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Commodities Roundup: China’s steel production rises; U.S. seeks rare earths sources; gloomy copper forecast; September auto sales decline

10/04/2019 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.

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

China’s steel production

MetalMiner’s Stuart Burns delved into what continues to be a counterintuitive trend.

Despite forced production cuts around the country, China’s overall steel production continues to rise.

In recent years, Beijing mandated forced production cuts during the winter heating season to fight pollution in its steelmaking hubs. Those standards were loosened, however, last year when authority over the cuts was passed down to local officials (as opposed to a blanket cut coming from Beijing).

“With the China National Day holiday looming, mills in Hebei and Shandong have been ordered by provincial governments to reduce their steel output by up to 50% in the run-up to the holidays in a bid to improve air quality,” Burns wrote.

“Five mills in Shandong were ordered to suspend varying shares of steel production capacity, last week and this week, coming with a loss of around 29,000 mt/d of steel output. Hebei is still awaiting its closure orders, but some mills have already cut output of pig iron.

“Yet despite this gloomy production and demand scenario, the Nikkei Asian Review reports short-term closures aside, China is poised to produce over 1 billion tons of steel this year, with the industry producing 577 million tons of crude steel in the first seven months of the year.”

U.S. tries to secure new supplies of rare earths

China wields an overwhelming dominance of the global rare earths mining and processing sectors, a factor that has come into play throughout the trade war with the U.S.

Rare earths are critical for a variety of high-tech capacities, ranging from consumer items (like cellphones and laptops) to military uses.

As such, the U.S. has been making moves to work out alternative sources of rare earths to lessen its dependence on China.

“Now, the U.S. is seeking cooperation from potential supply countries outside of China — notably Australia, but also Greenland, Botswana and Peru,” Burns wrote. “The U.S. is looking to develop not just alternative raw material supply but, more importantly, to develop refining facilities too.”

Global steel production jumps 3.4%

Speaking of steel production, global production in August rose 3.4% on a year-over-year basis, the World Steel Association recently reported.

Global production surged to 156 million tons for the month. Of that total, China accounted for an estimated 87.3 million tons, up 9.3% on a year-over-year basis.

A gloomy copper forecast

In other metals news, Burns covered the supply-and-demand fundamentals of copper, often dubbed “Dr. Copper” for its role as an indicator of general economic health (by virtue of its use in a variety of sectors).

“Copper’s weakening price during the year comes despite the International Copper Study Group reporting that copper production is down 1.4% in the first half and 2019 due to weather-related mine disruption in Chile and the transition of two mines in Indonesia to different ore zones, creating a deficit of some 220,000 tons for the first half of 2019,” Burns explained.

However, despite declining production, copper prices have been on the decline.

China, as the top consumer of the metal, plays a large role in the copper market.

“Chinese consumption, however, is predicted to remain weak,” Burns wrote. “Chinese copper consumption growth was downgraded to an estimate of just 0.5% for 2019 compared with expectations of 2.8% growth earlier this year as industrial consumption continues to languish under weak automotive and consumer goods demand, in addition to modest infrastructure investment.”

Aluminum also on the decline

In addition to copper, aluminum prices have been sliding too.

According to Burns, the demand outlook in China is weak, with industry activity contracting in both China and Japan.

In addition, a strong U.S. dollar has weighed on industrial metals prices, as have falling raw materials costs (e.g., alumina).

“Support has also been lacking on the cost side,” Burns wrote. “Alumina prices have halved since last year’s peaks, Reuters reported. At $294 per metric ton, the alumina price is at its lowest since June 2017, removing a source of discipline for smelters to cut output due to margin pressures.”

India looks to increase nuclear power capacity

Nuclear power accounts for just 2% of India’s electricity needs.

The Indian government is looking to change that, MetalMiner’s Sohrab Darabshaw explained.

“India is looking at adding another 5.4 GW to the nuclear power plants in the next decade, adding to the current total output of 6.7 GW,” he wrote.

However, announced efforts toward that end have been met with staunch opposition from locals in India who live near places where new nuclear plants have been proposed.

Auto sales fall in September

After a strong August for U.S. auto sales, sales were down this past month.

Accounting for fewer September selling days compared with last year, J.D. Power and LMC Automotive forecast September U.S. auto sales would be down 7.8% compared with September 2018.

In other sector news, the nationwide General Motors strike entered its third week, with the United Automobile Workers union recently rejecting a GM offer.

The stoppage marks the first nationwide strike at GM since 2007.