The Renewables MMI (Monthly Metals Index) continued its downward trend this month, falling an additional 7.10% between July and August. However, this trend is not likely to continue if the US senate passes the so-called “surprise climate bill.” Were this to happen, it would put fresh focus on renewable resources, likely causing the MMI adopt a much more bullish path.
The surprise climate bill, currently on the table at the US Senate, hopes to cut 40% of all of the US’ carbon emissions by 2030. If passed, the “Inflation Reduction Act” would place a heavy emphasis on renewable energy resources such as solar and wind power. Of course, this would have significant pros and cons for both the environment and the industrial metals industry.
For instance, most windmills in the US are composed of steel, copper, aluminum, and different forms of iron (outside of steel alloys). Along with this, solar panels are well known for their extensive use of silicon semiconductors. Therefore, it’s not hard to see how a reallocation of resources toward wind and solar energy could dramatically boost US demand for these metals, parts, and components.
That said, such a move could also make the US further reliant on other countries. After all, while many US wind turbines are produced by American companies like GE, most US solar panels are currently imported from Asia. If the bill does end up boosting demand for solar panels, it would most likely ramp up US dependence on imports.
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Texas, the second largest US state, harbors over 11,000 wind turbines. This can power millions of homes and take much strain off of Texas’ power grid during the hot summer months when people are reliant on AC, leading to higher energy costs. But it’s not as straight-forward as that.
Oftentimes, these wind turbine networks become too congested to run efficiently. This keeps them from effectively supplying the power they generate to higher population areas. And while the proposed Inflation Reduction Act could prove a huge boon to wind turbine production, Texas may not benefit as much as one would think.
Wind turbines out at sea. Adobe Stock
Just last month, Texas experienced a major heat wave. As with previous waves, this put enormous strain on the state’s power grid. However, it also highlighted one of the many problems facing the states’s wind turbines: low wind speed. In fact, during the heat wave, it was estimated that Texas wind farms were operating at just 8% capacity. In short: without sufficient winds, wind power will not be able to offset the strain on Texas’ power grid.
Offshore wind power could prove a possible solution. After all, wind is much more abundant over open waters like the Gulf of Mexico because of fewer obstacles in the way of wind streams. However, many debate the logistics of such an endeavor, especially how to secure turbines to the sea bed in such deep waters. Still, proponents maintain this could be the best solution for Texas’ wind power problems.
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The GOES/Grain-Oriented Electrical Steel MMI (Monthly Metals Index) continued its bullish trend this month. However, its rise was not as significant as in previous months – just 2.26% in total.
In the past month, a staggering 100 million Americans found themselves amid dangerously hot conditions. And with so many people feeling the “heat,” both figuratively and literally, US power grids have been pushed to the limit. After all, high temperatures, sometimes into the triple-digits, mean more and more homes are using AC.
This proves incredibly stressful on power grids nationwide, increasing the likelihood of black outs. In times like these, having renewable energy sources like solar and wind power certainly helps. However, these energy sources still aren’t always enough to stand up to heat so intense (or persistent).
This could be the reason why GOES prices have remained so bullish over the past 2-3 months. As more transformers are constructed to help “take the heat off,” more GOES coils are required. GOES themselves already make up around 50% of electric steel sales, but the hot weather can cause major surges in demand.
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After seeing a short-term bullish rebound in July, aluminum prices began to modestly decline again in early August. All in all, the rebound was insufficient to suggest a bullish reversal. As such, global aluminum prices remain within a macro downtrend despite recent directional uncertainty.
The Aluminum Monthly Metals Index (MMI) dropped by 2.4% month over month.
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Before Russian energy giant Gazprom decided to cut Nord Stream 1 gas flows to 20%, Europe had already shuttered roughly half of its aluminum smelting capacity. According to Alcoa CEO Roy Harvey, high energy prices mixed with low aluminum spot prices in June made between 10% and 20% of global aluminum smelting operations unprofitable. In China alone, smelter unprofitability extended to around 50% that month. Meanwhile, Norsk Hydro ASA CFO Kildemo estimated that more than one-third of global smelters had operated at a loss.
