Articles in Category: Global Trade

Ed. note: Enjoy this timely dispatch from London by MetalMiner’s Editor at Large.

Not just Europe but the entire world was surprised at Britain’s decision following a referendum in 2016 to leave the EU.

At the time, the media was full of the story but in the interim we have all rather switched off as the negotiations have taken a tortuous route back and forth without appearing to make any progress. Brits have largely despaired that their government will ever come to a workable solution, an opinion reinforced last week when the latest (and according to the EU) final deal was presented to parliament, only for it to be roundly rejected and face the prospect this week of being formally thrown out if it is put to a vote.

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Now, even though Prime Minister Theresa May has just delayed a Commons vote for the plan that was originally scheduled for tomorrow, the prospect of Brexit is not some far-off threat; come the end of March, the UK formally leaves the EU and — whatever happens — will have to accept a new form of relationship with its neighbors.

The questions is, how will we get there at this point?

Read more

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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:

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This morning in metals news, the state of falling global steel prices is a temporary condition attributable to Chinese overproduction ahead of winter cuts, according to miner Brazilian miner Vale; Chilean copper exports in November were less valuable; and the arrest of a Huawei Technologies executive has caused concern that it could cast a shadow on ongoing U.S.-China trade talks.

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Falling Steel

Brazilian iron ore miner Vale said the recent dip in global steel prices is temporary, a result of a Chinese surge in production just ahead of scheduled winter cuts, Reuters reported.

Unlike last year, Beijing has delegated authority on the exact specifications of the winter cuts — aimed at tackling pollution in the country’s industrial hubs — to local authorities this year, as opposed to the blanket cuts it imposed last year.

Chilean Copper

The world top copper producer, Chile, announced a budget surplus for November, but the value of its copper exports fell, according to a Reuters report citing the country’s central bank.

The value of its copper exports fell 12.5% in November, according to the report.

Arrest of Huawei CFO Raises Concerns Regarding U.S.-China Trade Talks

The Group of 20 (G20) summit saw President Donald Trump and President Xi Jinping agree to commencing a 90-day negotiating window on trade — a positive, if still uneasy step toward potential resolutions to the ongoing U.S.-China trade conflict.

However, the arrest of Huawei CFO Meng Wanzhou, at the behest of the U.S., has led to concern that it could impact the footing — uneasy footing — established for the current round of trade talks.

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According to the Washington Post, citing analysts in Beijing, the Chinese government, while upset about the arrest, will attempt to not allow it to impact the trade talks going forward.

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It’s good to talk — or so the oft-quoted phrase used in the mobile phone ads would have us believe.

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And so it would seem from the market’s reaction to two meetings over the weekend.

The first was a temporary truce in the U.S.-China trade dispute called by President Donald Trump and President Xi Jinping following their meeting at the Group of 20 (G20) summit in Buenos Aires on Saturday.

The second, possibly brokered at the same venue, was between Vladimir Putin and Saudi Arabia’s Mohammed bin Salman, in which Russia agreed it would continue to cooperate with Saudi Arabia on managing oil production, according to the Financial Times.

Global stocks rallied on the news, bond prices fell, the Chinese renminbi rose and the dollar eased as markets reacted to the news that the U.S. had agreed not to increase tariffs on more than $200 billion of Chinese goods slated to take effect in January.

The tariff increase, from 10% to 25%, has been widely attributed to causing market uncertainty and a fall in stock and commodity prices for the last month. European and Asian stock markets bounced up this morning, up over 1% in Europe and nearly 3% in mainland China.

The onshore Chinese renminbi exchange rate was up 0.6% against the dollar this morning in a sharp correction as the following graph, courtesy of the Financial Times, shows.

Imposition of the increased tariffs has been postponed until March, but it has to be said that little progress seems to have taken place on the issues which gave rise to the tariffs in the first place.

Both sides remain implacably opposed to issues of market access, intellectual property rights, cyber attacks and forced technology transfer concerns, according to the FT.

