Articles in Category: Global Trade

This is part two of a two-part series on recent trade developments in the U.K.’s pending divorce with the European Union, read part one here if you missed it.

British Prime Minister Theresa May appears more wedded to a policy of not extending Brexit past the two-year deadline that was dictated by the outcome of the referendum. Possibly due to her years in office as Home Secretary, May seems desperate to reclaim control of the U.K.’s borders and to reject the jurisdiction of European courts, regardless of the economic consequences of taking such a hard-line position.

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Committed Brexit supporters have championed the establishment of free trade agreements with countries outside the European Union, almost as an extension of their rejection of Europe. But the reality is geography will dictate that the E.U. is likely to remain the U.K.’s biggest export market after Brexit whatever Brexiters’ global ambitions may be.

Who Loses More Post-Brexit?

According to a Financial Times article last November, U.K. exports to fellow E.U. countries accounted for 48% of total exports and, in the 18 months before that, the figure ranged from 38% to 51%. The U.S., by comparison, was just 22% and few beyond the hardliners give any credence to the benefits of a President Donald Trump-inspired U.S.-U.K. Free Trade deal, knowing that in Britain’s desperation for an alternative to Europe such a deal would likely be very one-sided in favor of the U.S. Read more

Two years ago, India overtook the U.S. to become the third-largest steel producer in the world, but now finds itself a net importer of steel in 2015-16.

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To address this and other steel issues, the Indian government has drafted and recently released a “National Steel Policy” for 2017. The policy aims for production target of 300 million metric tons per year by 2030-31, up from the current 122 mtpy, a reduction in imports and also a hike in the current production of a crucial raw material, coking coal.

India’s steel ministry says the policy is an effort in steel circles in India to steer the industry to achieve its potential and a strategy to overcome various hurdle such as high input costs, lack of availability of raw materials, and to try to achieve the 300 mtpy target in an environmentally friendly manner so that the country can reach its correspoding global efficiency benchmarks.

A major disadvantage that the Indian steel sector faces is the limited availability of essential raw materials like coking coal, both in quantity and quality. Most steel producers have to depend on imports to overcome this impediment, mostly from neighboring China.

The National Steel Policy aims at achieving increased domestic availability of washed coking coal so as to reduce import dependence on coking coal by 50% by 2030-31. Under the plan, India is aiming for per capita steel consumption of 160 kilograms per person from the present 61 kg.

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India’s crude steel production in 2015-16 was 89.77 million metric tons. The country’s steel sector, the only silver lining in an otherwise bleak global steel economy last year, faced challenges. Heightened steel demand domestically in India could see it get there. In 2015, for example, India was the only large economy in the world where steel demand continued to grow positively at 5.3%, against negative growth in China at -5.4%.

The Steel Ministry is seeking comments on the policy draft from stakeholders and public.

The International Energy Agency recently upgraded its estimate for rising U.S. shale production this year, projecting output will increase by 500,000 barrels per day by the end of 2017, which will translate to an increase of 170,000 bpd averaged over the year.

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Benchmark crude prices subsequently fell in London. In the first week of January, U.S. crude production rose to 8.95 million bpd, the highest level since April. Oil-rig use expanded to 529 in the prior week, a 67% increase from the 2016 low of 316.

Japanese Steel Officially Worried About Trump

Japan’s steel industry is concerned over the risks of a U.S. exit from the Trans-Pacific Partnership deal and reform of the North American Free Trade Agreement by the incoming Trump administration, a Japanese industry official said on Friday.

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“We are worried about the risks of the Trump administration taking protectionism actions or policies,” Kosei Shindo, chairman of the Japan Iron and Steel Federation, told a news conference.

This week, the reality of a hard Brexit sunk in across the pond in the U.K. and Europe. The instability that might follow after elections in other European countries in the coming months could create volatility in all commodities markets, not just metals.

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Here in the U.S., President Donald J. Trump was inaugurated today and promised “America first” in all the dealings of his new administration. In metals, this means that tariffs of 251% were confirmed on Chinese cut-to-length steel plate even before Trump even got into office. So, across the globe it looks like things are getting really, really populist. Is this good for metal prices?

Weaker Dollar

One thing that Trump has already caused, again before even being president, is a weakened U.S. dollar against other global currencies. Presidents and even presidents-elect usually refrain from even talking about the value of the currency because setting its value is seen as the job of the Federal Reserve and its chairman and the nation’s chief executive talking about the value of the dollar can cause volatile swings in the currency.

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Trump, though, as everyone should know by now, does not obey convention and freely told reporters that he would like a weaker dollar. This is actually bullish for the metals we track, but our Lead Forecasting Analyst, wrote this week that the dollar’s bull run may not be over, despite Trump’s wishes.

Populism in the Far East

Indonesia tried a protectionist raw ore export policy way back in 2014 and this week finally weakened it (a little) to allow some nickel ore out of the country on certain conditions. Ironically, the country that picked up the slack as the top Chinese nickel-pig-iron raw materials supplier after the Indonesian ban, the Philippines, now has its own wildly populist leader, President Rodrigo Duterte, whose fiercely environmentalist Environment Secretary, Regina Lopez, has cancelled six mine permits.

It’s going to be an interesting few years.

