Commodities Roundup: Auto sales rise in China; U.S. steel capacity utilization falls; European metals firms push for level playing field

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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:

China auto sales rise in July

While automotive sales remain down in the U.S. on a year-over-year basis, sales have surged in China.

China’s automotive market has recovered after taking a huge hit earlier in the year, in large part related to the coronavirus pandemic.

According to the China Association of Automobile Manufacturers, July sales jumped 16.4% year over year, marking the fourth consecutive month of year-over-year gains.

Sales last fell on a year-over-year basis in March, when they plunged by 43.3%.

U.S. steel sector capacity utilization drops

Meanwhile, the U.S. steel sector had been posting incremental gains in its capacity utilization rate over the last couple of months.

However, last week the rate declined to 61.7% for the week ending Aug. 29. The rate declined from the 63.0% posted the previous week.

U.S. mills produced 1.38 million tons during the week ending Aug. 29, down 2.1% from the previous week and down 24.9% year over year.

Steel production in the year to date is down 20.1% compared with 2019 levels during the equivalent period.

India’s economic struggles in the wake of the pandemic

MetalMiner’s Stuart Burns outlined the challenges India is facing amid its struggles to control the coronavirus outbreak in the country, in addition to already existing economic difficulties.

India’s economy contracted by an annualized 23.9% in the second quarter ending June 2020, the Financial Times reported, as if that was an exceptional decline,” Burns wrote.

“In fact, the U.K. and several European economies contracted the same amount.

“Like India, they have begun to recover since.”

Virus cases have continued to rise despite strict lockdown measures, Burns noted.

As a result, the pandemic has caused a massive labor shock.

“Lockdown related to the pandemic caused an estimated 140 million job losses, the article notes,” he added. “The pandemic hit after four years of gradually falling GDP growth – itself a cause of considerable worry when the rest of the world economy had been doing quite well.”

Indian steel exports rise

Sticking with India, a drop in domestic demand has forced Indian steelmakers to look outside the country in the form of exports.

“Much of the Indian steel exports headed to China, despite ongoing tensions between the two nations,” MetalMiner’s Sohrab Darabshaw explained.

“China’s emergence as a new leading buyer of Indian steel has caught producers and analysts unaware. China replaces traditional importers like Vietnam, Italy and Belgium.”

Scrap prices could make gains

Burns also expounded on the scrap steel market, which could see some price support ahead.

“Steel production generally is muted in most markets. Furthermore, finished steel prices are under pressure,” he wrote. “However, there is a growing case, both economically and environmentally, for EAF production over the traditional iron ore-based blast furnace route.

“That means there will be more buyers bidding for the finite supplies in the year ahead.”

U.S. auto sales decline

As mentioned previously, U.S. automotive sales remain down compared with 2019 levels.

Sales have been constrained by low inventories; furthermore, August 2020 contained fewer selling days than it did in August 2019.

Honda sales, for example, fell 21.9% year over year. Hyundai sales fell 8%, while Subaru dropped 17%.

European metals industry firms argue for level environmental playing field

For a long time, European metals firms have argued about the difficulty to compete with steelmakers elsewhere — namely, China — simply due to the added cost of environmental regulations.

“Mining and refining in Europe has slashed its collective carbon footprint by more than 60% in the past two decades due to far higher and better-enforced standards in the region,” Burns wrote. “Yet, not surprisingly, Europe’s metals sector cannot compete with subsidized imports from China and other regions.”

While Burns notes Europe will not be able to force other countries to abide by stricter environmental regulations for metals production, it can advocate for other measures.

“But drawing on parallel commitments to achieve carbon neutrality by 2050, the region’s industry is making the case for creating a level playing field,” he wrote. “That level playing would come not simply by imposing quotas but by applying a financial cost to imports that come with significantly higher carbon and environmental costs.

“The wider industry is buying into the idea of products having a lower carbon footprint as a brand strength.

For example, the LME is launching a low-carbon aluminum spot contract 'to promote and facilitate growing demand for metal with a definable carbon footprint,'" Burns noted.

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