This morning in metals news, iron ore shipments into China picked up in March after February’s 10-month low, India’s top court blocked ArcelorMittal’s attempt to buy the bankrupt Essar Steel and the E.U. opened the door to formal trade negotiations with the U.S.
With winter production curbs winding down in China, imports of the steelmaking material iron ore picked up in March, Reuters reported.
China imported 86.42 million tons of iron ore in March, up from 83.08 million tons in February.
Indian Supreme Court Blocks ArcelorMittal’s Bid to Buy Essar Steel
India’s National Company Law Tribunal (NCLT) in early March gave the OK to ArcelorMittal’s plans to buy the bankrupt Essar Steel, thus allowing the former to enter the Indian market.
However, India’s Supreme Court had other ideas.
The Economic Times reported the country’s high court superseded the NCLT approval by ordering a halt to ArcelorMittal payments to buy the debt-laden Essar Steel.
E.U. Gives Initial OK Toward Initiation of Formal Trade Talks with U.S.
As the Trump administration this week announced it is considering imposing $11 billion worth of tariffs on a wide range of imports from the E.U., European countries gave the green light in the process to initiate formal trade talks with the U.S., Reuters reported.
The Trump administration announced this week it was considering the imposition of tariffs on $11 billion worth of European Union imports, said by the Financial Times to include such diverse products as passenger helicopters, Roquefort cheese, olive oil and wines.
The move is said to be in response to harm the administration claims is being caused to Boeing by E.U. subsidies for Airbus. U.S. Trade Representative Robert Lighthizer is said to have a list of E.U. products on which he intends to levy tariffs as retaliation for long-running U.S. complaints about European aircraft development cost subsidies to the Airbus Group.
Airbus, it must be said, counters that Boeing has received, in one form or another, similar subsidies and support, an argument that has brought temporary truces over this issue in the past. This time, however, the argument appears to be swept aside by the current administration, maybe because Boeing is under intense pressure over the 787 Max grounding and new build cancelations.
Although no friend of the World Trade Organization (WTO), the Trump administration has pointed out the organization has ruled Airbus’ past payments illegal under a May 2018 ruling regarding Airbus subsidies, but Airbus claims it has since cleaned up its act and no longer follows the practices ruled against in the report.
The move by the Trump administration comes on the heels of a separate WTO ruling establishing that the U.S. had itself illegally subsidized production of Boeing aircraft — a decision that incensed U.S. officials, according to the Financial Times.
This morning in metals news, the Wall Street Journal reported the Brazilian government plans to file charges in relation to the fatal Vale SA tailings dam collapse earlier this year, Tata Steel’s European workers are having doubts about the proposed Thyssenkrupp merger, the U.S. and China reportedly made a breakthrough this week in their ongoing trade talks.
Brazil to File Charges After January’s Dam Collapse
The Wall Street Journal this week reported the Brazilian government plans to file charges in connection with the collapse of one of miner Vale SA’s tailings dams in January (which left hundreds dead).
The collapse occurred in late January at Vale’s Corrego do Feijao mine in Brumadinho, located in the southeastern state of Minas Gerais.
Some Tata Steel employees in Europe are questioning the balance of the planned merger with German firm Thyssenkrupp, Bloomberg reported.
The merger, which is under review by Europe’s competition authorities, would yield Europe’s second-largest steelmaking entity.
“The EWC will continue to support the joint venture only if we consider it to be in the best interests of the workforce at all our sites,” Tata’s work council said in a statement, as quoted by Bloomberg. “Due to these recent developments, we are now unconvinced the joint venture is the best option for Tata Steel Europe.”
U.S.-China Trade Talks
Trade talks between the U.S. and China continued this week, as the two sides aim to reach a resolution to the conflict that boiled over last year to the tune of a total of $360 billion in tariffs on each other’s goods.
The question for many, however, has been about enforcement — whatever deal was reached on paper, the U.S. has sought assurance of compliance.
In that vein, this week the two sides reached an agreement regarding the setup of trade enforcement offices.
“We’ve pretty much agreed on an enforcement mechanism,” U.S. Treasury Secretary Steven Mnuchin said on CNBC, as quoted by Bloomberg. “We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. So this is something that both sides are taking very seriously.”
After the latest round of trade talks between U.S. and China late last week, there remains “significant work” on the road to a deal, Reuters quoted the U.S. Trade Representative as saying in a statement.
