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Reading like Tolstoy’s “War and Peace,” an epic article in The New York Times explores the background and history of Oleg Deripaska’s battle to initially gain acceptance in the West and, later, to save his companies — notably Rusal and its holding company En+ — from potentially bankrupting U.S. sanctions.

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What comes across strongly from the article, whether you necessarily feel The New York Times has a political point to make or not, is that acceptance in Western capitals and among the Western business elite can be bought via lobbyist and media firms.

Deripaska has spent tens of millions over the last few years trying to buy his way into a position where he is recognized as a respectable businessman and reputable member of the global business community. To its credit, Washington has been the standout obstacle to his campaign to gain visa-free travel and recognition.

While U.S. lobbyists, senators and businessmen have been paid millions on his behalf, successive administrations of both political hues have resisted the pressure to give him unfettered acceptance.

At heart, this is down to deep misgivings about how he came about his vast aluminum empire, his reported links to organized crime and his undoubted closeness to the current Putin administration.

While the details of Deripaska’s reportedly sordid past make interesting reading, into which The New York Times goes into considerable detail, of more interest to our readers is the likely fate of sanctions against Rusal and any minority shareholdings En+ holds in other downstream aluminum companies (which have been causing no end of problems this year, disrupting aluminum supplies and causing price volatility).

The upshot of The New York Times’ view is that the successful hiring of an army of lobbyists and repeated delays in applying the threatened sanctions points to the probability they will never be applied.

The current, several times postponed, end date is Dec. 12, but both the market and political observers are of the view this date too will pass without any sanctions being applied, despite the fact Deripaska has not sold down his shareholding in En+ or relinquished real control of his aluminum (and nickel) empire.

For aluminum consumers, that is good news — we don’t need to remind anyone of the price spike earlier this year that resulted from the initial announcement of the sanctions.

The aluminum price is currently languishing below the level it was prior to the sanctions announcement and subsequent price spike, suggesting the market is totally sanguine about any chance of sanctions actually being applied. The resulting disruption to the supply chain following the announcement of sanctions seems to have sent a reality check to Washington that has been heeded and every effort has been pursued to reach a compromise of saving face while also avoiding a repeat.

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The chances are “sufficient evidence” will be found that Deripaska has stepped back from day-to- day control to justify a shift of focus from En+ and Rusal as investment vehicles to Deripaska as an individual.

In a tight aluminum market, that’s just what consumers will be looking to hear.

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The Raw Steels Monthly Metals Index (MMI) decreased this month, dropping two points for an MMI reading of 87 points. The Raw Steels MMI had held at 89 points since August.

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Domestic steel prices have showed slowing momentum since June 2018. Domestic steel prices increased sharply at the beginning of the year, driven by a bullish market in commodities and industrial metals and the Section 232 tariffs.

Buying organizations may want to remember that domestic steel prices have remained at more than seven-year highs this year.

Source: MetalMiner data from MetalMiner IndX(™)

Hot-rolled coil, cold-rolled coil and hot-dip galvanized prices decreased in October. Meanwhile, plate prices increased this month, supported by lower metal availability.

Source: MetalMiner data from MetalMiner IndX(™)

With budgeting season in full gear, domestic steel prices may start increasing at some point between November and January, according to historical steel price cyclicality analysis. Therefore, companies will need to know when and how much to buy.

Chinese Steel Prices

So far in November, all forms of Chinese steel prices have decreased. Chinese domestic steel prices started to decrease at the end of October, driven by the start of the winter season.

Source: MetalMiner data from MetalMiner IndX(™)

But the real question to ask around Chinese steel prices appears less apparent. Have prices really declined in RMB and has the currency moved (i.e., has the RMB depreciated) such that the steel price from a U.S. buyer’s perspective appears to be dropping?

When looking at the price of Chinese steel (HRC and CRC) in U.S. dollars, prices have in fact decreased.

We can do a simple calculation, looking at the percentage decrease from September 2018 to November 2018 in Chinese steel prices in RMB and USD. Chinese HRC prices in RMB decreased 6% in that period, while CRC prices dropped by 3% in the same time frame (also in RMB).

The same calculation in USD results in a 7% decrease for HRC prices and a 4% decrease for CRC.

