The British pound slumped to its lowest level since 1985 early this morning as results of the U.K.’s vote on European Union membership came in with the leave campaign winning the vote by close to a 2% margin.
The currency tumbled to as low as $1.3460 on Friday, which was its lowest level in 31 years.
It fell about 10% from the 2016 high of $1.50, which it hit just hours earlier when most polls suggested the remain campaign had a slight polling lead. That was before polls closed.
As of this writing, Dow Jones Industrial Average futures are down 600 points, nearly 3%, hours before U.S. markets open. Japan’s Nikkei Average, which was open and trading as the votes were counted, dropped 8% while the U.S. dollar briefly fell below 100 yen to a dollar.
Vietnam and Thailand placed tariffs on Chinese steel exports. China’s Southeast Asian neighbors are joining an international effort to limit its massive steel industry’s influence on world prices led by Europe and the U.S.
Low oil prices forced OPEC’s accounts to dip into deficit for the first time since 1998.
China’s Neighbors Are Sick of Steel Dumping, Too
Countries such as Vietnam, Indonesia and Thailand are challenging a flood of imports from China. They are retooling their steelmaking technology and imposing tariffs as a construction boom spurs steel demand across Southeast Asia
Steel from China is expected to dominate the market for many years, but swelling demand is driving efforts in countries such as Vietnam and Indonesia to build more modern plants, impose tariffs and better compete with China’s vast mills.
Vietnam imposed temporary anti-dumping tariffs ranging from 14% to 23% on steel imports from China and elsewhere in March. It recently slapped additional import duties of up to 25% on more Chinese steel products that will last until October 2019.
Thailand’s commerce ministry is working on the final draft of an anti-dumping law. The government there expects to propose the draft for approval by end-2016, according to a spokeswoman.
OPEC Accounts Fall into Deficit, First Time Since 1998
Oil prices are at about $50 a barrel, half their mid-2014 level after being pressured by oversupply. OPEC’s decision in November 2014 to not cut supply, hoping a drop in prices would curb supply from competitors, deepened that decline.
The fallout from the U.K.’s vote to leave the European Union is still being felt as lawyers and politicians begin to try to untangle the regulatory mess the eventual move will make and steel imports into the U.S. are up.
Brexit Creates Legal Chaos
Lawyers and lawmakers braced on Friday for uncertainty following the U.K.’s vote to exit the European Union, leaving London to redefine and rewrite its trade and legal ties with the EU, with the U.S. and the rest of the world.
Steel Imports Up in May
Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the U.S. imported a total of 2,786,000 net tons of steel in May 2016, including 2,077,000 nt of finished steel (up 12.2% and 1.8%, respectively, vs. April final data).
On the year-to-date through five months of 2016 total and finished steel imports are 12,795,000 and 10,544,000 nt, both down 31% vs. the same period in 2015.
Annualized total and finished steel imports in 2016 are 30.7 and 25.3 million nt, down 21% and 20% respectively vs. 2015. Finished steel import market share was an estimated 23% in May and is estimated at 24% on the year-to-date.
A federal judge has ruled the federal government cannot set rules for hydraulic fracturing or “fracking” on public lands and, no matter what the U.K. decides in its EU Brexit vote, gold’s bull run is likely over.
Judge Tells Interior Dept. it Can’t Set Fracking Rules
A federal judge in Wyoming made permanent a temporary block of an Interior Department rule setting stricter standards for hydraulic fracturing on public lands, a blow to President Barack Obama’s environmental agenda in the sunset of his administration.
U.S. District Judge Scott Skavdahl issued a ruling late Tuesday invalidating the regulation, saying the Interior Department lacked the authority to issue it. The same judge last year issued a preliminary injunction blocking the rule until he made a final decision.
The rule, issued by department’s Bureau of Land Management in March 2015, applies to oil and gas drilling on federal lands, which produce 11% of the natural gas consumed in the U.S. and 5% of the oil, according to government data. The government can appeal the ruling.
Brexit Vote Likely to End Gold’s Run
No matter if the U.K. votes to stay in the European Union or leave, Gold’s sharp gains on uncertainty over its membership are likely to come to an end after Thursday’s referendum.
BHP Billiton is the world’s top exporter of coking coal used in steelmaking and also a producer of energy coal. The Australian miner is in the enviable position of running profitable coal mines at a time when more than half the world’s coal mines are losing money.
Andy Home: No Agreement on Chinese Aluminum
“China has committed to ensure that its central government policies and support do not target the net expansion of steel capacity; and to actively and appropriately wind down ‘zombie enterprises’ through a range of efforts, including restructuring and bankruptcy.”
