Steel

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Before we dive into the weekend, let’s take a look back at the week in metals news:

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  • Our Stuart Burns started out the week with a piece on confirmation bias and how those in the media and metal-buying communities can sometimes let bias affect their interpretation of data.
  • What’s the diagnosis for the ailing U.K. steel industry? According to Burns, it’s a product of a lack of government support and global oversupply. A recent report showed that the U.K. steel industry has declined in monetary output value by 30% from 1990 to 2013.
  • In case you missed it, our July MMI report has long been in the books. You can download it here.
  • What did the recent G20 summit in Germany mean for India? Our Sohrab Darabshaw touched on the subject this week.
  • What’s up with oil prices? Unsurprisingly, as with the metal markets, prices are so low because there is just so much of the stuff out there. Burns dug deeper into oil price trends in a piece earlier this week.
  • What’s a Section 332? In short, it’s a fact-finding investigation by the United States International Trade Commission, which recently conducted a large-scale look into the competitive factors affecting the U.S. aluminum industry.
  • Another big story, the ongoing debate regarding a potential renegotiation of NAFTA, got an update this week when it was announced that the U.S., Canada and Mexico will come together for talks beginning Aug. 16.

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This morning in metals news, the EU is planning to impose heavy duties on steel from several countries, copper is down on gains by the U.S. dollar and June was a good month for U.S. service center  shipments of steel and aluminum.

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EU Gets Defensive on Steel

In the world of trade measures, most eyes are on the U.S.’s Section 232 investigations into steel and aluminum imports. However, the U.S. is certainly not the only entity looking to protect its products.

The European Union plans to impose heavy duties on hot-rolled coil steel from Russia, Ukraine, Iran and Brazil, a measure to counter what it sees as unfairly low prices, Reuters reported Wednesday.

According to documents seen by Reuters, the EU plans on imposing duties of up to 33%. Just last month, the EU imposed duties of 35.9% on Chinese steel, according to the report.

Dollar Up, Copper Down

Copper had a strong start to the week, hitting its highest price since early May, but that optimism has started to temper.

Prices of the metals trended downward Wednesday after the U.S. dollar rose, Reuters reported.

The metal struggled to hold onto gains above $6,000, even with good news regarding Chinese demand, Danske Bank analyst Jens Pedersen told Reuters.

Steel, Aluminum Shipments Up in June

U.S. steel shipments were up in June, according to a Metals Service Center Institute report released Tuesday.

Shipments in June 2017 increased by 1.1% from June 2016. In addition, steel product inventories decreased 4.9% from June a year ago.

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Aluminum shipments were also up compared with the same month last year. Shipments of aluminum products increased by 10.3% from the same month in 2016. Inventories of aluminum products increased 0.2% from June a year ago.

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This morning in metals news, the Section 232 steel investigation is reportedly in its final stages, better-than-expected data on the Chinese economy buoyed copper prices and a 3-D printing startup got a rich vote of confidence.

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Section 232 Steel Conclusion: Almost There?

The Section 232 investigations launched by the Trump administration in April have been the talk of the metals world.

While the announcement of the steel investigation was previously expected to happen by the end of June, the administration blew past that self-imposed deadline. Now, however, American Metal Market reports a “key report in the US Commerce Department’s Section 232 investigation into steel imports is nearly complete,” according to a department spokesman.

The announcement would come as tension continues to rise between the U.S. and China. Reuters reported yesterday that China had a record June for steel and aluminum production, which surely won’t do much to dissuade the Trump administration from imposing tariffs or quotas to combat global excess supply from China.

China Data Good For Copper

Reuters reported faster-than-expected Chinese economic growth led to copper prices holding steady Tuesday.

Despite a strong second quarter for the Chinese economy, many analysts predicted a second-half slowdown as the government looks to put the squeeze on credit growth. With that said, Chinese growth exceeded expectations, so perhaps the slowdown will not be as significant as expected.

The next dominoes to drop — the Section 232 investigations — may also have significant ripple effects for not only China, but the global economy.

