Imports

The US Steel industry has long said that a wave of cheap and illegally subsidized imports is crushing its ability to compete.

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While not turning a blind eye to the situation, Washington has not been as responsive to the situation as many in the domestic steel industry would like. The lobbying efforts of domestic steel have largely fallen on deaf ears when it comes to enforcing existing trade laws and placing tariffs that would be punitive enough to stop foreign nations such as China from overproducing.

Yet, today, a key bill supporting tougher anti-dumping enforcement has passed the House, has a path to passing the Senate and even more customs protections could be passed as early as next week. All from a Congress known more for not passing legislation than passing it. How did this happen? First, let’s see how we got here.

WTO Claims Chinese Imports Aren’t Subsidized

Some relatively modest tariffs were revoked a year ago when the World Trade Organization said the US broke the rules for imposing duties on Chinese steel products, solar panels and other goods.

The WTO’s judges said that under the 1964 Marrakesh accords (which also set up the WTO) countervailing duties can only be levied when there is clear evidence that state-owned or partially state-owned enterprises passing on the subsidies are “public bodies.”

The panel found that Washington had produced insufficient evidence to prove subsidization, and was also at fault in its calculations of the value of the subsidies to Chinese firms. This was a very novel reading for the WTO as there is…

Actual Proof That Chinese Steel is Subsidized

Last year, and now, evidence exists that Chinese steel is subsidized on the state and national level and exports are sold below cost.

This history of ignoring evidence is why we didn’t expect big things for steel this week. Maybe more ambiguous language about actually enforcing existing law as a sweetener in the Trade Promotion Authority bill that both the president the republican congress support, but nothing more.

How, then, did steel become the big winner?

TPA Goes Down in Flames

When democrats in the House refused to approve TPA it looked like the bill, that would ensure an up or down vote for future trade agreements such as the Trans-Pacific Partnership, wouldn’t move forward.

When TPA was separated from a worker aid package for those displaced by future trade deals known as Trade Adjustment Assistance, we still didn’t think it would result in help for domestic steel, yet competing interests that put free-trade Republicans and the Obama administration on one side and more liberal democrats on the other worked in the industry’s favor.

Long Live TPA

TPA, once separated from TAA, passed the House and then the Senate. It still looked like more trade deals and no help for steel or US manufacturing. But with TAA still stuck in the House, guess what the perfect sweetener to get democrats on board become? Support for the US steel industry. The Congressional Steel Caucus is a bipartisan group that spans several key states. Senators and congressmen and women from the midwest, south and southwest coalesced around their support for local steel.

TAA Passes With Stronger Steel Support

Not only did the House leadership promise new safeguards for the steel industry as part of the revamped TAA bill that passed yesterday, but a customs enforcement bill that would force US Customs and Border Protection to enforce anti-dumping laws as written also passed both houses earlier in the week. It awaits a conference committee negotiation, one that the American Iron and Steel Institute favors the Senate version of the bill in. Everything’s suddenly coming up steel.

TPA passed both houses by midweek and TAA passed the Senate and, after being sweetened with support for the steel industry, the House yesterday. Even more customs enforcement protections are still waiting in the conference committee.

“We commend the House for passing legislation today that will improve the effectiveness of our anti-dumping and countervailing duty laws to combat unfairly traded imports,” said Thomas Gibson, president and CEO of the AISI. “These modifications to the trade laws come at a critical time for the steel industry, as we are currently faced with a surge in steel imports that are causing injury to the domestic industry, including significant reductions in domestic steel production and job losses. We look forward to President Obama quickly signing this bill into law.”

It’s about time.

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PriceWaterhouseCoopers‘ Mine 2015 Report was good news for India, but cast a troubling picture of the overall global mining industry.

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Dry-fuel miner Coal India Ltd. (CIL) moved up from the 8th to the 6th slot on the list of the largest mining companies in the world in terms of market capital.

A second state-owned company, which was also the country’s top iron ore miner, National Mineral Development Corporation (NMDC), also improved its ranking by coming in 21st, up three spots over the previous year.

What is Mine 2015?

Mine 2015 analyzed the financial performance of the world’s top 40 mining companies by market capitalization. The report said market values continue to fall, overall, in spite of improvements reported in the financial results of all top 40 companies.

Depending on which way you read it, in 2014, a collective $156 billion was eroded (about 16%) of the top 40 companies’ combined market value, but then again, that was only half of the 2013 slide. The collective market capitalization came in at $791 billion in 2014, which was the range miners held a decade ago.

The report said the world’s largest miners had reduced spending but stepped up production. The industry was also helped by lower input costs and currency devaluation. PwC did note, however, that weak commodity prices due to low demand hammered down revenues.