Metal prices reacted positively to the news, however, with three-month LME copper up nearly 2.5% as a return to more stable growth prospects looked more likely.

The devil remains, as they say, in the details.

Responsibility will now fall to an army of working-level officials on both sides to find solutions to these issues. The fact no progress has been made so far may be more down to political posturing than a complete lack of common ground. Nevertheless, China will be reluctant to admit it even practices any of the policies listed in the U.S. complaints being leveled against it, let alone publicly agree to change.

Is the market getting ahead of itself? Yes, probably. But while the bounce in sentiment is seen as positive, it is little more than a reversal of a previously negative trend.

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For a sustained rally in markets – metals or energy – much more progress needs to occur than a postponement of deadlines.

Ezio Gutzemberg/Adobe Stock

This morning in metals news, President Donald Trump and President Xi Jinping reached an agreement that at least temporarily puts a cap on the escalation of trade tensions, Chinese steel and iron ore prices rose on the news, and Chinese copper premiums hit an 18-month low.

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Trump, Xi Reach Trade Deal

The Group of 20 (G20) meeting between Trump and Xi had been much-anticipated, particularly as the U.S.’s $200 billion tariff package impacting Chinese imports was set to go from a 10% tariff to 25% at the start of the new year.

That is, at least, it was. 

After talks Saturday, Trump and Xi agreed to a 90-day trade truce of sorts. As a result of the agreement, the U.S. will not escalate the tariff rate as previously scheduled.

Of course, it remains to be seen what can be accomplished within the upcoming 90-day window.

Chinese Iron Ore, Steel Prices Up

On the heels of the G20 summit that concluded over the weekend, Chinese iron ore and steel prices picked up a bit of momentum.

According to a Reuters report, SHFE rebar futures jumped 7%, while the most-active iron ore futures contract on the DCE jumped 5.9%.

Chinese Copper Premiums Hit 14-Month Low

Meanwhile, despite the backdrop of relatively positive news of the G20 trade truce, Chinese copper premiums dropped to an 18-month low, Reuters reported, reflecting weaker demand.

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According to the report, premiums fell 10.7% from Friday.

“USMCA” might not roll off the tongue like “NAFTA.”

Nonetheless, it’s the talk of North America.

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The United States-Mexico-Canada Agreement (USMCA) — the successor to the 1994 trilateral trade deal, the North American Free Trade Agreement (NAFTA) — was signed Friday by President Donald Trump, then-President Enrique Peña Nieto (Nov. 30 was his final day in office) and Prime Minister Justin Trudeau on Friday during the Group of 20 (G20) summit in Buenos Aires, Argentina.

The deal must still must be ratified by the legislatures in each country; under a Democrat-majority House, it remains to be seen if the deal will be held up in any meaningful way.

Regardless, industry leaders and politicians shared their takes on the USMCA signing, a culmination of NAFTA renegotiation efforts that formally began in August 2017.

While some of the USMCA is relatively unchanged from NAFTA, it did offer changes to sections related to the automotive market, including an increase to 75% — up from 62.5% — for automotive regional content rules and more stringent rules on wages for laborers (40-45% auto content must be produced by workers making a minimum of $16/hour).

For many firms and industry groups, the reaction was simple: the deal marked a good step, but tariffs on steel and aluminum vis-a-vis Canada and Mexico should be removed.

“Today’s signing is an important step towards achieving free and fair trade in North America,” said Joe Hinrichs, executive vice president and president of global operations for Ford Motor Co. “We look forward to being a collaborative partner to support the ratification of the agreement in all three markets because it will support an integrated, globally competitive automotive business, helping to drive volume and support manufacturing jobs.

“To achieve the full potential of the trade agreement and to ensure ratification, the elimination of tariffs on steel and aluminum will be critical and we will continue to work with all stakeholders on this important issue.”

Earlier this year, Ford CEO Jim Hackett said the Trump administration’s tariffs on steel and aluminum, which remain in place vis-a-vis Canada and Mexico, would cost the Big Three automaker $1 billion in profits.

