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Several sources are leading on news that President Trump has twice rejected a Chinese proposal to cut steel overcapacity, despite the endorsement of some of his top advisors.

An agreement reached between U.S. Commerce Secretary Wilbur Ross and Chinese officials last month agreed a cut of 150 million tons per annum of capacity by 2022 was vetoed by the president, apparently because he preferred a more “disruptive strategy,” according to Reuters and the Financial Times.

The articles suggested the 22% rise in steel imports through July of this year compared to a year ago, reported by the American Iron and Steel Institute (AISI), spurred calls for action from U.S. steel producers to apply tariffs. Those calls may have influenced Trump’s position, as may the input of Steve Bannon, since fired, and Peter Navarro, an economic assistant to the president on trade matters.

The rejection of a deal brokered by Ross’ team seems to have undermined his position and probably leaves little room for further negotiation. The Chinese have gone away to consider their options, but rumors reported in the Financial Times suggest retaliatory action seems the most likely.

But while picking a fight with China probably makes for good headlines, at least as far as U.S. imports are concerned, is it the primary antagonist?

Not if you look at the AISI data.

Their findings suggest Taiwan and Turkey were the countries making up much of the increase. There was a sizeable increase from other countries, too, meaning Germany, up nearly 60%, and Brazil, up 80%, on three-month rolling average measures.

At 83,000 tons, China’s share of finished steel imports is a fraction of South Korea’s 352,000 tons, Turkey’s 245,000 tons or Japan and Germany’s about 138,000 tons.

Unless the administration plans on tackling these suppliers, picking out China seems a bit like fiddling while Rome burns.

We would hope that Trump’s presidency ends much better than Nero’s both for the man and the country, but picking fights that have a pragmatic strategy rather than catching headlines would be a good first step.

Proposals based on environmental grounds to limit polluting industries in the greater Beijing area during next winter’s primary heating period (November to March) gave a boost to the aluminum market from the moment they were first mooted last year.

Beijing’s robust implementation of environmental audits and regulation of aluminum plants this year have added to a sense that the authorities are getting serious about pollution and the environmental impact of energy intensive industries like aluminum smelting. But, as Reuter’s columnist Andy Home opined, it is protectionism in the rest of the world that is going to add backbone to these trends and act as the driving force behind further action on Beijing’s part.

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In an article this week, Home explained how the latest investigation into aluminum imports, along the same lines as an earlier steel case, has been launched under Section 232(b) of the Trade Expansion Act of 1962, which lets a president act against imports on national security grounds. The reasoning is the U.S. has but one smelter left in operation, Century’s Kentucky smelter, capable of producing the high grades required for defence and aerospace companies making combat aircraft and the like.

China supplies almost no primary aluminum to the U.S. market. Following U.S. smelter closures, surging imports are being increasingly met by Russia and the United Arab Emirates, while the bulk continues to be supplied by Canada, as the graph below from Reuters shows.

Where China has an impact is in semi-finished products, such as sheet, plate, foil, bars, tubes and sections. Here the growth of Chinese exports to the world — and U.S. imports — has been much more significant. According to Home, on that measure China has been by some margin the largest-volume supplier to the U.S. market in recent years. Read more

In much the same way as President-elect Donald Trump conducted his election campaign, he has kept himself very much in the headlines in the interim period until he takes charge as president in January.

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Trump won by promising infrastructure investment and that he’d protect American manufacturing jobs. What’s that mean for American steel? The two were seen by many as mutually supportive. Read more

The Saudis counted them out. So did the Russians, even many domestic analysts said North American shale and tight oil and gas production would decline in the face of low prices an that investment would dry up and output would fall.

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Well, guess what? They have all been proven wrong. Sure, rig counts have dropped and there have been painful layoffs of workers, but the industry is surviving and against all the “experts” advice production of natural gas from the Marcellus and Utica shales of the U.S. Northeast is averaging 22.63 billion cubic feet per day in August, according to a Financial Times article.

Natural Gas Output Up

That is up 2% from July and the most since February’s all-time high of 22.78 billion cu-ft/d. Despite earlier U.S. government forecasts that combined gas output from the two shale areas lying beneath Ohio, Pennsylvania and West Virginia would decline, producers have managed to maintain volumes by tapping inventories of drilled but uncompleted wells and burrowing deeper, longer wells that yield more gas. Read more

Despite falling raw material costs, figures posted by U.S. Steel underline the damage imports are having on the US steel industry.

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The WSJ reported U.S. Steel posted a 34% decline in revenue and a $261 million loss in the latest quarter, up from a $18 million loss for the same time last year.

