Articles in Category: Imports

According to the latest monthly imports report from the American Iron and Steel Institute (AISI), steel imports jumped 17.3% in January from December totals.

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Compared with January 2017, however, imports were up 2.2%, according to the AISI report based on U.S. Census Bureau data.

The U.S. imported a total of 2,875,000 net tons (NT) of steel in January. The import market share for January rose to 26%, up from 22% in December.

U.S. steel imports market share. Source: American Iron and Steel Institute

By product, several items posted significant month-over-month leaps in import totals:

  • Sheets and strip all other metallic coatings (up 129%)
  • Reinforcing bars (up 82%)
  • Oil country goods (up 78%)
  • Line pipe (up 44%)
  • Standard pipe (up 30%)
  • Hot rolled sheets (up 27%)
  • Hot rolled bars (up 22%)
  • Wire drawn (up 14%)
  • Mechanical tubing (up 13%)
  • Plates in coils (up 11%)

By country, South Korea led the way, sending 339,000 NT in finished steel to the U.S., which was up 76.9% from the December total and up 8.8% from the January 2017 total.

Trailing South Korea in January exports to the U.S. were: Japan (141,000 NT, up 73% from December), Turkey (140,000 NT, up 141%), Taiwan (117,000 NT, up 188%) and Brazil (102,000 NT, up 6%).

As for China, it sent 72,000 NT to the U.S. in January, marking a 35.4% increase from the 53,000 NT sent in December. The January total made for a slight increase from the January 2017 total of 70,000 NT.

Of course, in the background is the Section 232 decision-making process.

Secretary of Commerce Wilbur Ross sent his Section 232 report to President Trump last month; Trump has until April 11 to act on the report and its recommendations.

In the conclusion of the steel report, it states that Ross concludes that “the present quantities and circumstance of steel imports are ‘weakening our internal economy’ and threaten to impair the national security as defined in Section 232.”

The stated alternative action options in the report included: 1) an at least 24% tariff on imports from all countries 2) an at least 53% tariff on imports from a list of 12 countries (which includes China), combined with a quota for all other countries equal to 100% of a country’s 2017 exports to the U.S. and 3) a quota on all countries equivalent to 63% of a country’s 2017 exports to the U.S.

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In case you missed it, MetalMiner Executive Editor Lisa Reisman broke down the Section 232 steel report, which the Department of Commerce made public earlier this month.

Although my colleagues have written in detail exploring the specifics of the Section 232 investigations in steel and aluminum, recently completed by the U.S. Department of Commerce, it is worth considering the likely outcomes.

This is particularly true for aluminum, because the production market is not as integrated as it is for steel. Often, primary producers and downstream are not vertically integrated, making decision-making more complex.

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One can understand why President Trump is taking his time to make a decision on the twin section 232 investigations.

Although the premise of both investigations is the same — namely that steel and aluminum imports threaten to impair the national security of the United States — the two industries and their respective supply chains differ considerably.

A Background of Decline

The U.S. aluminum industry has a primary smelting sector that has been in decline since the turn of the century, but particularly in the last five years, as this graph from Statista illustrates.

Today, the U.S. has just eight plants with a combined annual production capacity of 1.82 million tons. According to Reuters, actual production last year was 785,000 tons, translating into a capacity utilisation rate of 43.2%.

That’s dire by any industry standards and qualifies the Commerce Department’s argument that at such levels an industry cannot be profitable, cannot invest in the future, and cannot afford research, development or innovation.

Yet to get it to the 80% target espoused in the report would require only 669,000 tons of idled capacity to be brought back onstream. We will come back to that shortly, but not before we take a quick look as to where some 90% of U.S. primary aluminium imports are coming from.

Import Sources

Source: Reuters

As this graph from Reuters shows, Canada, Russia and Brazil are by far the largest suppliers of primary aluminum into the U.S. market. There is no suggestion as to clawing significant chunks of this production back to U.S. shores; 669,000 tons is just the tip of the iceberg.

Sector Snapshot

The major part of the U.S. aluminum industry is made up of downstream suppliers producing semi-finished products, from plate and bar down to sheet, foil, wires, tubular products, and cast and forged parts.

This downstream sector faces a different set of challenges from the primary producers.

