Articles in Category: Global Trade

McKinsey is a highly respected firm of consultants, but we rarely report findings of its work because the material released into the public domain is often too generalist for our practitioners at the coal face of metal procurement.

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Arguably, a recent article on the future of containerization could be said to be in the same vein, comparing as it does their findings in 1967 to today and weighing up current trends extrapolating how the industry could change over the next 50 years. Fifty years is a long time — many of us won’t even be working anymore by then — but of course changes will happen gradually over the period. Some of the developments they mention are already in process today.

Careful not to make specific predictions, McKinsey suggest the following may happen by 2067. Like cars, the firm sees ships becoming autonomous — a scary thought, but, realistically, if you can do it with trucks and cars, why not boats?

Read more

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Before we head into the weekend, let’s take a look back at the week that was:

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Free Download: The October 2017 MMI Report

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Forecasts made by the World Steel Association in its latest October Outlook paint a relatively rosy picture for the global steel industry — not least because it’s not all about China.

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The outlook predicts that growth outside of China will be 2.6% this year and rise to 3% in 2018. China’s figures, by comparison, have been skewed by a statistical sleight of hand.

A Caveat in the Chinese Numbers

Chinese demand is forecast by the World Steel Association to grow by 12.5% in 2017. A large part of this, however, is due to the closure of Chinese induction furnaces this year, creating demand at state-owned conventional steelmakers. “Illegal” induction furnace numbers didn’t appear in the statistics, but legal, state-owned conventional steelmakers figures do.

A true figure for the underlying growth is more like 3%, with next year expected to be flat as stimulus measures fade and the economy continues to rebalance away from infrastructure investment and toward consumption.

Global Growth

The good news from the report is that the World Steel Association expects growth in both developed and emerging markets to be widely distributed and broadly positive.

The European Union is expected to see demand grow at 2.5% this year, while the other major trading blocs, such as NAFTA, should grow by 4.9% and the ASEAN region by 4.8%. Demand growth in India, the world’s No. 3 producer, continues to outstrip that of Japan, the world’s No. 2 producer. The WSA expects growth in India this year to be 4.3% compared to 2.9% for Japan. A bullish economic Times of India article suggests India is on track to overtake Japan as the world’s second-largest global steel producer within this decade.

Demand growth across the Americas has been solid this year, with the U.S. putting in a substantial 4.8% number and contributing over 69% of the NAFTA region’s 139 million tons.

China remains the world’s largest producer by a country mile — so growth, or not, here in 2018 will likely determine the overall direction of the global steel market.

Much will depend on how demand unfolds as the economy continues to cool and possibly face disruption this winter from enforced environmental closures.

After a Strong 2017 for Steel Producers, What’s Next?

Broadly, though, this year has been a good one for steel producers.

Crude steel capacity utilization jumped 2.8% to 73.5% last month, which is not fantastic but is heading in the right direction.

With the prospects of significant short-term cuts in China’s production capacity this winter, producers elsewhere must be hoping prices can rise in 2018. Much will depend on continued growth and discipline among producers.

Free Download: The October 2017 MMI Report

It will be an interesting next six months.

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Stakeholders of all stripes have weighed in on the North American Free Trade Agreement (NAFTA) this year, as renegotiation talks have now gone through four rounds.

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Negotiators from the U.S., Canada and Mexico most recently met Oct. 11-17 for a fourth round of talks in Arlington, Virginia. Despite progress on some issues, the talks overall seem to have hit an impasse.

As a result, the talks appear set to extend into 2018, which was previously hoped to be avoided, as elections are scheduled next year in each country. Among other things, U.S. proposals of a sunset clause and tighter automotive rules of origin have led to friction, as the U.S. attempts to negotiate what it considers to be a more beneficial deal while Canada and Mexico hope to preserve the deal (while also modernizing it for the 21st century).

According to a trilateral statement released by the Office of the United States Trade Representative, the negotiating parties made some progress on a few issues.

“Building on the progress made in prior rounds, the United States, Canada, and Mexico have now substantively completed discussions in the Chapter on Competition,” the statement reads.

“Additionally, negotiators made progress in several other negotiating groups, including customs and trade facilitation, digital trade, good regulatory practices, and certain sectoral annexes.”

