Specifically, the article suggests automobiles are high on the list of things on which Trump wants to see movement. The E.U. charges 10% import duty on U.S. cars but currently incurs only 2.5% on the import of E.U.-made cars into the U.S.

Tariffs would hit steelmakers this side of the Atlantic hard, the article states, with the industry only just recovering from the 2015 crisis, which cost tens of thousands of jobs. Closure of the U.S. market creates the potential for a “double whammy” to the European industry. Not only is America a major market for Germany, the U.K. and Italy, but Chinese producers are likely to flood Europe with excess output, which was a major cause of the crisis of three years ago.

China remains broadly the U.S. main target, but the steel and aluminium tariffs are part of a wider bid to renegotiate the terms of trade with a number of countries, from close to home with NAFTA to far-flung producers on the other side of the globe.

The president seems to have a bone to pick with most of them. The threat of sanctions is a blunt but effective tool to bring countries to the negotiating table. As a tactic, it does seem to have some merit.

No breakthroughs have been made, but many discussions are now ongoing that were being avoided a year ago. China’s steel imports have dwindled markedly into the U.S. over recent years, but aluminum remains significant. The threat of such has already drawn the ire of Beijing, but also the willingness to make conciliatory gestures, such as freeing up the domestic market for foreign investments.

But on two key trade demands, The New York Times reports Beijing is not willing to give ground.

Firstly, the president’s headline-grabbing $100 billion cut in the U.S.’s trade deficit with China and probably even more sensitive is a curb on a $300 billion Chinese plan to invest in advanced tech like A.I. and electric cars. China will almost certainly sweat it out if the president sticks to demands to row back on what China sees as its strategic future.

The row with Europe is far from settled. The postponement has only bought 30 days, so the pressure is on to find a solution.

Europe has more to lose than the U.S., so you have to think some form of settlement will be found that will, to some extent, meet the president’s objectives.

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If not, the pain Europe’s steel industry has gone through in the last 10 years will be nothing compared to what is to come.

Few national stories preoccupy the newsfeeds day in, day out — short of war or rebellion — quite like Brexit has in the U.K.

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The irony is little progress has been made on the terms of Britain’s separation from the European Union since the decision was taken in June 2016. In the intervening months, not a day has gone by without some tedious detail of the squabbles between London and Brussels, or reports of indecision and lack of leadership at No. 10 Downing Street.

So, when news that Catherine, Duchess of Cambridge, had gone into St. Mary’s hospital in London for the birth of her third child, the country (and even more so the media) went into raptures of delight. With the baby boy successfully delivered, the hot topic was then what he will be named.

But even before the news broke, the media was getting back to business as usual, reporting the so far non-event that has been Brexit for the last two years.

However tedious as it may feel, the date is fast approaching — Oct. 18-19, when the two sides have to sign off on a withdrawal treaty. The treaty will supposedly include a free trade deal, if there is to be one, the structure of the Ireland/Northern Ireland border, and matters like the respective rights of citizens in the U.K. and E.U. and financial commitments.

On some points, progress has been made.

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As my colleague Fouad Egbaria wrote last week, the U.S. administration’s relaxation of the timescale for implementation of sanctions against Rusal has had the effect of taking the panic out of the market. As a result, prices have fallen for several days, not just for aluminum but for other metals that the market feared could face the same threat — most notably nickel, in which Russian oligarch Oleg Deripaska has an interest.

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But the vagaries of Washington policy aside, the underlying fundamentals for the nickel market remain firm.

Global Nickel Production and Usage Projected to Grow This Year

Reuters reports that according to the International Nickel Study Group, world stainless steel melting production rose by 5.8% last year, while projecting that global nickel production and usage is expected to rise to 2.344 million tons (MT) in 2018.

In terms of tonnage, world nickel production is expected to grow from 2.07 MT last year to 2.22 MT this year, while usage is expected to increase from 2.19 MT in 2017 to 2.34 MT in 2018.

As a perspective on fundamentals reasserts itself, the nickel price has recovered, rising back about $14,000 per ton. Demand has remained robust among stainless producers, with production forecast to rise 4% this year to over 52 million tons, while fears remain around supply.

