China

qingwa/Adobe Stock

Thursday was aluminum’s day in the sun.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The Department of Commerce’s Section 232 hearing regarding imports of the metal gave domestic aluminum entities across the supply chain a chance to make their concerns heard. The hearing came less than a month after the 232 steel hearing, which was held May 24.

The aluminum hearing kicked off at 9 a.m. Eastern Time, and featured a roster of 32 speakers, including foreign dignitaries.

The full video of the hearing is available on the Department of Commerce’s YouTube page.

The Trump administration launched the Section 232 investigation in April (the last Section 232 investigation took place in 2001, which looked into iron ore and semi-finished steel). Section 232 of the Trade Expansion Act gives the president authority to direct the secretary of commerce to investigate whether certain imports have national-security implications. The secretary then provides the president with policy recommendations at the conclusion of the investigation. Regarding the Trump administration’s steel and aluminum 232 investigations, many expect the adoption of tariffs to disincentivize Chinese imports.

Unsurprisingly, Chinese overcapacity and the resulting unfair business environment that a glut of global aluminum creates was a consistent throughline Thursday morning.

Kentucky State Sen. Jim Gooch Jr. was the first to step behind the lectern to speak. U.S. smelters have dwindled since the turn of the century, but Century Aluminum operates two smelters in the Bluegrass State (one in Hawesville, the other in Sebree).

“Once these facilities are shut down, they’re usually gone for good,” he said. “The loss to local employment, tax revenue, technology, skills and expertise are permanent. Unfortunately, we’re already at the tipping point of what’s left of this great industry.”

Also unsurprisingly, Li Xie, who directs the export division of China’s Ministry of Commerce, argued trade regulations are not the answer.

“We believe that unilateral trade restrictions are not conducive to solving the problem of the U.S. and the global aluminum industry,” Xie said.

He also told the panel that Chinese imports do not negatively impact the U.S.’s national security.

“Aluminum products imported from China are general products with civilian uses, such as drillers, packing, roofing, road signs and consumer durables,” he said. “None of these products implicate national security.”

Xie added China has taken measures to eliminate excess capacity. When asked by the panel about specific efforts the Chinese government has taken to cut back on excess capacity, Xie said a written report would be submitted on the subject.

Xie was followed by Talal M. Al Kaissi, of the UAE embassy’s Trade & Commercial Office, and Lurii Stegnii, Russian deputy trade representative.

Heidi Brock, president and CEO of The Aluminum Association, hoped any policies implemented by the Trump administration exempted fellow NAFTA member Canada and European Union nations which have been determined to be market economies — or, as she said during a conference call Wednesday, “play by the rules.”

Similarly, Gerd Gotz, director general of European Aluminum, hoped European producers would not get caught in the crossfire of any trade policy remedies aimed at China.

“We of the European industry believe that addressing the root causes of these problems requires continued joint efforts of the U.S., Canada and Europe,” he said. In the context of the 232 investigation, Gotz asserted European imports are not a threat to national security, and European aluminum producers function under market-economy conditions and without government subsidies.

Robert Scott, director of the Economic Policy Institute, like other industry speakers after him, painted a bleak picture for the domestic industry, which he said is “hanging on only by a thread.”

Between 2000-2017, Chinese primary aluminum production capacity has increased by nearly 1,500%, Scott said.

“Collapsing prices have decimated U.S. primary aluminum production, capacity and employment,” he said, adding that the LME price of aluminum fell 39% between 2007 and 2016.

While most of the speakers identified Chinese overproduction as the primary factor in the U.S. industry’s struggles, some explained that Chinese imports are important — necessary, even — for their companies.

For example, Steve Casey, senior director of procurement for Bemis Company Inc., said there is only one domestic producer of converter foil, and its entire capacity is not enough to meet Bemis’ annual needs.

“Increased prices or quotas for aluminum foil will open the door for imports of finished packaging, resulting in a loss of market share, profitability and ultimately employment,” Casey said.

He continued: “The present Section 232 investigation should not be used to restrict imports of aluminum foil for commercial uses, as the result would be grave economic consequences for the domestic manufacturing facilities of Bemis, other packaging producers and our customers.”

