Articles in Category: Public Policy

President Donald Trump said today that his administration has approved the Keystone XL pipeline, reversing the Obama administration’s decision to block the oil transportation project.

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Speaking from the Oval Office, Trump officially announced the approval shortly after the State Department issued TransCanada‘s permit, making good on one of his campaign promises. The approval greenlights the Canadian company to complete construction on the pipeline that will funnel crude oil from Canada to refineries on the Gulf Coast.

The American Petroleum Institute praised the approval.

“Today’s action to approve the Keystone XL pipeline’s cross-border permit is welcome news and is critical to creating American jobs, growing the economy, and making our nation more energy secure,” said API President and CEO Jack Gerard. “This critical infrastructure project has been studied longer than any pipeline project in U.S. history with exhaustive reviews by the State Department concluding that the project is safe for the environment and the best option for transporting domestic crude and Canadian oil to U.S. refineries.”

The 1,179-mile addition to existing pipelines that will stretch from Alberta, Canada to the U.S. Gulf Coast is estimated to create 42,000 construction jobs but only 35 full-time, maintenance positions once it’s completed.

Lopez Allows Suspended Mines to Ship Out Stockpiled Nickel Ore

The Philippines’ environment ministry, led by Environment and Natural Resources Secretary Regina Lopez, has allowed eight suspended nickel ore miners to ship out stockpiles of mined ore, sources told Reuters, temporarily boosting supply from the world’s top exporter of the raw metal after a major crackdown.

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More than half of all the mines in the Philippines have been ordered to permanently shut to protect watersheds in an eight-month campaign led by Lopez.

We had a chance to sit down and discuss the issues facing members of the Steel Manufacturers Association with SMA President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell also currently serves on the  Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Philip K. Bell

Philip K. Bell. Source: SMA

Jeff Yoders: We’ve heard a lot about North American Free Trade Agreement and what changes to it might mean in the last two days. How do your members feel about reopening NAFTA to changes?

Philip K. Bell: NAFTA is over 20 years old and it’s probably time to look at it again. A lot has changed over the last two decades. We hope the approach that the administration takes is one that’s more methodical and takes into account that not only are Canada and Mexico two of our biggest trade partners but, when it comes to the steel industry, they ARE our two largest trade partners.

There is a lot of integration in this area. You have a lot of steel producers that either have businesses in Mexico such as Gerdau, ArcelorMittal and Nucor — through its joint venture JFE — and you have a lot of companies that want to do business there like Steel Dynamics which is hoping to increase its presence in that market by importing flat-rolled into Mexico. Read more

The Organization of Petroleum Exporting Countries in general, and Saudi Arabia in particular, have done the U.S. oil industry a massive favor, and they are probably ruing the day they tried to squeeze America’s shale industry out of existence.

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The collapse in oil prices that ensued after Saudi Arabia-led OPEC opened the spigots two years ago forced American companies, and their many subcontractors, to innovate in a way that would never have happened so fast or gone so far without the imminent threat of survival forcing the pace.

Oil Prices Allow Reopening of Old Wells

Now, U.S. shale producers have achieved economies of scale that allow them to return to previously closed wells in fields like Eagle Ford and achieve 30% returns even at $40 a barrel. U.S. explorers may be making hay in the domestic market, but huge potential exists for these same firms to take their technology abroad. Read more

Two requests for proposals were released yesterday by Customs and Border Protection for the planned border wall between the U.S. and Mexico along the southern border in several states.

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New descriptions in the RFPs include this language: “CBP seeks highly qualified Contractors to assist in the development of a new border wall design standard as well as construct border wall and supporting tactical infrastructure/technology along the southwest border. CBP seeks highly qualified Contractors to propose a reinforced solid concrete wall that meets or exceeds CBP’s performance requirements. The proposed prototype designs shall not include the use of proprietary design or equipment. CBP plans to enter into multiple-award, indefinite-delivery, indefinite-quantity (IDIQ), task order contracts for Border Wall Design/Build Construction. The IDIQ may include various, simultaneous task orders ranging from $100,000 up to $275,000,000 per task order.

“CBP anticipates awarding IDIQ contracts to multiple Contractors. All selected Contractors will be awarded one (1) task order to construct its proposed prototype.”

The RFP goes on to state that “the prototypes will inform future design standard(s) which will likely continue to evolve to meet USBP’s requirements. Any and all prototypes will be designed to deter illegal entry into the United States. Through the prototyping process, CBP may identify new designs or influences for new designs that will expand the current border barrier toolkit that CBP will use to construct a border wall system. The border barrier toolkit is based on USBP’s requirements.”

