Pittsburgh-based Alcoa Corporation announced it had reached a tentative agreement on a four-year labor deal with the United Steelworkers union, a deal covering five locations and 1,700 employees.

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Alcoa is a producer of bauxite, alumina and aluminum products. Alcoa shares closed Friday up 0.73% at $17.93.

“The United Steelworkers will now set the date for its members to vote on the proposal, which will cover employees represented by the union at Warrick Operations in Indiana, Massena Operations in New York, Gum Springs in Arkansas, Wenatchee Works in Washington, and Point Comfort in Texas,” Alcoa said in a release.

“Most of the union members eligible to vote on the proposed Master Agreement are employed at Warrick Operations, where the union represents employees at the aluminum smelter and rolling mill, and at the Massena Operations smelter. The Point Comfort alumina refinery and the Wenatchee Works aluminum smelter are both fully curtailed.”

According to Alcoa, the union is now set to schedule a vote on the agreement. The parties had agreed May 15 to honor the existing contract to avoid a work stoppage and allow for further negotiations.

“We came to the table months ago prepared to negotiate in good faith for a fair contract, but management made us fight for it every step of the way,” USW International President Tom Conway said in a release. “We are proud of what we have accomplished due to the unity, strength and solidarity of local union leaders, members and Contract Action Teams.”

The USW negotiating committee will recommend the proposed agreement for ratification by union members.

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“The proposed contract builds on decades of collective bargaining progress with hard-fought economic and non-economic improvements,” USW District 7 Director Michael Millsap said. “Our members have earned and deserve fair wages, benefits and working conditions.” 

According to a recent American Iron and Steel Institute (AISI) report, the U.S. steel industry operated at a capacity utilization rate of 81.0% for the year through Aug. 24.

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Adjusted year-to-date steel production reached 63.55 million tons, according to AISI, up 4.4% from the 60.86 million tons produced during the same period in 2018. The 2019 capacity utilization rate of 81.0% marked an increase from the 77.3% posted during the same time frame in 2018.

In a more constricted window, production for the week ending Aug. 24, production totaled 1.88 million tons at a capacity utilization rate of 80.6%, up 0.9% from the 1.86 million tons and 79.4% posted during the same week in 2018.

Meanwhile, production for the week ending Aug. 24, 2019, increased 1.1% from the previous week, when production reached 1.86 million net tons at a capacity utilization rate of 79.8%.

Broken down by region for the week ending Aug. 24, 2019, production totaled:

  • Northeast: 202,000 tons
  • Great Lakes: 681,000 tons
  • Midwest: 204,000 tons
  • Southern: 719,000 tons
  • Western: 71,000 tons

Meanwhile, according to another AISI report, U.S. imports of steel for the year through July fell 10.6% on a year-over-year basis. Imports totaled 18.67 million tons through the first seven months of the year. Annualized steel imports come in at an estimated 32.0 million tons, which would mark a 5.1% decline compared with 2018 import levels.

However, in July, imports totaled 3.03 million tons, marking a 48.3% increase compared with the previous month.

Finished steel import market share came in at an estimated 19% in July and stands at 21% for the first seven months of the year.

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According to the AISI report, individual steel products with notable increases in import levels in July compared with June included: cut lengths plates (up 55%), line pipe (up 29%), hot rolled bars (up 24%), plates in coils (up 23%), standard pipe (up 21%), hot rolled sheets (up 19%), sheets and strip hot dipped galvanized (18%), wire rods (up 16%), mechanical tubing (up 16%), sheets and strip all other metallic coatings (up 11%), and heavy structural shapes (up 10%). 

The Canadian government recently announced policy and regulation changes that it argues “will help improve Canada’s trade remedy system for all sectors.”

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Earlier this month, Canada announced changes to its anti-dumping policy, in addition to the establishment of a new aluminum import monitoring and a pledge to strengthen its existing steel import monitoring system.

“Amendments are being made to the Special Import Measures Regulations to ensure that an appropriate level of anti-dumping duties can be applied to goods that are dumped into Canada,” the Department of Finance said in a release.

“This will provide greater flexibility to the Canada Border Services Agency (CBSA) to address situations where there may be distortions in the price of the goods in the country of export. It clarifies alternative methods to calculate the costs of production of the imported goods, in cases where the price of inputs is distorted because of purchases made between affiliated companies or because of a particular market situation.”

Anti-dumping policy changes will also help the CBSA in its attempts to determine whether a product has been dumped.