Meanwhile, Chinese state media hailed “new progress” in the talks.
Tewoo Group Sells Copper at Less than Market Value
Since late February, the metal has been trading mostly sideways, but on Thursday’s session fell again on weak German manufacturing data, Reuters reported.
In addition, the situation at the Las Bambas copper mine in Peru escalated, as a judge ordered jail time for lawyers who represented indigenous villagers who blockaded the mine in protest, according to the Reuters report.
Stocks Up on U.S.-China Talks
The ongoing trade talks between the U.S. and China continued this week in Washington following last week’s sessions in Beijing; once again, markets are showing great sensitivity to any semblance of good (or bad) news out of the negotiations.
Sea freight has to be one of the most cost-effective means of transporting goods over long distances ever invented. Even with increasing ocean freight rates, it is often the case it costs as much to ship from Calcutta to London as it does to then clear and haul the container from London to the industrial Midlands.
But rates are on the rise, just as exporters are feeling the impact of slowing demand.
From the consumer’s (exporter or importer) point of view, lines are adding insult to injury by not only raising rates but increasing transit times.
An article in Uniserve reports that from the end of March, changes to carriers’ schedules on the Asia-North Europe route will be implemented, resulting in longer average transit times as vessel sailing speeds continue to be reduced further. The article notes new schedules will mean that the average duration of a round trip service on the corridor will reach a record high of 11.3 weeks. Since 2007, round trip durations have increased gradually from the previous average of around eight weeks.
The cause is not hard to see.
Overcapacity put shipping lines’ margins under pressure and high oil prices resulted in rising bunker fuel bills. The lines responded by adopting slower sailing speeds to save fuel. Lines also blame the war against emissions, but the International Maritime Organization’s (IMO) new low sulfur regulations won’t take effect until January 2020, so the impact last year was minimal.
However, when fully implemented it means carriers will have to reduce emissions by 85%, mostly by adopting low-sulfur fuel or fitting flue scrubbers, thereby increasing costs either way.
To some extent, lines have been the victim of their own success.
The introduction of today’s mega-ships has had an impact on transit times, as larger ships have required longer port stays to load and unload. The average size of vessels has more than doubled since 2007 – from 7,000 twenty-foot equivalent units (TEU) to above 15,000 TEU — according to Uniserve.
Capacity is also being squeezed as lines continue to remove services.
ShippingWatch reports the liner companies in Ocean Alliance have decided to cancel a total of 10 transpacific sailings in March and April due to weak development in container volumes. Specifically, the cancelations will remove 74,180 TEU from the service to the U.S. West Coast. The route to the U.S. East Coast will also result in a container volume capacity reduction of 35,620 TEU during the period, amounting to some 15% of sailings. Ocean Alliance consists of CMA CGM, Evergreen Line, Cosco Shipping and Hong Kong-based carrier OOCL.
Rates areto go up even further, according to Shipping Watch. In fact, according to analysts they have to go up further or more lines are going to fail as they become further squeezed between higher fuel costs and at best static growth.
The only silver lining for consumers is carriers’ on-time sailings have improved. However, much like airlines, the improvement still isn’t doesn’t yield a great result.
The latest report from Sea-Intelligence on carriers’ schedule reliability shows that 73.7% of the 11,379 arrivals measured in February arrived on time. That is 6.5% points better than February 2018. First place goes to Wan Hai with 88.4%, but bottom goes to Yang Ming, OOCL, Evergreen, CMA CGM and Cosco, with Yang Ming sporting the lowest number at 69.3%.
While the number of on-time arrivals has improved, the average delay for those that haven’t has increased to 4.21 days versus 4.12 days one year ago.
A section of an existing US-Mexico metal border wall in Arizona. Source: Adobe Stock/Yukon Charlie.
This morning in metals news, President Donald Trump threatened to close the southern border with Mexico, U.S. Steel was fined over $700,000 for air pollution violations and the LME copper price fell Tuesday.
President Trump intensified his stance on the situation at the border with Mexico, tweeting Monday that “Our detention areas are maxed out & we will take no more illegals. Next step is to close the Border!”
It remains to be seen if he will act on those words; however, such a closure would have wide-ranging ramifications, impacting both the humanitarian crisis at the border and, from a business perspective, throwing a wrench into supply chains.