However, it’s clear the parties are still far apart on a number of other issues.

In Oct. 17 remarks, Ildefonso Guajardo Villarreal, Mexico’s economy secretary, cautioned that negotiations must yield a “win-win-win” result, and that none of the parties want to end the process “empty-handed.”

“Working together, we can find the necessary balances to achieve a NAFTA consistent with the reality of our economies and societies,” he said.

While a number of groups — namely, U.S. workers associations — have petitioned the Trump administration to point out the negative impacts of NAFTA, others have worked to tout the agreement’s positive impacts.

Auto associations are among the latest to petition the administration in that latter capacity.

According to a Reuters report, major automakers, suppliers and auto dealers are launching a coalition to convince President Trump not to withdraw from the trade agreement (a threat the president has made on more than one occasion this year).

According to the report, auto trade associations representing General Motors, Toyota Motor Corp, Volkswagen AG, Hyundai Motor Co and Ford Motor Co, among other major automakers, on Tuesday launched the “Driving American Jobs” coalition, which includes an advertising campaign that aims to showcase the positive impacts of NAFTA on the automotive sector and the American workforce.

“American automakers are driving the revival of American manufacturing,” said Governor Matt Blunt, President of the American Automotive Policy Council (AAPC), in a prepared statement. “When you examine the data there’s no question that NAFTA has helped advance the global competitiveness of the U.S. auto industry sector. Now we have an opportunity to strengthen North America as a manufacturing powerhouse with a modern NAFTA that maintains the features that are working and makes improvements to benefit American workers and jobs. We look forward to working with the coalition, the Trump administration, members of Congress and all stakeholders to ensure American autos remain competitive in our global economy.”

The effort includes a website, www.drivingamericanjobs.com, which touts the trade agreement’s benefits to the sector and the American workforce, including a section of “American worker stories.”

“The American worker is in the middle of the greatest manufacturing comeback of all time,” the website’s homepage reads. “We’re winning with NAFTA. Tell Washington: Don’t change the game in the middle of a comeback.”

The effort comes on the heels of an Oct. 10 letter, undersigned by 310 local and state chambers of commerce, addressed to President Trump.

“We look forward to working closely with you and your Administration to grow the economy and create jobs through free and fair trade,” the letter concludes. “To help facilitate that growth, we urge you to support America’s workers, farmers, ranchers, and businesses of all sizes by protecting and preserving the deep economic ties and benefits the United States continues to enjoy under NAFTA.”

In a release from the U.S. Chamber of Commerce, U.S. Chamber President and CEO Thomas J. Donohue underscored the aforementioned sentiment.

“We’ve reached a critical moment, and the Chamber has had no choice but to ring the alarm bells,” Donohue said. “Let me be forceful and direct. There are several poison pill proposals still on the table that could doom the entire deal.

“The U.S. business community will stand up for an important agreement that makes North America stronger and more prosperous.”

Free Download: The October 2017 MMI Report

A fifth round of renegotiation talks is scheduled for Nov. 17-21 in Mexico City.

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This afternoon in metals news, renegotiation efforts focused on the North American Free Trade Agreement (NAFTA) appear to be at a standstill, Chile’s state copper commission boosts its 2018 copper forecast and a European agency advises plane manufacturers to suspended their use of products from embattled Japanese steelmaker Kobe Steel.

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NAFTA Deadlock

The fourth round of renegotiation talks regarding the 23-year-old NAFTA concluded yesterday, but the U.S., Mexico and Canada appear to be no closer to a consensus.

According to Bloomberg, initial hopes for a quick resolution have fizzled, as talks will now be extended into 2018 (which was previously hoped to be avoided, given the scheduled elections in each country next year).

The next round of talks is scheduled for Nov. 17-21 in Mexico.

Cochilco Forecasts Copper at Nearly $3/Pound in 2018

Chile’s state copper commission, Cochilco, on Wednesday put out a forecast for 2018 including a prediction of the average global copper price hitting $2.95/pound.

The new forecast is up significantly from Cochilco’s mid-year estimate of $2.68/pound. Greater Chinese demand is cited as a supporter of the global price.