“This will make it easier for the CBSA to compare the price of the goods imported into Canada with the price of the goods sold by the same exporter to a different country, to find whether there is dumping,” the Department of Finance said. “Changes will also allow the CBSA to better identify dumping that occurs in targeted patterns and is hidden by high prices.”

In addition, as of Sept. 1, 2019, certain aluminum products will be added to the Import Control List.

“Aluminum importers will be required to cite the GIP on CBSA import declarations in order to import the products into Canada,” the Department of Finance continued. “As a direct result of these changes, the industry and the Government will have access to more timely aluminum import data—making it easier to quickly identify whether global oversupply of aluminum is making its way to Canada.”

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Meanwhile, the Aluminum Association in the U.S. applauded the Canadian government’s announced reforms.

“Strong trade enforcement is absolutely essential to a fair, rules-based global trading system,” said Lauren Wilk, the Aluminum Association’s vice president for policy. “Including aluminum products in Canada’s import monitoring system will help government officials and the industry to identify trends in trade flows and address aluminum misclassification, transshipment and evasion of duties.

“The Aluminum Association has been a strong advocate for the creation of an aluminum import monitoring system in the United States to address similar issues in our country, and we look forward to working with the U.S. government to develop a program that will help ensure U.S. aluminum producers can compete on a level playing field within North America.”

According to the most recent International Lead and Zinc Study Group (ILZSG), the global zinc and lead markets were in deficit for the first six months of 2019.

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The global zinc market was in deficit by 134,000 tons over the first six months of the year, according to the ILZSG.

Global zinc mine production rose 1.9% during the period to 6.36 million tons, up from 6.24 million tons for the same period in 2018. Mine production declined in China, India, Finland, Ireland, Mexico, Peru, Turkey and the U.S. Meanwhile, production increased in Australia, Namibia, South Africa and Sweden.

Refined zinc metal production reached 6.51 million tons, down from 6.54 million tons last year. Production increased in China, Mexico and Peru but fell in Canada, India and the Russian Federation.

Zinc metal usage ticked up slightly to 6.65 million tons, up from 6.63 million tons, with usage increases seen in the Republic of Korea, South Africa and the U.S. Meanwhile, usage declined in Europe, Japan and Turkey.

Top metals consumer China saw imports of zinc concentrates fall 9.1% to 644,000 tons, while refined zinc metal imports rose 25%.

As for lead, the lead deficit for the first half of the year reached 65,000 tons. Lead mine production reached 2.30 million tons — up from 2.28 million tons last year — paced by increases in Europe, India and Peru.

Lead metal production reached 5.74 million tons, up from 5.64 million tons last year, with the increase paced by China, India and the Republic of Korea.

Lead metal usage amounted to 5.81 million tons, up from 5.67 million tons in 2018, led by increases in China and India. U.S. demand decreased by 2.7%, while Japanese demand fell by 5.6%, according to the ILZSG.

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China’s imports of lead contained in lead concentrates rose by 44.1% during the six-month period, reaching 421,000 tons.

Following a decade of hype, there remains huge debate about the viability of carbon capture as a solution to carbon emissions from coal-fired power stations.

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A recent article in the Financial Times lays out both sides of the argument. On the one hand, there is the one put forward by the coal lobby, broadly drawing on the work of coal miners in the form of Coal21, an industry body in Australia backed by 26 mining groups (including BHP, Anglo American and Glencore). On the other hand, there is a more disparate group of academics, research bodies and NGOs who rubbish the miners’ position as untenable.

Coal21, however, is pouring a considerable amount of money into research, lobbying and, most controversially, marketing in an effort to influence the debate in its favor.

The industry club has invested $4 million in advertising to promote the prospects for carbon capture and sequestration (CCS) as a solution to coal’s carbon emissions. That comes in addition to some $400 million BHP has pledged over five years to reduce its emissions and those of its customers.

Meanwhile, Glencore, the world’s largest coal exporter, is building a pilot plant to capture and store carbon emissions from a nearby coal-fired power station in the Surat basin in Australia, funded in part by Coal21. The plan is to capture some 200,000 tons a year of carbon, but commercial projects in Canada and the U.S. are said to be running at 50% efficiency, at best (in one case, little more than 5%). Glencore will need new technology if it hopes to reach the 90% efficiency CCS plants are headlined to achieve.

Even then, grave doubts remain as to their economic viability for coal-fired power generation.

Source: Financial Times

CRU research is cited by the FT estimates the technology is only viable if the carbon dioxide (CO2) can be sold to other industries as a commercial source of CO2. Generally, it is either simply stored underground or used to boost oil field production by pumping sequestered CO2 back into oil reservoirs.

