Articles in Category: Exports

gui yong nian/Adobe Stock

This morning in metals news, Canadian Prime Minister Justin Trudeau says the Canadian steel industry can breath a sigh of relief after obtaining an exemption from the U.S.’s recently announced 25% steel tariff, the tariffs throw a wrench into India’s export plans and Reuters’ Andy Home opines on the way forward for the aluminum market in a post-U.S.-tariff world.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

Canadian Steel Industry Enjoys Tariff Exemption (For Now)

Canadian Prime Minister Justin Trudeau said members of the Canadian steel industry can breath a sigh of relief, CNN reported.

North American Free Trade Agreement (NAFTA) partners Canada and Mexico received temporary exemptions from the U.S.’s forthcoming tariffs of 25% and 10% on steel and aluminum imports, respectively. However, the key word is “temporary,” particularly as NAFTA renegotiation efforts continue and the U.S. hopes to win concessions from its NAFTA peers.

In an interview Monday with CNN’s Anderson Cooper, Trudeau addressed the notion that the temporary exemption would serve as a bargaining chip for the U.S. in the NAFTA talks.

“We’ll just respond the way we have, with focus on the work we do together and not too much worry about the rhetoric,” Trudeau told Cooper.

India’s Export Ambitions Complicated by Tariffs

Steel Minister Chaudhary Birender Singh said the U.S. tariff on steel could disrupt India’s efforts to become a major steel exporter, Reuters reported.

India expects a loss of $130 million due to the U.S. import tariffs, according to a note prepared by the steel ministry, Reuters reported.

What’s Next for the Aluminum Market?

Canada, Mexico and Australia have secured exemptions of some form from the U.S.’s announced tariffs, and other countries and trading blocs (namely the European Union) are lobbying for exemptions of their own.

So, given the climate of negotiations, both economic and inherently political in nature, what does that mean for the global aluminum market going forward?

Thus far, the LME price hasn’t changed much, Reuters’ Andy Home wrote, while the CME Midwest Premium has nearly doubled since the beginning of the year.

On a production level, already announced and forthcoming capacity restarts in the U.S. will inch the capacity utilization rate closer to the previously announced goal of 80%.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

The tariff, of course, will lead to a rise in costs for consumers. As Home writes, the beverage industry and can makers will seek exemptions on the grounds that domestic production won’t be able to meet their demand, while also arguing that imported aluminum for their purposes doesn’t constitute a national security threat.

gui yong nian/Adobe Stock

Li Lizhang, the chairman of state-owned mill Fujian Sangang Group Co Ltd, is quoted in Reuters as saying exports of steel products may continue to fall this year, having plunged by over 30% last year to 75.43 million tons.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

China produced 831.73 million tons of crude steel last year. The country has been trying to eliminate excess capacity, in part to assuage global concerns about excess capacity flooding global markets. But, in reality, it’s more because it realizes overcapacity in its steel industry leaves all domestic producers in a precarious position and sees logic in driving the cleanup in favor of its state-owned producers rather than leaving the market to possibly favor the private sector – not what an increasingly state-centered Beijing wants at all.

Whether Li is promoting the reduction in exports as a counter to allegations abroad that China is harming global steel markets with its exports or whether we should take his ongoing linkage to the fight against pollution at face value is up to the reader. It may be that it is a case of two birds with one stone, but one suspects the timing, straight after President Trump’s 25% tariff on steel imports, is no coincidence.

Li’s comments regarding further production curbs is interesting, though, saying the steelmaking hub of Tangshan in Hebei province will extend production restrictions for another eight months after current curbs expire next week, according to the Reuters report. Production curbs would not be limited to the smog-prone region of Beijing-Tianjin-Hebei, according to Li, who added “other regions will also see restrictions if pollution levels exceed the limits.”

Beijing’s drive to shutter production capacity across a range of environmentally harmful industries has been broadly successful.

But what is clear is that smog reduction was not the only objective.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

State-owned enterprises have benefited at the expense of the private sector with new steel and aluminum capacity coming onstream to partially replace the older shuttered plants. Permits for new plants seem to have favored the state-sector producers over the private sector; contrary to the position 18-24 months ago, the state sector is doing very well at present.

gui yong nian/Adobe Stock

This morning in metals news, Pittsburgh-based U.S. Steel announced it plans to restart a blast furnace facility in Illinois, Trump talks tough to E.U. and Chile’s trade surplus is powered by strong copper exports.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

U.S. Steel to Restart Illinois Operations

U.S. Steel announced this week that it plans to restart a blast furnace and steelmaking facilities in Illinois as a result of President Trump’s 25% steel tariff proposal last week.

