Articles in Category: Non-ferrous Metals

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This morning in metals news, the U.S. and South Korea reach a revised trade agreement, the E.U. started a study on possible steel import limits and copper slides to a 3 1/2-month low.

U.S. Gives South Korea Steel Tariff Exemption

The U.S. and South Korea reached an agreement on steel tariffs, with the U.S. exempting South Korea from the tariff but also imposing a quota, according to reports.

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The quota is equivalent to 70% of South Korea’s average exports to the U.S. from 2015-2017.

E.U. Studies Possible Steel Import Limits

According to Reuters, the E.U. began a study Monday looking into whether the U.S. steel import tariffs will lead to a flood of steel into Europe from Asian producers.

The European Commission said total steel imports jumped from 17.8 million tons in 2013 to 29.3 million in 2017.

Copper Fall to 3 1/2-Month Low

Copper dropped to its lowest price since Dec. 8, falling to $6,532/ton, according to Reuters.

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Rising stockpiles and increasing U.S.-China trade tensions — amid President Trump’s announcement last Thursday, which could pave the way for $60 billion in tariffs on Chinese products — led to the depression of the copper price, according to the report.

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Before we head into the weekend, let’s take a look a look back at the week that was and some of the stories here on MetalMiner:

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The Department of Commerce released both the process and requirements for the submission of exclusions for the steel and aluminum Section 232 proclamations made public on March 8, 2018.

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As published in the Federal Register, the Secretary of Commerce has the authority to grant exclusions from the duties, “if the steel or aluminum articles are determined not to be in a sufficient and reasonable available amount or of a satisfactory quality or based upon specific national security considerations.” (Editor’s Note: Italics added by MetalMiner for emphasis.)

The interim final rule went into effect on March 19, 2018.

Key Points About the Exclusion Process

Some of the key highlights of the interim rule include who can file for exemptions and who can file objections to exclusions.

First, according to the interim rule, “only individuals or organizations using steel articles in business activities or supplying steel to users in the U.S. may submit exclusion requests with respect to the Proclamation.” In other words, any non-metal-buying individual or organization can not argue nor ask for an exclusion.

However, any individual or organization in the U.S. can file objections to exclusions, but the Department of Commerce will only consider information directly related to a specific exclusion request. In other words, the DOC will ignore trade associations, lobbying groups, and media objections to an exclusion unless that objection is specifically tied to an exclusion request.

Exclusions apply on a product basis and can only be requested (and granted to) by the individual or organization that submitted the specific exclusion request. To clarify, unless the DOC approves a broader application of the specific request, each company will have to file its own exclusion request.

Taking that one step further, if additional companies seek exclusion requests for the same product, the company applying for the exclusion will not need to reference a previously approved exclusion, but can do so for its own exclusion request. Moreover, the interim rule allows for organizations and individuals to re-submit for a product exclusion, even if an earlier request is denied.

Buying organizations should note that all information included in an exclusion request is subject to public disclosure. This may prove challenging to buying organizations as some of the questions on the exclusion form appear quite detailed. For example, “all such physical properties must be defined based on actual rather than nominal measurements references to specific dimensions,” a requirement which may in fact begin touching on “secret sauce” types of information. This portion of the rule will likely receive negative market feedback during the open comment period for the interim rule.

Meanwhile, those that object to the exclusion will have 30 days to submit their objections.

Country-specific exemptions are not included in this interim rule.

Burden of Proof Appears to Lie With the Buying Organization

Companies purchasing more commodity-grade materials (i.e., standard forms, grades, alloys, sizes, etc.) need not bother with the exclusion process. However, MetalMiner sees several sub-segments of the market that will likely challenge the proclamations, particularly the markets for: grain-oriented electrical steel; tinplate; raw materials (slab, wire rod); some advanced, high-strength steels and ultra-high-strength steels, tire cord quality wire rod, etc. These individual companies purchasing these materials will each need to put their case forward.

“These requirements are much worse than trade case requirements,” said one company pursuing an exclusion to MetalMiner.

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Key Resources

The interim rule, comment and form to file a steel exclusion request or objection can be found here:  https://www.regulations.gov/docket?D=BIS-2018-0006.

The interim rule, comment and form to file an aluminum exclusion request or objection can be found here: https://www.regulations.gov/docket?D=BIS-2018-0002.

 

A little over two weeks ago, the MetalMiner team released its Section 232 Investigation Impact Report in response to President Trump’s initial announcement regarding the intention to impose tariffs of 25% and 10% on steel and aluminum, respectively.

Of course, time marches on and so, too, does the news.

Since then, the announcement became policy via proclamation (albeit with temporary exemptions throw in for NAFTA partners Canada and Mexico); the tariffs are set to go into effect March 23 as other countries and U.S. industry groups continue to lobby for exemptions of their own.

Thus, given the latest movements in the Section 232 news cycle, MetalMiner has updated its Section 232 report with new, fresh information on everything Section 232, including brand-new addendums on steel and aluminum.

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To access the MetalMiner team’s full breakdown of the Section 232 issue, visit our dedicated Section 232 Report Investigation Impact page to download the full report, complete with the new sections on steel and aluminum.