Big Investment in Metal 3-D Printing

Desktop Metal announced it secured $115 million in funding, according to Fortune, a funding sum that includes backing from a number of big-name investors.

The 3-D printing startup, founded in 2015, aims “to make metal 3D printing accessible for engineering teams,” according to the company’s website.

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In terms of the regular, everyday consumer, 3-D printing still has a long way to go.

From the industrial side, however, money talks.

In this case, the $115 million investment is saying that some major players believe in the technology and see a bright future in it.

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Defining the root cause of Britain’s predicament is not as simple as a sweeping “foreign competition” argument. But there’s no doubt that is part of the problem, as Britain’s steel industry has been decimated over the last 25 years.

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A House of Commons report last year said output from the UK steel industry was £2.2 billion in 1990, compared to £1.6 billion in 2015, a 30% fall (in 2013 prices).

Source: House of Commons Library Briefing Paper No. 07317, Oct. 28, 2016

The decline has left the U.K. producing just 11 million tons of steel, compared to 166 million tons for the EU as a whole and 804 million tons from China. A combination of global excess supply and lackluster government support has left the U.K. as the fifth-largest steel producer in the EU, after Germany, Italy, France and Spain.

In line with most European producers, surviving U.K. steelmakers have had to move up the value chain in order to remain profitable. Inevitably, however, the market for more value add, niche product areas is smaller than the bulk commodities end of the market.

The U.K., in turn, is a relatively small consumer of steel products, as medium to heavier industry has also declined over the years. As a result, the U.K. has lost the ability to make some of the grades or forms necessary for more demanding or critical applications.

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This morning in metals news, China hit record steel and aluminum production numbers in June as the world awaits the Trump administration’s Section 232 investigation results, the copper deficit could deepen amid further strikes and things are looking good for gold on Monday.

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China Posts Record Steel, Aluminum Outputs in June

Ever since the Trump administration announced its opening of Section 232 investigations into steel and aluminum imports in April, the world has waited to see whether new tariffs or import quotas could be on their way.

The major focus of the investigations has been Chinese excess capacity in the global market, which the administration might strike at via protectionist measures.

The Chinese steel and aluminum industries, meanwhile, showed no signs of slowing down in June.

According to Reuters, China produced record amounts of the metals last month: 73.23 million tons of steel and 2.93 million tons of aluminum.

Copper Deficit Deepens

According to Reuters, the copper deficit is likely to deepen this year as further strikes are expected in South America; however, those strikes have already been priced in, according to the report.

Even so, the strikes are not likely to produce a rise in the copper price, according to a Reuters poll of 26 analysts.

According to the report, LME copper is up 8% on the year.

Gold Looking Up

Gold might be in for some good news during the remainder of 2017.

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According to Reuters, gold broke its 200-day moving average and could be in for further gains as a result of a slumping dollar.

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Anxiety is rising among Europe’s steelmakers that a potential U.S. plan to levy steel tariffs, on national security grounds, could have a disastrous impact on the region’s sales into the market.

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Reuters reported that the European steel association Eurofer is worried that “….measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions.”

Eurofer is worried on two counts. First, it is worried that with China largely already cut out of the U.S. market by anti-dumping legislation, the axe will fall on imports from other regions, of which Europe is a major supplier. Many European countries are already experiencing steep declines in sales to the U.S. between 2015 and 2016 — in some cases of 50% — but the largest, Germany, remains the fifth-largest external supplier to the U.S. of flat-rolled products, according to International Trade Administration data.

The second worry is that should the investigation support bans or large duties, suppliers in the affected countries will look for alternative mature, high-value markets for their products, namely the EU. This would potentially flood an already overcrowded market with more low-priced material.

Having championed free trade in recent statements, Europe may have to eat its own words if it is forced to find ways to counter such a flood. Reuters reports that moves are already afoot, at the G20 summit in Germany last weekend, leaders from the world’s 20 leading economies set an August deadline for an OECD-led global forum to compile information about steel overcapacity. That also includes a report on potential solutions, due in November, which could result in the region acting of its own.

