European Union

In exactly 30 days the people of Britain will vote on whether to leave the European Union.

Free Download: The May 2016 MMI Report

For the people of the U.K., and indeed the rest of Europe their decision could be a turning point in the future of their country and the wider European community. It is no exaggeration to say Britain’s exit could spark the break-up of the E.U.

The near-miss Austria experienced yesterday in voting in a far right president illustrates how extreme tensions within the European Union have become. Only by all the opposing parties supporting pro-E.U. Green party socialist Alexander Van der Bellen were they able to beat the far-right Freedom party candidate Norbert Hofer from becoming head of state, the margin was a miniscule 31,000 votes out of an electoral return of 4.64 million.

Angry Voters

Dissatisfaction with the E.U., supported by fears of immigration destroying the social fabric and cultural heritage of societies across the continent, has played a major part in not just the U.K.’s referendum but in the rise of both far-right and far-left parties across Europe in recent years.

Anecdotal evidence can be very misleading, dependent as it is on the social mix such opinion is garnered from and the geographic location. Until recently, the decision in the U.K. seemed on something of a knife edge, particularly in the weeks following the announcement by Boris Johnson, London’s charismatic former mayor, that he was actively campaigning for the Leave vote, but in recent days the markets at least have been pricing in a Stay outcome, as evidenced by the strength of sterling.

Investment Sentiment

Indeed, a poll this week showing a late swing by older voters to maintain the status quo resulted in a sharp jump in the value of the pound as this FT graph shows.

Source: Financial Times

Source: Financial Times

Alluring as the Leave campaign’s image of a free and unrestricted future for the UK would be, most are coming to realize such an outcome is unlikely to be achievable. The least-damaging outcome in the months after leaving would be for a quick trade deal with the rest of the E.U. Read more

Last week, we briefly covered the decision by European Union lawmakers to vote against the application by China to be considered a market economy, a recognition China says it is due automatically by December following an agreement in 2001 set to mature this year.

We also published an in-depth look at what China market economy status would mean for U.S./E.U relationship with China.

Two-Month Trial: Metal Buying Outlook

The European Parliament’s decision was overwhelming, 546 votes in favor and only 28 against, with 77 abstentions so, while the vote is non-binding, it raises the stakes for the European Commission, which will decide shortly whether China deserves to have its status upgraded.

Terrible Timing For Europe

For both sides the debate is at the wrong time. Europe’s steel industry is being decimated by cheap imports from China, raising the stakes for politicians otherwise inclined toward a more free-market approach. The British, in particular, find themselves (not for the first time) somewhat isolated in wanting more open engagement even though their domestic steel industry has been hit harder than most.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: Adobe Stock.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: iStock.

In reality, the decision is much more political than practical. Market economy status matters when it comes to deciding whether a country is “dumping,” exporting goods at below cost price. Nations deemed to be market economies can resist anti-dumping measures if they can show that domestic prices are no higher than the price at which goods are sold overseas. Read more

US Steel plant in Granite City wide

The U.S. Steel Granite City Works captured by Google Street View in September, 2014 — a year and two months before the latest idling of the mill.

Dan Simmons has seen a lot during the 38 years he’s worked at U.S. Steel’s Granite City Works in Illinois, just outside St. Louis.

From starting out as a general laborer, to swinging hammers on the track gang, to “feeling like Mr. Haney from Green Acres” while trucking around the mill, Simmons took it all in. There were days “you were whistling when you came in, and whistling when you left,” he said.

But nothing compares to what he’s seeing now.

“I have grown men coming into my office, crying,” said Simmons. “You see the pain, the ‘what ifs,’ the blank stares…”

Simmons, who just turned 56, is now the president of the United Steelworkers Local 1899, and some of the grown men coming to him are pipefitters just like he had become during his long tenure, which began in 1978.

However, those men and women aren’t coming to him because they’ve been hurt on the job. They are coming to plead for help, because they have lost their jobs, and in many cases still don’t know when they’ll land their next one.

Cyclicality in steel production is nothing new, but it wasn’t until 2008 — when the global markets began crashing — that USS Granite City Works endured its first indefinite idling in its history.

