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Commodities Roundup: Palladium Shines, China Decreases Auto Tariff

12/21/2018 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, our MetalMiner editors scour the landscape for what matters. This week:

Palladium — the New Gold?

MetalMiner’s Stuart Burns delved into the fortunes of palladium, which has seen its price surpass that of gold for the first time in 16 years.

“Driven by both investor and trade interest, palladium appears to be responding to strong demand from the auto industry (from which 80% of its consumption comes),” Burns explained. “A swing to petrol engines has boosted palladium demand, in preference to its sister metal, platinum, which is used more in diesel engines.”

Burns noted reports that demand for the metal — to be used for catalytic applications — is set to reach a record high of 8.5 million ounces this year. As such, rising demand will see to a deficit of 1.2 million ounces this year, with a deficit also in the cards for next year.

“But for now, the metal seems a good bet for 2019, providing vehicle sales do not falter,” Burns explained. “Investors have driven Palladium ETFs up 12.3% this year, even as gold has fallen 6.4%.

“The big money has been made, but palladium’s fundamentals remain better than gold’s — providing global growth and vehicle sales hold up in 2019.”

China to Decrease Tariff on Imported U.S. Automobiles

On the heels of trade talks between President Donald Trump and President Xi Jinping during the Group of 20 (G20) summit, China’s Ministry of Finance announced it would bring its tariff on imported U.S.-made automobiles down to 15% from 40%.

The temporary decrease is set to go into effect Jan. 1.

Ford Motor Co. applauded the announcement as it works to strengthen its position in the world’s largest automobile market.

“As a leading exporter of vehicles from the U.S., we are very encouraged by China’s announcement today to reduce tariffs on U.S. produced vehicles to 15 percent,” said Joe Hinrichs, Ford’s executive vice president and president of global operations. “We applaud both governments for working together constructively to reduce trade barriers and open markets. Last year, Ford exported nearly 50,000 U.S. built vehicles to support the growing auto market in China.”

China’s announcement came on the heels of a similar move by the U.S., in which it agreed not to increase the tariff rate from 10% to 25% on a tariff package of $200 billion worth in Chinese goods (announced in September). The tariff on the goods in question was set to jump to 25% as of Jan. 1.

Imported autos represent a relatively small percentage of overall sales in China (less than 5%). However, China’s decision to decrease the tariff to 15% will be welcomed by U.S. automakers looking to gain a steadier foothold in the market.

Furthermore, both tariff announcements served as a momentary de-escalation of trade tensions between the two countries, which could build momentum toward a wider trade agreement between the two largest economies in the world.

Rio Tinto Completes $500M Sale of Aluminum Smelter

Miner Rio Tinto closed a sale of its Dunkerque aluminum smelter in France to steel tycoon Sanjeev Gupta’s Liberty House (a subsidiary of GFG Alliance).

The smelter has an annual capacity of approximately 270,000 tons.

In a statement, GFG said it was conducting feasibility studies into the possibility of widening the scope of the Dunkerque smelter to include, among other functions, the manufacturing of components for automobiles.

“Today’s completion follows GFG’s acquisition earlier this year of France’s only remaining producer of aluminum vehicle wheels, AR Industries — now called Liberty Wheels France — which was already a key customer of the Dunkerque smelter,” GFG said in a prepared statement. “The deal marked a significant move into the French downstream manufacturing sector and saved over 90% of the jobs at the Chateauroux plant.”

Court Orders Restart of Indian Copper Smelter

An Indian court has reversed a previous order that called for the shutdown of Vedanta’s Sterlite copper smelter.

Protests by locals earlier this year, expressing anger over pollution levels stemming from the plant’s operations, turned bloody. Police forces fired on the protesters, killing 13.

Following the news of the court’s reversal of the initial order, Vedanta’s shares surged by as much as 6.5%. However, the local provincial government has said it will appeal the ruling.

PT Timah Announces Strong 3Q Production

Indonesian state-run tin producer PT Timah announced its third-quarter tin production jumped 27% over the previous quarter, bouncing back after a weaker start to the year.

The International Tin Association (ITA) commented on the firm’s latest production report.

“Weak production in the first half of 2018 can be primarily attributed to export license and quota issues as well as seasonal low production during the wet season,” the ITA report states. “However, there were no such issues in Q3 translating to a strong increase in tin production.”

Global Steel Production Rises 5.8%

The World Steel Association reported global crude steel production in November jumped 5.8% year over year, hitting a total of 148.6 million tons.

Despite the beginning of the winter heating season in China — and the accompanying start of winter production curbs — production in the country rose 10.8% year over year. China’s October production increased 9.1% year over year.