Similarly, Jim McGreevy, president and CEO of the Beer Institute, said 98% of is aluminum can sheet is sourced domestically, but that imported primary aluminum is essential.

“Tariffs or other measures limiting the importation of primary aluminum, or can sheet, will hurt our economic activities and the jobs our industry supports,” McGreevy said. “Imports of primary aluminum for can sheet manufacturing do not threaten national security.”

Overall, however, the message from the domestic aluminum industry was clear: “something needs to be done about Chinese excess capacity.”

Michael Bless, president and CEO of Century Aluminum, after citing statistics regarding closures of U.S. smelters and employment losses, said what should have been a good era for the domestic industry was not that because of Chinese overcapacity.

“This should have been a healthy period for America’s smelters,” Bless said. “Instead, prices have collapsed due to ever-expanding overproduction led by state-owned and state-invested enterprises inside and outside China.”

While steel has perhaps gotten more of the Section 232 limelight, aluminum is a vital metal with an array of uses — commercial, military and otherwise.

Secretary of Commerce Wilbur Ross is expected to announce the findings of the investigations in the near term. Some within the U.S. industry hope policy changes aren’t unnecessarily broad in scope — particularly in terms of which products are relevant to national security — Chinese overcapacity is perceived by most in the industry as a major threat, not just to U.S. producers but to market economies worldwide.

Now, it’s up to the Trump administration to decide what to do about that perceived threat, whether through tariffs, quotas, or a hybrid solution.

Free Download: The June 2017 MMI Report

AdobeStock/vvoe

The International Lead and Zinc Study Group (ILZSG) released preliminary data for this year, which showed the global market for refined zinc metal was in deficit during the first four months of the year. Total reported zinc inventories also declined during that time.

The ILZSG report stated that world zinc mine production grew 7.3% for the first four months of 2017 compared to the same time last year, mostly due to increased output in China, India, Peru, Turkey and Eritrea.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Furthermore, growth in refined zinc metal production in France, Kazakhstan and India were offset by reductions in Peru, Canada and the Republic of Korea, leading to an overall worldwide increase of 1.6%.

Worldwide refined zinc metal demand grew 3.7% during this time frame, mostly due to a 42.9% recovery in apparent usage in the U.S.

China’s Effect on Zinc Prices

The ILZSG report stated: “China imported a total of 385kt of zinc contained in zinc concentrates, an increase of 58kt compared to the same period of 2016. Chinese net imports of refined zinc metal amounted to 99kt, a decrease of 114kt.”

How will zinc and base metals fare in 2017? You can find a more in-depth zinc price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

A magnifying glass is on steel, particularly Chinese steel.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The U.S. Department of Commerce’s Section 232 steel and stainless steel investigation appears to be under the watchful eye of European leaders.

In that vein, newly released Chinese data has not gone unnoticed.

Read more

Physical delivery premiums are a pretty accurate measure of primary aluminum metal supply. They reflect the balance between suppliers’ aspirations for the highest price and buyers’ determination for the opposite.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The setting of physical delivery premiums is, therefore, a function of supply and demand — or, more accurately, the availability of physical metal in the marketplace.

So when Metal Bulletin announced that third-quarter main Japanese port (MJP) premiums have fallen 7.4% quarter on quarter and settled for the July-September period at $118-119/ton, from $128/ton in the second quarter, it supported anecdotal evidence that, despite supply disruption from Australia and New Zealand, the Asia-Pacific market remains well supplied.

Source: Reuters

Credit for this — if “credit” is the correct term — goes in part to China’s failure to sufficiently implement supply-side reform of its aluminum sector.

The aluminum price rose strongly in the first quarter with the expectation that Beijing’s announcements regarding curtailment of excess aluminum capacity would be vigorously implemented this year.

