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Overcapacity was the word of the day at the Global Forum on Steel Excess Capacity last week.

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The forum, which took place Sept. 20 in Paris, brought together the world’s biggest steel-producing nations.

“The global challenge of overcapacity has strained trade relations and the global trade architecture to its breaking point,” E.U. Trade Commissioner Cecilia Malmström said. “Progress in this Forum at this sensitive time demonstrates that multilateral cooperation is not only possible, but that it is actually the best tool to tackle global challenges. Putting this agreed package in place is something that the European Union will now follow closely. Our workforce and our industry depend on these commitments being carried out.”

Vice-President for Jobs, Growth, Investment and Competitiveness Jyrki Katainen added: “This sends a clear message: we will not repeat the costly mistakes of the past, and must tackle excess capacity and its root causes to avoid dire social, economic, trade and political consequences in the future. This will protect growth and jobs in an efficient, sustainable EU steel industry. A lot of work lies ahead though and all members of the Global Forum will have to continue implementing their commitments resolutely and report to G20 Leaders.”

The Paris meeting built on last year’s meeting in Berlin, during which members agreed to embark on a package of reforms to address global steel overcapacity.

According to the European Commission statement, the members will assess subsides contributing to overcapacity by the end of the year and “identify further reductions to be taken” in 2019.

In other steel news, the European Commission statement refers to the U.S.’s Section 232 tariffs, which impact steel and aluminum, calling them “unjustified.”

While a select few countries have negotiated exemptions and quotas with respect to the tariffs, the E.U. remains subject to the tariffs.

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“The Commission has acted among others through trade defence, imposing antidumping and anti-subsidy duties, to shield the EU’s steel industry from the effects of unfair trade,” the release stated. “The EU currently has an unprecedented number of trade defence measures in place targeting unfair imports of steel products, with a total of 53 anti-dumping and anti-subsidy measures. The EU has also activated all legal and political tools at its disposal to fight unjustified US 232 measures.”

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Well, that didn’t go very well, did it?

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After a couple of weeks scurrying around European capitals and intense lobbying directly to E.U. leaders, Britain’s Prime Minster Theresa May received short shrift at an E.U. conference in Salzburg, Austria last week.

May sacrificed a lot internally in the run-up to the conference. She faced intense opposition from her own hard right against her so called Chequers plan (termed thus because it was presented at the prime minister’s grace-and-favor residence Chequers in the summer), she lost two cabinet colleagues who resigned over it and has faced opposition from just about everyone, inside her party and out.

May had hoped it would form the basis of a negotiated exit agreement encompassing a free trade deal on goods but not services, plus much more with the E.U.

The E.U., meanwhile, has problems of its own — granting the U.K. any kind of conciliatory deal would make matters much worse.

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I know, it’s not really a metals topic — my editor will no doubt berate me for wandering off the reservation — but it has to be said the current speculation about which car Bond will drive in the next movie has got to be of the topic of the month, hasn’t it?

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According to the Financial Times, there is a battle royal developing between Aston Martin – long considered the only authentic wheels for our hero — and upstart Lotus, provider of Bond’s principal transport on two occasions (“The Spy Who Loved Me” in 1976 and in the 1981 film “For Your Eyes Only”).

We are not suggesting Lotus does not make fine cars, although arguably their road cars never quite lived up to the promise of their track record. From their racing debut in the late 1950s, a series of iconic drivers and Colin Chapman’s magic combined to create a dream team that competed at the highest level in the 1960s, ’70s and ’80s.

Drivers like Graham Hill, Jochen Rindt, Emerson Fittipaldi and Mario Andretti, not to forget possibly the greatest of them all Jim Clark (winner of two F1 titles for Lotus), firmly established the mark as an innovative and exciting brand that, from its humble origins in Norfolk, took on the might of Ferrari, Renault, Honda and other famous British teams, like Brabham and BRM.

There is no question Lotus has a fine racing pedigree. As a road car, however, they have never attained the same suave mix of power, prestige and understated competence that is and always has been Aston Martin.

Bond, though, is quintessentially British, and following a brief ownership by Ford, Aston Martin Lagonda has been privately held for over 10 years by a consortium including British and Kuwaiti investors. Soon to go public via an IPO, you too could buy a slice of history when it goes public later this year.

Not so for Lotus which, along with Swedish Volvo and British-based London cab company London Electric Vehicle Company is owned by Chinese Geely. To be fair, much like Volvo, Geely is a good steward of Lotus, allowing the firm to create its own direction and innovation while providing ample funding when needed. Still, diehards would argue it dilutes the Britishness of the brand.

