Articles in Category: Global Trade

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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-related storylines here on MetalMiner:

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This morning in metals, U.S. Steel announced a large investment at its flagship steel plant, the U.S. and China will resume talks on trade, and copper is set to finish the week with its biggest weekly loss since early July.

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U.S. Steel Announces $750M Investment

U.S. Steel announced it plans to invest $750 million in its flagship plant in Gary, Indiana, the Chicago Tribune reported Thursday.

According to the report, the firm credited the Trump administration’s trade policies in helping to facilitate the company’s modernization of its plants, while President and CEO David Burritt said the company is experiencing a “renaissance.”

U.S., China to Restart Trade Talks

Trade tensions between the U.S. and China have continued to grow, as the U.S. has in recent weeks imposed a total of $50 billion in tariffs ($16 billion of which will go into effect Aug. 23), with China responding in kind.

According to several reports, officials from the two countries plan to meet later this month to talk trade in hopes of deescalating the situation.

Copper Slides Again

It has been a tough couple of months for copper, which continued its slide this week, posting its biggest weekly loss since early July, Reuters reported.

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According to the report, the LME copper price fell 4.5% this week.

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This morning in metals news, President Trump claimed his tariffs are saving the U.S. steel industry, steel supplies from Japan and South Korea to India have increased, and Turkey hits back with new tariffs in response to the U.S.’s doubling of the steel and aluminum tariffs.

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Saving Steel

In an interview with the Wall Street Journal, Trump argued that his tariff on steel is saving the U.S. steel industry.

He also argued that in the future U.S. steelmakers will face mostly domestic competition as a result of the tariffs.

Indian Steel Import Levels from Japan, South Korea Surge

According to a Reuters report, levels of steel heading from Japan and South Korea to India have increased significantly as a result of tariffs.

Per the report, citing government data, during the April-June period imports from South Korea were up 31%, while imports from Japan jumped 30%.

Turkey Hits Back

The recent tension between the U.S. and Turkey continued to rise Wednesday, as Turkey announced tariffs it would apply to U.S. goods.

The announcement comes after President Trump announced the U.S. would double the tariff rates on steel and aluminum for Turkey, bringing them to 50% and 20%, respectively.

Turkey announced tariffs on American automobiles, alcohol and tobacco.

The U.S. has lobbied for the release of detained American pastor Andrew Brunson, while Turkey has continued to ask for the extradition of exiled religious leader Fethullah Gulen, whom the government claims was behind the failed 2016 coup.

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The crisis has seen the value of the Turkish lira plummet in the plummet, hitting a record low against the dollar earlier this week before beginning to recover on Tuesday and Wednesday.

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This morning in metals news, the workers at the Escondida mine in Chile will consider a new proposal as the threat of a strike looms at the world’s largest copper mine, Canada is considering safeguard mechanisms to combat U.S. tariffs and copper continues to struggle.

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Labor Talks Continue at Escondida

Negotiations between BHP Billiton and the union representing workers at the Escondida mine in Chile continued, as the union is now bringing a new proposal back to the workers, Reuters reported.

As the world’s largest copper mine, a potential strike would have a devastating impact on supply. A 44-day strike at the mine last year saw copper prices skyrocket.

Canada Mulls Safeguard

Canada is considering steel safeguards for seven steel products in response to the U.S. tariff on steel (which Canada remains subject to).

According to Reuters, officials will begin a 15-day consultation period, during which potential safeguards will be considered for the steel categories of: steel plate, rebar, energy tubular product, hot rolled sheet, pre-painted steel, stainless steel wire and wire rod.

Bearish Sentiment

According to Bloomberg, tremors in emerging markets — namely Turkey’s lira crisis and the ongoing trade war between the U.S. and China — have affected metals markets, with many approaching bearish territory.

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Per the Bloomberg report, base metals markets across the board have struggled today, with copper dropping below $6,000/mt and most others dropping.

Even if U.S. steelmakers have been slow to add capacity following President Trump’s tariff protection, it would seem foreign steel makers are willing to commit to domestic U.S. production.

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The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.

The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.

Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.

According to the Financial Times, domestic U.S. steel producers are, not surprisingly, doing rather well from the tariffs.

The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).

The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.

Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.

U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”

Well, that was last year; this year is something very different.

Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.

It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.

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According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.

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Import tariffs appear to have become the weapon of choice for this U.S. administration.

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Some administrations use military power, but Trump prefers economic pressure to achieve his ends.

His latest skirmish is with Turkey — not that many in the U.S. would notice yet, but in Turkey it is abundantly clear they are under attack.

