Before we head into the weekend, let’s take a look at the week that was and some of the metals storylines here on MetalMiner, including coverage of: copper prices and the coronavirus’ impact; European steel consumption; Jingye’sBritish Steel takeover bid; U.S. steel production; automotive sales and more.
This morning in metals news, the U.S. steel sector’s capacity utilization rate reached 82.1% as of Jan. 11, Pilbara Ports Authority throughput in December 2019 rose 2% and the U.S. removed the label of currency manipulator it had imposed on China last year.
This morning in metals news, President Donald Trump won’t go through with a previous tariff threat on Brazilian steel and aluminum, Chinese stainless steel production growth is forecast to drop in 2020, and a power outage impact Norsk Hydro operations last week.
After President Trump met with Brazilian President Jair Bolsonaro last Friday, Trump agreed not to follow through on a previous threat to impose steel and aluminum tariffs on Brazilian exports, the Wall Street Journal reported.
The news comes less than a month after the initial threat, which would have reversed an exemption granted to Brazil (and Argentina) when the Trump administration initially imposed Section 232 steel and aluminum tariffs in March 2018.
Chinese stainless production growth to drop in 2020
“On December 18, a transmission tower overturned, ceasing power supply to Hydro’s Paragominas bauxite mine in Brazil, temporarily halting the production at the mine,” Norsk Hydro said. “Regular power supply to Paragominas is expected to resume within 5-10 days.”
The firm said capacity at the Alunorte alumina refinery will be temporarily reduced to 50-70% in order to extend the life of bauxite inventories there.
“Getting VERY close to a BIG DEAL with China,” Trump tweeted Thursday morning, sending stocks soaring. “They want it, and so do we!”
Talks between the two countries picked back up in October and have continued since. That same month, Trump outlined a potential phase one deal, but said the two side still had to work out details in the ensuing weeks.
In August 2017, the United States Trade Representative launched its Section 301 investigation into alleged Chinese trade practices, including forced technology transfers and intellectual property theft, among other U.S. grievances.
In 2018, the Trump administration rolled out initial tariff tranches of $34 billion and $16 billion. Those tranches were followed by an additional $200 billion in tariffs last September.
The Trump administration’s fourth tariff list encompassed $300 billion worth of Chinese goods —including a wide variety of common consumer goods, from toys to washing machines — at a 10% rate. Those tariffs were scheduled to go into effect Sept. 1; however, some of those tariffs were eventually delayed, leading to Sunday’s Dec. 15 deadline.
Through the first 10 months of the year, the U.S. has a trade in goods deficit of $294.5 billion with China, with exports worth $87.6 billion and imports worth $382.1 billion, according to Census Bureau data. The U.S. deficit with China came in at $419.5 billion in 2019.
The exact details of the reported agreement remain to be seen, particularly in light of the often topsy-turvy, back-and-forth nature of the negotiations to date; a deal in principle today might not be one tomorrow. In fact, during the NATO summit last week in London, Trump mused it might be better to wait to sign a deal until after the 2020 elections.
Nonetheless, the news marks another milestone in a busy week of trade news.
Earlier this week, the White House and House Democrats announced an agreement on revisions to the United States-Mexico-Canada Agreement (USMCA), the proposed successor to the North American Free Trade Agreement (NAFTA).
Stocks reacted positively to the U.S.-China trade news Thursday.
Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including our coverage of: ArcelorMittal’s plant closure in South Africa, the oil price outlook, U.S. steel capacity utilization and steel prices, CAMMU’s call for a Section 232 sunset provision, and more.
Autos are the soft underbelly of major auto economies like Germany, Japan, South Korea and Mexico in their trade relations with the U.S. Although the first three have invested heavily in U.S. manufacturing facilities over the years, they still ship huge volumes into the U.S. from their home countries and have largely perpetuated an unfair reciprocal relationship in terms of tariff barriers.
The E.U., for example, exported $42.8 billion worth of motor vehicles to the U.S. in 2018 — more than one-fifth of the cars imported by the U.S. — at a tax rate of 2.5%. Meanwhile, the E.U. imposes a 10% tariff for cars exported in the reverse direction.
In response to the threat of 25% tariffs, the E.U. offered to scrap tariffs in both directions, a step it has resisted in all previous negotiations.
But with carmakers’ backs against the wall, the Trump administration was not about to let up with a simple scrapping of tariffs, long overdue as that may be.