Featuring in a Bond movie, though, would certainly help revitalize lackluster sales at Lotus and may create other one-off opportunities.

For example, Aston recently produced a series of 25 DB5 models — the same as used in “Goldfinger” — made at the car’s original home in Newport Pagnell, the company will sell the specials for £2.75 million apiece. Styling and design for the movies can, like technology developed for racing, feed back into road cars, according to the Financial Times. Much of the engineering for the DB10 car, a model created exclusively for the most recent Bond film “Spectre,” went into the company’s latest models (the DB11 and the Vantage).

Some argue that Bond should go back to Bentley, the brand used in his first film and in Ian Fleming’s books. A brand that in the heyday of the Bond series became a “poor man’s” Rolls Royce – if the buyer of a Bentley could ever be termed a “poor man.”

But in this decade, Bentley has emerged as a fine builder of high-powered executive saloons — maybe not quite what they were in Bentley’s own racing days, but that was well before F1.

No, for 50 years Bond and Aston Martin have been indivisible. Every attempt at substitution – Lotus, BMW, Ford, once a Lincoln convertible for goodness sake – has fallen flat.

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There really is no substitute — please, EON Productions, just don’t be tempted to make it electric.

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Moody’s Investors Service has said India will be the brightest spot for the steel sector over the next 12-18 months, according to a report by the Hindu Business Line.

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Moody’s pointed out that India’s steel consumption was rising at least 5.5%-6% every year, tracking strong GDP growth of 7.3%-7.5%.

It said rated Indian steel producers had only marginal exposure to the U.S. Moody’s has estimated that their indirect exposure may also be limited, given most of their sales were to domestic automotive and manufacturing companies.

In fact, on Tuesday the Indian Steel Ministry, perhaps buoyed by sentiments such as those expressed by Moody’s, issued a statement saying it was hopeful of occupying the second slot in global steel output (after China), while the government has also taken steps to encourage secondary steel producers to boost performance.

According to Moody’s, with minimal new steel capacity expected to be commissioned until 2021 in India, robust steel demand — especially from the construction, infrastructure and automotive sectors — would keep end-product prices high, even as rising costs for key inputs, like coking coal and iron ore, put pressure on profitability.

Moody’s also noted the outlook for the Asian steel industry was stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand.

The robust steel demand, especially from the domestic construction, infrastructure and automotive sectors would keep end-product prices high, even as rising costs for key inputs, coking coal and iron ore pressure profitability.

The Indian Government believes that, in conjunction with the primary steel sector, the secondary steel sector holds enormous potential for growth and opportunities.

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“Strong performance of the secondary steel sector has added muscle to India’s steel production. Encouraged by the overall potential, the Government of India has taken various initiatives to improve the performance of this sector. Based on the present growth pattern, it is expected that India will rise to the second position after China,” the statement said.

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Some commentators were calling the imminent collapse of the aluminum price last month — certainly, it tested the bottom of its recent range, at just below $2,000 per metric ton on the LME.

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But the price has since rallied and is currently range bound between $2,000-$2,075, seemingly suppressed by a strong dollar and the general depression of commodity prices by fears of a trade war. Yet, it is supported by the net deficit position the Western world’s aluminum market has been in last year and this year.

One dynamic that has not featured greatly — but is fast becoming a major concern — is the alumina price.

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The Raw Steels Monthly Metals Index (MMI) traded sideways this month, driven by slower domestic steel price momentum. The current Raw Steels MMI fell to May 2018 levels.

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Domestic steel prices have started to fall slightly. Prices traded lower in August, showing some downward momentum. Buying organizations may want to remember that this year domestic steel prices have remained at more than seven-year highs.

Source: MetalMiner data from MetalMiner IndX(™)

All forms of steel decreased in August. HRC, CRC and HDG showed weaker momentum. Meanwhile, plate prices held stronger in August. Plate prices had the support of low metal availability. However, plate prices lost momentum at the end of August and prices decreased. So far in September, prices for all steel forms declined.

The recent slowdown in steel prices may comes down to historical steel price cyclicality. Domestic steel prices have remained in a sharp uptrend since January 2018. Prices have started to come off slightly but remain higher than last year’s average.

Chinese Steel Prices

So far in September, Chinese steel prices have increased. Chinese steel prices increased in August, recovering price momentum. Chinese steel prices appear to be in a recovery and have started an uptrend, after a slight downtrend since the beginning of the year. Higher Chinese domestic demand has supported prices.

