Metals

Report blames nickel’s price woes on Chinese collateral holders

Chinese “shadow bankers” may have been scared away from using copper as collateral after abuses of the practice were exposed in 2014, but the same tactics may again be in use, this time with primary nickel being held in deep inventory.

An online article posted by Reuters Feb. 9, 2016, describes nickel pricing trends in the context of the movement of large volumes of nickel plate from Russia to China.

In the article, Reuters reporter Andy Home says the outflow of nickel plate from Russia to China is not currently matched by the consumption of such nickel in China or by the listed inventories of such plate in Shanghai Futures Exchange (SHFE) warehouses.

After metals in inventory in Qingdao, China, were discovered in 2014 to have been overextended as pledged collateral, the Chinese government was thought to have reacted by restricting the practice.

“It seems, though, that while the collateral trade has been much reduced in metals such as copper, it is still flourishing for nickel, albeit with much tighter lending and storage controls,” writes Home.

The low prices may not be tied directly to industrial supply and demand but instead to investors and speculators.

Novelis sees record automotive shipments in 3Q of fiscal 2016

Atlanta-based Novelis has reported net income of $6 million for the third quarter of its 2016 fiscal year. Excluding tax-effected special items, the company reported net income of $32 million for the period compared with $54 million in the third quarter of fiscal 2015.

Excluding the impact of metal price lag in both quarters, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $238 million in the third quarter of fiscal 2016, up 4 percent compared with $228 million in the prior year. Novelis says the increase was driven by higher shipments of automotive and beverage can sheet, partially offset by less favorable recycling benefits in light of depressed aluminum prices as compared with the prior year. Current year results also reflect higher fixed costs associated with new automotive and recycling operations, the company notes.

Shipments of rolled aluminum products grew 3 percent to 779 kilotonnes in the third quarter of fiscal 2016 as compared with 757 kilotonnes reported in the prior-year period.

Despite higher shipments, revenue decreased 17 percent to $2.4 billion for the third quarter of fiscal 2016, driven by significantly lower average aluminum prices and local market premiums, Novelis says.

While average local market metal premiums stabilized during the quarter, Novelis reports negative metal price lag of $26 million as it continued to turn higher average metal cost inventory from previous months. Adjusted EBITDA for the third quarter of fiscal 2016 including metal price lag was $212 million.

Novelis reports negative $12 million of free cash flow in the third quarter of fiscal 2016, which is what it reported in the third quarter of fiscal 2015.

Capital expenditures totaled $78 million in the third quarter of fiscal 2016, down from $104 million in the third quarter of fiscal 2015.

ISRI requests South China container theft investigation

The Washington-based Institute of Scrap Recycling Industries (ISRI) has prepared an 11-page report on the theft of scrap metal—predominantly copper—from shipping containers in Hong Kong and South China and is presenting the document to federal law enforcement agencies.

The document includes the results of a survey of ISRI members, who reported to the organization having been victims in nearly 550 such incidents with a financial impact of more than $2 million from 2011 to 2013.

The information ISRI collected points to specific ports and trans-shipment sites as being the epicenters of the crime wave. “The surveys suggest that most cargo thefts have involved shipments that were transshipped from ports in or around Hong Kong to inland ports within the Pearl River Delta, Guangdong province,” the report states. “For 2013, roughly 60 percent of the total suspected cargo theft incidents involved five ports within the Pearl River Delta: Sihui/Mafang (131 incidents), Zhaoqing (35), Sanshui (17), Wuzhou (nine) and Nanhai (six),” ISRI says.

The number of thefts from containers in that region more than doubled in 2013 compared with 2011, ISRI’s survey results indicate.

ISRI staff members, including Director of Government & International Affairs Eric Harris and Director of Law Enforcement Outreach Brady Mills, have been communicating with the State Department’s Overseas Advisory Council (OSAC) and the Federal Bureau of Investigation (FBI) on the nature and the extent of the problem.

In July 2015, a scrap processor operating in Nanhai in South China reported to the police and to a local television station his investigation into a local scrap container theft ring.

That same processor told Recycling Today in late January 2016 that since the arrest of the people involved in that theft ring, he has not been the victim of any new container theft incidents.

SDI’s losses increase in 4Q 2015

Steel Dynamics Inc. (SDI), headquartered in Fort Wayne, Indiana, has announced fourth quarter and full-year financial results for 2015. Excluding noncash goodwill and asset impairment charges of $1.13 per diluted share related to the company’s metals recycling operations, SDI’s adjusted fourth quarter 2015 net income was $22 million, or 9 cents per diluted share, on net sales of $1.6 billion. Including the noncash impairment charges, SDI reported a fourth quarter net loss of $253 million, or $1.04 per diluted share.

The fair market value of SDI’s metals recycling operations was determined to be less than its carrying value in light of the weak global scrap commodity outlook, SDI states in a Dec. 16, 2015, press release. Upon completion of the final assessment, the book value of its metals recycling segment was impaired, resulting in noncash goodwill and related asset impairment charges of $435 million.

Comparatively, 2014 fourth quarter net sales were $2.5 billion, with adjusted net income of $97 million, or 40 cents per diluted share, which excluded the impact of noncash asset impairment and purchase accounting charges of 59 cents per diluted share, the company says. Sequential third quarter 2015 net sales were $2 billion, with net income of $61 million, or 25 cents per diluted share.

“The fourth quarter 2015 market environment was one of the most challenging in recent history for our steel and metals recycling operations,” said Mark D. Millett, SDI CEO. “The domestic steel industry operated at production rates below 65 percent in November and December, representing the lowest levels this year caused by ongoing pressure from unfairly traded steel imports, customer destocking and seasonally lower demand.

He continued, “Enabled by our diversified and value-added product portfolio, our steel operations were again able to maintain a higher-than-industry-average production utilization rate at 73 percent for the fourth quarter 2015.”

SDI says steel imports continued to flood the domestic market during the fourth quarter 2015, though the levels were somewhat lower than experienced earlier in 2015. Coupled with seasonally lower demand and buyer hesitancy related to uncertain raw material markets, steel and metals recycling shipments declined.

Fourth quarter 2015 operating income for SDI’s steel operations decreased 47 percent to $67 million sequentially in light of a 12 percent decrease in shipments. In addition, average steel product pricing declined more than consumed raw material scrap costs, resulting in slight steel metal spread compression, SDI notes. The fourth quarter 2015 average product selling price for its steel operations decreased $51 to $614 per ton, while the average ferrous scrap cost per ton melted decreased $47 to $205 per ton.

SDI’s metals recycling operations recorded an adjusted fourth quarter 2015 operating loss of $16 million (excluding noncash goodwill and asset impairment charges) compared with third quarter 2015 operating income of $463,000. Based on lower domestic steel mill production utilization and traditional year-end steel mill scrap inventory reduction, fourth quarter 2015 ferrous scrap shipments declined 12 percent. Also, sequential quarterly ferrous scrap pricing decreased substantially, resulting in a 34 percent margin reduction.

SDI says the dramatic drop in global commodity prices caused the average full year 2015 selling price for its metals recycling operations to fall more than 36 percent year over year.

Additionally, the average full year 2015 selling price for SDI’s steel operations decreased $152 per ton, or 18 percent.

As a result, annual 2015 revenue for SDI’s metals recycling and steel operations fell $794 million and $338 million, respectively. The average full year 2015 ferrous scrap cost per ton melted decreased $105 to $255 per ton, resulting in meaningful metal spread compression, SDI says.