Articles in Category: Global Trade

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This morning in metals news, a hearing on NAFTA and possible renegotiation of the 23-year-old trilateral trade agreement continues into its second day, the results of the Trump administration’s Section 232 investigations into steel and aluminum imports might be subject to readjustments and copper has proven to be as precious as gold in some ways.

NAFTA Talks Continue Into Day Two

The Office of the United States Trade Representative kicked off hearings on the subject of NAFTA, soliciting views on if (and how) the trade agreement should be renegotiated.

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Trump was was reportedly prepared to pull the U.S. out of the trade agreement in April before the Canadian and Mexican leaders convinced him otherwise.

For many, including those in metals industries, NAFTA has been mostly successful, but could be modernized.

The hearing continues today, having started at 9 a.m. ET and concluding at 6:30 p.m. ET. Yesterday’s hearing included comments from Hollie Noveletsky, CEO of Novel Iron Works, and Thomas Gibson, president and CEO of the American Iron and Steel Institute (AISI).

More than 1,400 public comments were submitted online ahead of the hearing.

A full list of scheduled speakers is available on the USTR website.

Malleable Situation: Prepping for 232 Recommendations

As the U.S. steel and aluminum industries await the announcements of the Trump administration’s policy recommendations following Section 232 investigations into imports of the metals, some industry organizations think the outcomes are subject to change.

Kevin Dempsey, senior vice president of public policy for AISI, told Platts there could be some fine-tuning of the administration’s announced course of trade actions.

As for retaliatory measures by other countries in the case of the Trump administration’s imposition of tariffs or quotas? Dempsey indicated to Platts the threat of retaliation in response to trade policy actions is always a possibility.

It has been 16 years since the last 232 investigation. What will happen this time around? Most are expecting tariffs, of course, but no one knows exactly what they will look like. In addition, the timeline for the announcement of the investigation’s findings is even murkier. According to Dempsey, the administration might even wait until after the G20 summit, which is scheduled to take place July 7-8.

Copper is Golden

When most people think of monetary stability, of safe-haven assets, they think of gold — and they’d be right to do so.

But when it comes to inflation, Bloomberg reports copper has actually kept up better.

According to a correlation analysis of total return commodity indexes compiled by Bloomberg, for every 1 percent annual increase in the consumer price index since 1992, copper jumped almost 18 percent, more than three times the 5.2 percent gain logged by gold.

Free Download: The June 2017 MMI Report

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Imports of steel and aluminum are under the spotlight these days, as the Trump administration in April opened Section 232 investigations into the metals to determine if they posed threats to national security.

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According to a recent report from the American Iron and Steel Institute (AISI), steel imports were up by 2.5% in May. According to the report, collected from U.S. Census Bureau data, the U.S. imported a total of 3,434,000 net tons (NT) of steel in May 2017, including 2,574,000 NT of finished steel — up 2.5% and 1.8%, respectively, compared with final data for April.

Comparing the first five months of the year with the same time frame in 2016, total imports jumped by 14.4%.

The top five countries sending the most steel to the U.S., in descending order, in May were: South Korea (329,000 NT), Turkey (154,000 NT), Germany (142,000 NT), Japan (127,000 NT) and India (86,000 NT). South Korea was also the biggest supplier in the year to date, despite export totals to the U.S. being down 3% from the same period in 2016. Japan (8%) and Germany (1%) also posted declines in their year-to-date export totals to the U.S. compared with 2016.

However, Turkey and Taiwan posted major increases. Steel imports from Taiwan saw a 67% leap compared with January-May 2016.

Meanwhile, domestically, the AISI’s monthly steel report noted domestic raw steel production was as estimated 1,729,000 new tons for the week ending June 24, good for a capability utilization rate of 74.2% (compared with 75.1% for the same week in 2016).

Zooming out a bit, year-to-date production is actually up compared with the same point last year, up by 2.3%. So far this year, there has been a capability utilization rate of 74.4%, up from the 72.6% rate to the same point last year.

