Articles in Category: Public Policy

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For India, a recent development may turn its minerals industry on its head.

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Scientists from the Geological Survey of India (GSI), a department under the Ministry of Mines, recently discovered millions of tons of precious stones and minerals under the deep waters that surround peninsular India.

What’s more, the discovery lies within the Exclusive Economic Zone (EEZ), which means India will benefit the most.

It was sometime in 2014 that the scientists found the huge presence of marine resources off the Indian coast, extending till the Andaman and Nicobar Islands and around Lakshadweep. The amount of lime mud, phosphate-rich and calcareous sediments, hydrocarbons, metalliferous deposits and micronodules called for a more extensive exploration, and that’s precisely what the GSI team did.

After three years of exploration, they hit paydirt.

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I could be committed for heresy for what I am about to write, but it isn’t a foregone conclusion that Britain will leave the European Union (EU).

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On the balance of probabilities, a break with the EU is more likely than not. In recent weeks, however, the realization of what leaving the single market will mean to voters’ pockets, not to mention the fiasco of the Conservative government in-fighting, has encouraged some to think a rethink may yet prevail. A second referendum is, while not likely, at least not impossible.

I say heresy because the debate is becoming increasingly acerbic.

Leave supporters, in particular, shout shrilly anytime the topic is raised that “we cannot thwart the will of the people” and to even suggest a rethink is “anti-democratic.” As Gideon Rachman wrote so eloquently in the Financial Times this week, this sounds rather like a third-world dictator, who having unexpectedly achieved a vote in his favour says — “one man, one vote, one time.”

In other words, once a decision has been taken by referendum, it cannot be revoked.

But as Rachman observes, this denies the fact that the electorate was, putting it politely, profoundly misled during the campaign.

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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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Although oil and gas remain Iran’s most important exports by far, one beneficiary of the relaxation in trade embargoes has been the metals industry.

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According to an analysis by the Ministry of Industries, Mining and Trade, reported in the Financial Tribune, the data show growth in the production of crude steel, finished steel products, iron ore, coal concentrate and sheet glass in the last Iranian financial year running March 2016 to March 2017 compared to the year before, showing a significant uptick in output (much of it for export).

Coal concentrate saw the greatest increase with the rise of 10.6%, from 1.113 million tons in March 2015-16 to 1.232 million tons last year. Crude steel output had the second-largest gain, rising from 16.538 million tons to over 18 million tons (a 9% increase).

Iran holds the world’s 10th-largest reserves of iron ore. Despite dominance by Australia and Brazil, Iran still managed a 4.2% increase to 31.711 million tons, helping lift production of steel products 1.4% to 17.681 million tons.

These sound like modest increases for a country recently facing lower barriers to trade, but that may be because the benefits have yet to percolate through to the wider economy.

In the meantime, it is direct exports that have benefited the most. The Financial Tribune reported Iran’s total mineral products shipments last year registered a 17% and 38% increase in value and volume, respectively, year-on-year.

Source: Trading Economics

From a value perspective, it is difficult to make a judgement year-on-year for total exports because some 82% by value is oil and gas, for which prices have been highly volatile.

Even so, with a depressed oil price, Iran’s exports are heading back above their historical long-term trend of some $20 trillion, as the above graph from Trading Economics shows. The oil-price-induced spike of 2006-10 was an anomaly not seen before or since.

Economically, Iran would benefit enormously from a full and unfettered return to the international markets, but that is not going to happen while the autocratic mullahs remain in control. Liberal parties are dissuaded from the political process and many opposition politicians remain in jail. As in so many authoritarian regimes, those in power live well while the clear majority fail to enjoy the standard of living they could achieve based on their high standards of education and young, dynamic population.

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Even so, the country’s economic situation is trending positively. Foreign firms are showing greater confidence in returning to the Iranian market after years of sanctions.

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Defining the root cause of Britain’s predicament is not as simple as a sweeping “foreign competition” argument. But there’s no doubt that is part of the problem, as Britain’s steel industry has been decimated over the last 25 years.

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A House of Commons report last year said output from the UK steel industry was £2.2 billion in 1990, compared to £1.6 billion in 2015, a 30% fall (in 2013 prices).

Source: House of Commons Library Briefing Paper No. 07317, Oct. 28, 2016

The decline has left the U.K. producing just 11 million tons of steel, compared to 166 million tons for the EU as a whole and 804 million tons from China. A combination of global excess supply and lackluster government support has left the U.K. as the fifth-largest steel producer in the EU, after Germany, Italy, France and Spain.

