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The Federal Reserve reported October 2020 industrial production rose 1.1%.

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October 2020 industrial production rises

Per the Fed, October 2020 industrial production rose but remained 5.6% lower than the pre-pandemic level in February.

However, the Fed also noted the industrial production index has recovered most of the 16.5% decline posted from February to April.

Manufacturing gains

As the U.S. continues to battle the pandemic and its impacts across the board, manufacturing showed positive signs in October.

Manufacturing output ticked up 1.0% last month after a 0.1% increase in September.

Nonetheless, the sector still has a ways to go. Manufacturing output in October remained 5.0% below its February level.

Manufacturing capacity utilization rose 0.7 percentage point to 71.7%, up 11.6 percentage points from April. However, the rate remained 6.5 points below the long-run average (1972-2019).

“The index for durable manufacturing stepped up 0.9 percent, as small drops in the indexes for furniture and related products, fabricated metal products, and motor vehicles and parts were outweighed by gains elsewhere, especially for aerospace and miscellaneous transportation equipment and for miscellaneous manufacturing,” the Fed reported.

Meanwhile, the index for nondurables ticked up by 1.2%.

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The disconnect in recovery between Asia and North America/Europe is having an unprecedented impact on the transpacific and Asia-Europe container markets.

The world’s shipping industry had a near-death experience in the early part of the year as China went into lockdown.

To its credit and to consumers’ detriment, the industry has since got a grip of the situation and turned disaster into triumph.

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Container markets see rising rates

Ocean carriers are charging skyrocketing rates. In a bid to maximize returns, they are exacerbating shippers’ woes. Carriers have been shipping empty containers back from destination markets to origin rather than carrying cargoes.

The problem, as laid out by The Load Star, is a shortage of containers rather than space on container ships. That shortage is the main driver of the unrelenting spike in freight rates.

But the situation is made worse by carriers actively working to reposition their empty equipment as quickly as possible back to Asia to take advantage of skyrocketing spot rates. Meanwhile, they do not get those rates on the U.S.-Asia direction.

Exporters scrambling

This has left exporters around the world scrambling for boxes.

Indeed, one U.K.-based carrier executive reportedly admits, “We would much rather stick the empties back on the ship to Asia where we can use them straight away with premium-rate cargo than have them tied up for weeks on an export load from Europe.”

The same predicament pertains to the U.S.-Asia Pacific route.

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Industrial metals have had a good few months in Q3, in part due to a China recovery.

It’s not a bull market, of course — we have called it a sideways market.

However, it has been a pretty positive sideways market. Copper is up from $2.60/lb at the end of the European lockdowns to $3.20/lb today. Aluminum is up from $0.70/lb to approaching $0.90/lb.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

China recovery

Much of that rise has ridden on the back of a resurgent Chinese economic recovery driving such strong domestic demand that the country has switched to becoming a net importer on key metals this year.

Ongoing policy stimulus in China has made its way into industrial and construction investment. That should continue to boost investment and industrial output in the coming months.

Retail sales, while slow to recover in the early summer, are now back to pre-pandemic levels. Auto sales have benefited from pent-up demand earlier in the year supporting the retail sales numbers.

How long can China’s recovery continue?

Industrial metals buyers may be asking how long can this continue. Will prices continue to rise?

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We all remember the Obama-era Trans-Pacific Partnership (TTP) trade deal, right? The trade deal the U.S. withdrew from in early 2017 after President Donald Trump called it a disaster for American workers?

Well, Australia, Japan, and nine other countries went ahead with it, lowering tariffs and bolstering trade within the region.

But, crucially, TTP did not include China. Part of the attraction for the Obama administration was that the deal strengthened the U.S.’s role in Asian regional trade at the expense of China.

Even so, the deal was also a source of puzzlement to participants at the time. The argument went, if it did not include China, then why was the U.S. so worried about American jobs (as TTP gave no privileges to China)?

Two years on and the region has just signed an even larger agreement.

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RCEP trade deal and worries over China’s dominance

The Regional Comprehensive Economic Partnership (RCEP) cuts tariffs on trade across a new trade zone larger than the E.U. in population. Gross domestic product of the zone represents some 30% of the global total, the Washington Post reports.

Unfortunately, America’s absence from this agreement has left the way clear for Chinese dominance.

The U.S.’s absence also contributed to the withdrawal of Asia’s third-largest economy India from the agreement.

There is still some trepidation, even among parties that have signed up, that without the counterbalance of the U.S., the agreement leaves China in too dominant a position.

