“Chinese Shake Up Aluminum” – Wall Street Journal, 12 February 2015

In order to prevent Chinese aluminum from leaving the country, China’s government has imposed a 15% export tax on every ton of the metal that is bought by foreign buyers. However, Chinese aluminum manufacturers have found a way around the government’s tax, by producing semifinished products, or “semis.” While primary aluminum is usually shipped in blocks, semis are manufactured as door frames or hubcaps, which can then be liquefied and molded into other products. Because China’s need for aluminum at home is low — need for metals in the country’s infrastructure has decreased — Chinese manufacturers must sell abroad.

Chinese aluminum manufacturers actually profit from creating semifinished aluminum products: they get a 13% tax rebate on semis. It’s difficult to differentiate how much of China’s aluminum exports are semis; in December, the country’s overseas sales added up to 488,000 tons, a 136% surge from January 2014. China’s output also increased to combat rising prices.

The increase in aluminum exports from China is also reshaping the aluminum market: growth of Chinese exports in Asia has caused buyers’ urgent delivery premiums to decline. Because of the influx of Chinese aluminum, Malaysian and Australian aluminum manufacturers have redirected their aluminum exports to other regions Australia is one of the biggest exporters to Asia, but China is producing and exporting aluminum at a rapid rate. While countries like the US might benefit from China’s oversupply, China’s output is becoming a hindrance to aluminum premiums. It might take worldwide aluminum supplies a decade to recover from the flood of Chinese aluminum.

Will China ever play by fair market rules? We suppose not, as long as it doesn’t benefit them.

(From Wall Street Journal)

Developed and Written by Dr. Subodh Das and Tara Mahadevan

February 16, 2015

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“Steel Imports Into US Surge” – Wall Street Journal, 26 January 2014

Due to a global oversupply and an increase in demand by automakers, importing steel has become the cheaper option for some US steel buyers. The price difference between domestic steel and international steel is widening—the US is becoming more expensive—and has spurred a jump in the number of imports into the US. The average gap between US and China’s steel has risen to $159 per ton. In January 2014, imports reached 3.2 million tons, compared to 2.6 million tons in January 2013, a 23% increase.

Last spring, due to the demand of steel by car manufacturers and the growing construction market, US steel producers increased prices—previously, costs had been fairly low. For example, the current average price for a roll of benchmark hot-rolled coil in the US is $676, while China’s current average for the same product is $540. Steel production in China rose by 7.5% from 2012 to 2013, nearing 780 million tons, seven times more steel than the world’s number two manufacturer, Japan, generated in the same year.

The surplus of steel provoked a surge in prices for big steelmakers, such as the US, Brazil, and Germany. While US manufacturers have been profiting from increased pricing, the mounting number of imports will likely cause these prices to fall.

More producers on the East Coast are now importing steel. Two years ago, a major East Coast steel mill—operated by RG Steel LLC—closed as a result of steep labor costs and reduced demand. Conversely, buyers in the South and Midwest are not importing as much steel, and still purchase their supplies from neighboring mills, which allows them to bypass expensive shipping costs.

The US has always depended on imports; however, that dependency might increase this year. America uses almost 108 million tons of steel per year—25% of that is imported from abroad, while the rest is produced domestically. If it remains cheaper to buy foreign steel, then imports are expected to increase to approximately 30% by the end of 2014. Imports will be the main factor in why US steel prices drop this year. Yet, analysts expect US pricing to still cycle through.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

May 2, 2014

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“Will All-Aluminum Cars Drive Metals Industry?” – Wall Street Journal, 13 January 2014

Obama’s 2010 mandate that obligates car manufacturers to double new-car average fuel economy by 2025 has pushed the car industry to produce more fuel efficient cars at a faster rate. Ford’s next F-150 — the US’s largest selling vehicle — is currently being redesigned and rebuilt with an all-aluminum body, a huge helping hand to both Obama’s fuel efficiency mandate and the aluminum industry.

Two big players in the Ford’s aluminum round-up are Alcoa and Novelis, the nation’s top aluminum sheet producers. In 2013, both companies spent $1 billion in opening new aluminum sheet factories, tailored to the auto industry. Raw aluminum prices have dropped by more than a third since 2011 — Alcoa and Novelis are hoping their new investments increase their profit margins.

The aluminum industry is making a huge bet. While aluminum is lighter, and better for fuel efficiency and the economy, it might not be better for pocketbooks — aluminum costs almost three times more than steel, the traditional metal used to manufacture cars. Moreover, using aluminum to produce vehicles requires new machinery; machinery used to manufacture cars from steel isn’t compatible with aluminum.

Only Audi and Jaguar — cars that a majority of the public can’t afford — have created all-aluminum vehicles. Ford’s new endeavor will likely trim 700 pounds from the currently-5,000-pound truck; this reduction will allow for a 7% growth in the truck’s fuel economy.

The aluminum market is now only valued at almost $300 per year. If more car companies choose to manufacture all-aluminum cars, then the market can skyrocket to $7.5 billion by 2025, a huge blessing for the aluminum industry, which is undergoing oversupply and low raw aluminum price issues.

The car industry is urging every aluminum company to invest, asking different manufacturers to produce different parts so there isn’t one that could dominate pricing. There is more than enough business for everyone: one contract for a mass-produced part can be valued at more than $50 million.

The question is, will there be enough raw aluminum materials and fabrication capacities to successfully undertake this venture, even though time has come to further enhance recycling and production of recycle-friendly automotive aluminum alloys in commerce? See a publication on this subject by Dr. Das – “The Development of Recycle-Friendly Automotive Aluminum Alloys“.

See also:
A Clean Car Boom
GM Planning Strict Diet for New Pickup Trucks

Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 13, 2014

Phinix LLC

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