Source: MetalMiner data from MetalMiner IndX(™)

The depreciation of the yuan has moved Chinese steel prices lower from a U.S. buyer’s perspective. A weaker currency makes Chinese goods more appealing, despite the tariffs.

Source: MetalMiner data from MetalMiner IndX(™)

The Spread and Cost Calculation

When looking at the historical spread, readers can see that the spread has been increasing for most 2018.

Source: MetalMiner data from MetalMiner IndX(™)

The spread between U.S. CRC prices and CRC Chinese prices has increased sharply since the beginning of 2018. The slope of the increase is even larger over the March-April period, when domestic steel prices skyrocketed.

The larger spread does not come about only due to higher U.S. domestic steel prices, but also by a weaker yuan. The combination of both factors has resulted in a lower Chinese price (and a larger spread).

To answer the question of importing steel from China or not, let’s look at U.S. versus Chinese prices.

Considering November prices in $/st for HRC and CRC in both countries, the freight at $90/st and the 25% steel tariff, the final price still appears to be appealing for U.S. buyers.

Source: MetalMiner analysis from MetalMiner IndX(™) data

Chinese prices could still increase by 8% or U.S. prices could still decrease by 8% (in the event of the other moving flat) without any change in the final price for both.

What This Means for Industrial Buyers

Buying organizations may want to pay close attention to Chinese and U.S. price dynamics 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.

For more information on how to mitigate price risk year-round, request a free trial to our Monthly Metal Buying Outlook.

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Actual Raw Steel Prices and Trends

The U.S. Midwest HRC 3-month futures price increased this month by 0.37%, moving to $813/st.

Chinese steel billet prices fell this month by 1.71%, while Chinese slab prices fell by 4.66% to $600/mt.

The U.S. shredded scrap price closed the month at $342/st, decreasing from last month.

The Renewables Monthly Metals Index (MMI) fell two points this month, down to a November MMI reading of 101.

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Cobalt Mining

According to the head of commodities trader Trafigura, unregulated cobalt mining cannot be “wished away,” the Financial Times reported last month.

In 2017, nearly 60% of the world’s cobalt was mined in the Democratic Republic of the Congo (DRC), where smaller artisanal mines are often unregulated, leading to routinely unsafe working conditions and, according to reports by advocacy groups, the use of child labor.

According to the U.S. Geological Survey, 64,000 tons of cobalt were mined in the DRC last year out of a global total of 110,000 tons. Cobalt is coveted for its use in electric vehicle batteries.

According to Jeremy Weir, the head of Trafigura, cobalt demand is expected to at least triple by 2025.

“The reality is that there are hundreds of thousands of people in the DRC who earn a living through work in the ASM sector,” Weir was quoted as saying. “It’s illegal in many cases; it’s unregulated and can be very dangerous. But it can’t be wished away.”

Last November, Amnesty International released a report that offered criticism of a number of industry giants, including Microsoft, for a lack of progress with respect to assuring their cobalt supply chains are ethical and conflict-free. Apple and Samsung were listed among companies that had taken “adequate” steps toward that goal.

“Our initial investigations found that cobalt mined by children and adults in horrendous conditions in the DRC is entering the supply chains of some of the world’s biggest brands. When we approached these companies we were alarmed to find out that many were failing to ask basic questions about where their cobalt comes from,” Seema Joshi, head of business and human rights at Amnesty International, was quoted as saying last year.

Since then, the issue has remained on the international radar.

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It was the first edition of its kind, but it attracted quite an audience.

The International Steel Conclave, organized by the Indian Steel Association and Messe Frankfurt India, was held in the Indian capital of New Delhi on Oct. 25.

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Using the occasion to highlight the Indian government’s rapid strides in the steel sector, Minister Birender Singh said India is poised to achieve its stipulated target of 300 million tons of capacity by 2030. About 150 delegates and speakers, from national and international steel companies — including JSW Group, Tata Steel, JSPL, Steel Authority of India Ltd — were in attendance.

The minister lamented that though India does have good engineers and scientists, the country is not leading vis-à-vis innovation in steel technology. According to Singh, advancements would help reduce the country’s import bill.

Sounding positive on the forward movement of steel in India, Singh noted crude steel production capacity had gone up to 52 million tons, up by 6% from last year. He dubbed 2018 as a “year of new beginnings for the industry.”

