• Weekly Market Report

Commodity News

Ferrous – On Friday, the United Auto Workers union announced it has a new labor agreement with General Motors, ending its 40 day strike. According to the Wall Street Journal, “The car company will schedule overtime to make up for lost production, giving workers who have been without a paycheck for six weeks a way to recoup their finances.

Among the auto maker’s first priorities is to fill back-ordered parts at dealerships, which have had to delay repairs. GM plans to have its plants running full-tilt again early next week, the spokesman said… The strike, the company’s longest nationwide walkout in nearly a half century, crippled GM’s U.S. manufacturing operations and rippled through the broader economy, resulting in temporary layoffs for thousands of non-UAW workers. The financial toll on GM and the Midwest economy will continue to linger well after the strike ends. Analysts estimate the disruption to GM’s U.S. factories, as well as those in Mexico and Canada that were idled because of parts shortages, has cost GM roughly 300,000 units of lost vehicle production that it will now have to make up. The damage to GM’s bottom line is likely to exceed $3 billion with most of the hit to be reported in the fourth quarter, according to Bank of America. On top of that, the new union agreement is expected to tack on $100 million or more a year in higher labor costs, industry analysts estimate.”

Meanwhile, U.S. steelmakers are reportedly pushing for $40 per ton price hikes for flat-rolled products. According to our friends at UBS:

  • “Several US steel mills, including ArcelorMittal, NLMK, Nucor, and US Steel, have announced US$40/st HRC price increases in the last two days.
  • Mills were reportedly selling at ~US$480/st (vs. US$470/st spot), and are initially targeting prices closer to US$520/st, according to SMU.
  • The timing is not surprising with scrap prices at depressed levels and blast furnace producers likely close to cost breakeven.
  • Steel prices are down 20% from August 2019. Service centers will likely support higher prices in the short term to avoid inventory devaluation, in our view.
  • As for the equities impact, we expect some short-covering and repositioning as short-term focused investors reposition for a possible change in steel price momentum.
  • Steel stock prices are roughly 80% correlated to steel prices historically. When steel prices rise, blast furnace operators (X and AKS) tend to outperform electric arc furnace peers (NUE and STLD) given the formers' relatively high fixed costs and operating leverage.”

Of note, the World Steel Association came out with its latest global crude steel production statistics last week showing “North America’s crude steel production in the first nine months of 2019 was 90.6 Mt, an increase of 0.3% compared to the same period of 2018.” In comparison, China reportedly produced 747.8 million tons of steel during Jan-Sep 2019, an increase of 8.4% year-on-year, while Vietnamese steel production surged nearly 54% higher to 15.5 million tons during the first nine months of 2019.

Nonferrous –
Macquarie Research is extremely cautious on their base metals outlook for the near term: “The fundamental outlook for Base Metals is subdued: sufficient supply + stable trade. Our survey of China's copper industry revealed active fabricators/traders, while the big trade shift has been rising conc. imports to offset scrap import bans. Zinc's price is capped at lows by a persistent surplus (improving supply vs. moderating demand, buoying TCs). China's aluminium output rate's up again (+4% to 35Mtpa, Jan-Sep), on an input cost-collapse (power/alumina), with exports rising again. Nickel's price tracked the general plight of the other base metals until July, when the first news of a possible ban on Indonesia's Ni-bearing ore exports emerged.”

As for the copper scrap situation in China, Macquarie reports “Scrap imports of Sep are 150kt (+55%MoM; -25%YoY); ytd total imports was 1.2Mt (-31%YoY). In the last week, China released the 5th batch of cat. 6 scrap copper imports quota, totalled 57kt for Q4, ~12% of that for Q3 and more will be released soon. Local scrap copper consumption was limited in 2H because the quotas are assigned directly to end-users and fabricators, and imported scrap cannot be traded in the local market. Market expects local scrap copper supply to tighten in Q4, and everyone awaits details on the trade policy for 2020. Supply may improve in 2020, if policy allows certain category of scrap to be re-classified as 'resources' rather than 'waste'.”


Plastic –
According to the BIR’s press release regarding its recent Plastics Committee meeting, “’The alarm bells are ringing louder and louder’ for plastics recyclers amid worrying economic developments and wider uncertainties, warned BIR Plastics Committee Chairman Henk Alssema of Netherlands-based Vita Plastics in his introductory remarks to the body’s latest meeting in Budapest on October 14.

But while many companies are currently beset by problems such as high stock levels, Mr Alssema insisted that he is ‘more positive’ about longer-term prospects for the plastics recycling sector. Many major companies are now incorporating larger quantities of recycled plastic into their products, he pointed out. At the same time, progress has continued to be made in plastics recycling technology and particularly in chemical recycling.

Guest speaker Rob de Ruiter, Senior Business Developer at TNO in the Netherlands, shed more light on some of these latest technological advances. Having insisted that there is still an important role to be played by mechanical recycling, he focused on other options such as solvent-based dissolution and thermochemical conversion. Based on current circumstances, he expected pyrolysis to be ‘a big factor in the future.’

Mr de Ruiter highlighted the growing involvement of major companies in the recycling sphere, as evidenced by the recent announcement of a Dow/Fuenix partnership covering the supply of pyrolysis oil feedstock made from recycled plastic waste, to be used to make new polymers. While some of the emerging recycling technologies may take many years to achieve commercialization, Mr de Ruiter assured delegates: ‘It needs time but it’s unavoidable that we go in this direction’.”

Have Questions?