Of course, the country that is at the center of the 232 investigations has not even yet been mentioned here: China.

The Trump administration launched investigations using Section 232 of the Trade Expansion Act, a little-used clause that gives the president authority to act if certain imports are deemed threats to the country’s national security. The last 232 investigation took place in 2001.

But as the recent Department of Commerce hearings regarding the steel and aluminum investigations — held May 24 and June 22, respectively — indicate, China is the main focus of the Trump administration, and the domestic steel and aluminum industries. Among other concerns, the U.S. says Chinese excess capacity has flooded the markets worldwide with cheap products subsidized by the Chinese government, making it difficult for U.S. producers to compete.

According to Section 232, the Secretary of Commerce has 270 days from an investigation’s announcement to provide the president with a formal report and recommendations. That 270-day mark is well down the road, but many reports have indicated the administration could be close to announcing its verdict in the two cases. While uncertainty is the only certain thing these days, many expect the administration to act by imposing tariffs, quotas, or a combination of the two against China.

Potential Blowback From Tariffs?

What effect will the imposition of tariffs have? Well, it might have some unintended consequences, namely negatively affecting trading partners like Canada and the European Union. In fact, EU Trade Commissioner Cecilia Malmström said Monday the 28-member bloc is preparing for retaliatory measures if the EU is unfairly impacted by prospective trade tariffs from the U.S. In other words, a series of trade wars could happen on numerous fronts.

As is often the case, this is not a situation of U.S. versus China — far from it. Many other nations, including those considered friendly to the U.S. and considered market economies, are caught in the web of the forthcoming 232 verdicts. The aforementioned top exporters — South Korea, Turkey, Germany, India and Japan — could also be affected by Section 232-related trade policy readjustments.

Free Download: The June 2017 MMI Report

Based on President Donald Trump’s rhetoric, both on the campaign trail and as president, it seems likely that tariffs or quotes are forthcoming — but, of course, they’re no sure thing. Less clear is what exactly would happen in the aftermath of the institution of tariffs or quotas.

A Department of Commerce hearing is underway Thursday morning on the subject of the Section 232 investigation into aluminum imports. qingwa/Adobe Stock

This morning in metals news, the Department of Commerce’s Section 232 hearing on aluminum is in progress this morning, the LME is expected to cut its trading fees and London copper rose Thursday as a result of data indicating a global supply deficit.

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Section 232 Hearing on Aluminum Underway This Morning

The U.S. Department of Commerce’s hearing regarding its ongoing Section 232 investigation into aluminum imports started at 8 a.m. CDT Thursday.

Those interested in watching can tune into the live streams on the Department of Commerce’s Facebook or YouTube pages. After a brief break, the hearing is reconvening as of 9:59 a.m. CDT and is scheduled to continue until just after 11 a.m. CDT.

As mentioned earlier this morning, Chinese overcapacity continues to be the primary talking point.

The hearing started with testimony from: Kentucky State Rep. Jim Gooch Jr.; Li Xie, director of Export Division One, People’s Republic of China, Ministry of Commerce; Talal M. Al Kaissi, representative from the Trade & Commercial Office from the Embassy of the U.A.E.; Lurii Stegnii, deputy trade representative from the Trade Representation of the Russian Federation in the United States; and Gerd Gotz, director general of European Aluminum.

Gooch Jr.’s state is home to Century Aluminum, which operates two smelters in the Bluegrass State (one in Hawesville, the other in Sebree).

LME Planning to Cut Trading Fees

The LME is planning on cutting its trading fees in the hopes of boosting volumes, Reuters reported Thursday.

According to the report, a 35% fee hike in January 2015 is a major reason cited by those in the industry to explain declining LME volumes.

Overall volumes in the five months to the end of May this year fell more than 5% from the same five-month period in 2016, according to the article.

LME Copper Ticks Up

LME copper rose Thursday, driven by data showing a global supply deficit, according to Reuters.