“We had the unemployment office cycling 400 people through at a time,” Simmons told MetalMiner. “The biggest fear is not knowing. If I could have given them a definitive timeframe, they would’ve said, ‘OK, I can handle that.’ But after two to three months, people come to me and don’t know what to do with themselves.”

And now, after the mill went idle a second time in December 2015, some of those workers have been without a job for nearly half a year. Last December, 1,500 people were laid off — 75% of the mill’s total workforce. Across the country, a total of 13,500 steel workers have been laid off over the past year.

Simmons knows what it’s like to feel that fear firsthand. “I got a brother that works here, a brother-in-law that works here, so it’s personal. You worry about where your whole family will be.”

So what’s different today, compared to 2008?

For Simmons and scores of others in the country’s steel sector and other manufacturing industries, much of the pain can be traced back to one main source: China.

A History of Unfair Trade?

The world may have never encountered a more crucial Year of the Monkey than 2016.

That is, at least as far as global trade between China and the Western world is concerned. At the end of this year, China believes it ought to receive Market Economy Status (MES). This would allow China to enjoy the same market status as the U.S. and European Union when it comes to anti-dumping investigations before the World Trade Organization.

In its quest to grow its economy over the past two decades, China has become the leading producer — by far — of steel, aluminum, cement and other industrial materials. Read more

The initial thaw in the European market has Indian steel companies smiling. In fact, the country’s largest private steel company Tata Steel Ltd.  recently posted better than expected first quarter results, attributed to a “phase of solid economic growth in Europe supporting the recovery in steel demand in its main market.”

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

The world’s biggest steelmaker ArcelorMittal had posted Q1 results last week and said that prospects for Europe and North America were encouraging.

For Tata, the strong showing in Europe comes as a relief. Staring in the face of a global downturn for years, the company had somehow managed to remain in the black in the last four quarters with intensified measures such as cost cutting and pushing high-end product.

Incidentally, Tata Steel’s European sojourn started in 2007-08 through its $13 billion acquisition of Britain’s Corus in 2007. Today, more than half of its earnings comes from outside India. Reuters reported the steel major as declaring a net income of approximately  $173 million (Rs 10.36 billion) for the quarter, helped by higher sales volumes and better business in Europe and India.

Read more

All in all, Europe is too deeply engaged economically in Russia, and Russia in Europe, for either side to let this get out of hand. (We delved into the numbers of the economic relationship between Russia and the EU in Part One here.) Sanctions against individuals are one thing, and for sure, vested interests in…

For full access to this MetalMiner membership content:
Log In |

Anyone trading extensively (or even in a limited fashion but for key components) with Russia is no doubt anxiously watching developments in Ukraine and the almost-daily ramping up of tensions on both sides, with threats of sanctions countering military posturing.

Reuters reports that both the ruble and Russian stocks are down sharply on Thursday and Friday of the week before last, respectively. This was largely as a result of comments by US President Barack Obama that Washington was considering sanctions against key economic sectors in Russia, including financial services, oil and gas, metals and mining and the defense industry, if Russia made military moves into eastern and southern Ukraine.

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

Trade in goods between the two countries was worth $38.12 billion in 2013 and US firms have $14 billion in direct investment in the country. Firms from Boeing down to mom and pops regularly import metals and metal products from what is one of the world’s largest commodity exporters.

Read more

Last week, the European Union proposed conflict minerals legislation wildly different than what US manufacturers must currently comply with, calling for voluntary participation from importers only.

And yet the proposed EU legislation sees the pinch-point where it exists – at the smelter level.

“Focusing efforts at the root of the issue – material going into smelters and refiners – is a more efficient approach than the SEC’s ‘push from the top’ mandate,” said Lawrence Heim, Director of the Elm Consulting Group International, LLC and frequent contributor to MetalMiner.

The proposed European legislation incorporates the widely publicized and often discussed OECD conflict minerals framework. In some respects, the proposed legislation goes further than the SEC rules as the European legislation “applies to minerals sourced from conflict-affected and high-risk areas worldwide.”

In other words, the European legislation would go beyond the geographic boundaries of the SEC requirements or just the DRC region, according to Michael Littenberg of Schulte Roth and Zabel, who was also a recent speaker at MetalMiner’s Conflict Minerals EDGE conference held back in May 2013.

