Articles in Category: Public Policy
conflict minerals filings 2013-14 chart

What will the number of IPSAs look like for 2015? Source: Deloitte

Recently, Deloitte put out a story in their Heads Up newsletter on what companies should be thinking about for their next Section 1502 (“Conflict Minerals Rule”) compliance reports, including how to best prepare for independent private sector audits (IPSA). Below are some nuggets for US manufacturing organizations to keep in mind. For an excellent rundown of the latest legal challenge to SEC’s Conflict Minerals Rule from the US Court of Appeals, read my colleague Jeff’s recent article.

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Currently, there is uncertainty as to whether SEC will require IPSAs for all companies filing conflict minerals reports (CMR) for calendar-year 2015. More on that below, but first, a quick refresher: Read more

Well for one thing it means our retirement funds will likely be worth less, at least in the short to medium term. On the plus side, our mortgage will likely stay cheaper for longer and metal prices will remain lower for longer.

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Why? well if the Fed was worrying about a China slowdown in July, they must be in full-on panic mode by now. If the Federal Reserve was to raise rates next month, to stave off the possibility of inflation picking up next year, it would strengthen the dollar, making imports more attractive and making life tougher for US exporters.

China’s Deep Slowdown

The collapse of stock markets around the world has been precipitated by fears of a China slowdown becoming far deeper and more prolonged than previously thought – although why this appears to be such a surprise to investors today compared to 2-3 weeks or even 2-3 months ago I fail to see, the writing has been on the wall all year.

Traders in London

The signs that China’s economy could lose steam were there, but it still caused global stock market panic.

However, as the herd mentality sets in all those stop orders get hit and the fancy algorithms cut in selling stocks and becoming self-fulfilling as they drive prices down. Hedge funds have been aggressively shorting the market, not just for stocks but for commodities too. It would be a brave man who bet any pause was the start of a bounce back, markets could have a lot further to fall.

Back to the Fed and China: weaker demand from China will mean lower demand for commodities. For a few commodities, China has become a net exporter but across the board the world’s largest consumer is reversing what was once a one-way bet on demand. Read more

China’s currency, the yuan/renminbi, fell further this week after the International Monetary Fund dealt a setback to the currency’s role on the global stage.

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The IMF pushed back the date that the yuan would be added to the IMF’s basket of reserve currencies, known as the Special Drawing Right currencies. Originally scheduled to become a reserve currency at the end of December, the yuan will now have to wait until at least September 30, 2016.

yuan2dollars_550

The IMF said in a release that the postponement would allow “the continued smooth functioning of SDR-related operations and responds to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year.” Read more

Chinese stock shares plunged in June, raising worries of a slowdown in the world’s largest commodity user. Shares bounced back after the sharp decline, but that bounce didn’t last long.

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Investors’ sentiment haven’t turned positive yet, sending Chinese stocks to fresh lows.

FXI China ishares since 2014

FXI China ishares since 2014. Graph:  MetalMiner analysis of stockcharts.com data.

Policy makers in China are trying everything to boost the economy. Last week China unexpectedly devalued its currency. Ever since then, though, the currency has kept on depreciating against the dollar, the exchange rate is now at ~6.4 $/¥, the highest rate since 2011.

Yuan per dollar since 2011

Yuan per dollar since 2011. Graph: MetalMiner analyis of Yahoo Finance Data.

But it seems like those concerns about China’s economy have just been bolstered by the currency devaluation. It’s clear that investors are very nervous about what’s happening in China and they are taking all these measures to boost the economy as desperate attempts to stop a negative tide.

What This Means For Metal Buyers

These developments are just exacerbating the bearish commodity market and, even more significantly, industrial metals, which are suffering serious declines lately.

 

The US is taking its first tentative steps toward exporting oil.

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No, Congress has not approved large-scale oil exports, it is not about to repeal the 1975 export ban brought in after the early ’70s OPEC inspired oil crisis. Congress is split with republicans broadly supporting a lifting of the ban but democrats against it, keen to limit further fracking on environmental grounds, according to the Financial Times. The Obama administration has, instead, given the okay to limited exports to Mexico.

Why No Blanket Repeal of the Oil Export Ban?

More to the point, neither party wants to be accused down the line, as oil prices inevitably recover, of being responsible for reduced domestic supply as the cause of higher prices. Most economists, though, suggest increased exports would lower global prices and, as a result, would mean lower domestic prices, but of course no one knows until a large-scale lifting of the ban is agreed to.

Meanwhile,the US can legally export to Canada, the only country to whom export rules do not apply. The US already shares hockey, Seth Rogen and country/western music with Canada, after all, so why not oil?

The US exported a record 586,000 barrels of crude a day in April to Canada according to Bloomberg. This was light grades needed by Canadian refineries to blend with high-viscosity heavy tar sands or for locations where US supplies are closer to a Canadian refinery than Canada’s own reserves. Read more

The Department of Commerce formally initiated new anti-dumping duty and countervailing duty investigations of imports of cold-rolled steel flat products from Brazil, China, India, South Korea, and Russia and anti-dumping investigations of imports of the same cold-rolled flat products from Japan, the Netherlands, and the United Kingdom.

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This action by commerce is in response to petitions filed by domestic producers on July 28th.

The petitioners are the usual group of US producers that have long said that foreign steel imports are subsidized by overseas governments in complete violation of US anti-dumping law. The group is composed of AK Steel Corp., ArcelorMittal USA LLC, Nucor Corp., Steel Dynamics, Inc. , and U.S. Steel Corp.