Some semis manufacturers rely on competitively priced imports of primary metal or billets in order for them to compete in export markets or domestically against foreign suppliers for the same finished goods. Other semi-finished manufacturers, arguably more at the commodity end of the market, face intense competition from imported semi-finished products depressing domestic U.S. price levels. The supply base for semi-finished products is different from the primary market, as the below graph from Reuters shows.

Source: Reuters

Here China, despite previous anti-dumping actions, remains a major supplier and is likely the main target for the Commerce Department’s actions.

Winners and Losers

A blanket tariff increase across the board would clearly create massive winners and losers because of the complexity of the aluminium market.

The Commerce Department is proposing either an across-the-board import tariff of 7.7% or a quota system limiting imports to 86.7% of  last year’s levels. A third option would be to target five countries with a draconian 23.6 % tariff, with everyone else subject to a quota also set at last year’s imports. Clearly, in the primary market Canada is going to be given an exemption, so rather than across the board, any tariffs or quotas are more likely to be country specific.

Likewise, with semi-finished products China and its intermediary shipping points, such as Vietnam and Hong Kong, are also likely to be the principal targets. Not surprisingly, the prospect of China being partially shut out of the U.S. market is sending shivers through governments in other parts of the world, fearful of where those redirected trade flows will end up.

Of course, it’s entirely possible nothing will be done.

Blocking Russian and Venezuelan imports of primary aluminum will not immediately make U.S. smelters viable again. Smelter closures have more to do with power costs than solely foreign competition. In addition, as my colleagues Lisa Reisman and Irene Martinez wrote this week, to bring an idled smelter back onstream is a medium-term proposition. A decision in April would not see capacity come back onstream this year, so any action has to be timed carefully.

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The LME spiked on the release of the investigation’s findings and CME physical delivery premiums have climbed. For now that’s probably it, but be prepared for further volatility as the decision deadline of April 20 approaches.

gui yong nian/Adobe Stock

This morning in metals news, the U.S. Department of Defense recently indicated it would prefer targeted tariffs as opposed to a blanket strategy, Australian Prime Minister Malcolm Turnbull will press President Donald Trump on an assurance last year that Australia would be exempted and London copper is down for the week.

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DoD Espouses Targeted Tariffs Approach

In light of the pending Section 232 probes of steel and aluminum imports, the Department of Defense said it would favor a more targeted approach to tariffs.

In addition, the DoD prefers a delay to any measures curbing aluminum imports, according to a Reuters report.

Turnbull Looks for U.S. to Honor Tariff Assurances

Australian Prime Minister Malcolm Turnbull plans to discuss with President Trump on Saturday the assurances given last year that Australia would be spared from Section 232-related steel and aluminum tariffs, according to the Financial Review.

The recently released Section 232 reports make no mention of an exception for Australia. According to the Financial Review report, Turnbull will seek to revisit assurances made last July vis-a-vis a carve-out for Australia.

Copper Down on the Week

London copper and zinc dropped this week as a result of profit taking, Reuters reported. In addition, the dollar strengthened and uncertainty about demand in China contributed to the drop this week.

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According to the report, LME three-month copper dropped 0.7% to $7,110 a ton in official open outcry trading on Friday.

By now most MetalMiner steel producers and steel buying organizations have pored through the Section 232 steel report published by the Department of Commerce last Friday. In case you missed it, here is a link to the full report:

At its core, the Section 232 investigations represent the only public policy solution put forward by any major government to address the fundamental crisis involving extensive and pervasive global overcapacity for steel, stainless steel and aluminum.

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This overcapacity, the Department of Commerce believes, threatens U.S. national security interests because unfairly traded imports have caused substantial financial harm to U.S. producers.

Before you scream protectionism, read on!

Read more

(Editor’s Note: In case you missed the previous installments of this series, check out Part 1 and Part 2.)

What About the Impact on U.S. Production?

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

First, the recommendations from the Department of Commerce apply to both primary (or upstream) and downstream production.

The upstream production refers to unwrought production, while downstream production consists of processing aluminum into semi-finished aluminum goods (such as rods, bar, sheets, plates, castings, forging and extrusions). The U.S. remains remains the second-largest aluminum producer, just behind  China.

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The main objective of the actions proposed by the Department of Commerce focused on downstream production. As previously stated, the Section 232 outcome seeks to restore the industry to 80% capacity utilization.