Without the value generated by selling CO2 to other industries, the cost of the technology needs to fall by 50% to make pure CO2 storage economical, the Financial Times reports. Cynics suggest miners’ focus on CCS as a solution has more to do with countering what they see as an increasingly negative view of coal use as the consequences of rising CO2 levels is more widely accepted.

Coal miners may be facing a losing battle, regardless of public perceptions.

The article reports that in many parts of the world, solar, wind and battery storage produces electricity at lower cost than coal, not to mention the advantages of lower CO2 producing natural gas and the latter’s greater flexibility to provide swing production to balance renewables’ lower predictability.

Although huge sums have been poured into CCS research and multiple pilot plants have been set up around the world, the technology is still less efficient than necessary and more expensive to operate than required if it is to be economical (certainly for coal-fired power generation).

But there are other industries where large quantities of CO2 are generated. The arguments for CCS may be on a firmer footing for industries like cement, steel, and oil and gas.

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If the technology can be further refined to reduce emission from these industries, that would be a huge gain — but for coal-fired power stations, CCS looks like a lost cause.

Standing on an otherwise quiet stretch of Ravenswood Avenue on Chicago’s North Side — with a green barrier of vegetation obscuring the Metra tracks on the other side of the street — one can hear faint sounds of hard work being done.

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The Chicago Industrial Arts and Design Center, located at 6433 N. Ravenswood Ave. in Chicago’s Rogers Park neighborhood. Fouad Egbaria/MetalMiner

In a building that was once home to the Chicago Radio Laboratory in the 1920s, 6433 N. Ravenswood Ave. in Chicago’s Rogers Park neighborhood is now home to the Chicago Industrial Arts and Design Center (CIADC).

Inside, one finds a variety of work being done by a diverse group of people: teenagers, retirees, artists, and individuals simply looking to learn how to make things or try something new.

Under the watchful eyes of instructors, high school students busy themselves in the welding shops, wielding welding torches as sunlight peeks cautiously into the workspace on a pleasant August morning.

On the second floor, students of all ages work with wood, carving and cutting and measuring amid the pervading aroma of sawdust.

Another floor up and one finds students learning the tricks of casting, with the results of that work scattered about the workspace: a defiantly clenched fist, stately busts and metallic chicken feet.

Founded in 2015 by Matt Runfola — a self-proclaimed steel guy who says his motto is “fabrication, fabrication, fabrication” — students come to the CIADC from as far north as the Illinois-Wisconsin border and as far south as western Indiana to learn how to weld, cast and woodwork under the tutelage of experts.

The workspace at 6433 N. Ravenswood Ave. houses tools like a CNC router, an English wheel, and casting molds of varying shapes and sizes.

In short, it is a place of innumerable possibilities, brought into the world by innumerable creative and technical decisions.

Chicago’s North Side is not exactly known for its industrial character — so how did this workspace across the street from Metra tracks come to be?

The CIADC’s creative missions finds its roots in the art of disassembly.

CIADC founder Matt Runfola shows off the nonprofit’s CNC router. Fouad Egbaria/MetalMiner

As a child growing up in rural upstate New York — “farm country” he notes, populated by “mechanical stuff galore” — Runfola enjoyed taking things apart.

“I just had an affinity for having my hands on stuff taking things apart,” Runfola said. “I raced motorcycles when I was young. Part of racing dirt bikes is you’re constantly breaking them, so it’s a lot of opportunity to pull them apart.

“I think it was with that the realization [came] that someone, somewhere designed everything on that motorcycle. I was very intimately involved with tearing that motorcycle apart and putting it back together week in and week out.”

That love of tinkering inspired a curiosity about design, eventually leading him to the Rochester Institute of Technology, where he got his bachelor’s degree in mechanical engineering.

Runfola wasn’t satisfied with “typical engineering” — he gravitated toward jobs that gave him access to shops where things are made, working on designing and prototyping.

“I started to whet my appetite with creativity,” Runfola said. “It was like ‘hey, design can be used to make things that I want to make, not just make things that other people made.”

That interest led him to the world of custom furniture and sculpture, which he worked in on the side. He also worked as a manufacturing engineer for a company that designs skateboards and snowboards.

But that experience prompted him to reconsider the best outlet for his passion.

“I realized at that time that the engineers, as much as we were making everything happen, we weren’t the creative geniuses behind the product,” he said. “It was marketing, and in that industry it’s very much marketing-driven.”

That realization brought him to Chicago, where he worked on the marketing side for Brunswick Corporation. Eventually, he moved on, pursuing a position as an introductory metal sculpture teacher.

