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This morning in metals news, Chinese iron ore futures hit their highest price point in 10 months, Turkey’s steel sector takes another hit, and copper and zinc hit their 2019 highs.

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Iron Ore Rises

Is optimism building vis-a-vis a potential resolution to the ongoing U.S.-China trade dispute?

Apparently, yes (whether that leads to an actual diplomatic breakthrough is something else entirely).

And, according to Reuters, that optimism has contributed to sending Chinese iron ore futures up to a more than 10-month high, with Dalian ore gaining as much as 2.6%.

Strain on Turkish Steel

The Turkish steel sector was already under pressure after the 2018 diplomatic standoff over the detention of American pastor Andrew Brunson. Brunson was eventually released in October, but not before the Trump administration in August announced it would double its Section 232 tariffs on steel and aluminum with respect to imports from Turkey.

The move thus raised the duties to 50% and 20%, respectively, on a Turkish steel sector that was already suffering after the initial 25% steel duty was imposed in March 2018. U.S. imports of Turkish steel through the first half of 2018 were down 56% compared with the first half of 2017.

The hits keep on coming for the Turkish steel sector, as E.U. member states this week voted to impose steel quotas extending until 2021.

“Our export markets have disappeared, the local market hardly exists, we’ve got lots of capacity and no market,” a London-based Turkish steel trader was quoted by Reuters as saying.

Copper, Zinc Surging

The price of copper and zinc on Friday reached their highest levels in the year to date, CNBC reported.

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As with the Dalian iron ore surge, markets are seizing on optimism that a U.S.-China accord is drawing nearer.

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This morning in metals news, aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 results, India is considering a higher iron ore import duty and Shanghai steel futures moved up.

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Alcoa Reports 4Q Earnings

Pittsburgh-based aluminum producer Alcoa Corporation reported its fourth-quarter and full-year 2018 earnings this week, reporting adjusted net income of $125 million, excluding special items, for the final quarter of 2018.

The 4Q net income total was up from $119 million in the third quarter but down from $195 million in 4Q 2017.

For 2018 as a whole, the company reported adjusted net income excluding special items of $675 million, up from $563 million in 2017.

“Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments,” President and CEO Roy Harvey said. “With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead.”

In 2019, Alcoa projects a global aluminum deficit between 1.7 million and 2.1 million metric tons. In addition, Alcoa reported the global alumina market came in at a deficit of 0.6 million metric tons.

“In 2019, the Company expects the alumina market to move to a surplus that is projected to range between 0.2 million and 1 million metric tons, which assumes ongoing, third-party supply disruptions in the Atlantic region,” Alcoa states. “The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.”

India Considers Hiking Iron Ore Duty

According to a report from Creamer Media’s Mining Weekly, the Indian government is considering an increase to its iron ore import duty.

Per the report, domestic industry has lobbied the government to increase the current 2.5% duty on imported iron ore.

Shanghai Steel Picks Up

Global steel prices have lagged of late, but Thursday was a positive session for Shanghai steel futures, Reuters reported.

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Per the report, the most-traded rebar contract on the SHFE ticked up 0.8%, while hot rolled coil was also up 0.8%.

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This morning in metals news, the E.U. approved new steel import curbs extending until 2021 with a vote Wednesday, the copper price picked up as the U.S. dollar loses momentum and the United States Trade Representative (USTR) says it will set up a system for exclusions if the tariff rate increases on the $200 billion of duties imposed on Chinese imports in September (currently sitting at 10%).

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E.U. Moves Forward with New Steel Quotas

As expected, E.U. member states voted to impose new steel quotas, part of the ongoing response to the U.S.’s Section 232 tariffs imposed in March 2018 and fears of redirected steel supplies flooding Europe.

E.U. member states approved provisional measures in July 2018, but the approval Wednesday puts quotas into place that will extend to July 2021.

Copper Rises, Dollar Softens

The U.S. dollar was cruising ever-upward throughout the tail end of 2018, but that momentum has seemingly slowed of late.

