Articles in Category: Global Trade

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The Rare Earths Monthly Metals Index (MMI) fell one point for an August reading of 18.

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Rare Earths and Trade Tensions

Much has been said about the rise of trade tensions around the world, particularly between the U.S. and China.

Those tensions began to manifest in the form of the Trump administration’s steel and aluminum tariffs this past spring, which, in addition to China, have affected U.S. allies.

But what about the impact of trade conflict on rare-earth metals, a market overwhelmingly dominated by China (at approximately 90%, according to most industry estimates)?

The U.S. is threatening a potential additional $200 billion in tariffs on Chinese imports (on top of the previously announced $50 billion, of which $34 billion has already gone into effect), while China has indicated it is prepared to respond in kind.

But, as The New York Times reported last month, China could strike back in other ways, too, including disruption of supply chains that depend on rare earth metals for an end product (e.g. smartphones).

As the report notes, some rare-earths metals appeared on the Section 301 product list drawn up by U.S. Trade Representative Robert Lighthizer at President Trump’s direction.

Those metals and related compounds included:

  • scandium and yttrium, whether or not intermixed or interalloyed
  • mixtures of rare-earth oxides or of rare-earth chlorides
  • yttrium materials and compounds containing by wt. >19% but < 85% yttrium oxide equivalent
  • compounds, inorganic or organic, of rare-earth metals, of yttrium or of scandium, or of mixtures of these metals, nesoi
  • cerium compounds

With very little in the way of alternative supplies — that is, supplies of rare earths outside of China — the end result could simply be that U.S. companies will have no choice but to pay more for the metals, as an editorial in the South China Morning Post explains.

China’s dominance in the market and concerns over that fact are nothing new, nor is the situation likely to change anytime soon.

As the U.S. Geological Survey (USGS) noted earlier this year, rare earths were not mined in the U.S. at all in 2017. According to USGS, the estimated value of rare-earth compounds and metals imported by the U.S. in 2017 was $150 million, up from $118 million in 2016. According to USGS, the distribution of rare-earths imports by end use was as follows: catalysts, 55%; ceramics and glass, 15%; metallurgical applications and alloys, 10%; polishing, 5%; and other, 15%.

Outside of China

Despite China’s dominance in the rare-earths sector, that hasn’t stopped business interests from probing for new sources around the world.

Within the U.S., Alaska is one such place considered potentially viable for rare-earth mining.

Alaska Sen. Lisa Murkowski, who chairs the Energy and Natural Resources Committee, expressed concerns during a July hearing on the issue of China’s dominance of the market and the impact of potential tariffs.

“My concern, among many concerns, is if China ultimately responds to tariffs by restricting our supply of rare earths, or any number of other minerals, the U.S. could be in serious trouble. We’ve heard testimony in the past about the dangers of the concentration of supply from a handful of countries that control the supply chain,” she said, as quoted by the Anchorage Daily News. “I’m hopeful that we aren’t about to experience those dangers firsthand and will continue to urge action to reduce this significant vulnerability.”

As the report notes, at the current stage, much work remains to be done before assessing the viability of rare-earth mining in the state, including the Bokan Mountain prospect, considered to be the most promising of Alaskan sites, per the report. But availability and viability are two different things; particularly in light of the specter of potential tariffs, it is certainly worth keeping an eye on developments in rare-earth mining efforts in The Last Frontier.

Actual Metal Prices and Trends

It was a down month for many of the metals in the Rare Earths MMI basket.

The price of yttrium fell 2.8% month over month, down to $33.03/kg. Terbium oxide dropped 2.8% to $3,009.10/kg.

Neodymium oxide dropped 4.3% to $46,971.30/mt.

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Europium oxide plunged 21.5% to $46.24/kg, while dysprosium oxide fell 3.4% to $168.80/kg.

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This morning in metals news, a recent poll indicates broad support within the U.S. business community for new tariffs on China, Novelis reported its quarterly earnings and Alcoa seeks an exemption from the Trump administration’s aluminum tariff.

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Support for Tariffs

Much has been said about the Trump administration’s program of tariffs, but what do U.S. business owners think about the strategy?

According to a recent UBS poll, 71% of respondents said they supported additional tariffs on China. That percentage fell to 66% for Mexico, 64% for Europe and 60% for Canada.

