WTO

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This morning in metals news, China is looking to the World Trade Organization (WTO) to make its case with respect to the ongoing aluminum foil dispute with the U.S., copper and nickel are up, and Kobe Steel executives are deciding whether or not to resign.

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China, the U.S. and the WTO

According to a Reuters report, China has asked the WTO report for consultations regarding the recent U.S. Department of Commerce antidumping decision on Chinese aluminum foil.

China’s Ministry of Commerce submitted the request for supplementary consultations under the WTO dispute resolution mechanism on Nov. 3, according to the report.

Copper, Nickel Rise With EV Optimism

Copper and nickel saw their fortunes rise on Monday, according to Reuters, backed by optimism regarding the electric vehicle market, pollution crackdown in China and global economic strength.

Nickel rose 10% last week to hits its highest price since June 2015.

Kobe Execs Consider Resignation

According to a Reuters report, Kobe Steel executives will decide whether or not to resign following the results of an independent probe into the firm.

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The firm also plans on releasing an internal report regarding the company’s quality data falsification scandal, which has seen the company’s share price plummet in recent weeks and significantly dented the firm’s credibility in the global market.

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This morning in metals news, China gets called out with respect to its adherence to the rules of the World Trade Organization (WTO), the housing industry is slumping and Kazakhstan is the recipient of its first WTO complaint.

Aluminum Association, AISI Call Out China

The Aluminum Association recently filed comments with the United States Trade Representative (USTR) and the Trade Policy Staff Committee (TPSC) urging the Trump administration to press China on adherence to the rules of the WTO.

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In a release Wednesday, the Association said it “believes China has failed to adhere to the letter and spirit of its WTO accession.”

In a letter to TPSC Chairman Edward Gresser, Aluminum Association President and CEO Heidi Brock said China has regressed with respect to adherence to the rules set forth by the WTO.

“Despite initial progress after China’s WTO accession, the last decade has seen a major regression, which calls into question the underlying premises for the decision by the United States and other WTO members to welcome China into the WTO’s rules-based global trading system,” Brock wrote in the letter.

A filing from the American Iron and Steel Institute (AISI) signed by Kevin Dempsey, AISI’s senior vice president of public policy and general counsel, struck a similar tone.

“Now more than 15 years after it acceded to the WTO, China continues to fail to comply with its WTO obligations,” Dempsey wrote. “This trend continues to be a major problem for steel producers in the United States, other U.S. manufacturers, and the broader U.S. economy. AISI strongly urges the U.S. government to recognize China’s compliance failures and adopt a more aggressive strategy that is commensurate with the scope and severity of China’s failure to comply with its WTO obligations.”

Housing Market Down in August

U.S. home sales slumped in August as Hurricane Harvey devastated the Houston area, one of the most robust housing markets in the country.

According to the National Association of Realtors, existing-home sales in August dropped 1.3% and were at their lowest levels in a year.

According to Reuters, Texas and Florida (which was hit by Hurricane Irma earlier this month), comprise 18% of existing-home sales.

Ukraine, Kazakhstan Enter WTO Dispute

Ukraine is taking Kazakhstan to the WTO over a dispute regarding duties on steel pipes, Reuters reported. Ukraine argues that Kazakhstan is using antidumping duties on certain types of steel pipe imported from Ukraine.

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According to the report, the dispute is the first targeting Kazakhstan, which has been a WTO member since 2015.

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A new front seems to have opened up in India’s steel wars.

Only this time, the country seems to be fighting for its steel companies to be allowed to sell its steel in a foreign market.

India has complained to the World Trade Organization (WTO) that the U.S. had failed to drop anti-subsidy duties on certain Indian steel products. The move comes on the heels of India itself having imposed anti-dumping duty on 47 steel products from six nations in May.

According to the Indian government, the U.S. had not kept its promise of an April 2016 deadline to comply with a WTO ruling that faulted it for imposing countervailing duties on hot-rolled carbon steel flat products from India.

In December 2014, the WTO ruled against the U.S.’s move to impose high duty on imports of certain Indian steel products. The world body said the high duty by the U.S. was inconsistent with various provisions of the Agreement on Subsidies and Countervailing Measures.

The U.S. sought time until the April 2016 deadline to comply with the ruling. Realizing that the deadline had passed away without any action on part of the U.S. authorities, India has now requested the WTO dispute consultations with the U.S. regarding U.S. compliance.

Some experts say the U.S. will have to amend its domestic norms to comply with the WTO’s verdict on countervailing duties.

In May, India imposed anti-dumping duty on products from six nations — China, Japan, South Korea, Brazil, Russia and Indonesia — to protect its own industry from cheap imports.