The Iron Ore Drag

The report said the downturn was largely driven by iron ore miners, particularly diversified companies with large exposure to shifts in commodity prices.

Last year, iron ore was the hardest hit, with prices dropping by half because of a supply glut and a negative short-term demand outlook, the report said.

On the coal front, coal miners in the BRICS countries (Brazil, Russia, India, China, South Africa) saw their values increase 19% over the period, regaining almost half of the value they lost in 2013.

In Asia, more industry consolidation was expected between key resource players from India and China in order to stem production overcapacity, the report said.

Chinese Production Still Surging

The coal companies of China made significant gains in the ranking of the top 40 mining companies, with three appearing in the this year’s top twenty.

China Shenhua Energy Co. Ltd (Shenhua) topped the list, becoming the third most valuable mining company (based on market capitalization) after BHP Billiton and Rio Tinto Group. Shenhua moved up from fifth in 2013’s rankings.

Another company, China Coal Energy Co. climbed to 14th rank from 23rd in 2013, with a 30% increase in valuation, while Inner Mongolia Yitai Coal Co. jumped to 18th from 25th. Yanzhou Coal Mining Co. came in at 26th – up from 34th in 2013. Yanzhou also recorded a more than 30% increase in value over 2014.

US Miners Can’t Keep Pace

On the other hand, not many US coal-mining companies charted in Mine 2015. Consol Energy found itself at number 28. No other companies charted despite noted concern from US manufacturing execs about local resource supply.

Of the 40 companies, 15 miners saw their share values appreciate, while 25 witnessed a decline.

The average return on capital employed was largely below the minimum hurdle investment rate of 15 to 20% set by the companies themselves. Only 6 of the 40 passed the 15% benchmark: CIL (coal), OAO Norilsk Nickel (nickel), NMDC (iron ore), Randgold (gold), Shandong Gold (gold), and Newcrest (gold), according to the report.

Copper Still Stagnating

On the copper front, Mine 2015 noted that global copper production had gone up by only 2.8% last year, which was way below the 8.1% of 2013. PwC noted that the world’s largest copper producer, Chile, had faced problems increasing its production due to falling grades.

PwC’s general outlook for the global metals and mining market though remains dreary due to the continuance of a slower rate of economic growth, particularly in emerging markets, especially due to the cooling off of China’s growth rate.

In 2014, iron ore, coal and copper prices had fallen by 50%, 26% and 11%, respectively, according to the report.

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The iron ore price recovery looks like it’ll be short-lived and half of the board of an Australian uranium miner quit after their partner company refused to expand.

Chinese Steel Slump

A slump in Chinese demand for steel has poured cold water on a rally in iron ore, with prices for the raw material likely to drop over the rest of the year, traders and analysts said.

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Dwindling stocks at China’s ports suggested tighter supply in a market that had been hit hard by plentiful or, but Goldman Sachs is predicting prices will fall back below $50 a metric ton as lack of demand persists in China.

Half of ERA Board Quits

Half of the board members of Energy Resources of Australia (ERA), the operator of Northern Australia’s Ranger uranium mine, have announced their resignations amid uncertainty over the mine’s future.

Three members remain on the board after ERA chairman Peter McMahon and independent non-executive directors Helen Garnett and David Smith stepped down over the weekend. The board members said majority owner Rio Tinto Group‘s decision to abandon work on the mine’s expansion. They said the cancellation made it difficult for the company to pursue its goals. ERA’s stock has plunged more than 70% since it said, June 12, that it would not proceed with the final development study for the Ranger 3 Deeps uranium project due to low prices.

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Molycorp missed another payment this week and the House passed fast-track trade approval which now moves on to the debate in the Senate.

Molycorp Restructuring

Molycorp Inc., the Greenwood Village Colo.-based miner of rare earth elements is skipping its second loan payment in two weeks.

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Molycorp officials on Monday said they would take advantage of a 30-day grace period on a $3.36 million semi-annual interest payment related to 3.25% senior unsecured convertible notes that are due in 2016. The move, company officials say, will not trigger any cross-defaults on its other loans.

The company will use the grace period to continue evaluating debt restructuring options, the company said in a US Securities and Exchange Commission filing.

Fast-Track Trade Bill Advances

The House on Thursday took the first step toward reviving the White House’s trade agenda by passing legislation granting President Obama fast-track authority.

The bill now goes to the Senate, where the White House and GOP leaders are seeking to strike a deal with pro-trade Democrats.

The House vote was 218-208, with 28 Democrats voting for it. This is the second time in a week the House has voted to approve a fast-track bill. On Friday, the House voted 219-211 in favor of fast-track, which would make it easier for Obama to complete a sweeping trans-Pacific trade deal.

