China

Before we head into the weekend, let’s take a look back at the week that was.

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  • In case you missed it, our August MMI Report is out. Metals like copper and aluminum hit record highs, and nine of our 10 sub-indexes posted upward movement as a result of a strong July. Will that momentum continue? Check back next month for the September MMI report.
  • Many have predicted a decline for iron ore prices, but as our Stuart Burns wrote on Monday, reports of its demise have been greatly exaggerated. A weak U.S. dollar, combined with strong equities and global GDP, have helped keep iron ore performing well, not to mention Chinese steel and the wider metals market. Read through for Burns’ assessment of the iron ore market.
  • In India, a boom of bauxite production is expected, wrote our Sohrab Darabshaw. In fact, it is expected to more than double by 2021. How is that possible? One reason, Darabshaw writes, is “increased domestic demand for aluminium, which will largely be sourced from the quintupling of land under mining lease in the Odisha province (which has the bulk of India’s bauxite reserves).”
  • One commodity almost everyone is interested in is oil. On Tuesday, Burns wrote about the future of oil prices. But, since this is MetalMiner, after all, those prices also have an effect on metal markets.
  • Everyone loves a good M&A story, and Burns had one earlier this week on the ongoing talks between Indian steel giant Tata Steel and Germany’s ThyssenKrupp. Plus, he touches on ArcelorMittal’s takeover of Italy’s Ilva. Burns writes: “For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.”
  • How about zinc? Burns wrote about the metal’s rise to $3,000, and the reasons behind zinc’s price hitting its highest point since 2007.
  •  Last week was a busy one for the U.S. Department of Commerce, which handed down preliminary determinations in countervailing duty investigations for both Chinese aluminum and silicon coming from a trio of countries.
  • Back in India, steel exports are on the rise as the Indian government’s protectionist measures seem to be paying off for its domestic industry.
  • Lastly, representatives of the U.S., Canada and Mexico began talks on Wednesday regarding renegotiation of the North American Free Trade Agreement (NAFTA), the trade deal instituted in 1994. The U.S. is focused on, among other things, bringing down ballooning trade deficits with the two countries (particularly Mexico). The talks are scheduled to continue until Sunday, so check back for updates on the proceedings.

Free Download: The August 2017 MMI Report

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India’s protectionist measures to safeguard its steel industry seem to be paying off.

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As reported consistently by AG Metal Miner, the Indian government, responding to the call of its steelmakers, had time and again imposed various forms of anti-dumping measures and fines to stop cheap imports of steel — especially from the world’s steel manufacturing leader, China.

Along with the U.S. and Brazil, India was said to be one of the world’s leading initiators of anti-dumping investigations, according to the World Trade Organization (WTO).

Well, now, all this has resulted in India’s steel exports doubling to 8.2 million tons and imports have been slashed by about one-third in 2016-17.

As per a report by the Press Trust of India (PTI), quoting from portions of the released Economic Survey, the rise in exports of steel could also wipe away the excess capacity built up in the steel sector. The mid-year survey by the government said steel imports had declined in 2016-17, while exports of steel had doubled.

Alloy imports dipped by 36.6% to 7.4 million tons in 2016- 17 against 11.7 million tons in the previous fiscal year. Exports doubled to 8.2 million tons last fiscal year, over 4.1 million tons in the corresponding year.

The news was welcomed by steel companies like Tata Steel. T.V. Narendran, managing director for Tata Steel India and South East Asia, told newsmen that steel demand in India was increasing, making it just right to make future investments. Stability was being witnessed in the steel sector globally, though it had faced some problem two years ago, Narendran told reporters.

Ironically, much of Indian steel joy stems from its traditional rival China, where there’s been a visible improvement in the economy — which meant much of its steel being produced was once again being used within the country. It was against the backdrop of China’s economic slowdown that the global steel industry had faced distress due to decline in global demand.

The Indian survey report said, in response to the dumping of cheap imports, the government in 2016 introduced a host of measures like raising Basic Customs Duty, imposition of Minimum Import Price (MIP) and anti-dumping duties in order to shield domestic producers. The government imposed the MIP for steel in February 2016 for a period of one year.

On April 12, 2016, India initiated countervailing duty investigation concerning imports of certain hot-rolled and cold-rolled stainless steel flat products originating in China.

According to the WTO, India’s share in total global steel exports increased from 1.1% in 2000 to 2.8% in 2016. During this period, China’s share in total steel exports rose from 3.7% in 2000 to 19.2% in 2016. Japan’s share in total steel exports in 2000 which was 12.2%, but fell to 9.1% in 2016.