“I really never looked back from that point,” he said. “I left the corporate world and focused for a number of years on my own product line of custom furniture … while I was teaching.”

That experience led him to open the CIADC as an outlet for those interested in metalworking, woodworking or casting, something he said was a “void” in the Chicagoland area.

In short, he founded the nonprofit to give people an “easier opportunity to explore the industrial arts.”

“People in high school, people outside of a university setting, do not have access to, not just working with their hands but working with their hands with these industrial processes,” he said.

During a tour of the facility, Runfola talked excitedly amid the clanging of metal and cutting of wood, lighting up when asked to explain the difference between TIG and MIG welding.

“We really go to great lengths to make it comfortable for people to cross the threshold to enter into our facility,” Runfola said. “We feel very strongly that once people are in a class and learning, 99% of people are going to fall in love with this type of work.”

Many younger students come into the shop not exactly knowing what they’re getting themselves into, Runfola said, but once they realize they can safely handle material to produce something of their own creation, it gives them satisfaction.

Cam White, 15, a high school student, is relatively new to the CIADC.

“In Chicago, it’s really hard to find places to do woodworking and metalworking,” she said during her third day of classes at the CIADC. “I was researching it because I wanted to do more hands-on things.”

Student Cam White, 15, concentrates in the metalworking shop. Fouad Egbaria/MetalMiner

White said woodworking was her primary interest, but she opted to take metalworking class to try something new. White said she isn’t sure if she would want to pursue a career using the skills she’s learning in the shop, but she does want to have her own home shop someday.

White said that among her friends, her interest in this type of work is unique.

“They’ll say ‘oh that’s cool,’ but they’re not interested in it,” she said. “They’re more interested in me doing it than actually them doing it.”

White said she’s not a “technology person,” adding that the type of “old school” work done in the shop might not appeal to other people in her age group.

“Now with all the industrial stuff and all the gaming and coding and stuff you can do in that realm, more of my friends lean to that side and less of woodworking and shop-type things,” she said.

Meanwhile, Tom Bittman, 70, retired after a career in commercial banking, first took classes at the CIADC in the fall of 2018.

“I enjoy making things,” he said. “I have a lifelong hobby of woodworking. I’ve taken some classes in woodworking at other places as well.”

While surfing the Internet, Bittman came across the CIADC and decided to check it out. Like White, he decided to try something new — after taking woodworking classes last fall, he delved into metalworking this spring.

“It’s a learning thing for me,” he said. “It’s entertainment, it’s learning, it’s a little adventure doing something new someplace new with new people.”

Last year, Bittman said he learned about all the ins and outs of woodworking, including cutting and shaping, in addition to use of the various machines in the shop.

“It’s the same thing with metal — just very different,” he said, laughing.

Of course, without dedicated, competent instruction, some students’ desire to learn could wane.

A bust on display in the third-floor casting shop. Fouad Egbaria/MetalMiner

Olivia Jade Juarez, 27, works as an instructor and manager of CIADC’s welding and forging shop.

Jade Juarez studied sculpture during her time in art school using a wide range of materials, but did not work with metal much at that time.

Out of school, however, she worked at the Anderson Ranch Arts Center in Colorado, which had a sculpture department largely focused on metalworking tools.

Working as an assistant there, she had to quickly familiarize herself with the tools and techniques of metalworking.

Fortunately, she picked it up quickly.

“There’s this perception that metalworking is really rough and tumble and everything is super heavy,” she said. “I quickly realized there is a little bit of that, but it is more than anything precision and patience.”

She later worked as an assistant for metals sculptor Vivian Beer for a year, after which she decided to move back to her hometown Chicago.

She heard about the CIADC based on a recommendation from someone at Anderson Ranch, admitting that she first came to the center to use the space for her own work. However, she decided to take a class and eventually spoke with Runfola about taking on a teaching job at the center.

Jade Juarez said her favorite type of student is one who comes in with no experience.

“I’ve had a few elderly people come in and just to see them — it’s almost as if they renew themselves a little bit just to be handling flames and fire and welding, forging,” she said. “It’s really exciting to see them realize that they can still do things like that and that it’s not that far out of reach.”

Companies in industries that need workers to do these types of things — metalworking, in particular — are hoping that more people reach that realization.

The “skills gap” is something often bandied about these days — that is, that there are not enough skilled workers to fill manufacturing jobs in the U.S.

According to a skills gap study by Deloitte and The Manufacturing Institute, 2.4 million jobs could go unfilled between 2018 and 2028 as a result of the skills gap, amounting to a potential economic impact of $2.5 trillion.

