China

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This morning in metals news, the Japanese steel industry’s output is expected to grow next year, lenders have a new plan for Essar Steel, and China’s zinc and copper outputs in November were at their highest since late 2014.

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Japanese Steel Sector Set to Ramp Up Output

According to the Japan Iron and Steel Federation, the country can expect to see increased crude steel output in 2018 and 2019.

According to Reuters, Kosei Shindo, the chairman of the Japan Iron and Steel Federation, said “I hope that crude steel output (for next business year) would exceed 10.6 million tonnes.”

A New Plan for Essar Steel

In its insolvency proceedings, lenders to Essar Steel have reduced the time allowed to resolve the firm’s default, according to a report by the Economic Times.

The “single stage” process, according to the report, means any interested bidder has to meet both the conditions to be considered by the bankers, according to the report.

China Zinc, Copper Output Up

China’s output of copper and zinc in November was at its highest since December 2014, according to Reuters.

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According to the report, China’s refined copper output increased 9.8% to 786,000 tons, while zinc production rose 7.5% to 603,000 tons.

The Department of Commerce announced Wednesday, Dec. 13, that it had issued a preliminary affirmative determination in the countervailing duty (CVD) investigation of cast iron soil pipe fittings from China.

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The department announced the determination in a release, ruling that exporters from China received countervailable subsidies in a fairly broad range of 8.66-102.31%.

“The Trump Administration will not sit back and watch as American companies and workers are harmed by unfair government subsidies,” Commerce Secretary Wilbur Ross said in a prepared statement. “The United States is committed to free, fair and reciprocal trade, and will continue to validate the information provided to us that brought us to this decision.”

The petitioner in the case was the Illinois-based Cast Iron Soil Pipe Institute, which boasts three members: AB&I Foundry (California), Charlotte Pipe & Foundry (North Carolina), and Tyler Pipe (Texas).

According to the department, the 79 antidumping or countervailing duty investigation it initiated from Jan. 20 to Dec. 11 of this year marks a 52 percent increase from investigations started during the same period last year.

As for the respondents, according to a fact sheet provided by the Commerce Department, the following preliminary subsidies were calculated for the respondents:

  • 8.66% for mandatory respondent Shanxi Xuanshi Industrial Group Co., Ltd.
  • preliminary subsidy rate of 12.72% for mandatory respondent Wor-Biz International Trading Co., Ltd. (Anhui).
  • Commerce applied an adverse facts available rate of 102.31% for mandatory respondent Shijiazhuang Chengmei Import & Export Co., Ltd. because of its failure to respond to the Department of Commerce’s request for information.
  • 10.37% for all other Chinese producers and exporters

According to the Department of Commerce, imports of cast iron soil pipe fittings from China during 2016 were valued at an estimated $8.6 million.

A final decision in the CVD case is scheduled for April 24, 2018.

U.S. ITC Rules in 5-Year Sunset Review of Stainless Steel Pipe Fittings

The U.S. International Trade Commission (USITC) issued its own ruling Dec. 14 on stainless steel butt-weld pipe fittings from Italy, Malaysia and the Philippines.

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The USITC ruled that removing existing antidumping duty orders on the product from the trio of countries “would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time.”

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This morning in metals news, Chinese aluminum output fell to its lowest total since February 2015, Liberty House considers buying a large Rio Tinto smelter in France and copper approaches a two-week high.

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Chinese Aluminum Output Falls

Chinese primary aluminum production dropped for a fifth straight month, Reuters reported.

In fact, winter smelting restrictions saw output fall to its lowest in the country since February 2015, according to the report.

Liberty House Eyes Rio Tinto Smelter

According to Reuters, Liberty House is considering a bid for Rio Tinto’s aluminum smelter in northern France.

The Dunkirk plant is valued at around 200 million euros, according to Reuters sources familiar with the matter.

Copper Rises Near Two-Week High

A weakening dollar and positive Chinese manufacturing data saw copper rise on Thursday, Reuters reported.

The Chinese industrial sector grew faster in November than markets expected.

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London Metal Exchange copper traded at $6,760 a ton in official midday rings, according to the report.

With steel overcapacity touching a historic high at about 737 million tons (MT), and China adding to new capacity, this remains a huge industry concern.

Not only is the demand-supply market askew, jobs are being lost, especially in the United States, which, by one reckoning, has seen about 35% of steelmaking jobs vanish in the last two decades or so.

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So, when representatives of G20 member states met at the end of November for the Global Forum on Steel Excess Capacity in Berlin and announced they had come to a basic understanding on the need for restructuring of the sector and dismantling market-distorting subsidies to ensure a level-playing field, many welcomed the move.