In addition, 88% of respondents said they believed China is engaging in unfair trade practices.

Novelis Posts 10% Increase in Net Income Year Over Year

Novelis reported net income (excluding special assets) increased by 10% year over year in the most recent quarter.

“Outstanding operational performance with increased asset optimization and favorable market conditions contributed to another strong quarter,” President and CEO Steve Fisher said. “Our recent investment announcements in North America and Asia, along with the pending acquisition of Aleris, will diversify our product portfolio and increase our participation in high-demand, high-value markets to meet growing customer demand.”

Alcoa Seeks Tariff Exemption

Alcoa is among the long list of U.S. companies that have applied for an exemption from the Trump administration’s metals tariffs (in this case, the aluminum tariff), The New York Times reported.

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According to the report, Alcoa is asking for the exemption because it imports much of its aluminum from Canada, which is one of the countries affected by the tariffs.

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Many had hoped the announcement last month of 10% tariffs on China would be the signal for serious negotiations between the two trading partners, that China may come to the table and be willing to discuss some of the U.S.’s genuine concerns about theft of intellectual property and reciprocal access rights to each other’s markets.

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While much was made about the trade imbalance, most realized there was no quick fix to the U.S. addiction to low-cost Chinese imports or the Chinese state-sponsored export model – both would take years to correct.

But a road map as to how that may be achieved would in itself be a major win from the confrontation. Indeed, a resetting of those issues to a more equitable position would be a legacy that would seal President Donald Trump’s place in history, without any advance on the myriad other battles he has started with friends and foes alike.

Alas, no such progress is being made.

According to a recent Financial Times article, if anything the opposite seems to be the case.

Negotiations have stalled at a low level, the report states, with discussions now limited to, at best, “conversations about whether we are going to be able to have a fruitful negotiation or not,” according to one senior administration official quoted by the news source.

China really had little alternative if it wanted to maintain face than to announce reciprocal tariffs to those originally applied by the U.S., but in so doing the tables were balanced in the view of U.S. negotiators. The president announced his intention to extend tariffs on $200 billion in annual imports from China, plus a possible increase from 10% to 25% on that $200 billion to give U.S. negotiators room to maneuver.

Unfortunately, the decision now seems to have stalled what little progress was being made. On Friday, China announced plans to impose tariffs on $60 billion of U.S. goods, according to a statement on the Ministry of Commerce website.

Beijing seems in no hurry to capitulate, despite the Shanghai stock market down 3.6% and Hong Kong’s Hang Seng index down 2.6% to the lowest level in 10 months. Opposition at home is muted to non-existent. Chinese media and much of the industry see themselves as the victims of an unprovoked attack and, as such, support Beijing in what is seen as resistance to an external threat.

In the U.S., however, opinions are more diverse.

Some among the president’s traditional hardcore supporters are still staunchly behind him, but criticism has been growing from other quarters, not least farmers who see themselves in the firing line as China switches buying from the U.S. to South America.

The president’s case may garner more national support if the case were articulated more comprehensively.

There is only so much national consensus that can be achieved via Twitter. The case for nurturing domestic industry has huge merit and, in reality, the cost to U.S. consumers could be relatively low. However, rather than debate and persuade, the barrage of tweets — mixed in with tweets about building a border wall and FBI investigations into Russian attempts to influence voting — creates a chaotic message board. As a result, trade – the most important issue of the day – is subsumed in a barrage of messages and policy priorities.

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To give the “Art of the Deal” space to work on the international stage, the president needs, whether he realizes it or not, the ongoing support of voters, impacted communities (farmers, for example) and the manufacturing sector he purports to represent. As negotiations stall and the process drags on, this imperative will only intensify.

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This morning in metals news, U.S. Steel reported its Q2 earnings, Century Aluminum also posted its Q2 earnings and China is preparing $60 billion in retaliatory tariffs against the U.S.

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U.S. Steel Posts Strong Q2, But Stock Drops

U.S. Steel reported better-than-expected Q2 net earnings of $214 million, albeit down from $262 million in Q2 2017.

The firm increased its 2018 full-year EBITDA guidance to $1.85-$1.90 billion.