Australian labor unions have questioned the deal. Singapore is concerned about the failure of RCEP to detail rules around issues like data privacy, IP protection, digital trade, and e-commerce. These are all issues the U.S. would have put at the top of its agenda.

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India came in for considerable criticism over its reaction to the spread of the coronavirus pandemic in the first wave.

Locking down the economy almost overnight and trapping millions of migrant workers from returning home, only to then release them a week or two later to flood out into rural areas and spread the virus, was roundly condemned (both inside the country and out).

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Coronavirus pandemic in India

Since then, infections have been on a relentless rise. Infections reached a peak in mid-September of some 93,000 per day. That brought the total to some 9 million cases and deaths to nearly 130,000 (one of the highest totals in the world).

Rolling local containments and much more effective work at the city and community levels have gradually reduced infections. Infections are about half of what they were in late September, as this graph illustrates:

chart of coronavirus cases in India

Lacking the financial firepower of mature economies, the government has been unable to support the economy in the way many Western governments have done.

As a result, India’s GDP contraction has been brutal.

According to the Financial Times, gross domestic product contracted almost 24% year over year in the second quarter of 2020. In the third quarter, GDP fell by an additional 9%.

The decline puts the country into a technical recession for the first time in its history.

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The Renewables Monthly Metals Index (MMI) rose 2.0% for this month’s index value, as Lynas Corporation reported a rise in neodymium-praseodymium output during the most recent quarter. (Editor’s Note: This report also includes coverage of grain-oriented electrical steel, or GOES.)

November 2020 Renewables MMI chart

 

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Lynas Corp. posts rise in quarterly neodymium-praseodymium output

Lynas Corp., the largest rare earths company outside of China, recorded neodymium-praseodymium (NdPr) output in the quarter ended Sept. 30 of 1,342 tonnes.

The quarterly total marked an increase from neodymium-praseodymium output of 775 tonnes the previous quarter.

Neodymium is a key component in permanent magnets in a wide variety of electronic devices.

“Following the temporary shutdowns in both Malaysia and Mt Weld as a result of the COVID-19 Movement Control Order (MCO) issued by the Malaysian government, production of NdPr was at 75% of Lynas NEXT production rates during the quarter (equivalent to original nameplate production rates),” Lynas reported in its quarterly activity report. “This is currently sufficient to meet demand from our customers while COVID-19 uncertainty remains.”

Fortescue to invest in renewable energy

Australian iron ore mining giant Fortescue Metals Group plans to take a big step into the renewable energy sector.

According to the Australian Financial Review, Fortescue Metals Group chairman Andrew Forrest said during the company’s annual general meeting this week that the company would move toward becoming a “renewables and resources” company.

Fortescue shares are up nearly 60% in the year to date.

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The Rare Earths Monthly Metals Index (MMI) held flat once again this month.

November 2020 Rare Earths MMI chart

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

China export control law to take effect Dec. 1

China’s legislature last month approved a new export control law that will go into effect Dec. 1, the state-run Xinhua news agency reported last month.

“China may take countermeasures against any country or region that abuses export-control measures and poses a threat to China’s national security and interests, according to the law,” Xinhua reported.

“The law also clarifies that technical documentation related to the items covered by the law is also subject to export-control stipulations.”

The law could impact exports of rare earths, for which China overwhelmingly dominates the global market.

As we have noted in this column before, the U.S. — especially the Pentagon — has long sought to diversify its rare earths supply chain. The U.S. earlier this year approved Phase 1 contracts with MP Materials and Lynas Corporation for work to develop rare earths separation facilities in the U.S.

South Korean-Australian joint project produces praseodymium, neodymium

Continuing the theme of various countries’ efforts to wean themselves off of rare earths dependence on China, Forbes recently reported on a joint venture between South Korea and Australia that has showed some promise.

The joint mineral processing project, Forbes notes, has so far produced neodymium and praseodymium. The two elements are used in permanent magnets in electric vehicles and, for praseodymium, renewable energy apparatus, like wind turbines.

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We wrote last month how China’s rapid recovery from the COVID-19 pandemic resulted in the country importing semi-finished products for which it previously had been self-reliant or even a net exporter for the last decade.

Some steel products and primary aluminum swung into becoming significant net inflows for the economy during the summer months.

But as we cautioned at the time, this was only expected to be a temporary phenomenon.

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

China’s steel flows recalibrate

Sure enough, although volumes are still down on this time last year, exports have picked up and imports have fallen.

In a recent post, Argus Media reported China’s steel exports in October rose by 5.2% from September to 4.04 million tons. Chinese mills shifted supplies to overseas markets, enabled — or forced, depending on your point of view — by falling domestic prices.

