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Commodities Roundup: WTO rules on Airbus subsidies, GM strike drags on, steel prices decline

10/11/2019 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 to Spend Matters, scours the landscape for what matters. This week:

Chinese aluminum prices weaken

Aluminum prices around the world continued to lose steam this past month, but Chinese price declines were among the largest, MetalMiner’s Belinda Fuller explained.

Through most of the year, SHFE aluminum prices had showed some upward momentum, but prices declined last month.

“The price drop looks somewhat mild, as it looks to be within the range of normal price fluctuations for the metal over the past year,” Fuller wrote.

“Around mid-month, news of slowing economic growth in China led to a stalling of price momentum for some key industrial metals, including aluminum.”

While tidings of slowing growth, in China and throughout the world, are widespread, not all indicators are negative, Fuller added.

“The Caixin Purchasing Managers Index (PMI) clearly jumped into the expansionary zone, as reported in this month’s MetalMiner Monthly Outlook,” Fuller wrote.

“China’s National Bureau of Statistics’ (NBS) competing PMI also edged up to 49.8 (compared with August’s reading of 49.5). In particular, the production subindex jumped to 52.3, while the new orders index increased to 50.5 — both marking expansionary readings.”

Boeing-Airbus dogfight continues

The U.S. scored a victory at the World Trade Organization (WTO) in the long-running battle over subsidies of Airbus by the European Union.

“On Oct. 2, the WTO ruled in the U.S.’s favor, agreeing to the largest tariff penalty in its history,” MetalMiner’s Stuart Burns wrote. “The case is the long-running dispute between the U.S. and the E.U. over supposed illegal subsidies provided by both governments to its major plane manufacturers.

“The standoff started in 2004 when the U.S. brought action against the E.U. for cheap loans afforded to Airbus. The E.U. promptly countered, saying the U.S. gave subsidies and extensive military contracts to Boeing that effectively provided the same (or similar) support.”

Next year, the WTO is expected to rule in favor of the E.U. in its own case against U.S. subsidization of Boeing.

For now, however, the WTO ruling allows the U.S. to apply up to $7.5 billion in retaliatory tariffs against the E.U.

SUVs and EVs

As much is made about the rise of electric vehicles (EV), the reality is a concurrent rise in SUV demand may mitigate the environmental impact of EVs.

“Anyone reading the mainstream media can be forgiven for thinking EVs are the fastest-growing sector of the automotive market,” Burns wrote. “We are often bombarded with new model launches but, also, the ramifications of this surging demand are painted as an imminent threat to price stability for a host of key battery metals, like lithium, cobalt and nickel, or motor metals, like copper.”

Demand for SUVs, however, is outpacing demand for EVs.

“The between 7 million and 8 million EVs that should be on the road by the end of 2019 represent less than 0.1% of the 1.1 billion cars and other light vehicles that use internal combustion engines (ICE),” Burns added. “Some 85 million ICE vehicles were sold worldwide in 2018 and, even from this much higher base, SUVs are experiencing rapid growth in outright numbers.”

Copper products removed from E.U. tariff list

Circling back to the aerial saga between the U.S. and the European Union  — and their respective airplane manufacturing behemoths, the U.S.’s planned tariff list has recently changed, from a metals perspective.

An initial tariff list totaling $11 billion in E.U. goods included copper products, but a more recent tariff list did not include them.

However, there could be additional changes to the list before implementation. The tariff list will be finalized this month, with duties going into effect Oct. 18.

GM strike rolls on

In other major manufacturing news, the nationwide General Motors strike — the first such strike at the Big 3 automaker since 2007 — entered its fourth week this week, as the automaker continues negotiations with the United Auto Workers (UAW) union.

Burns surveyed the impact of the strike, which began Sept. 16.

“According to CNN, GM is estimated to have lost some $660 million already,” he wrote. “Losses are rising, as non-unionized plants close for want of parts made in the striking operations.

“The numbers are eye-watering, although only some 46,000 workers are directly involved. GM alone is said to be suffering losses that started at $10 million a day but are rapidly rising toward $90 million a day, CNN reported, citing the Anderson Economic Group,” he wrote.

“If a resolution is not found soon, GM alone could lose over U.S. $1 billion, in addition to the workers’ salary losses of about $18 million a day this week rising to $25 million next week.”

Steel prices slide

The steel price decline continued last month.

In the U.S., steel prices were down across the board for HRC, CRC, HDG and plate, with plate posting the largest decline.

U.S. steel capacity utilization remains above the important 80% mark for the year to date, checking in at 80.4%; however, that figure has inched downward in recent weeks.

For the week ending Oct. 5, capacity utilization reached 78%, with production down 3.9% from the same week in 2018.