Meanwhile, the company’s stock price dropped more than 8% Thursday on the New York Stock Exchange.

Century Aluminum’s Adjusted EBITDA Up to $54.5M

Century Aluminum reported net income of $19.4 million in Q2 2018, up from a net loss of $0.3 million in Q1 2018.

EBITDA hit $54.5 million, up from $32.7 million in Q1.

China Prepares to Strike Back With Retaliatory Tariffs

In response to the U.S. announcement regarding an increase of the tariff rate on $200 billion worth of Chinese imports (from a previously announced 10% to 25%), China has announced it has prepared tariffs on approximately $60 billion worth of U.S. goods, according to a statement from China’s Ministry of Commerce.

“China decided to impose additional tariffs of four different rates on about 60 billion U.S. dollars worth of products imported from the United States, a spokesperson of the Ministry of Commerce said Friday,” the release states. “The decision was made in response to U.S. plan to raise tariffs to be imposed on 200 billion dollars of Chinese goods from 10 percent to 25 percent.”

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According to a report by the state-run Xinhua News Agency, the tariff rates with be 5%, 10%, 20% and 25%, and will cover 5,207 items imported from the U.S.

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This morning in metals, United States Trade Representative Robert Lighthizer released a statement regarding the news of a potential increase in the tariff rate on the previously proposed list of $200 billion worth in Chinese goods, China responds and Secretary of Commerce downplays the potential impact of the tariffs.

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USTR to Mull Increasing Tariff Rate from 10% to 25%

Per a statement from the Office of the United States Representative (USTR), President Donald Trump has directed USTR Robert Lighthizer to consider increasing the tariff rate on a previously announced list of Chinese imports worth $200 billion that have been targeted for duties.

According to the announcement, the president directed Lighthizer to consider increasing the rate from the initially announced 10% to 25%.

“The Trump Administration continues to urge China to stop its unfair practices, open its market, and engage in true market competition,” Lighthizer said in the release. “We have been very clear about the specific changes China should undertake.  Regrettably, instead of changing its harmful behavior, China has illegally retaliated against U.S. workers, farmers, ranchers and businesses.

“The increase in the possible rate of the additional duty is intended to provide the Administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens.

“The United States has joined forces with like-minded partners around the world to address unfair trade practices such as forced technology transfer and intellectual property theft, and we remain ready to engage with China in negotiations that could resolve these and other problems detailed in our Section 301 report.”

China Responds

According to a spokesperson for China’s Ministry of Commerce, the U.S.’s actions on trade are “futile, “according to a report on the state-run Xinhua News Agency.

The “two-faced” approach referred to in the report points to the U.S. announcement regarding the potential increase in the tariff rate combined with the U.S.’s recent announcement that it wants to restart negotiations with China.

The spokesperson added the U.S. is acting against the interests of its farmers, business owners and consumers.

“Facing such an escalating trade war threat, China has made full preparations and will be forced to take countermeasures in order to defend national dignity, the interests of its people, free trade, and the multilateral system, as well as the common interests of all countries,” the spokesperson said.

Ross Says Tariffs Not ‘Cataclysmic’

In a television interview, Secretary of Commerce Wilbur Ross said a move to a 25% tariff on $200 billion in Chinese imports would not be “cataclysmic,” saying it would have a relatively small impact on the Chinese economy, Reuters reported.

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According to the report, Ross added that Trump thinks it is potentially time to apply more pressure on China in order to “modify” the country’s “behavior.”

After an initial media lovefest over the announcement that America and the European Union had reached an agreement to “… work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods” — reached during a surprisingly short meeting last week between President Donald Trump and Jean-Claude Juncker, the European Commission president, at the White House — a more cautious tone has been adopted by just about every quarter outside of Washington.

It has begun to dawn on observers that the president said much the same thing about reaching a very good deal with China earlier this year only for it all to fall apart within weeks.

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President Trump is quoted in The Guardian as saying: “The European Union is going to start almost immediately to buy a lot of soybeans – a tremendous market – buy a lot of soybeans from our farmers in the Midwest primarily.”

But the reality is the E.U.’s demand for soybeans is never going to make up for the loss of Chinese buying that is now facing tariffs as part of the country’s reciprocal response to U.S. sanctions.

