Articles in Category: Global Trade

The U.S. Senate today, by a vote of 75-20, passed the conference report for the Trade Facilitation and Trade Enforcement Act of 2015, known commonly as the customs bill. The measure includes the ENFORCE Act, which is critical to several metals producing industries — as well as others — to ensure that anti-dumping and countervailing duty orders against unfairly traded imports are being fully and vigorously enforced at the border.

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“By approving the customs bill today a majority of U.S. Senators voted to ensure strong enforcement of our trade remedy laws,” said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI). “This is an important piece of legislation that gives U.S. manufacturing industries and their workers new tools to fight back against unfair trade.  Steel imports are decimating the American steel industry and it is imperative that we have the strongest tools and resources to fight back.”

The bill is expected to be signed by President Obama who has previously said he supports it.

The measure includes an overhaul of the U.S. Customs and Border Protection agency, as well as new protections for intellectual property and more tools for the government to crack down on currency manipulation.

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Jay Timmons, the president of the National Association of Manufacturers, said, separately, ahead of Thursday’s vote that “if senators want to grow manufacturing in the U.S., then they should pass this bill immediately.”

MM-IndX_TRENDS_Chart_February2016_FNL-TOPVALUE100

The trends from our February Metal Price Index were more flat than down in February and it still looks like a bearish market for most of the metals we track.

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Only the Renewables and GOES sub-indexes had price increases for the February MetalMiner IndX reading.

Many producers are seeing their profits decline to the point where capacity shutdowns are necessary. Freeport McMoRan’s stock price fell 45% in the first two weeks of January, after it hit a 13-year low in December.

Alcoa, Inc. — already in the process of splitting itself into two companies and curtailing its smelting business — saw its shares reach a seven-year low this month.

Brazilian miner Votorantim Metals announced in January its intention to suspend two nickel operations. In Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle because of the low prices.

After shuttering its grain-oriented electrical steel operations, Allegheny Technologies, Inc., further signaled it would not supply commodity-grade stainless steel at all this year.

With all of these cutbacks one would think that supply, eventually, would have to be constrained but it’s difficult to measure just how much overcapacity is truly out there.

China’s propensity to dump — and the resultant export market saturation — has still not been curtailed in any significant way. China is producing too much steel, aluminum, copper, solar panels and other goods such as plate glass and chemicals for the domestic market, and usually exports the excess at cut-rate prices. This was reflected in our metal price indexes in this month.

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After news of Toyota’s recent supply chain troubles, so ably covered by my colleague Lisa Reisman last week, news from the US car industry, by contrast, couldn’t be better.

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General Motors reported $9.7 billion net income for 2015 as it was bolstered by buoyant US light-truck sales. Results for the fourth quarter more than tripled from $1.99 billion to $6.27 billion although, admittedly, benefiting from $4 billion in favorable special items.

Even so, the underlying figures were also boosted by the strong sales for the core North American operations, where earnings before interest and tax adjusted for special items rose 25% to $2.77 billion, on revenue up 9.5% to $27.7 billion. The company said low fuel prices boosted sales of more profitable pickup trucks and sport-utility vehicles.

Sales Surging

A rising tide lifts all boats, they say, and a strong North American market has also benefited Ford Motor Co. whose sales of SUVs and pickups soared last year. Ford announced a 13.6% rise in SUV sales for its Ford and Lincoln brands and a 13% rise for pickups. GM’s GMC premium light-truck brand recorded 13% year-on-year sales growth, while Fiat Chrysler’s growth came nearly entirely from a 42% surge in sales for its Jeep SUV brand. All manufacturers finished the year on a high, but for Fiat Chrysler sales were its strongest in the month of December since Chrysler was founded in 1925.

Car Sales

Source: Wall Street Journal

The US car industry has been a major bright spot for metals consumption in recent years with rising volumes driving demand for both steel and aluminum. Indeed, for aluminum, so strong has the demand been many manufacturers have made investments in dedicated automotive-grade production facilities to meet demand.

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Rosneft‘s CEO has floated a plan for a global, coordinated oil production cut and a vote is scheduled today in the U.S. Senate on a customs bill to better enforce U.S. trade laws.

