This morning in metals news: Chinese auto sales picked up in September on a month-over-month basis; the Energy Information Administration forecast a significant jump in natural gas prices this winter; and, lastly, U.K. steel manufacturers are asking for government intervention in the ongoing energy crisis.
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Chinese auto sales rise
Chinese auto sales rose by 14.9% in September on a month-over-month basis, the China Association of Automobile Manufacturers reported this month.
Sales reached 2.07 million vehicles in September. Meanwhile, the September total marked a 19.6% year-over-year decline.
For the year to date, sales reached 18.62 million vehicles, or up 8.7% year over year.
This morning in metals news: the Energy Information Administration forecasts natural gas prices will remain elevated this winter; meanwhile, Rio Tinto said it is working on new technology for the production of low-carbon steel; and, lastly, miner BHP and South Korean steelmaker POSCO signed a memorandum of understanding to explore the reduction of greenhouse gas emissions in the steelmaking process.
To the chagrin of industrial users and residential consumers alike, natural gas prices are likely to remain high this winter, the Energy Information Administration says.
“In our October Short-Term Energy Outlook (STEO), we forecast that natural gas spot prices at the U.S. benchmark Henry Hub will average $5.67 per million British thermal units (MMBtu) between October and March, the highest winter price since 2007–2008,” the EIA said. “The increase in Henry Hub prices in recent months and in our forecast reflect below-average storage levels heading into the winter heating season and strong demand for U.S. liquefied natural gas (LNG), even though we’ve seen relatively slow growth in U.S. natural gas production.”
However, the EIA forecasts Henry Hub prices will decline after Q1 2022.
We have written twice over the last week concerning the energy crunch, first in China and then India.
Thermal coal prices have risen to record levels, threatening to impact GDP growth as a result of electricity rationing.
The Financial Times observes that China has suffered a triple whammy of emissions restrictions on power generation, a shortage of coal, and price caps on electricity that mean demand is unaffected as input costs have risen.
India, which relies heavily on coal for its thermal power plant, is facing tight supplies and record prices. Nationally, it has only four days of stocks left.
But energy — whether it is in the form of coal, natural gas or oil — is a global commodity. Both Europe and the U.S. find themselves with their own set of challenges, more skewed to the tight natural gas market and rising global oil prices.
The U.K. is not alone but is possibly the most acutely exposed to Europe’s reliance on imported natural gas, particularly from Russia.
U.S. gas contracts for November delivery surged nearly 40% this week to hit £4 per therm (having started 2021 below 50p).
But a surprise announcement by Vladimir Putin yesterday saying Russia was prepared to increase supplies to stabilize prices prompted a sharp sell-off, sending the price down to £2.87.
Whether it stays there will depend in large part on whether Russia can honor that commitment in the months ahead. Russian state gas supplier Gazprom has come under intense criticism for deliberately shipping to no more than its minimal contractual obligations this year. The reality is Russia’s own inventory levels are also depleted after a harsh winter.
It is probably fair to say Europe’s energy markets are particularly exposed to supply disruptions despite supposedly being highly integrated.
Many large industrial consumers have complained that the E.U.’s Green Deal to make the bloc climate neutral by 2050 will only push up energy prices further. In turn, that could ultimately lead to social unrest. For example, high energy prices resulted in the French “gilets jaunes,” or yellow vests, demonstrations in 2018-2019.
Inflation, energy cost impacts
Rising energy prices have fueled inflation that was already being stoked by commodity price increase and supply chain problems for much of this year. Rising energy costs and inflation have been contributing factors in the August fall in German industrial orders. Orders fell 7.7%, a far sharper fall then economists had expected.
Meanwhile, rising energy costs have prompted the closure of large energy consumers across Europe, such as ammonia and fertilizer production. Meanwhile, in the U.S., oil prices this week hit the highest level in seven years after OPEC+ decided to maintain current production levels, which will see a planned increase of just 400,000 barrels a day from November.
U.S. administrators have talked about release from the strategic petroleum reserve and even limits or a ban on U.S. exports of crude oil to limit domestic oil price rises. The average price of gas at the pump has reached $3.19 a gallon, the highest in seven years.
The U.S. economy does not appear to be unduly hindered by the price rises yet. The private sector added a higher-than-expected 568,000 jobs in September, the biggest rise in three months. However, with midterm elections next year, high gas prices will not go down well with voters.
Buyers of European components may expect to see some inflation in prices this year and next. Cost increases are coming, not just from metal prices but energy, wage costs and continuing logistics delays in Europe.