Runfola said the CIADC’s mission is not necessarily to give people the skills to move into careers in these types of fields. However, he did express hope that the pendulum will swing back in manufacturing’s direction.

“When it comes to skilled workforce and filling the voids, people are realizing that being in the trades is not because you can’t do anything else,” Runfola said. “I think that’s an important thing that people are realizing again.

“It’s almost like we knew that mid-2oth century and the latter part of the 20th century, but somehow we started forgetting that.”

In an increasingly tech-driven world, part of that drive to remember will depend on drawing interest from younger people, like White.

Whether it’s kids in the city or the suburbs, Runfola argued very few of them have the opportunity to do this type of work, at home or in school. To that end, Runfola noted the center offers a scholarship program based on financial need, through which qualifying families can receive 80% off tuition.

“That’s one way that we’re trying to remove roadblocks and get as many teens as possible in here,” Runfola said. … “Right now it’s about piquing their curiosity so at least it’s on their radar.”

Jade Juarez said the idea of making things is perhaps being lost among people in her generation.

“There’s a lot of things you buy that are already made,” she said. “There isn’t much critical thought or questioning about how things are made anymore.

“There’s a really deep disconnect between what you end up having or using and what the raw materials started out as. I think the culture is very different now — it’s just ordering stuff.”

While the modern consumer culture allows for ease of purchasing items at a click, the result is a dwindling self-sufficiency, she argued.

“Not many people know other people who are welders or carpenters or just people in the trades,” she said.

She argued one simple way to help reverse the decline of the skilled labor workforce is to reintroduce shop classes into high schools (she noted she did not have a shop class at her high school).

“Then you have that seed or a memory of having built something, so that later on when it’s more of a financial decision, you’re not going in completely blind,” she said. “I really hope that it shifts back.”

While craft work is not quite the same as the industrial trades, she called it a sort of “sister or brother” to it; she said a rise in do-it-yourself (DIY) projects is an encouraging sign of a general interest in making things.

“That kind of hunger for learning … could be cultivated more,” she said. “It doesn’t have to be a hobby or this quirky thing you do, it can be your career.”

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While there is no easy answer or quick solution to the skills gap in the U.S., Runfola hopes the CIADC can do its part in its own small way.

“High-value manufacturing is flexibility, it’s being able to change product lines quickly and efficiently and you’ve got people that can adapt very easily,” he said. “In our small way, I feel that’s what we’re equipping people that come out of our classes with, that versatility.”

Manufacturing trends are often discussed in large, impersonal numbers: a skills gap of 2.4 million, for example (not much less than the population of the city of Chicago).

As such, attempts at reforming the system are often placed in the context of Big Change, whether it’s government-subsidized programming, changes in high school curricula or private sector spending on professional development.

While it may be true that such changes are needed to combat the so-called skills gap, the conditions for Big Change can sometimes be produced through incremental efforts on the ground.

“I feel like I was given throughout my whole career trajectory … I was given opportunities to learn, to be exposed to new things, to have people be patient with me,” Runfola said. “I feel like that’s what we’re doing here.”

On April 19, 2018, the U.S. Department of Commerce issued anti-dumping and countervailing duty orders on certain types of aluminum foil from China.

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Chinese producers appealed the decision, but the U.S. Court of International Trade this month opted to uphold the Commerce Department’s determination.

The Chinese plaintiffs lodging the appeal were: Jiangsu Zhongji Lamination Materials Co., (HK) Ltd., Jiangsu Zhongji Lamination Materials Co., Jiangsu Zhongji Lamination Materials Stock Co. Ltd., and Jiangsu Huafeng Aluminium Industry Co., Ltd.

Zhongji’s appeal focused on five aspects of the Commerce Department’s decision, including: the use of South Africa as the primary surrogate country in the case; using Descartes instead of Xeneta data to value international freight; valuing Zhongji’s aluminum scrap using the incorrect HTS classification; calculating Zhongji’s VAT adjustment “based on the wrong transaction”; and the deferment of the Commerce Department’s decision past the statutory deadline.

Zhongji argued the selection of South Africa as a surrogate country for comparison was not appropriate, claiming South African aluminum foil exports were distorted by subsidies and that Bulgaria’s aluminum foil values were more closely aligned with those of Zhongji.

The court, however, said Zhongji’s arguments did not meet the necessary legal standard.

