Global Trade

It was no surprise last week when AK Steel Corp., ArcelorMittal USA LLC, Nucor Corp., Steel Dynamics, Inc., and U.S. Steel Corp. filed petitions with the Commerce Dept. and the US International Trade Commission against eight countries the domestic industry believes are receiving illegal government subsidies and “dumping” flat cold-rolled coil products here.

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The eight countries included in the anti-dumping petitions and the dumping margins alleged by AK Steel and the domestic industry are:

  • Brazil, 50 to 59.74% subsidy rate
  • China, 265.98%
  • India, 42.28%
  • Japan, 82.58%
  • South Korea, 93.32 to 176.13%
  • Netherlands, 47.36 to 136.46%
  • Russia, 69.12 to 320.45%
  • The United Kingdom 47.64 to 84.34%

The petitions also allege that the foreign producers benefit from numerous countervailable subsidies.

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Could the cold-rolled coil anti-dumping cases set a new precedent for dumping steel in the US?

Again, this was no surprise as the case with China, in particular, has been well-documented and this isn’t the first go around with anti-dumping duties with most of these countries. What will be interesting to see, however, is how new trade remedy measures adopted by the federal government as part of two trade bills signed by President Obama in June, will affect enforcement of anti-dumping or countervailable duties that come out of these petitions.

At the time American Iron and Steel Institute President and CEO Thomas Gibson said, “We thank the Administration for recognizing the critical role of the steel industry by supporting these initiatives to improve the effectiveness of our anti-dumping and countervailing duty laws.”

Part of the remedies in the trade package was language that would force US Customs Enforcement and Border Protection to tariff imports more stringently, eliminating loopholes that allowed countries to essentially created stops in other ports to disguise the origin of shipments.

“AK Steel and the domestic industry have been facing a surge of what we believe are unfairly dumped and subsidized imports of cold-rolled steel coming into this country,” James L. Wainscott, chairman, president and CEO of AK Steel said in a statement. “The negative impact to our company and to other U.S. producers has been significant in terms of pricing, production, sales and earnings.”

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If the new measures deliver high margin tariffs and enforceable import protections it will be the culmination of decades of legislative of enforcement work by the US steel industry. Work that began as far back as the North American Free Trade Agreement.

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Earlier this week the London Metal Exchange announced that its clearinghouse would now accept offshore Chinese renminbi as collateral, effective immediately. MetalMiner Editors and Co-Founders Lisa Reisman and Stuart Burns discuss the significance of this announcement but more important, its potential impact on industrial buying organizations.

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Energy prices got hit the most with oil prices falling below $50/barrel, followed by precious metals. Gold prices hit a 5-year low, falling as much as 8% in July, silver of course, followed because metal price correlation is still an important factor to account for.

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One may think that China’s steel industry could hardly be in a worse place.

Half the industry is losing money in spite of falling iron ore and coking coal costs and a reduction in domestic power costs all aiding steel producers on the supply side. Even among those that did not lose money in the first half, margins are said to be razor thin and banks are reported to be cutting credit lines and presenting difficulties in rolling over loans according to China Iron and Steel Association (CISA) comments posted by Reuters.

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EU Upholds Stainless Steel Anti-Dumping Duties on China and Taiwan. More anti-dumping duties on Chinese and Taiwanese stainless steel have been upheld, this time in Europe. A major nickel producer is also slashing output.

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The EPA is getting closer to unveiling the final versions of its Clean Power Plan, which targets existing power-generating sources in the United States, and the US manufacturing community has expressed many concerns over the CPP.

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Learn about the cost impact of proposed rule on US manufacturing industry, including steel production.

However, there is some indication that EPA may make three significant changes to the proposed rule before it finally hits the books, which could alleviate cost- and compliance pain for US businesses:

  1. Easier interstate greenhouse gas emission credit trading

This would get closer to making good on EPA’s promises for a more “flexible rule” by allowing states to trade emissions credits amongst themselves without officially creating a cap-and-trade program, which would be more costly and create barriers to participation, according to Adam Riedel’s article in JDSupra Business Advisor.

