Commentary

The showdown between global copper miner Freeport-McMoran, Inc. and the Indonesian government got a little hotter this week.

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Arizona-based Freeport majority-owns the world’s second-largest copper mine, Grasberg in Indonesia. The company has been trying to get a new permit from the Indonesian government to continue exporting copper concentrates for the last six months. On Monday Freeport said it would not accept terms of a deal the government offered that would allow it to resume shipments of copper concentrate that have been idled since January 12.

One More Year… Then Give Up Your Mine

Friday the Indonesian government offered Freeport a new, one-year deal that would allow the company to continue exports but only if it agrees to new rules requiring it to build a new copper smelter in Indonesia within the next five years and also agree to switch to an operating license, the terms of which would require Freeport to, eventually, give up control of Grasberg.

Kennecott Copper Mine

Open pit copper mines such as Rio Tinto’s Kennecott in Utah could increase production and increase sales if Grasberg stays closed. Source: Adobe Stock/Photofly.

Freeport CEO Richard Adkerson, naturally, turned down that offer and said the company is unwilling to revisit the terms of its 30-year contract to mine at Grasberg, which accounts for about a third of Freeport’s annual copper production and 40 to 50% of its worldwide assets. He also said Freeport would consider going to arbitration if it can’t settle this dispute within 120 days. Read more

One of the major gripes about environmental legislation is that while the West creates ever stricter laws and ever lower emissions targets, many parts of the world completely flout agreements or do not even sign up to them in the first place.

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The steel industries of Europe and the U.S. frequently complain that they must meet tough emission targets that their competitors in China, India and elsewhere can avoid either because their governments have not signed up to such restrictions, or because they simply are not enforced.

The True Cost of Air Pollution

Well, finally after years of complaints it appears the tide is turning but tragically it has come about due to an appalling loss of life that is only just being recognized. Air pollution alone causes 6.5 million early deaths a year the Guardian newspaper reports. That is double the number of people lost to HIV/AIDS, tuberculosis and malaria combined, and four times the number killed on the world’s roads. In Africa, air pollution kills three times more people than malnutrition. Read more

This week President Donald Trump began to deliver on his campaign promises to deregulate industry and unshackle American manufacturing, using the Congressional Review Act, a 1996 law that empowers Congress to review, by means of an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule the regulation.

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First up, Congress passed a law under the CRA that rolled back an Obama administration rule that would have required oil, gas and mineral extraction companies to disclose payments made to governments. The Securities and Exchange Commission rule never went into effect and exploration companies and industry organizations such as the American Petroleum Institute, said it put natural resource companies at a competitive disadvantage to foreign firms by disclosing too much of their contract terms.

Iron ore mine

Deregulation via the CRA will help minerals mining and exploration. Source: Adobe Stock/nikitos77.

Metals producers and other companies dependent on minerals to make their products generally supported the repeal. Another potent input for the creation of metals is coal and Trump followed up the CRA action by signing a bill that quashed the Office of Surface Mining’s Stream Protection Rule, a regulation to protect waterways from coal mining waste that officials finalized in December. Regulators spent most of Obama’s administration eight years writing the Stream Protection Rule and it was effectively wiped away with the stroke of Trump’s pen thanks to the CRA.

The House has passed several CRA resolutions, and the Senate has so far sent three of them to President Trump so far, but there are at least 10 CRA bills still moving through the House and Senate. Until now, only one CRA resolution had ever been passed and signed into law: the Occupational Health and Safety Administration’s workplace ergonomics rules, in 2001.

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If Trump and the republican Congress continue to use the CRA to roll back rules, they could potently erase much of the regulation that business organizations have said hamstrung them for the last eight years.

Using the CRA to roll back regulations would certainly make it easier for Trump to deliver on his promises of smarter, better regulations for industries such as manufacturing and mining. Using it also helps the Congress keep up a commitment from an early Trump executive order that it must repeal two regulations for every new one. We could see a slew of deregulation actions to allow Congress to “bank” new regulations if it needs to pass a law to, perhaps, create a new definition of what a countervailable subsidy is for companies to petition the Commerce Department to allow it to place duties on foreign imports.

Much to the delight of not only its executives and employees but both the global steel sector and even stock markets, the Luxembourg-based steel giant ArcelorMittal has posted its first annual profit in more than five years, registering the biggest jump in earnings in the same period.

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The world’s largest steelmaker by output swung from a $7.9 billion net loss in 2015 to a net profit of $1.8 billion last year. Read more

Donald Trump’s November victory ignited the steepest stock market rally from election day to inauguration for a first-term president since John F. Kennedy won the White House in 1960.

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The S&P 500 index, a broad measure of the performance of large U.S. companies, climbed 6% since election day. Wall Street has not posted such a strong run from a president’s first-term election win in more than half a century, when the S&P 500 climbed more than 8% after JFK beat then vice-president Richard Nixon.

Stock market performance since election of a new US president. Source: Financial Times.

Over the same time frame, only the advance following Bill Clinton’s second election stands with JFK in topping the Trump run. Additionally, Wednesday’s fifth-straight record-high close for each of the major U.S. equity indexes matches a streak last seen in January 1992. The Philadelphia Federal Reserve Bank even said its manufacturing index soared in February to a 33-year high, in another indication of improving business sentiment in the wake of the Republican election sweep. Read more

A lighted underground tunnel in a nickel mine

Nickel prices increased early in February with hedge funds and speculators hurrying to close bets against the metal with the Philippines moving ahead with regulations on its mining industry.

According to a recent report from the Financial Times, nickel’s climb was directly attributed to the closure of 21 mines along with the suspension of another six pits, including the nation’s largest gold mine.