Summertime exports rose as domestic prices fell

Falling domestic prices in the summer aided Chinese steel mills’ ability to export so aggressively.

Domestic inventory levels rose and domestic crude steel production hit record levels of 3.09 million tons a day in September, in large part to meet domestic demand. Weakness in domestic steel prices suggests overoptimism by the steel mills, inevitably resulting in excess production leaking into export markets looking for a home.

Domestic Chinese steel prices have recovered since the summer as global steel prices have risen and imports have fallen.

As the global recovery has lifted demand and prices, mills in India and elsewhere have not felt the need to distress sell metal into China. In addition, the arbitrage window has narrowed.

Imports have therefore appeared less attractive to Chinese buyers and exports more attractive to mills. That is a trend we expect to continue through Q4.

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The Raw Steels Monthly Metals Index (MMI) increased by 5.4% this month, as U.S. steel prices continued to rise last month.

November 2020 Raw Steels MMI chart

Are you on the hook for communicating the company’s steel performance to the executive team? See what should be in that report!

U.S. and Chinese prices relation

U.S. steel prices continued to increase in October for the third consecutive month.

HRC, CRC, HDG and plate prices increased by 15.4%, 10.0%, 9.0% and 5.3%, respectively. As demand recovers, so have prices.

Wire rod, however, was the only form of steel that did not increase in price this month, as it instead remained flat.

In contrast, Chinese HRC, CRC and plate prices increased around 2% in October. Meanwhile, HDG prices remained flat throughout the month. For the second month,

U.S. prices surpassed Chinese HRC, CRC and HDG prices. No price arbitrage existed for Chinese buyers, as local prices were lower than imported prices. Chinese prices had a four-month uptrend before prices flattened. On the other hand, U.S. prices started their uptrend approximately 2.5 months ago.

For the past two years, Chinese prices have led U.S. prices. Will that relationship mean U.S. prices will flatten within the next month and half?

Domestic demand increases, supports U.S. steel prices

Steel demand in the U.S. seems to be getting stronger.

As we have reported for a few months now, U.S. automotive production is on the rise.

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The Automotive Monthly Metals Index (MMI) gained 3.3% for this month’s MMI reading, as October 2020 auto sales made gains on a new-vehicle retail basis.

November 2020 Automotive MMI chart

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

October 2020 auto sales

Hyundai reported its October 2020 auto sales rose 1% year over year, with sales of 57,395 units.

Honda reported its October 2020 auto sales fell 3.4% down to 126,987 units.

As for automakers reporting quarterly results, Fiat Chrysler said last month its Q3 sales fell 10% year over year.

Ford, meanwhile, last month reported its total sales in the U.S. fell 4.9%.

General Motors reported Q3 deliveries fell 10% year over year.

Nissan reported Q3 sales of 221,150 units, down 32.4% year over year.

New-vehicle retail sales rise

For the industry as a whole, J.D. Power and LMC Automotive forecast new-vehicle retail sales in October would increase 3.0% year over year when adjusted for selling days.

Meanwhile, they forecast U.S. total sales in October will fall by 4.5% from October 2019.

“Two consecutive months of year-over-year retail sales increases demonstrates that consumer demand is showing remarkable strength,” said Thomas King, president of the J.D. Power data and analytics division. “The strong sales pace is occurring despite tight inventories. The combination of strong demand and lean inventories is enabling manufacturers to reduce new-vehicle incentives and is allowing retailers to reduce the discounts they typically offer on new vehicles.”

Meanwhile, Cox Automotive estimated the seasonally adjusted annual rate (SAAR) of sales is expected to finish near 16.4 million.

“Given the severity of the health and economic crisis in the country right now, the strong vehicle sales pace is a pleasant surprise, particularly when six months ago most market observers didn’t expect us to be here,” said Charlie Chesbrough, senior economist at Cox Automotive. “Modest improvements in the U.S. economy from gains in consumer confidence and job creation, coupled with the roll-out of new MY2021 products, are keeping consumers interested in purchasing even during turbulent times.”

China auto sales rise 12.8%

Meanwhile, in the world’s largest automotive market, sales in China surged 12.8% year over year in September, according to the China Association of Automobile Manufacturers (CAAM).

Sales of passenger cars jumped 8.0%. In addition, SUV sales rose 16.0%.

As for commercial vehicles, sales rose 40.3%, including a 43.8% jump for commercial trucks.

Ford, along with its joint ventures, reported its Q3 2020 sales in China jumped 25.4% year over year. The year-over-year increase marked the largest since 2016. Sales increased 3.6% compared with Q2 2020.

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