The U.S. dollar and base metals like copper correlate inversely, meaning a drop in one typically presages a rise in the other.

As Reuters reported Wednesday, the LME three-month copper price jumped for a second straight day, moving up 0.8%.

The U.S. dollar index declined to start the year but has bounced back in the past week, sitting at 96.04 as Wednesday morning.

USTR to Allow for Exclusions if Tariff Rate Rises on Chinese Goods

According to a Bloomberg report, the USTR has promised two senators that there will be an exclusion request process on the previously announced $200 billion in tariffs on Chinese goods if the tariff rate rises to 25%.

The $200 billion tariff package, imposed in September, came at a 10% tariff rate, with a built-in increase to 25% as of Jan. 1, 2019.

That increase, however, was postponed, as the U.S. and China began a 90-day negotiating period to hash out trade differences.

Unlike the previous $50 billion tariff package announced last year, the larger tariff package was not looped into a tariff exclusion request process (that is, a process by which companies can make the case that they need exemptions from the duty).

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However, according to the USTR letter cited by Bloomberg, the U.S. will allow for exemption requests if the tariff rate is ultimately elevated to 25%.

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Around the time that the Trump administration’s Section 232 tariffs on steel and aluminum were implemented last year, U.S. Commerce Secretary Wilbur Ross noted the administration’s goal of lifting steel and aluminum capacity to 80% (the level reflecting a healthy industry).

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Following the implementation of the tariffs, that figure gradually increased as domestic producers got a boost, with some even announcing smelter restarts (U.S. Steel’s Granite City steelworks being a prime example).

So, how have production levels fared to start the new year?

According to data released by the American Iron and Steel Institute (AISI), the steel capacity utilization rate through Jan. 12 reached 79.5%, up from the 73.6% posted during the same period in 2018.

Production in the year through Jan. 12 reached 3,231,000 net tons, according to the AISI report.

Meanwhile, for the week ending Jan. 12, capacity utilization hit 79.8%, with 1,891,000 net tons of steel produced in the week. Production for the week marked a 10.2% increase from the same week in 2018. In addition, production was up 0.8% in the week ending Jan. 12 compared with the previous week.

Production by region for the week ending Jan. 12 broke down as such (in thousands of net tons):

• North East: 223
• Great Lakes: 731
• Midwest: 206
• Southern: 654 
• Western: 77 

U.S. steel prices across the board have seen their price momentum evaporate in recent months after hitting more than seven-year highs in 2018, buoyed by the Section 232 tariff. For instance, the U.S. HRC three-month price was $905 per short ton as of June 1, 2018. On Jan. 14, that price was $687 per short ton.

As MetalMiner’s Irene Martinez Canorea noted in her recent Raw Steels MMI report, steel prices appear to have entered a downtrend.

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“However, steel prices have showed slower momentum recently and prices appear to have started a sharp downtrend,” she wrote. “MetalMiner does not expect prices to increase in the short term, although mills may try to shore up prices with price increase announcements.”

Base metals traded higher at the beginning of January. However, momentum appears to be weaker once again.

The DBB index has shown weakness since June 2018, when it started this short-term downtrend. MetalMiner has recently revised its market outlook, advising buying organizations to closely follow how the index develops.

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DBB index. Source: MetalMiner analysis of Yahoo Finance

Since 2016, the DBB base metals complex has remained in a long-term trend (see the chart below). Base metal prices have skyrocketed since then but moved lower in 2018, when concerns about the Chinese economy started to appear.

DBB index long-term trend. Source: MetalMiner analysis of Yahoo Finance

A weaker Chinese economy will move demand lower. However, 2018 closed with the six base metals in global deficit. Supply and demand has not moved; therefore prices, mostly economic expectations and trading changes have driven base metal markets.

The Drivers

The DBB index comprises three base metals: aluminum, copper and zinc.

LME aluminum prices moved higher at the beginning of January, but prices did not breach the $1,970/mt level that acted as a support for most 2018. Prices being unable to breach that support level signals weakness for the base metal complex.

