According to Reuters, Beijing’s target of peak coal use by 2030 is asserting a dampening effect on new steel mill and aluminum smelter investment.
As such, the country could be at or near peak production. As Reuters’ Andy Home notes, the country’s rising output over the years as had a dampening effect on prices. That trend has led some Western producers to cease operations.
But a combination of harsher environmental legislation resulting in Beijing dissuading investment in new coal fired power projects, combined with Western markets’ meaningful action — after years of simply complaining — to block out Chinese exports of aluminum and steel products suggests the Chinese impetus to build capacity and the rest of the world’s willingness to buy product are both going through a transformational change.
This morning in metals news: consultancy GlobalData forecast copper production from the top 10 copper mining companies will rise by up to 3.8% this year; meanwhile, the US Senate Committee on Homeland Security and Governmental Affairs advanced a bill that aims to strengthen Buy American requirements; and, lastly, US import prices rose in April.
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GlobalData: copper production from top 10 companies to rise by up to 3.8% in 2021
Gary Whitton/Adobe Stock
Amid a run of record copper prices, increased copper production this year could take some of the steam out of the market.
According to London-based consultancy GlobalData, copper production from the top 10 copper mining companies in the world could rise by up to 3.8% this year.
Meanwhile, output from the 10 companies — which includes Glencore, Antofagasta, BHP and Freeport-McMoRan — fell by 0.2% in 2021, GlobalData reported Thursday.
Although presented as the evil machinations of an enemy state, a recent Financial Times article lays out the rare earths dilemma China faces.
Rare earths in the crosshairs
Rare earths industry executives made unofficial statements indicating Chinese government officials had asked them how badly companies in the US and Europe, including defense contractors, would be affected if China restricted rare earth exports during a bilateral dispute.
The conversations should be seen against the backdrop of moves last month by the Ministry of Industry and Information Technology.
The ministry proposed draft controls on the production and export of 17 rare earth minerals from China. Although China doesn’t control the world supply of mined ores, it does dominate the refining into useable salts and metals, controlling about 80% of global supply.
Nonetheless, the country itself remains at risk to unstable ore supplies from countries like Myanmar. That may help explain Beijing’s tacit support for the recent military coup there.
The US even sends its ores to China for refining. That’s not because it doesn’t have the technical knowhow; the US simply lacks the facilities. Furthermore, China is more willing to tolerate the environmental damage from the dreadfully polluting refining process.
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Rare earths supply dependence
This lack of refining capacity leaves the US and most of its Western allies horribly exposed.
This morning in metals news: the United States Court of International Trade issued a ruling on the Section 232 steel tariff; meanwhile, the Biden administration has reversed a Trump administration decision regarding tariffs on aluminum from the United Arab Emirates; and, lastly, new orders for manufacturing goods rose for an eighth consecutive month in December.
In early 2018, former President Donald Trump imposed tariffs on imported steel and aluminum. Using Section 232 of the Trade Expansion Act of 1962, Trump imposed tariffs of 25% for steel and 10% for aluminum.
It is unclear if the new Biden administration will ultimately rescind the tariffs in a blanket sense (more on that shortly).
However, a trade court has shot down a legal challenge from domestic businesses.
Universal Steel Products, Inc., PSK Steel Corporation, The Jordan International Company, Dayton Parts, LLC, and Borusan Mannesman Pipe U.S. Inc. challenged the steel tariff, claiming injury from the duty.
The plaintiffs argued procedural deficiency behind the Section 232 implementation process. In addition, they claimed the president and then-Secretary of Commerce Wilbur Ross did not identify an “impending threat” when imposing the tariffs. They also claimed Trump violated provisions of Section 232 by not setting a duration for the action.
However, the three-judge panel on the United States Court of International Trade opted to dismiss the plaintiffs’ cross-motion for partial summary judgment.
“There have been proposals put forward suggesting greater Congressional oversight, including hearings, or statutory amendments which would expand Congress’s role in the implementation and review of tariffs,” Judge Gary S. Katzmann said in his opinion. “Ultimately, of course, these are policy matters that fall within the province of the legislative branch; it is not the role of the court to opine about them.”
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Biden to reverse Trump course on UAE aluminum tariff
In other tariff news, Trump — in his final hours as president — moved to rescind the Section 232 aluminum tariff of 10% for imports from the UAE.
It is too early to talk of the direction US-India relations will take under US President Joe Biden’s administration.
But Indian trade circles are keeping a close eye on trade-related developments with a hopeful eye.
Hopes for better US-India relations
Much of the hope for better US-India relations focuses on the desire that the US will focus more on its bilateral ties with India because of the former’s strained relation with China, and why the US would benefit from such a move.
China will be on the new US administration’s mind as it assesses the Indo-US trade relationship. For now, though, the Biden administration has made it clear it would not considering any new free trade deals. Furthermore, it’s unclear whether the Biden administration will maintain or rescind existing Section 232 steel and aluminum tariffs.
The two countries have a lot going on together. The two have a robust bilateral trade. Through the first 11 months of 2020, the U.S. imported goods from India worth $46.3 billion and exported about $24.6 billion in goods. In addition, the countries have cooperation in defense and an ever-increasing reliance on each other in the field of energy.
