Articles in Category: Imports

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It didn’t take long for President Donald Trump to extricate the U.S. from one trade deal, the Trans-Pacific Partnership. Now, the Trump administration is looking to make good on a promise to revamp the North American Free Trade Agreement (NAFTA), the 23-year-old trilateral trade agreement with Canada and Mexico.

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On Wedesday, U.S. Trade Representative Robert Lighthizer announced the first round of negotiation talks will be held Aug. 16-20 in Washington, D.C.

A 90-day consultation period with Congress and the public kicked off May 18. Late last month, the Office of the USTR held public hearings over three days regarding NAFTA, welcoming comments from lawmakers, businesses and other stakeholders. Some U.S. industry sectors agreed NAFTA has been largely successful, but that the agreement forged in 1994 needs modernizing tweaks.

Lighthizer also announced John Melle, the assistant U.S. trade representative for the Western Hemisphere, will serve as the chief negotiator during the NAFTA talks. Melle has worked for the Office of the USTR since 1988.

The USTR also released its trade objectives for the negotiations on Monday. Perhaps not surprisingly, the primary goal for the Trump administration is a reduction of trade deficits with Mexico and Canada.

“President Trump continues to fulfill his promise to renegotiate NAFTA to get a much better deal for all Americans,” Lighthizer said in the prepared statement released Monday. “Too many Americans have been hurt by closed factories, exported jobs, and broken political promises. Under President Trump’s leadership, USTR will negotiate a fair deal. We will seek to address America’s persistent trade imbalances, break down trade barriers, and give Americans new opportunities to grow their exports. President Trump is reclaiming American prosperity and making our country great again.”

In 2016, the U.S. had a $64 billion trade deficit with Mexico and an $11 billion deficit with Canada. In 1994, when NAFTA went into effect, the U.S. had a $1.3 billion trade surplus with Mexico.

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According to a recently released study from the Boston Consulting Group (BCG), a border tax or the U.S. exiting the agreement could negatively impact U.S. automotive manufacturers. The study argues that a 15% border tax would cost U.S. automakers and suppliers $22 billion a year and a 20% tariff on Mexican imports would drive up production costs per vehicle by $650 on average.

Whatever happens, though, Mexico and Canada clearly would like to get the ball rolling.

Reuters reported today that diplomats from the U.S.’s NAFTA partners are hoping to reach a deal quickly to put an end to uncertainty in the business community regarding the trade deal’s future.

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This morning in metals news, the wait for Section 232 continues, investors are betting on copper as electric cars grow in popularity and palladium is having a record year.

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Section 232 Watch Drags On

These days, folks in the aluminum and steel industries are looking for any sliver of information regarding what the Trump administration will do with its Section 232 investigations.

Many expected the steel investigation results to be announced by the end of June, but that never happened. Regardless, on Wednesday President Trump told a reporter that tariffs on steel imports “could happen.”

Not exactly the most illuminating quote, but it’s something. Given Trump’s economic rhetoric, both as a candidate and as president, the likelihood of some form of protective measures being instituted seems fairly high.

Copper and Cars

As automotive companies, from Tesla to traditional automotive industry stalwarts, compete to develop next-generation vehicles, investors are betting on copper, according to a report in the Financial Times.

How much more copper will be needed to back the next wave of automotive production?

Estimates vary, but one thing is certain: copper will play a very big role and, as such, demand for it will be high.

Big Year for Palladium

It’s been an up-and-down year for some metals in 2017 — but not palladium.

In fact, palladium is expected to hit its highest annual average price on record this year, Reuters reports. Even more, platinum has outperformed platinum in a big way.

But the question is: Can it last?

“We remain constructive on palladium’s outlook,” Standard Chartered analyst Suki Cooper told Reuters. “Not only is the market set to deliver a deficit this year, but it looks set to be undersupplied over the coming years.”

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While it’s easy to look askance at something that shoots up in price so quickly, there are indications that palladium will continue to be a strong player in the market.

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Anxiety is rising among Europe’s steelmakers that a potential U.S. plan to levy steel tariffs, on national security grounds, could have a disastrous impact on the region’s sales into the market.

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Reuters reported that the European steel association Eurofer is worried that “….measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions.”

Eurofer is worried on two counts. First, it is worried that with China largely already cut out of the U.S. market by anti-dumping legislation, the axe will fall on imports from other regions, of which Europe is a major supplier. Many European countries are already experiencing steep declines in sales to the U.S. between 2015 and 2016 — in some cases of 50% — but the largest, Germany, remains the fifth-largest external supplier to the U.S. of flat-rolled products, according to International Trade Administration data.