Now that European countries face energy rationing as energy prices continue upward, aluminum production, especially in Europe, remains pressured. According to a survey conducted by the German Aluminum Association, 9 out of 10 companies would be unable to switch energy sources should gas become unavailable. Indeed, energy shortages could cause the roughly 900,000 tons worth of production cutbacks we’ve witnessed so far this year to double moving into 2023.
Europe’s energy crisis was enough to pause the 4-month downtrend in aluminum prices, if only temporarily. Since mid-July, prices appeared to hit a bottom, reaching their lowest point since April of 2021. Soon after reaching this grim milestone, they began to move sideways. It’s true that the crisis may not be enough to reverse the price trend, especially amid a worsening global demand outlook. Still, for now, it’s enough to add some visible friction to the downward momentum.
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So far this year, Chinese products have increasingly filled the gaps left in the wake of the war in Ukraine. And while Western sanctions have avoided targeting Russian aluminum specifically, the downstream effects of Australia’s export bans on bauxite ore and alumina have disrupted Russian production nonetheless.
That said, China’s increased alumina production and its willingness to ship to Russia limits the effects of these shortages. These shipments have also helped turn China into a net exporter of alumina, a rank it achieved back in April. In Russian LNG exports once destined for Europe have now pivoted toward China.
In addition to alumina, China boosted both its primary aluminum production and exports. Specifically, primary unwrought aluminum exports rose by nearly 364% in the first half of the year over 2021, with a large portion of that material going to Europe.
Related article: The 5 Golden Rules for Sourcing Aluminum
While ingot production will suffer the brunt of Europe’s energy crisis, semis will also see an undeniable impact. For one, any reduction of primary metal and increase in physical delivery costs will support conversion premiums, especially if high prices are to blame. Secondly, European semis mills continue to face competition from Chinese imports.
It’s true that some Chinese-sourced products have quota restrictions and/or anti-dumping duties, but many do not. Beyond that, those duties become more easily surmountable as the cost of European-produced semi-manufactured products increases.
The return of European anti-dumping duties following a temporary suspension should stem at least some of the flow from China. Nonetheless, semis exports from the country continue to increase. Following an 18% year-over-year rise in 2021, semis exports have seen a 28% increase since the start of 2022.
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The Rare Earths MMI (Monthly MetalMiner Index for rare earth metals) extended its decline in July, dropping another 2.8%. This is a significant move for rare earths prices, and reinforces the subtle downtrend that began back in April. Now more than ever, countries are frantically searching for ways to separate their rare earths supply from China.
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Back on July 7th, Turkey reported that it had discovered the second largest reserve of rare earth metals in the world. The site, located in central Anatolia, is estimated to contain 694 million tons of rare earth reserves. This would put it just 106 million tons behind the Bayan Obo deposit in Northern China. If true, this would represent a supply shift that could impact rare earths prices significantly.
Of the 17 elements under the “rare earths” category, the forthcoming Anatolia site will produce ten. According to Fatih Donmez, the country’s Minister of Energy and Natural Resources, Turkey will soon be able to process 570,000 tons of rare earths each year. Hopefully, the pilot plant will be operational by the end of 2022 and provide a significant supply of rare earth metals.
While the prospect of breaking China’s pseudo-monopoly over rare earths proves tempting, the jury is still out on the quality of the Anatolia deposit. According to Jon Hykawy, the President of Stormcrow Capital, “the old adage that ‘grade is king’ in mining still holds. If this Turkish discovery is gigantic, but of very low grade, well, we usually call material like that ‘dirt.'”
Concerns also abound as to whether or not Turkey is up to the challenges of mining and refining the minerals on a large scale. For now, the marketplace is waiting with baited breath.
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Earlier this month, rare earths company Pensanna broke ground on the UK’s first ever rare earths processing plant. The project began as part of an overarching strategy to reduce China’s dominance over the rare earths marketplace. According to officials behind the £150 Million facility, the movement also saw renewed interest following the Russian invasion of Ukraine.
UK Secretary of State Kwasi Kwareng took the time to remind his fellow Europeans of the need to ween themselves off the Chinese teet. “Critical minerals will become even more important as we seek to bolster our energy security and domestic industrial resilience,” he said. He later added that the strategy would also “bolster our resilience to market shocks and geopolitical events.”
