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This morning in metals news, the E.U. approved new steel import curbs extending until 2021 with a vote Wednesday, the copper price picked up as the U.S. dollar loses momentum and the United States Trade Representative (USTR) says it will set up a system for exclusions if the tariff rate increases on the $200 billion of duties imposed on Chinese imports in September (currently sitting at 10%).

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E.U. Moves Forward with New Steel Quotas

As expected, E.U. member states voted to impose new steel quotas, part of the ongoing response to the U.S.’s Section 232 tariffs imposed in March 2018 and fears of redirected steel supplies flooding Europe.

E.U. member states approved provisional measures in July 2018, but the approval Wednesday puts quotas into place that will extend to July 2021.

Copper Rises, Dollar Softens

The U.S. dollar was cruising ever-upward throughout the tail end of 2018, but that momentum has seemingly slowed of late.

The U.S. dollar and base metals like copper correlate inversely, meaning a drop in one typically presages a rise in the other.

As Reuters reported Wednesday, the LME three-month copper price jumped for a second straight day, moving up 0.8%.

The U.S. dollar index declined to start the year but has bounced back in the past week, sitting at 96.04 as Wednesday morning.

USTR to Allow for Exclusions if Tariff Rate Rises on Chinese Goods

According to a Bloomberg report, the USTR has promised two senators that there will be an exclusion request process on the previously announced $200 billion in tariffs on Chinese goods if the tariff rate rises to 25%.

The $200 billion tariff package, imposed in September, came at a 10% tariff rate, with a built-in increase to 25% as of Jan. 1, 2019.

That increase, however, was postponed, as the U.S. and China began a 90-day negotiating period to hash out trade differences.

Unlike the previous $50 billion tariff package announced last year, the larger tariff package was not looped into a tariff exclusion request process (that is, a process by which companies can make the case that they need exemptions from the duty).

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However, according to the USTR letter cited by Bloomberg, the U.S. will allow for exemption requests if the tariff rate is ultimately elevated to 25%.

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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 stories here on MetalMiner:

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• Taras Berezowsky covered China’s crackdown on illegal rare-earth element mining.
• Demand for palladium could continue to surge in line with hybrid vehicle demand.
• Another China-related supply chain risk to think about: arrest and detention.
• LME copper prices fell in December while Chilean copper production in November surged to its highest level in 13 years.
• Domestic steel prices appear to have entered a downward trend.
• LME aluminum prices were also down in December.
• The Stainless Steel MMI fell five points this month.
• Stuart Burns delved into the potential economic and diplomatic implications of Brexit.
• Chinese automaker Great Wall’s Ora R1 offers a more affordable option to the electric vehicle market.
• The E.U. is set to vote on measures to set quotas for imports of 23 steel products.

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This morning in metals news, trade delegations from the U.S. and China concluded talks this week, the E.U. is expected to impose steel import curbs and copper rises to a one-week high.

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U.S-China Trade Talks

The new year has begun with dialogue.

In 2018, trade tensions between the U.S. and China escalated, leading to the exchange of a total of $310 billion in tariffs on each other’s products. The tensions between the two economic giants has strained global markets.

This week, however, trade delegations from the two countries met for talks Jan. 7-9. The Office of the United States Trade Representative (USTR) released a statement today.

“On January 7-9, an official delegation from the United States led by Deputy U.S. Trade Representative Jeffrey Gerrish held meetings in Beijing with Chinese officials to discuss ways to achieve fairness, reciprocity, and balance in trade relations between our two countries. The officials also discussed the need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement,” the USTR statement read.

“The meetings were held as part of the agreement reached by President Donald J. Trump and President Xi Jinping in Buenos Aires to engage in 90 days of negotiations with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture.”

E.U. to Impose Steel Import Curbs

The European Union will vote Jan. 16 on a plan to limit imports of steel into the trading bloc, Reuters reported, in response to the Trump administration’s Section 232 tariffs on imported steel and aluminum last year.

In July 2018, the E.U. imposed provisional safeguard measures on 23 steel products, measures that are set to expire in February.

Copper Gets a Boost

The copper price rose Wednesday to a one-week high, Reuters reported.

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The LME copper price rose to $5,958 per ton, according to the report, buoyed by optimism surrounding the aforementioned U.S.-China trade talks and stimulus measures in China boosting demand.

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This morning in metals news, the aluminum price slides to a 16-month low, Liberty House could be looking to expand its presence in the Middle East and the mid-February deadline for the Section 232 auto investigation draws nearer.

