Articles in Category: Macroeconomics

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This morning in metals news, the Federal Reserve has cut interest rates for the third time this year, AK Steel released its third-quarter financials and 16 steel industry associations praised the work of the Global Forum on Steel Excess Capacity.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Fed Cuts Rates Again

For the third time this year, the Federal Reserve announced a downward adjustment to its federal funds rate.

The Fed lowered its federal fund target rate range by one-quarter of a percentage point, down to 1.50-1.75%.

“Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said in a release. “Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

In a pair of tweets, President Donald Trump again criticized the Fed and its chairman, Jerome Powell.

“People are VERY disappointed in Jay Powell and the Federal Reserve,” Trump wrote. “The Fed has called it wrong from the beginning, too fast, too slow. They even tightened in the beginning. Others are running circles around them and laughing all the way to the bank. Dollar & Rates are hurting our manufacturers. We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is! We will win anyway.”

AK Steel Releases 3Q Results

Ohio-based AK Steel announced adjusted EBITDA of $86.9 million in the third quarter, down from $160.8 million in 3Q 2018.

Net sales of $1.5 billion in the third quarter marked a 12% year-over-year decrease.

“Our third quarter results were essentially in line with our expectations despite a challenging environment,” CEO Roger K. Newport said. “We continued to make solid progress in our strategy to focus on higher-value business during the quarter. As we look to 2020, we are excited about our prospects, particularly in automotive where we expect meaningful market share growth.”

Steel Associations Applaud GFSEC Members’ Work on Excess Capacity

A group of 16 steel industry associations around the world released a statement praising the work of members involved in the Global Forum on Steel Excess Capacity and asking for that work to continue.

In addition, the associations “called upon the few dissenting members to reconsider their current position as quickly as possible.”

“According to the latest OECD information, there are 440 million metric tons of steel excess capacity in the world today. This is an increase of 6.5 percent over last year,” the groups said in a joint statement. “Governments of steelmaking economies worldwide must redouble their efforts to address this persistent global excess capacity in the steel sector, eliminating the support measures that cause it, and implementing strong rules and remedies that reduce excess capacity. We call on governments to continue the work on the issue of steel excess capacity without delay.”

China has been critical of the forum, arguing that it has done enough to work toward addressing the issue of steel excess capacity, the South China Morning Post reported.

The U.S. has also been critical of the forum, claiming it has not been effective.

“The decision by a vast majority of Global Forum members to continue the work of the Forum beyond 2019 is a recognition that severe excess capacity is a continuing crisis,” the Office of the United States Trade Representative said Saturday. “The Global Forum’s policy prescriptions and information-sharing process will not alone resolve the crisis of excess capacity in the global steel sector. This will only happen when those that have created the problem take concrete steps toward true market-based reform. Participation in the Global Forum process is a signal of each member government’s commitment to adhere to principles intended to ensure market-based outcomes.”

In 2017, the USTR said the forum “has not made meaningful progress yet on the root causes of steel excess capacity.”

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The groups issuing the call for continued action were: Steel Manufacturers Association (SMA), American Iron and Steel Institute (AISI), EUROFER (the European Steel Association), Canadian Steel Producers Association (CSPA), CANACERO (the Mexican Steel Association), Alacero (the Latin American Steel Association), Brazil Steel Institute, The Japan Iron and Steel Federation (JISF), European Steel Tube Association (ESTA), Specialty Steel Industry of North America (SSINA), South African Iron and Steel Institute (SAISI), The Cold Finished Steel Bar Institute (CFSBI), Indian Steel Association, Association of Enterprises UKRMETALURGPROM (Ukraine), Russian Steel Association, and The Committee on Pipe and Tube Imports (CPTI).

Prime Minister Narendra Modi’s vision for India to become a $5 trillion economy by 2024 is in danger.

The current downturn — the third since the financial crisis — looks likely to undo that objective and extend further into the future as the world’s second-most populous country strives to bring large swathes of its population out of poverty.

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In a recent Stratfor report, India’s rollercoaster economy is said to be experiencing growth of just 6.1% in this financial year. Falling tax receipts are likely to mean the government will breach its 3.3% deficit target.

The report paints a picture of an economy unable to sustain strong growth for more than a few years at a time, saying this is the third downturn following periods in 2009 and 2014 which brought previous annual averages of 9.5% growth (2005-2008) to an abrupt end.

Both investment as a share of GDP (crucial for a developing country) and manufacturing growth (crucial for a young and rapidly rising labor force to find employment) have again fallen below target.

All of this comes despite the government’s much-heralded “Make in India” policy, which is designed to force firms to develop a domestic supply chain (thus creating investment, employment and technical knowhow).

