Articles in Category: Global Trade

All work has stopped at Freeport-McMoran‘s giant Grasberg copper mine in Indonesia, just over a month after the country halted exports of copper concentrate to boost domestic industries.

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Freeport had said the suspension would require the mine to slash output by 60% to approximately 70 million pounds of metal per month if it did not get an export permit by mid-February, due to limited storage. A strike at Freeport’s sole domestic taker of copper concentrate, PT Smelting is expected to last at least until March and has limited Freeport’s output options as Grasberg’s storage sites are now full.

Nippon Exec: Chinese Steel Prices Will Hold Firm

Nippon Steel & Sumitomo Metal Corp., Japan’s biggest steelmaker, expects steel prices in top consumer China to hold firm at least until its Communist Party congress late this year, amid solid demand that is underpinning coking coal and iron ore markets.

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Chinese futures contracts for steel rebar used in construction have already risen 17% in 2017, on top of a gain of more than 60% last year

Slowly but surely, India seems to be shifting the goal posts on its minimum import price policy designed to protect the domestic steel industry.

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India recently extended the anti-dumping duty on cold-rolled flat steel products from four nations, including China, Brazil and South Korea to guard the domestic steel industry from cheap imports for another two months. The duty was expected to expire after six months and was recently extended to give it a total duration of eight.

Domestic Indian steelmakers could see their protective minimum import prices for steel products lifted. Source: Adobe Stock/ft2010.

India had previously imposed a minimum import prices (MIP) to protect the steel industry and the cold-rolled duties came in addition to the MIP. The policy was described as a short-term emergency measure while anti-dumping duties are a long-term measure to protect the country’s trade.

Yet, according to a recent media report, India’s steel secretary Aruna Sharma said there would be no minimum import price (MIP) extension for 19 steel products.

How the MIP Started

India started imposing an anti-dumping duty of $474-$557 per metric ton on hot-rolled flat products of alloy and non-alloy steel imported from China, Japan, South Korea, Russia, Brazil and Indonesia in August. Read more

The Trump administration is exploring the idea of classifying currency manipulation, such as when China sets the value of the yuan/renminbi deliberately low to promote exports, as an unfair trade government subsidy that U.S. manufacturers can then petition the Commerce Department for redress against.

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The Wall Street Journal reported that, under the plan, the Commerce Secretary (Trump has nominated Wilbur Ross for the job) would designate the practice of currency manipulation as an unfair subsidy when employed by any nation. This plan would not single out China, or any other country, but rather give U.S. companies the opportunity to pursue trade remedies such as countervailing duties on imports from nations that artificially set currency values low.

Dollar vs. RMB

The value of the renminbi against the US dollar has consistently fallen since China removed its peg. Chart: Jeff Yoders/MetalMiner.

Last year, we created an interactive narrative experience showing how China has changed its currency values since it joined the World Trade Organization. Many countries and the WTO, itself, have wrestled with how to deal with Chinese exports in recent years but no country has considered creating a currency manipulation category for dumping of foreign exports that would, presumably, be enforceable under current WTO rules.

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The currency plans, according to the WSJ, are part of a China strategy being put together by the White House’s National Trade Council, led by economist Peter Navarro. The policy seeks to balance the administration’s dual goals of challenging China on trade while still keeping relations  — and most trade — with the massive country on a fairly even keel. That’s why the policy does not single out China and would apply to all nations that reset the values of their currency without direction from an independent body such as the European Central Bank or Federal Reserve.

The difficulty in enforcing such a policy would be that nations such as China could cry foul at the WTO and say that the ECB or Fed are not really independent. A definition of what is an independent central bank might be challenged in the WTO.

When it comes to providing stimulus to meet growth targets, you can’t bet against China. But when it comes to cutting output, things can get obscure… literally.

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new report by Greenpeace East Asia and Chinese consultancy Custeel says that despite China’s high-profile efforts to tackle overcapacity, China’s operating steel capacity increased in 2016. The report states that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 million metric tons of cut capacity involved shutting down production plants that were operating.

Meanwhile, some 49 mmt of capacity that had previously been suspended was restarted, and 12 mmt of new operating capacity came online. That means that China added 37 million metric tons additional operating capacity in 2016. 

Production Up, Prices Up

Chinese Hot-rolled coil price climbs. Source: MetalMiner IndX.

After falling in 2015, Chinese crude steel output is now rising again at a healthy clip — it was up 4% on the year in the fourth quarter. Meanwhile, hot-rolled coil prices in China rose near 70% for the year. Despite resilient output, demand growth has been much more significant. As a result, Chinese steel exports have fallen double digits for four consecutive months.

Can Just Promises Sustain Rising Prices?