Rosneft Supports Oil Output Cut

The head of Russian state-run oil company Rosneft on Wednesday floated the idea of a coordinated output cut by major oil-producing countries to prop up sagging prices but fell short of saying whether Moscow would contribute to such a plan.

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Rosneft Chief Executive Igor Sechin, a close ally of President Vladimir Putin, told the IP Week conference in London that the global oil glut was predominantly the fault of the Organization of the Petroleum Exporting Countries (OPEC).

Senate To Vote on Customs Bill Today

The long-delayed customs bill is headed to the full U.S. Senate for approval today. If the Senate approves the conference report of the Trade Facilitation and Trade Enforcement Act (ENFORCE Act, H.R. 644), it will move on to the White House for the President’s signature.

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The bill is designed to better enforce and uphold US trade laws.

To say as the Financial Times did last week that China is undergoing significant transition is the understatement of the year.

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A complex and interconnected reform agenda on this scale and at this speed has never been achieved before. It has scarcely even been attempted. It is only remotely possible with a central command economy and a compliant population yet, even then, it is far from without risks.

Coiledsteel_585

The Chinese steel industry will have to stop relying on overproduction to make the shift it is planning on.

As the FT explains, China is attempting a shift away from an export-driven and investment-led economy to a more balanced consumption-oriented one. At the same time as trying to achieve those goals, it is also trying to double gross domestic product and GDP per capita by 2020 from 2010 levels, according to the Chinese leadership.

How to Transition China?

They intend to achieve this with an extensive reform agenda, including further financial market liberalization, privatization or at least liberalization of state-owned enterprises, fiscal, and rural land reform. The FT goes on to warn if reforms are implemented too quickly, the country risks a sharp slowdown. If reforms are implemented too slowly, or not at all, China risks an unsustainable increase in debt-to-GDP ratio, which could push the country past the tipping point into economic and, possibly political instability. Read more

When people talk of Luxembourg you could be excused for first thinking of the European Union.

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Luxembourg houses the Court of Justice of the EU, is one of three seats for the EU parliament along with Brussels and Strasbourg, and co-hosts the European Commission, along with plenty more organs of EU bureaucracy.

Or for thinking of the tiny state as the home of ArcelorMittal the world’s largest steelmaker, and the European headquarters of Skype, Amazon and Paypal to name but a few multinationals — encouraged, no doubt, by Luxembourg’s status as a tax haven in the heart of Europe.

Maybe it has paid off. Luxembourg has, by some measures, the highest GDP per capita in the world, with less than half a million citizens and all that wealth there’s plenty to go round. But while you are unlikely to think of Luxembourg as a leader in the space race, according to the Financial Times, Luxembourg has a longstanding space industry. The state played a significant role in the development of satellite communications a generation ago, including setting up SES, one of the world’s largest satellite operators.

Luxembourg’s Asteroid Mines Plan

In collaboration with US and European commercial partners, Luxembourg now aims to help create a space industry to exploit asteroids for metals and other materials that are scarce on Earth, but plentiful in “near-Earth objects” (NEOs). The intention is that Luxembourg will collaborate with, and invest in, one or more space resources companies, although no names have been mentioned. The tiny landlocked state sees a potential asteroid mining industry worth trillions in time.

Asteroids are made from material left over from the formation of the solar system, the FT explains. They are richer in valuable metals than the Earth’s crust, where heavier elements sank into the planet’s core as it cooled. Indeed all of the platinum group metals we mine today either come from magma that has welled up from the deep in the earth’s mantle or following the impact of asteroids in the distant past, they do not occur naturally in the crust.

Source Financial Times

Source: Financial Times

PGMs in Space

Asteroid mining has two potential categories. The most valuable materials, such as heavy metals in the platinum group, would be brought back to Earth after preliminary processing in space. But other materials, including metals such as iron, nickel and tungsten, would be manufactured in space into spacecraft and tools for further exploration of the solar system, while water from the process would be split into its constituent elements of hydrogen and oxygen and used in rocket propellant according to Planetary Resources, a leading pioneer in the field.