Kobe Steel Saga Continues

The fallout from the Kobe Steel data falsification scandal continues, as the European Aviation Safety Agency (EASA) advised plane manufacturers to suspend their use of products from the firm, the third-largest steelmaker in Japan, according to CNN Money.

According to the report, EASA advised those manufacturers to find alternative suppliers and conduct a “thorough review of their supply chain.”

Free Download: The October 2017 MMI Report

A number of global heavyweights use Kobe Steel products, including GM, Boeing, Ford and Toyota, according to the report.

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Trade negotiators from the U.S., Canada and Mexico are back at it again, working to tweak — or in some cases, totally alter — the North American Free Trade Agreement (NAFTA).

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Representatives from the three countries came together beginning last week for the fourth round of talks focused on the renegotiation of NAFTA, the 23-year-old trilateral trade deal.

The talks started Oct. 11 in Arlington, Va., and are scheduled to continue until Oct. 17.

U.S. Trade Representative Robert Lighthizer issued a statement opening the fourth round of talks.

The officials are scheduled to work on two dozen discussion topics during this round of talks, and recently finished a chapter on competition. According to a USTR release, the updated NAFTA Competition Chapter “goes beyond anything the United States has done in previous free trade agreements.”

“I am pleased to welcome back Secretary Guajardo, Minister Freeland, and their teams to continue negotiations here in Washington,” Lighthizer said in the prepared statement. “Thus far, we have made good progress, and I look forward to several days of hard work.”

Even so, cracks seem to be forming in the dialogue that threaten the stability of the talks and, consequently, the agreement.

As has been mentioned before, President Donald Trump reportedly nearly withdrew the U.S. from the trade deal in April until talks with the Mexican and Canadian leaders convinced him otherwise.

In recent months, Trump has resumed with threats against the deal, which he once called possibly the worst trade deal ever. Renegotiating the deal has always been a primary goal for Trump, with the understanding that should a favorable deal fail to materialize, he would withdraw the U.S. from it.

So far, the threats to withdraw from the deal have been just that: threats.

However, those threats have seemed to pick up as negotiations have continued. And when it come to negotiations, reports indicate a number of the U.S. delegation’s proposals are not going to go over well with their fellow NAFTA partners.

On Thursday, Reuters reported that the U.S. negotiating team suggested any approved deal should include a five-year sunset clause, meaning the deal would have to be effectively re-approved by all three countries in five years or it dissolves.

Naturally, this has a number of stakeholders feeling nervous, as such a sunset clause, businesses argue, creates uncertainty. With increasingly interconnected and entrenched supply chains, business interests view a sunset clause as a non-starter, as do Canada and Mexico.

In other policy proposals, Reuters reported Friday that the U.S. is pushing stricter rules on automotive content, particularly with respect to aluminum, steel, copper and plastic resins, in an effort to up the level of automotive materials sourced in North America.

As the talks continue, United Steelworkers again urged the administration to consider workers.

“It’s no surprise that business groups are concerned that NAFTA’s outsourcing provisions may be dramatically altered, and that provisions might be included to develop an agreement that is fairer to workers,” a USW release last week said. “Organized labor is working with the Administration to advance proposals that will promote growth and opportunity for workers in all three countries. A deal that achieves those goals would be worthy of our support.

“Businesses have set the agenda for far too long and the result has been rising trade deficits, lost jobs, devastated communities and rising income inequality.”

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The talks are scheduled to wrap up tomorrow, Oct. 17. According to the USTR, a trilateral press event including Lighthizer, Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of Economy Ildefonso Guajardo Villarreal.

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This morning in metals news, NAFTA renegotiation talks continued with the U.S. aiming to tighten automotive content rules in favor of North American-made metals, Allegheny Technologies Incorporated (ATI) commented on its Q3 earnings and Alcoa reached an early termination agreement for a power contract tied to one of its Texas smelters.

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U.S. Looks for Stricter Auto Content Rules

Trade negotiators from the U.S., Canada and Mexico are in Arlington, Va., until Oct. 17, engaged in a fourth round of talks focused on the North American Free Trade Agreement (NAFTA).