  1. EPA may adjust state-specific emission reduction targets

Essentially, this would alleviate the effects that the most manufacturing-economy-dependent states would feel from the proposed rule, since those states would have been disproportionately affected by the emissions targets. It’s pretty clear that EPA overestimated the ease with which some of these states would be able to switch to natural-gas-fired plants, or access renewable energy for its (in many cases non-existent) infrastructure. Also, the “early mover” states that already began carbon reduction initiatives would have been unfairly hit by the initial emission reduction targets.

  1. EPA may adjust – or remove entirely – the binding interim emission reduction targets

This is exactly the issue that Lanny Nickell, VP of Engineering at Southwest Power Pool, told MetalMiner in an interview he is most concerned about: the virtually unachievable turnaround for interim emissions target goals to be met by 2020, before final goals must be met by 2030.

“Our concern is that the EPA is allowing the states to develop plans to comply with both the interim goals and the final goals, but those plans can be developed as late 2018,” Nickell said. “So if you think about the fact that fairly significant actions have to take place as early as 2020, the period of time between 2018, which is when they will, in theory, complete their plan, and 2020, which is when it would have to be implemented, that’s not a lot of time to build replacement generating capacity.”

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He continued, “And it’s not nearly enough time to build transmission infrastructure that would be needed to support any new generation or any change in use of the existing generation capacity that we have.”

But Here’s the Most Interesting Part:

Legal experts are essentially calling the current period ‘the eye on the storm.’ In other words, as Adam Riedel writes on behalf of Manatt, Phelps & Phillips, LLP, “Although the past year has been a relatively tranquil period of waiting and speculating” – as we at MetalMiner have been doing! – “regarding EPA’s regulation of greenhouse gas emissions from power plants, the finalization of EPA’s rules is likely to usher in a transformative period for large sectors of the economy that will last until at least the end of the current administration.”

Which means, folks, get ready to strap yourselves in for a fun ride – and check back in with MetalMiner after the final rule has been announced for in-depth follow-ups on the legal challenges to the final rule of the EPA Clean Power Plan.

RELATED: For now, enjoy some well-informed speculation on the costs and effects of the plan.

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The US House will not vote on the Senate’s six-year transportation bill and China’s economic crisis could cause gold imports to plunge there.

House Won’t Vote on Senate Transportation Bill

House Majority Leader Kevin McCarthy, (R-Calif.), says the House will not vote on the Senate’s six-year highway transportation bill. Funding in the federal government’s Highway Trust Fund will run out on July 31st without any further action.

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The House has already adopted a bill that pays for transportation construction through mid-December. The stumbling block appears to be the provision to reauthorize the Export-Import Bank that’s included in the Senate bill. House members will leave for their August recess on Thursday, and funding for Highway Trust Fund expires Friday. The Senate will be in session next week and could choose to vote on the House bill.

Chinese Gold Imports Hit by Lower Credit Rates

China’s gold imports could fall as much as 40% this year as demand for bullion used to back domestic financing deals decreases, the world’s biggest refiner Valcambi told ThomsonReuters. A lot of the gold China imported in the last three years was used to secure cheaper loans due to a liquidity crunch, but that is now flowing back into the market as lending rates drop there.

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The leaders of the Senate Energy and Natural Resources Committee unveiled an energy reform package Wednesday that includes major policy priorities from both Republicans and Democrats.

Sen. Lisa Murkowski (R-Alaska), chairwoman of the panel, released the Energy Policy Modernization Act of 2015 Wednesday along with Sen. Maria Cantwell (D-Wash.), the committee’s top Democrat.

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The bill would set a deadline for the federal government to decide whether to approve or deny applications to export liquefied natural gas, indefinitely renew the government’s conservation funding program and push toward an electric grid that is better prepared for cyber security and renewable energy, among other provisions.

Mine Permitting Reform Included

Among them was an overhaul of the federal mine permitting process. The bill also includes budget increases for geological surveying. The committee repeatedly emphasized the bipartisan nature of the compromise, which avoided hot-button issues like exporting crude oil, a priority for republicans but something that democrats have previously staunchly opposed.