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Aluminum Drops Post-Sanctions Delisting

The aluminum price continued to fall Monday after last week’s announcement on the delisting of previously sanctioned Russian companies.

According to Reuters, the LME aluminum price dropped 0.5% Monday, continuing the decline after the price hit a 16-month low last week.

Liberty House Continues on the Acquisitions Trail

As we noted last week, Liberty House recently acquired miner Rio Tinto’s Dunkerque aluminum smelter, as Sanjeev Gupta’s GFG Alliance continues to snap up assets.

According to a report in The National, the steel tycoon could now be turning to the Middle East, specifically the U.A.E.

According to the report, which cites a Liberty House official, the company is in talks to buy steel and aluminum assets in the country.

Section 232 Auto Probe Deadline Inches Closer

The Trump administration’s Section 232 investigation of steel and aluminum import levels came to a close in the spring with much fanfare, yielding blanket tariffs of 25% and 10%, respectively.

However, the administration didn’t stop using Section 232 then and there, as it launched yet another 232 probe in May, this time looking into imports of automobiles and automotive parts.

The law requires Secretary of Commerce Wilbur Ross to present a report to the president within 270 days after the launching of a 232 investigation, making for a mid-February deadline.

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In an interview with the Financial Times, Ross said his report is still a “work in progress” but also noted the president’s flexibility in terms of what he can do with respect to potential automotive tariffs.

The recently signed United States-Mexico-Canada Agreement (USMCA), inked during the Group of 20 summit in Argentina, included stricter auto content rules for tariff-free vehicle trade. The new trade agreement bumps the automotive content threshold from 62.5% to 75%. In addition, USMCA included a provision that 40-45% of auto content must be produced by workers making a minimum of $16/hour.

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This morning in metals news, the European Commission has extended its probe of steel imports, steel production in the Great Lakes region of the U.S. ticked up last week and Chinese aluminum companies will reportedly come together to discuss falling aluminum prices.

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E.U. Pushes Investigation End Back to Feb. 1

The European Commission has extended its investigation into potential remedies needed to address a surge of steel imports on the heels of the U.S. 25% tariff, Reuters reported.

The Commission launched a steel safeguard investigation in March and was to conclude in nine months (prior to the announced extension).

Great Lakes Steel Production Rises

Steel production in the Great Lakes region of the U.S. hit 726,000 tons last week, according to a report by the Times of Northwest Indiana.

The production total last week marked a 4.6% increase from the previous week.

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Chinese Aluminum Producers Will Gather Over Dropping Prices

According to a Reuters report, representatives from China’s biggest aluminum producers will gather to discuss falling demand and aluminum prices.

MetalMiner’s Take: A pow-wow amongst China’s top aluminum brass won’t impact the macro trends impacting metals markets.

The facts remain, oil prices have sunk, critically falling below $50/barrel, which has moved commodities markets lower.

Astute buying organizations know that commodities and industrial metals as asset classes show tight correlation (but not always).

Industrial metals as of Dec. 1 remained in a long-term bull trend and a short-term sideways trend. Cutting aluminum production makes sense in markets with weak demand. Demand from China appears sluggish, yet it remains unclear if Chinese aluminum producers will show the strength and unity in reducing production.

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This morning in metals news, steel imports coming into the U.S. continue to be down from last year’s levels, Shanghai steel prices are down and the sharp corrective trend in iron ore prices could be coming to an end.

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U.S. Steel Import Market Share at 21% in November

According to a report by the American Iron and Steel Institute (AISI), U.S. steel import market share reached 20% for November.

Market share for the year to date is 23%, according to the report.

MetalMiner’s Take: What nuggets in the steel import data should buying organizations pay special attention to?

MetalMiner finds the rising import numbers of HRC and plate of greatest interest because it suggests the arbitrage between HRC prices (as well as plate prices) in the U.S. and elsewhere are so significant that buying organizations still achieve a lower total cost — even after paying a 25% import duty.

Rising imports for these two products will continue to put price pressure on domestic steel prices. Rising import levels (and 2018 imports for both products are higher than 2017 levels), suggest that the Q4 bounce that we have seen in prior years may not appear at all. The best way to gauge the trend is to track the spread between countries, factoring in freight, margin, duty, etc.

MetalMiner forecast subscribers can receive this kind of analysis via the MetalMiner Monthly Outlook.

Shanghai Steel Prices Fall

According to a Reuters report, Shanghai steel prices fell Thursday on oversupply concerns.

