There were major increases in imports from the European Union (+$567 million, +22%), Mexico (+$508 million, +20%) and Canada (+$404 million, +19%).
According to the CSR, the countries seeing the largest declines in their export totals to the U.S. were:
China (-$729 million, -40%)
Russia (-$676 million, -42%)
Canada (-$294 million, – 4%)
Major increases were from:
the E.U. (+$ 395 million,+9%)
India (+$ 221 million,+58%)
Oman (+$186 million, +200%).
Last year, U.S. President Donald Trump decided to impose blanket tariffs on steel and aluminum imports, which applied to India, as well as other countries (such as China). India then proposed retaliatory tariffs against U.S. agricultural products, including apples and lentils, which experts believed would have had an adverse impact on American exports worth nearly U.S. $900 million.
However, India has continued to defer with respect to this option.
The U.S. president had given temporary exemption to several countries from the tariffs pending negotiations. Later, permanent tariff exemptions in exchange for quantitative limitations on U.S. imports were announced covering steel for Brazil and South Korea, and both steel and aluminum for Argentina.
The latest CRS report pointed out that one of the U.S.’s major concerns was overcapacity in steel and aluminum production led by China.
The U.S. had imposed extensive anti-dumping and countervailing duties on Chinese steel imports to counter the latter’s unfair trade practices, but experts believe the size of Chinese production continues to depress prices globally, according to the CRS report.
China has limited scope of debt-fueled stimulus of the type employed in the past, so a pick-up in demand resulting from fiscal measures may be more muted than some optimists hope.
Still, hopes were raised when Premier Li Keqiang closed a briefing to the National People’s Congress with a number of announcements. Beijing intends to use tools such as lowering bank reserve requirements, according to Bloomberg.
However, a promise to reduce VAT on manufactured goods from the current 16% to 13% from April 1 gave a definite fillip to traders and cast depression among hard-pressed aluminum semis manufacturers in the region. More competitively priced Chinese aluminum semi-finished product is the last thing regional aluminum producers want on their doorstep.
The measure is expected to further boost exports, which have already been running at near-record levels in 2018-19. According to Aluminium Insider, exports have risen from 517,000 tons per month last August to 552,000 tons in January to set a new record. Primary producers, who had been meeting to negotiate capacity closures in the face of slowing demand, are reportedly now likely to reverse that decision in the hope demand will pick up.
According to Aluminium Insider, the move is expected to pump in the region of CNY 600 billion (U.S. $90 billion) into the manufacturing sector, boosting the country’s gross domestic product by 0.6%. The move comes as the latest in a series of changes to the country’s tax regime conducted by Beijing, carried out to bolster the economy after manipulations of monetary policy and further debt-based spending have become increasingly difficult avenues for effecting change.
Optimism is supported by the widespread belief that an agreement on China’s trade war with the U.S. is just a matter of weeks away — but the much-touted trade summit between President Donald Trump and Premier Li Keqiang has been postponed yet again, and may now not take place until well into April or even May.
A successful trade deal is by no means a certainty, as much as the markets will look for any deal to be better than no deal.
This morning in metals news, Reuters reports the launch of the London Metal Exchange’s planned steel contract will likely be pushed back to 2020, China’s average daily steel output in January and February increased, and India’s imports of iron ore were up 157% during the April-December 2018 period.
This morning in metals news, the Canadian government announced it is rolling out $100 million in funding for its domestic steel and aluminum industries, copper moves toward a seven-month high, and Vietnam’s steel exports to the U.S. increased in 2018.
The Canadian government has announced it will offer $100 million in funding to small- and medium-sized aluminum and steel firms in the country, the CBC reported.
The U.S.’s Section 232 tariffs on steel and aluminum remain in place for NAFTA partners Canada and Mexico. Those tariffs are the primary point of contention as the successor to NAFTA — the United States-Mexico-Canada Agreement (USMCA) — still needs to be ratified by the three countries’ legislatures.
This morning in metals news, China’s export levels fell last month, White House economic adviser Larry Kudlow is optimistic about a U.S.-China trade deal and an Australian gold miner is buying a Canadian copper and gold mine for $806.5 million.
Previous media reports indicated the U.S. and China could be set to ink a deal later this month that could end the current state of trade tensions.
According to the report, China’s February trade balance of $4.12 billion came in well short of economists’ expectation of a balance of $26.38 billion.
Kudlow ‘Bullish’ on China Deal
Speaking of U.S.-China trade talks, White House economic adviser on Sunday said he is still “bullish” on the prospects of a deal with China, Politico reported.
“Across the board, the deal has to be good for the United States and for our workers, and our farmers, and our manufacturing,” Kudlow told “Fox News Sunday,” according to the report. “It’s got to be good. It’s got to be fair and reciprocal and it’s got to be enforceable.”
