- India has big plans to modernize its railway system, our Sohrab Darabshaw writes.
- In case you missed it, our November MMI report is out. You can download it here to catch up on news and trends affecting our 10 MMI sub-indexes.
- Electric vehicles are all the rage — but what about simply smaller vehicles when it comes to curbing emissions? Our Stuart Burns delved into the matter earlier this week.
- The recently released Panama Papers shined a light on the world of corporate finance, and, furthermore, tax-dodging methods.
- Prefer to get your metals news and analysis in audio format? You’re in luck, as we recently relaunched the MetalMiner Podcast! In case you missed it, check out the first episode with Michael Stumo, CEO of the Coalition for a Prosperous America.
- Investor interest in commodities has picked up — Burns touched on why that is on Wednesday.
- Aluminum has cooled down a bit, but it might be a temporary dip.
- Our Irene Martinez Canorea offered her own take on the surge in commodities interest, with reference to the CRB index.
- Chinese excess capacity has been a long-standing gripe of producers in the European Union and U.S. But circumvention of antidumping tariffs via third parties is also on the E.U. and U.S.’s radar, Burns writes.
President Donald Trump may not have said much, if anything, about China’s steel exports during his recent tour. Both European and U.S. legislators, however, are carrying out investigations into not just simple dumping but more complex and illegal activities, such as shipping via third parties to hide the origin and avoid pre-existing dumping tariffs.
A Reuters article this week explains how the European Union’s anti-fraud office (OLAF) said it has found Chinese steel was shipped through Vietnam to evade the bloc’s tariffs.
In part, the current case may be a matter of timing.
This morning in metals news, Tata Steel announces a big investment, Chinese steel shipments have continued to drop and the U.S. International Trade Commission (ITC) will expedite a five-year sunset clause review of carbon and alloy steel standard, line, and pressure (CASSLP) pipe from Germany.
Tata Steel Makes Big Port Talbot Steel Investment
Tata Steel announced it is investing £30 million in its Port Talbot steelworks, the BBC reported.
According to the report, the Indian firm will install a 500-ton steelmaking vessel at the plant, in addition to other upgrades.
Dropping Chinese Steel Shipments
President Donald Trump kicked off his tour of Asia this week; while North Korea draws much of the headlines, China’s steel industry is also among the list of items in the spotlight.
Bloomberg notes that dropping steel shipments from China, the world’s top steel producer, undercut the Trump administration’s rhetoric calling out China’s excess steel capacity.
“Exports from the country that accounts for half of global production dropped to 4.98 million tons last month, down from September’s 5.14 million, and the lowest since 2014, according to customs figures,” Bloomberg’s report reads. “That’s a far cry from the monthly peak in late 2015, when they exceeded 11 million tons.”
U.S. ITC Expedites Review of CASSLP Pipe From Germany
The U.S. ITC announced Monday that it voted to expedite its five-year sunset review concerning the antidumping duty order on seamless CASSLP pipe from Germany.
“As a result of the vote, the Commission will conduct an expedited review to determine whether revocation of the order would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time,” the ITC release about the vote reads.
This morning in metals news, growth in China’s steel industry has slowed down significantly, U.S. steel production was up 8.6% year-over-year and a Russian firm launches a new copper and gold mine near the Chinese border.
Chinese Steel PMI Falls to 6-Month Low
The Chinese steel Purchasing Managers’ Index (PMI) fell to a 6-month low this month as the government attempts to curb pollution, according to a Reuters report.
This month, the PMI dropped to 52.3 from 53.7.
U.S. Steel Production Up 8.6%
Through the month of September, U.S. steel production was up 8.6% year-over-year, according to a report by the Northwest Indiana Times.
According to the report, citing stats from the World Steel Association, steel output rose by 5.6% internationally in September compared to September 2016.
Russia’s Norilsk Opens New Mine Near Chinese Border
The Russian firm Norilsk Nickel has launched a new copper, iron and gold mine near the Chinese border, according to Reuters.