Free Download: The July 2017 MMI Report

Meanwhile, the U.S. share in total steel imports was 17.0% in 2000, but has since come down to 12.1% in 2016.

Bizarrely, although zinc prices have soared this year on the back of demand for galvanized steel for construction, further strength this week may have been heightened by a loss of investor appetite for those same steel products.

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Following booming steel prices this year, the Shanghai exchange increased trading charges last week in an effort to curb speculative activity. Steel prices have consequently slumped by 3.5% as investors got out of steel and into steelmaking raw materials with lower transaction charges, such as zinc.

Surging Shanghai zinc prices have in turn encouraged a rise in the London Metal Exchange price, hitting a peak of $2,994 per metric ton — not seen since October 2007, Reuters reports.

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This afternoon in metals news, supply-side reform in China is having significant effects on global markets, U.S. Senate Minority Leader Chuck Schumer calls for trade action to combat cheap imports of steel and aluminum from China and other countries, and scientists have resolved a long-standing mystery about a prehistoric copper smelting event.

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Chinese Supply-Side Reforms Leave Their Mark

There are many who question the impact of China’s efforts to curtail excess production, but according to a report by Platts, supply-side reforms in the country are having major impacts around the world.

China’s net steel exports through the first seven months of the year were down almost a third, according to the report. Hot rolled coil prices have also risen in the process, reaching their highest point since 2013.

“Given the current protectionist bent that seems to span the globe, it will be interesting to see how China’s metal exports will be perceived in a few years’ time,” the Platts report concludes. “In the US, for example, there is not enough steel capacity to deliver upon the infra-build being promised by President Trump, should Section 232 be imposed, and the build go ahead.”

Schumer Calls for Action on Cheap Steel, Aluminum Imports

The Trump administration launched Section 232 investigations into imports of steel and aluminum, with a particular focus on China.

On Tuesday, U.S. Senate Minority Leader Chuck Schumer, a Democrat, sounded a similar note, according to a report in the Watertown Daily Times.

“There are top notch manufactures like Alcoa and Nucor ready to provide high-quality aluminum and steel to businesses in and around the country, but China’s overproduction has resulted in a substantial threat to Upstate New York’s metal industry by making it almost impossible for companies that play by the rules to compete,” Schumer said in a statement.

According to the report, Schumer has sent letters to Secretary of Commerce Wilbur Ross and United States Trade Representative Robert Lighthizer on the matter.

Scientists Resolve Ancient Copper Smelting Mystery

For more than half a century, the origins of a copper smelting event at a prehistoric archaeological site has remained a mystery.

But recently, a team of scientists hit paydirt at the Late Neolithic site of Çatalhöyük in central Turkey.

“Scholars have been hotly debating the origins and spread of metallurgy for decades, mainly due to the relationship this technology had with the rise of social complexity and economy of the world’s first civilisations in the Near East,” according to a report in phys.org.

Free Download: The July 2017 MMI Report

According to the report, a study published Tuesday in the Journal of Archaeological Science concludes that that after “the re-examination of a c. 8,500-year-old by-product from metal smelting, or ‘slag’, from the site of Çatalhöyük presents the conclusive reconstruction of events that led to the firing of a small handful of green copper minerals.”

The demise of the iron ore price has been repeatedly predicted but has failed to materialize over the last few months. Miners line up to announce strong sales and yet repeatedly voice notes of caution that excess supply could overwhelm the recovery.

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Yet the market continues to be confounded by not just a rising iron ore price, but continued strength in Chinese steel prices and a wider strength in metals prices.

Several factors are feeding this robust performance and it will take a reversal of one or more factors to spark a change in direction of metal prices.

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This morning in metals news, steel prices in China are up and the government is looking to strike a balance, German company Thyssenkrupp isn’t in a rush to forge a merger with the European business of India’s Tata Steel and China responds to the U.S. Department of Commerce’s ruling this week regarding Chinese aluminum foil, which the DOC determined was being unfairly subsidized by the government.

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Steel Prices On the Way Up in China

Rising steel prices have Beijing looking for ways to adapt, according to a CNBC report.

On the heels of efforts to cut excess Chinese steel production, prices are rising — but the government is looking to strike a balance.

“For Beijing, it’s a tough situation: tackle steel overcapacity, rebalance economic growth, control environmental pollution and also manage market stability — especially in advance of a leadership shuffle due in the fall,” CNBC’s Sophia Yan writes.