LME Aluminum prices. Source: MetalMiner analysis of FastMarkets

Both LME copper and LME zinc prices started to increase slightly at the beginning of January. Similar to aluminum, prices of both base metals fell. LME copper remains below the $6,000/mt level, which has served as the psychological ceiling for copper prices.

What This Means for Industrial Buyers

The base metals complex seems seems weaker. MetalMiner recently switched the long-term uptrend to a sideways trend.

Buying organizations may want to follow price dynamics closely, as well as each specific base metal price. Adapting the right buying strategy becomes crucial to reducing risks.

Only the MetalMiner Monthly Outlook reports provide a continually updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.

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For more information on how to mitigate price risk year-round, request a free trial to our Monthly Metal Buying Outlook.

With the January 2019 Monthly Metals Index (MMI) report, we can close the book on 2018 and what was a wild year in the world of metals and metals price movements.

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It was a book that closed with a pessimistic chapter for metals (and commodities in general), with many posting price declines as markets feel the effect of simmering trade tensions between the U.S. and China.

In our latest MMI report, you can read about all of the latest news and trends in our 10 metals subindexes: Automotive, Construction, Rare Earths, Renewables, Aluminum, Copper, Stainless Steel, Raw Steels, GOES and Global Precious.

A few highlights from this month’s round of reports:

• Chilean copper production in November reached its highest level in 13 years.
• U.S. automotive sales held about even with the previous year, but sales in China slumped in 2018.
• Cobalt watchers will be keeping close tabs on the recent election in the Democratic Republic of the Congo and where the political process in the country goes from here.
• Both U.S. and Chinese steel prices have been sliding.
• LME nickel prices and stainless steel surcharges also declined last month.

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Read about all of the above and much more by downloading the January 2019 MMI Report below:

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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.

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December Exports to the U.S. from China Drop

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.

According to a report by the Associated Press, China’s exports to the U.S. fell in December, down 3.5% compared with December 2017.

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.

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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.

If approved, the safeguard measures would replace provisional measures passed in July 2018.

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This morning in metals news, China is eyeing improvements to its steel capacity structure, China’s 2018 aluminum exports surged and Shanghai rebar futures hit a two-month high.

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China’s Steel Structure

According to Reuters, China is looking to shift the focus of its steel industry in 2019 from one of fast growth to more optimized, high-quality development.

The report cites Yu Yong, chairman of the China Iron and Steel Association, who said a major push in 2019 will come in the form of “optimising production structure, adjusting layout of steel mills and pushing merger and acquisition.”

China’s Aluminum Exports Surge

China’s exports of unwrought aluminum and aluminum products jumped 20.9% in 2018 year over year, S&P Global Platts reported.

Per the same report, December exports were up 19.8% on a year-over-year basis.

Shanghai Rebar Price on the Rise

The Shanghai rebar price hit a two-month high Monday, Reuters reported.

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According to the report, rebar futures rose 1.6% to reach $528.44 per ton.

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They call it the law of unintended consequences and, broadly speaking, it was intended by the American sociologist Robert K. Merton to mean unintended consequences are outcomes that are not the ones foreseen and intended by a purposeful action — particularly actions of a government.

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Well, I don’t for one minute expect President Donald Trump gave much thought to the consequences for the rest of the world of his decision last year to slap 25% import tariffs on steel products from the rest of the world.

His focus was largely on a domestic audience and if he gave thought at all for the international consequences, it was probably the impact on China. Although steel imports into the U.S. from China were not as large as from suppliers like Russia, Ukraine, Brazil and Canada, the cumulative impact of deterring those suppliers from the U.S. market has been an increase in metal looking for a home in Europe.

The E.U. imposed a number of policies in response to the perceived threat of increased steel imports. One was to demand that most steel (and aluminum) imports into the E.U. apply for a form of licence, called Prior Surveillance. The measure is not designed to control imports as much as to monitor the precise origin, down to the level of manufacturer, probably with the intention of applying quotas or anti-dumping action at the manufacturer level at some stage in the near future.