Luxembourg’s enthusiasm, no doubt, shows that this is a long-term proposition, not only to develop the technology — the first successful asteroid “landing and return to Earth with samples” space probe, Japan’s Hayabusa, is only due to return in June of this year — but metals need to be, at least sufficiently, in short supply so prices justify the expense.

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At the moment, anyone in the commodities market can affirm the world is not short of metals. Still, the day will come when prices rise due to shortages and, by then, the technology, and Luxembourg, will be ready.

A small 3% price bump in the monthly GOES M3 index doesn’t tell us a whole lot, however, it suggests that prices may have found a floor back in the November/December 2015 time frame.

Free Sample Report: Our February Metal Buying Outlook
Part of finding that floor may have come from good, old-fashioned supply and demand. Consider that the comments from Allegheny Technologies, Inc., Chairman, President and CEO Rich Harshman recently indicated that he would be taking “rightsizing actions” to return ATI’s flat products group to profitability as quickly as possible.

GOES_Chart_February_2016_FNL

Furthermore, speaking of two recent closures he said, “The future restart of the Midland and GOES operations respectively will depend on future business conditions and ATI’s ability to earn an acceptable return on invested capital on products produced at these operations.”

This type of action, particularly the shutdown of the ATI GOES line, helps to bring some additional balance to the market. The rest of the steel industry will need to follow suit to support HRC prices, but that’s another story.

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In addition, TEX Reports suggests that one of the big Chinese mills will suspend two of its commodity grain-oriented sheet lines. MetalMiner could not identify any corroborating source as of press time.

Meanwhile, the most recent import trade data shows a 19% decline in transformer part imports:

Source: Zepol

Source: Zepol

While wound cores held steady:

Source: Zepol.

Source: Zepol.

Actual GOES Prices and Trends

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A major customs enforcement bill could be voted on in the U.S. Senate this week and Goldman-Sachs is bearish on metals for 2016.

Customs Bill Senate Vote

American Iron and Steel Institute President and CEO Thomas J. Gibson said the U.S. Senate could vote this week on a long-delayed bill to strengthen customs and intellectual property enforcement, facilitate shipments at U.S. ports and implement a permanent ban on taxing Internet access.

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This echoes a statement from the National Association of Manufacturers on Friday that said it expects the Senate to vote on the customs bill this week as well.

Goldman-Sachs is Bearish on Metals

Goldman Sachs on Monday said metals, particularly copper and aluminum, are set to underperform oil in the near future on subdued global demand growth and a sluggish Chinese economy.

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“Around mid-2016 and through 2017, we expect that the oil market will adjust, while metals markets are set to weaken further, particularly copper and aluminum, resulting in substantial downside to metals prices relative to oil over the period,” the bank said.

Seven EU nations asked the European Commission to intervene to stop cheap imports of steel, particularly from China and Russia and the London Metal Exchange is giving its warehouses the chance to cut rent prices.

Help From Cheap Steel Imports

Seven countries including France, the UK and Germany, in a letter, urged the European Union to step up action to relieve an ailing steel industry suffering from tumbling prices and cheap imports from China and Russia.

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Ministers from the three countries, along with Italy, Poland, Belgium and Luxembourg, sent the joint letter on Friday to the European Commission.

The letter also argued that in order to safeguard the competitiveness of sectors such as steel, the most efficient plants should not be subject to what it called undue carbon costs.

LME Gives Warehouses Option to Cut Rent

The London Metal Exchange is giving its approved warehouses the chance to cut rent and free-on-truck levels for the year starting April 1, after saying last year it would look at capping charges due to plans for large increases.

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Those that want to submit lower rates should do so before February 19 and the LME will publish the revisions by March 1.

This week, the Bank of Japan introduced negative interest rates in the latest attempt to goose the Pacific nation’s stalled economy.

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Essentially penalizing people for saving money seems like a curious thing to do to try to turn around a struggling economy, but it’s not the first time banks have gotten a push to force them to lend. The European Union has done it, too, in recent memory.

Shorter supply chains for in-demand products could benefit retailers around the holidays. Source: Adobe Stock/cacaroot.

Boy does Toyota Motor Corp. ever wish it had a bigger supply chain this week. Source: Adobe Stock/cacaroot.

My colleague and metal price analyst Raul de Frutos wrote that, “negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.” Read more