It is to be hoped the continent copes through this winter and cost increases do not derail the recovery. While manufacturers have been riding a wave of unprecedented demand recovery, it should not be mistaken as unstoppable.
A number of factors are converging to push up costs while potentially dampening demand. That makes a toxic mix for a still fragile recovery.
This morning in metals news: Mercedes-Benz, Stellantis and TotalEnergies will each take a 33% stake in Automotive Cells Company; meanwhile, the Semiconductor Industry Association offered its reaction to the Biden administration’s recent meeting on the semiconductor supply chain; and, lastly, the Energy Information Administration expects a rise in natural gas consumption in 2021 and 2022.
Electric car lithium battery pack. (Nischaporn/ Adobe Stock)
Mercedes-Benz is collaborating with Stellantis and TotalEnergies to scale up production of the Automotive Cells Company.
Each partner will have a 33% stake in the battery cells manufacturer.
The project will cost more than €7 billion ($8.2 billion), Mercedes-Benz estimated.
“On its path toward an all-electric future, Mercedes-Benz is taking an equity stake in European battery cell manufacturer Automotive Cells Company (ACC) to scale up development and production of next-generation high-performance battery cells and modules,” Mercedes-Benz said. “As announced in July 2021, Mercedes-Benz will be ready to go fully electric by the end of the decade – wherever market conditions allow.”
To reach that goal, the German automaker said it will need battery production capacity of more than 200 Gigawatt hours.
This morning in metals news: Ford Motor Co. is collaborating with Redwood Materials on a closed-loop battery recycling and building out the domestic electric vehicle battery supply chain; Norway will expand natural gas exports to Europe; and, lastly, aluminum prices have slowed down after peaking Sept. 13.
Many may be wondering how to set buying strategies for 2022 with so many variables in the air. The old saying goes, “Nothing kills high prices like high prices” — but does that still hold true?
Ford, Redwood to team up on closed-loop battery recycling
Tobias Arhelger/Adobe Stock
Ford Motor Co. announced it will collaborate with battery materials company Redwood Materials on closed-loop battery recycling.
The companies also said they will work together to build out a domestic battery supply chain.
“Ford and Redwood are collaborating to integrate battery recycling into Ford’s domestic battery strategy. Redwood’s recycling technology can recover, on average, more than 95% of the elements like nickel, cobalt, lithium and copper,” the automaker said. “These materials can be reused in a closed-loop with Redwood moving to produce anode copper foil and cathode active materials for future battery production. By using locally produced, recycled battery materials, Ford can drive down costs, increase battery materials supply and reduce its reliance on imports and mining of raw materials.”
Reports in the media that natural gas prices in the U.K. have more than quadrupled over the last year to highs of 180p per therm from around 40p per therm this time last year are making headlines. This is largely because of the impact on small, startup gas suppliers who have been forced out of business over recent weeks.
However, natural gas — and energy prices, broadly — have been rising strongly. This has been the case, not just in the U.K. but across Europe for much of this year.
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Power prices on the rise
In part, this is weather-related. Exceptionally low winds are failing to generate sufficient renewable energy. However, the situation is also due to the rise of natural gas prices, globally and specifically in Europe.
Demand from China and severe weather in Texas have led to increasing demand and constrained supply. As such, those have created the perfect conditions for speculators to drive prices higher.
Another less talked about contributor is the failure of Russia to supply more than its minimum contractual requirements to the European market for some months. The move is widely seen as the Russian authorities trying to apply pressure on Europe for the approval of the Nord Stream 2 gas pipeline.
The situation is exacerbated by unplanned outages of nuclear power plants this year. Furthermore, fire shut down a main power cable importing electricity from France just this month.
Natural gas surge
The U.K. relies heavily on natural gas for both residential and industrial use. The resulting rise in prices has already led to the closure of two major U.K.’s fertilizer plants.
This has had the knock-on effect of crimping CO2 production. Ir is made as a byproduct and is the source of some 80% of the UK’s supply. CO2 is needed for a wide variety of industrial and agricultural applications.
The U.K.’s second-biggest steel producer, British Steel, is quoted by the Financial Times as saying that the U.K.’s power prices are spiraling out of control.
The company is on variable electricity prices. British Steel has warned it could have to close production in the face of unprecedented price increases.
Electricity costs can represent up to 20% of the cost of converting basic raw materials into steel. The company is quoted as saying it is facing a maximum price at peak times of up to £2,500 per MWh.
Meanwhile, it saw an average of £50 per MWh in April.