The only measure that has remained down compared to previous periods is inflation, following two bumper harvests that depressed food costs. The flip side of that is farmers, who make up some two-thirds of the population, are experiencing depressed incomes, adding to weak GDP growth.

Bank lending is also suffering. The Reserve Bank of India is enforcing stricter rules on banks to realize their non-performing loans and close down firms, as opposed to the historical practice of indefinitely kicking the can down the road, which consumed valuable funds and perpetuated zombie companies.

The new policy makes sound economic sense, but in the short term is reducing banks’ ability to lend and is shining a light on the country’s increasingly shaky shadow banking sector.

A return to strong growth is unlikely in the short term; double-digit growth may be a thing of the past in a weaker global environment. Efforts to boost investment by reducing corporate tax rates from 30% to 22%, while admirable, have deprived the treasury of revenue but failed to stimulate the desired investment.

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For India’s technocrats, it must feel like they are the also-rans to China’s stellar growth engine.

However, maybe they should console themselves with the thought that while a centralized autocratic regime can achieve amazing rates of growth and market control, it has proved inconsistent with freedoms as Indians understand them; it is hard to see the Chinese model being popular among India’s pluralist democracy of 1.3 billion people.

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U.S. housing starts in September dropped 9.4% compared with the previous month, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

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According to the joint report, housing starts in September reached a seasonally adjusted annual rate of 1.26 million, down from August’s 1.39 million. The September rate, however, was up 1.6% on a year-over-year basis.

Single‐family housing starts in September were at a rate of 918,000, marking a 0.3% increase from the previous month. Meanwhile, for units in buildings with five units or more, the September rate reached 327,000.

As for building permits, housing units authorized in September reached a seasonally adjusted annual rate of 1.39 million, down 2.9% from August but up 7.7% on a year-over-year basis. Single‐family authorizations in September checked in at at a rate of 882,000, marking a 0.8% increase from August, while authorizations of units in buildings with five units or more came in at a rate of 470,000.

Privately owned housing completions checked in at a rate of 1.14 million in September, which marked a 9.7% decrease from August and a 1.0% decrease from September 2018.

Single‐family housing completions were down 8.6% in September compared with the previous month, while completions for units in building in five units or more reached a rate of 285,000.

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Late last month, the National Association of Realtors reported pending home sales increased 1.6% in August.

“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, the association’s chief economist. “The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply.”

The NAR’s Pending Home Sales Index jumped to 107.3 in August, with an index reading of 100 indicating average contract activity.

Anyone who argues the U.K. has not been impacted by its decision three years ago to leave the European Union only has to look at the figures to see how wrong that argument is.

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The Financial Times reported this week that the U.K. narrowly avoided a recession this summer, as Q2’s contraction was followed by a minuscule bounceback in Q3 thanks to a pick-up in services, which grew at 0.4%.

Manufacturing, however, as anyone in the metals industry will know only too well, remained in recession, contracting by 0.7% in August compared to last year, according to the Financial Times.

Commentators put this down to uncertainty over what Brexit will look like and when it will happen, hindering plans for investment and creating an atmosphere of uncertainty and retrenchment.

Set this against a possibly more worrying trend for the U.K. and you have to ask what the longer-term prospects are for the economy.

An earlier Financial Times article this week explored the longer-term fall in productivity that has held back wealth creation since the financial crisis.

In the U.K., productivity has stagnated since the 2008 financial crisis, the Financial Times reported, failing to recover as it typically does following contractions.

Moreover, it has weakened since the 2016 Brexit referendum and contracted in the past year; productivity contracted in the second quarter at the fastest pace in five years.

According to the Financial Times, many economists and businesspeople point to the lack of business investment as a reason for deteriorating productivity. Business investment has barely expanded since the second quarter of 2016 and contracted 0.4% in the three months to June, suggesting Brexit and falling productivity are a conjoined crisis, with one supporting the other.

Businesses have preferred to hire workers than invest, so unemployment is low and that’s what grabs the headlines, but the inability to increase the value of goods and services produced per hour of work limits what companies can afford to pay their workers — so, living standards stagnate.

Utilities and construction were the only sectors that recorded a rise in productivity, while output per hour fell 1.9% in the manufacturing sector and by 0.8% in the services sector. Services account for about 80% of the U.K.’s economy.

Source: Financial Times

Nor is the U.K. simply suffering the same problem as everyone else.

Since the second quarter of 2008, the U.K.’s lack of productivity growth contrasted with an average 9% expansion in labor productivity for the 36 member countries of the OECD.

It is hard to see what will break the cycle.

Supporters of Brexit talk about the U.K. being transformed into a low-tax tiger, like Singapore, post-Brexit.

Realistically, most see that as unlikely.

