Articles in Category: Global Trade

This week, we asked if cheap Chinese steel imports are really that bad for the U.S.? After all, if Beijing and China’s regional governments are subsidizing steel production exported to the U.S. to the tune of 522% for cold-rolled and 451% for corrosion-resistant, aren’t U.S. manufacturers gaining a huge cost advantage on the finished products they ship back to the People’s Republic? Or even sell domestically?

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U.S. Producers certainly don’t see it that way. Neither do steel producers in most of the developed world, save China. 12 Steel associations from the Americas and Europe released another strongly worded letter to governments around the world, lamenting Chinese overproduction. Just look at those tariffs! The steel associations really mean business this time!

Nice job on the ditch, USA! I’m China, I’m here to fill it back in. Source: Adobe Stock/Kara.

China, of course, doesn’t see it this way at all and has previously said, through its Ministry of Commerce, that its steel industry is merely “export competitive.” It’s certainly a novel defense, but it would also be the equivalent of Tom Brady saying his footballs are only “deflation competitive” without dealing with why they are so. Or Russia saying Crimea is “annexation competitive” without saying why it should stop being a part of Ukraine and start becoming a part of the federation.

What is Protectionism?

Still, U.S. regulators like the Commerce Department and the International Trade Administration may want to tone down their heavy anti-dumping and countervailing duties decisions as 522% and 451% is an awful lot of anti-dumping and countervailing duties and the extreme outlier positions that Commerce has staked out could garner sympathy for China in front of a future World Trade Organization court. Read more

On Wednesday, the People’s Bank of China weakened the yuan/renminbi to its lowest level in five years. The actual cut was small: only about 0.34%. The Chinese yuan closed 0.2% weaker on Tuesday at 6.559 per dollar compared with that morning’s midpoint of 6.5468. Since the end of April, the currency’s value has dropped three weeks in a row.

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It did not send world markets spiraling downward as panicked investors did last August when China devalued its currency by nearly 2%, or in early January, when it cut by about 0.5%.

How Fast is the Chinese Economy Growing?

China’s ruling Communist Party still claims the country is growing 6.5% to 7% a year. Capital Economics, among other independent forecasters, believes the real number is closer to 4.2%.

Bloomberg_yuanfix_550_052516

Click for full size. Source: Bloomberg News

Market watchers believe there is a struggle going on between China’s top leaders on what to do next.

The Wall Street Journal reported that, behind closed doors in March, some of China’s most prominent economists and bankers bluntly asked the PBOC to stop fighting the financial markets and let the value of the nation’s currency fall. They supposedly got nowhere with bank officials.

Read more

In exactly 30 days the people of Britain will vote on whether to leave the European Union.

Free Download: The May 2016 MMI Report

For the people of the U.K., and indeed the rest of Europe their decision could be a turning point in the future of their country and the wider European community. It is no exaggeration to say Britain’s exit could spark the break-up of the E.U.

The near-miss Austria experienced yesterday in voting in a far right president illustrates how extreme tensions within the European Union have become. Only by all the opposing parties supporting pro-E.U. Green party socialist Alexander Van der Bellen were they able to beat the far-right Freedom party candidate Norbert Hofer from becoming head of state, the margin was a miniscule 31,000 votes out of an electoral return of 4.64 million.

Angry Voters

Dissatisfaction with the E.U., supported by fears of immigration destroying the social fabric and cultural heritage of societies across the continent, has played a major part in not just the U.K.’s referendum but in the rise of both far-right and far-left parties across Europe in recent years.

Anecdotal evidence can be very misleading, dependent as it is on the social mix such opinion is garnered from and the geographic location. Until recently, the decision in the U.K. seemed on something of a knife edge, particularly in the weeks following the announcement by Boris Johnson, London’s charismatic former mayor, that he was actively campaigning for the Leave vote, but in recent days the markets at least have been pricing in a Stay outcome, as evidenced by the strength of sterling.

Investment Sentiment

Indeed, a poll this week showing a late swing by older voters to maintain the status quo resulted in a sharp jump in the value of the pound as this FT graph shows.

Source: Financial Times

Source: Financial Times

Alluring as the Leave campaign’s image of a free and unrestricted future for the UK would be, most are coming to realize such an outcome is unlikely to be achievable. The least-damaging outcome in the months after leaving would be for a quick trade deal with the rest of the E.U. Read more

Steel imports into the U.S. were down in April and, if the numbers are able to be believed, China is importing more nickel ore than ever before.