According to a Reuters report this morning, the U.S. is seeking stricter rules for automotive content, demanding a higher percentage of the materials — including aluminum and steel — that go into automotive manufacturing should come from North America.

According to the report, the proposal — which includes aluminum, steel, copper and plastic resins — would place those materials on the auto parts tracing list for the first time in the history of the 23-year-old trilateral trade agreement.

ATI Expects Q3 Results to Meet July Outlook

ATI commented on third quarter financial results on Thursday, and announced a non-cash net of tax charge of $114 million, or $(1.05) per share, for goodwill impairment related to the Cast Products business.

“Excluding the goodwill impairment charge, we expect our third quarter 2017 results to be in line with our outlook provided in July,” said Rich Harshman, ATI’s chairman, president and chief executive officer, in a company release.

Alcoa Announces End of Power Contract Agreement

On Friday morning, Alcoa announced power provider Luminant Generation Company LLC has terminated the electricity contract tied to Alcoa’s Rockdale Operations in Texas.

The smelter at Rockdale has been fully curtailed since the end of 2008, according to the Alcoa release. The termination of the contract was effective Oct. 1.

Free Download: The October 2017 MMI Report

Alcoa expects an annual improvement to net income and adjusted EBITDA of $60 million to $70 million as a result of the contract termination, beginning in the fourth quarter of 2017.

The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, the U.S. Department of Commerce has delayed ruling on whether or not to consider China a market economy, the Commerce Department also deferred a preliminary ruling on Chinese aluminum foil, and also issued a preliminary determination in an antidumping duty investigation of silicon from Australia, Brazil and Norway.

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Commerce Waits to Rule on China’s Market Economy Status

China officially became a member of the World Trade Organization in 2001, but its status as a market economy is still something of debate around the world.

In that vein, the U.S. Department of Commerce has elected to delay a ruling on whether to treat China as a market economy until after President Donald Trump’s upcoming trip to China, Bloomberg reported Thursday.

“In all cases, the Department conducts a full and fair assessment of the facts,” Secretary of Commerce Wilbur Ross said Thursday, as quoted by Bloomberg. “This extension will ensure that the highest standards are followed in this case as we seek to guarantee fair treatment for U.S. workers and businesses.”

Trump will travel to Asia from Nov. 3-14, making stops in Japan, South Korea, China, Vietnam and the Philippines.

For more information on China’s market economy status, make sure to visit our microsite on the issue.

Commerce Defers Aluminum Foil Ruling

In addition to the aforementioned, the Commerce Department announced it would defer a preliminary ruling in its antidumping investigation of aluminum foil imports from China.

“The deferral will allow the Commerce Department to fully analyze information pertaining to China’s status as a non-market economy (NME) country, which is being contemplated within the context of this AD investigation,” according to a Commerce Department release Thursday.

The Commerce Department announced it intends to issue a ruling on both China’s market economy status and Chinese aluminum foil imports no later than Nov. 30.

Commerce Issues Affirmative Determination in Silicon Investigation

The Commerce Department did, however, act in its investigation of silicon imports from a trio of countries.

On Thursday, Commerce issued an affirmative preliminary determination in its antidumping investigation of silicon imports from Australia, Brazil and Norway.

According to the Commerce Department announcement, exporters from Australia, Brazil, and Norway have sold the metal at rates ranging from 20.79%, 56.78% to 134.92%, and 3.74%, respectively, at less than fair value.

According to the Commerce Department, imports of silicon metal last year from Australia, Brazil, and Norway were valued at an estimated $33.9 million, $60.0 million, and $21.6 million, respectively.

The petitioner in the case is Globe Specialty Metals, Inc., which has production facilities in Alabama, New York, Ohio and West Virginia.

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A final determination in the case is scheduled to be announced Feb. 16.

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This afternoon in metals news, a former UBS metals trader was indicted for his alleged role in price rigging, NAFTA renegotiation talks could spill into next year and the palladium price topped platinum for the first time since 2001.

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Ex-UBS Metals Trader Indicted for Alleged Price Rigging

A former UBS Group AG metals trader was indicted for alleged price rigging, Reuters reported.