Newcrest to Buy Canadian Mine for $806.5M
Australian miner Newcrest Mining Ltd. is set to buy a Canadian copper and gold mine for $806.5 million, Reuters reported.
China’s February copper imports fell to their lowest level in 11 months, Reuters reported, while copper concentrate imports rose to an all-time high.
Meanwhile, China’s aluminum exports fell 37.9% in February compared to the previous month, according to the report.
U.S. Steel Wins DOE Award
U.S. Steel won an award from the High-Performance Computing for Manufacturing Program sponsored by the Department of Energy, which will allow the company to “expand the company’s manufacturing capabilities for advanced high-strength steel.”
“The goal of the winning project, drafted by researchers Evgueni Nikitenko and Susan Farjami at U. S. Steel’s Research and Technology Center in Munhall, Pa., is to enhance the company’s hot strip mill model used in creating AHSS,” a U.S. Steel release stated. “This type of steel is used by automakers to manufacture economically lightweight vehicles to meet increasing fuel efficiency requirements while maintaining exceptionally high safety standards.”
According to the release, the project research will take place at the Lawrence Livermore National Lab, which will receive $300,000 to collaborate with U.S. Steel.
End of the Cruze
Per its announcement late last year, General Motors idled its Lordtown, Ohio assembly plant earlier this week, where the automaker rolled out its last Chevy Cruze vehicle.
This morning in metals, U.S. imports of steel dropped 12% year over year last year, Chile’s copper and lithium export revenue fell in February and markets react to uncertainty over the ongoing U.S.-China trade talks.
This morning in metals news, U.S. steel mills produced at a capacity utilization rate of 80.6% for the year through Feb. 9, U.S. steel mill shipments rose 4.8% in 2018 on a year-over-year basis and a Peruvian plant used to produce copper will be partially suspended for the next 3-5 days.
U.S. raw steel production for the year through Feb. 9 reached 10.9 million tons, according to the American Iron and Steel Institute (AISI), up 9.3% from the 9.9 million tons produced during the same period in 2018.
For the aforementioned period this year, U.S. steel mills produced at a capacity utilization rate of 80.6%, up from 75.7% for the same period in 2018.
For the week ending Feb. 9, production hit 1.9 million tons at a capacity utilization rate of 81.5%.
December Steel Shipments Up 6.5%
According to another AISI report, U.S. steel mills in December shipped 7.8 million net tons, marking a 0.8% increase from the previous month and a 6.5% increase year over year.
Shipments for the full year hit 95.3 million net tons, up 4.8% compared with 2017 shipments.
China is one of the most-watched economies in the world because its health ties in heavily with overall global economic growth. Further, there is a strong correlation between the Chinese economy as an industrial metals demand generator and the primary metals market outlook.
MetalMiner has always followed some Chinese indicators in order to completely understand and correlate metals markets. Let’s take a look at some indicators buying organizations may want to consider.
Figure 3. Chinese Caixin Manufacturing Index – Previous 14 Months Source: https://tradingeconomics.com/china/manufacturing-pmi
While Chinese manufacturers’ confidence appears lower overall as measured by the PMI, the bigger picture of Chinese economic confidence is more nuanced.
The Manufacturing PMI showed weaker sentiment when compared to other major sectors of the Chinese economy, while the Industrial Production and Mining Indexes showed improved confidence over the prior reporting period. In terms of the automotive industry, car production figures dropped while total vehicle sales and car registrations went up in absolute numbers.
Honson To, chairman of KPMG in the Asia-Pacific region and China, also finds reason to remain optimistic over China’s growth prospects this year, namely in the areas of domestic infrastructure projects and high-tech manufacturing. He expects infrastructure investments to contribute to continued Chinese growth, especially in the areas of high-speed railways and roads. Additionally, he projects further growth in the advanced manufacturing sector during 2019.
Beyond the direct stimulus impact, these upgrades to infrastructure will benefit the country by strengthening regional transportation across the vast country. While China boasts the world’s largest population, in terms of density it is much further down the list; therefore, improved regional infrastructure should provide a domestic stimulus for the Chinese national economy.
On the other hand, there will likely be a lag by up to a year in terms of how these domestic infrastructure projects will impact growth numbers, given the nature of such projects, as pointed out by Alistair Ramsay, a research manager with Fastmarkets, during a Jan. 25 BrightTalk presentation on the steel sector in China entitled “Ferrous Metal, Full Steam Ahead?”
The Chinese Stock Market is Showing Weakness
Figure 4. The China Shanghai Composite Stock Market Index declined throughout 2018. Source: https://tradingeconomics.com/china/stock-market
A look at the Shanghai Composite Stock Market Index shows a trend toward declining stock prices throughout 2018.