President and CEO David Burritt praised the tariffs proposal.

Our Granite City Works facility and employees, as well as the surrounding community, have suffered too long from the unending waves of unfairly traded steel products that have flooded U.S. markets,” Burritt said. “The Section 232 action announced by President Trump last week recognizes the significant threat steel imports pose to our national and economic security. The President’s strong leadership is needed to begin to level the playing field so companies like ours can compete, win and create jobs that support our employees and the communities in which we operate as well as strengthen our national and economic security. We will continue to support our customers with the high-quality products they have come to expect from U. S. Steel.”

According to a U.S. Steel release announcing the decision, the company plans on calling back approximately 500 employees to its Granite City Works, beginning this month, in a process that could take up to four months.

Trump Criticizes E.U. as Tariff Tension Rises

Trading partners around the world expressed dissatisfaction with President Donald Trump’s steel and aluminum tariffs proposal, with many implicitly and explicitly indicating they would retaliate if the tariffs are imposed.

The European Union is among the trading partners making noise about retaliation, making reference to placing duties on products like Kentucky bourbon and American cheese.

The tension grew this week, as Trump called out the E.U., saying it has been almost “impossible” to do business with, according to the Financial Times.

Chile Exports Heat Up, Lifting Trade Surplus

The Chilean economy is experiencing a trade surplus, with copper exports being a major contributor, according to a Reuters report.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Chile had a $1.25 billion trade surplus in February according to the report, good for the South American nation’s largest surplus in four years.

Zerophoto/Adobe Stock

The Indian metal industry seems divided for now over the implications of U.S. President Donald Trump’s announcement of the intention to impose tariffs on steel and aluminum imports.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

News reports and statements by industry leaders, along with reports by research agencies, show no unanimity on how the decision by the U.S. government, if implemented, would affect trade in India aand other neighboring Asian countries.

A report by news agency Press Trust of India (PTI), quoting industry leaders, said India will not be impacted much.

President Trump said last week he had decided to impose a steep 25% import tariff on steel.

Quoting H Shivram Krishnan, Essar Steel commercial director, the PTI report said the U.S. decision was not compliant with World Trade Organization (WTO) regulations. Former Steel Authority of India Ltd (SAIL) chairman Sushil Kumar Roongta said that the move may impact some of India’s steel exports to the U.S.

On the other hand, Sanak Mishra, former managing director of SAIL’s Rourkela Steel Plant, told PTI the decision may not have a significant impact on India as of its total steel imports, U.S. imports only 2% from India.

Some experts in India believe if the U.S. President went ahead with his decision, it would spark off a retaliatory war between exporting nations and the US, disrupting the just-about-recovering global steel industry.

On the official front, the Indian government, without naming the U.S., has let it be known that it may not exactly be a wise move. In a nuanced statement, Indian trade envoy J S Deepak said the government shared the concerns that some members had expressed on recent developments that could lead to new tariff barriers and even a trade war.

The envoy added that application of tariffs must respect the ceiling of bound rates agreed to at the WTO.

Several countries, including the European Union, China and Japan, to name a few, have criticized President Trump’s announcement.

India has also cautioned about the threats posed by the U.S. to the WTO’s dispute settlement functions because of the continued delay in selection and appointment of members to fill vacancies in the Appellate Body, the highest limb for adjudicating global trade disputes.

The U.S. is India’s largest export destination with U.S. $42.21 billion worth of shipments sent in 2016-17. But India’s steel and aluminum exports to the U.S. remain low. While steel exports to the U.S. stood at only U.S. $330 million, export of finished steel products were U.S. $1.23 billion in 2016-17. Total exports of aluminum and aluminum products stood at $350 million.

But a report in the Business Standard said India may have to brace itself for more imports from China into India as a result of the U.S. action.

On the other hand, ratings agency Moody’s said in a report that Asia, which produced more than two-thirds of the world’s steel, would “be minimally affected” when compared to the rest of America’s trading partners. Asian exports of aluminum and steel to the U.S. typically amount to less than 1% of GDP or exports, Moody’s reported.

Moody’s said the direct impact on steel companies would be manageable for the steel sector and rated steelmakers in Asia, because steel is predominantly traded within the region.