The project, situated about 250 miles by rail from the border, will send iron ore exports to China.
Chinese copper demand continues to be strong. According to the report, Shanghai copper futures have surged 18% this year.
This morning in metals news, the world’s top copper producer expects a moderate rise in the metal’s price going forward, the Aluminum Association announces new leadership and Kobe Steel continues to reel from its data falsification scandal.
Copper on the Rise
The price of copper is set to experience moderate increases, according to the mining minister of Chile, Reuters reported.
Aurora Williams, the mining minister of Chile (the world’s top copper producer), said Wednesday that there will be moderate increases in the metal’s price, but not enough to push it above $3/pound for the year.
According to the Reuters report, copper exports reached $3.18 billion in September, their highest level in nearly three years.
Changing of the Guard
The Aluminum Association announced new leadership on Wednesday.
Michelle O’Neill, senior vice president of senior vice president of global government affairs and sustainability at Alcoa, was elected as Aluminum Association Chair, becoming the first woman in the association’s 84-year history to hold the position. She replaced Garney Scott, president and CEO of Scepter, Inc., following a two-year term.
Kobe Steel Data Scandal Continues
It’s difficult to quantify lost trust, but it’s a problem Kobe Steel, Japan’s third-biggest steelmaker, is dealing with now on the heels of a data falsification scandal.
Now, the chief executive of the company is admitting the scandal is a serious hit on the company’s image, one that leaves it with “zero credibility,” The Guardian reported.
According to The Guardian’s report, General Motors is the latest manufacturer to check whether its cars contain falsely certified parts or components sourced from Kobe Steel.
This morning in metals news, a Japanese steelmaker is mired in scandal after admitting to falsifying inspection data, copper exports by Sicomines have been halted by the Congolese government and Shanghai zinc hits a 9 1/2-year high.
Kobe Steel Hit by Scandal
The third-largest steelmaker in Japan, Kobe Steel, admitted to falsifying inspection data, according to the Financial Times.
The falsified data was for about 20,000 tons of metals used in aircraft and automobiles.
Copper Exports Halted for Sicomines
Export of copper by Sicomines in the Congo have been halted by the Congolese government, according to a Bloomberg report.
The Congolese government order Sinohydro Corp. and China Railway Construction Corp.’s local mining venture to stop exporting unprocessed copper and instead exporting “high-value products.”
Shanghai Zinc Hits 9.5-Year High
Zinc on the Shanghai Futures Exchange jumped 4% on Monday, reaching its highest point in 9 1/2 years, according to Reuters.
According to Reuters, the metal rose on both supply concerns and “expectations for improved liquidity in markets in China.”
The U.S. Department of Commerce has recently issued preliminary determinations in countervailing duty (CVD) and antidumping investigations of imports from Japan, China, Romania, Kazakhstan and others.
Last week, the department added Canada to the list, dropping a major countervailing duty on imports of large civil aircraft. The move, coincidentally, came just before the third round of North American Free Trade Agreement (NAFTA) renegotiation talks, which wrapped up Sept. 27 in Ottawa.
The Department of Commerce issued a preliminary determination early last week in its CVD investigation of imports of 100- to 150-seat large civil aircraft from Canada, resulting in a whopping 219.63% tariff on the CSeries of planes exported to the U.S. by Bombardier, Inc.
“The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Secretary of Commerce Wilbur Ross said in a prepared statement. “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.”
According to the Department of Commerce’s preliminary ruling, exporters of the aircraft received countervailable subsidies of 219.63%.
The Commerce Department will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of 100- to 150-seat large civil aircraft based on these preliminary rates.
The Boeing Company was the petitioner in the case. Petitions were filed April 27.
The ruling is a big win for Boeing — if it holds, that is — which as Bloomberg reported late last week, has developed an unlikely positive relationship with President Donald Trump.
