Author Archives: Stuart Burns

This is part two of a two-part series on recent trade developments in the U.K.’s pending divorce with the European Union, read part one here if you missed it.

British Prime Minister Theresa May appears more wedded to a policy of not extending Brexit past the two-year deadline that was dictated by the outcome of the referendum. Possibly due to her years in office as Home Secretary, May seems desperate to reclaim control of the U.K.’s borders and to reject the jurisdiction of European courts, regardless of the economic consequences of taking such a hard-line position.

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Committed Brexit supporters have championed the establishment of free trade agreements with countries outside the European Union, almost as an extension of their rejection of Europe. But the reality is geography will dictate that the E.U. is likely to remain the U.K.’s biggest export market after Brexit whatever Brexiters’ global ambitions may be.

Who Loses More Post-Brexit?

According to a Financial Times article last November, U.K. exports to fellow E.U. countries accounted for 48% of total exports and, in the 18 months before that, the figure ranged from 38% to 51%. The U.S., by comparison, was just 22% and few beyond the hardliners give any credence to the benefits of a President Donald Trump-inspired U.S.-U.K. Free Trade deal, knowing that in Britain’s desperation for an alternative to Europe such a deal would likely be very one-sided in favor of the U.S. Read more

Britain’s Prime Minister, Theresa May’s speech at Lancaster House, London this week spelled out for anyone who hasn’t been listening for the last couple of months exactly what her government intends to do regarding the shape of the U.K.’s eventual relationship with the European Union once their divorce is completed.

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As negotiations have not yet started, nor will they until the British government invokes article 50 this Spring and formally announces its intention to leave the union, May’s speech was more wish list than template for post-Brexit Britain’s working relationship with Europe. Nevertheless, it was broadly well received in Europe both for its tone and because it gave recognition that her priority is for a clean break.

Breaking Up is Hard to Do

Repatriating control of borders and laws means that the U.K. will be leaving the single market, quitting the jurisdiction of the European Court of Justice and putting into action an independent trade policy. To what extent the U.K. can achieve these objectives while still clinging onto tariff-free trade with Europe is the known unknown. Read more

Or at least if that wasn’t the intent, it’s likely how the smelters feel.

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In an about face on Indonesia’s 2014 export ban across a range of minerals, Energy and Mineral Resources Minister Ignasius Jonan said this week that local miners might be allowed to export up to 5.2 million tons of low-grade nickel ore a year, partially reversing the ban intended to force buyers to set up value-add refining facilities in Indonesia.

The export ban has been relatively successful. Export volumes, of course, plummeted from about 60 million metric tons before the 2014 ban was enforced but new refineries have been set up and refined volumes of value-add material have increased. Read more

Set against the backdrop of the recent presidential election, the media’s constant referral to protecting American jobs and employment should come as no surprise, even though the level of national employment has never been better.

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The reality, of course, is that national figures mask regional disparities and the disproportionate impact in some industries of offshoring and global competition has been intense. In practice, though, globalization is only part of the issue when it comes to the loss of jobs in certain industries. There has been a great deal of recent research which supports the position that automation is having as much, if not more, impact on certain industries than competition from abroad.

Automation Continues

As the Financial Times observed recently, automation has been a constant for decades, and the latest advances in robotics and artificial intelligence all but guarantee that the pace will accelerate, but some industries or job roles are particularly vulnerable to replacement by machines. All industries operate in a global environment, the decision as to whether to invest in automated processes should not and cannot be made based on employment, alone, if firms want to survive in the long-term.

The key question is not whether automation, robotics or artificial intelligence will replace humans in existing roles, the question is simply when. For society at large, the pace of automation will determine how easily the displacement of workers can be handled — and whether this creates a political backlash or is accommodated through retraining and the creation of new jobs.

Source: Direct Industry

We are used to seeing rows of gleaming robots assembling cars in modern automotive factories but a recent article in Direct Industry explores developments in the agricultural industry and highlights the fast pace of robotic developments that could well see the replacement of humans for many agricultural activities in the years ahead. Read more

After a recovery late last year, the oil market seems to have settled with a price around $55 a barrel… at least for now. That level is not likely to dissuade consumption but most Organization of Petroleum Exporting Countries members seem to feel it justifies their oil output cut agreed to late last year.

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A few producers, such as Venezuela, that are running massive budget deficits have targeted $70 or more, but most analysts would agree that if oil can hang onto recent price gains for the next six months it will be doing well. Read more

Well we all knew that the Volkswagen admissions scandal was the story that was going to run and run, so it should come as no surprise that the media is full of the latest allegations being made against Fiat Chrysler by the Environmental Protection Agency.

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The Washington Post, the Economist and the Financial Times all report the EPA’s announcement that they are in discussions with the automaker over software which they say, might be illegal. The EPA has held back from calling the technology a “defeat device” in the terms used in last year’s cases against VW.