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The signals the U.S. is sending in the steel sector really worry Germany, so said Brigitte Zypries, German Economy Minister, according to Reuters in a recent article.

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This isn’t the first time the European Union has had a trade spat with the U.S. over steel but it is unusual for one party or the other to take the case to the World Trade Organization, claiming “accounting tricks” and “protectionism” designed to give domestic producers an “unfair competitive advantage.”

The E.U.’s position is this issue should have been addressed through bilateral negotiations giving them the opportunity to show Germany, French and Austrian steel producers are not dumping steel and are not being subsidized, but President Trump signed executive orders last Friday aimed at identifying abuses causing the huge U.S. trade deficit, and Germany is deemed one of the worst culprits.

Port Talbot steel plant

British Steel and its Port Talbot plant could be the next company in line for carbon and alloy steel plate tariffs from the U.S. Source: Adobe Stock/Petert2

However, by issuing a final finding that European and Asian producers dumped certain carbon and alloy steel cut-to-length plate in the U.S. market, the Department of Commerce says it is allowed to impose duties ranging from 3.62 to 148%, but the E.U. claims the decision has been determined on the basis of dodgy accounting estimates and the correct place to discuss them is at the negotiating table or via the WTO, not by applying duties which will then take months to address and impact trade for a year or more, essentially shutting European mills out of the U.S. market. Read more

In the ongoing dispute between Japan and India over cheap steel imports, Japan has requested that the World Trade Organization set up a panel to resolve the dispute.

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Early indications are that the move will be opposed by India. Japan’s request comes after New Delhi imposed safeguard duties on several iron and steel products, which India claimed violated global trade rules.

India’s finance ministry imposed definitive safeguard duties on imports of hot-rolled flat products of non-alloy steel in coils to counter a surge in imports from several countries, including Japan. India’s stand has been that such cheap imports “caused injury to domestic steel industries.”

New Delhi would have taken recourse to the safeguard measures on grounds that the import surge in hot-rolled flat products is the result of unforeseen developments. India levied 20% safeguard duties ad valorem minus anti-dumping duties on Japanese imports of hot-rolled flat products between September 2015 and September 2016; 18% between September 2016 and March 2017; 15% between March 2017 and to expire by September 2017; and 10% for a future period in September 2017 and March 2018.

As reported by MetalMiner, despite the excellent trade relations between the two nations, Japan is unhappy with India’s decisions to place a minimum import price and other assorted duties to protect its domestic steel industry. Japan claims this has halved its steel exports to India in the last year.

Japan requested the panel came after India’s failure to provide “convincing reasons” for its safeguard and anti-dumping actions. It’s said the request will come up before the dispute settlement body (DSB) meeting today.

According to a report in the Financial Express, India opposes Japan’s move. Quoting experts, the report said since WTO cases can be settled with rulings that were “prospective,” any adverse judgment would not affect India significantly.

In a parallel development, there are reports coming in that India would use make it compulsory for Indian customers to use domestically produced steel, to stop inroads made by steel products from other countries including China.

India may soon mandate the use of local steel in government infrastructure projects worth billions of dollars, pitching it as a WTO-compliant protectionist measure.

Quoting news agency Reuters, the report said the Indian Government expects to move to boost sales of local companies such as JSW Steel and Tata Steel and eventually attract global steelmakers such as ArcelorMittal and POSCO to invest in the country.

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India is the world’s third-largest steel consumer, but its current level of capacity utilization by domestic steel producers is below 80%.

The demise of the primary aluminum smelting industry in the western world has been like a long, slow train crash. As this graph from CRU shows, the decline has been relentless, and although many reasons are cited for the closures of U.S. and European smelters, power costs and the resulting cost of production are a primary cause.

Source: CRU Group

According to North American trade group the Aluminum Association, since 2015 seven U.S.-based aluminum smelters — more than 60% of U.S. primary aluminium smelting capacity — have been curtailed or closed. Over a similar time frame as the graph shows, Chinese aluminum production has grown from 11% of global primary aluminum in the year 2000 to nearly 55% today.

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The West has been surprisingly philosophical about the loss of smelting capacity, appearing to take the view that aluminum is such an energy-intensive product that the movement of smelters to low-power cost locations has a logical inevitability about it.

Where is Aluminum Production Going?