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The Philippines is the world’s most significant source of unprocessed nickel ore, along with being a major supplier to China, the news source stated. A renewed emphasis on environmentalism led to Philippines’ President Rodrigo Duterte appointing a like-minded resource minister to investigate the nation’s mining industry.

“My issue here is not about mining, my issue here is about social justice,” Regina Lopez, natural resources secretary, said during a recent briefing. “Why is mining more important than people’s lives?”

Nickel Price Outlook for 2017

Lopez pointed at the mine closures, which account for nearly half of the nation’s nickel output.

“We are very pleased to see the Philippines taking this action while allowing proper mining companies which adhere to better environmental practice to continue,” analysts at SP Angel told the Financial Times, adding the whole nickel supply chain was an “environmental disaster”.

“The huge growth of ore exports into China for the production of nickel pig iron disrupted the nickel industry in recent years while causing massive environmental disruption in the mining areas and at the nickel pig-iron furnaces.”

How will nickel and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

Slowly but surely, India seems to be shifting the goal posts on its minimum import price policy designed to protect the domestic steel industry.

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India recently extended the anti-dumping duty on cold-rolled flat steel products from four nations, including China, Brazil and South Korea to guard the domestic steel industry from cheap imports for another two months. The duty was expected to expire after six months and was recently extended to give it a total duration of eight.

Domestic Indian steelmakers could see their protective minimum import prices for steel products lifted. Source: Adobe Stock/ft2010.

India had previously imposed a minimum import prices (MIP) to protect the steel industry and the cold-rolled duties came in addition to the MIP. The policy was described as a short-term emergency measure while anti-dumping duties are a long-term measure to protect the country’s trade.

Yet, according to a recent media report, India’s steel secretary Aruna Sharma said there would be no minimum import price (MIP) extension for 19 steel products.

How the MIP Started

India started imposing an anti-dumping duty of $474-$557 per metric ton on hot-rolled flat products of alloy and non-alloy steel imported from China, Japan, South Korea, Russia, Brazil and Indonesia in August. Read more

Ezio Gutzemberg/Adobe Stock

The tin market in London remained tight last month and the underlying problem appears to be a lack of deliverable metal.

According to a recent Reuters report from Andy Home, a closer look at China reveals a significant supply of tin registered with the Shanghai Futures Exchange, but it previously was hiding behind the country’s 10% export duty.

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However, that doesn’t appear to be the case any longer as China evidently removed the barrier without notification, which could lead to serious consequences for the worldwide flow of tin and, more specifically, the London Metal Exchange market.

Home writes: “There is still a good deal of uncertainty as to what exactly may, or may not, have happened. But tin industry body ITRI has drawn attention to the fact that the tin export duty has not been referenced in China’s 2017 Exports Commodities Tax Rates table.”

Home adds the reason for China dropping the duty, a standard for nearly 10 years, can be attributed to the US-filed complaint last July to the World Trade Organization regarding their export duties on numerous metals and minerals, including tin.

Tin Price Update for February

Just last week our own Raul de Frutos wrote tin prices dropped 9% since the beginning of the year, reaching a 5-month low.

de Frutoes wrote: “There are two factors driving this decline:

  • Profit taking: Prices rallied near 70% in 2016 and prices need to digest those gains.
  • Speculation that China has removed it’s 10% export duty on refined tin exports.”

How will tin and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

The Trump administration is exploring the idea of classifying currency manipulation, such as when China sets the value of the yuan/renminbi deliberately low to promote exports, as an unfair trade government subsidy that U.S. manufacturers can then petition the Commerce Department for redress against.

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The Wall Street Journal reported that, under the plan, the Commerce Secretary (Trump has nominated Wilbur Ross for the job) would designate the practice of currency manipulation as an unfair subsidy when employed by any nation. This plan would not single out China, or any other country, but rather give U.S. companies the opportunity to pursue trade remedies such as countervailing duties on imports from nations that artificially set currency values low.

Dollar vs. RMB

The value of the renminbi against the US dollar has consistently fallen since China removed its peg. Chart: Jeff Yoders/MetalMiner.

Last year, we created an interactive narrative experience showing how China has changed its currency values since it joined the World Trade Organization. Many countries and the WTO, itself, have wrestled with how to deal with Chinese exports in recent years but no country has considered creating a currency manipulation category for dumping of foreign exports that would, presumably, be enforceable under current WTO rules.

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The currency plans, according to the WSJ, are part of a China strategy being put together by the White House’s National Trade Council, led by economist Peter Navarro. The policy seeks to balance the administration’s dual goals of challenging China on trade while still keeping relations  — and most trade — with the massive country on a fairly even keel. That’s why the policy does not single out China and would apply to all nations that reset the values of their currency without direction from an independent body such as the European Central Bank or Federal Reserve.

The difficulty in enforcing such a policy would be that nations such as China could cry foul at the WTO and say that the ECB or Fed are not really independent. A definition of what is an independent central bank might be challenged in the WTO.

I am not sure this would go down well in the U.S., but take the most populous country in the world, with an estimated population of 1.3 billion of whom 22% are judged to be living in poverty and give them a state-provided universal basic income (UBI) payable to every single person. Sound like madness? Sound like a recipe for financial disaster? Sound like a socialist pipe dream? Maybe, but the idea is being actively debated in India according to the Economist.

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Although the pre-annual budget economic survey, published on January 31, did not make any promises, it did outline an idea to pay every citizen 7,620 rupees ($113) a year. Far from a king’s ransom — it is equivalent to less than a month’s pay at the minimum wage in a city, but it would cut absolute poverty from 22% of the population to less than 0.5%. The money would largely come from recycling funds from around 950 existing welfare schemes, including those that offer subsidized food, water, fertilizer and much else besides. Altogether, these add up to roughly the 5% of GDP that the UBI would cost, the government’s chief economic adviser, Arvind Subramanian estimates. Read more