Articles in Category: Ferrous Metals

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This morning in metals news, the U.S., Canada and Mexico formally signed the trade deal that will serve as the successor to the North American Free Trade Agreement (NAFTA), aluminum associations in several countries sent Group of 20 (G20) leaders a joint letter asking them to tackle overcapacity, and President Donald Trump and President Xi Jinping are set to meet this weekend at the G20 summit in Argentina.

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U.S., Canada, Mexico Sign UMSCA

After a Sept. 30 announcement that the U.S., Canada and Mexico had concluded talks on the trade deal —dubbed the United States-Mexico-Canada Agreement (USMCA) — set to replace NAFTA, the parties involved made it official this morning.

Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto, on his last day in office, signed the trade deal this morning during the G20 summit in Buenos Aires, Argentina.

However, despite the signing, dialogue over trade among the three countries is not yet at an end. Mexican and Canadian leaders have indicated they will continue to push for the U.S. to remove its Section 232 steel and aluminum tariffs on the two countries’ metals.

The first round of talks focusing on renegotiation and modernization of NAFTA kicked off in August 2017. The U.S. initially pushed for a resolution by the end of 2017, but the negotiations continued into the new year. Elections in the three countries — including Mexico’s July 1 presidential election — came and went without a deal.

Among the key topics of negotiation were automotive content rules of origin and wages for Mexican workers — in the USMCA, the regional content benchmark jumps to 75% from 62.5%, while also requiring that 40-45% of auto content be produced by workers making at least $16 per hour.

The country’s leaders delivered comments at the USMCA signing ceremony in Buenos Aires, with Trump calling the NAFTA successor the “largest, most significant, modern, and balanced trade agreement in history.”

“All of our countries will benefit greatly,” Trump said. “It is probably the largest trade deal ever made, also. In the United States, the new trade pact will support high-paying manufacturing jobs and promote greater access for American exports across the range of sectors, including our farming, manufacturing, and service industries.”

Trudeau, meanwhile, said the new deal “maintains stability” for Canada’s economy and praised the negotiating teams involved, but was less effusive in his praise of the USMCA than Trump and Peña Nieto.

The Canadian prime minister also reiterated sentiment regarding the removal of the U.S.’s steel and aluminum tariffs.

“As I discussed with President Trump a few days ago, the recent plant closures by General Motors, which affects thousands of Canadian and American workers and their families, are a heavy blow,” he said. “Make no mistake: We will stand up for our workers and fight for their families and their communities.

“And, Donald, it’s all the more reason why we need to keep working to remove the tariffs on steel and aluminum between our countries.”

In addition, Chapter 22 of the USMCA includes provisions on state-owned enterprises (SOEs).

“We have dramatically raised standards for combatting unfair trade practices; confronting massive subsidies for state-owned enterprises; and, currently, if you look at it, currency manipulation that hurt workers in all three of our countries,” Trump said. “The currency manipulation from some countries is so intense, so bad, and it would hurt Mexico, Canada, and the United States badly.”

Aluminum Associations Want Focus on Overcapacity

Aluminum associations from several countries sent a joint letter to G20 leaders asking them to commit to addressing global overcapacity.

“We urge the G20 to again commit to tackling the issue of market-distorting aluminium overcapacity that stems from state interference and puts aluminium producers across the entire value chain at a profound disadvantage,” the letter said. “Free trade is an engine of prosperity, social mobility and peace – but free trade is only possible and meaningful when businesses are able to operate on an equal footing across the globe.”

The letter was signed by the heads of the aluminum associations in the U.S., Europe, Brazil, Japan, Canada and Mexico.

Trump, Xi Meeting Could Be U.S.-China Trade Flashpoint

Sticking with the G20 summit in Argentina, President Trump and President Xi are set to meet at the event, which will continue through tomorrow, Dec. 1.

The U.S. imposed tariffs, at a 10% rate, on $200 billion worth of Chinese goods in September. However, that rate is set to make a sizable jump to 25% as of Jan. 1. The U.S. had previously imposed a total $50 billion in tariffs on Chinese goods.

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Trump has also threatened to impose tariffs on all remaining Chinese imports — approximately $257 billion worth — although no moves have been made yet on that front.

It may be in an extremely preliminary stage, but South Korean steelmaker Hyundai seems keen on setting up a steel plant in India.

A team from the Hyundai group visited Visakhapatnam in South India, where the steel plant of Rashtriya Ispat Nigam Ltd (RINL) is located, and spoke of looking at the possibility of setting up a steel plant in partnership with the public sector company, according to a Business Standard report.

