Public Policy

This week, our metals markets fell lower as they were buffeted by seemingly ever-increasing exports of steel, aluminum and other products from China.

Why Manufacturers Need to Ditch Purchase Price Variance

Even though China’s economic growth has been falling, its government still gives producers strong incentives to produce steel and aluminum that eventually ends up exported elsewhere. My colleague Stuart Burns rightfully points out that if Chinese mills are “supported by plunging raw material costs and extensive local state support, gifting them a break-even price around the lowest in the world, then the intent to simply ‘dump’ metal into export markets has few barriers.”

Can Debt Fuel Long-Term Growth?

But what’s the eventual result of state support? In China or anywhere else? Can government debt actually lift these economies back into growth mode? Stuart was there again, with an assist from the Daily Telegraph, postulating that sluggish growth and low inflation is the new normal and “advanced economies — and perhaps emerging ones, too — seem to have run out of productivity-enhancing growth and, therefore, need constant infusions of financially destabilizing debt to keep them going.”

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We have a problem, by we I don’t mean we in the metals markets specifically, nor we in the US or UK, nor even we in the western world.

Why Manufacturers Need to Ditch Purchase Price Variance

I mean we all have a problem: too much debt.

The International Debt Pile

“Whoa!” you say. Hold on, wasn’t the last financial crisis all about too much debt? Haven’t we learned our lessons – corporations are awash with cash, dividends and share buy-backs are at record highs, austerity measures are curbing government spending around the world, household debt — after years of recession — are under control again, what are you talking about?

Quantitative Easing (QE), started in the US by the Federal Reserve, was taken up by the Bank of England, followed by the Bank of Japan, the latest is the European Central Bank at €60 billion-a-month and even the Bank of China is talking about some form of unconventional monetary support, which we can read as QE to support flagging growth.

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Deepwater Wind began construction off the coast of Rhode Island on a five-turbine wind farm that will, eventually, have the ability to power 17,000 homes.

Why Manufacturers Need to Ditch Purchase Price Variance

The 30-megawatt, $290 million wind power project began construction this week 18 miles off the coast of Rhode Island, but, itself, is a much smaller project than the stalled Cape Wind farm project originally planned for the area around Cape Cod in Massachusetts.

US Wind Power Lags

Offshore wind projects are common in Europe and a real driver of renewable energy success there. The fact that the US is only starting to get into the offshore game is a testament to how the regulatory framework and maturity of the renewable energy industry are both lagging here in the states.

The death knell for the proposed 130-turbine Cape Wind project may have come early this year when the two largest electric utilities in Massachusetts backed out of a plan to buy most of the power that was slated to be generated by the proposed turbine project, the latest casualty of what can only be described as an environmentalist civil war over whether to place turbines off Nantucket Sound.

Green vs. Green

The Humane Society, the International Fund for Animal Welfare, the International Wildlife Coalition and and others are against the project. On the other side are groups that might normally be considered allies, including the Natural Resources Defense Council, the Union of Concerned Scientists and Greenpeace.

Opponents, such as environmental lawyer Robert F. Kennedy, Jr., say the natural environment of the Sound should be preserved and that the industrial nature of the turbines would spoil views from the shore. They also say that native birds would be decimated by the 40-foot-tall turbines.

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Another day at MetalCrawler and another steelmaker reports a loss due to imports. Also, US economic growth ground nearly to a halt in the first quarter and the US International Trade Commission reaffirmed duties on Chinese steel tubes.

U.S. Q1 Results Disappoint

U.S. Steel Corp. reported a loss and lowered its pretax 2015 earnings forecast by around $500 million, citing “massive” imports, particularly from China, low oil prices and excess inventories.

Why Manufacturers Need to Ditch Purchase Price Variance

The results were worse than expected and pushed the Pittsburgh-based steelmaker’s stock down.

Domestic steelmakers are reeling as prices have dropped to their lowest levels since the 2009 financial crisis. The benchmark hot-rolled coil index has declined 26% since the start of the year, to $444 per ton.

U.S. Steel Chief Executive Mario Longhi called market conditions “extremely difficult” as the company, in a statement, blamed imports and oil prices.

Overall steel imports into the US rose 14% to 7.9 million tons during the first two months of 2015, according to Global Trade Information Services. The US imported 397,062 tons of steel from China during that time, up 24% from the same period a year before.

US Economy Barely Grows

The US economy skidded to a near halt in the first three months of the year, battered by harsh weather, plunging exports and sharp cutbacks in oil and gas drilling.

The overall economy grew at a barely discernible annual rate of 0.2% in the January-March quarter, the Commerce Department reported Wednesday. That is the poorest showing in a year and down from 2.2% growth in the fourth quarter.

ITC Affirms Steel Oil Tube Tariffs

The US International Trade Commission (ITC) voted unanimously that US producers were injured by subsidized imports of oil country tubular goods (OCTG) from China. The ITC decision affirms countervailing duties (CVD) of 10-16% established earlier this year by the Commerce Dept. Commerce will now issue a countervailing duty order on the Chinese imports as a result of the ITC’s affirmative determination.

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MetalCrawler brings you warning of more domestic steel producer layoffs and China released new rare earth quotas.

More Layoffs Coming

U.S. Steel Corp. could slash 1,400 jobs as it continues to grapple with a difficult market.

