This morning in metals news, LME copper had a quieter Wednesday, Mexico looks to formulate a backup plan for a potential life after NAFTA and steelmakers are looking to maintain their market share in the world of skyscrapers.
LME Copper Hangs Near Three-Year High
LME copper didn’t have as big of a day on Wednesday as it did on Tuesday — nonetheless, the metal is still close to its three-year high.
According to a Bloomberg report: “Since 2000, steelmakers outside China expanded output of structural beams and columns at only about half the pace of rods, or rebar, used to reinforce concrete, the World Steel Association says.”
Last week, United States Trade Representative (USTR) Robert Lighthizer and Korean Trade Minister Hyun-chong Kim discussed the U.S.-Korea free trade agreement, referred to as KORUS, via video conference, according to a USTR release.
Like NAFTA, the trade deficit is a central talking point for the U.S. In a statement from the Office of the USTR, Lighthizer summarized the administration’s goals with respect to trade with South Korea.
“The United States and Korea have an important economic relationship,” Lighthizer said in the prepared statement. “Unfortunately, too many American workers have not benefited from the agreement. USTR has long pressed the Korean government to address burdensome regulations which often exclude U.S. firms or artificially set prices for American intellectual property. This negotiation offers us an opportunity to resolve these and other barriers.”
“Since KORUS entered into effect, U.S. goods exports have decreased while the trade deficit overall with Korea has nearly tripled,” Ambassador Lighthizer continued. “American service exports have seen virtually no growth in the past four years. President Trump is committed to substantial improvements in the Korean agreement that address the trade imbalance and ensure that the deal is fully implemented.”
According to a release on the Korean Ministry of Trade, Industry and Energy website last Wednesday, Kim said no decision had been reached regarding the next step in the discussion.
“The Trade Minister said the Korean representatives had proposed a joint study to examine the effects of the trade pact before starting talks on a revision of the deal, and will await the USTR’s review of the proposal and response before deciding how to proceed,” the release said.
The Trade Deficit Rises
The U.S.’s trade deficit with South Korea has ballooned since implementation of KORUS in March 2012.
In 2011, the last full year before KORUS went into effect, the U.S. had a $13.2 billion trade deficit with South Korea, according to U.S. Census Bureau data.
That deficit has increased in size every year since: $16.6 billion (2012), $20.7 billion (2013), $25 billion (2014), $28.3 billion (2015) and $27.6 billion (2016).
Thought the first six months of 2017, the U.S. has a $11.2 billion trade deficit with South Korea.
The automobile sector is the source of much of the deficit, according to the USTR release. In 2016, 90% of the $27.6 billion deficit came from the auto sector alone.
Impact on Steel?
As for metals, South Korea is a leading steel exporter to the United States, as a recent American Iron and Steel Institute (AISI) report on steel imports showed.
Although South Korea’s steel exports in July to the U.S. dropped by 13% from June totals, South Korean steel still led the way with 337,000 net tons exported — ahead of Turkey, Germany, Japan and Taiwan.
South Korea is also the largest supplier through the first seven months of 2017, sending nearly 2.3 million net tons to the U.S., which is actually down 4.5% year-over-year.
While China has been the focus of the Trump administration’s Section 232 investigation into steel imports, countries like South Korea could also be impacted if Trump opts to slap tariffs on steel imports.
As our Stuart Burns wrote last week, it might be a faulty assumption to think that the trade imbalance is the direct result of the free trade agreement.
“Bilateral trade has surged since KORUS, as the Korean-U.S. trade deal is known, was implemented five years ago,” Burns wrote. “Although there is a trade imbalance, the reality is no two countries will have exactly balanced trade. Balances have more to do with relative competitiveness than a rigged system.”
Whatever happens to KORUS, it appears the South Korean government is preparing to pursue alternative economic avenues.
Following a meeting on the country’s exports last Thursday, a release posted on the Ministry of Trade, Industry and Energy website the following day read: “Trade Minister Kim, who presided the meeting held in the Korea Trade Insurance Corp. (K-sure), said that the Korean government will actively respond to trade protectionism, strengthen economic cooperation with emerging markets, and help boost the link between trade and industrial development.”
This morning in metals news, production of raw steel in the U.S. is up for the year, President Donald Trump reportedly rejected a Chinese proposal to cut its steel excess capacity and copper approached a three-year high.
Given how much ink has been spilled and time spent talking about Chinese excess steel capacity and its effect on the global market, one would think any proposals from China aimed at cutting capacity would be welcomed.
According to reporting from the Financial Times, President Trump rejected a Chinese proposal to cut its excess capacity. China proposed cutting 150 million tons by 2022, but Trump instead directed advisors to find ways to impose tariffs on imports, according to the report.