According to the data, the global world refined copper market showed a deficit of 5,000 tons in March, Reuters reported. That figure stands in stark contrast with the 102,000-ton surplus reported for February.

Free Download: The June 2017 MMI Report

Meanwhile, three-month LME copper was down 0.6%, according to Reuters.

China is far from alone in worrying about an investigation by the U.S. Department of Commerce into the impact of imported steel on the U.S. steel industry (due to be announced this week).

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The Section 232 investigation is the result of a campaign pledge by President Donald Trump to protect domestic steelmakers against foreign steel imports. Section 232 uses as its test whether imports have been detrimentally harmed the U.S. ability to produce steel for its defense industry, and while it is not country-specific there was little secret at whom it was primarily aimed.

The worry in Europe, generally, and in the U.K. in particular, is that supplies from the region will be caught up in a blanket Section 232 ruling, applying onerous duties that could hit some local steelmakers disproportionately hard.

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The findings of the Trump administration’s ongoing Section 232 investigation into steel imports have yet to announced, but American metal producers are clearly anxiously awaiting the probe’s findings.

Earlier this week, White House spokesman Sean Spicer said the findings of the investigation could be released as early as this week (they have not been released yet).

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The investigation, launched by the Trump administration and announced in April, seeks to determine whether steel imports pose a national security threat. (For more background on the investigation, read our Lisa Reisman’s post earlier this week about the 232 investigation’s potential outcomes and impact).

Section 232 investigations are rooted in the authority of the Trade Expansion Act of 1962. At their conclusion, the president can either agree or disagree with the recommendations set forth by the secretary of commerce (Wilbur Ross, in this case).

It’s not yet clear what the investigation’s findings will be, or what practical impacts, in terms of enacted policy, they will have.

But it’s clear that U.S. companies are anxious for the Trump administration to make good on campaign promises to bolster American industry.

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Before we head into the weekend, let’s take a look back at a few of this week’s stories:

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A Surprise in the U.K.

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Our Stuart Burns wrote about the U.K. parliamentary elections, which surprised many and saw Labour outperform expectations against Prime Minister Theresa May’s Conservative Party.

What does the election result mean for business? Well, that will partially be determined by which path to Brexit the U.K. ultimately takes. Burns writes there is likely to be compromise and a search for alternate solutions — that is, a softer Brexit.

The 411 on 232

White House spokesman Sean Spicer announced Monday the findings of the administration’s Section 232 investigation into steel imports could be released as early this week.

Although the findings have yet to be released, our Lisa Reisman laid out the potential outcomes and impacts of the investigation on Wednesday.

How will the recommendations affect steel prices domestically? No one knows for sure, of course, but Reisman wrote we shouldn’t jump to conclusions about potential price increases.

“Some have speculated that the forthcoming recommendations would force prices higher, however, we would not necessarily rush to that same conclusion,” Reisman wrote.

Markets showing pessimistic side

Burns also wrote this week about commodities markets — and not just metals, but oil, too — which have seen a drop in optimism of late.

What’s the downtrend all about? Many reasons, Burns argues, including: oversupply, the Chinese government “squeezing investors by increasing shadow banking borrowing costs,” and waning optimism with respect to the Trump administration delivering on campaign promises regarding massive infrastructure projects.

But not to send you into your weekend on a down note — it’s not all cloudy skies.

“With that said, that doesn’t mean the U.S. or global economies are about to tank,” Burns writes. “European growth has been much better this year and Japan is expected to improve further, while the World Bank is predicting an unchanged 2.7% global growth this year in its latest report.”

June MMI Report Released This Week

In case you missed it, our monthly MMI Report was released this week; as always, it’s jam-packed with information.

The report covers markets trends in our 10 sub-indexes: Automotive, Aluminum, Construction, Copper, Global Precious, GOES (grain-oriented electrical steel), Rare Earths, Raw Steel, Renewables and Stainless Steel.

Want to know what’s happening in any of these categories? Get yourself up to speed by checking out the June report, which you can access by visiting the link below.