That argument holds true for the growth in the Middle East. Production in and around the cradle of civilization has jumped from 0.9 million metric tons in 1999 to an expected 5.7 mmt this year. But it hasn’t until recently had much logic for high-power cost locations like China. Even Beijing would appear to agree that power production and prices are sufficiently precious and high-cost that exporting primary aluminum is not a logical business model even for an export-orientated economy like China’s. Read more

You read right, dear readers – MetalMiner unveiled its forecast of average 2016 prices for aluminum, copper, nickel, lead, zinc, tin and hot-rolled and cold-rolled steel yesterday, and you may be surprised that we’re more bearish than the big banks (the Standards, Macquaries, Goldman Sachses and the like) and their 2016 average price forecasts.

And all of these average price forecasts can be yours…as soon as our Annual Metal Buying Outlook is published and ready for download. (Hint: it could drop as early as the end of this week. We’ll update this post with the link to the report, so bookmark us!)

As far as MetalMiner’s departure from the banks’ forecasts, co-founder and editor-at-large Stuart Burns had this to say recently: “It’s definitely a bullish tone that bank and senior research analysts have taken…in our view, there’s still plenty of excess capacity out there, demand is weak, and the dollar is strengthening,” and those factors, ultimately, may make many of the banks’ forecasts turn from bullish to bearish sooner rather than later.

We’re not the only ones on the block with a bearish outlook – just yesterday, the WTO released updates on its 2015 and 2016 global trade outlook. According to their full release, WTO economists have lowered their forecast for world trade growth in 2015 to 2.8%, from the 3.3% forecast made in April, and reduced their estimate for 2016 to 3.9% from 4.0%.

WTO Trade Forecast Revised Downward

Some main takeaways:

  • The same exact things we at MetalMiner have been hammering home. Falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations drove the revisions downward. (What’d we tell ya?!) Also, the WTO goes so far as saying, “Risks to the forecast are firmly on the downside, the most prominent being a further slowing of economic activity in developing economies and financial instability stemming from eventual interest rate rises in the United States.”
  • China, China, China. Globally and regionally, China’s lower economic growth rates and falling demand have really upset the apple cart. According to the WTO, Asian export and import growth for 2015 has been revised down as slower growth in Chinese imports has reduced intra-regional trade. Also, China’s struggling import demand plays a big role in world merchandise trade volume, which is expected to rise only 2.8% in 2015 – lower than the previous estimate of 3.3%.
  • Trade took H1 2015 hits – just like the overall commodities and metals sectors. As the WTO puts it, “At the time of our last forecast in April 2015, world trade and output appeared to be strengthening based on available data through 2014 Q4. However, results for the first half of 2015 were below expectations as quarterly growth turned negative, averaging ‑0.7% in Q1 and Q2.” Yep, the first half of 2015 was definitely not great for the metals sector, either.

For more on what US and global construction sector indicators can tell us, make sure you check out my colleague Jeff’s rundown today.

Don’t forget, come back for our annual 2016 outlook!

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

Which countries are to blame for the glut of steel and aluminum imports flooding American shores? Sure, the usual suspect – China – looms front and center, but another culprit lurks just in its shadow. (We set the stage in Part One of this article; read here if you missed it.)

The wild card is South Korea, specifically if we look at oil country tubular goods (OCTG) imports. According to the EPI report, Korea’s capacity for producing OCTG – which is entirely for export; they use none of it – increased 21.1% from 2010 and 2012, which enabled 47.4% for export, over 90% of which was US-bound.

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As for aluminum, other than the spike in Russian imports, Canada took the biggest piece of the pie (as it has for many years); but the second-largest exporter to the US for the first two months of 2014, according to USGS data: the United Arab Emirates. Since power supply is cheap in the Middle East, primary producers have been ramping up smelter capacity, and of course, there’s nowhere for the excess metal to go – except the US.

What do record steel and aluminum imports have in common? China, Korea, India and other countries’ governments essentially shun economics and unfairly subsidize these industries in myriad ways, creating a huge oversupply bubble.

Price Effect

No need to look further than the tale of two charts:

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The World Trade Organization has ruled against China and its export restrictions on rare minerals, according to the FT, saying Beijing had for years used trade policy to control key markets for strategic commodities and encourage manufacturers to move their operations to China.

Of course, China will appeal, so the status quo will remain for the time being, but speculation is already growing that an increase in exports could depress global prices for rare earths further, possibly making some of the start-ups unviable and certainly deterring new mining ventures currently on the drawing board.

A Reuters article quotes Ryan Castilloux, founding director at Adamas Intelligence in Sudbury, Ontario, saying, “If the recent WTO ruling leads to a softening of China’s rare earth industry policy measures, the nation’s only tangible defense becomes competing head-to-head on price with emerging global producers,” ergo prices will fall.

FREE Download: The Monthly MMI® Report – covering the Rare Earths market.

What’s happening to rare earth prices now?

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