Free Webinar: MetalMiner’s Q2 and Q3 2015 Forecasts

The Pittsburgh-based company notified workers last week, mostly at plants in Texas and Arkansas, that they could be out of a job as early as June 17, U.S. Steel spokeswoman Sarah Cassella said Monday.

The potential cuts include 579 employees in Lone Star Tubular Operations; 166 in Offshore Operations Houston; 255 at Wheeling Machine Pine Bluff in Arkansas; and 404 managers throughout its tubular operations.

China Sets Rare Earth Quotas

China’s Ministry of Industry & Information Technology recently released rare earth production quotas for 2015.

Rare earth oxide (REO) mining quotas were set at 52,500 metric tons while smelting and separating limits came in at 50,050 mt.

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It is one of those delicious ironies of life that India, the world’s largest consumer of gold, has very little to show when it comes to actually mining the yellow metal.

Free Webinar: MetalMiner’s Q2 and Q3 2015 Forecasts

That’s poor form because India sits on very large resources of gold, revealed by several geological studies in the past. One such study pegged India’s primary gold resources at about 491 metric tons. Despite its 6,000-year mining history, the country mines just around a pitiful 25 mt of gold annually.

Imports Flourishing

India is one of the biggest importers of gold, despite a punitive 10% import tax. In the financial year ended March 31, gold imports had touched 900 mt, up 36% from a year ago.

Perhaps keeping all this in mind, and the fact that gold mining could mean earning some big bucks, Western Australia recently expressed interest in developing gold mines in India, as part of the bilateral cooperation in minerals and energy sectors between the two nations.

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The big news in metals this week was China’s economy growing at the slowest rate since 2009. If our bearish markets are to turn around this year, it would appear they’re going to have to do it without help from the world’s second-largest economy.

Free Webinar: MetalMiner’s Q2 and Q3 2015 Forecasts

But that’s not all that we learned from China this week. In many ways, China doesn’t really look like an economy growing at even 7%, with exports plunging in March, power generation dropping 3.7%, and a host of other indicators pointing to sluggish growth. This is bad because the most of the demand for our metals is based on China at least maintaining 7.5% economic growth. In today’s world economy, if you’re not growing, you’re dying.

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Fresh MetalCrawler news today on the US housing market, China's attempt to restructure its economy and a short-term fix to fund the Highway Trust Fund.

US Housing Starts Disappoint

US housing starts rose far less than expected in March and factory activity in the mid-Atlantic region grew modestly this month, suggesting the economy could struggle to rebound from a soft patch hit in the first quarter.

Free Webinar: What Does the Future Hold? MetalMiner’s Q2 and Q3 Forecasts Can Help You Plan Your Year

There are expectations growth will rebound in the second quarter, but Thursday's lukewarm data suggest the momentum will probably not be strong enough for the Federal Reserve to start raising interest rates before September.

Controlling The Chinese Slowdown

Beijing's efforts to wrestle China's growth model from its investment and credit-fueled addiction to a more sustainable long-term footing, as well as to clean up the environmental damage wrought by decades of industrial pollution, is predictably slowing growth there. The difficult task for Chinese leaders will be to control the slowdown of the world's second-largest economy among calls for stimulus and government help.

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The US ranks 41st in the world in terms of the ease of gaining federal permits to proceed with construction or infrastructure projects, according to the 2014 World Development Indicators‘ Ease of Doing Business Index.

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Philip K. Howard of Common Good, recently discussed with us how permitting, not funding, is the biggest obstacle to renewing and replacing the nation’s crumbling infrastructure.

A Chief Permitting Officer

Senators Rob Portman (R. – Ohio) and Claire McCaskill (D. – Mo.) have introduced a bill that requires the first chief permitting officer for federal agencies. The bill would impact projects that cost more than $25 million and receive federal dollars, which includes most interstate roads and bridges. However, it does not give the new CPO the right to force individual agencies involved with projects to make decisions or move forward on projects in a timely manner.

“It’s a multi-headed federal bureaucracy that we have,” Howard said. “The problem with their bill is the CPO doesn’t have any authority. He can’t lean on one unreasonable agency if it’s holding up a project. There needs to be a dialectic here. If any one of 19 different agencies involved (in the Bayonne Bridge project in New Jersey) decides it’s going to dig in its heels in, there is no alternative but to give in to what they want. That feeds the paralysis. There needs to be a presumptive authority somewhere. There needs to be someone who can cut through that. If that authority is too high-handed that won’t work, either. You want an incentive for everyone to be reasonable and agree to make decisions within a reasonable timeline.”

In countries that rate higher on the Ease of Doing Business Index, interstate road or bridge projects there is a permitting officer or a department designated as the one stop for permitting and review. You can’t ignore it. There is an internal mechanism where agencies inside the permitting process can, essentially, complain if their concerns are being ignored by the overseeing agency and its CPO.

“If the question is the adequacy of environmental review, the decision maker to draw the line on that would be an environmental official,” Howard said. “If it’s a powerline running through several states, it should be the agency responsible for the adequacy of the power grid.”

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Ontario, Canada just decided to undertake a cap-and-trade approach in reducing their greenhouse gas emissions, joining its Frenchier neighbor Quebec and the US state of California under the so-called Western Climate Initiative and its cap-and-trade program, to invest further in a green future.

Free Webinar: MetalMiner’s Q2 and Q3 2015 Forecasts

It remains to be seen how Canada’s oil sector – and a host of other industrial sectors, especially those with operations in Ontario – will fare under the cap-and-trade scheme.

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