Free Download: The June 2017 MMI Report

Steel and stainless steel buying organizations have expressed concern to MetalMiner about the potential outcome of the current Section 232 steel investigation led U.S. Secretary of Commerce Wilbur Ross.

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According to a recent Reuters article, Ross, when discussing the Section 232 steel investigation told a Senate Appropriations Subcommittee last week that, “there is a genuine national security issue,” suggesting his agency would make recommendations that would potentially curb steel imports.

He went on to suggest several potential policy recommendations, including: “Imposing tariffs above the current, country-specific anti-dumping and anti-dumping duties on steel products; imposing quotas limiting the volume of steel imports; and a hybrid ‘tariff-rate quota’ option that would include quotas on specific products with new tariffs for imports above those levels,” and intimated that this last option would help mitigate price risk for steel consumers. Ross made several additional comments to allay consumers’ concerns regarding price increases.

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Editor’s Note: This is the first of two posts on the effects of the decision by several Gulf Cooperation Council (GCC) nations to sever diplomatic ties with Qatar. First, Stuart Burns expands on the political backdrop of the decision. On Monday, he’ll focus on the timing of the decision and its economic impacts. 

We tend to view Middle East politics as a simple rivalry between Sunni and Shiite sects — or, more recently, as a regional power play between predominantly Sunni Saudi Arabia and predominantly Shiite Iran.

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Although these regional differences are often portrayed in religious terms, they have as much to do with national politics as they do with religion.

Our simplistic view is probably not helped by the tendency for the powers that be to historically resolve their differences or arrive at solutions behind closed doors, with little or no public debate.

The complexity of Middle East politics is often lost on us in the West. Our understanding is maybe not helped by our politicians, who paint various parties as either with us or against us.

But action led by Saudi Arabia and the United Arab Emirates this week illustrates the complex nature of regional politics and brings into focus how rapidly alignments and priorities are changing.

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Beijing’s focus on supply-side reforms of China’s giant aluminum industry has been a prime mover for the metal price this year.

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But primary metal price rises aside, of more concern to aluminum consumers should be the nature and extent of China’s aluminum semi-finished product exports. There have been various facets to China’s product exports, as Andy Home of Reuters succinctly explained in an article last week.

On the one hand, the growing volume of product exports has ignited considerable trade tensions with the U.S. and Europe. In the case of the former, the article reports, it led to a formal complaint to the World Trade Organization (WTO) and, more recently, a Section 232(b) investigation under the Trump administration. In Europe, expiring duties have been rolled over on imports of aluminum wheels from China and further action sought by trade bodies on a range of aluminum products.

Meanwhile, rumours that an indeterminate but significant proportion of China’s semi-finished product exports were in fact primary metal being illegally classified as semi-finished product to circumvent export duties on unwrought aluminum have at least partially been vindicated, as a focus has been brought to bear on a massive stock of aluminum held in Mexico last year that appeared to originate from Vietnam but with links to China.

Home explained that China’s exports of commodity code 7604 (bars rods and extruded profiles) have mushroomed from just over 6,000 tons in 2012/2013 to 463,000 tons in 2015 and 510,000 tons in 2016. Some of that metal appeared in Mexico last year before media attention encouraged the metal to be recycled back to an obscure port in Vietnam. Read more

“Where next for oil prices?” Stuart Burns had asked on Monday. In the short term, that would be downwards.

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Yesterday the Organization of the Petroleum Exporting Countries (OPEC) met in Vienna and decided to extend supply cuts for another nine months, until March 2018. That is what was expected, but oil prices responded by dropping quite a bit, Reuters reported, by roughly 5%.

The price of oil has indications beyond, well, oil. “Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum,” Burns wrote. “A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide.”

Where Next for the U.S. Dollar?

Another driver of metal prices is the dollar. This past week, Raul de Frutos looked at the movement of the U.S. dollar, which recently hit a seven-month low. What is the reason for this drop?

“First, the dollar had steadily risen for three consecutive months,” de Frutos wrote. “It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.” Read more