Author Archives: Jeff Yoders

This month, some of our metals reached new heights while others saw their rallies noticeably falter.

Aluminum and Raw Steels are still riding high, while complicated supply stories saw stainless and copper fall. Demand from manufacturers for almost all of the metals we track remains strong.

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17 Of the 18 manufacturing industries tracked by the Institute for Supply Management’s index of national factory activity reported growth and no industry reported a contraction last month. Buyers still might want to beware as metal markets are showing more pull-backs than we witnessed in March, despite the overall bullish behavior across the entire industrial metals complex.

Secretary of Commerce Wilbur Ross recently announced the final results of an annual administrative review of the anti-dumping duty order on imports of oil country tubular goods (OCTG) from the Republic of Korea (South Korea). Commerce found that Korean steel producers have been unfairly dumping OCTG in the U.S. market, hurting American workers and businesses.

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Commerce announced, in a press release, that it is exercising its authority under Congress for the first time to address market distortions in the production of foreign merchandise, and to calculate dumping margins that “more accurately account for the unfair pricing practices of foreign exporters. Section 504 of the Trade Preferences Extension of 2015 is a vital instrument in helping to identify distortions in the market that can enable and facilitate dumping practices.”

During the period covered by the administrative review (July 2014 to August 2015), OCTG imports from South Korea were valued at an estimated $1.1 billion, accounting for nearly 25% of all U.S. imports of OCTG. The dumping margins, or the rate at which the imported materials were under sold below fair value in the U.S., were found to range from 2.76% to 24.9%.

A 24.92%t tariff rate was imposed on OCTG from Nexteel, 2.76% on SeAh Steel and 13.84% on Hyundai Steel and other South Korean steelmakers.

The review also concluded that prices of the hot-rolled coil used to produce OCTG, as well as Korean electricity prices, were distorted. Anti-dumping tariffs on Nexteel and Hyundai each increased 16.88% and 7.92%, respectively, during this review. The initial preliminary rulings and the lower percentages were announced last October.

Seah Steel, however, saw a 1.04% reduction, making it the only South Korean steelmaker that was levied a lower tariff rate.

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“There is fair and unfair trade, and the distinction is not very hard to make,” Secretary Ross said in the release. “We will not stand for the distortions in foreign markets being used against U.S. businesses. The Trump Administration will continue to employ all of the tools provided under the law to take swift action against harmful trade practices from foreign nations attempting to take advantage of our markets, workers, and businesses.”

China will offer the Trump administration better market access for financial sector investments and U.S. beef exports to help avert a trade war, the Financial Times reported on Sunday, citing officials familiar with the matter.

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China is prepared to raise the investment ceiling in the Bilateral Investment treaty and is also willing to end the ban on U.S. beef imports, the newspaper also reported.

Commerce Secretary Wilbur Ross said on Friday that President Donald Trump and Chinese President Xi Jinping have agreed to a new 100-day plan for trade talks on Friday.

Steel Shipments Down in February, But Up Year-Over-Year

The American Iron and Steel Institute recently said that for the month of February 2017, U.S. steel mills shipped 7,232,341 net tons, a 6.2% decrease from the 7,708,416 nt shipped in the previous month, and a 2.4% increase from the 7,059,442 nt shipped in February 2016. Shipments year-to-date in 2017 are 14,940,757 nt, a 6% increase vs. 2016 shipments of 14,090,749 nt for two months.

A comparison of February shipments to the previous month of January shows the following changes:  hot rolled sheets, down 3%, hot-dipped galvanized sheets and strip, down 6% and cold-rolled sheets, down 8%.

China is now home to two-thirds of the world’s solar-production capacity.

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The efficiency with which China’s solar products convert sunlight into electricity is increasingly close to that of panels made by American, German and South Korean companies. Because China also buys half of the world’s new solar panels, the country now effectively controls the panel market.

