This morning in metals news, the U.S. on Friday raised tariffs on a wide variety of imports from China, a long-considered European joint venture does not appear likely to come to fruition and March steel imports fell 7%.
As promised earlier this week, the U.S. today raised the tariff rate on a wide variety of Chinese imports from 10% to 25%.
Despite general sentiment in recent weeks indicating the U.S. and China were nearing a deal, President Donald Trump this week said the U.S. would raise the tariff rate on Friday if a deal was not reached.
The deadline came and went with no deal, thus seeing the increase on the duties assessed to the $200 billion in imports from China announced in September 2018.
The Chinese Ministry of Commerce said it would respond to the U.S. tariff increase with “necessary countermeasures.”
Tata-Thyssenkrupp JV Falls Apart
Tata Steel and Thyssenkrupp last year agreed to merge their European operations, forming what would be Europe’s second-largest steelmaker.
However, the proposed joint venture has been under scrutiny from Europe’s competition authorities, which launched an investigation in October 2018 over concerns the merger would result in fewer choices and higher prices for consumers.
Now, over six months later, it appears the joint venture will not come to fruition.
On Friday, Tata Steel said “the feedback from the Commission based on the market test it has undertaken suggests that it is unlikely to clear the proposal in spite of the significant remedies offered.”
U.S. imports of steel totaled 2.27 million tons in March, according to the American Iron and Steel Institute (AISI), marking 6.6% decrease from the February import total. Meanwhile, the U.S imported 8.18 million tons of steel in the first quarter, down 5.9% from Q1 2018.
Steel import market share in March was an estimated 19% and 21% for the first quarter.
This morning in metals news, President Donald Trump added sanctions on Iran targeting its metals industry, Rio Tinto is shipping more aluminum to Europe and ArcelorMittal reported its Q1 2019 financial results.
On Wednesday, the president signed an executive order imposing sanctions on Iran’s metals industry, including exports of iron, steel, aluminum and copper.
Rio Tinto Supplying More Aluminum to Europe
According to Rio Tinto CEO Jean-Sebastien Jacques, the miner has begun to ship greater volumes of aluminum to the European market amid flagging U.S. demand, Reuters reported.
The CEO cited the ongoing U.S.-China trade conflict as a factor contributing to the decline in U.S. demand.
Although negotiations between the U.S. and China continued this week, tensions escalated as President Donald Trump has threatened to increase the rate on a previously announced $200 billion in tariffs from 10% to 25%, setting a Friday deadline for the increase. The tariffs were originally imposed in September, with the tariff rate increase scheduled for Jan. 1 before the two countries reached an agreement on a negotiating timetable.
ArcelorMittal Reports Q1 Results
Steelmaker ArcelorMittal reported EBITDA of $1.7 billion in Q1 2019, down from $2.0 billion in Q4 2018.
Steel shipments were up 7.9% from Q4 2018 “primarily due to higher steel shipments in Europe (+14.4%) due in part to the acquisition of ArcelorMittal Italia (following its consolidation from November 1, 2018) and NAFTA (+2.8%), offset in part by lower steel shipments in Brazil (-5.7%).”
“Our first quarter results reflect the challenging operating environment the industry has faced in recent months,” ArcelorMittal Chairman and CEO Lakshmi Mittal said. “Profitability has been impacted by lower steel pricing due to weaker economic activity and continued global overcapacity, as well as rising raw material costs as a result of supply-side developments in Brazil.”
Mittal also addressed high import levels, even after Europe’s approval of steel safeguard measures earlier this year.
“We continue to face a challenge from high levels of imports, particularly in Europe, where safeguard measures introduced by the European Commission have not been fully effective,” Mittal said. “Although we are somewhat encouraged by the firmer price environment in China, this is not being reflected in Europe where in order to adapt to the current market environment we have recently announced annualized production cuts of three million tonnes in our flat steel operations. It is important there is a level playing field to address unfair competition, and this includes a green border adjustment to ensure that imports into Europe face the same carbon costs as producers in Europe.”
This morning in the metals news, President Donald Trump threatened to impose an additional $325 billion worth of tariffs on imports from China, SHFE steel futures are down on pessimistic news from this latest round of U.S.-China trade talks and doubts are growing about the Thyssenkrupp–Tata Steel joint venture proposal.
The U.S. and China continued with yet another round of trade talks last week as the two parties attempt to resolve the conflict that produced a total of $360 billion in tariffs last year.
That tariff figure could be on the rise.
Arguing that not enough progress is being made quickly enough, President Donald Trump announced the tariff rate on a previously imposed $200 billion in tariffs will rise from 10% to 25% on Friday (the increase was originally set to go into effect Jan. 1, but was delayed as negotiations began), CNBC reported.