Source: MetalMiner data from MetalMiner IndX(™)

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

The Spread

The hot-rolled coil and cold-rolled coil spread seems to be weaker than historical pricing.

The spread has been historically around the +/- $100/st level. However, the spread started a divergence back in November 2015, reaching around $200/st. 

The current spread now stands at $79/st. This means that CRC and HRC prices have become closer than anticipated. Market anomalies sometimes create divergences in prices. However, this may correct soon.

What This Means for Industrial Buyers

Since steel prices remain high, buying organizations may want to follow price movements closely to decide when to commit to mid- and long-term purchases. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner monthly outlooks provide a continually updated snapshot of the market from which buying organizations can determine when and how much to buy of the underlying metal. Click here for more information on how to mitigate price risk year-round and request your two-month free trial.

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Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price fell this month by 3.68%, falling to $785/st.

Chinese steel billet prices increased sharply this month by 11.56%, while Chinese slab prices increased just by 1.17%, moving to $634/mt.

The U.S. shredded scrap price closed the month at $354/st, decreasing from last month.

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MetalMiner’s Global Precious Monthly Metals Index (MMI) — tracking a basket of platinum, palladium, gold and silver prices in several geographies across the globe — continues its trek downward.

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The Global Precious MMI clocked a value of 81 for its September 2018 reading, down 1.2% from 82 last month — and reaching a low not seen since January 2017.

Here’s What Happened

Both U.S. platinum and U.S. gold took sizable hits this month.

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The Rare Earths Monthly Metals Index (MMI) dropped one point this month, falling for a reading of 17.

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China Raises Quota for Rare Earth Smelting, Separation

On Aug. 27, China’s Ministry for Industry and Information Technology announced it would increase the quota on rare earth smelting and separation.

The quota increased 15% to 115,000 tons, according to Reuters.

Caught in the Crossfire

The South China Morning Post reported on a Chinese company that could get caught up in the escalating trade war between the U.S. and China.

Shenghe Resources Holding, as the Post notes, is one firm in a consortium that has invested in the Mountain Pass mine in the U.S. (which was the only operating rare earths mine in the U.S. before owner Molycorp filed for bankruptcy in 2015).

If the back and forth results in China imposing a tariff on U.S. rare earths, as the article notes, that could throw a wrench into the consortium’s plans to export materials from the mine to China and, moreover, impact the mine’s viability.

Rare Earth Recycling

The US Federal Laboratories Consortium recently recognized a team of researchers for their work on a rare-earth magnet recycling process.

According to Recycling International, researchers from the Critical Minerals Institute and Ames Laboratory were honored with the Notable Technology Development Award for their work on a rare-earth magnet recycling process.

”A unique strength of this technology is that operational hazards and negative environmental impacts associated with acid-based dissolution process are eliminated without sacrificing purity, efficiency and potential economic impact” said Ikenna Nlebedim, the lead investigator for the research, in an Ames Laboratory release on the news.

Given China’s overwhelming dominance of the global rare earths market, the U.S. has continued to explore options to move away from dependence on foreign sources of the materials. According to the release, the process entails magnets being “dissolved in water-based solutions, recovering more than 99 percent purity rare earth elements.”

According to the Ames Laboratory announcement, collaboration is ongoing with a commercial partner, Infinium Metals, to produce metal ingots at a larger scale.

Per the release, patents are being filed for the researchers’ recycling process.

Actual Metal Prices and Trends

Yttrium fell to $32.88/kilogram, down 0.5%. Terbium oxide fell 0.5%, down to $427.39/kilogram.

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Neodymium oxide dropped 1.5% to $46,245.80/mt. Europium oxide fell 6.8% to $43.10/kilogram. Dysprosium oxide fell 0.9% to $167.30/kilogram.

To be fair, not all shale gas drilling is slowing, but in the Permian Basin, which has seen the most incandescent growth in recent years, according to the Financial Times, growth is slowing markedly, according to Schlumberger, Halliburton and the U.K.’s Weir Group – all majors suppliers to, or active players in, the fracking industry.

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Source: Financial Times

The article cites logistical challenges, including labor costs and a lack of adequate pipeline capacity constraining growth. The article states the following factors have undermined the economics of oil production in the region:

  • rising costs for labor and equipment
  • difficulties in disposing of the unwanted water and natural gas produced alongside the oil
  • and, above all, a shortage of pipeline capacity for taking crude from the wilds of west Texas to refineries and export terminals along the Gulf of Mexico coast.