The CEO of Japanese giant Nippon Steel, the world’s second-largest steel producer by volume, has already dubbed Trump’s decision “regrettable.”

The one area likely to be affected if Trump goes ahead is metallic scrap imports. The U.S.’s imposition of import tariff on primary metals, including steel and aluminum, was likely to hit India’s 10 million tons (MT) of metallic scrap import annually, according to this news report. The U.S. makes up 20% of this import.

Want to see an Aluminum Price forecast? Take a free trial!

More use of scrap as raw material for metal producers in the Unites States will result into its lower availability for importers across the world. This means scrap price would move up outside the U.S., which would impact secondary metal producers into India, according to Sanjay Mehta of Material Recycling Association of India.

Pavel Ignatov/Adobe Stock

This morning in metals news, domestic raw steel production for the week ending Feb. 24 was up slightly from the same week last year, Shanghai copper prices drop and Japan’s steel exports rose 24.1% in January.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

Raw Steel Production Up 0.7% Year Over Year

Raw steel production for the week ending Feb. 24 was up 0.7% compared with the same week in 2017.

Production for the week amounted to 1,783,000 net tons for a capacity utilization rate of 76.5%. Production for the week ending Feb. 24 was up 1.8% from the previous week. In the year to date, however, raw steel production is down 1.6% compared with the same period in 2017.

SHFE Copper Prices Fall

Copper on the Shanghai Futures Exchange fell Tuesday, partially a result of a strengthening dollar, according to a FastMarkets report.

The most-traded April contract on the exchange fell to $8,430 per ton, according to the report.

For more efficient carbon steel buying strategies, take a free trial of MetalMiner’s Monthly Outlook!

Japan Zinc Exports Surge to Start the Year

Exports of zinc from Japan jumped 24.1% year over year in January, according to Reuters.

Although my colleagues have written in detail exploring the specifics of the Section 232 investigations in steel and aluminum, recently completed by the U.S. Department of Commerce, it is worth considering the likely outcomes.

This is particularly true for aluminum, because the production market is not as integrated as it is for steel. Often, primary producers and downstream are not vertically integrated, making decision-making more complex.

Section 232 buying strategies – download MetalMiner’s Section 232 Investigation Impact Report today!

One can understand why President Trump is taking his time to make a decision on the twin section 232 investigations.

Although the premise of both investigations is the same — namely that steel and aluminum imports threaten to impair the national security of the United States — the two industries and their respective supply chains differ considerably.

A Background of Decline

The U.S. aluminum industry has a primary smelting sector that has been in decline since the turn of the century, but particularly in the last five years, as this graph from Statista illustrates.

Today, the U.S. has just eight plants with a combined annual production capacity of 1.82 million tons. According to Reuters, actual production last year was 785,000 tons, translating into a capacity utilisation rate of 43.2%.

That’s dire by any industry standards and qualifies the Commerce Department’s argument that at such levels an industry cannot be profitable, cannot invest in the future, and cannot afford research, development or innovation.

Yet to get it to the 80% target espoused in the report would require only 669,000 tons of idled capacity to be brought back onstream. We will come back to that shortly, but not before we take a quick look as to where some 90% of U.S. primary aluminium imports are coming from.

Import Sources

Source: Reuters

As this graph from Reuters shows, Canada, Russia and Brazil are by far the largest suppliers of primary aluminum into the U.S. market. There is no suggestion as to clawing significant chunks of this production back to U.S. shores; 669,000 tons is just the tip of the iceberg.

Sector Snapshot

The major part of the U.S. aluminum industry is made up of downstream suppliers producing semi-finished products, from plate and bar down to sheet, foil, wires, tubular products, and cast and forged parts.

This downstream sector faces a different set of challenges from the primary producers.

Some semis manufacturers rely on competitively priced imports of primary metal or billets in order for them to compete in export markets or domestically against foreign suppliers for the same finished goods. Other semi-finished manufacturers, arguably more at the commodity end of the market, face intense competition from imported semi-finished products depressing domestic U.S. price levels. The supply base for semi-finished products is different from the primary market, as the below graph from Reuters shows.

Source: Reuters

Here China, despite previous anti-dumping actions, remains a major supplier and is likely the main target for the Commerce Department’s actions.

Winners and Losers

A blanket tariff increase across the board would clearly create massive winners and losers because of the complexity of the aluminium market.