“The subsidies alleged by Zhongji do not meet the ‘reason to believe or suspect’ standard,” the court stated in its case summary. “When there is evidence of a potential subsidy but Commerce has not previously found the specific program to be countervailable, Commerce does not per se reject the data in question and requires evidence of distortion before it will reject it.”

The court acknowledged that the Commerce Department did in fact submit its determination after both the 140- and 190-day statutory deadlines (the latter used for “extraordinarily complicated” cases).

“All parties agree that Commerce violated even the later deadline, which fell on October 4, 2017, by publishing its preliminary determination in the Federal Register on November 2, 2017,” the court summary states. “However, Commerce’s late filing of a preliminary determination does not preclude it from issuing an affirmative preliminary determination, as precedent dictates that statutory deadlines are not mandatory in the absence of an express statement of consequences from Congress.

“In light of this precedent, the court affirms Commerce’s affirmative preliminary determination and collection of duty deposits notwithstanding the missed deadline.”

Ultimately, Judge Gary S. Katzmann ruled in favor of the Commerce Department.

“The court affirms Commerce’s selection of primary surrogate country and data to value Zhongji’s aluminum foil inputs, as Commerce was within its discretion under 19 U.S.C. § 1677b and Policy Bulletin 04.1 in making those selections based on the evidence in the record,” Katzmann wrote. “Additionally, the court grants Commerce’s request for a remand to recalculate its VAT adjustment using the correct sale price. Finally, the court affirms Commerce’s preliminary determination and collection of duty deposits notwithstanding its violation of the statutory deadline.”

The Commerce Department now must file with the court and provide to the parties a revised determination of its VAT calculation within 90 days.

After the requisite determination is filed and provided to the relevant parties, “the parties shall have 30 days to submit briefs addressing the revised final determination to the court and the parties shall have 15 days thereafter to file reply briefs with the court.”

The Aluminum Association expressed its support for the court’s ruling.

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“The Aluminum Association was pleased that the U.S. Court of International Trade affirmed the bulk of the Department of Commerce’s final antidumping determination on certain aluminum foil from China,” said Lauren Wilk, the Aluminum Association’s vice president for policy and international trade. “The court’s decision reinforces the critical role rules play in a functioning global trading system. Targeted trade enforcement – as we’ve seen successfully deployed in the U.S. markets for aluminum foil and common alloy sheet– can have a meaningful and positive impact on U.S. manufacturers.

“The association and its member companies are determined to vigorously defend these orders and are committed to trade enforcement as a tool to address the symptoms of persistent Chinese overcapacity in the aluminum industry, which is impacting the entire value chain.”

Various sources are reporting both a slowing in demand growth and a fall in output for primary aluminum. So far this year, that combination has been led by a faster fall in output, pushing the market into a larger deficit position as the first half progressed.

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Reuters reported the results of a poll showing a forecast for a global aluminum deficit of 550,000 metric tons this year — down from an earlier estimate of 868,240 tons — as demand growth has recently slowed.

Inventory levels support estimates of a deficit.

Primary inventories in warehouses tracked by the Shanghai Futures Exchange (ShFE) are hovering at their lowest since April 2017, according to Reuters. LME stockpiles have improved recently, but are still down 22% from the beginning of the year.

Not surprisingly, futures markets in China are showing more resilience to a generally depressed commodities sector. The ShFE’s most-traded aluminum contract is at its highest since May 29, hitting 14,285 yuan ($2,022.02) a ton last week before easing to close at 14,200 yuan a ton.

The LME, on the other hand, has continued to drift lower over the last two weeks after failing to hold above $1,800 a ton in July.

The disparity in outlook is down to the domestic production situation in China.

New smelter startups have been delayed as Beijing is taking a hard line with aluminum producers, forcing those keen to open up new capacity to close corresponding capacity at older, less efficient plants. Summer production has at best been flat and first-half production is marginally down from last year’s level.

Investors have been encouraged as Typhoon Lekima stormed over Shandong province, causing widespread flooding. Although there are no reports yet of aluminum outages as a result of the typhoon, the expectation is some smelters will suffer flooding and/or power failures, resulting in lost production.

Consumption, however, is softening, both in China and the rest of the world.

Weaker automotive production is a significant factor, as trade worries are causing just that — worries — rather than a significant downturn in non-automotive consumption so far. Expectations are for a pickup in Chinese domestic primary production this fall as the impact of the flooding wanes and those delayed startups come onstream.

Meanwhile, consumption is expected to soften further in Europe and Japan as both areas flirt with stagnation at best or, possibly, outright recession (being the only remaining mature markets open to China after tariffs essentially shut off the U.S. market).