Steel Imports Down in April

Based on preliminary Census Bureau data, the American Iron and Steel Institute reported that the U.S. imported a total of 2,456,000 net tons of steel in April 2016, including 2,014,000 nt of finished steel (down  5.6% and  4.1%, respectively, vs. March final data).

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Year-to-date through four months of 2016 total and finished steel imports are 9,982,000 and 8,442,000 nt, respectively, down 34% and 33% vs. the same period in 2015.

Annualized total and finished steel imports in 2016 would be 29.9 and 25.3 million nt, down 23% and 20% respectively vs. 2015. Finished steel import market share was an estimated 24% in April and is estimated at 25% on the year-to-date.

Key finished steel products with a significant import increase in April compared to March are line pipe (up 38%), hot rolled bars (up 35%), structural pipe and tube (up 27%), standard pipe (up 17%) and cold-rolled sheets (up 15%).

Chinese Nickel Imports

China is importing more nickel than ever before. Headline imports of refined metal hit a new all-time record high of 49,012 metric tons in April. The cumulative tally of 157,600 mt over the first four months of the year represents a 115,000-mt increase over the same period of last year.

Free Download: The May 2016 MMI Report

Reuters’ Andy Home writes that there is too much going on to get a good idea of what the imports really are and where they’re being used.

Anyone looking at the seaborne Asian Iron ore market? A cursory glance at China’s iron ore market and one has to ask, “what’s going on?”

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Iron ore prices have been on a roller coaster this year, yet reports abound of excess iron ore supply, excess steel production, excess steel capacity and falling property prices and, by extension, excess appetite for construction steel.

There is still mine oversupply. Source: Adobe Stock/nikitos77.

There is still mine oversupply. Source: Adobe Stock/nikitos77.

This week, reports of rising port stocks, up 1.6% to 100.45 million metric tons or five weeks of supply should have depressed prices, but the prevailing mood among traders seems to be one of cautious optimism that iron ore consumption and, hence, steel production will continue strongly this year, so much so that iron ore prices actually rose 2.7% to $54.98 per mt late last week. Read more

The CME Group is taking actions to more directly compete with the London Metal Exchange and China’s Ministry of Commerce has responded to tough U.S. tariffs and anti-dumping duties.

CME Group Will Take on the LME

The CME Group is talking to several warehouse companies to expand its metal storage network globally, three metal industry sources exclusively told Reuters, a move that could further challenge the London Metal Exchange‘s (LME) dominance.

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In recent years the CME, the world’s largest futures market operator, has been steadily building its storage network , partly as a result of controversy surrounding the LME warehouse system.

Chinese Ministry of Commerce Slams U.S. Steel Tariffs

U.S. efforts to protect its steel industry will not solve the sector’s fundamental problems, which stem from “past protectionist measures,” China’s Ministry of Commerce said on Saturday.

Free Download: The May 2016 MMI Report

The comments were posted on the ministry’s website following a decision on Friday by the U.S. International Trade Commission to continue probing imports of certain steel products from 12 countries, including China and Korea.

The world may have never encountered a more crucial Year of the Monkey than 2016.

That is, at least as far as global trade between China and the Western world is concerned. At the end of this year, China believes it ought to receive Market Economy Status (MES). This would allow China to enjoy the same market status as the U.S. and European Union when it comes to anti-dumping investigations before the World Trade Organization.

Recently, China’s Ministry of Commerce responded to questions from the Financial Times with this: “China is firmly against any misinterpretation or delay in performance of the [WTO] clause [that “automatically” grants China MES on December 11, 2016]. We call on members, such as the U.S. and E.U., to take necessary measures as soon as possible in order to ensure ending the [current methodology used in anti-dumping cases] before the due time.”

However, since China’s economy — and the role of its government within it — operates differently than much of the rest of the world, that country is effectively able to export and offer its products much more cheaply to many of its trading partners. Depending on the circumstances, this has spurred allegations of “dumping” over the past several decades, and has now come to a head.

Currently, China is considered a ‘non-market economy’ under WTO rules. Achieving market economy status would ultimately put China on the same level as the U.S. and E.U. in the eyes of the WTO, taking what some already consider a global trade war to new heights.

For a more in-depth investigation of the criteria China must fulfill to achieve MES, and what it could mean for its Western trading partners, start here.

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Today, the Department of Commerce affirmed anti-dumping duties on imports of cold-rolled steel flat products from China and Japan, and countervailing duties — levied due to foreign government subsidies — on imports of cold-rolled steel from China.