This statement was made by U.S. Treasury Secretary Jack Lew earlier this month after high-level talks with Chinese officials in Beijing. Reuters’ Andy Home, however, writes that while there has, at least, been a meeting of the minds in regards to Chinese steel capacity, the two sides failed to reach any sort of agreement regarding aluminum other than to hold more talks, according to Lew.
While Saudi Arabia’s grip on oil prices has waned and shale drillers have survived its attempt to undercut them with crude prices nearing $50/barrel, China might just be the new Saudi Arabia of metals markets.
Resilient Shale Drillers Investing Again
Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding the Organization of Petroleum Exporting Countries and, particularly, OPEC heavyweight Saudi Arabia with their resiliency.
That shale giants Hess Corp., Apache Corp. and more than 25 other companies have beaten back OPEC’s attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared.
The world’s largest producer and consumer of industrial metals may be acting as a de facto, if unwitting, type of OPEC for metals, adjusting supply in response to price signals and balancing the market.
Brazilian mining company Vale SA will not financially support Samarco, a joint venture with BHP Billiton, if the company is not able to resume operations, Vale’s head of investor relations said on Thursday.
Rogerio Nogueira told analysts at an event in Sao Paulo that he did not believe Samarco would need financial support, but that in the event its mine was unable to get permission to restart — there was a major disaster at the dam last year when a tailings dam failed last year — Vale would not fund Samarco. The joint venture’s iron ore mine closed in November.
Vale received a favorable decision this week when a Brazilian judge ruled it would not have to defend itself against a $5.7 billion civil suit in the matter.
OPEC oil export revenue is down and if Hong Kong Exchanges and Clearing Ltd. can’t bring China to the London Metal Exchange, it’ll bring the LME to China.
OPEC Export Revenues Down Again
OPEC’s full-year 2016 oil export revenues will probably fall 15%, down for the third straight year and possibly the lowest in more than a decade before rising in 2017, the U.S. Energy Information Administration (EIA) said on Wednesday.
Members of Organization of the Petroleum Exporting Countries (OPEC), including Iran, will likely earn about $341 billion in 2016, about 15% below 2015 levels, based on projections of global oil prices and the group’s production levels, the U.S. government’s EIA said in a report.
HKEx Tries Bringing the LME to China
Some four years after shelling out a top-of-the-market $2.2 billion for the London Metal Exchange, it appears owners Hong Kong Exchanges and ClearingLtd. (HKEx) are still battling to make the venerable old Western institution work with China, the new and dominant center for metal demand.
Copper metal is continuing to pile up in warehouses and Chinese overstock may be making its way into London Metal Exchange warehouses all over Asia as the price has dipped to historic lows.
According to the Financial Times, “LME copper stocks have surged by almost 40% this month – or 50,000 metric tons – spooking investors already concerned about flagging demand for the metal and plentiful supplies.”
“One theory doing the rounds,” according to the paper, “is that a major metals trader is moving copper that had been sitting in China – the world’s largest consumer of copper – to LME warehouses in Singapore, Malaysia, Taiwan and South Korea where financial incentives are being offered to store metal.”
According to this month’s Copper MMI analysis, Raul de Frutos and Jeff Yoders agree that supply-side issues, such as overproduction, are seminal.
“Investors are simply not excited enough to trigger a bull run in copper prices,” they write. “The Copper MMI fell 5% last month as overcapacity still plagued the red metal. Rather than cut capacity, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines.
“Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers are still quite optimistic on the long-term picture and are expanding rather than curtailing production,” according to their analysis.
You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.
Today in metals, a federal judge ruled that a zinc price-fixing lawsuit against Glencore and its New Orleans warehouse unit can move forward. Chinese giant Baosteel has cut prices for July deliveries as it feels the effects of heavy U.S. tariffs.
Glencore/Pacorini Will Face Zinc Warehouse Lawsuit
Executives at a metals warehouse firm owned by commodities group Glencoreallegedly ordered workers to falsify documents in New Orleans to manipulate the zinc market, according to a complaint filed by zinc purchasers in a U.S. Federal Court. On Monday, a U.S. judge in Manhattan allowed a private antitrust lawsuit to go forward against two units of Anglo-Swiss Glencore Plc.
The suit accuses Glencore and its Pacorini Metals USA warehouse company of trying to monopolize the market for special high grade (SHG) zinc, driving up its price.
Her 62-page decision cited allegations made in the complaint filed by zinc purchasers alleging that Pacorini Metals USA created false bills of lading, which are receipts given by transporters confirming shipment of goods. U.S. District Judge Katherine Forrest in Manhattan said that the zinc purchasers had alleged sufficient facts for the case to go forward.
Baosteel Cuts Prices
China’s biggest listed steelmaker, Baoshan Iron & Steel (Baosteel), has cut its main steel product prices for July delivery, the company said in a statement on Monday.