Therefore, aluminum production could increase (at least, domestically). Increasing the domestic capacity utilization rate up to 80% would mean more aluminum will be produced and consumed domestically.

Aluminum Carve-outs?

President Trump has yet to determine if all the report recommendations will be applied. MetalMiner believes that even if the quotas/tariffs implemented are lower than that indicated in the Section 232 aluminum report — meaning a lower tariff and, therefore, a reduced capacity utilization rate — aluminum products may not receive as many exemptions as steel products.  

Contrary to steel, most aluminum products can be produced domestically and therefore, aluminum would potentially require fewer carve-outs than steel.

Timing becomes an issue when considering the impact of the Section 232 aluminum investigation outcome.

For the aluminum industry, restarting idled capacity takes around 9 months. After that, each smelter needs to start running toward its optimal capacity, which also takes time. Realistically it may take 12-15 months of time to reach optimal production.

Trump will need to consider that timing in his decision. Without careful consideration, reducing aluminum imports could have a negative impact for U.S. aluminum buyers in the short term. 

Therefore, the president might need to take this into account and give some time for the industry to adapt to the new measures.

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Trade Wars: Hype or Reality?

We will address this issue in an upcoming post.

Last week, the Department of Commerce released the reports accompanying the Section 232 investigations for both aluminum and steel products. The Department of Commerce initiated the investigations last April under Section 232 of the Trade Expansion Act of 1962, which grants the president the ability, along with his Department of Commerce, to determine whether certain imports are having an injurious effect on national security. 

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As reported last Friday on MetalMiner, the Department of Commerce proposed two alternative solutions for the alleged harm caused by a glut of aluminum imports. Both solutions seek to restore domestic aluminum production to 80% of capacity utilization. This data may not surprise readers, as the Section 232 steel investigation recommendations include three steel policy alternatives constructed on the same premise.

What MetalMiner found most striking about both report recommendations involves the goal of restoring both the aluminum and steel — stainless steel, too — industries to 80% capacity utilization rates.

The DOC believes an 80% capacity utilization rate reflects a healthy industry. By healthy, the Department of Commerce in the Section 232 steel report acknowledged that, “Industry analysts note that utilization of 80 percent or more is typically necessary for sustained profitability, among other factors.” Moreover the Section 232 report for steel suggested, “For most capital and energy-intensive U.S. steel producers, capacity levels of 80 percent or higher are required to maintain facilities, carry out periodic modernization, service company debt, and fund research and development.” (Sources cited in the Steel Section 232 report included Market Realist’s “Why steel investors are mindful of capacity utilization rates,” October 2, 2014.) 

The aluminum analysis looks similar.

The aluminum report pointed to several factors as driving the need for the 80% capacity utilization rate. The DOC examined employment numbers, the dangers of overcapacity, declining R&D and fewer capital expenditures.

Of these arguments, some will seek to argue that employment is somewhat less important, as gains in efficiency and productivity could lead to a decline in employment. But clearly the overcapacity issue in general has forced all but Alcoa and Century Aluminum to declare bankruptcy. By poorer profitability, the industry will not effectively invest in R&D — because it can’t afford to — which will impact future military applications and capabilities.

Therefore, as with the steel industry, the 80% capacity utilization rate reflects a “healthy” aluminum industry with regard to profitability, efficiency and innovation.

Here is the National Security Argument

When steel and aluminum industries do NOT operate at 80% capacity utilization, the economic viability of the industry to produce materials in various war-time scenarios becomes tenuous. MetalMiner will cover this point more explicitly in our Section 232 steel analysis.

Certainly, when mills do not operate at healthier 80% utilization levels, the means to innovate and develop new products, improve production capacity and further increase efficiencies becomes more challenging.

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Aluminum Products

The Department of Commerce included almost all downstream aluminum products in its recommendations.

However, the scope of the investigation does not include bauxite or alumina, or feedstock for the production of primary (unwrought) aluminum.

The investigation also does not include aluminum waste, aluminum scrap, aluminum powders and flakes.  

(Editor’s Note: In the next part of this series, we’ll look at the domestic industry, other relevant findings and the potential impact on prices.)

When the Department of Commerce announced  last month that Secretary of Commerce Wilbur Ross had forwarded his Section 232 steel report (and the following week, aluminum) to President Donald Trump, the details of the report were not made public.