Renewables MMI

A recent New York Times article details the meteoric rise of China’s solar industry and how its dominance in growing markets complicates the Trump administration’s attempts to cut down the U.S. trade deficit with China. China’s policy shifts and business decisions now have global impact on solar prices and production, particularly of crystalline polysilicon photovoltaic panels, everywhere else in the world.

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Now that China is cutting subsidies that it offers to panel manufacturers there, the ripples are being felt by installers in the U.S. and elsewhere. China’s solar-panel makers have recently cut their prices by more than a quarter, sending global prices plummeting. The NYT reports that Western companies have found themselves unable to compete. They have cut jobs from Germany to Michigan to Texas and the account includes the case of Russell Abney, a 49-year-old equipment engineer from Perrysburg, Ohio. The American panel manufacturer he worked for laid off Abney, among others, to remain competitive after China yanked its subsidies and manufacturers there lowered domestic prices to compensate.

If China’s dominance of solar panel manufacturing remains, able to move markets and cause layoffs worldwide depending on which subsidies are continued and which are scrapped, then the solar panel silicon market is likely to remain in the low-price rut we’ve documented in the Renewables MMI since 2012.

The Renewables MMI fell one point to 54 this month.

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U.S. Mining for rare earths is rapidly falling behind China, a trend that “limits our growth, our competitiveness and our national security,” Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski (R.-Alaska) said recently.

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According to the U.S. Geological Survey, imports in 2016 represented more than 50% of American consumption of 50 mineral commodities, a market valued at $32.3 billion annually. Of those 50, the U.S. was 100% import-dependent on 20, representing $1.3 billion. In 2015, the U.S. was half-dependent on 47 non-fuel mineral commodities and 100% reliant on 19 commodities.

Murkowski said at a committee hearing recently that this trend exposes the U.S. to potential supply shortages and price volatility, while also reducing international leverage and attractiveness for manufacturing.

Rare Earths MMI

“Instead of lessening our dependence, we are actually increasing our dependence,” she said. “We’re not making headway on this issue. … What are we doing wrong here?”

While Senator Murkowski’s comments are no doubt welcome by U.S. manufacturers who would love to source neodymium, scandium and other elements locally, a cursory look at our Rare Earths MMI shows that the supply situation is as much to blame for the lack of U.S. production as anything else, particularly among the heavy rare earths that most Chinese companies provide. Our Rare Earths MMI increased one point to a paltry 19 this month, its HIGHEST point since August of 2015. Ever since China banned export quotas of the key battery and magnet metals there has been plentiful supply and the low prices that come along with it.

Many smaller (some illegal) Chinese producers do not have the start-up costs that any Western rare earth producer does, simply because of lax regulation in that part of the world. That is changing, but the process is a slow one. Unfortunately for any prospective U.S. producers, the start-up costs situation is even worse when facing off against the larger Chinese rare earths producers. Some are state-sponsored and even the private ones enjoy subsidies at the state and national levels that no American producer could ever hope for.

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If Senator Murkowski and her committee want to promote the work of a U.S. rare earths miner (Molycorp, Inc. was the last active one and its Mountain Pass mine is up for auction after a bankruptcy last year), they should do what was promised during the election and roll back regulations that drive up startup costs for miners. It’s unlikely that a U.S. miner will ever face an even playing field with state-sponsored Chinese miners but right now, the tilt of it is so bad that many won’t even try. How bad is it? The company that holds the most promising identified deposit in the U.S. changed its name last year to downplay the fact that it plans to mine rare earths. Texas Rare Earths, which plans to mine a deposit in rural Round Top, changed its name to Texas Mineral Resources Corp.

The new name reflects a “significantly broader scope of Round Top projected output,” the company said in its release. What’s funny is one of the “broader” elements the release notes is scandium, which is generally considered a light rare earth element. It’s used the aerospace and automotive industries, particularly in aluminum alloys. Could it be that the rare earth “brand” is so damaged by abundant Chinese supply that U.S. companies are running away from it in their quest to draw investors?