Additionally, a recent Goldman Sachs analysis of 20 well-traded stocks shows more weakness than expected coming from the domestic side of the Chinese economy, stating that the slowdown is visible in the data from the 20 stocks selected for the analysis.
Weakened performance in the consumer and producer markets has led to much speculation that the domestic slowdown has hit to a greater extent than expected.
Domestic pessimism over the Chinese economy’s health due to the U.S.’s aggressive tariff policies is viewed as the key issue, as tariffs are effectively curbing exports and slowing overall growth.
This, in turn, is impacting the U.S. through poorer market performance (take, for example, Apple’s recent off-target profit estimates resulting from weaker Chinese domestic demand for iPhones).
Foreign Direct Investment Inflows into China Remain Stable
As a factor potentially in support of China’s growth in the sectors identified by Honson, foreign direct investment (FDI) throughout the first half of 2018 (the latest dates for which figures are available) remained stable against a backdrop of falling FDI worldwide across both developed and developing countries.
According to the latest figures from the Chinese Ministry of Commerce, “FDI went up 3 percent year-on-year to $135 billion in 2018, while that of the world’s total and developed countries slumped 41 percent and 69 percent, respectively, in the first half of 2018.”
The strength of FDI in China is only second to the United States, according to another recent analysis. It should be noted that these figures, like those of the Chinese government, do not reflect the latter months of 2018 and are based on a 10-year analysis.
Others are more critical of the FDI situation in China, pointing out that even Chinese investors may prefer to invest elsewhere given a restrictive domestic investment environment resulting from recent Chinese government policies.
According to Baker McKenzie, “Sweden, the UK, Germany and France were the top destinations for Chinese investment in the first half of 2018.” The move toward heavier Chinese investment in the E.U. was also spurred on by the trade situation with the U.S., according to the same report.
The Yuan Regained Weakness Against the Dollar in 2018
Figure 5. Long-term Comparison of the USDCNY – Index of the U.S. Dollar Against the Chinese Yuan Source: https://tradingeconomics.com/china/currency
Chinese policymakers are well-known for their currency price control.
Once the yuan was devalued in 1994, the currency stayed under very tight government control, with very little change against the dollar for many years.
Quantitative easing is a popular technique; the Chinese government is well-known for injecting liquidity in the banking system to control the value of the currency.
Figure 6. The Appreciation of the Yuan Against the Dollar As a Result of Trade Policies During 2018 Quickly Reversed
The long-term effect of China’s intensive depreciation policy is to make steel and aluminum products cheaper.
Even in the current trade environment with applicable tariffs, steel and aluminum are still cheaper when compared with buying them in the U.S. due to the currency exchange rate between the U.S. and China. This situation is more or less continuing in an unmitigated fashion, as the Chinese government continues to exert artificial controls on the exchange rate.
So What Does That Mean for Metals?
If it’s not a stock market boom year, we might expect the metals market to continue to trend sideways, if not head upwards.
However, if the dollar stays strong, that should offset some of the gain — metals may see lower prices and then still fall in line with the sideways trend. This question is still undecided and is wrapped into the story of trade between the U.S. and China.
Beyond the strong U.S. dollar, the global production outlook appears moderate.
This morning in metals news, exports from China to the U.S. took a dive in December, India will drive global steel demand in the coming years and Serbia has requested an exemption from the E.U.’s imminent quotas on steel imports.
While the U.S. and China have kickstarted the new year with trade talks that have some feeling optimistic of a resolution, U.S. tariffs on $250 billion worth of Chinese imports appear to have had an effect on trade flows last month.
For the year as a whole, however, China’s exports to the U.S. in 2018 were up 11.3%, according to the report.
Indian Steel Demand
India last year overtook Japan as the No. 2 steel producer in the world, according to data from the World Steel Association last month.
And per a recent post by Adam Szewczyk, head of data management for the World Steel Association, Indian steel demand will likely continue to drive production growth.
“According to worldsteel’s October Short Range Outlook, it is likely that India will also become #2 in steel use by the end of 2019 as its steel demand is expected to grow by 7.3%,” Szewczyk wrote.
“The Indian steel industry, after recovering from the twin shocks of demonetisation and the Goods and Services Tax (GST) reform, is one of the few bright spots for the world’s steel industry in what is forecasted to be a lower growth era.”
Serbia Requests Exemption From E.U. Steel Quota
With E.U. member states set to vote on new steel quotas Wednesday — in response to the U.S.’s implementation of a 25% steel tariff last year, pursuant to Section 232 of the Trade Expansion Act of 1962 — one country has already asked for an exemption.
According to a Reuters report, Serbia, home to the Chinese-owned Zelezara Smederevo mill, has asked for an exemption from the quotas, which is expected to be approved by E.U. member states and will cover 26 product categories.