The Financial Times quotes Bill Thomas, chief executive of EOG Resources, who said: “When you’re focused on one basin, one play, it gets very difficult to continue high rates of growth.”

Source: Financial Times

From a low two years ago, the tight oil industry’s rebound has been impressive. Much of it is coming from the Permian Basin, with national production up by 1.5 million barrels a day in the 12 months to July.

But questions are being asked as to whether or not the Permian may be reaching a plateau. New wells drilled alongside older wells are relatively less productive than the original when assessed on the basis of their length and the weight of sand used in the fracking process — so-called “parent” and “child” wells, as the Financial Times calls them.

That would suggest the long-term potential for the region to continue impressive growth at ever-lower cost is called into question.

Whether that proves to be the case remains to be seen. Of course, the Permian is not the only tight oil resource in the country. While others haven’t seen the level of investment the Permian has enjoyed in the last two years, subject to oil prices, the other regions still have huge potential.

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What it probably does say is the stellar growth of recent years is unlikely to continue and may be slower from the middle of this year onwards. With the dramatic rise in steel prices following the U.S.’s imposition of a 25% import tariff on steel products, it was to be expected drillers would find both exploratory work and infrastructure investment slowing. However, the Financial Times suggests the slowdown has caught many in the industry by surprise and suppliers’ share prices have taken a hit as a result.

The Construction Monthly Metals Index (MMI) picked up two points this month, rising 2.2% for a September reading of 92.

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U.S. Construction Spending

U.S. construction spending in July — the most recently available month for Census Bureau data — hit $1,315.4 billion, which marked a 0.1% increase from the June 2018 revised total and a 5.8% increase from the July 2017 total.

Through the first seven months of the year, spending hit $740.5 billion, up 5.2% from the same period in 2017.

Private construction spending was at a seasonally adjusted annual rate of $1,010.9 billion, down 0.1% from the revised June estimate of $1,011.9 billion. Within private construction, residential construction was at a seasonally adjusted annual rate of $560.1 billion in July, up 0.6% from the revised June estimate of $556.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.9 billion in July, down 1.0% from the revised June estimate of $455.3 billion.

Meanwhile, public construction was at an estimated seasonally adjusted annual rate of $304.5 billion, 0.7% above the revised June estimate of $302.3 billion. Within public construction, educational construction was at a seasonally adjusted annual rate of $71.6 billion, up 2.1% from the revised June estimate of $70.1 billion. Highway construction was at a seasonally adjusted annual rate of $94.2 billion, up 0.4% from the revised June estimate of $93.8 billion.

Architecture Billings Rise at Slower Rate

According to the Architecture Billings Index (ABI) — put out by the American Institute of Architects — architecture billings grew last month, but at a slower pace.

The ABI for August hit 50.7 (a reading of 50 marks no growth), meaning growth was relatively minimal.

“However, this is not yet cause for concern because indicators of new work in the pipeline—measured by inquiries into new work and the value of new signed design contracts at firms—both remained strong in July,” the ABI report for the month states.

Billings decreased in every region but the South, according to the report. The South region led the way with an ABI of 55.2, followed by the West (49.6), Midwest (49.3) and Northeast (48.0).

This month’s survey asked architecture industry professionals regarding the impact of tariffs on their businesses on the heels of recent U.S. tariffs and the resulting retaliatory tariffs.

Per the report, 37% of firms indicated that they have seen specific consequences on projects as a result of the tariffs, an increase from 24 percent that reported the same in April,” the report states. “However, 49 percent of firms reported that they have still not seen any impact, while the remaining 14 percent of firms indicated that they were not aware of or not sure of any impact.”

Construction Jobs Added

According to a Bureau of Labor Statistics (BLS) report released today, U.S. unemployment for August was unchanged from the previous month, holding at 3.9%.

A number of sectors added jobs in August, according to the report, including construction.

The construction sector added 23,000 jobs in August after adding 18,000 in July and 8,000 in June. Jobs in the sector have increased by 297,000 over the year, according to the report.

Actual Metal Prices and Trends

Chinese rebar steel hit $661.91/mt for the month, posting a month-over-month increase of 6.1%. Chinese H-beam steel rose 1.2% to $613.69/mt.

U.S. shredded scrap steel fell 4.6% to $354/st.

European commercial 1050 aluminum sheet rose 1.6% to $2,913.29/mt.

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Chinese aluminum bar jumped 5.0% to $2,405.08/mt. China 62% iron ore PB fines fell 0.5% to $76.71/dmt.