Articles in Category: Public Policy

Steel prices in China have been rising, but iron ore prices have been falling — what’s going on there?

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China is shutting domestic iron ore mines at an accelerating rate, forcing steel companies to import iron ore from overseas, which would normally be supportive for the iron ore price.

The answer it would seem, as is so often the case, has more to do with speculators’ view of future fundamentals than actual current fundamentals.

Strong Chinese Demand for Steel

Steel prices in China are strong because steel demand remains robust, despite exports being crimped by protectionist measures in North America, Europe, India and elsewhere. Domestic demand is holding up well.

Meanwhile, supply-side action by Beijing is cutting swathes of steelmaking capacity. Initially, much of the cuts came to “illegal” production, such as EDF scrap based long products mills — which has happened largely under the radar — but also older, less efficient and more polluting steel plants. All of this follows Beijing’s pledge to cut 50 million tons this year as part of an environmental drive to reduce air pollution by November (the start of the winter heating season).

Source Financial Times

After strong price rises this year, investors have done well and are now taking their profits ahead of a perceived fall in demand, as steel curtailments really begin to bite later in the year. It would be a brave speculator who bet against the wave of negative sentiment toward the iron ore price, including even the Australian government, which has been warning of price falls.

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Socialist Shadow Prime Minister Jeremy Corbyn and Microsoft tech entrepreneur Bill Gates do not make obvious bedfellows.

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But when Gates suggested earlier this year that governments should tax new robot “employees,” just like they do human employees, socialists everywhere picked up the idea as a way of mitigating or resisting the perceived onslaught from such new technology on workers’ jobs.

Gates raised the idea in an interview with Quartz in February.

“Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things, if a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level,” he said.

Corbyn actively proposed such a tax at his party’s annual conference this week in the U.K., saying the application of such a measure would spread the benefits gained by ”greedy” employers exploiting advanced technology to reduce wage bills.

Not surprisingly, such attitudes have earned Corbyn and his socialist allies the label of Luddites (the bands of English workers who destroyed machinery, especially in cotton and wool mills, in the early 1800s, believing such technology threatened their jobs).

But some advanced economies have already adopted the concept and many others are actively considering it.

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This afternoon in metals news, a former UBS metals trader was indicted for his alleged role in price rigging, NAFTA renegotiation talks could spill into next year and the palladium price topped platinum for the first time since 2001.

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Ex-UBS Metals Trader Indicted for Alleged Price Rigging

A former UBS Group AG metals trader was indicted for alleged price rigging, Reuters reported.

Andre Flotron was accused of placing so-called “spoof” trades from July 2008 to November 2013, in which he allegedly placed orders for metals futures contracts that he intended to cancel before they could be executed, according to Reuters.

Flotron was arrested two weeks ago in New Jersey and released on $4 million bond, according to court documents, Reuters reported.

NAFTA Talks Could Drag on Past December Deadline

The third round of talks focusing on the renegotiation of the North American Free Trade Agreement  (NAFTA) concluded Wednesday in Ottawa. Renegotiating the deal — or withdrawing entirely if a deal can’t be reached — has been a stated goal of the Trump administration. As such, the talks have progressed on an accelerated timeline, with a December deadline in place to avoid elections next year in Mexico, the U.S. and Canada.

Even so, the negotiations might continue on into next year, according to Mexican Economy Minister Ildefonso Guajardo, Reuters reported.

“We have the ambition, we have the strength to try to move forward with a view to closing a negotiation but no one can assure with total certainty that we will be able to do it,” Guajardo told reporters.

“That is our expectation and, therefore, it must also be considered that in this process dates will have to be considered, if necessary, for the start of the next year.”

Palladium Tops Platinum For the First Time in 16 Years

Palladium prices have topped platinum prices for the first time since 2001, according to Kitco News.

According to the report, as of 10:14 a.m. EDT Thursday, spot palladium was trading at $927.30 an ounce, while platinum was down to $918.70 an ounce.

Palladium’s higher price might not last, though, according to analysts cited by Kitco.

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“In the short term, we think platinum is undervalued for a whole host of reasons. Therefore, we think there is scope for platinum to move back to a slight premium in the short to medium term,” said Robin Bhar, metals analyst at Societe Generale. “We don’t see a sustainable premium of palladium over platinum…until about 2020 or 2021.”

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This morning in metals, the U.S. dollar index is up, while gold and silver prices are on a downward trend and oil prices dip slightly from Monday’s high. In addition, there’s a very intriguing potential source of renewable energy on the horizon.

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A drop in U.S. oil inventories has helped oil prices stay more or less steady, Reuters reports. The biggest factor supporting oil prices has been Turkey’s threat to cut off oil exports from Kurdistan, and this past Monday, the price of oil came close to $60/barrel for the first time since June 2015.

U.S. Dollar Index Rises, Precious Metals Fall

Gold and silver prices fell to four-week lows as the U.S. dollar index climbed to a five-week high, fueled by the expectation that the Feds will hike up interest rates again, Reuters reports.

