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Commodities Roundup: G20 Outcomes, Century Aluminum Expands and DRC Raises Cobalt Royalty Rate

12/07/2018 By


For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

From price movements to policy decisions, we scour the landscape for what matters. This week:

USMCA Signed

The U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement (USMCA) during last weekend’s Group of 20 (G20) summit in Argentina.

The deal, the successor to the 1994 North American Free Trade Agreement (NAFTA), still has to be ratified by each country’s legislatures.

In the meantime, industry groups and politicians weighed in on the deal on the heels of its signing. For example, the deal has important ramifications for the automotive sector, namely related to regional content rules and labor rates.

“Today’s signing is an important step towards achieving free and fair trade in North America,” said Joe Hinrichs, executive vice president and president of global operations for Ford Motor Co. “We look forward to being a collaborative partner to support the ratification of the agreement in all three markets because it will support an integrated, globally competitive automotive business, helping to drive volume and support manufacturing jobs.”

Trump, Xi Meet at G20

In other G20 news, the much-anticipated meeting between U.S. President Donald Trump and Chinese President Xi Jinping took place during the summit, approximately one month before the 10% tariff rate on $200 billion worth of Chinese imports was set to jump to 25%.

While the respective takeaways from the meeting seem to differ for the two delegations, the U.S. agreed to forestall the tariff bump and initiate a 90-day negotiation period with China, in an effort to head off further escalation of the simmering trade war.

However, as MetalMiner’s Stuart Burns wrote, there’s still much more work to be done before markets can truly rest easy.

“Metal prices reacted positively to the news, however, with three-month LME copper up nearly 2.5% as a return to more stable growth prospects looked more likely,” he explained. “The devil remains, as they say, in the details.

“Responsibility will now fall to an army of working-level officials on both sides to find solutions to these issues. The fact no progress has been made so far may be more down to political posturing than a complete lack of common ground. Nevertheless, China will be reluctant to admit it even practices any of the policies listed in the U.S. complaints being leveled against it, let alone publicly agree to change.”

Century Aluminum Announces Smelter Expansion

U.S. aluminum maker Century Aluminum announced the expansion of its smelter in Sebree, Kentucky.

The expansion will add 90,000 metric tons of billet production and 20,000 metric tons of additional secondary capacity.

In a prepared statement, Century Aluminum President and CEO Michael Bless linked the expansion announcement to what he called the “positive effects” of the Trump administration’s Section 232 tariffs (which impact both steel and aluminum).

Rio Tinto Hails First Bauxite Shipment from Amrun Mine

Miner Rio Tinto celebrated its first shipment of bauxite from its Amrun mine in Australia.

According to the company, the mine is expected to reach 22.8 million tons of production next year.

Auto Sales Down

For automotive market watchers, U.S. sales were projected to be down in November compared with November 2017, but were up slightly from October.

As for individual automakers, Ford reported November sales fell 6.9% year over year, while Fiat Chrysler sales jumped 17%.

Meanwhile, Honda dropped 9.5% and Nissan plunged 18.7%.

U.S. Construction Spending Down

October spending on construction fell 0.1% from September, but was up 4.9% year over year (at $1.308 trillion in October).

However, the October figure marked the lowest monthly spending total since March.

Unlike previous months, the Midwest led the way in architecture billings growth, according to the monthly Architecture Billings Index.

Looking to the Skies

As Burns noted earlier this week, metals watchers are always looking for leading indicators of price movements; unfortunately, the factors sometimes considered don’t always correlate with reality.

But one indicator that could be of use for coal, steel and other energy-intensive base metals, he notes, is pollution levels in China.

How so? More pollution means more production, and more production means depressed prices. Less pollution, less production, higher prices.

“Steel and aluminum mills are continuing to churn out metal; there has been no squeeze on supply,” Burns wrote. “Pollution levels are back to where they were in previous years, and the trend since late September — during which aluminum prices have fallen some 9%, thermal coal down 14% and steel rebar by 25% — looks set to continue.”

Cobalt Royalties Rise

The price of doing business for cobalt miners in the Democratic Republic of the Congo (DRC) is going up, much to the chagrin of major players like Glencore.

The DRC made public this week a signed decree that raises royalty rates for miners of cobalt to 10% — nearly triple its previous level.

It remains to be seen how much investors will be spooked by such a royalty increase. It should be noted that a majority of the world’s cobalt is mined in the DRC, which has struggled with violence and political instability.

Cobalt is coveted for its use in batteries for electric vehicles, among other high-tech applications. The cobalt price has plunged this year, from $95,000/ton in late March to $54,750/ton this week, a decline of 42%.