Value of Turkish Lira Plunges

What sparked the crisis we will come to, but the immediate impact has been a collapse of the Turkish lira, plunging 12% late last week to a new record low — off by a third since the start of the year — in a slide that started with fears of mismanagement of the economy, according to the Financial Times. However, weakness this year has been greatly exacerbated by the current standoff with the U.S.

So severe has been the currency’s slide that it is causing contagion in other emerging market currencies. The Russian rouble is at a two-year low – itself suffering from a similar standoff with the U.S. over sanctions. But other emerging-market (EM) currencies are also down, as are global stock markets, in a marked risk-off shift by investors unnerved by deteriorating trade relations between the U.S. and the rest of the world.

Commodities have followed suit. Oil and gold are both down. It remains to be seen if metals will come off as the dollar rises relative to other currencies, as U.S. Treasuries are back in fashion for a risk-averse market.

How Did the U.S., Turkey Get Here?

So, what caused the rift that led to two NATO allies getting to such a situation?

Turkey was already subject to the 10% on aluminum and 25% on steel import tariffs applied to much of the rest of the world, but a breakdown in negotiations between the two governments for the release of an American pastor, Andrew Brunson, seems to have sparked the announcement by President Trump that tariffs on Turkish metal products should be doubled to 20% for aluminum and 50% for steel. We say “appear” because no reason for the increase was given and some speculation remains that the 15% devaluation in the Lira was undoing the impact of the original tariffs, so the simple answer from the White House was to double them.

However, the detention of the American pastor on terrorism-related charges is certainly an issue. The U.S. claims the allegations are bogus and have been trumped up to use as a negotiating tool to force the U.S. to extradite Fethullah Gülen, a Turkish preacher who Turkish President Erdogan claims is responsible for a failed 2016 coup attempt. There is little or no evidence this is true and the demand for extradition probably has more to do with Ankara’s angst at Gülen’s ongoing criticism of the regime’s behavior and legitimacy than any hard evidence he was involved in the coup.

However, Turkey blocked the agreed release of Brunson from prison and commuted his position to house arrest rather than repatriation to the U.S., sparking the breakdown between Washington and Ankara.

Ripple Effects

What started as a minor spat has, to Ankara’s dismay, spiraled into an economic crisis.

Foreign banks are withholding funding for fear of further sanctions and may soon call in lira debts over fears companies will not be able to meet their commitments. Certainly, the European Central Bank was looking into lenders with the biggest exposure to Turkey’s economy prompting a slide in bank share prices across Europe.

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According to the Washington Post, steel imports from Turkey have already fallen sharply, with only 4% of U.S. steel imports coming from Turkey in the first half of 2018, almost 50% below 2017.

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This morning in metals news, the crossfire of tariffs and counter-tariffs between the U.S. and trading partners around the world has put the World Trade Organization in a difficult spot, President Donald Trump backed a boycott of Harley-Davidson on Sunday and LME copper drops amid the recent uptick in tensions between the U.S. and Turkey.

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A World of Problems

The U.S., using Section 232 of the Trade Expansion Act of 1962, argued for its imposition of steel and aluminum tariffs on the grounds of national security. On the other hand, trading partners around the world have balked at the invocation of national security, and have responded with counter-tariffs against the U.S., which the U.S. has then contested at the WTO.

As such, the global body is in a difficult place, one in which any decision it makes will make someone unhappy.

A report in The New York Times outlines the difficulties the WTO faces.

Roberto Azevêdo, the WTO’s director general, is quoted as saying: “Whatever the outcome — regardless of how objective, balanced and unbiased it is — somebody is going to be very unhappy.”

Backing a Boycott

President Trump expressed support for a boycott of Harley-Davidson, which earlier this year announced intention to move production overseas, citing the Trump administration’s metal tariffs as the reason for the decision.

The president tweeted support for a boycott of the American company, writing: “Many @harleydavidson owners plan to boycott the company if manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! U.S. will soon have a level playing field, or better”

London Copper Slides

The flare-up of tensions between the U.S. and Turkey has had another consequence, beyond the impact on the Turkish lira: the strengthened dollar has seen copper prices slide.

Turkey’s detainment of American pastor Andrew Brunson led to the U.S. imposing sanctions on two Turkish cabinet ministers. In addition, last week Trump announced the U.S. would double the Section 232 metals tariffs rates on Turkey, bringing them to 50% and 20% for steel and aluminum, respectively.

