A report released recently concludes that treating China as a market economy in anti-dumping investigations would “severely damage the North American Free Trade Agreement (NAFTA) steel industries and harm NAFTA economies.”

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The study, composed of three economic analyses, was conducted by leading economists from Capital Trade Incorporated in Washington, DC;  the Centre for Spatial Economics in Ontario, Canada; and IMCO in Mexico City, Mexico.

Six steel industry groups — the American Iron and Steel Institute, the Steel Manufacturers Association, the Canadian Steel Producers Association, CANACERO, the Specialty Steel Industry of North America and the Committee on Pipe and Tube Imports — sponsored the report. They issued the following statement:

“China is a state-run economy and does not operate on market principles, yet it argues that it must be treated as a market economy as of the 15th anniversary of its accession to the WTO in December 2016. This third-party report found that granting China market economy status is premature and would lead to significant job losses in our sector, and in steel communities where plants are being idled and jobs are already being decimated. This is unacceptable.”

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This week the Federal Reserve declined to raise interest rates here in the US, but hinted strongly that it might do so at its last meeting of the year in December. Market-watching and significant commodities lows dominated the week in metals and most commodities.

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In China, the central government made a move to goose its planned economy that hardly anyone expected when it rescinded the longstanding 1 child policy families had been limited to since 1979. Chinese parents can now bring 2 whole kids into the world!

Introduced by Deng Xiaoping to improve a then-impoverished nation’s scarce resources, the baby limit is threatening to undermine growth there as the working-age population shrank last year for the first time in 2 decades and the cohort of senior citizens is projected to grow rapidly, just like our retiring baby boomers.

We write about China quite a bit here at MetalMiner, but mostly in relation to metals exports, oil and things that aren’t human beings. Yet, our skepticism about China really changing to modernize its economy extends to this 2-child policy, which could be a clever way to make it look like the nation is changing without dealing with underlying problems.

US dollar vs. RMB

Dollars and yuan renminbi dominated our economic conversation this week.

With slowing growth and a steel industry that’s still stuck in the dark ages when it comes to supply and demand and environmental regulation, can China really have all the jobs necessary to fill its current population? Let alone the next generation? China’s planned economy shoots for 100% employment. I’m skeptical of China getting even close to that these days without currency manipulation, overproduction of steel, aluminum and most of the metals that we track.

So, the labor market there is not really a market at all. My colleague, Lisa Reisman explained just how far mainland China is from being a market-based economy this week while discussing recent World Trade Organization moves to recognize it as such. The picture’s not pretty.

China’s largest listed steel producer, Baoshan Iron & Steel, has no further plans to cut production following the recent closure of its 550,000-metric-ton-per-year Baotong plant, even though most figures show it is still overproducing steel for export. I suppose we could achieve 100% employment in the US here, too, if we were to give half the unemployed jobs digging holes and the other half jobs filling them up.

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As if on cue, the US Dollar bounced off support and is now climbing higher against other currencies. While our banking system, and the Fed itself, can sometimes seem arbitrary and unsatisfying to investors, things could be far worse.

The US and 11 trading partners, mostly in the Asia-Pacific region came to final agreement on the Trans-Pacific Partnership, which still faces a skeptical congress.

TPP Agreed To

The US, Japan and 10 other Pacific Rim nations on Monday reached final agreement on the largest regional trade accord in history, although an approval fight still looms in congress.

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The conclusion of the Trans-Pacific Partnership, after years of negotiations was “an important first step,” said Michael B. Froman, the United States Trade Representative, as he and other officials announced their accord.

The deal faces months of scrutiny in Congress, where some bipartisan opposition was immediate.

Steel Imports Down in August

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the US imported a total of 3,016,000 net tons (nt) of steel in August 2015, including 2,439,000 nt of finished steel. That is down 8.2% and 6.7%, respectively, vs. July final data.

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On the year-to-date, through the first 8 months of 2015, total and finished steel imports were 28,023,000 and 22,915,000 nt, respectively. That was down 2% and up 7%, respectively, vs. the same period in 2014.

India has lost a case against the US at the World Trade Organization over protection for local crystalline silicon and thin-film solar cells.