The bill would achieve republican priorities such as eliminate outdated or redundant mandates such as the long mine permitting process, and deliver on democratic priorities such as encouraging energy efficiency in federal and commercial buildings, modernizing the electric grid and shoring up its ability to adjust to an increase in renewable energy, among other policies.

The bill was announced on the same day that the House voted to approve its own energy package, a bipartisan bill that is much less ambitious than the Senate version. It is believed that the bills could be reconciled in a House-Senate conference.

A Game Changer for US Industry

The mining and energy modernization aspects of the bill are not just necessary, but crucial to the survival of both metals and manufacturing businesses. Changing the federal permitting process has long been the objective of US-based miners such as Molycorp and federal dollars for upgrades of regional energy grids has the potential to greatly expand renewable energy generation. If this bill can secure the bipartisan votes it was designed to capture then it can be a real game changer for US energy and manufacturing.

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SMU Steel Summit 2015We here at MetalMiner™ are thrilled to be a part of Steel Market Update’s 2015 Steel Summit Conference in Atlanta, Sept. 1 and 2, featuring metals industry professionals. We will not be alone, however, as this event will be filled with steel producers, manufacturing companies, end-users and service centers affected by the ebb and flow of the metals industry each and every day. The audience will be tuned in, the discussions engaging and the takeaways tangible.

“[We have] a perfect storm of weakening demand and surging supply [that] has sent benchmark ore prices tumbling, shacking miners’ business models across the globe. After a decade of super cycle, does 2015 mark the beginning of a ‘buyers’ market’ in steel raw materials?” – Serafino Capoferri, consultant, Steel Raw Materials & Steel Costs, from CRU Analysis

Capoferri will be joined by Peter Meyers, executive vice president at Metalico and Gaurav Chhibbar, raw material manager at Cargill Metals to discuss iron ore, scrap and world pricing for the Commodities & China: The Gorilla in the Room portion of the summit.

Our own Lisa Riesman (CEO, Azul Partners and executive editor, MetalMiner™) will also be in attendance, discussing our latest forecast report and where she sees the direction of commodities heading.

So come join us at the Georgia International Convention Center on Sept. 1 and 2 for what will surely be an engaging event!

More info and registration

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The Big Mac index of currencies was created, somewhat tongue in cheek, back in 1986 in an effort to illustrate the extent to which a currency was at or diverged from its correct value.

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The Economist modestly puts parentheses around the word correct in an article this week introducing a beefed up version (unlike the article we will leave the Burger puns there) of the old index which seeks to create more finely nuanced price comparisons, taking into account the relationship between GDP of the country as a totem for local wages and the price of a Big Mac.

PPP vs. Wage Disparity

As the Economist says, the old model is based on the theory of purchasing-power parity (PPP), the notion that, in the long run, exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries. So the index should highlight which currencies are over or undervalued, and hence which direction we can expect them to go over time.

The new index tries to account for the entirely reasonable argument that we would expect a product, in this case a Big Mac, to be cheaper in poorer countries because wages will be lower. The Economist uses the relationship between prices and GDP per person to create a set of adjusted results and, of course, the data is displayed in a series of graphs based on any one of five currencies – the US dollar, Euro, Japanese yen, GBP sterling and Chinese yuan, allowing the user to see to what extent the index believes the local currency is over or undervalued to these five.

What’s Going on in Venezuela?

Pity those at the bottom of the scale; Venezuela, Ukraine, India, Russia, Malaysia, South Africa and Egypt. If the index is right, their currencies have a huge potential on the upside. Of course, it isn’t quite that simple or every currency speculator in the world would be using the index to trade on sure fire medium-term bets.

Many of those at the bottom of the chart have profound economic problems impacting their exchange rates, countries like mismanaged Venezuela, Ukraine and South Africa or sanctioned Russia, but, all the same, the charts make interesting reading, and in an area of study – economics – that some would argue is at best a pseudo science, who’s to say the Big Mac index is any worse than any other measure?

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