The most-traded SHFE rebar contract fell to 3,375 ($484.55) yuan per ton from an opening price of 3,360 yuan ($488.18) per ton.

An Iron Ore Recovery?

After a November that saw iron ore prices tumble, iron ore may be headed for a more stable period.

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According to Goldman Sachs, cited by Business Insider Australia, the iron ore price is expected to hold in the $60-$70 range over the coming 12 months.

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This morning in metals news, the U.S., Canada and Mexico formally signed the trade deal that will serve as the successor to the North American Free Trade Agreement (NAFTA), aluminum associations in several countries sent Group of 20 (G20) leaders a joint letter asking them to tackle overcapacity, and President Donald Trump and President Xi Jinping are set to meet this weekend at the G20 summit in Argentina.

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U.S., Canada, Mexico Sign UMSCA

After a Sept. 30 announcement that the U.S., Canada and Mexico had concluded talks on the trade deal —dubbed the United States-Mexico-Canada Agreement (USMCA) — set to replace NAFTA, the parties involved made it official this morning.

Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto, on his last day in office, signed the trade deal this morning during the G20 summit in Buenos Aires, Argentina.

However, despite the signing, dialogue over trade among the three countries is not yet at an end. Mexican and Canadian leaders have indicated they will continue to push for the U.S. to remove its Section 232 steel and aluminum tariffs on the two countries’ metals.

The first round of talks focusing on renegotiation and modernization of NAFTA kicked off in August 2017. The U.S. initially pushed for a resolution by the end of 2017, but the negotiations continued into the new year. Elections in the three countries — including Mexico’s July 1 presidential election — came and went without a deal.

Among the key topics of negotiation were automotive content rules of origin and wages for Mexican workers — in the USMCA, the regional content benchmark jumps to 75% from 62.5%, while also requiring that 40-45% of auto content be produced by workers making at least $16 per hour.

The country’s leaders delivered comments at the USMCA signing ceremony in Buenos Aires, with Trump calling the NAFTA successor the “largest, most significant, modern, and balanced trade agreement in history.”

“All of our countries will benefit greatly,” Trump said. “It is probably the largest trade deal ever made, also. In the United States, the new trade pact will support high-paying manufacturing jobs and promote greater access for American exports across the range of sectors, including our farming, manufacturing, and service industries.”

Trudeau, meanwhile, said the new deal “maintains stability” for Canada’s economy and praised the negotiating teams involved, but was less effusive in his praise of the USMCA than Trump and Peña Nieto.

The Canadian prime minister also reiterated sentiment regarding the removal of the U.S.’s steel and aluminum tariffs.

“As I discussed with President Trump a few days ago, the recent plant closures by General Motors, which affects thousands of Canadian and American workers and their families, are a heavy blow,” he said. “Make no mistake: We will stand up for our workers and fight for their families and their communities.

“And, Donald, it’s all the more reason why we need to keep working to remove the tariffs on steel and aluminum between our countries.”

In addition, Chapter 22 of the USMCA includes provisions on state-owned enterprises (SOEs).

“We have dramatically raised standards for combatting unfair trade practices; confronting massive subsidies for state-owned enterprises; and, currently, if you look at it, currency manipulation that hurt workers in all three of our countries,” Trump said. “The currency manipulation from some countries is so intense, so bad, and it would hurt Mexico, Canada, and the United States badly.”

Aluminum Associations Want Focus on Overcapacity

Aluminum associations from several countries sent a joint letter to G20 leaders asking them to commit to addressing global overcapacity.

“We urge the G20 to again commit to tackling the issue of market-distorting aluminium overcapacity that stems from state interference and puts aluminium producers across the entire value chain at a profound disadvantage,” the letter said. “Free trade is an engine of prosperity, social mobility and peace – but free trade is only possible and meaningful when businesses are able to operate on an equal footing across the globe.”

The letter was signed by the heads of the aluminum associations in the U.S., Europe, Brazil, Japan, Canada and Mexico.

Trump, Xi Meeting Could Be U.S.-China Trade Flashpoint

Sticking with the G20 summit in Argentina, President Trump and President Xi are set to meet at the event, which will continue through tomorrow, Dec. 1.

The U.S. imposed tariffs, at a 10% rate, on $200 billion worth of Chinese goods in September. However, that rate is set to make a sizable jump to 25% as of Jan. 1. The U.S. had previously imposed a total $50 billion in tariffs on Chinese goods.

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Trump has also threatened to impose tariffs on all remaining Chinese imports — approximately $257 billion worth — although no moves have been made yet on that front.

