Commodities Roundup: Oil price plunge continues; February steel production rises; Metal users want tariff relief

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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:

Plunging oil prices

MetalMiner’s Stuart Burns this week delved into oil prices, asking exactly how far they could be expected to fall.

“A price recovery will only come if the output war between Saudi Arabia and Russia comes to an end,” Burns wrote.

“Both sides have substantial financial reserves. Russia, in particular, is benefitting from a collapse in the ruble against the dollar, making its oil receipts not much different from before hostilities broke out.

“Russia can weather this storm for some time to come and seems ill-disposed to reach an agreement for substantial cutbacks any time soon.”

The coronavirus outbreak has hammered oil demand, leading to the possibility of so-called negative oil prices.

“Talk of sub-$20 per barrel oil that seemed excessively pessimistic just a week or so back is now a reality. CBC reported Friday that Western Canadian Select (WCS) was selling for $6.45 U.S. a barrel Thursday, down U.S. $2.84 from a day earlier,” Burns wrote.

“As a result, it opened the very real possibility that producers, at least in the short term, may have to pay companies to take oil — effectively creating negative oil prices.”

Section 232 tariff relief

Amid the coronavirus pandemic, metal users and manufacturers issued renewed calls for relief from the Trump administration’s Section 232 tariffs.

The Trump administration imposed the tariffs on imported steel and aluminum back in March 2018, to the delight of domestic steel and aluminum producers.

However, groups like the Coalition of American Metal Manufacturers and Users (CAMMU) are asking for relief from the tariffs, particularly as the coronavirus pandemic exerts pressure on the global economy.

“The Coalition of American Metal Manufacturers and Users (CAMMU) strongly urges the Trump Administration to immediately terminate the Section 232 steel and aluminum tariffs to help U.S. manufacturers during this time of unprecedented crisis caused by the COVID-19 pandemic,” the group said in a statement last week.

“If immediate termination is not possible, CAMMU urges at least a 90-day pause on tariff collections as small and medium manufacturers struggle with cash flows. Quick and decisive action to mitigate the ongoing economic damage to manufacturers is urgently needed right now.”

Not surprisingly, steel industry groups held the opposite view.

“The steel industry in the United States appreciates the efforts the administration has been making to limit the spread and impact of the COVID-19 pandemic, particularly on businesses and the broader economy,” several steel industry groups said in a letter to Mark Morgan, acting commissioner of the U.S. Customs and Border Protection agency. “Any efforts to delay or reduce the collection of duties on unfairly-traded steel imports or imports that threaten to impair U.S. national and economic security will ultimately hurt U.S. workers and businesses during this unprecedented moment.”

Gold market disconnect

Burns this week also delved into what’s driving the disconnect between physical gold and market gold prices.

“London banks frequently used the CME’s COMEX market to hedge their transactions, but London’s 400-ounce bars were not accepted on COMEX, necessitating the melting down and recasting of 400-ounce bars to 100-ounce bars if physical delivery were required,” he wrote.

“Under normal circumstances that was not a problem, and the two markets traded in close tandem.

“But these are not normal times.

“A combination of factors — the surge in retail demand for bars, the loss of the majority of daily London-to-New York flights and closure of Europe’s largest gold refineries in the Swiss canton of Ticino, which borders Italy, due to the coronavirus scares — have created a triple whammy distorting the normally super-efficient gold market, the Financial Times reports.”

Troubling PMI numbers

Burns also took a look at the latest PMI numbers, which have not exactly inspired confidence.

“In short, the numbers suggest a sharp contraction,” he wrote. “As businesses were either forced to close or their sales plunged almost overnight, it is hardly surprising PMI numbers followed.

“In the Eurozone, the overall, or composite, index plunged to 31.4 from 51.6 in February, The Economist reported — the lowest reading since the index was created in 1998.

“The services index slumped from 52.6 to 28.4, beating the previous dire record of 39.2, set in February 2009, by a distance. Service-sector jobs were cut at the fastest rate since May 2009 as leisure and tourism were hit hard and fast. Manufacturing, which was already shrinking in the Eurozone, turned profoundly bearish, sliding from 48.7 to 39.5.”

Steel production up in February

Global crude steel production jumped 2.8% in February compared with February 2019 production, according to the World Steel Association.

Production totaled 143.3 million tons in February. China’s production jumped 5.0% to 74.8 million tons, while U.S. production increased 3.0% to 7.2 million tons.

Indian firm rolls out retail solar solution

MetalMiner contributor Sohrab Darabshaw surveyed the latest developments in India’s growing solar sector, particularly with Tata Power Solar’s retail offering.

“Tata Power Solar, a subsidiary of Tata Power (one of India’s largest power generation and distribution companies), has decided to take its solar rooftop business to the retail level by launching a rooftop solution in India’s capital, Delhi, and the commercial capital of Mumbai, the Hindu Business Line reported,” Darabshaw wrote.

“The eventual rollout of this operation will be across 90 cities in India, according to Smart Energy.”

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