Sentiment in the steel industry is also bullish thanks to expectations of lower output this year. In January, China unleashed its boldest reform plan so far for its bloated steel sector, saying it will eliminate all production of low-quality steel products by the end of June.

Eliminating excess steel capacity and restructuring the industry has enormous environmental significance because the steel industry is the second-largest emitter of air pollution in China. This is another reason to believe Beijing will strengthen its supply-side reforms this year.

However, according to the report most of the capacity elimination target set for the 2016-2020 period has, technically, already been achieved in 2016, meaning that capacity elimination in 2017-2020 will be much more modest unless targets are increased. Meanwhile, a 21 mmt capacity increase is still in the pipeline from new projects, and there is at least 42 mmt of existing idle capacity that could be used to fulfill the capacity elimination targets.

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These numbers give us reasons to doubt on what China can deliver this year. China is now under pressure to demonstrate progress on capacity cuts. But financial and legal incentives to keep marginal firms running will cause regulators to struggle to enforce capacity cuts. Chinese steel mills are so hard to get rid of as they are often a key source of local tax revenue and employment.

What This Means For Metal Buyers

The sustainability of the ongoing rising trend in steel prices will much depend on China. Buyers will need to keep a close eye on how much growth can China deliver and how much of the promised production cuts will actually materialize this year. The problem is that growth without controlling steel out will only translate into severe air pollution.

A Washington, D.C. federal judge refused Monday to halt construction and drilling on the recently approved, eight-mile final stage of the Dakota Access pipeline, rejecting the Cheyenne River Sioux Tribe’s plea for a temporary restraining order to ostensibly protect a religiously and culturally significant lake.

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A similar challenge was rejected by another federal judge last year.

Philippines Environment Czar Cancels 75 Mining Contracts

The Philippines’  Environment Ministry, under the direction of Environment and Natural Resources Secretary Regina Lopez, on Tuesday ordered the cancellation of 75 mining contracts, stepping up a campaign to stop extraction of resources in sensitive areas after earlier shutting more than half of the country’s operating mines, Reuters reported. The contracts are all in watershed zones, with many in the exploration stage.

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They cover projects not yet in production and the latest action by Lopez suggests she will not allow them to be developed further. The move turns up the heat in her battle with the mining sector after she ordered the closure of 23 of the country’s 41 mines earlier this month on environmental grounds.

China announced last year it had implemented ambitious cuts in steel capacity. Now, a new report says that not only did those cuts not happen, but China actually increased steel production capacity.

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But a new report by Greenpeace East Asia and Chinese consultancy Custeel says that number was largely smog and mirrors. Many of the plants China says it closed down were already idle, while production was restarted elsewhere and brand new plants opened.

China, which accounts for half the world’s steel production, has a total capacity of 1.1 billion metric tons, announced plans to eliminate 100-150 mt of annual production over the next five years.

Last year, it said it had far exceeded its initial target to cut capacity by 45 million mt, which China said its steel sector exceeded, recording total 2016 cuts of around 85 mmt.

But the Geenpeace/Custeel report said that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 mmt of cut capacity involved shutting down production plants that were operating.

At the same time, some 54 mmt of capacity were restarted, and 12 mmt of new operating capacity came online.

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That left China showing a net increase in operating capacity of 36.5 mmt last year, a figure that is consistent with a 3% increase in steel production in the second half of last year.

Such an increase is consistent with evidence of a deterioration in the air quality in Beijing in the second half of last year — the steel industry is a heavy consumer of coal and contributor to air pollution, and most of the restarted capacity came in the industrial provinces near the capital, Shanxi, Hebei and Tianjin.

The 2010 Dodd-Frank law explicitly gives the President of the United States authority to order the U.S. Securities and Exchange Commission to temporarily suspend or revise the Conflict Minerals rule included in the Dodd-Frank banking reform law for two years if it is “in the national security interest of the U.S.”

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Last week we reported that the Trump administration was working on a draft executive order to, indeed, suspend the rule which requires reporting of supply chains to enforce a ban on tin, tantalum, tungsten and gold from the Democratic Republic of the Congo. It’s backed by human-rights groups but many businesses say the rule, as is, requires a swath of industries to investigate whether their products contain the metals far down their supply chains. Compliance has already been hit or miss for the rule. Last year, 65% of companies said they still could not make determinations about their full supply chains.

Reuters reported that the leaked draft memo, which its reporters saw, said that the Secretary of State and Secretary of the Treasury were tasked with proposing a plan for addressing human rights violations and the funding of armed groups in the Congo and were also required toreport back within 180 days.