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The Telegraph quoted P.K. Rath, chairman and managing director of RINL, acknowledging the visit in October, saying the South Korean major was indeed interested in a joint venture (JV).

Rath told The Telegraph that Hyundai was contemplating setting up a flat steel plant, especially since RINL was already producing long products. Though too early in the day, the plant could have an annual capacity of 3 million tons. Flat steel products like sheets are used in automobiles and consumer durables.

In addition to Hyundai Steel, the Hyundai-Kia Motor Group has steel companies, like the Hyundai Special Steel and BNG Steel Co., Ltd. Specifically, in India, Hyundai has a steel service center under Hyundai Steel India Private Limited (HSIPL), which caters to the steel requirements of Hyundai Motors India Limited.

The delegation of Hyundai company representatives, including the South Korean ambassador, visited the Visakhapatnam Steel Plant. Sources say government-to-government talks for setting up such a project were already on. The delegation will now give its report to the government.

Steel analysts here said Hyundai setting up a JV plant in India would be a good business decision for the South Korean group, as Hyundai not only sells automobiles in India — for which steel is required — but two other Korean brands, Samsung and LG, have a huge presence in the country, with both requiring flat steel products.

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RINL itself is on the way to ramping up, aiming for a capacity of 7.3 million tons next year.

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With the United States-Mexico-Canada Agreement (USMCA) potentially being signed by the three parties this week during the G20 Summit in Buenos Aires — which will take place over two days, Nov. 30-Dec. 1 — the trade deal and tariffs are on the minds of industry CEOs, from manufacturing to agriculture.

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Several industry executives gathered in Washington, D.C. Tuesday for a panel discussion on the impact of the U.S.’s Section 232 steel and aluminum tariffs and their relationship to the USMCA.

Speaking at the event were:

  • Michael Dykes, CEO, International Dairy Foods Association
  • Jennifer Thomas, vice president, Federal Government Affairs, Alliance of Automobile Manufacturers
  • Buddy Stemple, CEO of Constellium, Aluminum Association member
  • Brandon Skall, CEO and co-founder, D.C. Brau, Brewers Association member
  • Catherine Boland, vice president, legislative affairs, Motor Equipment Manufacturers Association

Heidi Brock, president and CEO of the Aluminum Association, also offered opening remarks during the event, reiterating the Association’s public stance that Canada and Mexico should be granted quota-free tariff exemptions. (Brock also spoke on the subject during a U.S. International Trade Commission hearing earlier this month.)

The focus should be on China, not Canada and Mexico, Brock said, according to a transcript of her remarks.

“Across-the-board tariffs are not addressing the problem of China’s illegally subsidized aluminum overcapacity,” she said. “We have seen very little evidence that the Section 232 tariffs are impacting behavior in China, which continues to illegally subsidize its aluminum industry. China’s aluminum capacity has grown by 73 percent over the past five years, and an additional eight percent just this year, despite the Trump administration’s tariff regime. In fact, there is some evidence that the tariffs may actually be helping Chinese aluminum producers to enter new markets by increasing China’s price advantage over aluminum produced in North America.”

According to a Reuters report earlier this month, Ildefonso Guajardo, Mexico’s economy minister, said he expects the U.S., Mexico and Canada to sign the USMCA during the G20 Summit.

Buddy Stemple, CEO of Constellium Rolled Products, a downstream aluminum manufacturer based in Ravenswood, West Virginia (primarily serving the aerospace, automotive, packaging and defense industries), applauded the Trump administration for its trade actions on Chinese common alloy aluminum, but, like Brock, indicated the Section 232 tariff on aluminum casts too wide of a net.

“And the Section 232 tariffs, which imposes a 10 percent tariff on virtually all aluminum and aluminum product entering the United States – not just from China but from all countries – is the wrong solution to a real problem,” he said, according to a transcript of remarks. “While well-intentioned, the tariffs are making the U.S. aluminum industry, including Ravenswood, less competitive on the world stage.”

The U.S. aluminum industry does not make enough to support domestic demand, he argued, an argument we echoed yesterday in our discussion of the tariff waiver process:

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

He also called for a USMCA without steel and aluminum tariffs for Canada and Mexico. In addition, referred to the “unintended consequences” of the administration’s tariff exemption process.

“Requests for massive volumes of common alloy aluminum sheet have been approved, even though some of these imports are coming from China,” he said. “In particular, the approval of exclusion requests by Ta Chen International now allow for import of more than 1 billion pounds of Chinese common alloy sheet – a substantial share of the U.S. market for common alloy products.”

