As global stocks rallied, metals saw gains with them this week. The bounce that precious metals got from Brexit has largely been sustained and lead and other base metals have come with them despite neutral fundamentals.
The European Union. went so far as to tell China to stop subsidizing unwanted steel if it wants to achieve market economy status in the World Trade Organization, only to have bilateral talks collapse. The export quotas that China maintains have also led manufacturers to substitute out rare earths metals, now the E.U. and U.S. are asking the WTO to eliminate more Chinese export quotas. The U.S. and the E.U. teamed up against Chinese export quotas on base metals.
In the coming years, India will be scouting around for strategic partnerships with multinational mining exploration companies to secure the supply of critical minerals for its defense and manufacturing programs.
In the opinion of analysts, if the Indian government wants its much-vaunted “Make in India” campaign to be a real success, it has no choice but to do this. Over the coming years, India will need to strategically develop joint partnerships with existing global players to secure assured supply of critical minerals. Read more
American Iron and Steel Institute President and CEO Thomas Gibson said in a recent media conference call that the U.S. and other nations continue to experience economic impacts from the Chinese steel oversupply largely produced by China’s state-sponsored companies. He said policymakers must address the “root cause” of the problem.
“We believe that the Chinese government has to get out of the steel business,” Gibson said, “and let its steel industry operate according to market principles.”
Gibson spoke July 13 on a conference call with the press.
In 2015, China’s production of crude steel fell 2.3% from 2014, according to the World Steel Association, but its share of the world’s production grew slightly to 49.5%. Gibson said China’s oversupply of steel reached 112 million metric tons in 2015 and added that some reports estimated excess production would increase this year. U.S. steel companies’ production fell 10.5% last year and approximately 10% of the workforce has been laid off.
Gibson said that nine of the 10 largest steel producers in China are state-owned. While these firms may be selling steel at a loss, China is directing state-owned banks to “continually refinance the debt” and also sweep the debts off the books and this is what’s keeping “zombie mills” open.
In an effort to address declining domestic demand, China announced that it would reduce steel production as much as 150 mmt over the next five years. Gibson said these promises are often empty as China made similar commitments in the past and “each time capacity has actually increased in China.”
Speaking a day after the press phone call to the Senate Banking Committee, Gibson said, “the surge in imports is a result of foreign government interventionist policies that have fueled global overcapacity in steel, more than half of which is located in China… While China is not the only source of the problem, the overcapacity in China is the greatest challenge facing the global steel industry today.”
The Hong Kong Stock Exchange will not move forward with its planned link to the London Metal Exchange and Komatsu has bought Joy Global, Inc.
HKEx-LME Link on Hold
The U.K.’s vote to leave the European Union has prompted the Hong Kong stock exchange to put on hold a commodities clearing link with its London Metal Exchange (LME), dealing a blow to its bid to make the LME more profitable.
The Japanese manufacturer of construction and mining equipment said on Thursday that it would buy 100% of the Milwaukee, Wis.-based company for $28.30 per share, about a $20 premium to Wednesday’s closing price.
The U.S. and the European Union filed a joint World Trade Organization challenge against China on July 19 over its use of duties and export quotas to control shipments of metals such as tin, tantalum, lead, copper, chromium, cobalt and others.
The E.U./U.S. effort comes after the U.S. government’s original request for consultations filed on July 13. It also comes after the European Union failed to resolve a dispute with China over its use of duties and export quotas during bilateral meetings with China last week.
Chinese export quotas are being challenged by the U.S. and the E.U. Source: Adobe Stock.
The new request adds challenges to export duties on chromium to the original list of antimony, cobalt, copper, graphite, indium, lead, magnesia, talcum, tantalum and tin. The new request also includes China’s export quotas imposed on antimony, indium, magnesia, talc and tin.
Trade Rep Speaks Out
During last week’s announcement, U.S. Trade Representative officials said export duties on the raw materials ranged from 5 to 20% and enabled Chinese companies to produce lower-priced goods than their U.S. competitors. China also used the lower cost of raw materials to encourage U.S. companies to move production to China, the office of the U.S. Trade Representative charged. Read more
Heavy-walled, rectangular carbon steel pipes are used mainly as structural members in construction. The Commerce Department recently affirmed earlier preliminary anti-dumping duties on pipe imports from Turkey, Mexico and the Republic of Korea.
The U.S. construction market has remained strong this this year with home construction posting strong gains this summer and low-cost imports of structural pipe have certainly helped general contractors’ bottom lines.
Most of the anti-dumping duties for providers in South Korea and Mexico came in at less than 5.5%, but Turkey was the big importing loser with some of its steel companies hit with duties between 36 and 15%, although one Turkish steelmaker was found not to have dumped at all.
Welded, structural carbon steel pipes are a mainstay of construction but new tariffs will increase the price of of imports from Mexico, Turkey and the Republic of Korea. Source: Adobe Stock/Artzenter.
Republic of Korea
Commerce found dumping has occurred by mandatory Korean respondents Dong-A Steel Co. and HiSteel Co. Ltd. at dumping margins of 2.34% and 3.82%, respectively. All other producers/exporters in Korea will incur a final dumping margin of 3.24%. Read more
Global stock markets are finally showing some strength after a difficult period of almost two years when investors had a hard time making money off stocks. Following the U.K.’s decision to leave the European Union, global stock markets fell sharply but the sell-off didn’t last very long.
The fast recovery following Brexit is very encouraging and it suggests that investors are turning more positive on the health of the global economy.
U.S Markets Make New Highs
The S&P 500 Index makes all time highs. Source:MetalMiner analysis of @Stockcharts data.
