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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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This morning in metals news, the wait for Section 232 continues, investors are betting on copper as electric cars grow in popularity and palladium is having a record year.

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Section 232 Watch Drags On

These days, folks in the aluminum and steel industries are looking for any sliver of information regarding what the Trump administration will do with its Section 232 investigations.

Many expected the steel investigation results to be announced by the end of June, but that never happened. Regardless, on Wednesday President Trump told a reporter that tariffs on steel imports “could happen.”

Not exactly the most illuminating quote, but it’s something. Given Trump’s economic rhetoric, both as a candidate and as president, the likelihood of some form of protective measures being instituted seems fairly high.

Copper and Cars

As automotive companies, from Tesla to traditional automotive industry stalwarts, compete to develop next-generation vehicles, investors are betting on copper, according to a report in the Financial Times.

How much more copper will be needed to back the next wave of automotive production?

Estimates vary, but one thing is certain: copper will play a very big role and, as such, demand for it will be high.

Big Year for Palladium

It’s been an up-and-down year for some metals in 2017 — but not palladium.

In fact, palladium is expected to hit its highest annual average price on record this year, Reuters reports. Even more, platinum has outperformed platinum in a big way.

But the question is: Can it last?

“We remain constructive on palladium’s outlook,” Standard Chartered analyst Suki Cooper told Reuters. “Not only is the market set to deliver a deficit this year, but it looks set to be undersupplied over the coming years.”

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While it’s easy to look askance at something that shoots up in price so quickly, there are indications that palladium will continue to be a strong player in the market.

The Trump administration’s Section 232 investigations have been getting all the headlines — but let’s not forget about Section 332.

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Earlier this month, the House Ways and Means Committee released the United States International Trade Commission’s (USITC) Section 332 investigation into the competitive factors affecting the U.S. aluminum industry. (A Section 332 entails a fact-finding investigation “on any matter involving tariffs or international trade, including conditions of competition between U.S. and foreign industries.”)

The lengthy report, which checks in at just over 600 pages, details the major competitive forces at play in the global aluminum market and how those forces impact the U.S. aluminum industry. Unlike its Section 232 counterpart, the 332 report — which focuses on 2011-2015 — predates the Trump administration. The Ways and Means Committee requested the report from the USITC in February 2016.

The report offers a sweeping, macroscopic view of the U.S. aluminum industry and the global picture, too. Like the Department of Commerce’s 232 probe, China figured prominently in the findings of the USITC survey.

Among the key points in the report is China’s role as the principal driver of the aluminum market during the time frame assessed (2011-2015). During that time, China’s production skyrocketed, so  much so that it became the world’s largest aluminum producer and consumer, and ranked second behind the U.S. in secondary unwrought production.

Source: Compiled by USITC staff from CRU Group.

Aluminum associations from the U.S., Canada and the European Union praised the USITC report. In a joint release Monday, the Aluminum Association of the United States, the Aluminium Association of Canada and European Aluminium all praised the report for touching on the industry’s biggest buzzword today: oversupply.

“The study details the government-sponsored rise of Chinese aluminum production in the global market and the effect of Chinese oversupply on global prices, which fell roughly 30 percent during 2011–15,” the joint release said. “Chinese government intervention in the form of programs and subsidized loans for electricity has played a significant role in China’s aluminum expansion.”

The release also reiterated the associations’ desire to work with the Chinese government to reach a “negotiated agreement” that would “result in measurable and consequent reductions in Chinese aluminum capacity and/or growth.”

Among other findings, the USITC report noted government intervention is high worldwide  (and not just from China).

The study also found the chief determinant of competitiveness for primary aluminum producers to be electricity costs, while for secondary and wrought producers the determinants were reliable scrap supplies and proximity to end markets.

Unsurprisingly, however, the study also found that China proved to be the exception to the aforementioned expectations for competitiveness.

“Despite having a fairly new aluminum industry, relatively high electricity costs in many regions, and a less developed consumer economy than many other countries where the industry is important, China is the world’s leading aluminum producer,” the report states.

While the aluminum associations of the U.S., Canada and Europe submitted a joint statement in support of the report’s findings, the U.S. industry might have more at stake than anyone. Per the report, “U.S. primary production capacity shrank more than in any other large producing country.”

“A combination of factors, including relatively high electricity rates; limited investments in new technologies; and currency appreciation have all contributed to the United States’ loss of competitiveness in this segment in recent years,” the report goes on to state.

As such, it’s not surprising that the U.S. aluminum industry is looking to the Department of Commerce’s Section 232 investigation for relief. U.S. aluminum smelters dropped in number from 23 to five in the last two decades. Some good news did come out recently when Alcoa announced July 11 that it would be partially reopening an aluminum smelter near Evansville, Ind.

With a delay in the announcement of the Section 232 steel investigation, however, the 232 aluminum announcement will likely be pushed down the road, as well.

The Aluminum Association CEO and President Heidi Brock was clear in a letter to Secretary of Commerce Wilbur Ross regarding requests to exclude certain Chinese products from any hypothetical 232 trade remedies.

