Articles in Category: Global Trade

Iron ore mining is a bad place to be this year but, by all accounts, it’s going to get even worse. However much BHP Billiton and Rio Tinto Group talk up their book they can’t be happy with prices at $48-49 per metric ton and, yet, even a senior BHP executive, Alan Chirgwin, vice president of marketing for iron ore, says there is no light at the end of the tunnel for depressed iron ore prices, which will gradually deteriorate over the next few years before finding a new normal well below $50 per mt.

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He is quoted in the Australian Financial Review saying the price will gradually fall over the next few years before finding a new normal at the highest break-even of “a major producer in Australia or Brazil.” That, the paper suggests, would likely be either Fortescue Metals Group or Brazil’s Vale SA, which are both racing to avoid the unwanted marginal producer status. Fortescue is sitting at about $37 to $38 on break-even, while Vale is closer to $40 a metric ton.

Source AFR

Source: Australian Financial Review

It is no secret the iron ore market is suffering from massive oversupply facing deteriorating demand. In fact the same is true for all steel making ingredients, metallurgical coal is currently at $80 per mt down from $300 per mt four years ago. Read more

The Department of Commerce has released affirmative preliminary determinations in the countervailing duties investigations of imports of corrosion-resistant steel products from China, India, Italy, and South Korea, and a negative preliminary determination in the countervailing duties investigation of imports of corrosion-resistant steel from Taiwan.

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The investigations cover corrosion-resistant steel including flat-rolled products that have been clad, coated or plated with corrosion- or heat-resistant metals (usually zinc or aluminum) to prevent corrosion and thereby extend the service life of products made from the steel. Corrosion-resistant steel products are typically used in the manufacture of trucks and automobiles, appliances, agricultural equipment, and industrial equipment.

Imports Found to Be Subsidized

Commerce preliminarily determined that producers/exporters in China, India, Italy, and Korea received local and national government subsidies ranging from 26.26% to 235.66%, 2.85% to 7.71%, de minimis (less than 2%) to 38.41%, and de minimis to 1.37%, respectively. Read more

The Automotive MMI bounced 1.4% this month but we would caution metal buyers to wait a bit longer before calling this anything close to a market bottom.

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As MetalMiner co-founder Stuart Burns adroitly pointed out this week, no two metals’ bottoming out experiences will be the same. Some will be sharp and some, particularly steel, could be fat and flat. It should come as no surprise to our readers that steel and aluminum were, again, the laggards in our automotive metals index.

Automotive_Chart_November-2015_FNLA mini-surge from copper and relative strength in platinum and palladium were able to collectively raise the index to its small gain this month. Therein lies the true problem for long-term Automotive MMI growth: there are signs that PGM prices will not be able to hold the modest gains they’ve made in recent weeks.

Eeek… TFs

Platinum- and palladium-backed exchange-traded funds tracked by Reuters were facing their biggest monthly outflows at the end of October since the data series began in 2010.

Platinum flowing out of ETFs is good news for the dollar and bad news for dollar-denominated commodities, such as precious metals. The bulk of the selling was seen from the Johannesburg-listed NewPlat ETF operated by Absa Capital, which saw its holdings fall 134,000 ounces in October, according to Reuters.

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While the Volkswagen scandal did not cause the price losses some expected for exhaust system metals such as platinum and palladium, the muted market reaction may still be growing. ETF outflows have also pushed gold to 4-week lows, too, and we would expect more losses for automotive metals as aluminum and steel have very little upside right now and the rug very much looks like it’s finally being pulled out from under PGMs.

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Glencore assured investors it is reducing its debt pile this week and President Obama rejected a request to suspend review of the proposed Keystone XL pipeline.

Glencore Says Debt Payoffs On Track

Glencore said on Wednesday it was on track to reduce its debt and boost liquidity thanks to asset sales, and plans to deepen copper output cuts to help lift prices.

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Swiss-based Glencore has pledged to cut its net debt to $20 billion from $30 billion by the end of 2016 to regain the trust of investors after its shares tumbled to record lows this year.