Gary Jones, president of labor union United Automobile Workers, panned the “new NAFTA,” referring to the recent moves by General Motors to close seven plants (five in North America) and a 15% workforce reduction.

“Before the ink hit the paper, General Motors has already signaled that the ‘New’ NAFTA (known as USMCA) is not strong enough, as it stands today, to deter them from moving products and taking advantage of low cost labor,” Jones said. “Quite simply, the ‘New’ NAFTA needs more input and more work. We were hopeful that this new agreement would rein in the corporate greed that has bled manufacturing in the United States. Unfortunately, as GM’s idling of plants in Ohio, Michigan and Maryland this week showed – the ‘New’ NAFTA, as it stands now, is not strong enough to protect American workers.”

During the signing ceremony Friday, Trudeau directly addressed Trump to indicate the importance of removing the 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,” Trudeau 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.”

Canada and Mexico were initially temporarily exempted from the tariffs, which at first were perceived as a measure expected to target China; however, the countries’ temporary exemptions were allowed to expire as of June 1.

Recreational boating industry groups were among the many to offer general praise for the deal, with the caveat that the tariffs should, in their view, be removed.

Thom Dammrich, president of the National Marine Manufacturers Association (NMMA), and Sara Anghel, president of NMMA Canada, issued a joint statement on the heels of the signing, stating any enthusiasm they had for the deal was outweighed by concerns related to the tariffs (and subsequent retaliation).

“When the Trump Administration hit key allies with tariffs under the guise of a national security threat, Canada and Mexico responded with punitive tariffs on distinctly American made industries and products, including recreational boats,” the statement says. “As a result, U.S. boat exports to both countries – which account for more than half of the U.S. industry’s international sales – have all but dried up, jeopardizing thousands of jobs and businesses in all three countries. For every day that passes without a solution to this problem, the chances of seeing irreparable harm to our industry grows.”

The Coalition of American Metal Manufacturers and Users (CAMMU) also panned the deal, citing the fact that the Section 232 tariffs on Canada and Mexico had not been terminated.

“A golden opportunity was missed today to improve upon the Trump administration’s self-destructive 232 tariff scheme,” CAMMU spokesperson Paul Nathanson said.  “Thousands of manufacturing companies around the country must today cope with price hikes, delivery delays and the outright unavailability of the steel and aluminum they count on to make their businesses operate.”

Nathanson continued: “By cutting itself off from the global steel market, the U.S. has become an island of high steel prices. The result of this policy is simple: American steel-using manufacturers cannot successfully compete against foreign competitors able to purchase steel at world market prices outside this country. President Trump must lift the tariffs on steel and aluminum or risk undermining the broader U.S. economy.”

The American Iron and Steel Institute (AISI) also weighed in on the signing.

“We appreciate the administration’s hard work to reach this trade agreement between the U.S., Canada and Mexico,” said Kevin Dempsey, AISI’s senior vice president of public policy. “The NAFTA has provided significant benefits for the American steel industry by promoting the development of manufacturing supply chains in North America, especially with key customer groups like the automotive industry. The new agreement builds on this success by establishing new rules of origin that will further incentivize the use of North American steel in the manufacturing of automobiles and other steel-intensive goods in North America.”

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The full text of the USMCA can be found here.

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Before we head into the weekend, let’s take a look back at the week that was with some of the stories here on MetalMiner:

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  • Sohrab Darabshaw covered India’s view of the Regional Comprehensive Economic Partnership (RCEP).
  • The oil price has plunged — MetalMiner’s Stuart Burns looked into the reasons why.
  • October global crude steel production jumped 5.8% year over year, according to data in a recent World Steel Association report.
  • A recent Section 301 report by the United States Trade Representative on China’s trade practices painted a familiar picture.
  • Through the first 10 months of the year, steel imports were down 11% compared with the first 10 months of 2017.
  • There is talk of a potential merger between two Chinese steelmakers whose combined annual capacity would exceed that of the U.S. as a whole.
  • Housing starts in October were up from the previous month.
  • General Motors’ announcement this week of plant closures and a 15% workforce reduction could be a sign of cost-saving measures to come for other automotive brands.
  • Several CEOs spoke earlier this week during a panel discussion event in Washington, D.C., focusing primarily on the impact of the U.S.’s steel and aluminum tariffs.
  • Lastly, in case you missed the news earlier today, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement during the G20 summit in Buenos Aires (the trade deal still needs to be ratified by each country’s legislature).