In line with most European producers, surviving U.K. steelmakers have had to move up the value chain in order to remain profitable. Inevitably, however, the market for more value add, niche product areas is smaller than the bulk commodities end of the market.

The U.K., in turn, is a relatively small consumer of steel products, as medium to heavier industry has also declined over the years. As a result, the U.K. has lost the ability to make some of the grades or forms necessary for more demanding or critical applications.

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The Raw Steel MMI inched three points higher in June, increasing by 4.4%. The index hit 70-plus for just the second time this year (the first coming with March’s 70).

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The Chinese steel industry generally drives steel prices. Steel prices in China have increased during June, caused by the 23.3% jump in coking coal prices. However, this month’s uptrend counters the short-term downtrend that coal has experienced since February, which has largely driven steel prices down.

Source: MetalMiner analysis of TradingEconomics data

This downtrend in raw materials applies to both coal and iron ore. Although iron ore prices increased a bit this month, iron ore remains in a downtrend. Therefore, steel prices are at risk of following that downtrend.

Source: MetalMiner analysis of TradingEconomics data

The spread

The spread between Chinese hot-rolled coil (HRC) and domestic HRC prices has also narrowed this month.

The spread has continued to drop despite rising domestic HRC prices because Chinese HRC prices have also increased. A rising Chinese HRC price would lower U.S. steel imports, although imports have reached their highest levels since 2014.

If Chinese HRC prices increase, U.S. steel imports will decrease and lend support to domestic HRC prices.

Source: MetalMiner analysis of MetalMiner IndX data

Political uncertainty, the Trump administration’s Section 232 investigation recommendations and the recent G20 summit have only fueled price uncertainty. The outcome of these events will possibly have an effect on steel prices.

MetalMiner believes the delay in the release of the 232 recommendations — which were previously expected to be announced by the end of June — could cause U.S. steel prices to reverse this last month’s upward trend.

What This Means for Industrial Buyers

Though the Raw Steels MMI inched up this past month, scrap prices may be trading flat to slightly up from last month. However, the underlying trends do not suggest rising prices. The Section 232 investigations will yield additional clues.

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Actual Raw Steel Prices, Trends

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This afternoon in metals news, gold inches upward, partially stemming from concerns on the heels of a North Korean missile test; Germany, among others, waits to hear what the U.S. has to say about steel; and, in anticipation of protectionist policies from the Trump administration, U.S. Steel rose by 8% in June.

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Gold Up on N. Korea Concerns

After North Korea’s recent test strike of an intercontinental ballistic missile (ICBM), the price of gold ticked upward, a common reaction for the safe-haven metal.

“Safe-haven buying re-emerged in the gold market after the latest missile test in North Korea,” ANZ Research said in a note to Reuters.

Also looming over the gold price are the minutes of June’s Fed meeting, which many awaiting for news about the Fed’s plans for further interest rate hikes this year, Reuters reported.

Germany Anticipates Trump Administration’s Words on Steel

While China is the central focus of the Trump administration’s Section 232 investigations of steel and aluminum imports, other nations are interested in the investigations’ results.

Germany is among those nations, as a top exporter of steel to the U.S. The Germans are waiting to hear from President Donald Trump during the G20 summit, which begins on Friday in Hamburg, Germany.

When asked during a news conference Wednesday whether steel would be an issue discussed during the G20 summit, German government spokesman Steffen Seibert said, “That will become apparent. It also remains to be seen what the American president brings (to the meeting).”

U.S. Steel Up Big

Many expect the Trump administration to announce new tariffs or quotas, a result of the 232 investigations into steel and aluminum imports launched in April.

While the policy recommendations of those probes haven’t been announced, some U.S. businesses are feeling pretty good about what those protectionist policies might do for them. For example, U.S. Steel went up 8% in June.

But what happens next? A self-imposted Department of Commerce deadline came and went this past Friday with no announcement of the steel investigation’s conclusion. According to Section 232 of the Trade Expansion Act, the Secretary of Commerce has 270 days to prepare a submit a report to the president.

As such, the Trump administration still has plenty of time to think about the subject of steel imports. With that said, any momentum felt by the domestic steel industry as a result of talk of impending protectionist policies could begin to deflate the longer the process drags out. Many are looking to Trump’s participation at the Group of 20 summit later this week for more specific answers regarding the president’s thoughts on steel overcapacity.

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Before we head into the weekend, let’s take a brief look back at some of the news from the world of metals this week:

China’s Falling Steel Exports?