Falling Prices, Rising Surpluses

Steel prices have continued to fall, just as my colleague Lisa Reisman has been predicting for the last year. As demand has suffered, cutbacks in the energy sector, particularly for drill pipe, and imports have risen with a stronger dollar and growing surplus in the global steel market. Capacity utilization in the US market is down to 72.5% according to the American Iron and Steel Institute, a sharp fall from the same period last year, with even that number looking optimistic compared to reports in Bloomberg which suggest it could now be below 70%.

Steel Coil

Expect shipments of steel into the US to stay high so long as the dollar retains its strength against other currencies.

As Bloomberg reported last week, the amount of imported steel used in the US market has swelled from 28 to 33% since last year as the economies of major producing countries like China, Russia and Brazil have slowed and producers have sought more exports. Nucor Corp., the US’s largest and most efficient producer, warned as far back as March that its first quarter profit would be as much as 71% lower due to the exceptionally high levels of imports flooding into the market. Read more

The US market is leading GDP growth among developed nations and, in the process, diverging from the global steel market to the benefit of steelmakers – but to the detriment of consumers. First, what’s happening overseas?

In Asia, both iron ore and coking coal prices have been falling – indeed, the forward curve for iron ore on Singapore’s SGX dipped under US$130/dry metric ton for the January contract for the first time on Thursday, Jan. 9 and currently trends downwards along the curve to under US$120/dmt by May this year, the Steel Index reports.

Iron ore, as measured by TSI’s 62% Fe benchmark price for Chinese imports, has traded in a remarkably stable band of $130-140/dry metric ton since Aug. 16, 2013. An almost unprecedented period of stability for recent years, but a combination of issues has impacted demand, leading to a fall in prices even as bad weather has hampered supply, an issue that would normally have supported prices.

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According to data from the U.S. Energy Information Administration, U.S. crude oil inventories rose by 5.2 million barrels last week, the fifth largest build of the year, with stocks at the Cushing hub rising for the second week in a row. Over the past four weeks, inventories have risen by 22 million barrels, marking the biggest four-week build since April 2012 and the second largest since February 2009.

The crude oil stored at Cushing, the delivery point for the U.S. futures benchmark contract, amounted to 33.34 million barrels in the week that ended Oct. 18, an increase of 358,000 barrels. As noted in an article in the FT, certainly flows of shale oil have been surging from areas such as Bakken, North Dakota and Eagle Ford, Texas, where output has reached 1 million barrels a day.

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As a result, prices have fallen to their lowest level since July. On Wednesday, NYMEX West Texas Intermediate dropped more than $2 to a low of $96.16 a barrel, before recovering slightly. The decline saw the price differential between WTI and global benchmark Brent increase to more than $13 – the widest since April – before narrowing. ICE Brent for December delivery was down $1.75, to $108.21 a barrel.

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Articles such as ABC News’ coverage of recent USGA research reporting that the US has untapped and vast potential resources of rare earth elements waiting to replace Chinese supplies are missing the point.

The USGA has correctly identified that even better than a deeply buried lode of rare earth minerals, there are extensive mine tailings left from as far back as the days of the gold rush, dug up and sitting on the surface ready to be processed. Some have already been re-worked once for gold, silver and other metals, and so have been mechanically crushed to conveniently small physical sizes, and to the extent that some other minerals have been removed, concentrated to just the rare earths and substrate gangue.

The USGA has also identified locations in Idaho, Montana, Alaska and Colorado as being economically viable – but therein lies the problem.

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The lovely graph below is similar to graphs often rolled out by supporters of the US manufacturing sector when raising fears about the decline of industry’s role in the economy – and America’s role in the world as a manufacturing nation:

Taken at face value, the decline appears inexorable, but when tracked as this one is, i.e. against world manufacturing, it can be seen that the US really only matches the mature world economies’ rise in the service sector as a proportion of GDP.

Even more encouraging is this next graph of US manufacturing, which shows that, far from decline, US manufacturing has grown over the decades even if its rise has not kept pace with the increasing role of the services sector:

So before we all slit our wrists in the manufacturing sector, let’s take some comfort in the fact that US industry has held its own in an increasingly global environment and has plenty of scope to continue to expand in the future.

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We have written before about the benefits the shale gas revolution is bringing to the US economy (particularly US manufacturing).

Also, we’ve looked at the potential threat that this competitive advantage could be jeopardized by widespread exports of that same low-priced natural gas, depleting the very excess that has caused prices to plunge below world levels.

Cold winter weather has already stimulated a sharp natural gas prices rise to over $4 per million British Thermal Units (BTUs), a 71% increase over a year ago, according to Gas Investing News.

Producers had already started pulling back on production after being deterred by the low prices, such that inventory was falling and some were beginning to doubt if the competitive advantage of low prices would continue for much longer.

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