In addition, Trump threatened to add $325 billion more in tariffs on China.
SHFE Steel Futures Drop
The developments on the trade front and Trump’s tariff announcement have impacted markets, including SHFE steel futures, which fell Monday, Reuters reported.
However, environmental measures enacted in the Chinese city of Tangshan, a major steelmaking hub, offered some price support, according to the report.
Thyssenkrupp-Tata JV in Doubt?
The proposed Thyssenkrupp-Tata Steel joint venture in Europe is under scrutiny by the European Commission — and is in danger of being blocked.
According to a Financial Times report, the European Commission could be set to block the proposed merger unless the two firms make greater concessions. The proposed JV ultimately would create Europe’s second-largest steelmaking entity, behind only ArcelorMittal.
This morning in metals news, the Aluminum Association released a report panning aluminum import quotas, Republican senators urged President Donald Trump not to impose tariffs on imported automobiles and U.S. automotive sector layoffs in 2019 have surged.
The U.S.’s Section 232 tariffs on steel and aluminum remain in effect for trading partners Canada and Mexico, with whom negotiations continue vis-a-vis the United States-Mexico-Canada Agreement (USMCA).
The extant tariffs are a sticking point in the approval of the agreement, which would succeed the 1994 NAFTA if passed.
One option on the table is for the U.S. to rescind the tariffs but apply quotas on imports of the metals from the two countries. The Aluminum Association, however, panned the idea of quotas in a one-page report released recently.
“Quotas will make it harder for aluminum companies to grow and invest in the U.S.,” the report states. “Instead of across-the-board tariffs or quotas on responsible trading partners, the U.S. aluminum industry needs targeted trade enforcement and tough negotiations to address subsidized overcapacity in China.”
Republican Senators Ask Trump Not to Impose Section 232 Auto Tariffs
In May 2018, the U.S. Department of Commerce initiated a Section 232 investigation into imports of automobiles and automotive parts.
With the mandated report from Commerce Secretary Wilbur Ross already in hand, the ball is now in the president’s court.
However, according to Bloomberg, a number of Republican senators Thursday urged Trump not to impose new tariffs on imported automobiles. The deadline for Trump’s decision falls May 18.
In a statement on his website, Senate Finance Committee Chairman Chuck Grassley related that he impressed upon Trump the importance of passing the USMCA.
“I was glad to be able to share with President Trump how farmers and businesses in Iowa are eager for Congress to pass USMCA,” Grassley said. I want to be able to help President Trump get a victory on trade and help him keep his promise to get a better deal for American workers and farmers. I urged President Trump to work with us get past the steel and aluminum tariffs issue so USMCA can become law in the United States, Mexico and Canada. The USMCA is a historic achievement for President Trump. Lifting metal tariffs on Canada and Mexico will help the broader U.S. economy realize the agreement’s full benefits and will help a strong economy grow even stronger. I’ll continue to work with my colleagues in Congress and the Trump administration to make sure the tariffs go so USMCA can replace NAFTA and become law this year. We should keep in mind that tariffs are a tax on Americans and we shouldn’t undermine the benefits of historic tax reform with tariffs.”
Auto Layoffs Double
According to MarketWatch, layoffs in the U.S. automotive sector for the first four months of 2019 hit 19,802, more than double the total of layoffs in the sector for the same period in 2018.
But what’s not known or reported as much in the mainstream is what manufacturers have been doing to strategically mitigate tariff risk, or how their various business units and organizations put practices in place to hedge against that risk.
“We’re flexible, and we can move quickly now that we have started to qualify additional materials,” said Matt Marthinson, VP Supply Chain at JB Poindexter & Co., Inc. “So I like our chances much better than where we were just two years ago.”
A company like that has to be flexible — as a large-volume metals buyer, JB Poindexter is the largest truck manufacturer in the U.S. of Class 3 through Class 7 trucks, including the majority of UPS, FedEx, U.S. Postal Service, Penske and Ryder trucks across North America, according to Marthinson.
In a conversation with Lisa Reisman on our current podcast series, “The Maker-to-User Trend in the Time of Tariffs,” Marthinson lets listeners in on how an established transportation industry manufacturer with significant exposure to commodity risk views the tariff landscape, both now and into 2020.
According to his company bio, Matt Marthinson is the leader for the Supply Chain transformation initiative at JBPCO, which includes partnering with the business owners to consolidate and leverage spend across all business units. He has over 25 years of comprehensive business achievements and expertise in Lean Manufacturing Operations, Production Planning, Materials Management, Procurement, Transportation and Logistics, Sourcing and Supply Chain with Kaiser Aluminum, Honeywell, Alcoa and Hubbell Incorporated, most recently as vice president of strategic sourcing. Learn more here.