However, as NAFTA negotiations unfold, such a move is sure to increase tensions. According to a recent Ipsos poll, just 33% of Canadians said renegotiating NAFTA was a good thing, compared with 48% of Americans and 46% of Mexicans — indicating, to an extent, that Canada is happy with the current order of business (of course, it’s just one poll).
Naturally, imposition of a nearly 220% tariff on any product, let alone large aircraft, is going to be a big deal. Bombardier’s stock dropped $0.07 from Sept. 28 to Oct. 1, from $1.82 to $.175 (a 3.7% drop). Boeing, meanwhile, closed at $253.70 on the New York Stock Exchange Sept. 26, compared to a closing price of $256 on Monday.
According to a Reuters report, threats of retaliation from Quebec were already being heard late last week.
Quebec Premier Philippe Couillard took the Commerce Department’s preliminary ruling very seriously.
“Boeing may have won a battle but, let me tell you, the war is far from over. And we will win,” Couillard said, according to the Reuters report.
The ruling is only preliminary, but it certainly ratchets up tensions in what has already been a NAFTA dialogue fraught with tension, in large part a result of the accelerated negotiating schedule.
In addition, the ruling is not the first one this year to target Canadian imports. On June 26, the department issued a preliminary ruling calling for duties of 30.88% to 17.41% on imports of softwood lumber from Canada.
The Department of Commerce has launched 68 antidumping or CVD investigations this year between Jan. 20 and Sept. 20, representing a 45% increase in cases from the same time frame last year, according to the department’s release.
A final CVD determination in the investigation is scheduled for Dec. 12.
A Reuters report last week suggests relief is in sight for Western manufacturers of aluminum semi-finished products under pressure from growing Chinese exports.
Headlining how China’s semi-finished aluminum exports fell for a third straight month in August, the article cites punitive duties imposed by the United States and India on Chinese aluminum foil as a reason for the decline. Semi-finished exports stood at 360,000 metric tons last month, Reuters reported, quoting revised customs data. That figure is down 3.2% on the same month a year ago and down 7.7% from 390,000 tons in July.
Although the monthly export figure is the lowest since February 2017, the first eight months of this year still showed a 5.2% increase versus the same period in 2016. Further data seemed to conflict with the argument that the foil duties were the cause of the decline in recent months. January to August foil exports were up 10.1% at just under 800,000 tons. Although they have dropped in recent months – down 4.9% year-over-year and down 6% from July, those drops only account for 5-6,000 tons per month of lost semis exports. The vast majority, 30,000 tons per month of reduced exports, are coming from extrusions.
Quoting Paul Adkins of AZ China, the report identified a substantial 29% slump in exports of extruded aluminum bars, rods and profiles as the main cause for the overall falls in semis exports despite an increase in flat rolled numbers. The main culprit appears to be U.S. tariff action against extrusions and helps explain why Chinese extrusion mills have been so aggressive in Europe in recent weeks, dropping conversion premiums for extrusions (possibly in an attempt to make up for lost sales to the U.S.).
With Chinese extrusion mills on less than 30-day delivery schedules they are clearly not overly busy. This suggests that although domestic demand has been steady, it has not been as strong an influence on primary metal prices as investor appetite for bidding up the futures markets would suggest. That has more to do with environmentally motivated capacity curtailments creating a narrative of shortages — resulting in speculators building strong net long positions and substantial primary metal prices rises — than it does any genuine tightness in supply.
An Aluminium Insider article discussing the findings of a report called the China Beige Book by a private, China-based analyst raises questions about the sustainability of recent rapid price rises and if they are based purely on the premise of reduced supply.
The study states that, despite numbers released by Beijing, overall capacity in the aluminum market has experienced a net rise over the last six consecutive quarters. At the same time, the economy is experiencing a slow-down. “Sector-wide growth took a dive across the board—revenue, profits, output, export orders, volumes, hiring, capex, borrowing, wages, and sales prices,” explained the report, suggesting perceptions of tight supply are misplaced and speculator-driven.
