Author Archives: Jeff Yoders

The Commerce Department launched an investigation on Wednesday to determine whether a flood of aluminum imports from China and elsewhere was compromising U.S. national security, a step that could lead to broad import restrictions on the lightweight metal.

Commerce Secretary Wilbur Ross said the investigation is similar to one announced last week for steel imports into the U.S., invoking Section 232 of the Trade Expansion Act of 1962.

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“Here’s why we did it,” Ross told reporters, “Imports have been flooding into the aluminum industry and the defense angle is that high-purity aluminum is used in the F-35” as well as other military aircraft and vehicles. In the event of a war, domestic manufacturers might be unable to meet the Pentagon’s needs, Ross said.

The investigation mirrors a probe Commerce launched a week earlier focusing on the steel industry, also invoking section 232 of the act. North American aluminum trade groups have been pushing for such action for the last five years.

Treasury Secretary Steve Mnuchin confirmed Wednesday that the Trump administration aims to lower business tax rates to 15%, saying a forthcoming proposal will constitute the “biggest tax cut” for Americans in history.

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“This is going to be the biggest tax cut and the largest tax reform in the history of our country,” Mnuchin said, as administration officials prepare to outline Wednesday afternoon what he described as “principles” of their tax plan.

Mnuchin, speaking at a Washington forum, would not reveal many specifics but confirmed that they want to lower the business rate to 15%.

“I will confirm that the business tax is going to be 15%,” he said. “[Trump] thinks that’s absolutely critical to drive growth.”

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He indicated that the rate for small businesses and the corporate tax would both drop to 15%. The top small business rate is 39.6%; the current corporate tax is 35%.

ERP Strategic Minerals, LLC, part of the ERP Group of companies, has been selected as the stalking horse bidder by the Chapter 11 trustee for Molycorp Minerals, LLC and related entities and entered into an asset purchase agreement with Molycorp’s bankruptcy trustee to purchase substantially all the assets and the surface property rights of the company’s debtors at the  Mountain Pass Rare Earths mine in California.

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The offering price is $1.2 million, a far cry from the $40 million offered and abruptly withdrawn earlier this year by Russian-born investor Vladimir Iorich and his Pala Invesments firm. However, ERP, as part of its offer, is also promising to shoulder up to $100 million worth of Mountain Pass’ debts and liabilities. Read more

The launch of the London Metal Exchange‘s new precious metals contracts will be delayed until July 10, more than a month later than previously announced, it said on Monday.

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The new gold and silver contracts, a mix of daily and monthly contracts designed to enable industrial users to hedge specific dates, were due to go live in early June.

Lighthizer Clears Committee for Confirmation as US Trade Rep

President Donald Trump’s nominee for U.S. trade representative cleared a Senate committee on Tuesday, bringing the administration closely to enacting its full trade policy.

Washington lawyer Robert Lighthizer’s nomination cleared the Senate Finance Committee 26-0. Lighthizer is seen as an ally of the manufacturing industries. The panel also voted to approve a legal waiver for Lighthizer from a 1995 law that prohibits people who did work on behalf of foreign governments from serving as the top U.S. trade negotiator.

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“Bob Lighthizer understands the issues that the U.S. steel industry faces today and we are certain he will make an outstanding United States Trade Representative (USTR),” said Thomas Gibson, president and CEO of the American Iron & Steel Institute, the largest trade group of North American steelmakers. “We thank Senator Hatch and the other members of the Senate Finance Committee for holding an executive session to progress Bob’s nomination. American manufacturers need a qualified USTR and we urge the Senate to promptly confirm Bob Lighthizer.”

Lighthizer’s confirmation now moves on to the full Senate.

Americans for Prosperity and Freedom Partners recently released a report on the prospect of a Border Adjustment Tax being included as a piece of major tax reform, a framework of which is expected to be released today by the Trump administration. AFP and FP are not fans of a BAT.