In the meeting, China and the U.S. may have locked horns — but China’s neighbor, India, on the other hand, seemed more content regarding the developments coming out of the meeting.

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This morning in metals news, Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Chile approaches a busy year for mine union negotiations, and Chinese steel futures drop.

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Going for the Gold in the Badger State

Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Wisconsin Public Radio reported.

The moratorium was imposed in 1998, when Walker was a member of the state Assembly.

Union Negotiations on the Horizon in Chile

Chile’s copper mining industry has a busy schedule next year, with 32 union contracts on the docket, Bloomberg reported.

Chile, a dominant force in the copper industry, will negotiate the contracts, which represent approximately 75% of the country’s copper output, according to the report.

China Steel Futures Drop

Chinese steel futures took a dip Tuesday as a result of concerns regarding demand in the country, the world’s top steel consumer, according to Reuters.

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According to the report, upward price movement driven by supply constriction is expected to be counterbalanced by a drop in demand as winter weather affects construction projects.

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This morning in metals news, Chinese steel got a boost on the heels of another round of output cuts, Goldman Sachs executives warns about the potential of a U.S. departure from the North American Free Trade Agreement (NAFTA) and Thyssenkrupp looks to get union backing for its European merger deal with Tata Steel.

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Chinese Steel on the Rise

On the heels of output cuts, Chinese steel got a boost Monday, according to a Reuters report.

According to the report, the most-active rebar on the Shanghai Futures Exchange (SHFE) jumped 1.6%, ultimately closing at 3,912 yuan ($591.26) a ton.

Goldman Warns About NAFTA Exit

Goldman Sachs warned clients that it wasn’t optimistic regarding a positive resolution to the renegotiation talks.
“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients, according to Bloomberg. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Thyssenkrupp Looks to Win Union Favor

As German firm Thyssenkrupp works to execute a merger deal of its European operations with Tata Steel’s, the company is looking to win over its workers’ favor.

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According to Reuters, Thyssenkrupp is offering workers commitments on jobs and investments to get union backing for the deal (which was agreed to in September by the two companies in September).

China has always had a long-term dream — America has always scoffed — at the idea that one day China’s economy may exceed that of the U.S.

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Many still believe that is inconceivable. However, relentless growth at 6% gradually has its effect, and a Financial Times article quoting EIU research states that at current growth rates, it is likely that China’s GDP will exceed the U.S.’s by 2026, less than 10 years from now.

The key phrase here is “at current growth rates.”

U.S. growth is picking up and China’s is slowing down from its recent trends over the last decade, but even so the idea is no longer fanciful. Which country has the largest GDP though is, in and of itself, less of an issue. More important is which has the highest productivity, the greatest innovation and attracts investment in new technologies; those measures point the way to future prosperity.

The U.S. has always prided itself as having the greatest innovation, creating the new companies that rise from disrupter start-up to billion-dollar global brands.

Thanks in part to Silicon Valley, that is no false claim.

The word “unicorns,” referring to start-up companies that are valued at over a billion dollars (nearly all in tech or tech-related sectors) was coined only in 2013, but many of the names we are familiar with today are U.S. companies.

It seems almost inconceivable to us in the West that places like Shenzhen, on China’s border with Hong Kong, and Hangzhou — the city near Shanghai where Alibaba was founded — could challenge Silicon Valley as the global center of cutting-edge tech, but that is exactly what the Economist is suggesting is underway.

As the article says, China is catching up with the U.S. in its creation of unicorns. In June 2016, one-third of the world’s 262 unicorns were Chinese, representing 43% of the $883 billion worldwide valuation attached to these companies, according to the McKinsey research.

Source: Financial Times

The Financial Times reports that last year, according to McKinsey research, China ranked in the top three countries for venture capital investment in some particularly competitive fields of digital technology, including: virtual reality, autonomous vehicles, 3D printing, robotics, drones and artificial intelligence.

Beijing is actively supporting firms in these new fields, the Chinese have always played the long game with patience and planning. Ten years from now these technologies will be major disrupters of nearly every walk of life, business and even society.

Artificial intelligence and robotics alone will change the way businesses operate and it is probable many businesses will not survive the disruption such technologies will introduce.

Already, Chinese consumers are more, as the Financial Times would term it, “at ease” with technology. For example, mobile payments in China outstrips those of Americans by 10-to-1 last year, and China’s ecommerce market is already twice the size of the U.S.’s. Nor are Chinese tech giants like Tencent or Baidu as readily accessible to Western investors, the game is rigged by Beijing such that their firms invest heavily overseas but foreign investors are barred from taking direct stakes in the equivalent Chinese firms.