Steel Industry Supports Revisiting Auto Emissions Standards

The American Iron and Steel Institute, the largest trade body representing the steel industry,  issued a statement in reaction to the Trump administration’s recent announcement that it is re-examining fuel-economy standards set by the Obama administration for 2022-2025 model year light-duty vehicles.

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“AISI is pleased the administration has withdrawn the final determination of the EPA Light Duty Vehicle Emission Standards issued in January,” Thomas J. Gibson, president and CEO of AISI said in the statement. “As a key materials solutions provider, we look forward to a dialogue between EPA, National Highway Traffic Safety Administration, California Air Resources Board, auto manufacturers and other relevant stakeholders on the Mid-Term Evaluation. The steel industry is making investments in new grades of lightweight, high-strength steels to assist our automotive customers in reducing emissions and improving fuel economy performance.  We are confident that getting the partnership between the government and stakeholders back on track will result in a plan for the future which protects the environment by establishing a common sense, implementable single national program for CAFE and GHG standards.”

We haven’t heard much of late about President Donald Trump’s border adjustment tax, but that doesn’t mean to say it has gone away.

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Indeed, the fact that it has a measure of support in the Republican Party suggests it could be on the agenda in the not-too-distant future. The idea is to transform the corporate tax landscape from a system that has prevailed for nearly 100 years, in which profits are taxed at the place of production, to a system in which profits are taxed at the place of sale.

A-destination based cash flow tax (DBCFT), as proposed by the House Republican tax plan, would include border adjustments that exempt exports but include imports in tax bills rather than raising federal income from a corporate income tax. As William Gale, a senior fellow in Economic Studies at the Brookings Institution explained in a recent article, all advanced countries except the U.S. already have a form of value-added tax (VAT), generally levied on top of corporate income taxes. All of those VAT systems are border adjusted, such that goods that are imported are taxed and those that are exported are not.

BAT or VAT

As part of the president’s pledge to bring jobs back to America, the border tax could have much to commend it. For example, if the U.S. introduces the system unilaterally, a factory in Ohio will pay no tax on the goods it exports to the E.U. while a factory in the E.U. will pay the border tax on its exports to the U.S. If you are a multinational corporation, suddenly it makes a ton more sense to have your new factory based in Ohio rather than some “lower cost” location. Read more

This week, metals manufacturers, construction and automotive companies and even the Federal Reserve expressed optimism about the strong economy we’ve seen since the election of President Donald Trump.

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We love economic optimism as much as the next metals intelligence and price data service, but count us among the many who wonder if all these happy thoughts are based on real world data or just, well, feelings?

When Can We Get an Actual Bill?

We kind of expected to have at least something concrete (pun intended) out of the administration on infrastructure by now but even the most optimistic among us concede that an infrastructure bill might not even happen this year with a healthcare repeal currently sucking up all the oxygen in Washington and tax reform, supposedly, the next big hurdle.

The Fed raised interest rates a quarter-point this week and hinted at more rate increases later in the year, pointing to strong jobs and manufacturing data but the tax cut the administration promised looks like it will only happen after the Summer, if at all, this year.

Automakers got some good news this week in the form of a promised review of corporate average fuel economy emissions standards that the industry says will hurt sales and production by the time they’re fully implemented between 2022 and 2025, but the actual rules haven’t changed yet and no one knows what the final review will keep or cut.

All of this begs the question: Are we being too optimistic?

TIGERs Ensnared

While Trump’s budget blueprint cut construction TIGER grants that fund many transportation projects, including the New York-New Jersey Gateway, it did allocate $2 billion toward the design and construction of a  wall between the U.S. and Mexico. That’s not what many construction companies were planning on hearing.

“Looked at in the absence of any broader infrastructure plan, it is hard not to view proposals to eliminate programs like the TIGER grants and wonder how such cuts are consistent with the President’s oft-repeated pledge to invest in infrastructure,” the Associated General Contractors of America Executive Director of Public Affairs Brian Turmail said.

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We, too, would like to see the text of actual infrastructure and tax reduction bills from the administration before we predict continued economic growth or even a continuation of the metals bull market. Or at least a working framework. With the pace in Washington, many of the president’s priorities are going to have to move to year two and delays beyond that would further threaten action in this term.

President Trump’s $1.1 trillion budget blueprint, released today, proposes dramatic cuts to the State Department and the Environmental Protection Agency, while seeking billions more for defense issues and $1.5 billion for the president’s proposed U.S.-Mexico border wall.