As Stuart Burns wrote earlier this morning, “Trump’s United Nations speech threatening annihilation on North Korea failed to support the gold price, as investors took a cue from central bank announcements that the Fed intends to start unwinding its multi-trillion dollar balance sheet in October.”

A New Renewable Energy Source?

Could 70% of U.S. energy come from plain old H2O? According to new research, energy from water evaporation could provide a staggering 325 gigawatts of power. Read more

Investors sometimes have short attention spans.

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Just a month ago, worried by the escalating tension between the U.S. and North Korea, the gold price was rising, hitting its highest level in over a year at $1,358 an ounce as the dollar weakened and tensions ratcheted up.

However, Trump’s United Nations speech threatening annihilation on North Korea failed to support the gold price, as investors took a cue from central bank announcements that the Fed intends to start unwinding its multi-trillion dollar balance sheet in October.

The Financial Times reports the prospects of higher interest rates make gold less attractive, since the metal provides no yield.

After peaking in early September, gold remains up 13% on the year. Silver prices are up 6% in the year-to-date. The Fed seems set on a rate hike by December, followed by probably two more next year.

Yet, the gold price is merely the most visible of many undercurrents caused by the Fed’s gradual withdrawal of liquidity as it unwinds its eight-year stimulus program.

Little attention has been given of the impact this gradual draining of liquidity will have on emerging markets.

Already, a few alarm bells are beginning to sound.

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Standing in for Fouad Egbaria, here is your morning in metals, folks.

Aluminum Highlights

Feeling behind on aluminum industry activity and economic drivers? Look no further than the Aluminum Association’s latest comprehensive rundown, including import trends and key raw material inputs such as energy.

According to their highlights, the majority of aluminum imports into the U.S. are in ingot form. “After three consecutive months of declining volumes, ingot imports increased 1.8 percent month-over-month in July,” the report states, citing U.S. Census Bureau figures. “Nevertheless, imports of ingot increased 19.0 percent year-over-year in July, and are up 22.7 percent year-to-date over the same period in 2016. While the growth has occurred across the spectrum of ingot importing countries, the largest year-to-date increases have originated from South Africa, India, and Australia.”

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EPA Clean Power Plan: Trump Takes Over Obama’s ‘Fuzzy Math’

President Trump made quick moves to ax the Clean Power Plan, whose benefits the previous administration said would dwarf its costs (of which, MetalMiner speculated, there would be many).

Now, Trump and his EPA chief, Scott Pruitt, are trying to massage the numbers behind those costs and benefits — and it may be a tough proposition to get things right.

Electric Cars All the Rage?

Arnoud Balhuizen, chief commercial officer at BHP, was quoted by Reuters as saying on Tuesday that 2017 will be a “tipping point” for electric cars, adding that “the impact for raw materials producers would be felt first in the metals markets and only later in oil,” according to the news service.

“In September 2016 we published a blog and we set the question – could 2017 be the year of the electric vehicle revolution?” Balhuizen said in an interview, Reuters reported.

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MetalMiner’s correspondent in India, Sohrab Darabshaw, will have an upcoming piece later this week about how that very revolution is shaping up in the world’s second-most populous country – stay tuned!

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The Department of Commerce issued a preliminary affirmative determination Tuesday in the countervailing duty investigation of cold-drawn mechanical tubing from China and India.

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“The Trump Administration will not sit back and watch as American companies and workers are harmed by unfair government subsidies,” Secretary of Commerce Wilbur Ross said in a prepared statement. “The United States is committed to free, fair and reciprocal trade, and will continue to validate the information provided to us that brought us to this decision.”

The Department of Commerce determined that the form of tubing from China benefited from countervailable subsidies of 33.31-35.69%, and that Indian tubing benefited from subsidies of 3.04-8.09%.

In 2016, cold-drawn mechanical tubing from China and India were valued at an estimated $29.4 million and $25 million, respectively, according to the Department of Commerce.

The petitioners in the case were ArcelorMittal Tubular Products (OH), Michigan Seamless Tube, LLC (MI), PTC Alliance Corp. (PA), Webco Industries, Inc. (OK), and Zekelman Industries, Inc. (PA).

The Department of Commerce will instruct U.S. Customs and Border Protection to collect cash deposits from importers of cold-drawn mechanical tubing from China and India based on the aforementioned preliminary rates. The department collected $1.5 billion in duties on $14 billion of imported goods found to be underpriced, or subsidized by foreign governments, according to the department’s release.

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The Department of Commerce is scheduled to announce its final determinations in the case on Dec. 4.

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It’s been five months and a day since President Donald Trump signed a memorandum calling for Secretary of Commerce Wilbur Ross to prioritize the Section 232 investigation that would assess whether steel imports posed a national security risk.

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Many expected an announcement of the investigation’s findings in June or July, but it never came.

As the delay drags on, the U.S. steel industry has expressed its desire for the Trump administration to act vis-a-vis the 232 probe.

The United Steelworkers (USW) union was the latest group to urge the administration to act.