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Automaker General Motors shared news of a strong third quarter Wednesday when the company released its third-quarter financial results.

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“Our third-quarter performance demonstrates our determination to manage risks and deliver strong business results while continuing to advance the future of mobility,” Chairman and CEO Mary Barra said in a release.

GM reported third-quarter revenue of $38.5 billion, up 6.4% compared with Q3 2017. It also reported EBIT-adjusted income of $3.2 billion, up 25% year over year, and income of $2.5 billion.

In addition, the automaker reported EBIT-adjusted earnings per share (EPS) of $1.87, up from an expected EPS of $1.25, CNBC reported.

Earlier this year, GM announced it would begin reporting sales on a quarterly basis, as opposed to monthly. In the third quarter, GM saw North American sales of 833,712 units, 700,000 of which came in the U.S. (at an average transaction price of $36,000, up about $800 year over year and $4,000 above the industry average). The North American sales total for the quarter, however, was down 9.8% compared with Q3 2017.

Sales were also down in China, where GM sold 835,934 units, down 14.9% year over year. Chevrolet sales in China, however, were up 10% year over year, GM reported, “led by higher content crossovers including the Equinox, which saw 29 percent growth compared to a year ago.”

“Despite challenging market conditions, GM China achieved record third-quarter equity income, driven by a strong mix of vehicles in popular segments, led by record Cadillac sales and strong Chevrolet deliveries,” the GM earnings report states. “GM China is introducing 10 new or refreshed models in the second half of 2018.”

Cadillac sales were also up in China. GM reported Cadillac sales in the third quarter were up 4% year over year and were up 20% in the year to date.

Overall, total sales for the quarter were down 14.7% year over year, and are down 12.4% in the year to date. Sales in the year to date were down 1.8% in North America and 2.5% in China.

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GM shares were up 9.78% as of Wednesday afternoon following the morning’s earnings announcement.

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According to an International Copper Study Group (ICSG) report released earlier this month, global copper production through the first seven months of the year was up 4.5% compared with the first seven months of 2017.

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By volume, copper production increased by 500,000 tons, according to the report, largely paced by gains in Chile and Indonesia.

“Production in Chile, the world’s biggest copper mine producing country, increased by 11% primarily because production in February/March 2017 was restricted by a strike at Escondida (the world’s biggest copper mine) and also because there is an improvement in Codelco’s production levels in 2018,” the report states.

As for Indonesia, its output surged by 30%, largely due to a temporary ban on concentrate exports last year, the ICSG report notes.

Mine production was down in Canada and the United States over the first half of the year, by 6% and 7%, respectively.

In terms of refined copper production, primary production is estimated to have increased 0.5% year over year, while production from scrap jumped 6%, good for an overall increase of 1.5%. China was the main contributor to production growth in this category, while Chilean production rose 5%.

On the other end of the spectrum, Indian production fell 22%. Production declines were also seen in Australia, the Philippines, Poland and the U.S. “as a consequence of maintenance shutdowns and operational issues.”

The refined copper balance through the first seven months of the year shows a deficit of 155,000 tons, according to the report.

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Even so, the copper price has traded sideways as of late, on the heels of a 7.8% surge in the LME copper price between Sept. 17 and Sept. 24 (reaching $6,318/t as of Sept. 24).

Source: LME

According to the report, the average LME cash price for September was $6,020.03/t, marking a 0.3% decline from the August average of $6,039.75/t.

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Yes, yes, I know this has nothing to do with metal prices or trading fundamentals — but in my defense I will say it covers two of my passions (so just get over it, will you).

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ThomasNet occasionally puts out some great — if slightly quirky — reports, and this one from last week is in that form, covering the highly innovative watchmaker REC’s latest project to make a new range of watches from the wing skin of a World War II Spitfire. Nuts, maybe, but cool and rather clever (you can make your own judgement, but I will say it strikes a chord with me).

Firstly, REC hit on the neat idea of taking some kind of iconic piece of junk and turning it into a limited run of high-end watches.

That’s not totally unique, of course.

The Geneva watchmaker Romain Jerome SA took steel and coal from the Titanic and made them into a limited run of watches some 10 years ago, retailing between $7,800 and $173,100, according to Reuters.