Although the president has announced some $12 billion in aid to farmers hit by the loss of Chinese buyers, he is still facing a loss of previously strong support from the farming community and was no doubt hoping to hold up the E.U. as an alternative.

The E.U.’s farmers, however, are just as cosseted as those in the U.S., and the French have already voiced reservations about opening up the E.U. to U.S. agricultural imports, The Telegraph reported.

There is palpable relief in Germany, the Telegraph reported, to the news, as there are fears within the country’s car industry regarding the Trump administration’s proposed 25% tariff on $200 billion worth of automobile imports. The agreement between Trump and Juncker has temporarily eased that fear, but has by no means put it to rest. As the Indians say, there is ever a gap between cup and lip — the deal has every opportunity of falling apart as the details are worked through.

One major concern is that U.S. exports and European exports are different. The U.S. is looking to export agricultural products, but the E.U. has one of the most protected agricultural markets in the world and is never going to zero tariff that market.

Likewise, the U.S. is pushing for equitable tariff arrangements on cars. The U.S. currently applies a 2.5% tariff on imports form the E.U., whereas the E.U. applies a 10% tariff on U.S. cars.

If the president is hoping equitable tariffs will solve that imbalance, he is mistaken. There is a much stronger reason why there are high European and Japanese penetration in the U.S. market, and it has everything to do with the design and quality of the vehicles and nothing to do with tariffs.

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Such are the challenges faced by trade negotiators; at least, while they plod on, both sides can claim progress is being made.

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This morning in metals news, media reports indicate President Donald Trump could up the ante regarding a previously announced $200 billion tariff proposal, ArcelorMittal announced strong second-quarter financial numbers and Mexican officials are optimistic about reaching a deal on a renegotiated North American Free Trade Agreement (NAFTA).

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Raising the Stakes

According to media reports, President Trump plans to bump up the tariff rate on a previously proposed list of $200 billion in Chinese imports targeted by the administration from 10% to 25%.

The change has yet to be formally announced, but would further fan the flames of a burgeoning trade conflict between the U.S. and China.

The news comes as $34 billion in tariffs on Chinese imports already went into effect last month, while an additional $16 billion in tariffs remain under review.

ArcelorMittal Has Strong Q2

ArcelorMittal posted strong financial numbers for the second quarter, boasting net income of $1.9 billion, up 56.4% from 1Q 2018. The steelmaker’s 1H 2018 net income hit $3.1 billion, up 31.5% year-over-year.

Earnings before depreciation, interest, taxes, depreciation and amortization (EBITDA) hit $3.1 billion in Q2, a 22.3% increase from Q1. First-half EBITDA hit $5.6 billion, marking a 28.6% increase year-over-year.

“This is an encouraging set of results reflecting the structural improvements in both the global steel industry due to supply reform dynamics and within ArcelorMittal as a result of Action 2020,” said Lakshmi N. Mittal, ArcelorMittal chairman and CEO, in a press release. “The significant improvement in our balance sheet and earnings outlook has been recognised by the main credit agencies and the Company has achieved its stated aim of regaining its investment grade credit rating.”

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Optimism on NAFTA

According to a Reuters report, there is optimism vis-a-vis NAFTA, the trilateral trade agreement that has undergone several rounds and approximately a year of talks.

Juan Carlos Baker, Mexico’s deputy economy minister, commented that there is optimism regarding the talks and said that there will “hopefully” be “news coming out of Washington in the next few days.”

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This morning in metals news, a Chinese city in Jiangsu province plans to enforce steel and chemical output cuts, U.S. companies requesting exclusions from the Section 232 steel tariff are feeling the heat and countries around the world are meeting to discuss a potential response should the U.S. impose automotive tariffs.

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Changzhou to Join Anti-Pollution Efforts

The Chinese city of Changzhou will impose curbs on steel and chemical output, Reuters reported, part of the country’s ongoing anti-pollution efforts.

According to the report, the city’s draft plan calls for 50% output curbs for steel mills and copper smelters, among other facilities, by Aug. 3 at the latest.

U.S. Companies Feel the Heat

U.S. companies have been able to apply for exclusion requests with respect to the Trump administration’s steel tariff, using the argument that they can’t get enough of the product domestically (or at a suitable quality level).