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It proposes the previously reported $54 billion increase in defense spending and corresponding cuts to non-defense spending at the State Department, the Department of Housing and Urban Development, the Environmental Protection Agency and the wholesale elimination of other federal programs.

Mick Mulvaney, Trump’s director of the Office of Management and Budget, described the proposal as a “hard power budget” in a Wednesday briefing with reporters, meaning the Trump administration will prioritize defense spending over diplomacy and foreign aid. It significantly cuts funding to global institutions such as the World Bank and the United Nations, too.

While the budget notes that plans and costs for the border wall are not yet completed, according to Mulvaney, the budget will include a request for $1.5 billion as the first installment payment for the promised wall and then another installment of $2.26 billion in 2018.

Steel Shipments Up in January

The American Iron and Steel Institute recently reported that for the month of January 2017, U.S. steel mills shipped 7,708,416 net tons, a 7.5% increase from the 7,173,245 nt shipped in the previous month and a 9.6% increase from the 7,031,307 nt shipped in January 2016.

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A comparison of January 2017 shipments to the previous month of December 2016 shows the following changes: hot-dipped galvanized sheets, up 14%, cold rolled sheets, up 13% and hot-rolled sheets, up 4%.

Speaking at S&P Global Platts’ recent Steel Markets North America conference, noted trade attorney Alan Price of the Washington law firm Wiley Rein said the World Trade Organization case that the federal government filed on behalf of aluminum producers against Chinese overproduction of the light metal in January, will essentially serve as a guide for other industries looking to challenge state-subsidized companies’ overproduction for export in the People’s Republic.

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“The solutions to Chinese overcapacity are to follow the money and see who’s subsidizing it,” said Price, who has represented several U.S. industries in anti-dumping and countervailing duty legal actions against Chinese producers, as well as WTO disputes. “China has not fundamentally reformed its excess capacity. The rest of the world’s production has remained stable, but the explosion in Chinese capacity is still there.”

Alan Price

Alan Price, image courtesy of Wiley Rein

Price said the aluminum case fundamentally attacks the mechanism China uses to back up failing businesses, the availability of subsidized money in China known as “money for metal” on the municipal, state and federal level there.

“The WTO case involving aluminum, challenges, fundamentally, the Chinese subsidization system,” Price said. “It goes after the financial systems of China and how everything is financed. In aluminum you can track all the companies involved. There are around 10 and it’s a much more understandable beast, much more understandable problem than the vastness of the Chinese steel industry. This case will fundamentally decide if China will be allowed to prop up failing businesses.” Read more

If you can’t beat them, then join them? That may be the gist of UC Rusal’s latest proposal for dealing with Chinese aluminum overproduction: an OPEC-like organization for the global aluminum industry.

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In a Reuters article the world’s largest aluminiu producer outside of China was quoted by the TASS news agency at an economic conference in Russia’s Black Sea resort of Sochi as suggesting that Industry ministers should get together and explore ways and means of creating a producers club.

Liquid metal

The Chinese aluminum industry has been able to cut costs by essentially selling liquid metal to nearby product manufacturers. Source: Adobe Stock/Kybele.

The trade minister quoted by TASS, Denis Manturov, talked of creating a single policy in the area of standards and technology but, in reality, there would be little to be gained if that was the sole purpose. More attractive to western smelters in general, and Rusal in particular, would be any mechanism that curbed China’s growing dominance of the primary aluminum market.

Rusal was, until a few years ago the world’s largest aluminum producer. In 2016 Rusal produced 3.685 million metric tons, according to Reuters, but China now produces over half the world’s aluminum with Chinese producers overtaking the Russian firm. China’s Hongqiao is now the world’s biggest aluminum producer overtaking Rusal in 2015 and again in 2016. Read more

More and more Indian companies, including steelmakers such as Tata and Essar Steel, are entering the defense manufacturing sector. Essar Steel, for example, recently announced a game plan to develop steel grades for land and naval defense applications.

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Essar Steel made a low key entry into the sector about five years ago, but it’s now turned bullish on defense because of the increased marketability of its products. Essar’s products include an indigenous armor plate for ballistic protection. Some of its products are innovative while others are simple substitutes for imports for India’s native contractors looking to keep more of their supply chains close to home. The latter have been used in the construction of naval destroyers, offshore patrol vessels and floating docks. Other products are used in the construction of Coast Guard vessels, so also the repair of naval ships.

In land defense, Essar Steel’s products are used in battle tanks, the motor casings of missiles, combat vehicles, and artillery guns. Read more