Read more

stockquest/Adobe Stock

This morning in metals news, the biggest aluminum smelter in China is cutting back on outdated capacity, New York State’s governor and legislative leaders announced a “Buy American” deal for state purchases of iron and steel, and the European Union’s trade commissioner says the European bloc “will have to respond” if President Donald Trump imposes trade tariffs on steel imports from China, the EU and other nations.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

China Targets Aluminum Capacity

China Hongqiao Group Ltd. will be cutting back on outdated aluminum capacity, Bloomberg reported.

The cutback comes at the same time as the Chinese government focuses on illegal production, according to the report.

Chinese overcapacity is a main talking point for metals producers around the world, especially in the U.S. A Department of Commerce hearing on the government’s Section 232 investigation of aluminum imports is scheduled for 9 a.m. Eastern Time on Thursday, June 22.

Analysts expect further Chinese aluminum production cutbacks throughout the year.

N.Y. Pledges to ‘Buy American’

As the U.S. aluminum and steel industries await the Department of Commerce’s Section 232 investigation findings, New York politicians agreed on a proposal for buying American iron and steel.

New York Gov. Andrew Cuomo and other state leaders announced a “Buy American” agreement, which calls for the use of American iron and steel for some state road and bridge projects, Newsday reported.

According to the report, the proposal gives preference to American producers for iron and steel contracts worth more than $1 million.

Although the proposal is a scaled-down version of the initial bill — the result of objections from neighboring Canada — the bill fits well in a climate dominated by talk about the potential outcomes and ramifications of the Section 232 investigation.

European Union Strikes Back?

As the U.S. Department of Commerce gets set to announce the findings and recommendations of its Section 232 investigations, trading partners abroad are keeping tabs on the process.

EU Trade Commissioner Cecilia Malmström said the EU “will need to respond” if President Donald Trump places tariffs on steel from the EU (and other nations), POLITICO reported.

Free Download: The June 2017 MMI Report

She mentioned Chinese overcapacity and market distortions as sources of the U.S.’s concerns about steel imports. Even if tariffs applied to Chinese steel don’t directly affect EU nations, Malmström said they will still be hit “very hard.”

In an increasingly interconnected world, rarely does a trade policy targeting one country — whether formally or in spirit — only affect that country. As the U.S. is expected to take aim at China with any trade policy readjustments that come as a result of the Section 232 investigation, other nations could very well be affected.

The findings of the 232 investigation are expected to be announced in the near future. Thursday morning’s Department of Commerce hearing on aluminum should shed additional light on the government’s thinking.

China is far from alone in worrying about an investigation by the U.S. Department of Commerce into the impact of imported steel on the U.S. steel industry (due to be announced this week).

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The Section 232 investigation is the result of a campaign pledge by President Donald Trump to protect domestic steelmakers against foreign steel imports. Section 232 uses as its test whether imports have been detrimentally harmed the U.S. ability to produce steel for its defense industry, and while it is not country-specific there was little secret at whom it was primarily aimed.

The worry in Europe, generally, and in the U.K. in particular, is that supplies from the region will be caught up in a blanket Section 232 ruling, applying onerous duties that could hit some local steelmakers disproportionately hard.

Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group (ILZSG) released its findings for June, showing global refined lead metal demand exceeded supply during the first four months of the year.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

In addition, the ILZSG report revealed total reported stock levels increased during that same time frame. An increase in worldwide lead mine production, to the tune of 13% year-over-year (compared to the first four months of 2016), is primarily the result of increased production in China.

Furthermore, a global refined lead metal output increase of 8.4% can be attributed to India, China and the United States.

The ILZSG report states: “A sharp rise in net imports was the main influence on an increase in US apparent demand of 22.8%. There was also a strong rise in Chinese apparent usage of 16.4%. European demand increased by a more modest 1.5% with overall global demand up by 11.15%.”

How will lead and base metals fare in 2017? You can find a more in-depth lead price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

Similar to other base metals, tin prices have started a gradual decline, starting from the beginning of June.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

A market analysis of tin prices and trading volumes suggests a more bearish scenario for tin.

The chart below shows both a sharp drop in tin prices accompanied by heavier selling volume, also known as a “selling climax,” and may be perceived as a signal of a bearish market to follow.  