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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.

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This morning in metals news, Norsk Hydro sees global aluminum demand picking up 2-3% next year, the Office of the United States Trade Representative (USTR) released a statement on China’s automotive tariffs and Steel Dynamics shares bounced back from a 14-month low.

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Aluminum Demand in 2019

Norwegian aluminum firm Norsk Hydro says aluminum demand is expected to tick up 2-3% in 2019, featuring a continued deficit in the market.

In addition, President and CEO Svein Richard Brandtzæg commented on the situation at Hydro’s Alunorte alumina smelter in Brazil, as it aims to return to full capacity there after running at 50% for nine months.

“We are aiming to establish a common platform with authorities and the court system to have an aligned way forward towards full production, utilizing the best available technology,” Brandtzæg said. “We have what it takes: the right people, the right technology and the right spirit.”

MetalMiner’s Take: Norsk Hydro’s announcement that aluminum demand is expected to rise by 2-3% in 2019 is conservative.

Demand has been rising at 5-6% since the financial crisis and Norsk Hydro’s lower numbers reflect a slowing global economy, which might be hard for those in the more buoyant U.S. to grasp. However, the rest of the world, though growing, is doing so at a slower pace than in recent years.

The issue for the aluminum price has not been lack of demand but surplus of supply. Irrespective of reports the world outside China is in deficit, exports of semi-finished products from China have more than made up for the Western world’s shortfall in primary metal. This is despite the LME forward curve providing sufficient incentive for the stock and finance trade to roll forward maturing contracts — Chinese exports are keeping the market amply supplied.

Lighthizer: China’s Automotive Tariffs Are ‘Egregious’

The USTR released a statement Wednesday commenting on China’s tariffs on U.S. automobiles, a couple of days before the G20 summit is scheduled to begin in Buenos Aires.

“As the President has repeatedly noted, China’s aggressive, State-directed industrial policies are causing severe harm to U.S. workers and manufacturers,” USTR Robert Lighthizer said in a release. “We are continuing to raise these issues with China. As of yet, China has not come to the table with proposals for meaningful reform.

“China’s policies are especially egregious with respect to automobile tariffs. Currently, China imposes a tariff of 40 percent on U.S. automobiles. This is more than double the rate of 15 percent that China imposes on its other trading partners, and approximately one and a half times higher than the 27.5 percent tariff that the United States currently applies to Chinese-produced automobiles. At the President’s direction, I will examine all available tools to equalize the tariffs applied to automobiles.”

MetalMiner’s Take: Lighthizer’s comments come at an interesting time — just before the G20 summit in Argentina.

Most trade agreements between countries do not include equal duties across categories of goods. The U.S. exports about 250,000 automobiles annually to China, while the U.S. imports only about 50,000 vehicles from China.

More likely, this announcement creates additional negotiating power for the Trump administration as it seeks to extract concessions from China, in general, over Section 301 tariffs, Section 232 and the trade deficit with China.

Steel Dynamics Bounces Back

Earlier this week, Steel Dynamics announced plans to build a new electric arc furnace (EAF) flat roll steel mill, expected to be located in the southwestern U.S.

According to a company release, the mill is expected to have an annual capacity of 3.0 million tons.

“The current estimated investment is $1.7 billion to $1.8 billion, with anticipated direct job creation of approximately 600 well-paying positions, and numerous opportunities for indirect job growth from other support service providers,” the release stated.

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Even so, the company’s share price plunged 9% Tuesday. However, Wednesday afternoon it jumped 3.2%, off of a 14-month low, following a congratulatory tweet by President Donald Trump, per a MarketWatch report.

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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.