Earlier this week, our Stuart Burns wrote about the phenomenon of dropping Chinese steel exports:

“As we noted in a piece yesterday reviewing the 232 probe, China’s share of the U.S. import market for steel products has been falling for the last couple of years, mainly due to successful anti-dumping cases,” Burns writes. “China no longer appears even in the top 10.

So, what exactly is going on in China with respect to steel production and demand? Can we take it that Beijing’s actions to tackle excess steel production have finally resolved China’s deflationary impact on global steel markets?”

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In case you missed it on Monday, definitely give the story a read, especially as the Department of Commerce’s Section 232 steel investigation results will be announced any day now.

Indian Coal Faces Green Wave

Also earlier this week, our Sohrab Darabshaw wrote about coal mine closures in India, partially a result of the growth of the renewable energy sector:

“One estimate by the Energy and Resources Institute predicts if the cost of renewable energy and storage continue to fall, India may phase out coal power completely by 2050. Both solar and wind energy prices have been steadily decreasing over the last three years.

“In 2016-17, India added over 14,000 megawatts of new renewable energy power compared to almost 7,000 megawatts of new coal power capacity.”

Even so, the dependence on old energy sources won’t disappear immediately. Yesterday, Indian Steel Minister Choudhary Birender Singh announced India will ramp up its steel production significantly. That uptick in production will need energy, and Singh indicated Coal India Ltd. will be asked to provide the coal needed to back the steel-production operations.

In general, however, the interplay between older, dirtier sources of energy and clean, renewable energy sources is happening all over the world.

China-U.S. Back and Forth

Tensions have been building between the U.S. and China, as Reuters reported President Donald Trump was growing frustrated with China over its inability to rein in North Korea, while China expressed concern this week about the results of the Section 232 aluminum investigation.

The Department of Commerce investigations into steel and aluminum imports were announced in April.

Adding to the tension is China’s disapproval of a planned $1.42 billion arms sale by the U.S. to Taiwan, which the Chinese embassy denounced in a statement, Reuters reported Friday.

With many expecting tariffs or quotas (or a combination of the two) to be slapped on steel and aluminum imports (as an outcome of the 232 investigation), there’s no doubt the tension between the U.S. and China will only increase.

What’s Next For U.S.-India Ties?

President Donald Trump met with Indian Prime Minister Narendra Modi earlier this week in Washington D.C. Our Stuart Burns wrote about Modi’s visit and what could be in store for the U.S.-India relationship throughout the Trump administration.

During a joint press statement this week, Trump stressed India’s status as the world’s largest democracy and touted himself as a friend to India.

However, he also touched on thornier issues, like trade barriers.

“I look forward to working with you Mr. Prime Minister to create jobs in our countries, to grow our economies, to create a trading relationship that is fair and reciprocal. It is important that barriers be removed to the export of U.S. goods into your markets and that we reduce our trade deficit with your country.”

After the Tragedy

The Grenfell Tower fire earlier this month could have been prevented if safe building materials had been used. Burns wrote about that and more in his piece on the tragedy.

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This morning in metals news, India looks to boost its steel output, China expresses concern about the Trump administration’s Section 232 probe into aluminum and steel imports, and researchers have discovered a new, environmentally friendly way to extract copper.

India Prepares for Surge of Steel Production

India is looking to ramp up its steel output to 300 million tons, according to a report in the Press Trust of India.

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Steel Minister Choudhary Birender Singh announced today the steps that will be taken to ramp up production. Two new policies aim to boost production to 300 million tons by 2030, according to the report.

Self-sufficiency is the objective of the new national steel policy. Singh added the government has reached out to Coal India Ltd. to assure that there will be enough fuel to support the uptick in production.

China Awaits U.S. 232 Investigation Verdicts

According to the Chinese Commerce Ministry, China is “concerned” about the impending result of the Trump administration’s Section 232 investigation into aluminum imports — one for which China has been the central focus.

In a report from Reuters, Sun Jiwen, a spokesman for the Commerce Ministry, said the basis for the investigations — national security — is too broadly defined.

Yesterday, Reuters reported Trump was growing increasingly frustrated with China, particularly in reference to its handling of North Korea.

Unsurprisingly, there are tensions and concerns on both sides of the equation (although tariffs would affect other nations and not just China). Many expect the Trump administration to announce the Section 232 findings in the near future.

A New Way to Extract Copper

MIT researchers have discovered a way to separate pure copper from sulfur-based minerals while eliminating toxic byproducts in the process.

According to a report in MIT News, the research team identified the proper temperature and chemical mixture in order to “selectively separate pure copper and other metallic trace elements from sulfur-based minerals using molten electrolysis.”