In the chart above, we see the S&P 500 index making an all-time high this week after the index had struggled for almost two years. Rising stock markets don’t necessarily mean rising metal prices, but it’s a good sign. Read more
Yesterday, the U.S. and Vietnam signed an agreement to resolve two longstanding World Trade Organization disputes over imports of Vietnamese shrimp to the U.S. (the official case numbers are DS404 and DS429).
The agreement provides a framework for the settlement of American court litigation, as well as the resolution of outstanding anti-dumping duty claims covering various administrative reviews of a 2005 warmwater shrimp order. Assistant U.S. Trade Representative Barbara Weisel, Assistant Secretary of Commerce for Enforcement and Compliance Paul Piquado, and Vietnam’s Deputy Minister of Industry and Trade Tran Quoc Khanh signed the agreement yesterday.
A case involving Vietnamese shrimp shows how difficult it can be to quantify value for non-market economy goods. Source: Adobe Stock/Armcreation.
You might ask yourself, what does shrimp have to do with metals? As to how it concerns world trade, this case is important because it addresses the sometimes nebulous question of what exactly is fair in determining the proper prices of exports from non-market economies into market economies like the U.S. You see, Vietnam and China are the only two countries considered by the WTO to be non-market economies.
Market Economy vs. Non-Market Economy
Back in 2005, the U.S. imposed anti-dumping duties on several Vietnamese importers of shrimp. Vietnam asked the WTO to review the duties and, in 2014, a WTO panel found the original anti-dumping order to be inconsistent with WTO rules, including elements of the decision not to remove Vietnamese exporter Minh Phu, a producer that later proved it had not dumped for three years — from the order. In 2015, the panel’s findings were adopted by the WTO dispute settlement body and the U.S. agreed to come into compliance.
The panel faulted “as such” Commerce’s practice in anti-dumping cases of starting with a “rebuttable presumption” that all exporters in non-market economies are government controlled, state-sponsored entities. As we said above, Vietnam and China are the only two countries regarded by the department to be NMEs. As with steel companies in China, some Vietnamese shrimp producers are state-controlled and some are not. The WTO essentially said Commerce must prove that companies it places tariffs on are receiving government support.
A 129 review is the process used to determine how Commerce can make a redetermination that would ensure that its decisions in particular trade remedy cases are in line with the findings of the WTO. In the instance of DS429, the U.S. was faulted by the WTO dispute settlement panel in 2014 for improperly calculating the duties and in May 2015 informed the panel that it planned on coming into compliance with the panel report. The reasonable period of time for the U.S. to conform to the panel report was set to expire on Aug. 22.
Following a request from U.S. Trade Representative, the Department issued a preliminary section 129 determination on May 20, to implement findings of the WTO dispute settlement body. The preliminary decision includes a recalculation of Minh Phu’s dumping rates for 2008/2009 in a manner consistent with the WTO panel’s findings. As a result of the recalculation, Minh Phu’s rate for that period was reduced to zero and Commerce preliminarily found that revocation of the anti-dumping order with respect to Minh Phu was appropriate.
As part of the agreement, Minh Phu and its importers will be required to certify that it is the producer and exporter of any shrimp it exports to the U.S., to ensure that other exporters are not circumventing the anti-dumping order through transshipment.
The lack of a 123 review suggests that Commerce is taking a very narrow approach to implement the as-such ruling on its non-market economy practice by only making changes to these particular cases involving shrimp.
However, Commerce’s final memo on the 129 review does allude to the “as such” challenge. It stops short of pledging to resolve the criticized practice of viewing all producers as state-sponsored beyond these two cases.
Jean-Claude Juncker, president of the European Commission, is reported by the London Telegraph to have warned China that the country’s chances of gaining market economy status are directly related to its steel exports.
In a speech in China, Juncker is reported to have said “I do not want to dramatize this issue… but there is a clear link between the steel overcapacity of China and the market economy status for China.”
Steel Overcapacity Through the Years
China makes more than half of the world’s1.6 billion metric tons of steel but it’s suffering from slowing domestic demand and has turned to exports to dispose of its surplus. In the first quarter of the year Chinese steel exports to the European Union rose 28%, driving prices down by more than 30% according to some reports.
Beijing wants to shut down unprofitable steel production, but the provinces are merely reclassifying the mills and giving them new loans.
Although China has made conciliatory comments, Chinese Foreign Minister Wang Yi said this week the E.U. and China were forming a bilateral mechanism to review, discuss and deal with overcapacity in the steel industry. Beijing may have it’s work cut out for it if it actually wants to force through closures. The government has been trying it reign in excess capacity for some time, restricting credit and urging provinces to close older polluting plants but a recent Reuters article suggests provincial governments are doing anything but cooperating. Read more
The U.S. warned China on Thursday that it had not done enough to qualify for market economy status, especially in steel and aluminum and pushed the two trading partners closer to a full-on trade war between Washington and Beijing at the end of 2016.
U.S. trade diplomat Chris Wilson told the World Trade Organization meeting that the expiration of a clause in China’s original petition to join did not require other WTO members to automatically grant China market economy status on Dec. 11.
Instead, China must establish under each WTO member country’s domestic law that it is a market economy, he said, according to an outline of his remarks seen by Reuters.
“Second, there is little doubt that China’s market reforms have fallen short of the expectations that were held by many members when China joined the WTO,” he said. “This is particularly evident in the steel and aluminum industries where China’s pervasive interventions have led to a significant overcapacity of global supply that is threatening the viability of competitive firms in these industries around the world.”
“Through this bilateral mechanism, the two sides can have … in-depth discussions to find solutions acceptable to both parties and in this way maintain free trade and sustainable development of the global economy,” Wang said.
Wang did not provide details on the planned mechanism.