However, according to an AP report, companies seeking exclusions are facing criticism and opposition in the exclusion process from domestic steel producers.

Nations Prepare to Go on Defense With Respect to Potential U.S. Auto Duties

In May, the U.S. launched a Section 232 investigation of imports of automobiles and automotive imports.

As such, countries who could feel the effect of automotive duties are preparing a response, should the duties come to pass.

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According to Reuters, representatives from the E.U., Japan, Canada and Mexico will meet to consider a response to the potential U.S. automotive tariffs. The meeting is scheduled for Tuesday, July 31, in Geneva, according to the report.

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This morning in metals news, U.S. imports of steel dropped from May to June, Novelis is making a $2.6 billion acquisition, and President Donald Trump has agreed to work with the E.U. to remove trade barriers.

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Steel Imports Drop

U.S. imports of steel fell 15.5% from May to June, the American Iron and Steel Institute reported this week.

Through the first six months of the year, imports were down 9.8% compared with the first six months of 2017.

Novelis to Buy Downstream Aluminum Producer Aleris

Aluminum firm Novelis Inc. announced it will buy downstream producer Aleris Corporation for a cost of $2.6 billion (including assumption of debt).

Aleris is a global supplier of rolled aluminum products.

“Acquiring Aleris is the right opportunity at the right time as they are set for transformational growth,” said Steve Fisher, president and CEO of Novelis, in a company release. “The significant investments they’ve made in the high-demand, high-value aerospace and automotive segments have resulted in favorable long-term, global contracts. These investments, coupled with a diverse and talented workforce, will add tremendous value to our organization and allow us to deliver the highest quality innovative aluminum solutions to our customers.”

Trump Says He Will Work With E.U. to Remove Trade Barriers

Recent weeks have been full of news about rising global trade tensions, but Wednesday President Trump hinted at the beginning of “a new phase” in relations with the E.U.

Trump said he had reached an agreement with European Commission President Jean-Claude Juncker on holding new talks to discuss removing tariff barriers between the U.S. and the 28-member bloc, USA Today reported.

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According to the report, the agreement will include a European commitment to purchase more soybeans from the U.S.

Source: wto.org

Ultimately, it went along expected lines.

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India and a handful of other nations held trade dispute settlement consultations with the United States over its steel and aluminum tariffs in Geneva, but got absolutely no concession from the latter, according to reports coming out of the meetings.

India, Canada and Mexico confabulated with the U.S. on the issue of the latter imposing additional duties of 25% & 10% on steel and aluminum imports.

Earlier this month, China, Norway and the European Union also held similar talks with the U.S., under the aegis of the World Trade Organization (WTO) in Geneva. Almost all such disputes are held under Article 4 dispute settlement consultations. MetalMiner previously reported about the Geneva meeting and its attempt to try and break the trade tariff imbroglio.

The U.S., as many had expected, stuck to its guns that no law required it to provide any reason for the Section 232 measures on steel and aluminum, since they remain “sovereign determinations” that fall under Article 21 of the GATT 1994, according to media reports.

Apparently, in an earlier meeting, the U.S. told the representative of another country in such a meeting that Section 232 revolved around issues of national security, and was thus not available for review or capable of resolution by WTO dispute settlement.

Representatives of India and other nations raised several questions around the proposed tariffs. They claimed the additional duties constituted a “disguised safeguard” measure, as the U.S. Department of Defense had said that there was no threat to the country’s national security from steel and aluminum imports.

The U.S. delegation, on the other hand, maintained it was unable to share the reasons for the decisions under the Section 232 provisions. Delegates also wondered how countries such as Australia, Brazil, Korea and Argentina had been exempted from similar additional duties, and why these imports did not pose a national security threat to the U.S.

Clearly, unable to get much from the U.S. at this meeting, the only recourse the six nations may have is to approach the WTO with a request to establish a disputes settlement panel to rule against the U.S. measures.

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In March this year, the U.S. had also launched a challenge at the WTO against India’s export subsidies, arguing the programs give Indian companies an unfair advantage. The U.S. claimed these export subsidy programs harmed American workers by creating an uneven playing field on which they must compete.