REC’s first endeavor was much more accessible: a run of 250 watches made from the body of a rare 1966 Raven Black Mustang, costing “only” $1,500 each. Bravely, they asked clients what they would like to see next — the overwhelming choice was the British World War II fighter, the Spitfire.

REC located PT879, a MKIX, shot down in a dog fight over Russia in 1944. PT879 was one of something like a thousand Spitfires shipped to Russia under the terms of the Allied coalition against the Axis powers. The MKIX was the second-most popular variant of the highly successful Spitfire of which in total over 20,000 were made from just before World War II (in 1938) to a little after the war (in 1948), but of which less than 100 still fly today.

The Spitfire was remarkable in many ways.

Apart from being arguably the most beautiful aircraft ever produced, it was also highly effective, with a fast rate of climb, tight turning radius and an airframe that could be developed to perform and carry much more than it was originally designed to do.

In test pilot trials, one even set an airspeed record of Mach 0.92 (620 mph) — even though the resulting damage nearly ripped the wings off, it remains a remarkable story in its own right.

Part of the Spitfire’s novelty was the all-metal monocoque construction, in which the aircraft surface became a part of the airframe. Prior to World War II, most aircraft were designed around a wooden frame covered with a doped fabric skin, more akin to a World War I biplane.

The beautifully elliptical aircraft wings of the Spitfire were designed to reduce drag, but also gave the aircraft a beautiful and iconic shape that begged celebration in a personalized item, like a watch. The wing skin was made from a 2000 series aluminum-copper alloy and each dial will contain a piece of the wing skin, each carrying the unique service scars imparted during its brief life.

If it flicks your switch, a little piece of aviation history can be yours for around $1,300. If a Spitfire is not your thing, hang in there — REC will likely have some equally goofy, if no less alluring, idea in due course.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

A health warning: no spitfires were destroyed or otherwise damaged in the making of this article, or these watches. PT879 is being painstakingly renovated with modern hairline crack free aluminum wings and may yet bless our skies when it rises, phoenix-like, from the ashes of the scrap yard.

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PwC last week released a report on Q3 merger and acquisition (M&A) activity, showing an uptick in momentum despite the trade headwinds that continue to swirl around the world (namely, between the U.S. and China).

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The total value of M&A deals in Q3 jumped 78% compared with Q2, according to the report.

“Despite headwinds caused by global trade tension and increasing interest rates, cash-rich corporations with strategic rationales are likely to drive deal activity for the rest of 2018 and into 2019,” said Brian Kelly, PwC’s U.S. metals deals leader.

Among the aforementioned trade-related headwinds includes, of course, the U.S. tariffs on steel and aluminum.

“While the ongoing tariff disputes led to margin pressure for smaller producers of steel and aluminum and downstream manufacturers, it is expected to open up opportunities for strategic investors who are looking to consolidate and stay competitive,” the report states. “The US maintained its stance on increased metal tariffs despite proposing USMCA (a revamped version of NAFTA) and allowing US companies to petition for exemptions from tariffs where highly specialized metal imports (which cannot be produced domestically) are required in products.

“This is likely to shape North American deal activity in Q4 2018 and 2019.”

The quarter featured one megadeal (i.e., a deal with a disclosed value of $5 billion or more), that being the $6.1 billion purchase of Randgold Resources Ltd. by Barrick Gold Corp. 

Total deal volume fell 9% compared to Q2 2018 and by 27% compared with Q3 2017, but deal value jumped 78% compared with Q2 2018 and by 179% compared with Q3 2017.

Broken down by metals sector, the value of steel and aluminum deals in Q3 fell by 22% and 81%, respectively, compared with Q2. Total deal value hit $16.1 billion for the quarter, with an average deal size of $223.2 million.

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Read the full PwC report on metals sector M&A activity in Q3 here.

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Festival season in India normally means one thing: a rush to buy gold.

Outside of China, India sees the most amount of gold buying when Indians are, well, happy or enjoying a moment — be it a party, a wedding or a festival.

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But this festive season, starting from around the beginning of October, gold buying has not picked up at the pace one it used to.

Reports are coming in that Indians are not flocking to jewelry stores as they normally would for a couple of reasons – an increase in the price of domestic gold and the increasing value of the U.S. dollar versus the Indian rupee.