As has been discussed ad nauseam, China’s overcapacity has been the focal point of the Trump administration’s Section 232 investigations into steel and aluminum imports.
A week after the conclusion of the first round of talks to renegotiate the North American Free Trade Agreement (NAFTA), President Donald Trump once again made comments putting the 23-year-old trade agreement’s continued existence into question.
In a tweet early Sunday, Trump wrote: “We are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada.Both being very difficult,may have to terminate?”
In April, Reuters reported Trump was “psyched” to terminate the deal, and was prepared to do so until calls from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto convinced him otherwise.
Trump also tweeted about his proposed border wall with Mexico, restating a campaign pledge to have Mexico pay for the structure: “With Mexico being one of the highest crime Nations in the world, we must have THE WALL. Mexico will pay for it through reimbursement/other.”
This morning in metals news, it was a mixed Monday for base metals in China; in Arizona, the copper industry, environmentalists and recreation groups are at odds; and a Washington State aluminum smelter’s future remains uncertain.
Given that the total number of U.S. aluminum smelters in operation has declined from 23 in 1993 to six today, Wenatchee is just one example of a town hit by the decline of the U.S. aluminum smelting industry. Whether it, and other plants like it, can come back on stream remains to be seen. Of course, how the Trump administration concludes its Section 232 investigations of steel and aluminum imports will have a significant impact.
The bell sounded on the first round of North American Free Trade Agreement (NAFTA) negotiations in Washington, D.C. Can the U.S. find a way to tackle its trade deficits? Negotiators have proposed a fairly ambitious schedule for the remainder of the calendar year. The next round of talks was scheduled for Sept. 1-5 in Mexico.
Two weeks after the department issued affirmative determinations in the cases of Chinese aluminum foil and silicon from Australia, Brazil and Kazakhstan, the department issued a ruling on biodiesel earlier this week.
The department announced its determination Aug. 22. The CVD investigation targeted biodiesel imports from Argentina and Indonesia.
Secretary of Commerce Wilbur Ross announced Argentina and Indonesia received countervailable subsidies of 50.29 to 64.17 percent and 41.06 to 68.28 percent, respectively.
“The U.S. values its relationships with Argentina and Indonesia, but even friendly nations must play by the rules,” Ross said in a department release. “The subsidization of goods by foreign governments is something that the Trump administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”
Biodiesel fuel is typically made from a diverse range of sources, including recycled cooking oil, animal fats and and soybean oil.
As in other CVD rulings, the Department of Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of biodiesel from Argentina and Indonesia based on the aforementioned preliminary rates.
The petitioner in the investigation was the National Biodiesel Board (NBB) Fair Trade Coalition, which represents the biodiesel and renewable diesel industries, including producers, feedstock suppliers and fuel distributors in the U.S.
“The Commerce Department has recognized what this industry has known all along—that foreign biodiesel producers have benefited from massive subsidies that have severely injured U.S. biodiesel producers,” said Doug Whitehead, chief operating officer of the National Biodiesel Board, in a release. “We’re grateful that the Commerce Department has taken preliminary steps that will allow our industry to compete on a level playing field.”
As with the announcements Aug. 8, the Department of Commerce continues to tout the uptick in countervailing and antidumping investigations this year compared with last year. According to the Aug. 22 release, the department has launched 56 CVD and antidumping investigations between Jan. 20 and Aug. 22 — a 27% increase from the previous year.
According to the release, 2016 imports of biodiesel from Argentina and Indonesia were valued at an estimated $1.2 billion and $268 million, respectively.
China has undergone a series of supply-side reforms aimed at reducing oversupply, reducing pollution and alleviating pressure from abroad (particularly the U.S., which has pending Section 232 steel and aluminum investigations).
The Bloomberg report notes China is “shutting down unlicensed aluminum production capacity estimated by Citigroup Inc. to be about 4 million metric tons a year.”
According to the AISI report based on preliminary U.S. Census Bureau data, through the first seven months of 2017 total and finished steel imports are 23,168,000 and 17,938,000 net tons, up 22.1% and 17.3%, respectively, versus the same period in 2016.
Several products posted significant year-to-date increases in import volumes. Oil country goods (up 254%), standard pipe (up 47%), line pipe (up 39%), cold rolled sheets (up 37%), sheets and strip all other metallic coatings (up 35%), mechanical tubing (up 32%), hot rolled bars (up 26%), sheets and strip hot dipped galvanized (up 25%), wire rods (up 13%) and tin plate (up 11%) were among the leaders in this category.
