Articles in Category: Global Trade

We had a chance to sit down and discuss the issues facing members of the Steel Manufacturers Association with SMA President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell also currently serves on the  Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Philip K. Bell

Philip K. Bell. Source: SMA

Jeff Yoders: We’ve heard a lot about North American Free Trade Agreement and what changes to it might mean in the last two days. How do your members feel about reopening NAFTA to changes?

Philip K. Bell: NAFTA is over 20 years old and it’s probably time to look at it again. A lot has changed over the last two decades. We hope the approach that the administration takes is one that’s more methodical and takes into account that not only are Canada and Mexico two of our biggest trade partners but, when it comes to the steel industry, they ARE our two largest trade partners.

There is a lot of integration in this area. You have a lot of steel producers that either have businesses in Mexico such as Gerdau, ArcelorMittal and Nucor — through its joint venture JFE — and you have a lot of companies that want to do business there like Steel Dynamics which is hoping to increase its presence in that market by importing flat-rolled into Mexico. Read more

The Organization of Petroleum Exporting Countries in general, and Saudi Arabia in particular, have done the U.S. oil industry a massive favor, and they are probably ruing the day they tried to squeeze America’s shale industry out of existence.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The collapse in oil prices that ensued after Saudi Arabia-led OPEC opened the spigots two years ago forced American companies, and their many subcontractors, to innovate in a way that would never have happened so fast or gone so far without the imminent threat of survival forcing the pace.

Oil Prices Allow Reopening of Old Wells

Now, U.S. shale producers have achieved economies of scale that allow them to return to previously closed wells in fields like Eagle Ford and achieve 30% returns even at $40 a barrel. U.S. explorers may be making hay in the domestic market, but huge potential exists for these same firms to take their technology abroad. Read more

Late last week, Indian media was rife with reports of Vedanta Resources PLC Chairman Anil Agarwal making a “surprise” bid for about 13% of mining giant Anglo American PLC for $2.4 billion, even as the British newspapers headlined the development as a “raid.” Anglo American owns De Beers, one of the world’s largest diamond exploration and mining companies.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The move to acquire the shares was made through Agarwal’s personal investment firm Volcan Investments in London.

Here’s the lowdown on Anglo American: The U.K.-headquartered Group, with operations in South Africa, North and South America, Asia and Europe, has revenue of $23 billion, EBITDA (earnings before interest, tax, depreciation and amortization) amount to $6.1 billion, and it has a market value of over $20 billion. In addition to diamonds, Anglo is a global player in platinum and base metals and minerals — it mines copper, nickel, niobium and phosphates. It also sells commodities such as iron ore and manganese, metallurgical coal and thermal coal.

When the 13% shares are acquired, Agarwal’s Volcan will be the second-biggest shareholder after the South African Government investment firm Public Investment Corp., which owns 14%. Volcan, said news reports. Volcan intends to finance the investment through mandatory exchangeable bonds. Led by JPMorgan Chase & Co., the bond sale will take place on or around April 11, the closing date.

Agarwal is the founder of Vedanta but he said he doesn’t intend to make a takeover offer for Anglo American, though a merger between the two failed last year. Incidentally, in 2010, Vedanta acquired Anglo American’s portfolio of zinc assets in Namibia, South Africa and Ireland.

Agarwal told the Sunday Times that he “liked” Anglo’s entire balanced portfolio, both in South Africa and elsewhere.

Some years ago, through his entities, Agarwal had also signed an agreement with the South African government for sharing mining technology.

Two-Month Trial: Metal Buying Outlook

He said he would be “fully supportive of the board, management and strategy”.

Metal trader turned mining tycoon Agarwal started as a scrap dealer way back in 1975, and his has been a rags to riches story so far but we’ll have to wait and see if his interest in Anglo American is more than just that of a minority investor.

Chinese steel exports tumbled to a three-year low in February, customs data showed last week, lower than expectations, as steelmakers in the world’s top producer shifted to meeting rising demand at home.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Shipments for the month were 5.75 million metric tons, the lowest since February 2014, data from the General Administration of Customs showed. It was down 29.1% from a year ago and down 22.5% from January.

Duterte Wants Mining Compromise

Philippine President Rodrigo Duterte said recently he hopes there will be a “happy compromise” between the mining industry and protecting the environment, throwing support to Environment and Natural Resources Secretary Regina Lopez will appear before Congress ahead of her confirmation hearing. Lopez is under pressure because she has closed nearly half the nation’s mines.

The U.S. dollar fell sharply last Wednesday against a basket of currencies as the Federal Reserve announced a rate increase of a quarter point.

US Dollar index: Source @stockcharts.com.

The move seems to contradict common economic wisdom. In theory, higher raters in the U.S. should make the dollar more attractive for yield-seeking investors when interest are rates are lower around the globe. Then, what caused the currency to weaken?

All About Expectations

A rate increase came as no surprise to U.S. markets. The real surprise came in the language that wrapped the announcement. Fed officials intend to keep raising rates, however they want to keep the economy from getting too hot… but also not too cold.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Investors were probably betting on an acceleration in the path of raising interest rates, not a warming down. Read more

We haven’t heard much of late about President Donald Trump’s border adjustment tax, but that doesn’t mean to say it has gone away.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Indeed, the fact that it has a measure of support in the Republican Party suggests it could be on the agenda in the not-too-distant future. The idea is to transform the corporate tax landscape from a system that has prevailed for nearly 100 years, in which profits are taxed at the place of production, to a system in which profits are taxed at the place of sale.