In last week’s vote, though, the House GOP paired the fast-track bill with a measure known as Trade Adjustment Assistance (TAA) that gives aid to workers displaced by trade. Both measures needed to be approved in separate votes for the entire package to move forward.

House Democrats have historically favored TAA, but they voted against it on Friday to kill fast-track, which is deeply opposed by unions and other liberal groups. The White House still wants both measures to reach Obama’s desk, but is now advancing a different strategy that would move the two bills separately.

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The American Iron and Steel Institute said in a telephone press conference that the House of Representatives’ passage last Friday of a customs bill, which includes new trade remedy provisions for collecting tariffs on imports determined to have been illegally subsidized or “dumped” by their origin nations, was a major win for the US steel industry.

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The House voted in favor, Friday, of trade promotion authority (TPA), a major free trade power desired by President Obama, but the House also rejected Trade Adjustment Assistance (TAA) in a separate vote. In order for TPA to advance to the President for his signature, the House had to pass both TPA and TAA. So, TPA was pronounced not to have passed yet, either.

What Now For Trade Authority?

Speaker of the House John Boehner (R. Ohio) has already moved to reconsider the vote on TAA and the House rules committee will extend the time for a second vote to occur sometime between now and July 3oth. While it was certainly a setback for the President in getting fast approval of TPA, there was a separate vote on a customs bill that includes trade remedy provisions that passed.

“We specifically advocated for provisions to provide for more effective remedies against imports that are dumped or subsidized,” said Thomas Gibson, president and CEO of AISIS. “As regulars on this call know, steel imports have reached historic levels in the past few years due, in large part, to unfair trade practices.”

New Customs Enforcement Passes

Finished steel imports in 2014 increased 36% compared to 2013. Total steel imports over the same time frame were up 38%. Last year, imports captured 28% of the market surpassing the prior record of 26% and this year the finished import steel market share has continued to thrive and is already at 32% on the year-to-date. Not surprisingly, year-to-date raw steel production is down 7.3% and shipments through April were down 9.5%.

Approval of the House customs bill was NOT dependent on the passage of the TPA/TAA package in the House, either. So, both the senate and house have passed customs bills. The Senate passed its ENFORCE (Enforcing Orders and Reducing Customs Evasion) bill in April

The two bills now go to conference committee to resolve their differences. One difference between the House and Senate bills is the so-called “enforcement act” provisions which would create a new procedure for industries to petition for action to address trans-shipment and evasion of already-determined customs duties. The ENFORCE Act creates procedures for a federal agency or interested party to make good faith allegations of a company’s evasion of anti-dumping and countervailing duty orders to US Customs and Border Protection.

Senate ENFORCE Act Better for US Producers

“AISI has long-supported the senate version of the bill and will continue to push for adoption of its approach in the conference committee,” Gibson said, “but the bottom line is the steel industry is one major step closer to getting trade remedy provisions signed into law after last Friday and that’s a good thing.”

Gibson also said the infrastructure bill authorization runs out again at the end of July and the House ways and means committee and the senate finance committee are holding hearings this week to find a long-term solution for funding the Highway Trust Fund for upkeep of federal roads, bridges and other infrastructure.

No Reason to Tie Highway Funding to TAA

“It affects us in two ways: use of the infrastructure for a competitive economy and the public construction market is beholden to its infrastructure for transportation,” Gibson said. “AISI supports a user fee approach, something like a gas tax to provide a long-term funding solution. We think it can be solved this year.”

Gibson stopped short of supporting a solution that combines both a highway bill and TAA as House Minority Leader Nancy Pelosi (D. Calif.) advocated last week after speaking against the TAA bill on the House floor.

“We don’t believe it can get done at the same time at this point,” Gibson said. “We believe those comments were more of an explanation by former Speaker Pelosi of why she was against the bill (TAA) she had said she was for the week before.”

Anti-Dumping Enforcement

Gibson said as soon as the conference committee sends a final customs bill to the President and he signs it, the new language would apply and a petitioner to Customs and Border Protection could take advantage of the new trade law remedy provisions for enforcing existing anti-dumping countervailing duties.

The remedy provisions would not drastically change the standards by which injury is determined and how they are adjudicated. The ENFORCE ACT and the House’s customs deal mainly with the enforcement, addressing evasion, trans-shipments and other ways importers avoid duties at US customs.

“As opposed to bringing cases to the International Trade Commission and Dept. of Commerce, which is the trade remedy provisions, these deal with enforcement,” Gibson said. “That’s exactly why we think the senate version (ENFORCE) is superior to the version that passed the House because it has enforceable deadlines and, if an agency ignored its obligations, you’d be able to go to a court to tell the agency to obey its mandate.”