In terms of steel import market share, the U.S. hit 30% in June, but dipped down to approximately 29% for July. The year-to-date market share stands at 28%, according to the data.
By country, South Korea led the way as the biggest exporter of steel to the U.S. in July, sending 332,000 NT (which was actually down 13% from the final June total). Turkey (252,000 NT, down 23%), Germany (148,000 NT, up 27%), Japan (137,000 NT, down 2%) and Taiwan (120,000 NT, down 29%) followed South Korea as the top exporters to the U.S.
On a year-to-date basis, Taiwan boasts the largest percentage increase in exports to the U.S. In descending order of volume, South Korea (2,265,000 NT, down 5%), Turkey (1,723,000 NT, up 14%), Japan (937,000 NT, down 12%), Taiwan (784,000 NT, up 54%) and Germany (750,000 NT, up 7%) led the way.
China Posts Month-Over-Month Increase, YTD Decrease
China, which has drawn much criticism from the Trump administration and U.S. primary steel producers for excess capacity, exported 86,000 NT of steel to the U.S. in July, a 4.6% increase from the 82,000 NT exported in June. In the first seven months of the year, however, Chinese steel exports to the U.S. are down from 515,000 NT last year to 506,000 this year, good for a 1.7% drop.
Of course, the Trump administration’s Section 232 investigation into steel imports, launched in April, has yet to be publicly concluded. While the impact of Chinese excess capacity has dominated much of the steel discourse within the Trump administration and the U.S. steel industry, China represents a relatively small share of the U.S. steel import market.
Should the Trump administration opt for trade remedies in the form of tariffs, quotas, or a hybrid tariff-quota solution, countries like South Korea, Turkey, Japan and Germany could also be affected.
What About NAFTA?
In other policy news, during a campaign-style rally Tuesday in Phoenix, President Donald Trump said the North American Free Trade Agreement (NAFTA) would “probably” be terminated. Whether that is a negotiating tactic — as Mexican and Canadian officials opined — or an earnest indication of Trump’s policy direction remains to be seen. Given that Trump reportedly nearly pulled the U.S. out of NAFTA in April — just three months after withdrawing from the Trans-Pacific Partnership (TPP) — one cannot dismiss the potential reality of his comments.
While various stakeholders have differing opinions on the success of NAFTA — the 23-year-old trade agreement uniting the U.S., Canada and Mexico — there is no doubt that the U.S.’s withdrawal from it would have far-reaching effects, particularly on long-established supply chains.
For example, although Canada is not a top-level steel exporter, a significant majority of its steel exports go to the U.S.
According to the International Trade Administration’s February steel exports report on Canada, Canadian steel exports in 2015 amounted to 1.5% of global exports and one-twentieth of Chinese steel exports that year.
From January-September 2016, 87% of Canadian steel exports went to the U.S., with 8% going to Mexico. As such, Section 232 trade remedies, combined with a potential withdrawal from NAFTA by the U.S. could conspire to severely impact — or, at the very least, significantly alter — the composition of the Canadian steel export market.
This morning in metals news, President Donald Trump said during a campaign-style rally in Phoenix on Tuesday that the North American Free Trade Agreement (NAFTA) will “probably” be terminated, last week’s U.S. raw steel production was slightly down from the week before and soccer superstar Cristiano Ronaldo’s latest endorsement is for … Egyptian steel?
In a campaign-style rally in Phoenix on Tuesday, President Donald Trump wheeled from subject to subject in a 77-minute speech touching on`q his Charlottesville response, the media, so-called “clean coal” and much more. He also turned his eye to NAFTA, the trade deal he almost sunk in April when he reportedly was ready to pull the U.S. out of it, until discussions with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto convinced him otherwise.
During his speech Tuesday, Trump said the deal would “probably” be terminated, sounding a threatening note just days after the first round of renegotiation talks concluded in Washington, D.C.
“And I must be honest, and I’ve been talking about NAFTA for a long time, and I’m sorry it’s taken six months, but we have to give notice,” Trump said Tuesday in Phoenix. “You have to see this. We have to give notice, and after the notice is given, you have to wait a long time. Then you have to give another one, then you have to wait a long time.
“Anyway, we started two days ago, Bob Lighthizer. Personally, I don’t think we can make a deal, because we have been so badly taken advantage of. They have made such great deals, both of the countries, but in particular, Mexico, that I don’t think we can make a deal. So I think we’ll end up probably terminating NAFTA at some point, OK? Probably.
“But — but I told you from the first day, we will renegotiate NAFTA, or we will terminate NAFTA. I personally don’t think you can make a deal without a termination, but we’re going to see what happens, OK? You’re in — you’re in good hands, I can tell you.”