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The prospects this year for a rise in aluminum prices remain poor. However, if demand holds up and supply continues to be constrained, it could set the scene for a gradual rise next year, particularly if a resolution to the trade war is miraculously agreed.

Risk factors are everywhere, especially in this era of escalating trade tensions among the world’s strongest economies.

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On top of the common risk factors businesses face — like weather events, supplier inefficiencies and freight costs — it’s critical to be smarter than ever about insulating supply chains from risk, whether from one-off events or longer-term developments.

Bill DeMartino, general manager of riskmethods North America, recently stopped by MetalMiner’s Forecasting Workshop to lay out the many risk factors impacting supply chains today, in addition to tools businesses can use to mitigate those risks.

riskmethods serves brands around the world, leveraging artificial intelligence to mitigate supply chain risk. The company offers several tools for businesses to assess the risk landscape, including the riskmethods Risk Radar™, which provides real-time insights into a firm’s supply chain network, and the riskmethods Impact Analyzer™, which generates impact scores so firms can assess how risk events might affect their supply chain network.

The appetite and will to change how companies orchestrate their supply chains is extant, particularly in response to the imposition of tariffs over the last year and a half.

“Based on survey data, we’re seeing a lot of these companies are reengineering their supply chains because of the tariff situation,” MetalMiner Executive Editor Lisa Reisman said.

When it comes to the metals sector, specifically, DeMartino pointed out a number of factors businesses should consider when working on their supply chains, calling out the acronym VUCA, which stands for “volatility, uncertainty, complexity and ambiguity.”

The tariff situation, for example, which kicked off approximately 18 months ago with the Trump administration’s Section 232 tariffs on imported steel and aluminum, fits under the category of ambiguity.

“This is the world that we’re operating in today,” DeMartino said. “This is the world that you have to deal with, this is the world that suppliers have to deal with.”

DeMartino said businesses need to improve at proactively managing risk rather than responding reactively. That approach includes monitoring supplier sites on a regular basis in order to better assess supplier quality and be able to adjust the supply chain network, if necessary.

So what are the challenges — risks — businesses are facing?

In a survey of the workshop’s attendees — metals procurement professionals — DeMartino noted many listed the same things: weather events (including natural disasters), financial health and geopolitical issues. When it comes to onboarding new suppliers, businesses typically assess price and service levels, but there are many other factors to consider, some of which might be early warning signs.

DeMartino said that last year riskmethods sent out approximately 22,000 threat alerts related to the approximately 250,000 active sites the firm covers in its database, noting that many of the alerts covered aligned with the concerns brought forth by the workshop attendees in their survey responses.

“We are seeing cyber attacks, civil unrest and all kinds of things that are critical,” he added.

Notably in the metals sector, in March, Norwegian aluminum producer Norsk Hydro fell victim to a cyber attack that impacted operations across all segments, particularly extruded solutions. When the company announced its Q1 2019 financial results in June, the impact of the cyber attack amounted to between NOK 300 million and 350 million (or approximately between U.S. $34 million and $39 million).

For onboarding itself, companies should of course consider price and financial health, but also consider a much wider range of risk factors, including: the nature of the business, where they operate, the geopolitical environment, the history of disputes in the supplier’s location, availability of labor, and currency issues, among other factors.

Another key factor is identifying early warning signs of emerging threats  — for example, with respect to financial health, if a supplier experiences a patent infringement or product recall, while later-stage warnings include plant closures or the departure of a company’s CFO — so the company is in a position to act before the credit rating is updated.

As for locations, China is of course a popular offshore sourcing location for U.S. companies. However, given the ongoing escalation in trade tensions between the two countries, U.S. businesses would be wise to at least consider alternative sourcing locations if possible.

Earlier this month, President Donald Trump announced the U.S. would impose a 10% tariff on an additional $300 billion in Chinese goods, effective Sept. 1, thus subjecting nearly all imports from China to tariffs. (Last week, however, the United States Trade Representative announced the U.S. would delay tariffs on some articles in the tariff list, including cellphones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.)

With the climate of trade uncertainty in mind, DeMartino said businesses should treat countries the same way they treat individual suppliers. However, for companies considering moving parts of their supply chain out of China to other countries — India, for example — it’s important to remember that while those other countries may not be subject to the same tariff-related risk, they could present other forms of risk worth considering.

As businesses make these types of decisions, supply chain mapping is a valuable tool that offers a “visual representation” of the company’s supply chain base, DeMartino explained.

One obvious but important example, he noted, relates to physical events, like storms. When a particularly powerful weather event occurs, a meticulously mapped supply chain can allow for easy visualization of the problem area and whether or not the event will have a significant impact on the company’s supply chain base.