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That changed Friday, as the department released the reports outlining the potential strategies recommended to Trump (who met with lawmakers earlier this week to discuss potential tariffs on steel and aluminum imports).

“The United States is the world’s largest importer of steel,” Ross said during a briefing Friday morning. “Our imports are nearly four times our exports.”

Section 232 of the Trade Expansion Act of 1962 grants the president authority to limit or restrict imports that are determined to have an impact on national security. The last 232 investigation came in 2001, when the George W. Bush administration investigated semi-finished steel and iron ore imports. (The Department of Commerce ultimately determined the imports did not negatively impact national security.)

The U.S. currently has 169 anti-dumping and countervailing duty orders in place for steel, which some critics have argued has served as only a patchwork defense. Of those 169 orders, 29 are against China, Ross added.

Laying the background for the proposals, Ross cited findings of the report, including the global rise in steelmaking capacity, which is up to 2.4 billion metric tons (a jump of 127% since 2000). In addition, global excess capacity is 700 million tons, with China’s excess capacity exceeding the total U.S. steelmaking capacity, according to the report.

“Excessive steel imports have adversely impacted the steel industry,” the report states. “Numerous U.S. steel mill closures, a substantial decline in employment, lost domestic sales and market share, and marginal annual net income for U.S.-based steel companies illustrate the decline of the U.S. steel industry.”

Steel Recommendations Include 24% Tariff on All Products From All Countries

The 232 steel report lays out a trio of options, ranging from a blanket, all-encompassing tariff structure to more targeted approaches:

  1. A global tariff of at least 24% on all steel imports from all countries
  2. A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States
  3. A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States

When asked how the department created the list of 12 countries included in the second option, Ross said the selection process wasn’t “formulaic,” but they considered things like the rate of expansion of capacity in recent years and the nature of the products being shipped to the U.S., among other things.

“Anything in trade is very, very complex,” Ross said. “And therefore [there’s] not a single factor. The  rate of increase in exports to the U.S. was in each case a big factor.”

Administration Looks to Provide Jolt to Aluminum Industry

As for aluminum, the three recommendations were:

  1. A tariff of at least 7.7% on all aluminum exports from all countries
  2. A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam, with all other countries be subject to quotas equal to 100% of their 2017 exports to the United States
  3. A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

According to Ross during a Friday morning briefing, the goal is to up the domestic aluminum industry’s capacity, currently hovering around 48%, to 80%. According to the aluminum report, the U.S. imported five times as much tonnage of primary aluminum as it produced in 2016, with the import penetration level rising to 90% from 65% in 2012.

As with steel, the aluminum report pointed to Chinese excess capacity.

“China’s industrial policies encourage development and domination of the entire aluminum production chain,” the report states. “These policies are further intended to stimulate the export of aluminum processed into sheets, plates, rods, bars, foils and other semi-manufactures and to target development of increasingly sophisticated and high-value product sectors such as automotive and aerospace.”

According to Section 232, Trump has 90 days as of receipt of Ross’ report to act. In the case of steel, that makes for an April 11 deadline, with an April 19 deadline set for aluminum.

The Section 232 investigations were launched last April, after which it seemed as if the administration would be set to release its reports by the end of June. But, June came and went without an announcement, as did the remainder of the calendar year. During that year, steel imports rose 15.4% year over year, according to American Iron and Steel Institute report citing U.S. Census Bureau data, leading some domestic industry figures to point out the delay’s impact on import levels.

Ross admitted that timeline was overly ambitious.

“We were a little bit over-optimistic about how quickly such a complicated topic could be brought to a head,” Ross said. “Government tends to move slowly. It’s one of the many lessons I’ve learned coming down here.”

The president does have the authority to revise any of the proposals and come to the table with a different policy solution.

“He will decide what he is going to do,” Ross said of Trump. “It’s not for me to speculate what action he might take. But I do reemphasize that he is not bound by these exact recommendations. He can do something totally different.”

In a release, Scott Paul, president of the Alliance for American Manufacturing, urged action.

“We believe the action must be broad, robust and comprehensive, and the Commerce Department report makes a compelling case for immediate action. Any exclusions deserve appropriate scrutiny. Otherwise, the Washington swamp will be filled with importers trying to undermine American jobs.