Spot prices in excess of £1,000 per month MWh are becoming increasingly common this month after wholesale prices in the U.K. rose dramatically.
Nor is the UK well served with reserves of natural gas. It has just 1% of Europe’s total storage after failing to invest in storage facilities over the last 10 years. So, if supplies from Russia do not increase as the winter season approaches, the U.K. is probably the worst-placed of all European markets in having no alternatives to limited supply and rising prices.
While European steel producers are more protected in terms of energy prices by state rules and long-term agreements, producers in Italy are voicing worries. Rising power costs are said to be behind the current price of steel products in southern Europe, which had expected to decrease on falling scrap input costs but were being hampered by record power costs.
With winter approaching, the situation is likely to get much worse before it gets better.
This morning in metals news: the Energy Information Administration forecast U.S. natural gas exports will exceed imports this year; aluminum prices remained near 10-year highs last week; and, finally, the Associated General Contractors of America reported on the rise in construction input costs.
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This morning in metals news: the U.S. Senate on Tuesday voted to pass a $1 trillion infrastructure bill; the Consumer Price Index for All Urban Consumers rose once again in July; and, finally, the Energy Information Administration forecast lower-than-average natural gas inventories heading into the winter heating season.
After a lengthy back and forth, the U.S. Senate passed a $1 trillion infrastructure bill Tuesday by a vote of 69-30.
“There is a discrepancy in historical Federal investment between highways, aviation, and intercity passenger rail,” the bill text reads. “Between 1949 and 2017, the Federal Government invested more than $2 trillion in our nation’s highways and over $777 billion in aviation. The Federal Government has invested $96 billion in intercity passenger rail, beginning in 1971 with the creation of the National Railroad Passenger Corporation. Intercity passenger rail Federal investment is only 12 percent of Federal aviation investment and less than 5 percent of Federal highway investment.”
United States Trade Representative Katherine Tai said the deal marked a step closer to “historic, once-in-a-generation infrastructure investments.”
“The bill will improve our roads, bridges and ports, build resilient energy networks that combat climate change, and strengthen our supply chains,” Tai said. “Finally, the strong Buy America provisions will support our workers and revitalize domestic industries while maintaining America’s competitive edge.”
According to the Financial Times, natural gas prices in Europe and the U.K. have soared to some of the highest levels on record. The U.K. is facing the highest price since 2005. Meanwhile, in Europe, prices have hit €40 per megawatt hour for the first time.
Prices in Asia are also high as countries try to attract cargoes of liquefied natural gas to meet strong demand. The spot price of LNG cargoes rose above $15 per million British thermal units (MMBTU), according to the Financial Times.
Prices in Europe and the U.K., when converted, are near $14 per MMBTU, the post reports.
Supply and demand
Demand is undoubtedly a driver, but so is constrained supply.
This morning in metals news: copper prices have stabilized over the last month; U.S. natural gas prices have surged to their highest level since 2014; and, lastly, Cleveland-Cliffs released its second-quarter results.
MetalMiner Senior Forecast Analyst Maria Rosa Gobitz earlier this month covered the copper market, for which she noted prices had started to consolidate.
The LME three-month copper price had surged to an all-time high May 10 of around $10,700 per metric ton. The price proceeded to cool over the next 5-6 weeks, falling as low as $9,070 per metric ton.
The copper price then consolidated and has traded largely sideways over the last month. On Wednesday, the price closed at $9,244 per metric ton, or up 1.92% month over month, per MetalMiner Insights data.
“In June, the U.S. natural gas spot price at the Henry Hub averaged $3.26 per million British thermal units (MMBtu), the highest price during any summer month (April–September) since 2014,” the EIA reported. “Prices in July have increased from June, averaging $3.67/MMBtu through the first two weeks of July. Spot prices for July 14 in every one of the more than 175 pricing hubs tracked by Natural Gas Intelligence exceeded $3.00/MMBtu.”
Cleveland-Cliffs releases Q2 results
Cleveland-Cliffs reported net income of $795 million during Q2 2021, compared with a loss of $108 million during Q2 2020.
“In the second quarter of 2021 we achieved all-time quarterly records in revenue, net income, and adjusted EBITDA,” Chairman, President and CEO Lourenco Goncalves said. “The numbers unequivocally confirm our efficiency in operating the new footprint, resulting from the integration of the two major steel companies acquired in 2020 as a single and indivisible mining and steel company. They also demonstrate our flawless execution in ramping up our state-of-the-art Direct Reduction plant in Toledo to the current level of production above nominal capacity.”