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Commerce determined that imports of cold-rolled steel from China and Japan have been sold in the U.S. at dumping margins of 265.79% and 71.35%, respectively. Commerce also determined that imports of cold-rolled steel from China received countervailable subsidies of 256.44%. This brings the total duties on Chinese cold-rolled imports to a whopping 522%

These anti-dumping determinations were exactly the same as Commerce’s preliminary findings released in March.

Free Download: The May 2016 MMI Report

As a result of the affirmative final determinations, Commerce will instruct U.S. Customs and Border Protection to continue to require cash deposits based on the final rates, which were the same as the preliminary rates for the anti-dumping duties. The countervailing duties rates will be added to Chinese cold-rolled imports.

Cold-Rolled Steel Petitioners

The petitioners for these investigations are AK Steel Corporation, ArcelorMittal USA LLC, Nucor Corporation, Steel Dynamics, Inc., and United States Steel Corporation.

Last week, we briefly covered the decision by European Union lawmakers to vote against the application by China to be considered a market economy, a recognition China says it is due automatically by December following an agreement in 2001 set to mature this year.

We also published an in-depth look at what China market economy status would mean for U.S./E.U relationship with China.

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The European Parliament’s decision was overwhelming, 546 votes in favor and only 28 against, with 77 abstentions so, while the vote is non-binding, it raises the stakes for the European Commission, which will decide shortly whether China deserves to have its status upgraded.

Terrible Timing For Europe

For both sides the debate is at the wrong time. Europe’s steel industry is being decimated by cheap imports from China, raising the stakes for politicians otherwise inclined toward a more free-market approach. The British, in particular, find themselves (not for the first time) somewhat isolated in wanting more open engagement even though their domestic steel industry has been hit harder than most.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: Adobe Stock.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: iStock.

In reality, the decision is much more political than practical. Market economy status matters when it comes to deciding whether a country is “dumping,” exporting goods at below cost price. Nations deemed to be market economies can resist anti-dumping measures if they can show that domestic prices are no higher than the price at which goods are sold overseas. Read more

US Steel plant in Granite City wide

The U.S. Steel Granite City Works captured by Google Street View in September, 2014 — a year and two months before the latest idling of the mill.

Dan Simmons has seen a lot during the 38 years he’s worked at U.S. Steel’s Granite City Works in Illinois, just outside St. Louis.

From starting out as a general laborer, to swinging hammers on the track gang, to “feeling like Mr. Haney from Green Acres” while trucking around the mill, Simmons took it all in. There were days “you were whistling when you came in, and whistling when you left,” he said.

But nothing compares to what he’s seeing now.

“I have grown men coming into my office, crying,” said Simmons. “You see the pain, the ‘what ifs,’ the blank stares…”

Simmons, who just turned 56, is now the president of the United Steelworkers Local 1899, and some of the grown men coming to him are pipefitters just like he had become during his long tenure, which began in 1978.

However, those men and women aren’t coming to him because they’ve been hurt on the job. They are coming to plead for help, because they have lost their jobs, and in many cases still don’t know when they’ll land their next one.

Cyclicality in steel production is nothing new, but it wasn’t until 2008 — when the global markets began crashing — that USS Granite City Works endured its first indefinite idling in its history.

“We had the unemployment office cycling 400 people through at a time,” Simmons told MetalMiner. “The biggest fear is not knowing. If I could have given them a definitive timeframe, they would’ve said, ‘OK, I can handle that.’ But after two to three months, people come to me and don’t know what to do with themselves.”

And now, after the mill went idle a second time in December 2015, some of those workers have been without a job for nearly half a year. Last December, 1,500 people were laid off — 75% of the mill’s total workforce. Across the country, a total of 13,500 steel workers have been laid off over the past year.

Simmons knows what it’s like to feel that fear firsthand. “I got a brother that works here, a brother-in-law that works here, so it’s personal. You worry about where your whole family will be.”

So what’s different today, compared to 2008?

For Simmons and scores of others in the country’s steel sector and other manufacturing industries, much of the pain can be traced back to one main source: China.

A History of Unfair Trade?

The world may have never encountered a more crucial Year of the Monkey than 2016.

That is, at least as far as global trade between China and the Western world is concerned. At the end of this year, China believes it ought to receive Market Economy Status (MES). This would allow China to enjoy the same market status as the U.S. and European Union when it comes to anti-dumping investigations before the World Trade Organization.

In its quest to grow its economy over the past two decades, China has become the leading producer — by far — of steel, aluminum, cement and other industrial materials. Read more