Obama Still Wants to Rule on Keystone XL

President Barack Obama wants to rule on the long-pending Keystone XL oil pipeline by the end of his presidency, the White House said on Tuesday, calling a request by the project’s Canadian developer, TransCanada, to delay a review while it works out route details with Nebraska officials “unusual.”

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This week the Federal Reserve declined to raise interest rates here in the US, but hinted strongly that it might do so at its last meeting of the year in December. Market-watching and significant commodities lows dominated the week in metals and most commodities.

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In China, the central government made a move to goose its planned economy that hardly anyone expected when it rescinded the longstanding 1 child policy families had been limited to since 1979. Chinese parents can now bring 2 whole kids into the world!

Introduced by Deng Xiaoping to improve a then-impoverished nation’s scarce resources, the baby limit is threatening to undermine growth there as the working-age population shrank last year for the first time in 2 decades and the cohort of senior citizens is projected to grow rapidly, just like our retiring baby boomers.

We write about China quite a bit here at MetalMiner, but mostly in relation to metals exports, oil and things that aren’t human beings. Yet, our skepticism about China really changing to modernize its economy extends to this 2-child policy, which could be a clever way to make it look like the nation is changing without dealing with underlying problems.

US dollar vs. RMB

Dollars and yuan renminbi dominated our economic conversation this week.

With slowing growth and a steel industry that’s still stuck in the dark ages when it comes to supply and demand and environmental regulation, can China really have all the jobs necessary to fill its current population? Let alone the next generation? China’s planned economy shoots for 100% employment. I’m skeptical of China getting even close to that these days without currency manipulation, overproduction of steel, aluminum and most of the metals that we track.

So, the labor market there is not really a market at all. My colleague, Lisa Reisman explained just how far mainland China is from being a market-based economy this week while discussing recent World Trade Organization moves to recognize it as such. The picture’s not pretty.

China’s largest listed steel producer, Baoshan Iron & Steel, has no further plans to cut production following the recent closure of its 550,000-metric-ton-per-year Baotong plant, even though most figures show it is still overproducing steel for export. I suppose we could achieve 100% employment in the US here, too, if we were to give half the unemployed jobs digging holes and the other half jobs filling them up.

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As if on cue, the US Dollar bounced off support and is now climbing higher against other currencies. While our banking system, and the Fed itself, can sometimes seem arbitrary and unsatisfying to investors, things could be far worse.

The Steel Manufacturers Association (SMA) recently supported lifting the ban on U.S. crude oil exports. The ban, enacted by the 1975 Energy and Conservation Act, applies to all crude oil exports except in limited circumstances.

This month, the House of Representatives approved H.R. 702, a bill that would formally lift the ban. Comparable legislation is pending in the Senate.

“The global energy landscape has changed dramatically over the past 40 years,” said Philip K. Bell, president of the SMA. “Today, the US is a world class leader in the production of oil and other energy resources. We have an opportunity to leverage these resources in foreign markets to the benefit of the domestic economy and its workforce. The export ban serves as an impediment to free and fair trade. Energy companies are unable to invest and produce to the extent that they would in an open market.”

In steel news, Baosteel is holding the line on production cuts and shutdowns and the beleaguered UK steel industry has finally received a reprieve from its high green costs.

Baosteel Vows Not to Cut

Baoshan Iron and Steel Corp. (commonly known as Baosteel), China’s largest listed steel producer, has no further plans to cut production following the closure of its 550,000-metric ton per year Baotong plant, a company official said on Thursday

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“Apart from Luojing previously and Baotong now, the company currently has no plans to further cut production,” said Zhu Kebing, the company’s chief financial officer, at an online investor briefing to discuss its third-quarter results.

UK Steelmakers To Receive Cost Support

Britain promised on Wednesday to start refunding the cost of so-called green taxes which push up energy costs for steel manufacturers and other energy-intensive industries as soon as the European Union grants state aid approval.

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This month over 4,000 British steel jobs have been lost or are at risk due to a combination of weak prices and high costs

The Federal Reserve announced today that it is not ready to raise interest rates, completing a 7th year in which it has held short-term rates near 0.

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The Fed’s statement, issued after a 2-day meeting of its policy-making committee, left open the possibility that the Fed will raise rates at its final meeting of the year, in December, but such a change would not go into effect until January. While noting that job growth has slowed, it said that other economic indicators remained relatively strong.