Maker-to-User in the Time of Tariffs: Background
After the U.S. Commerce Department’s Section 232 findings in early 2018, President Donald Trump took action — and the rest is history.
This new podcast series takes a closer look at the U.S. manufacturing landscape in our present time of trade tariffs, and how manufacturers themselves are affected by the tariffs (winners and losers).
For example, just over 90% of manufacturing industry respondents in a recent, informal MetalMiner poll indicated that the Trump tariffs have hurt their respective businesses, via increased material costs, inventory woes and longer lead times, among other effects.
However, other manufacturers — for example, Honda — have posted healthy profits over the last year.
The Office of the United States Trade Representative (USTR) released its annual Section 301 report late last week, covering intellectual property protection by U.S. trading partners and its so-called Notorious Markets List.
The Trump administration utilized Section 301 of the Trade Act of 1974 to impose heavy duties on Chinese goods last year, to the tune of $250 billion worth of imports. The move came on the heels of long-standing U.S. criticism of what it sees as China’s unfair trade practices, including forced technology transfer and intellectual property violations, among others. (China retaliated last year with $110 billion worth in tariffs on U.S. goods.)
“The Special 301 Report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights,” a USTR release stated.
According to the release, countries presenting the “most significant concerns regarding IP rights” are placed on either the Priority Watch List or Watch List. In total, the report identifies 36 countries qualifying for inclusion on either of the two lists.
The countries listed under Priority Watch were: Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine and Venezuela.
Meanwhile, the Watch List included: Barbados, Bolivia, Brazil, Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Paraguay, Peru, Romania, Switzerland, Thailand, Turkey, Turkmenistan, the United Arab Emirates, Uzbekistan and Vietnam.
“These trading partners will be the subject of increased bilateral engagement with USTR to address IP concerns,” the USTR release stated. “Specifically, over the coming weeks, USTR will review the developments against the benchmarks established in the Special 301 action plans for countries that have been on the Priority Watch List for multiple years. For such countries that fail to address U.S. concerns, USTR will take appropriate actions, such as enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization or other trade agreement dispute settlement procedures, necessary to combat unfair trade practices and to ensure that trading partners follow through with their international commitments.”
The report also features a Notorious Markets List, which includes markets “reported to engage in and facilitate substantial copyright piracy and trademark counterfeiting.” The report identifies 33 online markets and 25 physical markets under the Notorious Markets List.
“This activity harms the American economy by undermining the innovation and intellectual property rights of U.S. IP owners in foreign markets,” the USTR said. “An estimated 2.5 percent, or nearly half a trillion dollars’ worth, of global imports are counterfeit and pirated products.”
The physical markets section of the report highlights China’s role in the distribution of counterfeit products.
“As in past years, several commenters continue to identify China as the primary source of counterfeit products,” the Notorious Markets List report states. “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price) and 87 percent of the seizures by CBP in 2017.
“Some Chinese markets, particularly in larger cities, have adopted policies and procedures intended to limit the availability of counterfeit merchandise. However, these policies are not widely adopted and enforcement 32 remains inconsistent.”
The full report on the Notorious Markets list, including full listings for each online and physical market, can be found here.
The U.S. Chamber of Commerce issued a statement on the heels of the USTR’s release of the special report, calling global IP laws “under-developed” despite “steps in the right direction.”
“Despite steps in the right direction, overall global IP laws remain under-developed, denying cutting-edge American businesses a return of fair value on their innovations and creativity, and leaving many countries unprepared to meet the challenges and opportunities of a 21st century knowledge economy,” said Patrick Kilbride, the U.S. Chamber of Commerce’s senior vice president of the Global Innovation Policy Center, said in a prepared statement. “Lack of enforcement to protect copyright rights-holders; misuse of competition enforcement; price controls; compulsory licenses; and undermining IP protections through multilateral organizations favor domestic commercial interests at the expense of innovators, creators, and consumers around the world.”
Kilbride also highlighted the pending United States-Mexico-Canada Agreement (USMCA), saying the “USMCA and the forthcoming FTAs provide an opportunity to strengthen IP protections around the world.”
“We applaud the negotiation team on the completion of the USMCA and urge Members of Congress to recognize the benefits of the agreement,” Kilbride added. “GIPC benchmarked the USMCA against the IP standards included in the U.S. Chamber’s International IP Index. The research reveals a significant improvement from the original NAFTA, which scored a mere 48 percent while the USMCA scored 80 percent.”
The USMCA must be approved by each country’s legislature before the agreement can go into effect.