Trade adjustment assistance expires at the end of September if it’s not reauthorized before then. Gibson said that would be a big loss for proponents of free trade such as the President and congress’ republican majority who have both supported TAA in its current form. He also said the next “pressure point” was Congress’ July 4th recess which actually starts June 30th and AISI expected action on TAA before that.

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China is planning to remove its business tax on services and replace it with a value-added tax that applies to both goods and services.

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What does this mean for companies that purchase metals abroad? A lot. A projection has shown that removing the business tax and replacing it with what many believe the new VAT will be will cost the government 1 trillion CNY ($161.2 billion) in tax revenues, but Beijing is aiming to stimulate its economy and increase growth long-term, so the government is willing to take a hit in tax revenue in the short term.

What the New VAT Means to Purchasers

A metals purchaser who works with suppliers in China confidentially told MetalMiner that, under China’s new VAT plan, metals such as cold-rolled steel would receive an import tax of 3-6% depending on the thickness. The VAT on these goods would be 17% of which 9% gets refunded when it is exported, creating a net VAT of 8% and a net total tax of 11-14%.

Purchasers are currently analyzing several scenarios of what metals producers in China, Taiwan, South Korea and other markets that would be affected by the new VAT will do to keep their products competitive when it goes into effect.

New VATs in October

A similar VAT program was tried in Shanghai as a pilot project as a replacement for the business tax. An announcement on both the property VAT and a separate VAT for financial transactions is expected in July but both new VATs are not expected to go into effect until October.

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India’s BJP-led government, more precisely its finance ministry, recently announced that it would impose, for a period of five years, anti-dumping duties ranging between $180 and $316 per metric ton for some industrial-grades of stainless steel imported from China, Malaysia and South Korea. The idea, obviously, is to stop the tide of surging steel imports.

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Subsidized imports, or “dumping,” of steel into a country by producers from other nations can be a vexing issue. Steelmakers from the US, India and Europe have been facing mounting pressure from cheap imports.

US Anti-Dumping Accusations

Earlier this month, for example, MetalMiner reported that six steelmakers with major US operations had filed a trade complaint seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan.

The move by the Indian government came after persistent efforts by steel producers to place tariffs on the foreign products for nearly two years. The cheap imports, claimed the Indian steel industry, were damaging its business prospects.

India consumes about one million mt of industrial steel stainless steel, of which, around 40% is imported, largely from China.

Indian Tariffs

The anti-dumping tax obviously was welcomed by domestic steelmakers. N.C. Mathur, president of the Indian Stainless Steel Development Association (ISSDA) was quoted in a news report as saying the move was long overdue. According to Mathur, the duty has been imposed on hot-rolled flat products stainless steel with all its variants originating from China at $309 per mt, $316 per mt from Malaysia and from Korea at $180 per mt. He added the move would give a respite to the domestic industry.

The ISSDA also complained to the government about of abuse of the India–Malaysia comprehensive economic cooperation agreement (CECA). Stainless cold-rolled flat products from Malaysia are being imported to India through a preferential tariff benefit, the association had claimed in its statement. ISSDA demanded that the Ministry of International Trade and Industry, Malaysia, investigate the cold-rolled imports.

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

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The imposition of anti-dumping duties by the Indian government should encourage US authorities who have been asked to enforce a similar move. The suit filed by six US companies concerns corrosion-resistant steel, a type of coated steel used in automobile and construction industries. The US has been witnessing an unprecedented flood of imports in the last one year or so.

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As reported by MetalMiner last month, the US steel industry is suffering because the imports hit a record 34% of market share, according to the American Iron and Steel Institute (AISI).

The US slapped duties on imports of steel used in the energy industry from South Korea and five other countries last year but, evidently, those tariffs did not have the desired effect. The AISI in its press briefing last month, asked the US Government to first enforce existing trade laws which would be an immense help to the steel industry.

In India, steel imports had increased to 0.91 million metric tons this May, an increase of 58% as compared to the same month’s figure last year. As compared to April 2015, the import rate was up by about 20 mt, according to a report by the Ministry of Steel.

Many analysts said the Indian stainless steel industry started resembling a sick industry, as cheap imports were leading to a situation of under-utilization of installed capacities. The local industry hopes the anti-dumping duties will send out a clear signal to those sending in cheap imports, and lead to a resurgence in India’s steel sector.