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The free-market group with ties to conservative billionaires Charles and David Koch said in its report that “It is impossible to predict the real world impact of the BAT because something like this has never been done before. This proposed system is unlike anything in existence and there is a tremendous amount of risk surrounding its implementation.”

Going to BAT

A BAT would certainly be unprecedented. We have previously written about the scheme and how the novel approach to corporate taxes could possibly deliver similar export benefits to those of a value-added tax without actually imposing a national sales tax on every single transaction that American citizens make. A BAT would, rather, tax companies on their imports as part of the corporate tax code rather than impose a sales tax on transactions. Read more

Oil prices slipped nearly 1% on Monday, extending last week’s decline, on lack of confirmation that OPEC will extend output cuts until the end of 2017 and as Russia indicated it can lift output if the deal on curbs lapses.

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Russian oil output could climb to its highest rate in 30 years if the Organization of the Petroleum Exporting Countries and non-OPEC producers do not extend a six-month supply reduction deal beyond June 30, according to comments by Russian officials and details of investment plans released by oil companies.

Freeport Gets Copper Export License

Freeport-McMoran Inc. has secured a permit to resume copper exports from Indonesia on Friday after a hiatus of more than three months, hours after a state visit by U.S. Vice President Mike Pence, who discussed the copper miner’s dispute with Jakarta.

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Indonesia’s trade ministry issued Freeport with a permit to export 1.1 million metric tons of copper concentrate up to February next year, although it was unclear how long shipments would last.

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is the final post in our three-part series that covers border-adjustment and tax policy.

JY: The reason you might want to avoid a VAT is that it would apply to all transactions, right? It would be on individuals and not companies.

DP: Think of it as the difference between a sales tax in the United States and an income tax. They are completely different. A VAT is essentially a national sales tax. We have sales taxes but the issue we’re talking about is the corporate income tax. If the U.S. adopted a VAT it would be a huge change so the idea here is to stay within the corporate income tax concept, but make some tweaks so that U.S. companies aren’t disadvantaged relative to foreign companies. Because we’re not talking about a VAT, though, you might get a different outcome at the World Trade Organization when it’s challenged by another country.

A VAT would be a big change. We are getting into some areas of policy that I’m not an expert on here, but there are all sorts of other issues that go way beyond the issue, but from a trade perspective the idea of a border adjustment is supposed to neutralize the advantage that VAT tax countries might have in international trade. The WTO may come to the conclusion that, even though a border-adjustment does have some features of a VAT, it’s still not acceptable because it might be viewed as an export subsidy. Read more

This week, President Donald Trump and the Department of Commerce used executive orders, new anti-dumping investigations, memoranda invoking national security concerns and other executive branch tools to get tough on foreign steel imports.

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Although Trump or Commerce Secretary Wilbur Ross never overtly stated it, the target is clearly China and the global steel overcapacity that it’s the main culprit in creating. China’s steel exports hit a record 112.4 million metric tons in 2015, then dropped slightly to 108.49 mmt last year, as Chinese mills have been chastened by threats of a trade dispute.

Fre trade

The Trump administration is using every tool in the box on steel overcapacity. Source: Adobe Stock/Argus.

To date, the Global Forum on Steel Overcapacity hasn’t caused overcapacity to come down very much. Can a section 232 investigation or other U.S.-only actions change that? The U.S. steel industry certainly seems to think so. Or it’s at least saying, “why not try?”

Steelmaker executives such as U.S. Steel CEO Mario Longhi and SSAB Americas President Chuck Schmitt flanked Trump and Ross at the memorandum-signing ceremony calling for the Section 232 investigation yesterday. The praise was universal from steel producers as one might expect, too. Still, Trump’s latest salvo on trade will renew concerns that China may retaliate.

China’s Foreign Ministry spokesman Lu Kang said today the country needed to ascertain the direction of any U.S. investigation before it could make a judgment. There’s also the fact that Trump now claims that he and Chinese President Xi Jinping are the best of friends.