Source: Fast Markets

According to the International Tin Research Institute (ITRI), the fluctuation of tin stocks has varied based upon tin prices in the market. Indonesian exports remain robust, with an increase of 10% in May compared to April. However, Myanmar tin exports decreased slightly again in May. This reduction of Myanmar output is expected to continue until the end of this year, as analyzed in detail in our monthly forecast reports.  

Chinese VAT removal could lead to price convergence

Tin prices may also be influenced by the approval of a new Chinese policy that will directly impact  the largest tin-producing company in China, Yunnan Tin Company.

This policy consists of the removal of the valued-added tax (VAT) structure, which taxes imports of tin concentrates and was supposed to provide a tax rebate of 17% on exports.

The catch? Exporters were never able to collect the rebate, so they ended up buying tin exclusively from domestic sources.

According to ITRI, by removing the VAT rebate scheme, the new policy will likely cause exports to increase and prices to rebalance between the London Metal Exchange (LME) and China.  In other words, the two prices will likely converge — China’s may come up and the LME price may fall.

We believe tin prices will move close to support levels — and may eventually fall below this limit.

Free Download: The June 2017 MMI Report

Considering the current situation and the sideways trend of commodities, tin should be analyzed closely this month.

Before we head into the weekend, let’s take a look back at a few of this week’s stories:

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

A Surprise in the U.K.

Iakov Kalinin/Adobe Stock

Our Stuart Burns wrote about the U.K. parliamentary elections, which surprised many and saw Labour outperform expectations against Prime Minister Theresa May’s Conservative Party.

What does the election result mean for business? Well, that will partially be determined by which path to Brexit the U.K. ultimately takes. Burns writes there is likely to be compromise and a search for alternate solutions — that is, a softer Brexit.

The 411 on 232

White House spokesman Sean Spicer announced Monday the findings of the administration’s Section 232 investigation into steel imports could be released as early this week.

Although the findings have yet to be released, our Lisa Reisman laid out the potential outcomes and impacts of the investigation on Wednesday.

How will the recommendations affect steel prices domestically? No one knows for sure, of course, but Reisman wrote we shouldn’t jump to conclusions about potential price increases.

“Some have speculated that the forthcoming recommendations would force prices higher, however, we would not necessarily rush to that same conclusion,” Reisman wrote.

Markets showing pessimistic side

Burns also wrote this week about commodities markets — and not just metals, but oil, too — which have seen a drop in optimism of late.

What’s the downtrend all about? Many reasons, Burns argues, including: oversupply, the Chinese government “squeezing investors by increasing shadow banking borrowing costs,” and waning optimism with respect to the Trump administration delivering on campaign promises regarding massive infrastructure projects.

But not to send you into your weekend on a down note — it’s not all cloudy skies.

“With that said, that doesn’t mean the U.S. or global economies are about to tank,” Burns writes. “European growth has been much better this year and Japan is expected to improve further, while the World Bank is predicting an unchanged 2.7% global growth this year in its latest report.”

June MMI Report Released This Week

In case you missed it, our monthly MMI Report was released this week; as always, it’s jam-packed with information.

The report covers markets trends in our 10 sub-indexes: Automotive, Aluminum, Construction, Copper, Global Precious, GOES (grain-oriented electrical steel), Rare Earths, Raw Steel, Renewables and Stainless Steel.

Want to know what’s happening in any of these categories? Get yourself up to speed by checking out the June report, which you can access by visiting the link below.

Free Download: The June 2017 MMI Report

What’s up — or should we say, down — with zinc?

Source: Fast Markets

Together with other base metals, zinc has experienced a downtrend during this past week, reaching a seven-month low on Wednesday. Since then, it has recovered slightly up to $2,540/metric ton.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Zinc is moving together with commodities and industrial metals, both of which have experienced a weaker start to June. These weaknesses began in the beginning of 2017, as zinc prices failed to reach new highs, turning into a sideways market.

Other metals, such as tin and lead, have also experienced lower prices during the first week of June, which could be a signal of a general trend reversal. We do not believe zinc will succeed in surpassing its previous $3,000/mt upper limit.   

In fact, zinc could be at the start of a downtrend.

Read more