Read more

Don’t faint, but the European steel sector is finally on the up.

Now let’s not go crazy – we don’t mean “on the up” in a Chinese or even a US sense. We are not talking +10% growth or even +4% growth, as in the US, but more like +2%. Even still, it’s a welcome reversal after years of decline.

According to the NY Times, European businesses have been buying about 30% less steel than during the peak in 2007, and steel industry employment has shrunk by about 16% since the downturn began, to around 350,000 jobs.

Wolfgang Eder of Voestalpine, Europe’s third-largest steelmaker, recently estimated that while the European steel industry had permanently shuttered 10 million metric tons of crude steel capacity since the financial crisis, it still needed to remove an additional 25 million tons of capacity to prevent downward price pressure.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

The fact remains that while the automotive sector is beginning to do relatively well and some growth is coming back into consumer goods, major consuming sectors like construction are still deeply depressed. Construction accounts for about 35% of European steel consumption, more pre-2008, and yet infrastructure spend is unlikely to be a priority in deficit reduction-focused Europe anytime soon.

Still, ArcelorMittal, Europe’s largest steelmaker with about 25% of the market, is hiring staff and, following rationalization, running some facilities at capacity. The main European business lost $933 million on revenues of $27 billion last year. The company’s comparable business in the Americas made a profit of $852 million by comparison.

But the firm is also investing again – primarily to improve efficiency rather than expand output – but the commitment is a good sign that producers are seeing a more positive year ahead.

Contraction has stopped in southern European states and has slowed in France, with economies continuing to expand in northern Europe; taken as a whole, with the signs of an upturn in Spain, modest growth this year is not expected to falter as previous green shoots have done. Most folks, though, are looking to 2015 before there is a significant recovery.

For now, though, steelmakers will readily settle for 2% growth, even if they are struggling to get any improvement in prices.

FREE Download: 7 Metal Buying Strategies for 2014

A recent article in the Economist explores the issue of commodity price benchmarks, those oft-quoted numbers that we take as gospel and, indeed, trillions of dollars of derivatives and contracts are priced against every year.

Numbers such as Dated Brent and Light Louisiana Sweet in the oil industry are matched by dozens of others in the metals markets. The Economist explains that rather than hard numbers, these are often the best estimation of price-reporting agencies (PRAs), businesses that make money by gathering market information and selling it to subscribers.

These are often not the standardized commodity contracts that trade transparently on busy exchanges such as Comex or the LME, exchanges that do not always cater to the many different specifications required by industry, the magazine explains. So PRAs, of which Platts is the largest, essentially estimate what the market price is based on information fed to them by buyers, sellers and brokers in the market.

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

For most people, most of the time, this seems to work well enough, but the point of the article is that the European Union fears such unregulated benchmarking is open to abuse and needs more oversight.

Read more

mmphoto12

Photo credit: Emily Berezowsky

The crisis in Ukraine’s capital, Kyiv, stemming from President Viktor Yanukovych’s refusal to continue talks with the European Union on a trade deal late last year, and escalating due to his administration’s draconian measures against protesters in last few weeks, has unquestionably rippled through commodities markets.

A Little Background

Upon the USSR’s dissolution in 1991, Ukraine’s political leadership took a page out of the ol’ Soviet playbook and has never looked back – the country is notorious for its ludicrous levels of corruption, cronyism and oligarchical influence. As the ancestral homeland of both my and my editor’s families, Ukraine (especially the country’s leadership) has done its best to avoid efficiency, effectiveness and transparency.

The domestic Ukrainian economy has never been able to get on its own two feet, and instead of making strides to join the EU, its political leadership has continually brought it closer to Putin’s Russia.

Now, with opposition factions ousting President Yanukovych, the challenge is to get the country back on the bus. But what have the protests, ensuing bloodshed and coup d’etat (in Yanukovich’s words) done to the markets?

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

Steel Exports Hit

Ukraine is roughly the seventh-largest steel producer in the world, and its recent production and exports numbers have been dramatically affected since the protests began on Nov. 29, 2013.

Read more