Continuing in the same vein, Jennifer Thomas, of the Alliance of Automobile Manufacturers, referred to the statutory basis for the Section 232 tariffs.

“At the end of the day, Canada and Mexico are not national security threats,” Thomas said.

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All eyes will be on Buenos Aires tomorrow and Saturday, when G20 leaders will convene. Global markets will be looking to the summit for developments with respect to USMCA (i.e., its potential signing and whether the steel and aluminum tariffs will be removed for Canada and Mexico) and whether President Donald Trump and Chinese President Xi Jinping can make any progress with respect to the ongoing U.S.-China trade war.

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This morning in metals news, Chinese iron ore has hit a 4 1/2-month low, the zinc price fell for a fourth straight session and tariff waiver requests have been granted for a great number of metals from China.

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Chinese Iron Ore Continues Fall

Prices of Chinese iron ore fell to a 4 1/2 month low, according to the Hellenic Shipping News.

Trade tensions have weighed on the Chinese economy this year, with steel prices taking a tumble, even while Chinese steel production has not let up (in fact, China’s crude steel production jumped 9.7% year over year in October, according to a recent World Steel Association report).

U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to attend this week’s G20 Summit in Buenos Aires, where they are expected to talk trade. The tariff rate on the U.S.’s $200 billion tariff package is set to jump from 10% to 25% at the start of the new year, barring an agreement that would preclude the hike.

Zinc Price Falls Again

The price of London zinc dropped for a fourth straight sessions Tuesday, according to a Reuters report.

LME zinc dropped 0.3% Tuesday, according to the report, down to $2,428.50 per ton.

Tariff Waivers and Chinese Metals

According to a report by The New York Times that cites a congressional analysis, the Trump administration has granted more than 3,000 tariff waivers that could exempt Chinese-made metals.

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In fact, according to the report, the U.S. has granted waivers with respect to a higher share of requests from China than from Japan and Canada.

MetalMiner’s Take: Clearly, the process for obtaining tariff exemptions remains opaque and, in some cases, irrational.

We have seen specific instances, such as with grain-oriented electrical steel (GOES) requests, that disputes often occur within some very gray areas that require a deep subject matter expert to vet and ascertain.

The simple “if nobody opposed the exclusion request” rule of thumb is faulty, particularly in the case of Mandel Metals, where the amount of the request far exceeds the total volumes necessary to run Mandel’s operations. Perhaps the “return of market fundamentals” will help guide the process, as well.

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

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According to data recently reported jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, U.S. housing starts jumped 1.5% in October compared with the previous month.

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Privately-owned housing starts hit 1.23 million in October, which marked a 2.9% decrease from October 2017 housing starts.

Single‐family housing starts in October hit 865,000, up 1.5% from September. The increase marks a bounce-back from the previous month, when housing starts fell 5.3% compared with August starts, impacted by natural disasters in September (namely Hurricanes Michael and Florence).

Privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1.26 million, according to the report, down 0.6% from September and down 6.0% from October 2017.

Housing completions in October were at a seasonally adjusted rate of 1.11 million, down 3.3% from September and down 6.5% year over year.

Broken down by region, housing starts in the Northeast (87,000) in October were down 40.0% year over year and 34.1% compared with September. In the Midwest, starts were up 5.0% year over year and 32.9% from September. In the South, starts were down 3.4% year over year and up 4.7% from September. Lastly, in the West, housing starts were up 17.6% year over year and down 2.0% on a month-over-month basis.

In other housing sector news, existing-home sales increased in October after six months of decreases, the National Association of Realtors reported.

However, it remains to be seen how the housing market will react to higher mortgage rates in 2019 and beyond.

According to Freddie Mac, which released its November forecast Thursday, the 30-year fixed-rate mortgage rate averaged 4.83% in October, with the most recent weekly reading hitting 4.94%, good for its highest level since early 2011.

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“If new home sales are to resume growth in 2019, builders may have to shift their focus to more modestly priced homes and smaller sized homes to help offset housing affordability concerns,” said Sam Khater, Freddie Mac’s chief economist, in a release. “But with cost pressures pinching profitability, this will be a significant challenge.”

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Not before time, China’s steel industry is making some progress towards consolidation.

Although both sides deny talks are taking place, a Reuters article details information received from various sources that suggests state-owned China Baowu Steel Group is in talks to take over rival local Anhui province government-controlled Magang Group.

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The two mills are geographically close to each other, with Magang headquartered in Maanshan city in China’s eastern Anhui province, about a four-hour drive from Shanghai, where Baowu Group is based, the article states.

From a product perspective, the two companies are broadly complementary.