The Commerce Department is proposing either an across-the-board import tariff of 7.7% or a quota system limiting imports to 86.7% of  last year’s levels. A third option would be to target five countries with a draconian 23.6 % tariff, with everyone else subject to a quota also set at last year’s imports. Clearly, in the primary market Canada is going to be given an exemption, so rather than across the board, any tariffs or quotas are more likely to be country specific.

Likewise, with semi-finished products China and its intermediary shipping points, such as Vietnam and Hong Kong, are also likely to be the principal targets. Not surprisingly, the prospect of China being partially shut out of the U.S. market is sending shivers through governments in other parts of the world, fearful of where those redirected trade flows will end up.

Of course, it’s entirely possible nothing will be done.

Blocking Russian and Venezuelan imports of primary aluminum will not immediately make U.S. smelters viable again. Smelter closures have more to do with power costs than solely foreign competition. In addition, as my colleagues Lisa Reisman and Irene Martinez wrote this week, to bring an idled smelter back onstream is a medium-term proposition. A decision in April would not see capacity come back onstream this year, so any action has to be timed carefully.

Want to see an Aluminum Price forecast? Take a free trial!

The LME spiked on the release of the investigation’s findings and CME physical delivery premiums have climbed. For now that’s probably it, but be prepared for further volatility as the decision deadline of April 20 approaches.

gui yong nian/Adobe Stock

This morning in metals news, the U.S. Department of Defense recently indicated it would prefer targeted tariffs as opposed to a blanket strategy, Australian Prime Minister Malcolm Turnbull will press President Donald Trump on an assurance last year that Australia would be exempted and London copper is down for the week.

Buying Aluminum in 2018? Download MetalMiner’s free annual price outlook

DoD Espouses Targeted Tariffs Approach

In light of the pending Section 232 probes of steel and aluminum imports, the Department of Defense said it would favor a more targeted approach to tariffs.

In addition, the DoD prefers a delay to any measures curbing aluminum imports, according to a Reuters report.

Turnbull Looks for U.S. to Honor Tariff Assurances

Australian Prime Minister Malcolm Turnbull plans to discuss with President Trump on Saturday the assurances given last year that Australia would be spared from Section 232-related steel and aluminum tariffs, according to the Financial Review.

The recently released Section 232 reports make no mention of an exception for Australia. According to the Financial Review report, Turnbull will seek to revisit assurances made last July vis-a-vis a carve-out for Australia.

Copper Down on the Week

London copper and zinc dropped this week as a result of profit taking, Reuters reported. In addition, the dollar strengthened and uncertainty about demand in China contributed to the drop this week.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

According to the report, LME three-month copper dropped 0.7% to $7,110 a ton in official open outcry trading on Friday.

Pavel Ignatov/Adobe Stock

This morning in metals news, China’s scrap steel exports surged last year, two popular American non-metal products could be affected by steel and aluminum tariffs, and a miner of gold and silver looks to get into copper and zinc.

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

Chinese Scrap Steel Exports Jump in a Big Way

Scrap steel exports from China amounted to 2.2 millions tons in 2017, according to a Reuters report citing the Xinhua news agency.

Bourbon, Cheese Getting Caught in a Hypothetical Trade War?

As President Donald Trump mulls steel and aluminum tariffs — as part of the Department of Commerce’s Section 232 probes — many have pondered if such tariffs would mark the start of a new trade war.

According to a report by NPR, Kentucky bourbon and Wisconsin cheese could be affected in such a trade war. While China is often the primary focus of the 232 discussion, according to the report European allies are warning of possible retaliation.

Hochschild Looks to Get Into Copper, Zinc

Hochschild, a miner of gold and silver, is interested in moving into other sectors, like copper and zinc, according to a Reuters report.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Gold and silver will continue to buy the miner’s top priority, according to the report.

(Editor’s Note: In case you missed the previous installments of this series, check out Part 1 and Part 2.)

What About the Impact on U.S. Production?

The U.S. Department of Commerce. qingwa/Adobe Stock

First, the recommendations from the Department of Commerce apply to both primary (or upstream) and downstream production.

The upstream production refers to unwrought production, while downstream production consists of processing aluminum into semi-finished aluminum goods (such as rods, bar, sheets, plates, castings, forging and extrusions). The U.S. remains remains the second-largest aluminum producer, just behind  China.