“… we respectfully request that the Commerce Department recommend actions to the President under Section 232 to address China’s massive and growing overcapacity, without allowing for broad exclusions (with the exception of aluminum powder, as addressed previously by the Aluminum Association), and while protecting existing trading relationships with Canada and Europe,” Brock wrote in the letter dated July 18.

The letter came in response to a request from the Can Manufacturers Institute (CMI), which asked Ross to exclude aluminum can sheets and aluminum ingot — used for beverage cans — from tariffs or other trade protections that could result from 232.

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It might be a while before the Section 232 aluminum probe comes to a conclusion and policy recommendations are drafted. Whatever happens, it will be interesting to watch the dynamic between primary and downstream producers, who approach this debate with very different business needs. Similarly, the CMI request is just one of its kind — there will surely be others. How will the administration deal with these requests? Will it allow industry sub-groups, like the beverage lobby, to carve out exceptions?

Or, will the hypothetical trade response include a blanket measure against all Chinese products, regardless of type?

That remains to be seen. What is still certain, however, is that many in the U.S. aluminum industry are looking for help from Section 232.

Whether they’ll get it also remains to be seen.

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This morning in metals news, the EU is planning to impose heavy duties on steel from several countries, copper is down on gains by the U.S. dollar and June was a good month for U.S. service center  shipments of steel and aluminum.

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EU Gets Defensive on Steel

In the world of trade measures, most eyes are on the U.S.’s Section 232 investigations into steel and aluminum imports. However, the U.S. is certainly not the only entity looking to protect its products.

The European Union plans to impose heavy duties on hot-rolled coil steel from Russia, Ukraine, Iran and Brazil, a measure to counter what it sees as unfairly low prices, Reuters reported Wednesday.

According to documents seen by Reuters, the EU plans on imposing duties of up to 33%. Just last month, the EU imposed duties of 35.9% on Chinese steel, according to the report.

Dollar Up, Copper Down

Copper had a strong start to the week, hitting its highest price since early May, but that optimism has started to temper.

Prices of the metals trended downward Wednesday after the U.S. dollar rose, Reuters reported.

The metal struggled to hold onto gains above $6,000, even with good news regarding Chinese demand, Danske Bank analyst Jens Pedersen told Reuters.

Steel, Aluminum Shipments Up in June

U.S. steel shipments were up in June, according to a Metals Service Center Institute report released Tuesday.

Shipments in June 2017 increased by 1.1% from June 2016. In addition, steel product inventories decreased 4.9% from June a year ago.

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Aluminum shipments were also up compared with the same month last year. Shipments of aluminum products increased by 10.3% from the same month in 2016. Inventories of aluminum products increased 0.2% from June a year ago.

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This morning in metals news, the Section 232 steel investigation is reportedly in its final stages, better-than-expected data on the Chinese economy buoyed copper prices and a 3-D printing startup got a rich vote of confidence.

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Section 232 Steel Conclusion: Almost There?

The Section 232 investigations launched by the Trump administration in April have been the talk of the metals world.

While the announcement of the steel investigation was previously expected to happen by the end of June, the administration blew past that self-imposed deadline. Now, however, American Metal Market reports a “key report in the US Commerce Department’s Section 232 investigation into steel imports is nearly complete,” according to a department spokesman.

The announcement would come as tension continues to rise between the U.S. and China. Reuters reported yesterday that China had a record June for steel and aluminum production, which surely won’t do much to dissuade the Trump administration from imposing tariffs or quotas to combat global excess supply from China.

China Data Good For Copper

Reuters reported faster-than-expected Chinese economic growth led to copper prices holding steady Tuesday.

Despite a strong second quarter for the Chinese economy, many analysts predicted a second-half slowdown as the government looks to put the squeeze on credit growth. With that said, Chinese growth exceeded expectations, so perhaps the slowdown will not be as significant as expected.

The next dominoes to drop — the Section 232 investigations — may also have significant ripple effects for not only China, but the global economy.

Big Investment in Metal 3-D Printing

Desktop Metal announced it secured $115 million in funding, according to Fortune, a funding sum that includes backing from a number of big-name investors.

The 3-D printing startup, founded in 2015, aims “to make metal 3D printing accessible for engineering teams,” according to the company’s website.

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In terms of the regular, everyday consumer, 3-D printing still has a long way to go.

From the industrial side, however, money talks.

In this case, the $115 million investment is saying that some major players believe in the technology and see a bright future in it.

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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.

Read more

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This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

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According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

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Anxiety is rising among Europe’s steelmakers that a potential U.S. plan to levy steel tariffs, on national security grounds, could have a disastrous impact on the region’s sales into the market.

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Reuters reported that the European steel association Eurofer is worried that “….measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions.”

Eurofer is worried on two counts. First, it is worried that with China largely already cut out of the U.S. market by anti-dumping legislation, the axe will fall on imports from other regions, of which Europe is a major supplier. Many European countries are already experiencing steep declines in sales to the U.S. between 2015 and 2016 — in some cases of 50% — but the largest, Germany, remains the fifth-largest external supplier to the U.S. of flat-rolled products, according to International Trade Administration data.