The memo also lays out a justification for suspending the rule, saying that while it has helped discourage some American companies from purchasing materials in the region, it has also led to “some job loss.”

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Of course, this is only a draft and it could significantly change before any actual executive order is drafted. The one thing that is sure, however, is that thanks to the wording of the Dodd-Frank law, President Donal Trump (R.-N.Y) does, indeed, have the power to suspend the rule for up to two years.

The American Iron and Steel Institute reported that for the month of December 2016, U.S. steel mills shipped 7,173,245 net tons, a 6.7% increase from the 6,724,277 nt shipped in the previous month, November 2016, and a 9.4% increase from the 6,556,342 nt shipped in December 2015.  Shipments for full year 2016 are 86,533,341 nt – a slight change from shipments of 86,546,657 nt for full year 2015.

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A comparison of December 2016 shipments to the previous month shows the following changes: hot-rolled sheet, up 11%; cold-rolled sheet, up 4%, and hot-dipped galvanized sheet and strip, down 3%.

Manufacturing PMI Hits a 2-year High

The January 2017 Institute for Supply Management Purchasing Managers’ Index and Non-Manufacturing Index, released on February 1 and February 3, respectively, reveal a surging manufacturing sector in the U.S., with slowing growth in the services sector.

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The PMI® jumped 1.5 percentage points to 56.0, its highest level in more than two years. At 56.5, the NMI® declined by one-tenth of a percentage point, indicating slowing growth in the non-manufacturing portion of the economy.

The Trump administration is reportedly considering an executive order that would suspend the conflict minerals rule of the Dodd-Frank banking regulation bill.

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The conflict mineral rule requires reporting of supply chains to enforce a ban on tin, tantalum, tungsten and gold from the Democratic Republic of the Congo. It’s backed by human-rights groups but many businesses say the rule, as is, requires a swath of industries to investigate whether their products contain metals that could have been sold by armed groups so far down their supply chains that it’s impossible to tell where it came from. Reporting has been spotty even under the current rules.

The proposed executive action, drafted last week and reviewed Wednesday by The Wall Street Journal, would suspend the conflict-minerals rule for two years. Business groups have fought the rule in court, saying its requirements are costly and burdensome.

US Sells Crude Oil From Strategic Reserve

10 million barrels of crude from the U.S.’s strategic reserve are scheduled to be sold later this month, the Department of Energy said.

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The shipment is part of a total 25 million barrels, to be sold over a period of three years, as per the 21st Century Cures Act, signed in December last year.

California’s Mountain Pass mine, the sole significant developed source for rare earths elements in the U.S., will go on the auction block in March, according to papers filed in late January in the U.S. Bankruptcy Court in Wilmington, Del.

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Up for sale is land and some equipment at the mine which cost former owner Molycorp, Inc. roughly $1 billion to develop, according to the court. Mineral rights at the site belong to an entity called Secured Natural Resources LLC, which is owned by creditors of Molycorp including JHL Capital Group LLC.

The open-pit mining operation was part of Molycorp’s plan to have both production and processing capability for rare earths, at a time when prices were high (early in this decade)… but as our Rare Earths MMI chart shows, prices have been flat for eight consecutive months now and low for much, much longer. The prices of the 2011 rare earths market, strongly affected by Chinese supply disruptions, appear to be nothing more than a distant memory at this point.

A switch in trade policy in early 2015 — prompted by losing a World Trade Organization case — ended export quotas placed on Chinese producers effectively killed any chance Molycorp had to compete based on costs of production. Molycorp’s rare earths processing business, with operations mainly in Asia, emerged from the bankruptcy as the core of a reorganized company, Neo Performance Materials, but Mountain Pass and its high cost of production were left behind in the reorganization.

According to the Wall Street Journal, a Swiss investment fund linked to Russian-born billionaire Vladimir Iorich is part of a buyout group that has made an offer to take over Mountain Pass. Pala Investments Ltd., Iorich’s investment firm, is a partner in a buyout group’s $40 million offer for the assets. Joining Pala is Novatrek Capital GmbH, a private-equity firm founded by Pala alumnus Joseph Belan, as well as Sole Source Capital of Los Angeles, according to filings with the bankruptcy court.

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Efforts to sell Mountain Pass out of bankruptcy had struggled because the mine carries with it national security concerns, due to its ability to produce rare earths for high-tech military equipment, and might catch the eye of international trade regulators. The Committee on Foreign Investment in the U.S., or CFIUS, is likely to take an interest in new owners, according to courtroom discussions during the bankruptcy case, the Wall Street Journal reported. CFIUS is an interagency body tasked with reviewing transactions that could result in control of a U.S. business by a foreign person to determine if the deal would have affect the national security of the U.S.

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