Andre Flotron was accused of placing so-called “spoof” trades from July 2008 to November 2013, in which he allegedly placed orders for metals futures contracts that he intended to cancel before they could be executed, according to Reuters.

Flotron was arrested two weeks ago in New Jersey and released on $4 million bond, according to court documents, Reuters reported.

NAFTA Talks Could Drag on Past December Deadline

The third round of talks focusing on the renegotiation of the North American Free Trade Agreement  (NAFTA) concluded Wednesday in Ottawa. Renegotiating the deal — or withdrawing entirely if a deal can’t be reached — has been a stated goal of the Trump administration. As such, the talks have progressed on an accelerated timeline, with a December deadline in place to avoid elections next year in Mexico, the U.S. and Canada.

Even so, the negotiations might continue on into next year, according to Mexican Economy Minister Ildefonso Guajardo, Reuters reported.

“We have the ambition, we have the strength to try to move forward with a view to closing a negotiation but no one can assure with total certainty that we will be able to do it,” Guajardo told reporters.

“That is our expectation and, therefore, it must also be considered that in this process dates will have to be considered, if necessary, for the start of the next year.”

Palladium Tops Platinum For the First Time in 16 Years

Palladium prices have topped platinum prices for the first time since 2001, according to Kitco News.

According to the report, as of 10:14 a.m. EDT Thursday, spot palladium was trading at $927.30 an ounce, while platinum was down to $918.70 an ounce.

Palladium’s higher price might not last, though, according to analysts cited by Kitco.

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“In the short term, we think platinum is undervalued for a whole host of reasons. Therefore, we think there is scope for platinum to move back to a slight premium in the short to medium term,” said Robin Bhar, metals analyst at Societe Generale. “We don’t see a sustainable premium of palladium over platinum…until about 2020 or 2021.”

An Ipsos poll released late last week offers a window into the varying perspectives of the populations of the U.S., Canada and Mexico with respect to the North American Free Trade Agreement (NAFTA).

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Negotiators from the three countries kicked off a third round of renegotiation talks on Saturday in Ottawa. Among other things, the ballooning deficit between the U.S. and Mexico has been a major talking point for the U.S. (The U.S. had a $64.4 billion deficit with Mexico in 2016, and a $41.2 billion deficit through the first seven months of this year, according to Census Bureau data.)

But how do the respective publics feel about the 23-year-old trilateral trade agreement?

According to the Ipsos poll, support for the free trade agreement is high across the board, albeit higher in Mexico and Canada than in the U.S.

However, the poll data show citizens of the United States have a different opinion on how much the free trade deal has actually helped their country.

According to the poll, 39% of Americans think the free trade deal has helped the U.S., compared with 57% of Canadians and 59% of Mexicans.

When it comes to identifying which NAFTA members are believed to have benefited the most, 35% of Americans went with Mexico. Meanwhile, a majority of Mexicans (64%) and just over a third of Canadians (34%) said the U.S. has benefited the most from the deal.

When asked if the deal benefited the three countries equally, 34% of Canadians and 32% of Americans said that was the case, while just 20% of Mexicans agreed that was the case.

When it came to whether or not renegotiation was considered to be a good thing, 48% and 46% of Americans and Mexicans, respectively, said that was the case. Canadians were less sure, however, with just 33% saying renegotiating the trade deal was a good thing.

Principle is one thing — what about execution?

The three countries each had varying levels of confidence in their negotiators.

Canadians had the most faith in their negotiating team (59%), compared with 50% of Americans and just 40% of Mexicans.

Setting aside President Trump’s public threats to pull the U.S. out of NAFTA should a negotiated deal favorable to the U.S. prove unreachable, 50% of Americans expressed they would want NAFTA to continue in its current form if talks fail. Meanwhile, 59% of Canadians and 60% of Mexicans indicated they would want the deal to continue in its current form if talks fail.

On the other side of the spectrum, 16% of Americans said they would want the deal dismantled if talks fail, compared with 25% of Mexicans.

Free Download: The September 2017 MMI Report

The third round of NAFTA renegotiation talks are scheduled to conclude tomorrow. Whatever happens — a revamped deal, maintenance of the status quo or a wholesale dismantling —  the citizens of each country will certainly have differing opinions on the favorability of the outcome.