If that is the case, European extruders may not be alone in facing increased competition this winter from China’s semi-finished product mills, as they seek to secure markets for a wide range of semi-finished products propelled by a cooling domestic market.
Before you get into your planned Labor Day festivities, let’s take a look back at some of the stories here on MetalMiner from the past week:
- After a somewhat stagnant run, aluminum had a strong August — why? Our Stuart Burns covered aluminum’s upward momentum last week.
- Ah, the North American Free Trade Agreement (NAFTA), the deal that’s stayed in the news for much of the year. President Donald Trump recently renewed rhetoric threatening the 23-year-old trade agreement on the heels of the completion of the first round of negotiating talks held in Washington, D.C. We recapped the recent developments in the ongoing talks held by trade representatives of the U.S., Canada and Mexico.
- Speaking of trade agreements, talks are also underway between the U.S. and South Korea on KORUS, the free trade deal the two countries began in 2012.
- China was reportedly amenable to making further significant cuts to tackle excess capacity, which has been a major talking point, not just for the U.S., but the global market. However, President Trump rejected China’s proposal. Burns offered his analysis on the situation.
- It’s been a mostly good year for base metals — but not every metal has joined in on the fun, as our Irene Martinez Canorea wrote last week.
- Hurricane Harvey inflicted a severe toll on the people of southeast Texas and southwest Louisiana. Now, there’s a long road ahead to recovery, both in terms of the humanitarian and economic impacts of the storm.
- Burns looked to the the so-called “lucky country” of Australia, which is rich in iron ore. But what happens when iron ore reserves are exhausted? Answering the question briefly: look to the sun.
Hurricane Harvey touched down in Texas late last week — in the ensuing days, thousands were displaced as record rainfall of more than 50 inches blanketed some areas of Houston (the fourth-most populous city in the U.S. with a population of about 2.3 million).
According to a USA Today report citing preliminary research from the firm AccuWeather, Harvey could become the costliest disaster relief effort in U.S. history, with a potential price tag of $160 billion.
It should of course be noted that, before anything else, the natural disaster’s human impact is of utmost importance. The New York Times reported the death toll has hit at least 30, according to Texas officials.
In addition to widespread flooding, property damage and displacement suffered by residents in the hurricane’s path, Harvey has also left an economic impact that will be felt for the foreseeable future.
Among other things, metals prices, oil prices and shipping have all been, or will be, impacted by Harvey.
The Port of Houston is one of most important trading locations in the U.S. As a result of Harvey, the port was completely closed as of last Friday. According to the Port of Houston website, it will remain closed on Thursday.
“We will continue to work alongside local agencies and the USCG to determine when operations can safely resume,” an alert on the Port of Houston website read Wednesday.
According to data on the Port of Houston website, the port is ranked first in total foreign tonnage and ranks second in total tonnage. As the largest Gulf Coast container port, it handled 68% of U.S. Gulf Coast container traffic in 2016.
So, a total shutdown of the port is a big deal.
On the export side, 3% of total container volume exported last year came from steel and other metals (27,127 TEUs).
A larger percentage of total imports come in steels and other metals — 8.6%, or 76,853 TEUs, last year.
Meanwhile, the Port of Corpus Christi, the fourth-largest port in total tonnage, was also closed as of Tuesday.
The affected areas have an immediate need for supplies of all kinds, but transportation modes are at a general standstill for the moment.
Much of Houston has been hit by record rains, leading to flooding and stranding locals without food or supplies.
Although it won’t happen overnight, eventually the area will begin to rebuild in the wake of the damages caused by Harvey.
According to a report on the Nasdaq website, Houston receives between 30% and 35% of all U.S. steel imports, making it a pivotal point of access.
In the wake of Harvey, some U.S. steel companies saw their stocks rise. According to the report, shares of United States Steel Corporation jumped by over 2.5% on Tuesday, while Olympic Steel rose more than 1.5%.