Even if taxes were to be dramatically reduced, with the expected new immigration controls and low unemployment, labor could begin to get tight and wages could rise sharply. If that were not accompanied by a sharp uplift in GDP, the U.K. could be caught in a deflationary trap, with low-cost, tax-free imports causing major disruption to domestic producers.

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No wonder the issue of Brexit has the public and politicians so divided.

Unaware, as most are, of the U.K.’s low productivity growth, the long-term impact has been the very stagnation in living standards that has in part fueled the desire to leave the E.U. and search for a brighter future.

Good luck with that.

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This morning in metals news, Codelco is holding its 2020 copper premium flat for Europe, China’s yuan could see further devaluation and Alcoa’s Baie-Comeau smelter has received certification from the Aluminum Stewardship Initiative.

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Copper Premium Flat

According to Reuters, Codelco’s copper premium will be held flat for European customers in 2020.

Codelco’s premium will check in at $98/ton, according to the report.

Reuters Poll: Yuan to Slip Further Against the Dollar

Earlier this year, the yuan slipped in value compared to the dollar to an approximately 7-to-1 ratio, which makes imports from China more attractive.

According to a Reuters poll, the yuan could slip further to levels last seen during the financial crisis of 2008.

The yuan could fall as low as 7.20 to the dollar by the end of the year, according to the Reuters poll of foreign exchange strategists.

Alcoa Smelter Gains ASI Certification

Alcoa’s Baie-Comeau smelter in Quebec has received certification from the Aluminum Stewardship Initiative (ASI), a body that formulates and sets sustainability standards for the aluminum sector.

Alcoa now has ASI-certified facilities in three countries: Brazil, Spain and Canada.

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“From mine to metal, Alcoa is recognized as a sustainability leader,” said Michelle O’Neill, Alcoa’s senior vice president of government affairs and sustainability. “This latest ASI certification demonstrates our ongoing commitment to operate in a responsible manner while bringing long-lasting value to our stakeholders.”

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This morning in metals news, U.S. Steel shares are down over 10% this morning, U.S.-China trade talks resume and the Federal Reserve decided to cut its benchmark interest rate again yesterday.

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U.S. Steel Shares Down on Earnings Guidance

U.S. Steel announced it expects a diluted loss per share of $0.35 in the third quarter.

“We expect third quarter 2019 adjusted EBITDA to be approximately $115 million, which excludes approximately $53 million of estimated third quarter impacts from the December 24, 2018 fire at our Clairton coke making facility and estimated restructuring charges,” U.S. Steel said.

Shares of the steelmaker were down 10.8% as of 11:30 a.m. ET.

U.S., China Resume Trade Talks

The world’s top two economies were expected to kick off two days of trade talks Thursday, CNBC reported.

According to the report, the talks will serve as a prelude to higher-level talks scheduled for early next month.

Fed Makes Interest Rate Cut

As expected, the U.S. Federal Reserve Board voted to cut interest rates once again, marking only the second cut since the 2008 recession.

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The vote to approve the cut was not unanimous, with seven votes in favor and three dissenting. The board voted to bring its benchmark lending rate down to a range of 1.75% to 2.00%, down from a range of 2.00% to 2.25%.

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This morning in metals news, the Federal Reserve is expected today to cut interest rates once again, the LME copper price dropped ahead of the Fed’s decision and Steel Authority of India Ltd. (SAIL) shares rose Tuesday.

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Federal Reserve Expected to Make Interest Rate Cut

The Federal Reserve is expected to cut interest rates again later today, CNBC reported.

If the cut comes to fruition, it would mark just the second interest rate cut since the Great Recession.

London Copper Falls

Ahead of the Fed’s decision today, copper on the LME dropped, Reuters reported.

LME three-month copper slipped 0.1% to $5,816.50 per ton, Reuters reported, while the most-traded SHFE copper contract dropped 0.2% to 47,310 yuan per ton ($6,673.63 per ton).

SAIL Shares Rise

Shares of Steel Authority of India Ltd. (SAIL) rose on Tuesday to a four-month intraday high, Bloomberg reported.

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The rise came on the heels of the Indian government’s decision to allow the state-run producer to sell 70 million tons of iron ore from its captive mines, according to Bloomberg.

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According to the U.S. Census Bureau and the Department of Housing and Urban Development, privately owned housing starts in July fell 4.0% from the previous month, but rose 0.6% on a year-over-year basis.

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July housing starts reached a seasonally adjusted annual rate of 1.19 million, down from 1.24 million starts the previous month. July 2018 housing starts reached 1.18 million.

Meanwhile, single‐family housing starts came in at a rate of 876,000, marking a 1.3% increase from June’s 865,000. For units in buildings with five units or more, the July rate came in at 303,000.