At the first marker of this season, that is Dusshera, when buying the yellow metal is considered auspicious, demand was down between 20-40% in some places, as compared to the same period last year, according to a Reuters report.

Of course, demand was better compared to some of the previous months, but it has not been as high as it was last year, according to Nitin Khandelwal, chairman of the All Indian Gems & Jewellery Domestic Council, as quoted by Reuters.

Much of the demand for “festival” gold comes from rural India. This year, that sector is lagging, partly because of failure of the monsoon in many parts. A good monsoon means a bumper crop, which translates into better buying of the bullion during the festival time. Even discounts of about U.S. $8 an ounce failed to pull in the crowds.

The next milestone is the Indian festival of lights, Diwali.

While some retail jewelers are optimistic of an increase in pickup, others are keeping their fingers crossed. The price of gold continues to soar, touching Rs 32, 350 (about U.S. $442) per 10 grams as of Oct. 23.

Gold plays a major role in the Indian economy. Previous studies have pegged India’s gold stock at around 24,000 tons, mostly held by the average Indian. Its value, at today’s rates, reaches about U.S. $800 billion.

The last quarter of the year is the season of peak demand, with Indians buying almost 240 metric tons on average in the past four years, according to the World Gold Council.

This year, Dhanteras — one of the most auspicious days for Indians to buy gold — falls on Nov. 5 and will be followed by Diwali.

Both retailers and bullion analysts say that if things on the ground do no improve by then, the trend seen during Dusshera will follow into Diwali.

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Gold futures at India’s Multi Commodity Exchange of India Ltd. are up by over 10% this year, the highest since July 2016.

The rupee, on the other hand, is at its lowest standing versus the dollar in 16 years. Ask any bullion dealer or retailer and the market rule of thumb is that rising prices always bring down sales.

Going by the way things are on the ground at the moment, chances of things changing dramatically for the better by the first fortnight of November seems like a far-off dream.

The U.S. Department of Commerce. qingwa/Adobe Stock

The U.S. Department of Commerce (DOC) earlier this week issued an affirmative preliminary determination in its countervailing duty investigation of imports of steel propane cylinders from China.

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The DOC determined Chinese exporters of steel propane cylinders received countervailable subsidies ranging from 42.77% to 145.37%.

According to the DOC, imports of the cylinders from China were valued at $89.8 million in 2017.

The domestic petitioners in the investigation are Worthington Industries (Columbus, Ohio) and Manchester Tank & Equipment Co. (Franklin, Tennessee). The petitioners filed their cases May 22, 2018.

“The merchandise covered by this investigation is steel cylinders for compressed or liquefied propane gas (steel propane cylinders) meeting the requirements of, or produced to meet the requirements of, U.S. Department of Transportation (USDOT) Specifications 4B, 4BA, or 4BW, or Transport Canada Specification 4BM, 4BAM, or 4BWM, or United Nations pressure receptacle standard ISO 4706,” the DOC fact sheet for the investigation notes.

The DOC identified several Chinese exporters for the upper end of the countervailable duty range (145.37%):

  • TPA Metals and Machinery (SZ) Co. Ltd.
  • Guangzhou Lion Cylinders Co. Ltd. 
  • Hubei Daly LPG Cylinder Manufacturer Co. Ltd. 
  • Taishan Machinery Factory Ltd. 
  • Wuyi Xilinde Machinery Manufacture Co., Ltd. 
  • Zhejiang Jucheng Steel Cylinder Co., Ltd. 

Meanwhile, the DOC identified Shandong Huanri Group Co. Ltd. for the 42.77% duty. The 42.77% duty figure was also applied to all other Chinese exporters.

The DOC is scheduled to make its final determination in the investigation by March 4, 2019. If it rules in the affirmative, the investigation moves to the U.S. International Trade Commission (USITC), which would be scheduled to rule by April 18, 2019.

If the USITC also rules in the affirmative, the DOC would issue countervailing duty orders by April 25, 2019.

Imports of the steel cylinders surged last year.

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According to the DOC fact sheet, citing Census Bureau data, the U.S. imported 4,006,413 units last year, up 148.3% from the 1,613,360 units imported in 2016.