Chinese steel executives also repeated their mantra that overcapacity is not just China’s problem and it needs global coordination to resolve it, but also said it would be tough to rein in the sector.

“The Chinese government will not set export limits for the steel mills and could not keep track of every mill,” Li Xinchuang, vice chairman of the China Iron and Steel Association, told Reuters.

What may be more effective is rising steel prices in China and what looks more and more like a very real crackdown on pollution and dirty air in China. An early-year surge in Chinese steel prices has lifted the prices of its export products and China has lost its competitiveness with other markets. With coking coal prices increasing, Chinese steel prices could increase even more, which our Lead Forecasting Analyst, Raul de Frutos, pointed out this week.

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On a personal note, this will be my last MetalMiner week-in-review. I have thoroughly enjoyed informing all of you wonderful readers and site users about the latest developments in metals markets these last three years. Thank you for taking advantage of our services. It has been an honor.

 

UPDATED 11:47 AM with Comments from President Trump, Commerce Secretary Wilbur Ross and the American Iron & Steel Institute.

President Donald Trump will sign a directive asking for a speedy probe into whether imports of foreign-made steel are hurting U.S. national security, two administration officials told Reuters on Wednesday.

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Trump signed the memorandum related to section 232 of the Trade Expansion Act of 1962 at the White House with leaders of some domestic steel companies, such as U.S. Steel‘s CEO Mario Longhi and SSAB Americas President Chuck Schmitt in attendance. The law allows the president to impose restrictions on imports for reasons of national security. The order would only task the Commerce Department with starting a probe into the imports and if they, indeed, harm national security. Reuters reported that Commerce Secretary Wilbur Ross has already tasked Commerce personnel with starting the probe.

Trump said Ross and Commerce would be back “very, very soon” with recommendations about how to protect the American steel industry. He also repeated campaign trail criticism of the North American Free Trade Agreement and said that farmers in Wisconsin are also suffering from cheap imports of dairy products from Canada.

“Times of crisis call for extraordinary measures. Massive global steel overcapacity has resulted in record levels of dumped and subsidized foreign steel coming into the U.S. and the loss of nearly 14,000 steel jobs,” said Thomas J. Gibson, president and CEO of the American Iron & Steel Institute, the largest trade organization of North American steel producers. “The Administration launching this investigation is an impactful way to help address the serious threat posed by these unfair foreign trade practices, and we applaud this bold action.”

According to Ross, the investigation was “self-initiated” by Commerce and will consider “the domestic production (of steel) needed for the projected national defense requirement” and if domestic industries can meet that requirement. It will also look at “the impact of foreign competition on specific domestic industries and the impact of displacement of domestic product because of foreign imports.”

There are national security implications from imports of steel alloys that are used in products such as the armor plating of ships and require a lot of expertise to create and produce.

Philadelphia Energy Solutions Inc., the largest refiner on the U.S. East Coast, will not be taking any rail deliveries of North Dakota’s Bakken crude oil in June, a source familiar with delivery schedules told Reuters on Tuesday, a sign that the impending start of the Dakota Access Pipeline is upending trade flows.

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At its peak, PES would have routinely taken about three miles’ worth of trains filled with Bakken oil each day. But after the $3.8 billion Dakota Access Pipeline begins interstate crude oil delivery on May 14, it will be more lucrative for producers to transport oil to refineries in the U.S. Gulf Coast.

Alcoa Moves Headquarters Back to Pittsburgh

Alcoa Corp. announced today that the company’s expansive Pittsburgh, Pa., office will soon serve as its global headquarters again, a decade after its predecessor, Alcoa Inc., left for New York City.

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Alcoa said in a statement that its headquarters in New York would be one of seven offices in the U.S., Europe and Asia that would shut in the next 18 months in a cost-cutting initiative. Alcoa had kept its offices in Pittsburgh’s North Shore even after it moved the headquarters to Manhattan, with the bulk of its administrative functions remaining in Pittsburgh. Now, the Pittsburgh presence will once again serve as the company’s international headquarters.