Section 232 buying strategies – download MetalMiner’s Section 232 Investigation Impact Report today!

The main objective of the actions proposed by the Department of Commerce focused on downstream production. As previously stated, the Section 232 outcome seeks to restore the industry to 80% capacity utilization.

Therefore, aluminum production could increase (at least, domestically). Increasing the domestic capacity utilization rate up to 80% would mean more aluminum will be produced and consumed domestically.

Aluminum Carve-outs?

President Trump has yet to determine if all the report recommendations will be applied. MetalMiner believes that even if the quotas/tariffs implemented are lower than that indicated in the Section 232 aluminum report — meaning a lower tariff and, therefore, a reduced capacity utilization rate — aluminum products may not receive as many exemptions as steel products.  

Contrary to steel, most aluminum products can be produced domestically and therefore, aluminum would potentially require fewer carve-outs than steel.

Timing becomes an issue when considering the impact of the Section 232 aluminum investigation outcome.

For the aluminum industry, restarting idled capacity takes around 9 months. After that, each smelter needs to start running toward its optimal capacity, which also takes time. Realistically it may take 12-15 months of time to reach optimal production.

Trump will need to consider that timing in his decision. Without careful consideration, reducing aluminum imports could have a negative impact for U.S. aluminum buyers in the short term. 

Therefore, the president might need to take this into account and give some time for the industry to adapt to the new measures.

Want to see an Aluminum Price forecast? Take a free trial!

Trade Wars: Hype or Reality?

We will address this issue in an upcoming post.

stockquest/Adobe Stock

China is both the world’s largest aluminum producer and consumer. So, not surprisingly, what happens in the Chinese market has a major impact on global aluminum prices.

Buying Aluminum in 2018? Download MetalMiner’s free annual price outlook

There was a time some years ago when China’s primary aluminum market operated largely in isolation, with primary producers prevented from exporting by a 15% export tariff on aluminum ingot, on top of the 17% domestic VAT.

This was the situation Alcoa’s Klaus Kleinfeld referred to as China’s parallel universe.

The export tariff has served global primary aluminum producers in the ROW well by limiting the impact China’s massive primary production capacity would otherwise have had. You only have to look at the deflationary impact of Chinese steel exports on global steel prices to understand the impact wholesale exports of primary metal from China would have had on the LME aluminum price.

Every action has a reaction, Newton told us, and the Chinese domestic market’s reaction to tariff barriers has been that the domestic Shanghai Futures (SHFE) market has danced to two tunes at the same time.

It is not immune to global aluminum prices and, therefore, the direction of the LME, as consumers are free to import metal if domestic prices rise too far. Likewise, if domestic prices collapsed, downstream producers of semi-finished products become fundamentally more competitive, allowing them to export semi-finished products and, via the demand for primary metal that those exporters generate, encourage domestic ingot prices to rise.

Over the last year we have seen LME aluminum inventory fall while SHFE has been on a relentless rise. Not surprisingly, the SHFE aluminum price has fallen to a discount from the LME when VAT is stripped from the price. Exporters of semi-finished products are able to partially or largely reclaim the VAT element of their costs, much as exporters are in the rest of the world.

Such a differentiation between primary and downstream products, although well-intentioned, risks the less scrupulous trying to game the market.

Stories are rife, although prosecutions few, of companies exporting primary products, yet claiming they are semi-finished in an effort to avoid export tariffs. Of course, export containers undergo spot checks by Chinese customs, so much of this primary metal masquerading as semis comes out in the form of barely altered basic products. Cast slabs rolled just enough to call them plates or round cast billets hot extruded to call them bars.

So when Metal Bulletin reports that South Korean imports of aluminium plates, sheets and strips from China jumped 57.1% to 177,015 metric tons in 2017, questions are asked: is this really semi-finished material or is a proportion primary metal?

In December alone, the article states, South Korean imports from China grew 47.8% year on year to 13,278 tons. With the U.S. market becoming gradually closed to Chinese exporters and the E.U. increasingly hostile to imports, it would not be surprising if integrated primary producers sort to offload metal abroad. New smelting capacity additions have slowed recently in China and inventory has risen, suggesting the market is awash with metal despite robust demand.

Want to see an Aluminum Price forecast? Take a free trial!

Investors were expecting a greater impact from environmentally inspired closures during the winter heating season. With that nearing an end in March, you have to wonder whether the aluminum price can regain ground lost in recent weeks.