Baowu mainly churns out flat steel products, while Magang’s output is split between flat and long steel products used in construction. There may be some consolidation as a result of the merger, but Baowu’s corporate strategy is to reach 100 million tons of capacity by 2021 from its current 70 million tons, so closing capacity is probably not the primary driver.

Reuters reports that in 2017 Baowu produced 65.39 million tons of steel, while Magang produced 19.71 million tons. Their combined output of 85.1 million tons would be just 11.9 million tons below ArcelorMittal’s production last year and ahead of the U.S. total of 81.6 million tons.

Source: Reuters

The combined group, though, would be a potential rival to ArcelorMittal only in tonnage terms. Globally, the firms are poorly represented, with most of Magang’s production consumed domestically and Baowu exporting just 3.8 million tons from its Baoshan Iron and Steel division last year.

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The merger fits with Beijing’s strategic objective of putting 60% of its national steel capacity in the hands of its top 10 (mostly state) producers by 2020, up from a third presently.

Expect a lot more mergers over the next couple of years as Beijing seeks to curtail capacity form the current 1.1 billion tons to some 980 million tons by 2020.

According to preliminary U.S. Census Bureau data released Tuesday, U.S. imports of steel in October hit 3.0 million metric tons, at a value of $2.7 billion.

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The October total marks an increase from the previous month, when the U.S imported 2.0 million metric tons at a value of $2.o billion. However, according to an American Iron and Steel Institute (AISI) report Tuesday, steel imports through the first 10 months of the year are down 11% compared with the same time frame in 2017. Finished steel import market share for the year to date reached 21%.

Source: American Iron and Steel Institute

The increase in October imports came mostly in the form of blooms, billets and slabs, while decreases were seen in heavy structural shapes, reinforcing bars, and sheets and strips.

Imports of blooms, billets and slabs surged last month, reaching 1,154,364 tons, up from the September final of 359,265 tons and the October 2017 final of 566,294 tons.

By country, import increases were seen from Brazil, while decreases were seen in imports from Turkey, Taiwan and Thailand.

Imports from Brazil hit 849,767 tons in October, up from 104,722 tons in September and 324,711 tons in October 2017.

Imports from Turkey continue to plummet, dropping from 120,948 tons in September to 61,472 tons last month. The October total was also down significantly on a year-over-year basis, as the U.S. imported 101,863 tons from Turkey in October 2017. (Back in August, MetalMiner’s Stuart Burns delved into the toll U.S. tariffs have taken on Turkey’s steel sector.)

Through the first nine months of the year, the U.S. has imported 883,054 tons from Turkey, down from the just over 1.76 million tons during the same period in 2017.

In the year through the end of September, the U.S. imported 23.7 million metric tons, down from 26.9 million metric tons through the January-September 2017 period.

Total imports from Canada and Mexico also increased in October from the previous month, hitting 739,346 tons, up from the September final total of 638,543 tons. However, the October import total fell from the October 2017 final total of 743,537 tons.

As we have noted here previously, Canada and Mexico continue to express the hope that the U.S. will remove its tariffs on steel and aluminum vis-a-vis the two countries as part of a finalized United States-Mexico-Canada Agreement (USMCA).

Canada and Mexico’s temporary exemptions from the U.S.’s Section 232 tariffs on steel and aluminum were allowed to expire June 1.

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Meanwhile, steel imports from the European Union hit 143,491 tons in October, according to the preliminary data. The total marked a drop from the previous month (145,701 tons), but an increase from October 2017 (138,657 tons).

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This morning in metals news, U.S. senators are asking for an independent review of the Trump administration’s Section 232 tariff waiver process, LME copper is down for the third straight day and Chinese steel mills are preparing for difficult times ahead.

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Another Look

The review of Section 232 tariff exemption requests from domestic companies has been going on since June, and the process has come in for much criticism.

According to a Bloomberg report, a bipartisan group of senators have asked for an independent review of the tariff waiver process, noting that as of last month only about one-third of the approximately 50,000 requests had been addressed.

LME Copper Down Again

London copper has been on the slide of late, dropping Tuesday for the third straight day, Reuters reported.

According to the report, the drop comes after comments by President Donald Trump to the Wall Street Journal related to China. The president said it was unlikely the U.S. would agree to China’s request to delay the scheduled Jan. 1 tariff rate increase — up to 25% from 10% — on the previously announced $200 billion tariff package.

Chinese Steel Mills Hit a Rough Patch

According to another Reuters report, Chinese steel producers posted losses for the first time in three years.

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Per the report, as a result of falling prices, some mills are looking to utilize more low-grade iron ore in the steelmaking process in an effort to tamp down costs.