The Fed also signaled that its concerns about the global economy have diminished. In the statement issued after its previous meeting in September the Fed said global economic and financial developments might restrain domestic growth. That language was stripped from the new statement, leaving only an acknowledgment the Fed “is monitoring global economic and financial developments.”

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As MetalMiner Lead Forecasting Analyst Raul De Frutos wrote earlier today, this is generally bad news for metal prices and all commodity prices and the longer the Fed delays the more likely it is that when a rate increase does finally happen it will only make the US dollar more attractive to investors seeking yields.

Please follow Jeff Yoders on Twitter @jyoders19

Arguably, no issue has impacted the steel industry more than imports.

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With multiple trade cases filed in 2015, service centers reeling with higher than average months-on-hand inventory levels (at prices that exceed the current market), US producers operating at 71.3% capacity utilization, the last thing the industry needs to hear is China somehow ascending to the World Trade Organization with full “market economy” status.

Nobody Thinks China Operates a Market Economy

According to a new report issued by trade specialist law firm Wiley Rein entitled, The Treatment of China as a Non-Market Economy Country After 2016 discusses what changes in market status China should expect to receive after 1 provision in the original negotiated WTO agreement expires on December 11, 2016.

China’s Protocol of Accession (to the WTO as a full member) requires that China and more specifically, its government, not meddle, “…its control over prices of key inputs to many manufactured products.”

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The World Steel Association (WSA) recently said that India is the silver lining in an otherwise gloomy global steel market where most of the steelmakers have come under intense pressure from the Chinese economic slowdown.

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The Association, in its Short Range Outlook (SRO) forecast issued a few days ago, forecast the demand for steel in India to go up by 110 basis points (bps) in 2015 to 7.3% and by another 30 bps in 2016. Compare this to another top producer of steel, the US, where demand continued to remain a “challenge.”

US, Chinese Consumption Falters

Crude steel production, for example, dropped 9.7% year-over-year to 7 million tons in the US in August this year, marking it the seventh straight month of decline in 2015. The WSA saw no major change in this position through the rest of the year, at least as a stronger greenback and a listless energy sector continued to weigh down the domestic steel industry. The WSA predicted steel usage in the US to drop 3% in 2015, before clawing back to a 1.3% gain next year.

Where China is concerned, the WSA said in its report that steel exports from there had risen 28% to almost 44 million metric tons in the first 6 months of 2015, despite output declining by 2%. No surprise there since China produces over half of the world’s steel, but finds domestic uptake slowing, forcing its steel companies to dump there products in foreign markets. Low local demand has started to affect steel production, so much so that in July steel production fell 3.8%.

Overall, the WSA has predicted a 1.7% drop in global finished steel demand to 1,513 mmt in 2015. Demand may increase slightly next year by just 0.7% to 1,523 mmt, as it hopes the Chinese economy stabilizes.. This iss slightly different from its April SRO forecast which said steel demand was set to grow by 0.5% in 2015 and then recover to 1.4% in 2016.

India, South Korea Buck Falling Trend

Only India and, to a certain extent, South Korea somehow managed to buck the global trend. India, in the top 5 producers of steel, had produced 91.46 mmt in the last year. According to the Brussels-based WSA, world steel production fell by 3% in August, its biggest fall this year. But India still managed to beat this trend to post a 2.8% growth in steel output as compared to the same month last year. Despite the threat of imports, India produced 7.66 mmt in August compared to 7.45 mmt in August 2014.

At 5.9 mmt, South Korea, too, posted a 4.9% growth in steel output in August as compared to the same month a year ago. In July, the country posted a 1.7% growth in steel production to 6 mmt in the month.

South Korea today has a high-per-capita steel consumption of steel, over 1,000 kg of finished steel per person. By comparison, China’s is half as much per capita. To a large extent, by virtue of it being 1 of the world’s largest automobile maker,s South Korea consumes a lot of auto grade steel. Shipbuilding remains another major source of South Korean steel demand.

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The WSA report is based on data collected from 65 countries, representing about 98% of the global steel production.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.