This morning in metals news, Mexico’s Senate approved changes to the country’s labor laws, Chinese iron ore futures notched their fifth consecutive monthly gain and U.S. steelmaker AK Steel reported its first-quarter earnings.
As NAFTA partners Canada, Mexico and the U.S. work toward approval of the United States-Mexico-Canada Agreement (USMCA), billed as the successor to NAFTA, Mexico’s Senate approved revisions to the country’s labor laws that addressed some of the U.S.’s complaints vis-a-vis low pay rates in the country.
Bloomberg reported the Mexican government passed the changes Monday, including granting workers the right to vote on unions and labor contracts via secret ballots.
United States Trade Representative Robert Lighthizer applauded the move by the Mexican government.
“The USMCA includes the strongest, most advanced, and most comprehensive labor obligations of any U.S. trade agreement,” he said in a prepared statement. “I commend the Mexican Congress and President Lopez Obrador for passing historic labor reforms as part of this agreement and thank President Trump for making strong labor commitments in the USMCA a top priority. These reforms will greatly improve Mexico’s system of labor justice and are exactly what labor leaders in the United States and Mexico have sought for decades. As we move forward with the ratification of USMCA, the Trump Administration will work closely with members of the United States Congress and the Mexican government to ensure these reforms are implemented and enforced.”
Article 23.3 of the UMSCA text addresses labor rights, including “freedom of association and the effective recognition of the right to collective bargaining.”
The legislatures of the three countries must approve the USMCA before it can go into effect.
Chinese Iron Ore Futures Rise
Iron ore prices have been riding a hot streak so far this year, aided by supply-side disruptions in Australia and Brazil.
In addition, Chinese iron ore futures have picked up steam, too, notching their fifth straight month of gains this month, Reuters reported.
According to the report, the most-traded iron ore contract on the SHFE jumped 2.1% to 639 yuan ($94.84) per ton.
Including a $77.4 million charge associated with the firm’s closure of its Ashland Works, AK Steel posted a net loss of $4.5 million in the country, and an adjusted net income of $72.9 million when excluding the Ashland Works special item.
This morning in metals news, the China Iron and Steel Association issued a statement on the negative impact of excess steel capacity, the U.S. dollar reached a nearly two-year high and U.S. Treasury Secretary Steven Mnuchin said U.S.-China trade talks are in their “final laps.”
The China Iron and Steel Association said the country was “far from achieving its tasks” with respect to tackling excess production, Reuters reported.
“Keeping the balance between demand and supply is a key premise for maintaining the stabilization of the steel market,” CISA was quoted as saying.
Beijing has undertaken widescale production curbs in recent years in an effort to mitigate pollution from steelmaking facilities. This past winter, however, the government opted against the blanket cuts mandated during the winter of 2017-18, instead allowing local authorities to set reduction targets. Despite the efforts, China produced a record 928.3 million tons of steel in 2018.
The U.S. dollar historically has an inverse relationship with a number of metals; that is, when the U.S. dollar rises, metals prices fall (and vice versa).
Heading for the Finish Line
The U.S. and China may be getting closer to a resolution to their long-simmering trade conflict, which has escalated over the past year to the tune of a combined $360 billion in tariffs on each other’s goods.
U.S. Treasury Secretary Steven Mnuchin told The New York Times the two parties were getting to the “final laps” of the process.
Already labeled a protectionist regime, the Indian government recently issued notice to the World Trade Organization (WTO) of its intent to bring more stainless steel items under quality control, The Hindu Business Line reported.
The move has Indian importers of stainless steel worried.
According to the draft “Steel and Steel Products (Quality Control) Order 2019” issued recently by the Indian Steel Ministry, compulsory testing of steel items is necessary from the Bureau of Indian Standards (BIS). For now, this is applicable to two categories of products.
Stampings/laminations/cores of transformers (with or without winding) have to be made from BIS standard marked steel sheet and strip, conforming to certain Indian Standard (IS) specifications, government’s draft order said.
India has around 50 carbon steel and three stainless steel products, including pipes and tubes, under such quality control. Now, it has notified the WTO of bringing 13 more steel items under the same regime.
The reason given for this new move is to ensure safety of infrastructure and the health of the Indian people.
The new move is bound to raise the hackles of some of India’s important trading partners, including the European Union. India’s explanation is that it cannot go merely by the international safety guidelines for production of steel, since many non-Indian producers do not have BIS certification.
India is seeing a glut of imported steel flooding its market. In March this year, imports had gone up as much as 46% to meet India’s increasing steel demand. Now, steel experts are worried that if more items are brought under the BIS quality control, it would lead to an increase in the domestic prices of steel.