That said, a recent Financial Times article revealed that some industry experts are unhappy with the amount of disclosure around the project. For instance, little is known at this point about executive pay, resource quality, and the capacity of the site to meet its stated goals. As of this writing, the facility is supposed to produce 12,500 tons of separated rare earths along and 5% of global magnet metals by 2024.
However, Pensana’s plan hinges on sourcing rare earth oxides from its Longonjo site in Angola, which has only just broken ground. This fact is compounded by fears that processing the Angolan ore will generate high amounts of thorium, which is radioactive. In short: the market is crossing its fingers, but not exactly optimistic.
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Last month, we reported extensively on the US’ dependence on Chinese rare earth supplies. A month earlier, we touched on the rare earth manufacturing facility set to be built in Stillwater, Oklahoma. At the time, the $100 million facility was primed to create 100+ jobs and help move the US towards a point of self-sufficiency. However, that plant isn’t scheduled to come online until 2023. And depending on who you ask, that amount of time could prove to be an eternity.
In the meantime, there’s good news coming out of Canada. Vital Metals, who owns the rare earths extraction facility in Saskatchewan, recently announced some promising test results. It seems the first feed of the DMS (dense media separation) unit at the site has revealed capabilities comparable to TREO grades seen in lab test work.
TREO Grade refers to “total rare earth oxide.” Essentially, Vital Metals’ plant is operating at an extraction efficiency (43.7%) very close to those achieved in lab conditions (44.6%). On top of that, the unit achieved 75.2% recovery during the test. This bodes very well for the site’s capacity estimates and for its ability to produce high-quality product.
According to Managing Director Geoff Atkins, “the fact that on the first run we hit the laboratory test grades for total rare earths with 75% recovery with low-grade feed material is above expectations.” Of course, the site plans to continue optimizing its processes. Still, these results represent a real shot in the arm for the facility’s overall potential.
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Over the past month in, the Rare Earths MMI (Metal Miner Index) slightly dropped by 0.64%.
Over the past few decades, the US-China relationship has evolved into more of a rivalry than anything else. This has left the United States eager to decouple from China on several critical issues. One such issue is the supply of rare earths. After all, China refines almost 90% of the world’s rare earths. Moreover, the country is responsible for more than 50% of RE mining, as per figures given by International Energy Agency.
The US currently relies on two nations for its rare earth needs: China and Russia. We all know where the country stands vis-à-vis Russia. Fortunately, China remains on the US’ “friendlies” list – for now. Still, the Pentagon, the State Energy Department, and other organizations are expressing concerns about what would happen to the RE supply chain if China and the US ever went to war.
The US’ national defense stockpile includes minerals like titanium, tungsten, and lithium, to name a few. However, it still relies heavily on trade with China to keep the supply of these vital minerals rolling. It’s far from an ideal situation, but a new initiative might provide some much-needed security.
Just a few days ago, the State Department announced that the US and some key partner countries had established the Minerals Security Partnership (MSP). Put simply: the MSP is an “ambitious” initiative to bolster critical mineral supply chains.
Incidentally, the announcement was made in Toronto, Canada, during the Prospectors and Developers Association of Canada convention. Many might recognize this as the largest such mining event in the world. This implies that the State Department planned the news release to maximize impact.
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The other MSP partners include Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the UK, and the European Commission. According to the State Department release, the new partnership will aim to help “catalyze investment from governments and the private sector for strategic opportunities…that adhere to the highest environmental, social, and governance standards.”
In a report by Reuters, Jose Fernandez, the Under Secretary for economic growth, energy, and the environment at the State Department, was quoted as saying huge amounts of these minerals are needed to meet the US’ emissions reduction goals.
While neighboring Canada sits on large nickel and cobalt deposits, the US does not. Fortunately, the newly struck MSP should help resolve the issue.
So this renewed commitment to building a “robust, responsible critical mineral supply chain” seems strategically planned. Indeed, the statement came just a few days before NATO announced plans to adopt a new “Strategic Concept” for the coming decade at its summit in Madrid later this month.
Fortunately, there was some good news on the US rare earths front this week. American Rare Earths Limited announced that its recent exploration drilling at its La Paz property in Arizona had shown some encouraging results. The organization said it had dug nine exploratory holes in April this year, and a preliminary study of the samples showed rare earth mineralization in most of the excavations.