In reality, Europe may not be the primary target of the president’s 232 action. Supplies from Canada, Brazil, Mexico, South Korea, Japan and Russia dwarf those from Europe, but that will not necessarily stop the region from suffering considerable collateral damage.

The move would come at an unfortunate time for the European steel industry.

After prices rose nearly 50% last year, they have since fallen back some 10% this year, according to Reuters. Demand, however, is recovering with a 1.9% rise forecast for this year, according to Eurofer, suggesting prices could stabilize (although demand growth is expected to ease again next year, with only 1% growth forecast).

EU Strikes Back?

However, The Guardian reports Europe is also looking at retaliatory measures, should they suffer exclusion or tariffs because of the 232 action. The paper quotes the European Commission president, Jean-Claude Juncker, who is reported to have said that if the U.S. took measures against Germany and China’s steel industries, the EU would “react with counter-measures.”

The article says one industry in the Europeans’ crosshairs is Kentucky bourbon, worth $166 million to the state last year and directly employing some 17,500.

Kentucky was staunchly supportive of Trump during his campaign, with 62.5% of the electorate voting for him.

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“I am telling you this in the hope that all of this won’t be necessary,” Juncker said during the G20 summit. “But we are in an elevated battle mood.”

Bellicose talk, indeed.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

China’s campaign to cut environmentally polluting steel, aluminum, power generating and similar industries, like cement plants, is understandably catching the headlines.

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For producing industries like steel and aluminum, the cutbacks have supported prices. The expectation is the closures made this year will accelerate during the November to March heating period, when there will be forced closures of plants, even some that have passed the environmental tests.

All this has supported the expectation that there will be supply shortages in the face of an economy that continues to grow strongly and where recent PMI data supports current growth levels persisting at least through to the end of the year.

Yet while the headline announcements are all about capacity cuts, a recent Reuters article illustrates they are only part of the story.

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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.

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This morning in metals news, European steel association Eurofer predicted increased steel demand in its Monday forecast, but also sounded a cautionary note regarding the U.S. potentially imposing steel tariffs (as a product of the Department of Commerce’s Section 232 investigation); Norwegian metals company Norsk Hydro inks a $3.2 billion deal to buy a 50% stake in aluminum products maker Sapa; and LME copper stabilized Monday after U.S. jobs report news.

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Demand To Go Up … But Eurofer Wary of Section 232 Tariffs

Eurofer, the European steel association, offered a mix bag of news in its Monday steel forecast.

On the one hand, it predicted an uptick in demand for steel, according to Reuters. According to the report, the forecast predicts a 1.9% rise in apparent EU steel demand, to 159 million tons, up from a previously forecasted 1.3%.

On the other hand, Eurofer sounded a warning note regarding the potential for “market distortions,” including tariffs, like the ones the U.S. Commerce Department may impose on steel and aluminum imports at the conclusion of its Section 232 investigations.

“In particular, measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions,” Eurofer director general Axel Eggert said in a statement quoted by Reuters.

Norsk Hydro Buys Aluminum Products Maker Sapa

Norwegian metals firm Norsk Hydro, in a deal worth $3.2 billion, bought a 50% stake in aluminum products maker Sapa, Reuters reported Monday.

Norsk Hydro’s acquisition allows it to spread its business across the value chain — the Norwegian firm makes primary aluminum from scratch, while Sapa presses, cuts and shapes it, according to the report.

Sapa, which has 22,400 employees and in 2016 recorded sales of 53 billion crowns ($6.84 billion), has been jointly owned by Orkla and Hydro since 2013, according to Reuters.

LME Copper Steadies

Copper prices stabilized Monday after news of a solid U.S. jobs report inspired optimism in a U.S. economic recovery, Reuters reported Monday.

This follows June’s news of expansion in Chinese manufacturing, which also buoyed prices by virtue of increased demand for the metal.

Since late June, copper prices have been consolidating in the range of $5,800-$5,965, according to the report.

For more on copper, come back to check out Irene Martinez Canorea’s Copper MMI piece this afternoon, which will survey the month that was and market trends for the metal.