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The WTO ruled that India’s domestic content requirements under its new solar power program were inconsistent with international agreements. Indian officials have said they will appeal the ruling to the WTO’s dispute panel in the next two months.

Solar Panel array

Photovoltaic solar array, the kind US manufacturers would love to send to India.

The US alleged that India’s ambitious solar program discriminates against US crystalline silicon photovoltaic and thin-film solar panel manufacturers by requiring Indian producers to use locally manufactured silicon or thin-film cells and by offering subsidies to those developers who use domestic equipment. Read more

The imposition of anti-dumping duties by the Indian government should encourage US authorities who have been asked to enforce a similar move. The suit filed by six US companies concerns corrosion-resistant steel, a type of coated steel used in automobile and construction industries. The US has been witnessing an unprecedented flood of imports in the last one year or so.

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As reported by MetalMiner last month, the US steel industry is suffering because the imports hit a record 34% of market share, according to the American Iron and Steel Institute (AISI).

The US slapped duties on imports of steel used in the energy industry from South Korea and five other countries last year but, evidently, those tariffs did not have the desired effect. The AISI in its press briefing last month, asked the US Government to first enforce existing trade laws which would be an immense help to the steel industry.

In India, steel imports had increased to 0.91 million metric tons this May, an increase of 58% as compared to the same month’s figure last year. As compared to April 2015, the import rate was up by about 20 mt, according to a report by the Ministry of Steel.

Many analysts said the Indian stainless steel industry started resembling a sick industry, as cheap imports were leading to a situation of under-utilization of installed capacities. The local industry hopes the anti-dumping duties will send out a clear signal to those sending in cheap imports, and lead to a resurgence in India’s steel sector.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.


James May, Steel-Insight

Current US prices for hot-rolled coil are around $470 per ton ex-works, although big buyers dealing with some mills can still pay $450 per ton.

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Steel-Insight believes that this is close to the bottom, but we don’t expect a sharp turnaround anytime soon. So why is this a pricing trough?

Further Discounting

First, those big discounted prices have been available for around three weeks and some big distributors and tube buyers have pulled the trigger at the $450 per ton level. That has helped push out mill lead times back to four weeks and lessened the need to discount heavily. We understand that integrated mills are now far more reluctant to discount below $470 per ton. There could be further discounting on cold-rolled coil front as the spread remains too high compared to cost.

Carbon Flat-Rolled Inventories (Months’ Consumption)


Source: MSCI, Steel-Insight.

Second, shredded scrap prices look like they are stabilizing at around $250-260 per ton delivered to Midwest mills. That means mini-mills are not likely to discount below $450 per ton as they would lose money and they don’t need to take that business to fill their order books now. International scrap prices have bumped up a little, although they lack the overall momentum to rise much more, while scrap flows into yards slowed with the lower prices.

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A recent article in India’s Economic Times is typical of recent coverage that makes much fanfare of India’s rise to 3rd-largest steel producer in the world at the expense of the USA which slipped to 4th in world steel producers.

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The differences are relatively small, based on data compiled by World Steel Association (WSA) India’s production growth was the world’s highest during the January-February period at 7.6% to 14.56 million metric tons, compared to the US which slipped back to 13.52 mmt. According to the ISSB, India produced about 86.5 mmt compared to the  88.2 mmt from the the US, but the US is facing a strong dollar denting its export markets and — by way of that same strong dollar and massive global overcapacity — a tsunami of imported steel. According to the ITA in 2014, US imports of steel mill products totaled 40.2 mmt, a 37.9% increase from 29.2 mmt in 2013.

What it Means

First, should we worry about India taking 3rd place spot from the USA in steel production?

Looking at it dispassionately, no. It is inevitable that an emerging market with a population of 1.25 billion and with a projected increase in its urban population from 400 million to 600mm by the end of the decade. At the same time as it industrializes and invests in infrastructure, India is going to need to build substantial steel capacity.

The US, on the other hand, has a mature industrial landscape with a quarter of India’s population and while it has some of the most efficient and lowest-cost steel production in the world it still operates in a high-cost environment with stringent environmental and health and safety controls that inevitably have an impact on the industry’s ability to compete in overseas markets.