But in the meantime, the E.U. feels it needs more of a blanket approach. As such, the European Commission has announced it will prolong until July 16, 2021, a 25% tariff on more than 20 types of steel ranging from stainless hot-rolled and cold-rolled sheets to rebars and railway material when the shipments exceed the average over the past three years.

According to the Gulf Times, 26 types of steel will be covered by the E.U.’s definitive measures, compared with 23 product categories under the provisional system and 28 within the scope of the original probe representing some 40% of the E.U.’s annual iron and steel imports.

The E.U.’s decision has not been met with universal approval. The decision was immensely popular among steel producers who pushed for the measures; however, consumers like the automotive sector called the move unhelpful and a cause of “regret,” according to S&P Global.

The European Automobile Manufacturers’ Association (ACEA) was quoted as saying “ACEA questions the need for such trade protectionist measures. In the automotive sector, access to EU steel production is extremely tight and imports remain necessary to fill supply-chain gaps.”

ACEA points out any increase in imports is down to increased consumption, not increased market penetration by overseas mills, saying “Motor vehicle manufacturing has increased by 5 million units per year since 2014, and some increase in steel imports has been necessary to meet this higher demand.”

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It would seem U.S. carmakers and the wider steel-consuming industry are not alone in facing higher prices going into 2019.

As GDP growth slows — recent data shows it is certainly slowing in Europe and China — manufacturers’ factory gate prices will come under pressure as this translates into lower sales. Heightened raw material inputs will therefore squeeze margins in the year ahead.

The new year for India started on a positive note where trade with the United States is concerned.

On Jan. 7, U.S. President Donald Trump called up his Indian counterpart, Prime Minister Narendra Modi to discuss, among other things, reducing the trade shortfall — a move that seems to have gone down well in Indian circles.

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The White House later issued a statement that said the two leaders had decided to strengthen the Indo-U.S. strategic partnership in 2019, and “exchanged perspectives on how to reduce the US trade deficit with India.”

Trade between the two nations hit a sour note in March 2018 after Trump imposed tariffs on imported steel and aluminum, seen as part of the U.S. president’s move to reduce the U.S. trade deficit and boost American manufacturing jobs.

Since then, a miffed India has threatened to retaliate, but has put off retaliatory tariffs four times, the most recent postponement now pushing the date to the end of January 2019.

Indian Steel Secretary Binoy Kumar told reporters in late December that India was in talks with the U.S. regarding exemptions to the steel tariffs. Similar relief would also be sought from Canada soon, he also revealed. His remarks came on the heels of demands made by India’s domestic steel industry.

India wants to meet the target of producing 300 million tons of steel by 2030-31, which means an increase in the per-capita demand of steel from the present 69 kg to about 167 kg.

But the Indian Steel and Commerce Ministries do not seem to be seeing eye-to-eye on trade tariffs.

A recent report in the Hindu Businessline said the steel ministry refused to accept any quantitative restrictions on exports of steel and aluminum to the U.S., which made it tough for the Commerce Ministry to ask the U.S. to remove the duties imposed in 2018.

The news report quoted an unnamed government official as saying the U.S. was unwilling to look at options other than the quantitative restrictions on imports at levels it suggested. But since the Indian Steel Ministry was not willing to accept any such restrictions, there could be no forward movement.

One source of apprehension stemming from a tit-for-tat penalty imposition was the potential fallout in diplomatic relations between the two nations.

Government calculations have shown India’s steel exports to the U.S. were down, but not so much with respect to its aluminum exports.

Besides India, the U.S. had imposed the tariffs on Japan, China, South Korea, Mexico and the E.U. members, among others.

India has to also now face a counter levy of import quotas from the European Union, further impacting its exports.

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According to a new U.S. Congressional report, if India were to go on with its retaliatory tariffs against U.S. agricultural products, it would adversely impact American exports to the tune of U.S. $900 million.

Many countries had imposed tariffs on American agricultural products to retaliate against Trump’s metals tariffs.