The products covered by these investigations are cold-rolled (cold-reduced), flat-rolled steel products, whether or not annealed, painted, varnished, or coated with plastics or other non-metallic substances. The products covered do not include those that are clad, plated, or coated with metal. The products covered also include coils that have a width or other lateral measurement of 12.7 millimeters or greater, regardless of form of coil (e.g., in successively superimposed layers, spirally oscillating, etc.).

The products covered further include products not in coils ( in straight lengths) of a thickness less than 4.75 mm and a width that is 12.7 mm or greater and that measure at least 10 times the thickness of the product. The group of products alleged to have been dumped also includes products not in coils (e.g., in straight lengths) of a thickness of 4.75 mm or more and a width exceeding 150 mm and measuring at least twice the product’s thickness.

The investigation will also take into account origin country. The petitioners allege that some cold-rolled products are shipped from their origin country and further processed in a third country before import into the US market. This is a key point for the domestic producers, particularly concerning exports of Chinese steel. The domestic producers have previously accused Chinese producers of shipping to third-party countries where the product are processed and changed in order to conceal the initial manufacturing country upon entry in US ports.

The US International Trade Commission (ITC) is scheduled to make its preliminary injury determinations on or before September 11.

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The alleged anti-dumping margins of each country:

Brazil: 30.28 to 35.43%
China: 265.79%
India: 43.12%
Korea: 75.42 to 177.50%
Russia: 69.12 to 227.52%
Japan: 71.35%
Netherlands: 39.43 to 121.53%
United Kingdom: 32.59 to 69.30%

All alleged subsidies by foreign governments, which would qualify the products for countervailing import duties are alleged to be above a 2% subsidy.

 

The AP ran an excellent investigative article recently about how, three years after California voters passed a ballot measure to raise taxes on corporations and generate clean energy jobs by funding energy-efficiency projects in schools, barely one-tenth of the promised jobs have been created, and the state has no comprehensive list to show how much work has been done or how much energy has been saved.

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Many predicted that the the Clean Energy Jobs Act would be impossible to enforce or track when it was passed by one of California’s distinctive referendums in 2012. Proposition 39 was passed by a wide margin with little actual language in the law to define what a “clean energy job” even was or how the state government would allocate the money generated for those clean energy jobs.

 

Solar Panel array

Photovoltaic solar array at the National Renewable Energy Laboratory in Golden, Colo.

The clean energy jobs fund was filled by changing tax language in the state code to end breaks for large corporations. Read more

Oil prices are again at the cheapest point in six years. Oil fell sharply right after prices broke key support levels last month. The rebound in prices during the first half has already vanished, proving again that trying to fish out price bottoms in a falling market is not a good idea.

Crude Oil CME price 1 year out

CME crude oil price, one year out. Graph: MetalMiner analysis of stockcharts.com data.

Pessimism is spreading among investors about China’s economy.

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The Chinese stock market crash just two months ago already signaled that something was rotten in China. If that wasn’t enough, China devaluating its currency on Tuesday is only boosting many parties’ conviction that global demand can’t catch up with a continuous oversupply of crude.

The yuan’s plunge is also bearish for oil because it makes China’s oil imports more expensive, which means that, most likely, China is not going to come rescue the oversupplied global oil market anytime soon.

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The latest data show that production is at historic highs in the US and OPEC lifted its total output in July to the highest level in three years. The cartel is responsible for more than a third of global oil production. Besides, the end of Iran’s oil export ban will likely only add volume to the already oversupplied market.

What This Means For Metal Buyers

Falling energy prices lower the cost of producing other commodities, adding more pessimism to the already bearish commodity market. Metal prices remain under pressure.

China devalued its tightly controlled currency on Tuesday, causing the currency’s biggest one-day loss in over two decades.

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This move is another indication of China’s growing worry about its slowing economy, at a time when other efforts to boost the economy haven’t been successful.

Yuan per Dollar (1 year out) - Source: Yahoo Finance

Yuan per dollar (one year out). Graph: MetalMiner analysis of Yahoo Finance data.

The currency not only had its biggest one-day loss, but it’s also breaking a three-year support level as we can see in the next graph. This has never, ever happened since the yuan started to appreciate back in 2005.

Yuan per Dollar breaking 3-year support

Yuan per dollar breaking three-year support. Graph: MetalMiner analysis of Yahoo Finance data.

A weaker currency makes imports more expensive and helps China’s exports. This year, trying to offset weak domestic demand, China already encouraged its refined commodities producers to increase exports. Read more

Construction spending still isn’t taking off in the US and most companies can’t guarantee their minerals are conflict-free.

Construction Spending Up, But Barely

US construction spending barely rose in June as private outlays posted their biggest drop in a year, but the underlying trend suggested the economy remained on solid ground.

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Construction spending increased 0.1%, the smallest rise since January, the Commerce Department said on Monday.

May’s outlays were revised sharply higher to show a 1.8% gain instead of the previously reported 0.8% rise. Economists polled by Reuters had forecast construction spending rising 0.6%in June. Construction spending was up 12% compared to June of last year.

Conflict Minerals Compliance Harder Than it Seems

US companies shelled out roughly $709 million and six million staff hours last year to comply with rules to disclose “conflict minerals” in their supply chains, according to recent research by Tulane University and Assent Compliance, a New York consulting firm, yet most still could not guarantee that none of their raw materials came from conflict areas.

“Conflict minerals” include tin, tantalum, tungsten and gold originating from the Democratic Republic of the Congo. The conflict-torn country holds vast reserves of these four minerals, which are widely used in a flurry of products, from electronic devices to engagement rings to auto parts, the Wall Street Journal reported.

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90% of the 1,262 companies that filed conflict-mineral reports with US securities regulators last year said they couldn’t determine whether their products are conflict-free, according to Tulane University’s research.