Australia

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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.

Six years its first proposal, Indian mining giant Adani seems as if it’s finally ready to start its $16.5 billion coal project in Queensland, Australia.

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The company recently secured the approval for a permanent rail line for what’s known as the Carmichael project. An official statement by the company said Queensland’s Coordinator-General had given “the latest, and final, secondary approval” for about 19-and-a-half miles of permanent track, as well as a 300-bed camp.”

The permission will add to the nearly 242 miles of heavy haul track connecting the mine to Abbot Point port. Chief Executive of Adani Australian, Jeyakumar Janakaraj, said in a press statement, “We are particularly focusing on the construction of our planned near-400-kilometer (248 miles) rail line to be constructed between the Carmichael mine and our bulk port facility at Abbott Point near Bowen.”

When fully operational, the mine will reportedly be the largest in Australia, involving the dredging 3.53 million cubic feet of soil near the Great Barrier Reef Marine Park. The project will ensure Adani a steady supply of coal to be used for electricity generation, benefiting a hundred million Indians.

The proposed project ran afoul with green groups in Australia, quickly taking on a “jobs versus ecology” dimension. As per some claims, the project is likely to create at least 11,000 jobs, and the company has promised to farm these out to locals, and not bring in labor from abroad.

After getting approval, Adani Group Chairman Gautam Adani met Australian Prime Minister Malcolm Turnbull, amid protests from groups in Melbourne. Adani has said the project will start in the new year.

Supporters of the project insist mines such as these will provide an economic stimulus to North Queensland.

Matt Canavan, Minister for Northern Australia, was quoted in a section of the media as saying this would be the first time a new minerals basin would be opened up in 40 years.

Adani also announced that it will set up regional centers for providing vital support services for the project and associated infrastructure and headquarters for its rail and port operations.

Townsville would become Adani mining’s regional headquarters, while the Mackay-Bowen area would become the regional headquarters for its rail and port operations. Adani said its shift to the regional Queensland centres would allow it to more directly harness local skills.

The project has faced a lengthy environmental approval process and a number of court challenges. Earlier, this year, it finally got Queensland government approval to mine. Some say, however, that while the Carmichael mine has the final government approvals, there are still a few hurdles it has to surmount.

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An appeal has been lodged with Australia’s full Federal Court seeking to overturn the Commonwealth approval, and is due to be heard in March.

Two weeks ago, Japanese lenders and a hedge fund struck a deal to save Australia’s Lynas Corp., the only major rare earths producer outside China, from collapse. In doing so, they cut its interest costs and gave Lynas nearly four years breathing room to pay off its debt.

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State-owned Japan Oil, Gas and Metals National Corp. (JOGMEC) and Sojitz Corp. did so to ensure a supply of rare earths from outside China, the world’s biggest producer of the elements. Japan’s interest is understandable. It’s the nation that Chinese producers unceremoniously boycotted in 2011 back when rare earths prices were flying high. Even though that’s not the case today, Japanese manufacturers have no interest in ever being dependent on China’s rare earths industry again. After the collapse of Molycorp, JOGMEC even agreed to slash the interest on its loan to Lynas to 2.5% from 6%.

Rare-Earths_Chart_November-2016_FNL

Lynas will not have to make any fixed repayments on the $203 million it owes to Sojitz and JOGMEC until 2020. It previously faced staged repayments up to 2018.

Our Rare Earths MMI held at 17 for the fourth straight month, the textbook example of a stagnant market with flat demand and more than enough supply.

The one bright spot in the sub-index continues to be the permanent magnets used in electric motors for wind turbines and other products. These elements include neodymium and samarium.

Research and Markets recently published its “Permanent Rare Earth Magnets Market – Drivers, Opportunities, Trends & Forecasts: 2015-2022” report. It said that the global permanent rare earth magnets market is expected to grow at a CAGR of 13.2% during the forecast period 2016-2022 to reach $41.41 billion by 2022.

For Lynas, and the companies that have invested in it, this market offers hope of salvation but we would exercise caution as always. China is attempting to consolidate its rare earths industry the same way it is attempting to do so with steel. The problem is that Beijing still exerts relatively little control over small, provincial mines that fly under the rardar of national mining standards.

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Permanent magnet demand has always been strong but it will need to grow by quite a bit to exhaust current Chinese production and, just like with steel, the consolidation process is slow and sure to be manipulated by the economic growth needs of the People’s Republic.

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Australia can’t believe its luck.

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The government is considering revamping the budget projections it only recently made on an iron ore price of $39 per metric ton. As Chinese steelmakers have ramped up production after their Lunar New Year break, the iron ore price has surged more than 13% so far this month to $47.

Iron Ore Prices Jump

In the first day after the lunar holidays ended, iron ore rose 5.6%, alone. It’s the first time the price has risen that much after the end of China’s festive season, according to Reuters. In Aussie there is talk about the impact the higher iron ore price could have on government coffers suggesting a sustained free-on-board price of about $44 could add a $1.2 billion windfall by the next mid-year budget, according to the Sidney Morning Herald.

Australia is suddenly awash in higher-priced iron ore at its mines. But is it a real price increase? Source: Adobe Stock/Imagevixen

Australia is suddenly awash in higher-priced iron ore at its mines. But is it a real price increase? Source: Adobe Stock/Imagevixen.

Share prices for BHP Billiton and Rio Tinto have also risen, climbing 17% and 11% respectively in the last few weeks as some in the market take the price increase as a sign that global demand for iron ore could increase significantly in coming months. Read more

Home sales surged in May and major producer Australia cut its iron ore forecast further.