No Rush to Merge, Thyssenkrupp CFO Says

Talks of a merger between the European businesses of Thyssenkrupp and India’s Tata Steel have hung around since last year.

They even seemed to get a boost in light of news reported yesterday about Tata’s plans to separate its British pension scheme from its businesses.

Despite that step, Thyssenkrupp CFO Guido Kerkhoff says not so fast.

Kerkhoff told reporters Thursday that while they prefer a “fast solution” in potential merger talks, quality comes first.

China Warns U.S. After DOC’s Aluminum Foil Ruling

Unsurprisingly, the U.S. aluminum industry applauded the Department of Commerce’s preliminary determination Tuesday regarding Chinese aluminum foil.

Also unsurprisingly, China had something to say about it, too.

The Chinese Ministry of Commerce wrote in a statement on its website that the DOC’s claims were “without foundation” and urged the U.S. to “act cautiously and make a fair decision to avoid any negative impact on the normal economic and trade exchanges between China and the U.S.”

On Tuesday, Secretary of Commerce Wilbur Ross announced the findings of the countervailing duties investigation, declaring that Chinese exporters of aluminum foil received countervailing subsidies of 16.56 to 80.97 percent. As a result, the U.S. could impose duties of up to 81 percent on Chinese foil in return.

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Meanwhile, the outcome of the Section 232 investigation into aluminum imports, however, remains pending.

With the oil price under pressure from excess supply and a growing percentage of the North American market’s oil and natural gas demand being met from domestic sources, the last thing you would expect is a surge in oil and natural gas tanker construction.

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But according to the Financial Times, that is exactly what Hyundai Heavy Industries (HHI), the world’s largest shipbuilder, is experiencing.

HHI has reported a 70% jump in first-half operating profit, to Won 315 billion ($280 million) in the first six months of this year from Won 186 billion a year earlier.

Even more impressive is the surge in the order book.

The group won orders to build 81 vessels worth $4.5 billion so far this year, compared with 16 vessels worth $1.7 billion in the same period last year led by a rebound in oil tankers and gas carriers, the Financial Times reports.

Source: Financial Times

It may be counterintuitive that shipping demand is surging so dramatically. Demand is positive but hardly growing robustly.

One explanation is as older vessels are retired for oil storage, stimulated by the current relatively low oil price environment, demand is increasing for more efficient, new vessels to replace them.

Apparently, both Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering are going through a similar uptick in demand.

Samsung Heavy’s first-half operating profit swung to Won 48 billion from an operating loss of Won 277.6 billion a year earlier. Daewoo Shipbuilding is also expected to report an operating profit of up to Won 800 billion for the first half after narrowly avoiding bankruptcy in April on a $2.6 billion bailout by state-run lenders, the Financial Times reports.

For the big three, this turnaround must be very welcome after years of losses and poor sales. The news will also bolster Korean steelmakers and the rest of the shipbuilders’ supply chain.

The only country building much the last few years has been China, a shipbuilding market served almost exclusively by its domestic steel mills.

However, Korean steel mills have a well-established positon as producers of high-quality, shipbuilding-grade steel.

According to Clarksons, the Financial Times reports new orders for ships worldwide rose more than 40% in the first half of this year, with South Korea taking  one-third of them, closely trailing behind China. Continued strength into next year will depend on global growth continuing in a broadly positive direction and the longer-term trend of greater reliance on liquefied natural gas for power and chemicals feedstock.

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Liquefied natural gas shipbuilding construction has been a speciality of the Korean shipyards and should remain a core offering, despite growing competition from China’s shipyards.

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Talk of tariffs stemming from the Trump administration’s Section 232 investigations of steel and aluminum imports has seemingly softened over the last couple of weeks, but the overall trade dynamic between the to countries remains tense.

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First, President Trump told the Wall Street Journal last week that “we don’t want to do it at this moment” in reference to trade actions on steel imports resulting from the administration’s Section 232 investigation.

Section 232 of the Trade Expansion Act of 1962 gives the Secretary of Commerce authority to conduct comprehensive investigations to determine the effects of imports of any article on national security. The investigations were announced open in April. By law, the investigation must be concluded, including a submitted report, within 270 days of its opening.

More recently, a shift toward a negotiated agreement seems to be gaining favor. According to Inside U.S. Trade ($), Secretary of Commerce Wilbur Ross suggested “voluntary” agreements, according to House Ways & Means Committee members who met with Ross on July 27.