The US Department of Defense also signed a US $120 million deal with Australia’s Lynas Rare Earths. This was to build one of its first domestic heavy rare earths separation facilities. A report in the Financial Times stated that Perth-based Lynas would export heavy rare earth carbonate. The resources would be mined and refined in Australia. Then, these commodities will ship to the US. where the individual elements would be separated for commercial use.
It also just so happens that Lynas remains the world’s largest rare earths producer outside of China.
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For large power equipment manufacturers, Section 232 comes down to two little words: core loss.
The GOES M3 Monthly Metals Index increased 1.1% to a value of 178 for December 2018.
Nobody explains the situation better than SPX Transformer Solutions in their Section 232 exclusion request for two grades of domain-refined GOES:
“DR-GOES is one of the most expensive materials used in the manufacture of power transformers, and its cost equates to 10-20% of the overall cost of a transformer…When SPXTS was using U.S.-produced DR-GOES, we were rapidly losing market share on LPTs [Ed. note: large power transformers] and SPXTS was at a decision point to stop producing LPTs in 2016.”
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The company went on to explain that by using low-loss steel from Posco at its Waukesha, Wis., factory, the company began to gain back market share from foreign large power equipment manufacturers.
The need for material with lower core loss rests at the heart of most companies’ exclusion requests. Of course Posco material falls under quota rules (South Korea) as opposed to the 25% tariff and so can come into the U.S. duty-free.
Meanwhile, AK Steel continues to submit objections to the exclusion requests claiming their material does meet core loss requirements. However, given the multiple exclusion requests coming from large power equipment producers challenging that assumption – and willing to pay more for foreign material – suggests those filing objections have a strong argument.
Meanwhile, Sumitomo has filed an exclusion request for domain-refined electrical steel, also arguing that they need this material because of its “domain-refining properties for all sizes of transformer cores, post anneal.”
Import data continues to support the assertion that large power equipment manufacturers depend upon Japanese-produced domain-refined grain-oriented electrical steel as Japanese imports represent the bulk of all grain-oriented electrical steel imports:
Source: MetalMiner Analysis of ITA Data
In the meantime, according to a recent TEX Report, Japanese mills are offering prices in the range of $50-100 mt more in 2019 than in 2018, while U.S. producer AK Steel has requested a smaller increase. Meanwhile, Korean GOES imports to the U.S. will increase as the quotas for 2019 open. The producer to watch, however, remains Baosteel in China as the company will focus on higher-quality GOES materials with increased production capacity. Market participants will want to track if that material remains in China or shifts to exports.
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The U.S. grain-oriented electrical steel (GOES) M3 coil price moved up slightly from $2,434/mt to $2,462/mt. The MMI increased two points from 176 to 178.
The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.
Our September MMI report is in the books — overall, it was another strong month for metals.
Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up
For our latest batch of readings, all 10 of the MMI sub-indexes posted upward movement.
It was a big month for aluminum, as the Aluminum MMI rose 8.2% and LME aluminum jumped 10.73% through the month. The Construction and Automotive MMIs also had solid months, while the Copper MMI shot up 7.7% in what was another good month for Dr. Copper.
Meanwhile, in policy news, last week the U.S. Department of Commerce launched an anti-dumping and countervailing duty investigation into stainless steel flanges from China and India. As our Irene Martinez Canorea wrote in her Stainless MMI report, a preliminary determination in the case is coming Oct. 2.
In addition, today the DOC announced it had launched an investigation into imports of titanium sponge from Japan and Kazakhstan.
More broadly, the Section 232 investigations into aluminum and steel imports are still ongoing. It’s unclear when exactly a ruling will be made, but Secretary of Commerce Wilbur Ross has January deadlines to meet, as he is required to present President Donald Trump with a report and policy recommendations vis-a-vis the probes.
Free Sample Report: Our Annual Metal Buying Outlook
You can read about all of the aforementioned — and much more — by downloading the September MMI report below.
Mining stocks took a hammering last week, prompting questions as to whether the recent bull run in metal prices has come to an end.