The administration is in discussions with the E.U. and its carmakers about increasing their investment and employment in the U.S. The more cars foreign carmakers manufacture in the U.S., the less they will ship in from abroad, benefiting the balance of payments and creating employment stateside.
Consumers benefit from continued access to a wide range of manufacturers without the cost implications of the threatened tariffs being imposed, estimated to be between $1,400 and $7,000 per vehicle if applied at 25%, the article notes.
Even U.S. carmakers are in favor of removing all tariffs, as they see a reduction in overseas import tariffs as an opportunity worth the increased domestic competition that foreign carmakers setting up in the U.S. may pose.
The only losers, should the deal be agreed, could be said to be foreign carmakers who will lose domestic exports, an impact that Germany is expected to feel the significance of more than any other country. Germany runs the second-largest trade surplus after China, with autos making up a sizable portion of that mercantilist trade structure.
Foreign carmakers are being asked to provide details of proposed investments and plans already in the pipeline.
The German car industry is promising to create 25,000 jobs at factories in the United States, according to The New York Times. However, the Trump administration is looking for new jobs and investments, not simply plans that were already in the pipeline before the current negotiations were started.
A deal has not yet been reached; unofficially, both sides are making encouraging noises, raising the prospects for some good trade news to lift the spirits of investors who have been disproportionately depressed by a barrage of negative media coverage on the topic in 2019.
This morning in metals news, U.S. steel import permit applications surged in October, U.S. Steel has laid off workers at its Granite City operation and Port Hedland iron ore shipments to China dropped in October.
The Granite City operation famously received a boost after the Trump administration’s imposition of Section 232 tariffs on imported steel. Previously idled, in March and June of 2018, U.S. Steel announced it would restart two blast furnaces at the plant, welcoming back approximately 800 workers in the process.
Port Hedland Iron Ore Exports to China Drop in October
Exports of iron ore to China from Australia’s Port Hedland fell in October, Reuters reported.
This morning in metals news, No. 1 copper producer Chile saw its export levels drop 21% last month amid protests around the country, steel production in the U.S.’s Great Lakes region dropped last week and Shanghai Metals Markets forecast Chinese tin prices to rise back above $20,000 per ton by the end of the year.
“In line with other analysts, SMM are positive on the tin market for the remainder of the year,” the International Tin Association said in a release. “While we are forecasting stable demand in Q4 and falling supply (particularly in China), we expect that any price increase this year will be resisted by the high stocks on the LME. In 2020, we also see demand returning to the market as economic growth recovers and uncertainty dissipates. However, currently idled production is likely to re-enter the market to cope with increased consumption. Next year, we see tin recovering from current uncharacteristic lows, but feel that average price forecasts of US$ 22,000/tonne are slightly optimistic.”
This morning in metals news, South Korea will no longer seek to benefit from special treatment granted to developing countries vis-a-vis WTO rules, iron ore exports from Australia’s Port Hedland are surging and Rio Tinto has commissioned new press filter technology at its Quebec alumina refinery.
“The government decided not to seek special treatment as a developing country from future negotiations at WTO,” Finance Minister Hong Nam-ki was quoted as saying.
Developing country status is self-designated; however, other WTO members can challenge a country’s claim to the status.
Earlier this year, the White House released a memorandum calling for reforms to developing country designations.
“While some developing-country designations are proper, many are patently unsupportable in light of current economic circumstances,” the memorandum stated. “For example, 7 out of the 10 wealthiest economies in the world as measured by Gross Domestic Product per capita on a purchasing-power parity basis — Brunei, Hong Kong, Kuwait, Macao, Qatar, Singapore, and the United Arab Emirates — currently claim developing-country status. Mexico, South Korea, and Turkey — members of both the G20 and the Organization for Economic Cooperation and Development (OECD) — also claim this status.”
Through the first half of 2019, South Korea accounted for 9% of U.S. steel imports (1.3 million metric tons).
“The new filter presses will deliver environmental benefits by moving the refinery to dry stacking of bauxite residue and extend the life of the operation, which supports 1,000 jobs in the Saguenay-Lac-St-Jean region,” the company said. “The presses will ramp up to being fully operational in early 2020.”
The new presses will be able to dry bauxite residue — preparing it for storage — in just 17 minutes, according to Rio Tinto, down from the three years it currently takes to dry the material.