“American workers are counting on President Trump to stand up for them.”

In its own response to the release of the reports, the Aluminum Association reiterated past statements, chiefly to ask for a solution that specifically addresses China and does not harm market economy trading partners like Canada and the European Union.

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“We look forward to working with the president on a final decision that helps support continued growth in the U.S. aluminum industry,” said Heidi Brock, president and CEO of the Aluminum Association, in a prepared statement. “Ultimately, we favor a negotiated, enforceable government-to-government agreement with China on overcapacity.”

On the subject of retaliation and challenges to any potential trade action at the World Trade Organization, Ross pointed to other nations’ import barriers, citing the automobile tariffs among the U.S. (2.5%), E.U. (10%) and China (25%) as an example.

“There already are extreme protectionist measures,” he said. “I don’t believe there’s a country on the targeted list that we have that doesn’t have far more protective features on its industry than we do already.”

The full steel report is available on the Department of Commerce website, as is the full aluminum report.

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This morning in metals news, the Indonesian government is considering whether or not to extend the copper export contract with Freeport McMoRan, Reliance Steel and Aluminum announces its fourth quarter earnings.

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Indonesia Considers Copper Contract Extension

The Indonesian government will consider whether or not to extend a copper concentrate export contract with the Freeport McMoRan mine, Reuters reported.

According to the report, Freeport’s current export permit will expire Feb. 16.

Aluminum Tariffs Could Mean Pricier Beer?

President Trump has met with lawmakers this week to discuss potential tariffs on steel and aluminum imports.

One lawmaker, Wisconsin Republic Ron Johnson, pointed out tariffs on aluminum could have an impact on the price of beer, as tariffs could lead to a higher cost to can.

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Reliance Steel and Aluminum Announces Q4 Earnings

Reliance Steel and Aluminum released its Q4 earnings results this week. In Q4, revenue jumped 15.5% year over year to reach $2.38 billion.

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

The Department of Commerce announced it had reached a preliminary affirmative determination in its anti-dumping investigation of cast iron soil pipe fittings from China.

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“Though politics plays no role in antidumping investigations, President Trump made it clear that we will vigorously enforce our trade laws and provide U.S. industry relief from unfair trade practices,” Secretary of Commerce Wilbur Ross said in a department release. “Today’s decision allows U.S. producers of cast iron soil pipe fittings to receive relief from the market-distorting effects of potential dumping while we continue our investigation.”

The department determined China sold the pipe fittings at 68.37% to 109.95% less than fair value in the U.S.

Preliminary dumping rates by Chinese respondent. Source: U.S. Department of Commerce

The petitioner in the case is the Cast Iron Soil Pipe Institute, based in Mundelein, Illinois. The institute’s members span the country: AB&I Foundry (California), Charlotte Pipe & Foundry (North Carolina), and Tyler Pipe (Texas).

According to the Department of Commerce, imports of the cast iron soil pipe fittings in 2016 were valued at $8.6 million.

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The department is scheduled to make a final determination in the anti-dumping case around June 28. If the department makes an affirmative determination at that point, the International Trade Commission will then announce its own determination Aug. 20.

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This morning in metals news, JFE Holdings Inc. in Japan plans to spend $6 billion on upgrades in the coming years, the Congressional Steel Caucus asked the administration for guidance on the Section 232 action timeline and Shanghai copper posted its biggest price jump since October.

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Japan’s JFE Holdings Looks to Lighter Steel

The parent company of Japan’s second-biggest steelmaker has plans to spend $6 billion to upgrade domestic facilities, according to a Reuters report.

JFE Holdings President Eiji Hayashida said the upgrades will focus on increased demand for lighter steel for the automotive industry, according to the report, in addition to materials for electric cars.

Congressional Steel Caucus Wants Clarity on 232 Timeline

On Monday, President Trump said he was “considering all options” on the Section 232 investigations of steel and aluminum imports.

According to the Northwest Indiana Times, the Congressional Steel Caucus has asked the administration to loop it in on a potential timeframe for 232-related action.

Shanghai Copper Posts Big Jump

The price of copper on the Shanghai Futures Exchange (ShFE) jumped by the biggest amount since October, Reuters reported.

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The most-traded April copper contract rose 1.8% to $8,323.87 per ton, according to the report.