The second worry is that should the investigation support bans or large duties, suppliers in the affected countries will look for alternative mature, high-value markets for their products, namely the EU. This would potentially flood an already overcrowded market with more low-priced material.

Having championed free trade in recent statements, Europe may have to eat its own words if it is forced to find ways to counter such a flood. Reuters reports that moves are already afoot, at the G20 summit in Germany last weekend, leaders from the world’s 20 leading economies set an August deadline for an OECD-led global forum to compile information about steel overcapacity. That also includes a report on potential solutions, due in November, which could result in the region acting of its own.

In reality, Europe may not be the primary target of the president’s 232 action. Supplies from Canada, Brazil, Mexico, South Korea, Japan and Russia dwarf those from Europe, but that will not necessarily stop the region from suffering considerable collateral damage.

The move would come at an unfortunate time for the European steel industry.

After prices rose nearly 50% last year, they have since fallen back some 10% this year, according to Reuters. Demand, however, is recovering with a 1.9% rise forecast for this year, according to Eurofer, suggesting prices could stabilize (although demand growth is expected to ease again next year, with only 1% growth forecast).

EU Strikes Back?

However, The Guardian reports Europe is also looking at retaliatory measures, should they suffer exclusion or tariffs because of the 232 action. The paper quotes the European Commission president, Jean-Claude Juncker, who is reported to have said that if the U.S. took measures against Germany and China’s steel industries, the EU would “react with counter-measures.”

The article says one industry in the Europeans’ crosshairs is Kentucky bourbon, worth $166 million to the state last year and directly employing some 17,500.

Kentucky was staunchly supportive of Trump during his campaign, with 62.5% of the electorate voting for him.

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“I am telling you this in the hope that all of this won’t be necessary,” Juncker said during the G20 summit. “But we are in an elevated battle mood.”

Bellicose talk, indeed.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

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A new front seems to have opened up in India’s steel wars.

Only this time, the country seems to be fighting for its steel companies to be allowed to sell its steel in a foreign market.

India has complained to the World Trade Organization (WTO) that the U.S. had failed to drop anti-subsidy duties on certain Indian steel products. The move comes on the heels of India itself having imposed anti-dumping duty on 47 steel products from six nations in May.

According to the Indian government, the U.S. had not kept its promise of an April 2016 deadline to comply with a WTO ruling that faulted it for imposing countervailing duties on hot-rolled carbon steel flat products from India.

In December 2014, the WTO ruled against the U.S.’s move to impose high duty on imports of certain Indian steel products. The world body said the high duty by the U.S. was inconsistent with various provisions of the Agreement on Subsidies and Countervailing Measures.

The U.S. sought time until the April 2016 deadline to comply with the ruling. Realizing that the deadline had passed away without any action on part of the U.S. authorities, India has now requested the WTO dispute consultations with the U.S. regarding U.S. compliance.

Some experts say the U.S. will have to amend its domestic norms to comply with the WTO’s verdict on countervailing duties.

In May, India imposed anti-dumping duty on products from six nations — China, Japan, South Korea, Brazil, Russia and Indonesia — to protect its own industry from cheap imports.

Read more

Our June MMI Report is in the books, and there’s a lot to unpack.

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Out of 10 MMI sub-indexes, four posted no movement from our May MMIs. That wasn’t true for all, though, as the report shows promising signs for construction (compared with last year). Like the Construction MMI, growth in the automotive sector slowed a bit, but still performed better than at the same time last year.

In terms of policy, several things happening around the world will have macroscopic effects on these industries.

Domestically, the Trump administration’s ongoing Section 232 investigation into steel imports will have ripple effects at home and abroad (namely in the Chinese steel market).

In the U.K., the recent shocker of a parliamentary election leaves question marks regarding the way forward — is it going to be a “hard” or “soft” Brexit? Does Theresa May have the political capital to make a hard Brexit happen? It seems unlikely now, but that situation continues to develop. In terms of business and metal markets, whichever iteration of Brexit takes hold will have effects on the ways in which British companies do business with Europe.

In China, many analysts expect growth to slow in the second half of 2017 as the government aims to put the squeeze on credit growth. (Moody’s recently downgraded China’s credit rating for the first time since 1989.)

While several MMI sub-indexes did not go up or down this past month, there was still quite a bit going on in each sector. You can fill yourself in by downloading our June MMI Report, which offers all of the storylines and trends for our 10 MMI sub-indexes, presented in one convenient place.