Britain’s Prime Minister, Theresa May’s speech at Lancaster House, London this week spelled out for anyone who hasn’t been listening for the last couple of months exactly what her government intends to do regarding the shape of the U.K.’s eventual relationship with the European Union once their divorce is completed.

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As negotiations have not yet started, nor will they until the British government invokes article 50 this Spring and formally announces its intention to leave the union, May’s speech was more wish list than template for post-Brexit Britain’s working relationship with Europe. Nevertheless, it was broadly well received in Europe both for its tone and because it gave recognition that her priority is for a clean break.

Breaking Up is Hard to Do

Repatriating control of borders and laws means that the U.K. will be leaving the single market, quitting the jurisdiction of the European Court of Justice and putting into action an independent trade policy. To what extent the U.K. can achieve these objectives while still clinging onto tariff-free trade with Europe is the known unknown. Read more

China has issued its first batch of crude oil import quotas for non-state companies at 68.81 million metric tons, or 1.38 million barrels per day (bpd), four refining sources with knowledge of the matter told Reuters.

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29 Companies received quotas, including independent refiners and trading companies, the sources said, citing an official document.

Architecture Billings End Year Strong

The Architecture Billings Index (ABI) concluded the year positive, with the December reading capping off three straight months of growth in design billings. As an economic indicator of construction activity, the ABI reflects an approximate nine- to 12-month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the December ABI score was 55.9, up sharply from 50.6 in the previous month. This score reflects the largest increase in design services in 2016 (any score above 50 indicates an increase in billings).

Threats of a trade war intensified over the weekend, as President-elect Donald Trump said the U.S. dollar “is too strong.”

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In one day, Trump will be president and he also warned BMW that it will face a 35% tariff on imports to the U.S. from a plant it’s building in Mexico. In addition, Trump specifically called out China and its weakening currency, stating that U.S. companies can’t compete with China because the dollar is too strong.

Dollar Index Falls to a 1-Month Low

The U.S. Dollar Index Falls to 1-Month low on Trump’s talk. Source: MetalMiner analysis of @stockcharts.com data.

Trump’s words helped sink the U.S. dollar index by 1% vs. other major currencies, falling to its lowest level in a month. Previous administrations have maintained a steady policy of backing a strong dollar and presidents have tended to refrain from commenting on the currency altogether. Read more

Set against the backdrop of the recent presidential election, the media’s constant referral to protecting American jobs and employment should come as no surprise, even though the level of national employment has never been better.

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The reality, of course, is that national figures mask regional disparities and the disproportionate impact in some industries of offshoring and global competition has been intense. In practice, though, globalization is only part of the issue when it comes to the loss of jobs in certain industries. There has been a great deal of recent research which supports the position that automation is having as much, if not more, impact on certain industries than competition from abroad.

Automation Continues

As the Financial Times observed recently, automation has been a constant for decades, and the latest advances in robotics and artificial intelligence all but guarantee that the pace will accelerate, but some industries or job roles are particularly vulnerable to replacement by machines. All industries operate in a global environment, the decision as to whether to invest in automated processes should not and cannot be made based on employment, alone, if firms want to survive in the long-term.

The key question is not whether automation, robotics or artificial intelligence will replace humans in existing roles, the question is simply when. For society at large, the pace of automation will determine how easily the displacement of workers can be handled — and whether this creates a political backlash or is accommodated through retraining and the creation of new jobs.

Source: Direct Industry

We are used to seeing rows of gleaming robots assembling cars in modern automotive factories but a recent article in Direct Industry explores developments in the agricultural industry and highlights the fast pace of robotic developments that could well see the replacement of humans for many agricultural activities in the years ahead. Read more

The Commerce Department made final determinations today in its anti-dumping and countervailing duty investigations of carbon and alloy steel cut-to-length (CTL) plate from China.

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The department said in a statement that it has set a final dumping margin of 68.27% for Jiangyin Xingcheng Special Steel Works Co. Ltd., the only respondent in the case, “for the China-wide entity’s failure to cooperate.”

In the countervailing duties investigation, Commerce calculated a final subsidy rate of 251% for mandatory respondents Jiangyin Xingcheng Special Steel Works Co. Ltd., Hunan Valin Xiangtan Iron & Steel, and Viewer Development Co., Ltd., based on the application of adverse facts available. All other producers/exporters in China were also assigned a final subsidy rate of 251%.

Chinese Province Admits Making Up GDP Figures

China’s northeastern Liaoning province, which relies on steel production as its growth engine, had inflated its GDP figures from 2011 to 2014, said province governor Chen Qiufa on Jan. 17 in his annual work report, according to the state newspaper People’s Daily (link in Chinese). It is the first time the Chinese government has publicly admitted to faking official statistics at any level.

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Fiscal revenues were inflated by at least 20% during the period, and some other economic data were also made up, the People’s Daily said.

After a recovery late last year, the oil market seems to have settled with a price around $55 a barrel… at least for now. That level is not likely to dissuade consumption but most Organization of Petroleum Exporting Countries members seem to feel it justifies their oil output cut agreed to late last year.

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A few producers, such as Venezuela, that are running massive budget deficits have targeted $70 or more, but most analysts would agree that if oil can hang onto recent price gains for the next six months it will be doing well. Read more