The article notes: “Copper is in increasing demand for use in electric vehicles, solar energy, consumer electronics and other energy efficiency targets. Most current copper extraction processes burn sulfide minerals in air, which produces sulfur dioxide, a harmful air pollutant that has to be captured and reprocessed, but the new method produces elemental sulfur, which can be safely reused, for example, in fertilizers. The researchers also used electrolysis to produce rhenium and molybdenum, which are often found in copper sulfides at very small levels.”

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In addition to being a fascinating scientific discovery and process, a clean way to extract an increasingly important product like copper is a great development.

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Less than a week after the Department of Commerce’s hearing on the ongoing Section 232 aluminum investigation, the Office of the U.S. Trade Representative (USTR) kicked off three days of hearings Tuesday regarding renegotiation of the North American Free Trade Agreement (NAFTA).

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Renegotiation of NAFTA has picked up steam with Donald Trump’s ascension to the presidency. In fact, Trump reportedly was ready to remove the U.S. from the 23-year-old agreement in April, until calls from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto convinced him otherwise. The episode came a few months after Trump signed an executive order to withdraw the U.S. out of the Trans-Pacific Partnership (TPP).

Lawmakers and business representatives had the chance to express their thoughts on renegotiating the trilateral trade agreement when the hearing began Tuesday. The hearing continued for a second day Wednesday and concludes Thursday.

Businesses represented included metals industries. Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), spoke at Tuesday’s session. In a prepared AISI statement, Gibson said NAFTA has been largely successful, but could be modernized. He added that the agreement has “strengthened manufacturing supply chains, contributed to increases in intra-NAFTA trade and investment, and enabled a stronger relationship with Canada and Mexico.”

Gibson added NAFTA is the steel industry’s most important free-trade agreement, noting that 90% of steel mill product exports go to Canada or Mexico. In the time frame since the agreement went into effect in 1994, Gibson said exports to Canada and Mexico have increased threefold and the U.S. has moved from a steel trade deficit to a fairly even steel trade relationship.

However, like others in the industry, Gibson argued there is room for improvement, namely in the form of strengthening rules of origin, more effectively promoting trade enforcement cooperation and coordination, establishing disciplines on the conduct of state-owned enterprises (SOEs), establishing enforceable currency disciplines, and streamlining customs procedures and upgrading border infrastructure.

“While the Agreement has been beneficial, these approaches would improve it to make the American steel industry stronger, and create jobs in the process,” Gibson said.

In its submitted written comment, the Metals Service Center Institute (MSCI) agreed that while NAFTA has been successful, it can be improved.

“While we strongly agree with the Administration’s position that NAFTA can be modernized and improved, we also recognize that the Agreement has largely been successful,” the MSCI statement reads. “It has helped level the playing field and has created well-established, fully-integrated, market-driven trading mechanisms that allow for free and fair trade between the U.S., Canada and Mexico.

“The United States Trade Representative and the Trump Administration should take care not to upset the metal trade relationship between these countries.”

The Aluminum Association struck a similar tone in its submitted comment.

“It is vital, however, that the negotiations to modernize NAFTA strengthen and expand opportunities under the agreement, without diminishing its unquestionable benefits generated by the duty-free movement of aluminum and aluminum products throughout North America,” the statement, signed by Heidi Brock, president and CEO of The Aluminum Association, reads.

U.S. Rep. Daniel Lipinski, D-Ill., emphasized the importance of Buy America policies — particularly with respect to transportation — in his submitted comment.

“Any renegotiated NAFTA must not preclude Buy America policies from applying to Department of Transportation grants,” Lipinski wrote. “As our domestic manufacturing and steel sectors continue to be threatened, Buy America remains an important part of United States trade and manufacturing policy and should not be forsaken.”

What sorts of renegotiation proposals actually come forward remains to be seen. Trump mentioned NAFTA often on the campaign trail and his intent to renegotiate the deal, particularly citing U.S. trade deficits with Mexico. In 2016, the U.S. had a more than $64 billion trade deficit with its neighbor to the south, according to U.S. Census Bureau data. The U.S. last had a trade surplus with Mexico in 1994 ($1.3 billion) — the year NAFTA went into effect. The U.S. has had a trade deficit with Mexico every year since then.

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With its neighbor to the north, the U.S. had a trade deficit of $11 billion in 2016, according to the U.S. Census Bureau.

This year, from January to April, the U.S. had trade deficits with Mexico and Canada of $23 billion and $8.5 billion, respectively.