But in broad terms the operation of the software appears to work in a similar way to that of VW’s in that it also has the characteristics of the emissions controls under certain circumstances. Contrary to what many others believed, in fact, emission control equipment is allowed some pretty wide parameters of operation.

Diesel’s Easier… To Pollute With

In Europe where the rules are less rigorous, the testing regime allows diesel cars up to 14 times more noxious gases on the road under test conditions. According to the Economist, they are allowed to shut down their emission controls on the grounds that not doing so might damage engines when the ambient temperature is low. But in some cases this ambient threshold could be as high as 17 degrees, a temperature not reached for months in many Northern European countries. Read more

Most aluminum consumers seem quite content with the range-bound behavior of the light metal over recent months.

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Aluminum on the London Metal Exchange has been trading broadly between $1,700 and $1,750 per metric ton for much of the fourth quarter. Maybe not to the same extent as copper or zinc, but aluminum along with most of the base-metal sector benefited from renewed investor interest as 2016 went on. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017. Read more

By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.

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After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.

Chinese Demand

Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more

There are many in the business community who share a sense of anxiety as to what trade policies the new administration of President-elect Donald Trump will introduce in the year ahead but, if it’s any consolation, the U.S. is not alone in pandering to populist calls for limits on free trade.

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Here in Europe there is a quieter but no less disturbing war being fought between the European Union Commission and the European Parliament and the E.U. member states. Historically, the European Commission handled trade negotiations on behalf of the single market, but the 2009 Lisbon Treaty, intended to make the EU more efficient and transparent, also gave all the EU’s 38 National and regional parliaments essentially the right of veto on any new trade accord.

Anyone Can Veto… Anything

As Carnegie Europe in a recent post observed the sheer complexity of trade deals, which cover many topics that are not included within the European Commission’s powers, means that ratification is becoming a de facto requirement of any new trade deal. As politics becomes more populist in the E.U., as in the U.S., an array of interest groups can challenge any deal on the grounds of environmental, health, cultural, employment concerns, or any combination of the above. Read more

Even in today’s price competitive global market place there are a few industries in which the United Kingdowm can be said to punch above its weight. Automotive is one, it accounts for 10% of the UK’s trade in goods, and over 50% of UK manufactured cars go out for export.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Defense is another. The U.K. is the world’s fourth-largest arms exporter after the US, Russia and China. But maybe the crown jewel of U.K. manufacturing is the aerospace sector. It doesn’t come much more value-add than aerospace and the U.K. ranks fourth in the world behind the US, Germany and France for export values. However, France’s numbers are distorted by the fact Airbus aircraft are receive their final assembly in Toulouse. So, although 75% of the aircraft is imported as major components — fuselage, wings, tail, engines, etc. — the total value of the aircraft is reflected in France’s export earnings even though most isn’t made there.

And therein lies the problem for the U.K. post-Brexit. The wolves are gathering around the gates slavering at the prospect that the majority of the citizens’ decision to leave the E.U. means the position of U.K. aerospace manufacturers in the Airbus supply chain is up for grabs.

According to the Financial Times, Airbus will face political pressure to bring jobs back to France, Germany and Spain as a result of the U.K.’s decision to leave the single market. BAE Systems has played a leading role in the development of wing technology, designing and manufacturing virtually the entire wing for Airbus’ super jumbo jet, the A380. But there has been a constant move by Germany to get as much wing work out of the U.K. because it is one of the most lucrative parts of the supply chain. The bottom skins of the wing for the new A350 went to Spain and Germany, both keen to secure further work as new models come up for bidding.

Last year, the U.K. aerospace sector grew by 6.5% to £31 billion ($38 billion) 87% of which was exported. The industry fears a clampdown on free movement of labor and political influence over trade regulations could combine to raise the cost of business for U.K. companies in the sector.

Although aircraft and their parts are exempt from tariffs under World Trade Organization rules, the FT reports there is a fear the competitors could encourage their governments to find loopholes during exit negotiations that would create barriers or raise the cost of business for U.K. companies. For Rolls-Royce, the U.K.’s premier aero-engine manufacturer, the major concern is that a block on free movement of labor would inhibit the company’s ability to move workers between Europe and the U.K. at short notice as production issues demand.

About a quarter of Rolls-Royce’s workforce is based in the E.U. outside the U.K. Despite the U.K.’s reputation for engineering excellence, the country is desperately short of engineers. As a result, the manufacturing sector has been at the forefront of lobbying government for exemptions to a blanket block on immigration.

Two-Month Trial: Metal Buying Outlook

The future prosperity of U.K. manufacturing was probably not at the forefront of voters’ minds when they opted to leave the E.U., but if it is found that highly paid jobs are lost as a result of the U.K.’s exit from the single market, economic issues me yet come back to become a focal point in any post-Brexit analysis.