Philippines Industry Aims to Navigate Government Land Regulations

The Philippines was top supplier to China last year, but the government of President Rodrigo Duterte is not letting up on its efforts to curb environmental damage from the extraction industry and threats remain of nickel mining being curtailed.

Nickel Asia, the Philippines’ top nickel ore producer and operator of the only two nickel smelters in the country, is quoted by Reuters as saying it intends to ship 20 million tons of ore this year — up 17% on last year.

But the government is limiting the amount of land miners can develop at any one time in a spur to rehabilitate old workings.

The limits are highly restrictive, amounting to only 100 hectares for mines producing 9 million tons or more, or 162 hectares if the project has a processing plant on site. The biggest of Nickel Asia’s mines covers 5,000 hectares and even the smallest covers 700, so it will be interesting to see if the firm manages the expansion in output it is projecting.

Indonesian Output on the Rise

Output in Indonesia is recovering following a lifting of the 2014 ban. The country has reasserted itself as the No. 1 supplier to China in the first half of this year.

The ban was lifted partly as the country looked to make up for the loss of revenue when exports collapsed and partly as firms invest in the downstream processing the ban was intended to force through.

Further increases in output, however, are limited, and investment in new reserves has been poor, while the nickel price was lower over recent years so the ability of the market to respond to predicted increases in demand from electric car and battery makers is in question.

The Outlook

We could see a growing divergence in nickel prices with standard nickel stainless melting grades remaining firm in the short to medium term, but battery Grade A, high-purity nickel premiums rising strongly if demand materializes as expected.

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Supplies of such high-purity nickel are limited, with only major producers like BHP Billiton, Norilsk Nickel, Vale and Sumitomo able to supply.

The Indian steel industry is witnessing some interesting times — and not in the sense of the Chinese curse.

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After a hiatus, domestic demand is up. On the other hand, the sector is seeing consolidation as international and domestic steel players spar over assets of bankrupt Indian steel companies.

Much of the action of late has been around Essar Steel, the country’s fourth-largest steelmaker, which is on the block after filing for bankruptcy last year.

A buyer is expected to be announced within the next few weeks, gaining control over 10 million tons in annual production capacity, equal to one-tenth of India’s crude steel output in 2017.

Yet, hurdles remain.

A joint bid for Essar by ArcelorMittal and Nippon Steel & Sumitomo Metal is among the top contenders. The Luxembourg-based ArcelorMittal’s first bid was held ineligible due to its joint venture with a debt-ridden Indian company. But Arcelor has moved away and reentered the race with the Japanese player, Nippon.

There has already been two rounds of bidding, and now there are reports of a third due to legal reasons. Earlier, a court had ordered the Essar Steel’s Committee of Creditors (CoC) creditors to reconsider bids from ArcelorMittal and a Russian-led consortium, sidelining a rival offer from London-listed Vedanta. The second round was scrapped by the National Company Law Tribunal (NCLT) last Friday after it hauled up the lenders and the Resolution Professional for not doing a thorough job in handling the bidding process.

Reports in the Indian media now say the CoC could be looking at inviting fresh bids for the stressed asset, paving the way for JSW Steel, Vedanta, Tata Steel, ArcelorMittal and Numetal to make another attempt to acquire it.

The lenders have sought legal opinion on calling for fresh bids. A final decision will be made later this week, as not all bankers favor going through the process again, the Economic Times reported.

While all eyes have been on this action, many have missed this development. India’s steel production rose to 86.7 million tons in the nine months to December 2017 from 73.96 million tons in the year-ago period, according to steel ministry data.

As per an earlier forecast, India’s domestic steel demand was expected to increase by 5.5% in 2018 and 6% in 2019, making it the fastest-growing market for steel among the top 10 largest steel markets by volume.

All this activity is been monitored closely by the Government of India (GoI), which has announced its own initiatives to propel the sector. A senior official told news agency Press Trust of India (PTI) that the GoI would roll out a red carpet to the big guns internationally who want to set up greenfield steel projects.

Steel Secretary Aruna Sharma said the sector provides huge growth potential against the backdrop of the country becoming the world’s second-largest alloy producer with increasing consumption.

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Foreign players like Posco, ArcelorMittal and Thyssenkrupp already have presence in the country.