Good luck with fixing the domestic supply situation, Senator Murkowski.

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Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is part two of our discussion, which focuses on cases that rise to the WTO. See part one here if you missed it.

Jeff Yoders: Is there a risk to elevating any such case to the WTO of essentially spending the money and hiring the lawyers, only to lose the case?

Dean Pinkert: First, there are two types of cases. When there’s a decision by the U.S. Trade Representative‘s office to file a case with the WTO, we’ll call those offensive cases. They are filing a complaint with the WTO saying that another country is violating its trade commitments. By the way, I think the Obama administration was very aggressive at developing and filing cases of that kind.

There is  another type, and these are what I was referring to earlier, where the U.S. has an investigation of something, concludes that a trade remedy is appropriate, imposes that trade remedy and then gets sued and it goes to the WTO. In 2002, when the steel safeguard relief was put into place, the U.S. was taken to the WTO by our trading partners and, ultimately, the WTO ruled against the safeguard. It was then withdrawn, although the Bush administration said the reason it was withdrawn was because it achieved its aim of giving the domestic industry some breathing space so that they could regain profitability, not because of the loss.

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I was talking more about that more defensive posture in the WTO when I was talking about safeguards.

JY: There’s a lot of talk about a border-adjustment tax right now. Many policy papers are calling the scheme very similar to a value-added tax but only on companies. Is there a chance that such an idea might run afoul of WTO rules?

DP: We don’t now exactly what it would look like or what the final measure, if there is one, would be. We don’t know how the WTO would react to it, either, but it’s possible that the WTO would consider it an export subsidy and, if it did, then that would have some serious consequences because there is a list of various kinds of subsidies, particularly export subsidies, in the WTO agreement. If it was found to be an export subsidy there would be considerable consequences for the U.S.

But, it’s important to note that we don’t even know what the border adjustment tax will look like yet. We would have to see. Read more

U.S. automakers’ sales figures for March came in below market expectations and gave early evidence that America’s long boom cycle for automotive sales may finally be losing steam. Automakers sold 1.56 million new cars and trucks in March, a 1.6% decline compared with the same month a year ago.

Ford Motor Company took the biggest hit among sales drops, seeing its March numbers fall more than 7% from February’s.

Industry consultant Autodata put industry Seasonally Adjusted Annual Rate at 16.62 million cars, trucks and SUVs for March.

That was below the 17.3 million analysts polled by Reuters had expected, and the first time since August that the SAAR – a crucial industry metric – had fallen below 17 million.

General Motors had the best month, reporting a 2% increase in sales to just over 256,000 vehicles, with sales of its Tahoe and Suburban SUV models seeing their best sales month since 2008.

Sales at Ford Motor Co. fell the aforementioned 7+% to 236,000 vehicles, with fleet sales to rental agencies, businesses and government entities down nearly 17% on the year. Sales of Ford’s F-Series pickup trucks rose 10% but that simply could not offset the losses elsewhere. Sales at Fiat-Chrysler Automobiles fell 5% in March. Automotive sales in the U.S. risen since end of the 2008 recession and hit a record last year of 17.55 million last year. Toyota Motor Corp. and Honda Motor Co. reported smaller losses.

The fall in new car sales is even more curious considering that consumer confidence is at its highest level since 2000. Could the level of vehicle replacement that had driven sales since 2008 finally be falling? Vehicle inventories at dealerships have risen to the highest point since 2004, according to Edmunds.com.

If auto sales have, indeed, plateaued, then prices for automotive steel and aluminum could as well, at least in the expansive U.S. market. Our Automotive MMI remained flat this month at 88.

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Editor’s note: We have restated the March Construction MMI to 80. An error in tabulation last month caused us to under-report it at 77. MetalMiner regrets the error.