The appointment of four Indian-Americans to senior posts in the Department of Energy (DOE) is being seen as a positive. Energy expert Tarak Shah was appointed as the department’s chief of staff, making him the first Indian-American to serve in the position. The DOE said the new leaders will direct policy and enact Biden’s vision for “bold action on the climate crisis.”
A chorus of protests against Indian iron-ore exports — with associations of sponge iron and steel-forgings manufacturers making common cause with the India Steel Association (ISA) — has brought pressure on ministers to ban exports of iron ore.
Of those exports, 90% goes to China.
The groups are protesting in a bid to support domestic steel mills from rising raw material costs.
Ministers have refrained from taking action, arguing they would rather the market decide when it makes sense to export and when to import.
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Iron ore export ban?
However, a ban hardly seems necessary.
A massive 30% export tax kicks in this quarter on the lower Fe grade material between 58 to 62%. That is expected to decimate exports this quarter, the Business Standard reports.
In an effort to improve supply, the authorities have taken action against underused mining leases.
According to the New Indian Express, production declined during 2020. Comparing the two years January to September 2019 to the same period in 2020, iron ore production totaled 110.95 million metric tons in 2019. Meanwhile, output reached 76.01 million metric tons in 2020, marking a 31.5% drop.
China has had a fraction of the deaths and hospitalizations from the COVID-19 pandemic that Western societies have had. Furthermore, China had an economic bounceback that saw its GDP rise 2.3% last year.
China’s bounceback
The rebound has been impressive.
Construction of new high-speed train lines to smaller provincial cities and new motorways connecting remote cities left behind in previous plans in part drove the recovery.
The housing sector has also boomed. Overseas demand has boosted manufacturing, particularly PPE and electronic goods, even as other exporters have suffered by lockdowns in those markets.
In the longer term, further debt and a swing back to manufacturing from the earlier pivot to consumption will not do the economy or China any good.
For now, however, the economy is humming. Tailwinds from both stimulus and pent-up savings should keep the economy growing strongly in the first half of 2021.
Nobody yet is quite sure whether Australia and China’s spat over coking coal imports will eventually turn out to be a case of bad politics making good economics or bad economic sense making for good politics.
While politics between China and Australia is part of the reason for the former to have completely banned the import of coal from the latter, it has led to churn in the Asian the rest of the global coal markets.
With China not lifting the ban despite it being a new year (as some had anticipated), the volatility in the markets is likely to continue.
In the last quarter of 2020, a verbal ban by China to halt all Australian coke was followed up with a formal one.
Coking coal import prices then declined by 24% from early-October to mid-December. Why? Because market players expected a glut in the global coal market in the medium term.
This game of Chinese checkers is not relegated to only the two players, China and Australia.
Ripple effects
India, Japan, and a host of other Asian and Southeast Asian nations have started to feel the after-effects.
Of late, according to this report by CNBC, major Chinese cities have started suffering power cuts because of the Chinese authorities limiting power usage while citing a shortage of coal.
What’s more, Chinese coal prices have shot up due to the reported shortage.
After four and a half years and unprecedented social and political discord, it has finally happened: the United Kingdom has left the European Union with the bare bones of a free trade agreement.
It took until Christmas Eve — ahead of the Dec. 31 deadline exit date for both sides to make the final compromises necessary to reach an agreement.
However, to Prime Minister Boris Johnson’s credit, after all of the lies and disinformation around the benefits of leaving the E.U., he did finally get it done. Even the normally neutral and sober Financial Times acknowledges it is but the bare bones of a deal, with much left uncovered and much still to be agreed.
The deal covers goods, exports to the E.U. of which make up just 8% of U.K. GDP. However, the deal leaves out services. According to The Guardian, services account for around 80% of the U.K.’s economic activity and about 50% of its exports by value to the E.U.
There will be a lengthy process of ongoing negotiation around how much access the City of London is allowed to E.U. business. Similarly, there will be discussions regarding what constitutes the required “equivalence” for which the E.U. is looking.
This means the previous passporting agreement allowing automatic access to the E.U. is replaced by so-called equivalence. That is, each side unilaterally permits companies from the other to conduct certain financial activities in its territory.
That’s hardly a stable position. E.U. countries like France and Germany have made no secret of their desire to challenge the U.K.’s historical dominance in financial services post-Brexit.
Before we head into the penultimate weekend of 2020, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including: research findings related to organic molecules’ impact on machinability; gold prices; and the arrival of an allocation market for steel-buying organizations, as explained by MetalMiner CEO Lisa Reisman:
Week of Dec. 14-18 (machinability, gold prices and steel allocation market)
Stuart Burns delved into the gold price and what 2021 may hold for the precious metal.
The European Raw Materials Alliance recently launched the Rare Earth Magnets and Motors Cluster, aimed at developing solutions to strengthen supply chains.
Earlier this month, MetalMiner released the December update to its Annual Outlook originally published in September.
Rio Tintoannounced a $10 million investment toward its joint research with Chinese steelmaking behemoth Baowu Steel Group on greener steelmaking processes.
We touched earlier on Nippon Steel’s efforts to augment exports. Meanwhile, Christopher Rivituso on Severstal’s intention to look to export more large-diameter pipe to the North American market.
Lastly, a research team from Purdue University, Osaka University and the Indian Institute of Science published findings on the impact of organic molecules on machinability of metals.
Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.