US Home Sales Hit 9-Year High

Contracts to buy existing homes in the US rose in May to their highest level in over nine years, boosting the housing market and the broader economic outlook.

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The National Association of Realtors said on Monday that its pending home sales index, based on contracts signed last month, increased 0.9% to 112.6, the highest level since April 2006. Contracts have now increased for five straight months.

Australia Cuts Iron Ore Price Forecast

Australia, on Tuesday, cut its price forecast for iron ore in 2015 by 10% to $54.40 a metric ton, citing a weak outlook for the commodity’s main market, China’s steel sector. The forecast by the Department of Industry and Science is a sharp decrease from the $60.40 per mt predicted three months ago and is way off the $94 a mt touted in January.

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A major aluminum producer challenged a US regulator’s authority to intervene in a foreign warehousing dispute and another nation placed tariffs on Chinese silicon this week.

Alcoa Challenges CFTC’s Authority

Alcoa Inc. on Monday challenged a federal commodities regulator’s authority to intervene in the contentious overhaul of the London Metal Exchange‘s warehouse policy that has caused an unprecedented drop in aluminum prices.

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In March, the Commodity Futures Trading Commission deferred a decision about the LME’s 2012 application to be registered as a “foreign board of trade,” telling the exchange it should do more to address concerns about long waiting queues.

Alcoa has questioned whether the agency even has the legal authority to intervene, and on Monday filed a request under the Freedom of Information Act (FOIA) to find out what had caused the CFTC to delay its decision on the LME.

“Our goal is to learn the extent to which the CFTC has engaged in substantive discussions with the London Metal Exchange,” Alcoa said in a statement. “The CFTC should examine any LME aluminum contract performance issues only through an open, inclusive and transparent process where all affected market participants have the opportunity to present their views,” it said.

The CFTC declined to comment.

Australia Puts Tariffs on Chinese Silicon

Australia has issued an anti-dumping notice on silicon metal exported from China after an investigation into dumping and subsidization.

Following the investigation the Australian Government Anti-Dumping Commission set dumping and subsidy margins for Hua’an Linan Silicon Industry Co. Ltd., and Guizhou Liping Linan Silicon Industry Co. Ltd. at 18.3% and 6.3% respectively. Both companies will be subject to an effective rate of combined interim countervailing duty and interim dumping duty of 12%, according to a statement by the MOC trade remedy and investigation bureau.

The commission announced dumping margin and subsidy margin for “uncooperative, and all other exporters” of 27% and 37.6% respectively, with an effective rate of combined interim countervailing duty and interim dumping duty of 58.3%.

Australia began its investigation in February last year after allegations of dumping and subsidization of silicon metal goods that originated from China with a total value of $12.78 million dollars, according to the MOC statement.

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It is one of those delicious ironies of life that India, the world’s largest consumer of gold, has very little to show when it comes to actually mining the yellow metal.

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That’s poor form because India sits on very large resources of gold, revealed by several geological studies in the past. One such study pegged India’s primary gold resources at about 491 metric tons. Despite its 6,000-year mining history, the country mines just around a pitiful 25 mt of gold annually.

Imports Flourishing

India is one of the biggest importers of gold, despite a punitive 10% import tax. In the financial year ended March 31, gold imports had touched 900 mt, up 36% from a year ago.

Perhaps keeping all this in mind, and the fact that gold mining could mean earning some big bucks, Western Australia recently expressed interest in developing gold mines in India, as part of the bilateral cooperation in minerals and energy sectors between the two nations.

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A beleaguered Indian Government finds itself with its back to the wall where the supply of iron ore to the local steel ministry is concerned.

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The fluidity of the import-export situation vis-à-vis the mining of iron ore has left it walking a tightrope.

Earlier this month, the government had affirmed its resolve in not banning, or even limiting, exports of iron ore as demanded by domestic steel majors. There was a massive shortage of ore in India following the more than 2-year long, court-imposed ban on mining, partially lifted a few months ago. Mining was not yet back to 100%, leading to a shortage in the supply of ore. What worsened the situation was that until about a couple of months ago, much of the ore mined was being exported due to better prices available internationally, leaving very little for local steel makers.

But the tables have turned now with almost no exports of ore in October and November due to the global price slump. The price of ore was already down about 50% this year, and then it touched a new low (since 2009) last week.

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After India and Australia signed a civil nuclear deal in September, Australia’s uranium industry may be able to start sending trial shipments to India next year.

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Australian Prime Minister Tony Abbott and his Indian counterpart, Narendra Modi, discussed this during the latter’s visit to Australia. On Tuesday Abbott addressed the federal parliament saying if everything went to plan, uranium exports from Australia to India with suitable safeguards would start, “because cleaner energy is one of the most important contributions that Australia can make to the wider world.”

The move follows the signing of a safeguards agreement in New Delhi, as reported by MetalMiner after years of a ban on uranium exports to India.

India plans to use uranium to fuel its nuclear reactors to take care of about 25% of its total electricity needs by 2050.

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Yesterday, Sohrab Darabshaw explained how Australia and India have agreed to a new nuclear and coal energy supply pact. This story explains how the two nations plan to work together toward supplying their energy needs.

All uranium is welcome for India, which currently has 20 small nuclear reactors within six plants but operates only a few. The government’s stated goal is to raise its nuclear energy capacity to 63,000 million watts by 2032.

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But a section of the Australian media and even the international press have launched a scathing attack against Australian Prime Minister Tony Abbott over his uranium supply pact with India. The Courier Mail, for example, did not pull any punches when one of its analysis pieces said, “It is foolish and dangerous to sell uranium to a country that is actively expanding its nuclear weapons arsenal and refuses to sign the Nuclear Non-Proliferation Treaty.

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