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With the United States-Mexico-Canada Agreement (USMCA) potentially being signed by the three parties this week during the G20 Summit in Buenos Aires — which will take place over two days, Nov. 30-Dec. 1 — the trade deal and tariffs are on the minds of industry CEOs, from manufacturing to agriculture.

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Several industry executives gathered in Washington, D.C. Tuesday for a panel discussion on the impact of the U.S.’s Section 232 steel and aluminum tariffs and their relationship to the USMCA.

Speaking at the event were:

• Michael Dykes, CEO, International Dairy Foods Association
• Jennifer Thomas, vice president, Federal Government Affairs, Alliance of Automobile Manufacturers
• Buddy Stemple, CEO of Constellium, Aluminum Association member
• Brandon Skall, CEO and co-founder, D.C. Brau, Brewers Association member
• Catherine Boland, vice president, legislative affairs, Motor Equipment Manufacturers Association

Heidi Brock, president and CEO of the Aluminum Association, also offered opening remarks during the event, reiterating the Association’s public stance that Canada and Mexico should be granted quota-free tariff exemptions. (Brock also spoke on the subject during a U.S. International Trade Commission hearing earlier this month.)

The focus should be on China, not Canada and Mexico, Brock said, according to a transcript of her remarks.

“Across-the-board tariffs are not addressing the problem of China’s illegally subsidized aluminum overcapacity,” she said. “We have seen very little evidence that the Section 232 tariffs are impacting behavior in China, which continues to illegally subsidize its aluminum industry. China’s aluminum capacity has grown by 73 percent over the past five years, and an additional eight percent just this year, despite the Trump administration’s tariff regime. In fact, there is some evidence that the tariffs may actually be helping Chinese aluminum producers to enter new markets by increasing China’s price advantage over aluminum produced in North America.”

According to a Reuters report earlier this month, Ildefonso Guajardo, Mexico’s economy minister, said he expects the U.S., Mexico and Canada to sign the USMCA during the G20 Summit.

Buddy Stemple, CEO of Constellium Rolled Products, a downstream aluminum manufacturer based in Ravenswood, West Virginia (primarily serving the aerospace, automotive, packaging and defense industries), applauded the Trump administration for its trade actions on Chinese common alloy aluminum, but, like Brock, indicated the Section 232 tariff on aluminum casts too wide of a net.

“And the Section 232 tariffs, which imposes a 10 percent tariff on virtually all aluminum and aluminum product entering the United States – not just from China but from all countries – is the wrong solution to a real problem,” he said, according to a transcript of remarks. “While well-intentioned, the tariffs are making the U.S. aluminum industry, including Ravenswood, less competitive on the world stage.”

The U.S. aluminum industry does not make enough to support domestic demand, he argued, an argument we echoed yesterday in our discussion of the tariff waiver process:

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

He also called for a USMCA without steel and aluminum tariffs for Canada and Mexico. In addition, referred to the “unintended consequences” of the administration’s tariff exemption process.

“Requests for massive volumes of common alloy aluminum sheet have been approved, even though some of these imports are coming from China,” he said. “In particular, the approval of exclusion requests by Ta Chen International now allow for import of more than 1 billion pounds of Chinese common alloy sheet – a substantial share of the U.S. market for common alloy products.”

Continuing in the same vein, Jennifer Thomas, of the Alliance of Automobile Manufacturers, referred to the statutory basis for the Section 232 tariffs.

“At the end of the day, Canada and Mexico are not national security threats,” Thomas said.

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All eyes will be on Buenos Aires tomorrow and Saturday, when G20 leaders will convene. Global markets will be looking to the summit for developments with respect to USMCA (i.e., its potential signing and whether the steel and aluminum tariffs will be removed for Canada and Mexico) and whether President Donald Trump and Chinese President Xi Jinping can make any progress with respect to the ongoing U.S.-China trade war.

According to preliminary U.S. Census Bureau data released Tuesday, U.S. imports of steel in October hit 3.0 million metric tons, at a value of $2.7 billion.

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The October total marks an increase from the previous month, when the U.S imported 2.0 million metric tons at a value of $2.o billion. However, according to an American Iron and Steel Institute (AISI) report Tuesday, steel imports through the first 10 months of the year are down 11% compared with the same time frame in 2017. Finished steel import market share for the year to date reached 21%.

Source: American Iron and Steel Institute

The increase in October imports came mostly in the form of blooms, billets and slabs, while decreases were seen in heavy structural shapes, reinforcing bars, and sheets and strips.