U.S. developers opened up their wallets in February and construction spending increased to the highest level of spend in nearly 11 years, led by more building of homes, highways and schools.

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Our Construction MMI remained at its corrected score of 80 this month.

Construction MMI

Construction spending rose 0.8% to $1.19 trillion in February to the highest level since April 2006, after two months of declines, the Commerce Department said. New home sales remained strong despite a rather steady supply of newly constructed houses, apartments and condominiums coming onto the market.

Spending on new home building, as well as renovations, rose nearly 10% in the final three months of 2016, the most in a year.

The biggest move, though, came from government construction projects. State and local governments spent 0.9% more on construction, driven by roads, schools and recreational buildings.

The federal government actually cut construction spending for the second straight month and has cut back 9% from a year ago but that could soon change if an infrastructure plan emerges this year in Washington, D.C. President Donald Trump has pledged to boost infrastructure spending by $1 trillion over the next decade. Trump has focused on healthcare and now, apparently, tax reform.

Meanwhile, the Institute for Supply Management said its index of national factory activity fell to a reading of 57.2 last month from 57.7 in February, which was the highest since August 2014.

Any reading above 50 still indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy and construction materials such as steel framing and rebar are counted in ISM’s factory output numbers.

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17 Of the 18 manufacturing industries reported growth and no industry reported a contraction. Comments from factories were mostly upbeat, with machinery manufacturers saying that business was up 10 to 15%.

Optimism about relaxed regulation and the generally pro-business approach of the Trump administration still seems to be buoying both construction and consumer spending but if Trump cannot implement his agenda this optimism could quickly wane. An infrastructure plan that can make it through the Congress continues to be a necessary priority for metals manufacturers and the economy at large.

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Last week, the Trump trade agenda finally took off as the Commerce Department, now officially led by billionaire Wilbur Ross, finalized new carbon and alloy steel plate anti-dumping duties and President Donald Trump had some choice words as he signed two new executive orders he says will level the international trade playing field for U.S. manufacturers.

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“There’s never been a systematic examination, country by country and major product by major product, of why do we have the deficit,” Ross said during an interview on “Sunday Morning Futures” on Fox News with Sandra Smith, who was sitting in for host Maria Bartiromo.

“There’s a lot that’s due to cheating, there’s a lot due to dumping, there’s a lot that’s due to subsidies that are illegal, lot to do with a lot of things that are not inherent in free trade,” he continued.

Ross cited entities, many of which were created purely to facilitate exports, that go out of business before duties are collected as one situation that leads to lax enforcement of existing anti-dumping and countervailing duties orders, what the other executive order instructed commerce to accomplish.

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The new executive orders come just as President Trump will meet this week with Chinese President Xi Jinging at Trump’s Mar-a-Lago resort in Florida. It’ll be Trump’s first face-to-face meeting with Xi, after a campaign that was highly critical of U.S. trade with China.

Carbon and Alloy Steel Plate Duties

Commerce had a busy week, announcing affirmative final determinations that steel producers in Austria, Belgium, France, Germany, Italy, Japan, the Republic of Korea (South Korea), and Taiwan are dumping imports of carbon and alloy steel plate in the U.S.

The U.S. is preparing a review of China’s bid for market-economy status in the World Trade Organization, the Wall Street Journal reported today. Finishing a busy day in trade, Trump also signed two executive orders designed to enhance enforcement of current trade pacts and promised to end “the theft of American prosperity.”

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The Trump administration appears ready to formalize China’s unfavorable status in trade cases, which means the country’s goods would be eligible for higher U.S. tariffs, the paper said, citing documents from the Commerce Department website. The review is expected to be announced as early as this week, it said.

The first of the two trade orders Trump signed today calls for completion of a large-scale report to identify “every form of trade abuse and every non-reciprocal practice that now contributes to the U.S. trade deficit,” Commerce Secretary Wilbur Ross told the Washington Post.

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