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As steel and iron futures in China slid, share prices in iron ore and base metal miners were sold off around the world in a bearish wave of sentiment sparked, according to mining.com, by the continued appreciation of the Chinese currency against the U.S. dollar.
The Renminbi hit 6.447 against the dollar, gaining nearly 7.8% so far this year and a 21-month peak that appears to be worrying policymakers concerned about China’s export competitiveness.
According to the MetalMiner index, the Dalian exchange 62% Iron Ore settlement price closed at Yuan 534 per metric ton last week, down nearly 7%. Yet, steel demand remains robust in China and iron ore stocks that China’s port dropped for a fifth straight week according to commodity news, to 133 million tons the lowest since May. Indeed, because the currency is still appreciating, it is reported traders like to buy future cargoes in dollars, stockpile them and sell in Renminbi.
One fear weighing on investors of mining stocks is China’s drive for environmental improvements, which is widely expected to result in the closure of steel mills, power plants, aluminum smelters and other sources of pollution (such as zinc and copper smelting).
According to the article, China plans to conduct 15 rounds of inspections during its new campaign starting this month and continuing until March of next year. Any plants that do not meet tougher environmental standards face closure. The resulting loss of production capacity, it is feared, will hit import demand for raw materials such as iron ore and bauxite.
Not surprisingly, iron ore spot prices declined toward the end of the week, but some are seeing current weakness as a natural correction to months of bullish strength.
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Physical demand remains strong, suggesting local traders are to frightened by Beijing’s environmental program just yet. Most are waiting for November, when the heating season starts and enforced closures are expected.
Our August MMI report is in the books, and it paints a positive picture for a wide range of metals.
Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up
In our June MMI, four sub-indexes posted no movement. The July MMI? Only one stood pat.
Our August MMI, meanwhile, painted a different picture.
Nine of the 10 sub-indexes posted positive movement, with the remaining sub-index (GOES) dropping.
It was a strong month for the Renewables MMI, which grew 6.9% to hit 77. The Raw Steel MMI rose 5.6% to hit 75.
As Irene Martinez Canorea wrote Friday, there’s a bullish outlook behind metals like aluminum, copper and zinc these days. Can they continue that momentum throughout the rest of the calendar year? That remains to be seen, but they’ve certainly been on an uptrend.
Speaking of aluminum, the U.S. Department of Commerce last week made a preliminary determination in a countervailing duty investigation of Chinese aluminum foil, declaring that the products are unfairly benefiting from Chinese government subsidies. The decision was met with applause from the U.S. aluminum industry, particularly the Aluminum Association.
“The association and its foil-producing members are very pleased with the Commerce Department’s finding and we greatly appreciate Secretary Ross’s leadership in enforcing U.S. trade laws to combat unfair practices,” said Heidi Brock, President and CEO of the Aluminum Association, in a prepared statement.
What could come of the investigation? Duties as high as 81% could be slapped on Chinese aluminum foil.
In other investigations, the Department of Commerce’s Section 232 investigations of steel and aluminum imports remain pending. The investigations don’t appear to be at the forefront of the Trump administration’s agenda right now. Furthermore, the deadlines for Secretary of Commerce Wilbur Ross to present President Donald Trump with policy recommendations don’t hit until January.
Of course, things can change quickly — but, for now, a final ruling on trade policy regarding steel and aluminum imports possibly won’t materialize for a while.
Free Sample Report: Our Annual Metal Buying Outlook
You can read about all of the above and much more in our August MMI report, which you can download below.
The Aluminum MMI inched two points higher in July, returning to 2015 levels.
The Aluminum MMI increase was driven by a 5% increase in Chinese primary aluminum. The LME price inched up by 1%, contrary to other base metals that have experienced higher price increases this month.
Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up
Analysis of supply and demand might suggest quite a bullish outlook for aluminum. According to a recent Hydro aluminum quarterly report, global primary aluminum production through Q2 of this year saw a .492 million metric ton deficit. However this deficit needs to be weighed against increased Chinese aluminum smelting capacity of up to 2.39 million metric tons this year, according to a recent article in Hellenic Shipping News.
Thus, we could see an oversupply situation.
Before we dive into the weekend, let’s take a look back at the week in metals news:
Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up
Free Download: The July 2017 MMI Report
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