Nucor and AK Steel Holding Corporation both saw their stock prices rise by over 0.5%.
However, it’s still early to determine the true damage to the steel industry caused by Harvey.
According to a Platts report, Harvey could have a similar impact to that of 2012’s Hurricane Sandy, particularly with respect to steel scrap.
Freight Service Disrupted
In addition to the disruption of port activity, rising water levels have taken a bite out of freight service.
As a result, a rise in trucking rates can be expected, according to freight analyst firm FTR Transportation Intelligence.
“Look for spot prices to jump over the next several weeks, with very strong effects in Texas and the South Central region,” said Noel Perry, a partner at FTR. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”
According to Steel Market Update, FTR predicted 10% of freight activity will be disrupted over the next two weeks.
Gas Prices Rise
As a result of an overall glut in global production, gas prices have come down significantly since 2014, when the gas price in some metropolitan areas exceeded $4 gallon.
However, the average national gas price has increased as a result of Harvey and shutdowns of refineries in Corpus Christi and Galveston. As of Wednesday afternoon, the average national gas price stood at $2.40 gallon, up from $2.37 on Monday, according to AAA. The average price had already risen $0.04 to $2.37, which AAA said Monday was one of the largest one-week surges this summer.
According to AAA, about one-quarer of Gulf Coast refining capacity was taken offline, according to forecasts by Oil Price Information Service (OPIS), which equated to about 2.5 million barrels per day.
“Despite the country’s overall oil and gasoline inventories being at or above 5-year highs, until there is clear picture of damage and an idea when refineries can return to full operational status, gas prices will continue to increase,” said Jeanette Casselano, AAA spokesperson, in a prepared statement.
Time to Rebuild
Rescue missions continue in the Houston area, as officials move residents in flooded areas to shelters. According to the Washington Post, 32,000 people have taken refuge in 231 shelters, with many volunteers need to help clean out damaged homes.
“We expect a many-year recovery in Texas, and the federal government is in this for the long haul,” said Elaine Duke, acting secretary of the Department of Homeland Security, to the Washington Post.
The damage won’t be contained to Texas, however. According to the National Hurricane Center, Harvey touched down again, this time in southwestern Louisiana at 4 a.m. today.
More than 12,400 employees from more than 17 federal departments and agencies are working together in support of the ongoing response to damages resulting from Hurricane Harvey and subsequent flooding across Texas and Louisiana, according to the Federal Emergency Management Agency (FEMA).
When all is said and done, affected communities will have a long road to recovery. Many will eventually return to homes either damaged beyond habitability or totally destroyed.
Houston is the largest U.S. market for newly constructed homes, and demand for materials used in home construction will surge as communities transition from rescue and recovery mode to begin the arduous rebuilding process.
The question is: When will that transition happen?
For now, government agencies on the ground are prioritizing the primary disaster relief effort, and it’s unclear when resources can eventually be shifted to construction.
The pipe and tube market, in particular, is well represented in the Houston area, which offices for the multinational firm Vallourec. The Port of Houston took in nearly 40% of iron and steel pipe and tube imports through the first six months of the year, according to ustradenumbers.com.
Earlier this week, the Committee on Pipe and Tube Imports sent a letter, obtained by CNBC, to the Trump administration, urging it to move forward with trade remedies in the Section 232 investigation of steel imports. According to the letter, over 60% of current U.S. demand for pipe and tube materials is supplied by foreign producers.
The request tied into the ongoing situation in Houston.
“Based on the amount of imports flooded into America now we will not be able to help rebuild Houston,” Robert Griggs, president and CEO of Trinity Products, told CNBC.
“Not one U.S. pipe company will get a lick of work in rebuilding Houston. It will all go to China. The president needs to level the playing field and make it fair. The way it is now, American steel pipe companies will lose the opportunity to rebuild Houston.”