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The landscape is changing fast and is not immediately apparent to those of us in the West, but the direction is clear and progress relentless. New technologies will increasingly be dominated or heavily influenced by Chinese firms in the next decade.

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This morning in metals news, ArcelorMittal and the state-run Steel Authority of India Ltd. (SAIL) are reportedly close to a joint-venture deal, officials in a northwest Indian town are threatening to sue U.S. Steel after a recent Lake Michigan toxic chemical spill, and despite the start of the winter season, Chinese steel mill profits have gone up.

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ArcelorMittal, SAIL Close to Deal

ArcelorMittal and India’s state-run SAIL have been in talks regarding a potential joint venture; according to Bloomberg, the two are expected to ink a deal soon.

According to Bloomberg, the two have agreed to terms on the deal, which features a $60 billion automotive plant.

Portage Officials Threaten to Sue U.S. Steel

After a second incident of dumping toxic chromium into Lake Michigan, U.S. Steel is facing lawsuit threats from a northwest Indiana town, not long after the City of Chicago said it would file suit.

Officials from Portage, Indiana, recently threatened to sue the company after the second spill, which occurred in October.

According to the Northwest Indiana Times, the Portage City Council approved a resolution Tuesday night demanding the steelmaker report any environmental spill or discharge to the city as it would to the Environmental Protection Agency or Indiana Department of Environmental Management.

Chinese Mills’ Profits Up

Profits by Chinese mills continue to rise after a warm start to the winter season, Reuters reported.

Warmer weather has allowed steel operations to continue when they would ordinarily be shut down by the colder winter weather.

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According to the report, physical spot prices for steel rebar for immediate delivery rose to 5,210 yuan ($787.72) a ton on Tuesday — its highest since August 2008.

China is the world’s top producer of steel, but it hasn’t been that good or profitable for years.

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Despite, or more likely because of the supply side squeeze enforced by Beijing, possibly up to 100,000 tons of “illegal” (not approved) production capacity has been closed down. Much of this was Electric Arc Furnaces (EAF) based on scrap raw material and deemed too polluting to be tolerated by Beijing.

In practice, EAF technology is anything but polluting and should be preferable environmentally to the blast furnace route. However, much of China’s capacity was small-scale private plants lacking environmental controls and permits.

According to Reuters, quoting CRU data, China’s steel capacity has fallen by 240 million tons over the past three years to about 1,020 million tons this year. Ironically, production has never been higher. It rose 6% from January to October, according to Reuters, and 2017 is set to be an official record high.

The key word here is “official” because historically none of this “illegal” capacity appeared in the official figures, so approved mills are running at near record capacity, estimated to be 85%, making up for the removal of their domestic competitors. Many of these EAF furnaces were making rebar, so not surprisingly rebar is in short supply and prices are on a tear.

Iron ore, particularly higher grade 65% minimum Fe content iron ore is also doing rather well. Despite port stocks running at over a month’s supply prices have reached over $72/ton as mills re-stock with the most efficient-to-produce and least polluting highest grade ore, according to Bloomberg.

All this rationalisation of supply and robust domestic demand has taken its toll on exports. As we reported earlier this week, China’s steel exports have slumped by a third this year. And as the domestic market gradually moves from a buyer’s market to an allocation-driven seller’s market, prices are rising. Read more

This morning in metals, some big news on the international trade and steel imports front.

The U.S. Department of Commerce yesterday announced preliminary affirmative rulings that corrosion-resistant steel (CORE) and certain cold-rolled steel flat products (cold-rolled steel) imported from Vietnam “produced from substrate originating in…China are circumventing existing antidumping and countervailing duty (AD/CVD) orders on CORE and cold-rolled steel imported from China,” according to their news release.

The Details on Duties

“The Commerce department has directed the United States’ customs and border protection agency (CBP) to collect anti-dumping (AD) and Countervailing Duty (CVD) cash deposits from importers of CORE produced in Vietnam using Chinese-origin substrate at rates of 199.43 percent and 39.05 percent, respectively,” according to this article, writing from the release. “CBP has also been directed to collect AD and CVD cash deposits on imports of cold-rolled steel produced in Vietnam using Chinese-origin substrate at rates of 265.79 percent and 256.44 percent, respectively.”

What This Means for Metal Buyers

Many in the steel manufacturing are hailing the decision as a victory as far as solidifying the case against China when it comes to proving that country’s circumvention and “substantial transformation” tactics.

The decision on CORE and cold-rolled products may open the door for the steel pipe and tube industry to file or follow up on similar cases.

Learn more on Trade Circumvention here, including a free white paper download on the topic.

Listen to our MetalMiner Podcast series, “Manufacturing Trade Policy Confidential,” for more discussion around circumvention and other trade topics that matter to metal buyers.