So 3rd spot or 4th spot is really no more than symbolism. What is more important is whether or not the change tells us anything about global steel markets. Is India’s rise achieved unfairly by subsidy or state support as China is often accused of benefiting from? Although we laid out good reasons why Indian domestic demand would stay high and rise, in fact the country exports about the same percentage of its total production as the US and the trend is growing. So, not all of that steel is being consumed domestically and the country’s steel industry has aspirations to be a regional supplier not just meet domestic demand growth.

Source: ITA

Source: ITA

India is not a major importer of steel. Protected by import tariffs, India only imports grades and forms that it does not produce domestically, in tonnage terms relatively small beer. But even India complains of competition from China, although more as it fights for export markets than due to a flood of competition at home.

Source ITA

Source: ITA

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Invariably whenever prices for commodities fall, domestic producers begin sounding the alarm bells. And those bells are ringing loud and clear when it comes to steel imports from China, according to a recent Wall Street Journal article.

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The comments on that story, on the other hand, tend to center on free trade, fair markets and protectionism. They tend to support the point of view of the buying organization and not the domestic producer.

Steel Data Informs The Debate

But most commentators don’t spend the time poring through steel data to engage in an informed debate. From our vantage point, several factors should be part of any trade analysis:

  1. Home-country demand vs. the amount of domestic capacity. A large delta between the two tends to force foreign producers to seek export markets to deplete the surplus.
  2. Price trends in the home market vs. price trends in overseas markets.
  3. A true understanding of what it means to “dump” a product – the definition is this: domestic producers need to show that products sold into the import market are sold at below home market price levels – a challenging task to prove, to say the least.
  4. Actual import volumes and average prices.

To be clear, to prove anti-dumping, the domestic producers must provide evidence as in 3 above. No. 4 above helps producers determine if they believe they need to pursue 3. Why dumping occurs involves 1 and “if” it can happen applies to 2.

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There is no assurance in India as to whether the nuclear deal “work around” Prime Minister Narendra Modi reached with US President Barack Obama this week will pass legal muster, since India’s parliament, based on international norms, passed a very stringent law demanding accountability under a previous government.

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An agreement was signed on civil nuclear cooperation between the two nations in 2008, and India had to put in place a nuclear liability regime to pass international norms, which makes the supplier, in this case US firms providing the prospective nuclear plants’ technology, financially responsible for any mishaps. Now, both leaders have agreed to “bypassing” this major stumbling block by bringing in Indian insurance companies.

Daniel Roderick, President and CEO of Westinghouse Electric Co. later told news agency Reuters that the civil nuclear pact struck at the summit talks could help clear a logjam of stalled projects. Although he added he was looking for more details on a nuclear liability insurance pool that India had proposed.

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An article by a colleague of mine at our sister publication SpendMatters highlighted the plight of Cuba following 50 years of isolation under communist Fidel Castro’s regime.

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The economy has been stuck in a time bubble with virtually no external investment and very limited export markets, resulting in a stagnation that has left the population well-educated but ridiculously poor by modern standards. Although Cuba isn’t blessed with untold riches in terms of natural resources it does have significant nickel reserves, and managed with soviet help to be a substantial nickel exporter in previous decades.

The time warp that is Cuba. Source: Thomas Case/SpendMatters

The time warp that is Cuba. Source: Thomas Kase/SpendMatters

One western firm that persevered with their Cuban nickel operations was Canadian Sherritt International who mine nickel ore there and refine it in their west Canadian refinery. Reuters reports Toronto-based Sherritt is the largest independent natural resources company in Cuba and operates the Moa nickel mine in the eastern part of the island.

Due to the Cuban origin of its nickel and cobalt, the company is currently unable to export to the United States, nor is it able to buy US mining equipment to operate its mines. Indeed, some of Sherritt’s officers and directors have been barred from the US because of the Helms-Burton Act, Reuters reports.

The company hopes the situation will change next year. Sherritt derives nearly 3/4 of its revenue from operations in Cuba and about 95% of its revenue from its metals business, while Sherritt’s Cuban operations represented about 60% of the company’s net asset value. Not surprisingly, the firm’s shares jumped dramatically on the news of thawing US-Cuban relations, a development that may benefit many smaller enterprises on the island in the year ahead. Some of us at MetalMiner are looking forward to the day when we can freely import our favored Cuban cigars, although, personally, I will say they can keep their rum.