A-destination based cash flow tax (DBCFT), as proposed by the House Republican tax plan, would include border adjustments that exempt exports but include imports in tax bills rather than raising federal income from a corporate income tax. As William Gale, a senior fellow in Economic Studies at the Brookings Institution explained in a recent article, all advanced countries except the U.S. already have a form of value-added tax (VAT), generally levied on top of corporate income taxes. All of those VAT systems are border adjusted, such that goods that are imported are taxed and those that are exported are not.

BAT or VAT

As part of the president’s pledge to bring jobs back to America, the border tax could have much to commend it. For example, if the U.S. introduces the system unilaterally, a factory in Ohio will pay no tax on the goods it exports to the E.U. while a factory in the E.U. will pay the border tax on its exports to the U.S. If you are a multinational corporation, suddenly it makes a ton more sense to have your new factory based in Ohio rather than some “lower cost” location. Read more

The Department of Commerce announced its affirmative final determination in the anti-dumping duty investigation of imports of South Korean ferrovanadium.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

For the purpose of an anti-dumping investigation, dumping occurs when a foreign company sells an imported product in the U.S. at less than its fair value.

Commerce found dumping by mandatory respondent, Korvan Ind. Co., Ltd., at a final margin of 3.22%. Additionally, based on the application of adverse facts available, Commerce found that dumping has occurred by mandatory respondents, Fortune Metallurgical Group Co., Ltd. and Woojin Ind. Co., Ltd., at final margins of 54.69%. Commerce assigned a final dumping margin of 3.22% to all other producers/exporters in Korea.

As a result of the final affirmative determination, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits based on these final rates.

Two-Month Trial: Metal Buying Outlook

The petitioners for this investigation are the Vanadium Producers and Reclaimers Association — a Washington DC-based trade group — and its members: AMG Vanadium LLC of Ohio; Bear Metallurgical Company in Pennsylvania; Gulf Chemical & Metallurgical Corporation of Texas; and Evraz Stratcor, Inc. in Arkansas.

Speaking at S&P Global Platts’ recent Steel Markets North America conference, noted trade attorney Alan Price of the Washington law firm Wiley Rein said the World Trade Organization case that the federal government filed on behalf of aluminum producers against Chinese overproduction of the light metal in January, will essentially serve as a guide for other industries looking to challenge state-subsidized companies’ overproduction for export in the People’s Republic.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

“The solutions to Chinese overcapacity are to follow the money and see who’s subsidizing it,” said Price, who has represented several U.S. industries in anti-dumping and countervailing duty legal actions against Chinese producers, as well as WTO disputes. “China has not fundamentally reformed its excess capacity. The rest of the world’s production has remained stable, but the explosion in Chinese capacity is still there.”

Alan Price

Alan Price, image courtesy of Wiley Rein

Price said the aluminum case fundamentally attacks the mechanism China uses to back up failing businesses, the availability of subsidized money in China known as “money for metal” on the municipal, state and federal level there.

“The WTO case involving aluminum, challenges, fundamentally, the Chinese subsidization system,” Price said. “It goes after the financial systems of China and how everything is financed. In aluminum you can track all the companies involved. There are around 10 and it’s a much more understandable beast, much more understandable problem than the vastness of the Chinese steel industry. This case will fundamentally decide if China will be allowed to prop up failing businesses.” Read more

If you can’t beat them, then join them? That may be the gist of UC Rusal’s latest proposal for dealing with Chinese aluminum overproduction: an OPEC-like organization for the global aluminum industry.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In a Reuters article the world’s largest aluminiu producer outside of China was quoted by the TASS news agency at an economic conference in Russia’s Black Sea resort of Sochi as suggesting that Industry ministers should get together and explore ways and means of creating a producers club.

Liquid metal

The Chinese aluminum industry has been able to cut costs by essentially selling liquid metal to nearby product manufacturers. Source: Adobe Stock/Kybele.

The trade minister quoted by TASS, Denis Manturov, talked of creating a single policy in the area of standards and technology but, in reality, there would be little to be gained if that was the sole purpose. More attractive to western smelters in general, and Rusal in particular, would be any mechanism that curbed China’s growing dominance of the primary aluminum market.

Rusal was, until a few years ago the world’s largest aluminum producer. In 2016 Rusal produced 3.685 million metric tons, according to Reuters, but China now produces over half the world’s aluminum with Chinese producers overtaking the Russian firm. China’s Hongqiao is now the world’s biggest aluminum producer overtaking Rusal in 2015 and again in 2016. Read more

More and more Indian companies, including steelmakers such as Tata and Essar Steel, are entering the defense manufacturing sector. Essar Steel, for example, recently announced a game plan to develop steel grades for land and naval defense applications.

Benchmark Your Current Steel Price by Grade, Shape and Alloy: See How it Stacks Up

Essar Steel made a low key entry into the sector about five years ago, but it’s now turned bullish on defense because of the increased marketability of its products. Essar’s products include an indigenous armor plate for ballistic protection. Some of its products are innovative while others are simple substitutes for imports for India’s native contractors looking to keep more of their supply chains close to home. The latter have been used in the construction of naval destroyers, offshore patrol vessels and floating docks. Other products are used in the construction of Coast Guard vessels, so also the repair of naval ships.

In land defense, Essar Steel’s products are used in battle tanks, the motor casings of missiles, combat vehicles, and artillery guns. Read more