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As a result, the Turkish lira plummeted, while the dollar has strengthened. The dollar historically correlates inversely with copper and, as such, London copper was down 0.8% on Monday, Reuters reported.

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

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India’s trade tiff with the United States has all the hallmarks of a potential political battle — for India, at least. With general elections not too far away, it looks like Narendra Modi’s government does not want to really stir the pot, lest there is some fallout in the domestic political scene.

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That could be one of the reasons why the Indian government has chosen to defer a tit-for-tat duty on the import of over two dozen products from India, including certain flat-rolled stainless steel products. It was supposed to come into effect Aug. 8, but now the new date is Sept. 18.

Trade between India and the U.S. has been buffeted by many problems in the past few years. The hike in import duties on Indian goods coming into the U.S. a few months ago was one more such hiccup.

But the ruling dispensation here does not seem to want to take any chances. So, in a renewed effort to resolve the differences between the two countries, India’s Commerce Ministry has requested the Finance Ministry to extend the implementation of higher duties by 45 days.

The Trump administration had decided to hike the import duties on certain steel and aluminum products, not only from India but other countries, such as China, too.

Though the U.S. Trade Representative’s office had two rounds of dialogue with Indian officials, a settlement was not reached. Now, by deferring the retaliatory hike, the Indian government is hoping the issue can be resolved in the next 45 days.

On India’s list of increased duties are 29 products, which include walnuts, almonds, pulses, apples and non-iron.

Duty on flat-rolled iron products has been raised to 27.50% from 15%, while certain flat-rolled stainless steel products will now attract 22.50% duty (compared with the earlier 15%).

Besides the domestic political fallout, the Indian government may also be a bit apprehensive of the White House’s response and the potential for further targeted actions.

India is not really on the same plane as China vis-à-vis such import tariffs; Washington looks at New Delhi very differently than it does Beijing. For one, unlike China, India is not a major exporter of steel and aluminum to the U.S. In 2017, the U.S. accounted for about 2% of India’s steel exports.

Things between India and the U.S. are proceeding at a different level, evident from the fact that last week the U.S. Department of Commerce granted New Delhi a special status that gives the emerging market an automatic waiver for exports of certain military and dual-use technologies (much to the consternation of the Chinese). That could be another reason why the Indians have decided to hold off on enacting the retaliatory duties.

Steel Supplies Dumped in India

Meanwhile, some Indian newspaper reports have said following the duty hike, some countries like China and South Korea have stepped up the dumping of steel in India.

They are said to be diverting supplies from the U.S. and the European Union in massive volumes to beat the impact of a global tariff war. Quoting official data, the report said it suggested steel supplies from China, the world’s largest steel producer, surged to 362,000 tons in the April-June period, up 67% sequentially from the 217,000 tons in the previous quarter.

As Japan and Korea enjoy duty relief under their respective free-trade agreements with India, the imports from these countries are 10% cheaper than domestic steel.

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Importantly, while the combined steel exports by China, Japan and South Korea to the U.S. dropped 17%, or by 241,000 tons, in the April-June period vis-à-vis the previous quarter, their supplies to India rose by 459,000 tons, up 45% from the March quarter. This, said the report, clearly showed that Asian steelmakers were rerouting supplies, meant for the US and other nations, to India.

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This morning in metals news, China responds to the U.S.’s $16 billion in tariffs with the same amount in return, China’s additional announced $60 billion tariff threat could have a significant impact on the liquefied natural gas sector and copper traded flat yesterday.

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Back and Forth

China returned serve this week, responding to the U.S.’s announcement of $16 billion in tariffs on Chinese imports with the same amount in return, marking another escalation of trade tensions.

According to a report by the state-run Xinhua News Agency, the Customs Tariff Commission of the State Council will impose a 25% tariff on $16 billion in U.S. goods.

The list of U.S. goods targeted for tariffs (which is available on the Chinese Ministry of Finance website), encompasses 333 product lines.

Tariffs on LNG?

Liquefied natural gas (LNG) is among the items included in a $60 billion tariff list announced by China last week, CNBC reported.

The U.S. is the No. 1 producer of LNG, while China is currently the second-largest importer, according to the report.

Tensions Weigh on Copper

According to a Reuters report, LME copper traded nearly flat Wednesday, as trade tensions between the U.S. and China continue to negatively impact the metal’s price.

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Softening of the U.S. dollar prevented bigger losses, according to the report. The U.S. Dollar Index fell from 95.39 to 95.03 by the end of the Wednesday; however, it has bounced back so far Thursday morning.