July housing units authorized by building permits came in at a seasonally adjusted rate of 1.34 million units, up 8.4% from June’s 1.23 million units. The July total marked a 1.5% year-over-year increase from July 2018’s 1.32 million units.

Authorizations for single-family housing in July came in at a rate of 838,000, up 1.8% from June’s 823,000, while authorizations of units in buildings with five units or more came in at a rate of 453,000 in July.

Lastly, July housing completions came in at a seasonally adjusted annual rate of 1.25 million, up 7.2% from June’s 1.67 million and up 6.3% from July 2018’s 1.18 million. Completions for single-family housing reached a rate of 918,000, up 4.3% from June’s 880,000. Completions of units in buildings with five units or more reached a rate of 321,000.

In other news, late last month the National Association of Realtors (NAR) reported pending home sales jumped 2.8% in June, marking the second consecutive month of pending home sales growth.

The NAR’s Pending Homes Sales Index jumped 2.8% to 108.3 in June, up from 105.4 the previous month.

Contract signings in July were up 1.6% on a year-over-year basis, ending a 17-month streak of year-over-year declines, according to the NAR.

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“Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes,” said Lawrence Yun, the NAR’s chief economist. “Furthermore, homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership.”

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This morning in metals news, iron ore prices this week have plunged, the Energy Information Administration (EIA) released its short-term energy outlook and China could weaken its currency further.

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Iron Ore Prices Plunge

After reaching five-year highs earlier this year, aided by supply-side disruptions in Brazil and Australia, the iron ore price has plunged this week.

The iron ore price reached around $120 per ton earlier this year, but has fallen to the $80s this week. According to Bloomberg, iron ore on the Singapore Exchange for September fell as much as 7% to $86.68 per ton, while Dalian Commodity Exchange futures fell as much as 5.1%.

EIA Releases Short-Term Energy Outlook

The EIA released its short-term energy outlook this week, predicting average monthly gasoline prices in the U.S. peaked in May at $2.86 per gallon.

The EIA estimated U.S. crude oil production in July reached 11.7 million b/d, down 0.3 million b/d from June.

Meanwhile, Brent crude spot prices averaged $64 per barrel in July, flat compared with June but down $10 per barrel from July 2019.

China Could Devalue Currency Further

Recently, the U.S. Treasury Department officially designated China a currency manipulator after China devalued its currency to levels not seen since the financial crisis.

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According to The New York Times, China could devalue its currency further. Per the report, on Thursday China’s central bank set the midpoint of the renminbi’s daily trading range above 7 to the U.S. dollar for the first time in over a decade.

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This morning in metals news, the American Iron and Steel Institute (AISI) applauded the U.S. Treasury’s designation of China as a currency manipulator, U.S. companies are hoping the Trump administration does not impose tariffs on copper from the E.U. and Novelis announced its quarterly financial results.

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U.S. Treasury Labels China a Currency Manipulator

On the heels of the devaluation of the yuan to levels not seen since the 2008 financial crisis, the U.S. Treasury officially designated China as a currency manipulator.

“This pattern of actions is also a violation of China’s G20 commitments to refrain from competitive devaluation,” the Treasury said in a statement. “As highlighted in the FX Report, Treasury places significant importance on China adhering to its G-20 commitments to refrain from engaging in competitive devaluation and to not target China’s exchange rate for competitive purposes. Treasury continues to urge China to enhance the transparency of China’s exchange rate and reserve management operations and goals.”

The American Iron and Steel Institute (AISI) applauded the move.

“Today’s action by the Treasury Department is welcome news for the steel industry and American manufacturing,” AISI President and CEO Thomas J. Gibson said in a prepared statement. “China was, and remains, a currency manipulator. The Chinese government’s actions today are just one more instance of its active role in manipulating the value of its currency to promote Chinese exports. We applaud the decisive action today by President Trump and the U.S. government to address the damage, and unfair competitive advantage, that China’s undervalued currency has caused to our nation’s manufacturing sector – especially the steel industry.”

U.S. Companies Concerned About Copper Tariff

As the U.S. has proposed tariffs on a number of items — including copper alloys — from the E.U. as part of the ongoing battle over Airbus subsidies, several U.S. companies have expressed concern.

During a United States Trade Representative (USTR) hearing Monday, many testified to ask the USTR to remove the copper tariffs from the proposed list, Reuters reported.

Novelis Reports 1Q 2020 Earnings

Novelis announced its first-quarter earnings for fiscal year 2020, posting net income of $127 million (down from $137 million for the same quarter in 2018).

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Excluding special items, however, the firm reported net income of $145 million, up from $115 million the previous year.