However, in terms of getting any additional clarity on what the administration plans to do, the committee members left the July 27 briefing without much of that.

“I don’t think that there was a lot of clarification,” Richard Neal (D-MA) told Inside U.S. Trade.
The deadlines for the Section 232 investigations are well down the road (not until January), but, until then, talk is likely to continue about what the administration will or won’t do, in addition to what other relevant parties could do in retaliation.
In similar news, the administration and many in the U.S. steel industry have pointed to China’s excess capacity as the major problem for the domestic industry, leading to suggestions of tariffs or quotas targeting China (but also affecting other steel-producing countries).
Talk of trade remedies against China, however, hasn’t just been limited to steel and aluminum.
Bloomberg reported earlier today that the Trump administration could go after China for perceived intellectual property violations.
According to the Bloomberg report, the administration is considering invoking another article — Section 301 of the Trade Act of 1974.
In essence, Section 301 is the mechanism by which the U.S. can respond to countries in violation of trade agreements or engaging in unfair trade practices. The move would further increase tensions between the U.S. and China, particularly in light of Trump’s admonishments of China for not doing enough to rein in North Korea.

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This morning in metals news, President Donald Trump might be close to a decision on how to deal with what are considered unfair Chinese trade policies, environmentally friendly aluminum produced by hydro-powered smelters is coming at a hefty price tag and aluminum got a positive boost Wednesday that might prove short-lived.

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Trump Could be Close to Decision on China Trade

According to a Reuters report, a Trump administration official said President Trump is close to a decision on how to respond to Chinese trade practices he considers unfair.

While the results of the Section 232 investigations into steel and aluminum imports have yet to be announced, Reuters reports Trump might ask U.S. Trade Representative Robert Lighthizer to initiate a Section 301 investigation of Chinese trade practices. A Section 301 investigation offers the “authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services.”

Section 301 was most recently used this past December by the Obama administration in the long-running dispute over the EU’s ban on U.S. beef, which dates back to 1989.

‘Green’ Aluminum to Cost a Lot of Green

Hydro-powered aluminum smelters producing so-called “green” aluminum are charging quite a bit for their product, according to a Reuters report.

Why? It’s partly because industrial consumers are under pressure to reduce their carbon footprints, so demand is high.

Big names like Norway’s Norsk Hydro, U.S.-based Alcoa, Russia’s Rusal and London-listed Rio Tinto all view this green wave as good news, Reuters reports.

Will more and more companies get on board with aluminum produced by more environmentally friendly processes? It’s safe to say that demand will likely only continue to grow in this sector (and for greener products and processes, generally).

Aluminum Gets a Boost, But It Might Not Last

Continuing with the aluminum thread, the metal got a boost Wednesday on news of expected capacity cuts, Reuters reported.

According to Reuters, the aluminum price moved up because of expectations of Chinese capacity cuts. However, as has been mentioned here before, the aluminum momentum might not last, as the capacity cuts might just end up being wiped out by new capacity.

Free Download: The July 2017 MMI Report

For example, Hongqiao Group plans to shut more than 2 million tons a year of outdated smelter capacity, Reuters reported — but after new investments, capacity will likely remain around current levels.

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This morning in metals news, copper hits a two-year high, economic signals in July for China were a bit of a mixed bag and the London Metal Exchange continues a balancing act between tradition and change.

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Copper Reaches Highest Point in 2 Years

It’s been a big year for copper.

Copper reached a two-year peak on Monday, partially a result of solid manufacturing data in China, Reuters reported.

LME copper reached $6,431 per ton, its highest since May 2015.

Construction Up in China

Speaking of China, July saw a dip in factory growth but a surge in construction, Reuters reported.

China’s Purchasing Managers’ Index (PMI) remained above 50, however, as the Chinese government spent money on construction, fueling demand for building materials.

The Chinese steel industry, for example, had its strongest month of growth since April 2016.

Changing Times at the LME

Matthew Chamberlain became the boss of the world-famous London Metal Exchange at age 34.

A lot has changed for the LME, which was founded in 1877.

The exchange was sold to HKEX in 2012, and is currently engaging in efforts to bring back volumes, The Guardian reports.

The so-called “ring” where LME traders do their work is governed by a set of long-standing rules, like the prohibition on chewing gum. According to the report, Chamberlain says those rules aren’t likely to change.

However, he also acknowledges that the LME needs to be prepared to deal with changing demands — for instance, for cobalt and lithium to be used in electric car batteries.

Free Download: The July 2017 MMI Report