In addition, if a company moves from a single-source situation to dual-sourcing, but both sources are located in the same geographic risk area, the company will likely face the same issues it would if it were single-sourcing. As such, supply chain mapping allows businesses to visualize the risk landscape in a more comprehensive fashion.

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“Once you are able to create this visualization, it allows you to gain a lot of unique insights and values that you would not have otherwise,” DeMartino said.

Automotive markets just about everywhere are in decline this year.

The question is: to what extent is this a cyclical downturn as opposed to a structural shift?

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The Financial Times article reported Indian passenger vehicle sales fell 31% last month from the same time a year earlier, according to the Society of Indian Automobile Manufacturers. It was the worst month since the turn of the century in a dismal spell that has seen sales fall 20% or more for four consecutive months, while sales have failed to rise for more than a year.

India’s economy is slowing, with GDP growth falling to a five-year low of 5.8% in the first quarter of 2019. In addition, a liquidity squeeze caused by a crisis in its shadow banking sector is choking off consumer demand and business expansion.

The article goes on to explain that about 40% of new car loans came from these shadow banks, making liquidity tight. Although a reduction in India’s high car taxes — the government levies a 28% goods and services tax on cars, with the effective rate including other duties rising as high as 48% for some vehicles — is a possibility, it is unlikely the new administration’s cash-strapped budget could afford it.

Significant as India’s car market is — as recently as last year, India’s motor market was thought to be on course to overtake Germany and Japan and become the world’s third-largest, the Financial Times reported – Germany’s is even larger.

Yet, declines are dramatic in Germany, too.

Source: ING Bank

Germany’s problems are more nuanced.

Domestic production has been hit by the delayed introduction of the new worldwide light vehicle test procedure, which caused severe disruption to German automotive production and shipments.

But matching the introduction of the China 6 emission standard has also caused a downturn in Germany’s largest automotive export market: China.

To underline the importance of the market, ING Bank reported that in 2018 almost one-quarter of all cars sold in China were German. BMW and Daimler recorded more than one-third of their total car sales in China. For Volkswagen, the share is even bigger (40%).

Yet new car sales in China have fallen for 13 months in a row, a slump that started in the second half of 2018 when the trade war between China and the U.S. began to heat up, according to ING.

The trade war has been a factor. U.S. customs duties on Chinese goods worth U.S. $250 billion (with U.S. $300 billion to follow Sept. 1) and Chinese customs duties on U.S. goods worth U.S. $110 billion, car and car parts from China are being taxed at 27.5% in the U.S. since July 2018. U.S. autos are subject to China’s standard tariff rate of 15%.

Given that some German car manufacturers actually export U.S.-produced cars to China, there has been a clear and direct impact of the trade conflict on the German car industry.

But that is only part of the story.

The switch to China 6 meant consumers held off buying the older models despite a major distributor push to discount old stock.

But the industry worries China could be going through a structural shift.

According to ING, China is already the largest ride-hailing market in the world, with over 459 million customers and a turnover of around U.S. $53 billion. By comparison, where it all started in the U.S. there are currently 66 million users generating U.S. $49 billion in turnover.

To put things into perspective, one-third of the Chinese population already uses alternative mobility solutions, while in the U.S. the figure is around 20% and in the E.U. it is just 18%. Further, while in the U.S. ride-hailing is used occasionally by a car owner, in China many users are not yet on the car ownership ladder; as ride-hailing becomes more widespread, those users may elect never to become car owners.

According to JustAuto, new vehicle sales in China fell by 4.3% to 1.81 million units in July from 1.89 million units a year earlier, according to wholesale data released by the China Association of Automobile Manufacturers. This includes all vehicle types, passenger vehicles and commercial vehicles, with the cumulative seven-month total at 14.13 million units – down by 11.4% from the 15.96 million units sold in the same period of last year.

Jeff Schuster, president of global forecasting at LMC Automotive, is quoted in Europe’s Autonews as saying global light-vehicle sales will decline 2.6% in 2019 to 92.2 million units. Through 2025, he doesn’t see more than 2% growth as the mature markets of western Europe, the U.S., Japan and Korea contract in volume over the next five to seven years. Only electric vehicle production as a subset — coming from a very low base — is set to rise.

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The industry’s current downturn is in part cyclical and production will recover regionally as consumer confidence and access to credit improves.

At the same time, there is a structural shift happening that will impact the industry’s long-term future and create significant challenges for global western carmakers in the years ahead.