Trump’s threat also comes at a time when the U.S., Canada and Mexico are in a holding pattern over approval of the United States-Mexico-Canada Agreement (meant as the successor to NAFTA). The executives of the three countries signed the deal during the G20 Summit in Buenos Aires late last year, but the trade deal must be ratified by each country’s legislature.
U.S. Steel Fined Over Emissions
U.S. Steel was hit with a fine of over $700,000 over emissions at its Clairton Coke Works facility in Pennsylvania, the Pittsburgh Post-Gazette reported.
According to the report, the company was fined $707,568 over air pollution violations at the facility during the second half of 2018, elevating the total fines levied against U.S. Steel over the last year to more than $2.3 million.
Dollar Rises, LME Copper Falls
The LME copper price dipped as the U.S. dollar gained strength, Reuters reported.
This morning in metals news, two major Chinese steelmaking cities will have to extend their winter output curbs, Russian aluminum maker Rusal has once again started shipping aluminum supplies to the U.S. market and iron ore on the Dalian Commodity Exchange surged to a seven-week high.
Beijing imposed blanket production curbs two winters ago, but this past winter announced it was delegating production curbing authority to local governments. The cuts are aimed at tackling rampant pollution throughout the country stemming from industry, like the steel sector.
Despite the output cuts, however, China produced a record amount of steel in 2018 at 928.3 million tons.
The return comes as last year the aluminum giant was hit with U.S. sanctions that shocked the aluminum market last April, sending aluminum prices skyward. According to the Reuters report, the company is hoping to win back lost contracts by September (the pivotal time for the closing of supply deals for 2020).
EUROFER released a statement ahead of a meeting of the GFSEC March 28-29, calling for the extension of its mandate (scheduled to expire in November).
“We call on members of the Global Forum to agree on a continuation of the forum’s mandate beyond November 2019,” EUROFER Director General Axel Eggert said in a prepared statement. “Continued international work on excess capacity and related government support measures would contribute to the sustainability of our global industry.”
Steel excess capacity — which drives down prices and consequently floods markets with cheap product — has been a consistent talking point among steel circles in Europe and the U.S. As most are aware, the U.S. last year imposed tariffs on imported steel.
China, the world’s top steel producer, is often the target of complaints vis-a-vis overcapacity. China’s crude steel production has increased the last couple of years, from 807.6 million tons in 2016 to 870.9 million tons in 2017, then reaching a record 928.3 million tons in 2018.
Source: World Steel Association
The GFSEC was formed in September 2016 by G20 leaders at a Hangzhou summit.
“GFSEC’s work has already produced results, such as detailed statistics on steel capacity and production around the world and has instigated work to cut excess capacity where it is needed most,” Eggert added in his statement.
In late 2017, the 33 members of the GFSEC met and agreed to a set of six guiding principles for the creation of specific policies to combat overcapacity (the full report from the meeting is available here).
According to a release from the Organization for Economic Cooperation and Development (OECD), the principles “emphasize the importance of having the right policy framework conditions; they call for the removal of subsidies and other measures that distort steel markets; they stress the need for a level playing field among steel enterprises of all types of ownership; they highlight the importance of the Forum regularly updating its information on capacity and policy measures.”
Nonetheless, EUROFER said the agreement and steps taken since then mark only the “beginning of the process.”
“Global steel overcapacity is still at least 550 million tonnes, according to the OECD,” Eggert said. “We are still very much at the beginning of the process, and there is clearly a need for the GFSEC’s mandate to be extended.”
Furthermore, Eggert argued not extending the mandate would be dangerous.
“In a world where global overcapacity is still very much present – and with proliferating trade distortions – there is a greater need than ever for the GFSEC,” Eggert said. “Not renewing the mandate of the Global Forum would mean abandoning the global steel industry when it is still at a perilous juncture. Effective multilateral cooperation is needed in order to preserve fair and free trade in this essential sector.”
The GFSEC came in for criticism from the U.S. last year following a meeting of members September 20, 2018, in Paris.
“Unfortunately, what we have seen to date leaves us questioning whether the Forum is capable of delivering on these objectives,” the Office of the United States Trade Representative said in a prepared statement following the meeting. “We do not see an equal commitment to the process from all Forum members. Commitments to provide timely information critical to the proper functioning of the Forum’s work, for example, have gone unfulfilled. More importantly, we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.”