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As I pointed out two weeks ago, U.S. steel prices had no choice but to decline as the spread between U.S. and international prices had widened to unsustainable levels.

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That’s exactly what I’ve seen so far in May, and I suspect that the recent price decline is just the beginning of a deeper correction that could easily extend to the rest of the second quarter.

U.S. hot-rolled coil prices fall in May. Source: MetalMiner IndX

Hot-rolled prices have fallen around 5% since they peaked in April. Meanwhile, steel prices in China have started to stabilize after a slump during March/April. As the chart below shows, the price spread appears to have peaked near the same levels as it did last summer. U.S. steel prices will likely continue to fall, bringing this price arbitrage down.

Hot rolled coil price spread US vs China. Source: MetalMiner IndX

U.S. Steel Imports Hit a Two-Year High

Although the U.S. doesn’t import steel directly from China, Chinese steel prices set the floor for international prices. Therefore, when China’s steel prices fall, imports become more appealing to U.S. buyers. That’s exactly what’s happening now. In March, U.S. steel imports rose 31% year-over-year, hitting the highest level since May 2015. Read more

President Donald Trump has come in for a fair amount of criticism for his perceived failure to achieve many of his campaign promises in the 100-day deadline he set himself (and now denies, but that’s another issue).

Implementation of a case against China as a currency manipulator and building the U.S.-Mexico border wall has given way to the greater pragmatism of coercing China to put pressure on North Korea with both carrot and stick incentives, and of a “last minute” retraction of a supposed imminent announcement to withdraw from the North American Free Trade Agreement (NAFTA) last month as a precursor to talks down the line.

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The Economist, as usual, gives an impartial and balanced assessment of events in two recent articles. The first reports that although the president has not been able to implement much of the headline objectives, the combination of executive orders, tweets and off-the-cuff announcements have set in motion a number of significant developments.

Pulling out of the Trans-Pacific Partnership (TPP) gave a clear message from day one that here was a president who meant what he said — that you took all the bluster as hot air at your peril. The very uncertainty in his lack of planned policy and spur-of-the-moment reaction to events has put trade partners, friends and enemies alike on uncertain ground — not a bad negotiating position to force on the other side, if you see all interaction as a negotiation.

More significantly, the U.S. has started an investigation into whether steel imports are a threat to national security and followed up with a similar probe, announced late last month, into aluminium imports. Trade negotiators at home and abroad are said to be aghast at the former leader of the rules-based trading system and a major backer of the World Trade Organization completely shunning the system it created and resorting to obscure legislation to achieve the president’s promises. Read more

President Donald J. Trump has completed his first 100 days in office and thus far has signed into law 28 pieces of legislation.

While Trump has made traction in some respects, the fate of the nation’s steel industry was still up in the air — that is, until Trump signed a Presidential Memorandum in late April calling on Department of Commerce Secretary Wilbur Ross to prioritize an investigation into the effects of steel imports on U.S. national security.

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Here are three things you should know about this directive and what it could mean for the nation’s steel industry.

The Trade Expansion Act of 1962

The investigation is being conducted under Section 232 of the Trade Expansion Act of 1962. According to the Department of Commerce, Ross is tasked with determining the following:

  • “Whether steel imports cause American workers to lose jobs needed to meet security requirements of the domestic steel industry;
  • Any negative effects of steel imports on government revenue; and
  • Any harm steel imports cause to the economic welfare of the U.S.”

The Current Situation

Despite an existing steel industry, steel imports saw a 19.6% year-over-year increase in February, and, currently, imported steel accounts for 26% of the U.S. market share, according to the Department of Commerce.

Further, the U.S. steel industry is only operating at 71% capacity, and jobs in the industry has continued to take a steady hit. Read more

The 100-day mark for President Donald Trump’s administration has come and passed. When it comes to the effects of his policies on various markets, only one thing is certain: uncertainty.

That uncertainty also applies to non-ferrous metal markets, which saw a boom in optimism after Trump’s election last year. For example, copper rose to a 15-month high on Nov. 9, 2016. However, that optimism has dwindled through the first few months of his administration, due to lingering uncertainty over the administration’s ability to actuate campaign promises.

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While market fluctuations are a confluence of many forces, beyond what the president does or does not do, the president does have substantial influence, both in word and deed. Thus far, Trump has been more influential in the former, campaigning on a renewed focus on mining (particularly with respect to coal) and significant investment in American infrastructure.

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” Trump had said during his victory speech in November. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.” Read more