Commodities Roundup: Alunorte Restart, India’s Elections and Rare Earths

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.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

Alumina Refinery Returns

After a spill last year, Norsk Hydro’s Alunorte alumina refinery in Brazil received the green light to resume full production, which MetalMiner’s Stuart Burns noted took markets by surprise.

Alumina is a raw material used in the production of aluminum. The Alunorte refinery has been operating at 50% capacity since last year.

The restart, combined with new capacity coming on stream in the future, will likely weigh on aluminum prices.

“Global alumina production (excluding China) is expected to increase by nearly 4 million tons this year compared to 2018, with further capacity coming on stream in 2020,” Burns wrote. “All this new supply will undermine price support for spot alumina and, in turn, the primary aluminum price.”

What Does Modi Win Mean for India?

India’s incumbent Prime Minister Narendra Modi and his BJP scored a landslide victory in the country’s recent elections, the world’s largest exercise of democracy.

So, what does Modi’s win mean for India going forward?

According to Burns, India made significant steps during Modi’s first term with respect to fighting corruption and institution of a universal GST, but much more needs to be done.

“India is facing serious economic challenges, including slowing growth, a persistently high fiscal deficit, tepid private investment, and weakness and instability in the financial system,” he wrote.

“Modi achieved some gains in his first term, such as introducing universal GST in place of state taxes and the aforementioned clampdown on corruption. However, he remains widely criticized for not doing more to tackle long-standing challenges, such as selling unprofitable state enterprises, relaxing restrictive labor laws, modernizing the land market or tackling the state-dominated banking system.”

Platinum-Palladium Spread

MetalMiner’s Belinda Fuller checked in on the spread between platinum and palladium prices, delving into the reversal of a historical trend between the platinum-group metals (PGMs).

Historically, platinum has traded at a premium to palladium, but that trend has reversed over the last 18 months. The spread reached a peak at the start of March, but has trended sideways of late at around $500 per ounce.

In addition, in the long term, Chinese prices generally tend to lead U.S. prices.

“A look at the price trend lines between the two countries does in fact show a high correlation in prices between the two countries, especially long term,” Fuller explained.

“More recently, U.S. and Chinese platinum prices continued to move in a tight band together.

“Chinese palladium prices, on the other hand, trend above U.S. prices, with the gap growing in 2019 — not surprising given that China leads demand for the metal globally.”

China’s Ace in the Hole

Despite weeks of mounting optimism regarding the prospects of a U.S.-China trade agreement, talks fell apart this month and the two countries ended up trading more tariffs.

A tool that China may leverage going forward is its dominance of the rare earths market and the U.S.’s dependence on it for the materials — which is used in laptops, cellphones and other high-tech applications.

“The U.S. is nowhere near self-sufficient in REE, with even ores mined at California’s Mountain Pass shipped to China for processing and Lynas Corp.’s proposed U.S.-based processing plant in Texas still years away from shipping a kilogram of refined metal,” Burns explained. “The post suggests China does not even have to announce an embargo of exports — it could close down selected parts of the U.S. supply chain by restricting supply to any number of component suppliers in China or shutting down a supplier on ‘environmental grounds.’ ”

He adds the military may be even more affected by a potential rare earths squeeze than the private sector.

“F-35 Joint Strike Fighters need the thermal protection of rare earth coatings,” Burns continued. “Hellfire missiles, the Aegis Spy-1 radar and the sights of Abrams M1 tank all rely on rare earths. So do precision-guided weapons, the post’s list goes on, yet the White House and, indeed, successive U.S. administrations have been strangely sanguine about this vulnerability that covers not just the processing of ore to refined metals, but the infrastructure to use those refined metals and salts in a wide range of applications in the early stages of multiple supply chains.”

Global Steel Production Jumps 6.4%

The World Steel Association released its monthly global crude steel production report, showing global production surged 6.4% in April on a year-over-year basis.

China’s steel production continues to chug along after a record 2018. In April, China produced 85.0 million tons, marking a 12.7% increase compared with April 2018.

U.S. production also increased, jumping 7.3% year over year to 7.4 million tons.

According to a recent American Iron and Steel Institute report, the U.S. steel sector’s capacity utilization rate for the year through May 25 reached 81.8%, compared with 76.6% for the same period in 2018.

Glencore to Supply Cobalt to Umicore

Miner Glencore and materials technology group announced a new long-term cobalt supply agreement.

The cobalt will be sourced from Glencore’s KCC and Mutanda operations in the Democratic Republic of the Congo.

Last week, Umicore announced it reached an agreement to acquire Freeport Cobalt’s cobalt refined and cathode precursor activities in Kokkola, Finland.