Imports of blooms, billets and slabs surged last month, reaching 1,154,364 tons, up from the September final of 359,265 tons and the October 2017 final of 566,294 tons.

By country, import increases were seen from Brazil, while decreases were seen in imports from Turkey, Taiwan and Thailand.

Imports from Brazil hit 849,767 tons in October, up from 104,722 tons in September and 324,711 tons in October 2017.

Imports from Turkey continue to plummet, dropping from 120,948 tons in September to 61,472 tons last month. The October total was also down significantly on a year-over-year basis, as the U.S. imported 101,863 tons from Turkey in October 2017. (Back in August, MetalMiner’s Stuart Burns delved into the toll U.S. tariffs have taken on Turkey’s steel sector.)

Through the first nine months of the year, the U.S. has imported 883,054 tons from Turkey, down from the just over 1.76 million tons during the same period in 2017.

In the year through the end of September, the U.S. imported 23.7 million metric tons, down from 26.9 million metric tons through the January-September 2017 period.

Total imports from Canada and Mexico also increased in October from the previous month, hitting 739,346 tons, up from the September final total of 638,543 tons. However, the October import total fell from the October 2017 final total of 743,537 tons.

As we have noted here previously, Canada and Mexico continue to express the hope that the U.S. will remove its tariffs on steel and aluminum vis-a-vis the two countries as part of a finalized United States-Mexico-Canada Agreement (USMCA).

Canada and Mexico’s temporary exemptions from the U.S.’s Section 232 tariffs on steel and aluminum were allowed to expire June 1.

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Meanwhile, steel imports from the European Union hit 143,491 tons in October, according to the preliminary data. The total marked a drop from the previous month (145,701 tons), but an increase from October 2017 (138,657 tons).

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Yesterday, we noted a recent Aluminum Association letter, in which the industry group claimed the Department of Commerce’s Section 232 tariff exclusion request undermined the domestic aluminum industry.

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On Tuesday, the Coalition of American Metal Manufacturers and Users (CAMMU) also weighed in with its thoughts on the process.

Beginning in June, the DOC began receiving requests for exemptions from the steel and aluminum tariffs, as U.S. companies argued that the type of steel or aluminum product they needed is not made in the U.S. in the appropriate quantity or quality they need.

The sheer volume of requests seems to have taken the DOC by surprise. As MetalMiner’s Stuart Burns recently noted, by Oct. 29 the DOC had issued decisions in only about one-third of the nearly 50,000 total requests.

“Ideally, the Department would eliminate the Section 232 tariffs on steel and aluminum imports as it is clear that the utilization rates for domestic producers now exceed the goals set forth when these tariffs were implemented by the President,” the CAMMU release says. “As long as the tariffs remain, it is essential that exclusion requests are processed in a fair, transparent, and expeditious manner.”

In its letter, addressed to Secretary of Commerce Wilbur Ross, CAMMU explains that while the changes introduced to the tariff exclusion process in September were a nice start, further improvements are needed.

CAMMU specifically calls out statements from metals producers in formal objections that do not meet the “available immediately” threshold, defined as being able to supply within eight weeks.

“Objections to exclusion requests available on the Regulations.gov website reveal numerous vague assertions that clearly could not meet the ‘available immediately’ threshold set forth by the Department,” CAMMU argued. “The Department should reject these objections outright. For example, steel and aluminum producers regularly disregard the process for quality and testing that steel‐ and aluminum‐using manufacturers must go through with their customers prior to acceptance of products.”

In addition, CAMMU opined that the typical timeline for the resolution of a tariff exclusion request is too long, particularly given the just-in-time nature of some manufacturing. In the letter, CAMMU said the DOC should accept exemption requests in cases for which it receives no objections (or if it receives an incomplete objection).

CAMMU said the timeline manufacturers face vis-a-vis the exemption request process is too slow:

We also believe the stated 106 day timeline from date of posting does not fully reflect the delays faced by requesters. According to available data, American manufacturers must wait on average nearly 23 days, and almost 17 days for aluminum exclusion requests, before the Department posts their steel exclusion requests on regulations.gov. In the best of circumstances, this means that the average U.S. manufacturer must wait more than four months for the federal government to determine whether its most important input is subject to a 25% or 10% tax. No manufacturer can afford to lose one‐third of the entire calendar year waiting for a response made in a system that places greater weight to the objections raised than to the facts presented by actual purchasers of the raw materials.

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CAMMU’s full letter is available here.