MetalMiner’s Take: In markets in which profit margins erode, simple supply and demand fundamentals ought to take hold — producers ought to limit supply to boost profits.

In the U.S., producers did exactly that for years and years, operating at below 80% utilization rates (U.S. producers have only recently hit those production rates as a result of the tariffs, the bullish commodity market and a booming economy).

When Chinese producers start to run losses, those producers ought to take a lesson from their American peers — and limit production to shore up profits.

But Chinese steel producers won’t do that. In fact, they will do the opposite — continue to produce, even at a loss, to keep people employed.

And once again, that excess steel will flow to the rest of the world.

Too much steel always has and always will put a lid on prices. Therefore, steel-buying organizations will want to watch very closely how much steel China produces, as well as the price per ton, as Chinese steel production and steel prices lead the U.S. market.

According to World Steel Association data released late last week, global crude steel production in October jumped 5.8% compared with October 2017 production.

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Production from the 64 countries reporting data to the World Steel Association amounted to 156.6 million tons in October.

Broken down by country, China produced 82.6 million tons, up 9.1% year over year. The October production growth increased from September’s spike of 7.5%.

The Chinese steel sector hit a bear market, with prices reaching five-month lows.

We noted yesterday:

U.S. steel-buying organizations ought to watch China’s demand very carefully now, as price trends in China lead price trends in the U.S.

Lower oil prices combined with sluggish Chinese demand does not bode well for the industrial metal’s long-term bull market. The dramatic shift in oil prices and lower metal pricing coming out of China represent two significant variables tracked by MetalMiner with respect to calling a bull or bear market.

December forecast subscribers will be the first to learn whether or not MetalMiner will change its long-term outlook. A shift in outlook would also signify a switch in sourcing strategies.

The U.S. produced 7.6 million tons of crude steel in October 2018, up 10.5% compared to October 2017.

Indian production reached 8.8 million tons, up 0.4% from October 2017. Japan produced 8.6 million tons, marking a 4.5% decline compared to October 2017. South Korea saw a 3.5% year-over-year increase, up to 6.2 million tons in October.

Meanwhile, in Europe, France produced 1.3 million tons, a decrease of 3.5% compared to October 2017. Italy’s produced 2.3 million, up 1.1% year over year. Spain produced 1.3 million tons, marking a decrease of 7.4%.

Turkey’s production hit 3.2 million tons, down 4.3% year over year.

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Ukraine produced 1.8 million tons, down 6.7% year over year.

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This morning in metals news, Chinese steel prices are dropping, Rio Tinto is leading the copper charge in Australia’s Great Sandy Desert and Asian aluminum prices are coming down.

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Chinese Steel Market

Chinese steel prices are entering a bear market, according to a Reuters report.

Steel prices hit a five-month low Monday, Reuters reported.

MetalMiner’s Take: U.S. steel-buying organizations ought to watch China’s demand very carefully now, as price trends in China lead price trends in the U.S.

Lower oil prices combined with sluggish Chinese demand does not bode well for the industrial metal’s long-term bull market. The dramatic shift in oil prices and lower metal pricing coming out of China represent two significant variables tracked by MetalMiner with respect to calling a bull or bear market.

December forecast subscribers will be the first to learn whether or not MetalMiner will change its long-term outlook. A shift in outlook would also signify a switch in sourcing strategies.

Copper in the Desert

Rio Tinto is leading the way when it comes to copper mining in the remote Great Sandy Desert of Western Australia, Reuters reported.

According to the report, the miner has put in 30 exploration licenses for the area, leading to speculation that Rio has possibly made a significant discovery in the area.

Aluminum Prices Dropping

Asian aluminum prices are on the downswing, including in Japan, according to the Nikkei Asian Review.

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Aluminum ingot prices in Japan in October were approximately 10% lower than in the U.S., according to the report.

MetalMiner’s Take: It is arguable whether the fall in Asian aluminum prices is a result of U.S. tariffs or a slowing of metal demand in Asia.

Prices in Europe have been supported by high prices European mills are achieving in the U.S. market, so the same should have been true for Asian suppliers in general.

Only Chinese mills are facing exceptional tariff barriers; mills in South Korea, Taiwan and Japan do not face the same obstacles. Chinese production is sliding and primary aluminum output has been falling this quarter, which some analysts are chalking up to an early onset of environmental controls for the winter heating season. If the market were being artificially constrained, domestic Chinese prices would rise as a result in the tighter market — but that is not the case.

Domestic prices have remained broadly stable, suggesting the market is slowing due to lower domestic and regional demand.