The second worry is that should the investigation support bans or large duties, suppliers in the affected countries will look for alternative mature, high-value markets for their products, namely the EU. This would potentially flood an already overcrowded market with more low-priced material.

Having championed free trade in recent statements, Europe may have to eat its own words if it is forced to find ways to counter such a flood. Reuters reports that moves are already afoot, at the G20 summit in Germany last weekend, leaders from the world’s 20 leading economies set an August deadline for an OECD-led global forum to compile information about steel overcapacity. That also includes a report on potential solutions, due in November, which could result in the region acting of its own.

In reality, Europe may not be the primary target of the president’s 232 action. Supplies from Canada, Brazil, Mexico, South Korea, Japan and Russia dwarf those from Europe, but that will not necessarily stop the region from suffering considerable collateral damage.

The move would come at an unfortunate time for the European steel industry.

After prices rose nearly 50% last year, they have since fallen back some 10% this year, according to Reuters. Demand, however, is recovering with a 1.9% rise forecast for this year, according to Eurofer, suggesting prices could stabilize (although demand growth is expected to ease again next year, with only 1% growth forecast).

EU Strikes Back?

However, The Guardian reports Europe is also looking at retaliatory measures, should they suffer exclusion or tariffs because of the 232 action. The paper quotes the European Commission president, Jean-Claude Juncker, who is reported to have said that if the U.S. took measures against Germany and China’s steel industries, the EU would “react with counter-measures.”

The article says one industry in the Europeans’ crosshairs is Kentucky bourbon, worth $166 million to the state last year and directly employing some 17,500.

Kentucky was staunchly supportive of Trump during his campaign, with 62.5% of the electorate voting for him.

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“I am telling you this in the hope that all of this won’t be necessary,” Juncker said during the G20 summit. “But we are in an elevated battle mood.”

Bellicose talk, indeed.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

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This morning in metals news, Australia is relieved to have reportedly secured an exemption from protectionist measures that may come to pass as a result of the Trump administration’s Section 232 investigations into steel and aluminum imports; the bourbon industry might be subject to retaliatory measures from the EU if Section 232 hits Europe; and U.S. steel production is on the rise.

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Australia Secures Exemption from Section 232 Measures

Although Chinese steel and aluminum overcapacity have been at the center of the Trump administration’s Section 232 investigations, producers from around the world have expressed concern about being caught in the crossfire.

The EU, for example, has said that it might turn to retaliatory measures if Section 232 affects European producers.

This week, however, it was reported that Australia will be exempted from any Section 232 protectionism that might come down the pipeline.

According to The Guardian, Australian Prime Minister Malcolm Turnbull and Finance Minister Mathias Cormann lobbied President Donald Trump during the G20 this past week in Hamburg, Germany. The Guardian reports Australia “has been assured that Australia will be exempt from any trade sanctions.”

“We are an open economy, we don’t manipulate the steel market and North America has much to gain from the continued access to Australian steel,” trade minister Steven Ciobo told The Australian. “It is less than 1% market share in the North American market.”

Obviously, this is a big victory for Australian steel and aluminum, should it hold true. However, the world won’t know the true scope of the Section 232 measures until they are actually announced, which is expected to happen in the coming weeks.

Whether or not further exemptions will be carved out for other recognized market economies remains to be seen. Surely, the European Union is keeping tabs on Australia’s reported exemption and hoping to secure an exemption of its own.

Bourbon Industry Prepares for 232 Blowback

As mentioned, the EU has expressed concerns about the negative effects Section 232 measures would have on its producers. That sentiment has transformed into talk of retaliation (with some even pondering the possibility of a trade war ensuing).

One possible target of retaliatory measures, according to The Guardian, is the American bourbon industry.

European Commission President Jean-Claude Juncker said Friday at the G20 summit that if the U.S. enacted trade measures against China and Germany’s steel industries, the EU would respond with retaliatory measures within a few days, The Guardian reported.

Bourbon, a popular European import, is produced almost entirely in Kentucky. The Guardian reported that in 2016, U.S. spirit exports to the EU were valued at $654 million, 20% of which came from bourbon whiskey, according to the Distilled Spirits Council of the United States (DISCUS).

This could just be the tip of the iceberg (or ice cube) with respect to talk of retaliation against sectors of U.S. industry.

U.S. Steel Production Up 3.1% in May

Protection of American steel and aluminum producers is at the heart of the Section 232 investigations — and speaking of domestic production, U.S. steel production was on the upswing in May.

According to a American Iron and Steel Institute (AISI) report this week, U.S. steel mills shipped more than 7.66 million net tons in May, a 3.1 percent increase from the more than 7.43 million net tons shipped the previous month.

In the first five months of 2017, U.S. shipments amounted to 37.7 million net tons, a 3.3 percent increase from the 36.5 million net tons shopped through the first five months of 2016.

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According to the report, in May shipments of hot-rolled sheets and cold-rolled sheets were up by 4% and 3%, respectively, from the previous month.