“The time to act is now, and workers are telling politicians their first-hand stories of the devastation in the industry and the critical importance of providing relief,” USW International President Leo W. Gerard said in a prepared statement.

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After two rounds of talks on the renegotiation and modernization of the North American Free Trade Agreement (NAFTA), uncertainty continues to loom.

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The 23-year old trilateral trade deal linking the U.S., Mexico and Canada has been the subject of talks between trade representatives of the countries in recent months.

An initial round of talks was held in Washington, D.C., with a second round coming earlier this month. A third round is scheduled for Sept. 23-27 in Ottawa.

Renegotiation of the deal, which President Donald Trump once referred to as possibly the worst trade deal ever, has not seemed to gain much traction through two rounds of talks.

In a closing statement after the recently concluded round of talks in Mexico City, United States Trade Representative Robert Lighthizer again laid out the U.S. delegation’s goals:

“The American delegation is focused on expanding opportunities for American agriculture, services, and innovative industries. But, as I alluded to in my opening round, we also must address the needs of those harmed by the current NAFTA, especially our manufacturing workers. We must have a trade agreement that benefits all Americans, and not just some at the expense of others. I am hopeful we can arrive at an agreement that helps.”

While Lighthizer said the parties “found mutual agreement on many important issues,” other reports indicate the negotiators are still far apart.

The New York Times reported that, during a question-and-answer session Monday at the Center for  Strategic and International Studies (CSIS), Lighthizer said negotiations were “moving at warp speed, but we don’t know whether we’re going to get to a conclusion, that’s the problem.”

During his opening statement prior to taking questions, Lighthizer said support for free trade in recent decades has been “eroding” among the electorate.

“There has been a growing feeling that the system that has developed in recent years is not quite fair to American workers [and] manufacturing, and that we need to change,” he said.

The ambitious timeline for the talks is further complicated by elections in the three countries next year: U.S. midterms, the Mexican presidential election and provincial election in Canada. Producing a mutually agreed upon and revamped trade deal by the end of the calendar year will require the negotiations to move at breakneck speed.

On Monday, Mexican Economy Minister Ildefonso Guajardo said rules of origin and the U.S. trade deficit with Mexico are the issues that will determine whether a new deal can be reached, Reuters reported.

The trade deficit has been a primary talking point for the U.S., one which Lighthizer referred to Monday at the CSIS.

“I think it is reasonable to ask, when faced with decades of large deficits, globally and with most countries in the world, whether the rules of trade are causing part of the problem,” he said.

The U.S. had a $63.4 billion trade deficit with Mexico in 2016. Though the first seven months of 2017, the U.S. has a $41.2 billion trade deficit with Mexico, up from approximate $37 billion through the first seven months of 2016.

Another idea that has come up in renegotiation talks that has generated pushback is that of a sunset clause.

According to The New York Times report, Secretary of Commerce Wilbur Ross said the administration was considering such a clause, which would mean that the trade deal would expire after five years unless all parties voted to continue it. (Lighthizer declined to expand on the idea of a sunset clause vis-a-vis NAFTA during the CSIS event.)

Aside from NAFTA, Lighthizer called China the biggest challenge for the global trading market, adding that the World Trade Organization is not equipped to tackle the challenges China presents.

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“We must find other ways to defend our companies, workers, farmers, and indeed, our economic system,” he said.

Following this coming weekend’s round of talks in Ottawa, four more rounds of talks remain on the negotiating agenda this year.

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The U.S. Department of Commerce has been busy this year.

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The department added another investigation to its agenda, announcing late last week that it had launched antidumping and countervailing duty investigations into titanium sponge imports from Japan and Kazakhstan.

“The Department of Commerce intends to act swiftly to halt any unfair trade practices and will render our decisions at the earliest opportunity, while also assuring a full and fair assessment of the facts,” Secretary of Commerce Wilbur Ross said in a release. “The U.S. market is the most open in the world, but we must take action to ensure U.S. businesses and workers are treated fairly.”

The new investigation marked the 65th new antidumping or countervailing duty probe of the year by the Department of Commerce. Through Sept. 14, the number of new investigations has increased by 45% compared with the same time frame last year, according to the Department of Commerce release.

The case comes on the heels of petitions filed by Titanium Metals Corporation (TIMET) on Aug. 24.

The investigations will seek to determine whether titanium sponge from Japan and Kazakhstan is being sold at less than fair value, as well as if the imports from Kazakhstan are receiving countervailable government subsidies.

Imports of titanium sponge from Japan and Kazakhstan were valued at an estimated $144.8 million and $374,000, respectively, according to the Department of Commerce.

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The U.S. International Trade Commission (ITC) will make a preliminary determination in the cases on or before Oct. 10. Assuming the ITC determines there is a reasonable indication that imports of the product threaten the domestic industry, the Department of Commerce will then issue a preliminary determination in the countervailing duty case by Nov. 17, 2017, and the antidumping cases by Jan. 31, 2018.

TIMET, based in Exton, Pennsylvania, supplies nearly a fifth of the world’s titanium, and has production facilities in both the U.S. and Europe, according to its website.