Commodities Roundup: U.S. Defense Department freezes rare earths projects; road haulage faces challenges; copper prices rally

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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:

DoD hits pause button on rare earths projects

Reducing the United State’s dependence on the Chinese rare earths supply chain has long been a concern for the U.S., particularly the Pentagon.

Rare earths are used in smartphones as well as high-level military applications.

Earlier this year, the Department of Defense awarded Phase 1 contracts to two firms — Lynas Corporation and MP Materials — for the buildout of rare earths separation facilities in the U.S.

However, a month later the DoD opted to freeze funding for the programs, according to a Reuters report, reportedly over concerns regarding a Chinese company’s minority stake in MP Materials.

The future of road haulage

MetalMiner’s Stuart Burns delved into the state of the U.S. road haulage industry, particularly on the heels of the COVID-19 pandemic.

However, the sector’s struggles are predicated on a number of factors that predate the pandemic.

“The collapse in industrial activity has hit the freight transportation and logistics industry hard these last few months, but freight’s problems have been on a slow burn for much longer,” Burns wrote.

“McKinsey identifies four dynamics driving change for the industry, dynamics the article explores in the context of recoveries after previous recessions.

“The secular decline can be traced back to around 1990 and is expressed as a drop in freight intensity, or the ratio of freight to the value of all goods and services produced by the nation’s economy.”

Copper prices rally

Although it remains to be seen if the COVID-19 pandemic will see subsequent waves that further disrupt the U.S. and global economies, some sectors have seen a tentative recovery.

Base metals, for example, have made gains in recent weeks, as U.S. states have started to ease restrictions imposed during the pandemic.

The LME copper price, for example, once again broke past the $5,000/mt level, returning to pre-pandemic levels, MetalMiner’s Maria Rosa Gobitz explained.

“In the past two weeks, markets have continued to climb up despite the protests across the country and the increasing tension between China and the U.S.,” she wrote. “Base metals, particularly copper, are rallying as demand prospects increase.”

Nickel price rise lags behind other metals

Meanwhile, the nickel price recovery has not been as robust.

“As much of the rest of the base metals were lifted this week, nickel remained subdued,” Gobitz wrote.

“This comes despite an announcement by the Indonesian government that it would relax exports of many minerals but keep in place a ban on nickel ores.

“According to Reuters, the Indonesian nickel miners’ association (APNI) proposed in April that the country should allow exports of nickel ore to cushion the impact on processed nickel exports by global measures to control the coronavirus outbreak. However, the Ministry for Maritime Affairs and Investment rejected the proposal.”

Platinum, palladium operations in South Africa deal with COVID-19

South Africa, a major producer of palladium and platinum, has its own COVID-19 challenges, and miners in the country have already seen operational challenges stemming from the pandemic.

In April, miners there were allowed to restart at a maximum of 50% of capacity. Since then, however, miners have reported COVID-19 cases at their operations, necessitating temporary suspensions of the sites in question.

Impala Platinum, for example, in May announced the temporary suspension of its Marula operations after a cluster of COVID-19 cases. Similarly, in a May 28 release, Sibanye-Stillwater confirmed 51 employees tested positive for COVID-19 (out of 120 tests).

Europe’s steel struggles

Elsewhere, Burns surveyed the state of the European steel sector and the challenges it faces in the years ahead.

“The European Steel Association (EUROFER) has now slammed the European Commission’s most recent periodic review of the policy, saying the Commission has failed to recognize the scale of the increased risk to the European steel industry or to account for the fact 40% of workers are currently furloughed in the face of an unprecedented collapse in demand,” Burns wrote.

“Reuters reports there has been a 50% demand slump across the continent following the arrival of COVID-19 in mid-March. Eurofer and the CEOs of Europe’s leading steel producers issued a joint letter demanding a rethink, saying the demand destruction as a result of the pandemic risked the very existence of the European steel industry if inventory build in China, Russia, Indonesia and India were to be released as lockdowns in those countries end.”

Indian steel demand slumps

MetalMiner contributor Sohrab Darabshaw looked at declining steel demand in India, citing World Steel Association forecasts.

In 2019, India’s steel consumption was just over 100 million metric tons. The World Steel Association forecasts Indian demand of 83.3 million mt for 2020.

“With steel demand expected to decline by 13-15% during this fiscal year, major industry players have decided to either delay or altogether shelve their capex plans,” Darabshaw wrote. “The pandemic, weak financial health and a loss of demand are reasons behind them temporarily halting further investments for over a year, the Economic Times reported.

“The World Steel Association’s short-range outlook said world steel demand would drop to 1,654 million metric tons this year due to the COVID-19 crisis.”

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