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

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According to a report, crude-steel output in China dropped 1.3% to 270.07 million metric tons in the first four months of 2015 as compared to the same period in 2014. The World Steel Association has forecast that China will end up using far less steel this year and maybe even the next. Which again means more supply and far less demand.

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The report quoted Alan Chirgwin, BHP Billiton iron ore marketing vice president, as saying steel supply was expected to rise by about 110 million metric tons this year, exceeding demand growth by around 40 mmt.

Yet this has not fazed Rio Tinto Group, for example, which recently announced it would continue with its plan to produce iron ore at full capacity despite the fall in prices. While BHP and Brazil’s Vale SA have, for now, stepped on the brakes vis-à-vis their medium-term plans, team Rio, on the other hand, thinks reducing production costs will help it hang on to its lead…and profits.

Betting on a Comeback

Rio Tinto sees China coming back with renewed vigor and driving global iron ore demand through 2030.

Where does that leave India? So far as iron ore or even steel consumption is concerned, China is miles ahead of India, even in the fatigued condition it finds itself today. India, as reported by MetalMiner, drew a blank for about two years due to a court-imposed ban on ore mining, which left its steel companies at the mercy of imports, something that they continue to rely on even today.

That had also affected its iron ore exports, especially from the ore-rich provinces of Goa and Odisha. India’s iron ore imports went up dramatically to a record 6.76 million tons in the first 7 months of the 2014-15 fiscal year. Once, the country was the third-largest supplier of iron ore to the world, but, because of the export duty and a national mining ban, it had turned into an importer.

Analysts predict India was likely to remain a net importer of iron ore in 2015-16 as well, no thanks to the continued drop in falling international rates. The only silver lining, claimed analysts, could be that due to the resumption in the domestic production of iron ore, the quantity of imports may not be as high as the last fiscal year.

Captive Market

India’s steel companies do not have captive mines, so they have to get their average 95 mmt a year of iron ore from elsewhere. With international price of ore hovering today at about $50 per mt for high-grade ore, it is too attractive a deal for Indian steel mills to be passed on. As reference points, last year, iron ore imports happened when rates had touched $90 per mt.

In all this, Australia, a country that sells about 80% of its ore to China, sits in a happy position. While it hopes that the recent cuts in interest rates will revive the Chinese economy, and thus its demand for iron ore and coking coke, it is also looking increasingly to India to pick up its stock. Last year, for example, as reported by MetalMiner Australia had approved Adani Group’s approximate $15.5-billion (AUS $16.5 billion) Carmichael coal project in Queensland that could yield up to 60 million mt of coal per year. That was just the beginning. For the Aussies, if the dragon’s appetite for iron ore and coking coal is satiated, the hungry tiger is always lurking in the background.

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When the Tiger and the Dragon dine together the world sits up and takes note.

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Signing business agreements worth $22 billion is a big deal so Indian Prime Minister Narendra Modi’s recent visit to China made big, bold headlines here. Some of India’s old, and some not so old (Adani, Bhusan Power and Steel), players in the steel and power sectors, were signatories to the 26 deals.

Steel and Energy Deals

The notable contracts included the one between India’s IL&FS Energy Development Co. and China Huaneng Group for a 4,000-megawatt thermal power project, and India’s Bhushan Power and Steel sealing a pact with China National Technical Import and Export Corporation for an integrated steel project in Indian province of Gujarat.

So here were two Asian, nee global, giants, breaking bread and talking business at the same table, sending analysts scurrying to their laptops to chalk out spreadsheets and draw pie charts in an effort to understand the impact of all this in the long term.

While business leaders of both nations, including Alibaba Group Chairman Jack Ma, spoke of long-term interests, such talk brought the arclight swinging back to the present and short-term situation currently prevailing in the Asian region, especially in iron ore and coking coke, two crucial ingredients in making steel.

There’s no doubt in anyone’s mind that steel is the mainstay of Asia’s infrastructure, a fact that has had iron ore and coal miners — and even steel majors in China, India and as so far as Australia — jockeying for a major piece of new market share. With demand from Europe and the US lacking, suppliers in all three countries are walking a thinly veiled tight rope to ensure their survival.

Wither Demand

Once a destination of hope, the Chinese dragon, for now, has lost some of its hunger. Some say next-door neighbor India is where one can find fresh action. The jury’s honestly still out on that one, though. But the slowdown in China’s economy means less need for steel, in turn, lowering the demand for ore and coking coal. Leaving miners re-tweaking their business plans.

Last year, for example, the Rio Tinto Group, BHP Billiton Ltd. in Australia, and Vale SA of Brazil, to stem the tide, had stepped up low-cost output to pump up volumes, leading to a glut. Now, everybody’s mantra seems to be – cut production costs faster than the falling prices.

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