Commodities Roundup: Lewisport mill for sale; stainless prices up in China; U.S. fuel inventory surges

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:

Lewisport’s status amid Novelis’ acquisition of Aleris

In 2018, flat-rolled aluminum producer Novelis announced its intention to acquire Aleris for $2.8 billion, but approval was until recently still pending from the U.S. Department of Justice, MetalMiner’s Stuart Burns noted.

“Combined, Novelis and Aleris are said to control some 60% of the U.S. automotive aluminum sheet market, raising fears the dominant position would seem too dominant a position for the merged company,” Burns wrote.

“Hindalco and Novelis are a global company with 49 manufacturing facilities in North America, Europe and Asia, according to CNBC, and revenues of some $12.3 billion last year.

“Aleris, while much smaller (with 13 facilities across North America, Europe and China and revenues of $3.4 billion), holds an outsized role in the automotive sheet through its Lewisport, Kentucky plant. The plant includes a 350 kt hot mill and a 200 kt automotive cold mill serving the North American market.”

Despite efforts to persuade it, the Department of Justice ultimately ruled against the company, forcing it to divest itself of the Lewisport mill (which was subsequently put up for sale).

“For consumers, the Justice Department's decision is beneficial in the short term; maintaining a more competitive supply market will help keep down prices for consumers,” Burns continued.

“In the longer term, the future security of Lewisport is paramount. The new owners will need to be sufficiently well-funded and experienced in the aluminum automotive sheet market to ensure the site’s long-term viability.”

Stainless support

Metals prices have struggled across the board during the coronavirus pandemic, as demand has plummeted across most sectors.

However, stainless steel prices in China have shown some signs of upward movement.

“Nickel prices have seen support in recent months more from supply-side concerns,” Burns explained.

“Initially, support came from bringing forward Indonesia's raw material export ban. More recently, support came from concerns the coronavirus pandemic would shut down mines in the Philippines and Indonesia, in addition to disruption of shipping to top consumer China.

“But a recent Reuters article reports prices for stainless steel have risen in China due to strong demand as the economy gets back on its feet after lockdown.”

India’s battle with COVID-19, economic woes

Burns also checked in on India and the fallout from its efforts to control the spread of COVID-19 in the country.

“Indian supply chains, at least for some industries, have continued to operate well with the rest of the world,” Burns said.

“Exports of aluminum products have held up well, and while there have been paperwork and banking issues, the larger exporters have managed to cope well.

“Even so, India’s exports contracted by a record 60.28% to $10.36 billion in April, according to Timesnow.com, official data showed Friday," Burns wrote.

“Imports also collapsed by 58.65% to $17.12 billion in April from $41.4 billion in the same month last year. Gems and jewelry were worst-hit, down 98.74%, while leather fell 93.28%. Engineering goods, such as metals, held up a little better, 'only' down 64.76% across all categories.”

Rising fuel inventory

Speaking of declining demand, the Energy Information Administration (EIA) reported crude oil inventory in the U.S. rose by 6.6 million barrels per day in the first quarter of this year.

Meanwhile, the EIA forecast inventory will increase by 11.5 million barrels per day in Q2.

Industrial production posts historic drop

The Federal Reserve reported industrial production fell 11.2% in April, the largest drop in the 101-year history of the industrial production index.

Manufacturing output, in particular, dropped 13.7%, while output of motor vehicles and parts fell more than 70%.

Automotive interest in the time of COVID-19

While automotive production came to a halt in April, production has started back up this week in the U.S. (albeit not without hiccups).

From the consumer-side elsewhere in the world, Burns reported one potential impact of the pandemic on consumers’ transportation decisions: renewed interest in automobiles amid unease regarding public transportation at this time.

“A recent article in the Financial Times explores the issues driving ... an increase in buyer activity as lockdowns around the world are gradually eased and the impact imperatives of social distancing and virus anxiety are having on buyer behavior,” Burns wrote.

“Most marked is the change in attitudes among young people and urbanites, the article notes. Better public transport and increasing access to ride-hailing services like Uber have driven a slide in car ownership by younger members of the population.

“But fear of catching the virus, probably most keenly felt on trains, subways and buses, is driving a surge in demand for car ownership among this same underrepresented car-owning demographic.”

SAIL looks abroad

MetalMiner’s Sohrab Darabshaw noted the Indian state steelmaker Steel Authority of India Ltd. (SAIL) has been forced to look to export markets amid a decline in domestic steel demand.

“Incidentally, SAIL recorded the highest output in fiscal year 2020 by making 16.15 million tons of steel. Last year, one of those rare times when it did so, SAIL exported 1.18 million tons, its highest ever,” Darabshaw wrote.

“But now, in the months of the pandemic, SAIL has ramped up exports and built new customer relationships abroad, especially in China and Vietnam.

“As reported by MetalMiner earlier, many Indian steel companies were now exporting raw steel and finished goods to overcome the massive drop in local demand.

“According to figures released by the Indian government, India’s crude steel production has dropped by a record 69.5% year-over-year in April 2020, with all of the country’s manufacturers producing only 2.8 million tons of steel in the first full month of the lockdown.”

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