The U.S. International Trade Commission (USITC) issued a final affirmative determination in the ongoing anti-dumping and countervailing duty investigation of Chinese aluminum foil.

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The Department of Commerce made its own final affirmative determination Feb. 27.

“The United States International Trade Commission (USITC) today determined that a U.S. industry is materially injured by reason of imports of aluminum foil from China that the U.S. Department of Commerce (Commerce) has determined are subsidized and sold in the United States at less than fair value,” a USITC statement said.

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Aluminum buyers are understandably nervous about the future price direction following the near 9% fall in prices from a high in early January.

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Aluminum on the Shanghai Futures Exchange closed at the lowest level this week in 14 months, particularly unsettling as the industry had become comfortable with a bull narrative for aluminum over the last year predicated on tight global supplies outside of China.

President Trump’s 10% import tariff on aluminum added another dynamic to the domestic U.S. price and considerable uncertainty as to the possible impact on prices in the rest of the world.

Not surprisingly, while the LME price barely reacted to the new tariff, domestic U.S. Midwest delivery premiums nearly doubled from 9.5 cents per pound at the start of January to the current 18.5 cents per pound. Expressed in dollar terms, the jump in premiums by some $200 dollars a ton equates to nearly 10% of the cash LME aluminum price, Reuters reported this week.

Meanwhile, delivery premiums outside of the U.S. had already been on the rise, so there was little surprise when Japanese buyers settled this week at U.S. $129 per metric ton premium for shipments in the second quarter, the highest in three years.

Although last year saw tightness in physical metal availability, the return of the contango on the LME, with cash aluminum falling below the three-month price, suggests there is now greater availability of nearby metal (at least in the rest of the world outside the U.S.).

There is certainly no shortage of metal available in the Chinese market, where Shanghai inventory has been rising for 12 months. Indeed, much of the current weakness is blamed on fears that smelter restarts following the end of the Chinese winter heating season will cause the surplus to balloon further.

Prices in China, though, are below those of the LME and industry sources are suggesting there will only be limited restarts as current prices are not enough to help some smelters break even, according to a Reuters report. Oliver Nugent is quoted by the news source as predicting prices will remain below $2,100 in the first half of the year because of Chinese surpluses, but persistent shortages outside of China would likely see the price rise again in the second half of the year.

Smelter restarts in the U.S. are unlikely to be significant enough to materially impact global supplies ,with Reuters suggesting Century Aluminum’s restart of 150,000 tons at Hawksbill, Kentucky, Magnitude 7 Metals’ restart of two out of the three pot-lines at the 263,000-ton Marstons smelter in Missouri and Alcoa’s already initiated restart of some of its idle capacity at the Warwick smelter Indiana will almost be enough to achieve the administration’s capacity 80% target mentioned in the Section 232 determination.

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The broad consensus appears to be that aluminum remains in a long-term bull trend, but in the short term will operate as a sideways market. Buyers are unlikely to see significant upside to $2,100 in the first half, but should keep the market under close review as, subject to developments, the second quarter may prove a low point for the year; therefore, that time period may represent a buying opportunity.

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This morning in metals news, Canadian Prime Minister Justin Trudeau says the Canadian steel industry can breath a sigh of relief after obtaining an exemption from the U.S.’s recently announced 25% steel tariff, the tariffs throw a wrench into India’s export plans and Reuters’ Andy Home opines on the way forward for the aluminum market in a post-U.S.-tariff world.

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Canadian Steel Industry Enjoys Tariff Exemption (For Now)

Canadian Prime Minister Justin Trudeau said members of the Canadian steel industry can breath a sigh of relief, CNN reported.

North American Free Trade Agreement (NAFTA) partners Canada and Mexico received temporary exemptions from the U.S.’s forthcoming tariffs of 25% and 10% on steel and aluminum imports, respectively. However, the key word is “temporary,” particularly as NAFTA renegotiation efforts continue and the U.S. hopes to win concessions from its NAFTA peers.

In an interview Monday with CNN’s Anderson Cooper, Trudeau addressed the notion that the temporary exemption would serve as a bargaining chip for the U.S. in the NAFTA talks.

“We’ll just respond the way we have, with focus on the work we do together and not too much worry about the rhetoric,” Trudeau told Cooper.

India’s Export Ambitions Complicated by Tariffs

Steel Minister Chaudhary Birender Singh said the U.S. tariff on steel could disrupt India’s efforts to become a major steel exporter, Reuters reported.

India expects a loss of $130 million due to the U.S. import tariffs, according to a note prepared by the steel ministry, Reuters reported.

What’s Next for the Aluminum Market?

Canada, Mexico and Australia have secured exemptions of some form from the U.S.’s announced tariffs, and other countries and trading blocs (namely the European Union) are lobbying for exemptions of their own.

So, given the climate of negotiations, both economic and inherently political in nature, what does that mean for the global aluminum market going forward?

Thus far, the LME price hasn’t changed much, Reuters’ Andy Home wrote, while the CME Midwest Premium has nearly doubled since the beginning of the year.

On a production level, already announced and forthcoming capacity restarts in the U.S. will inch the capacity utilization rate closer to the previously announced goal of 80%.

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The tariff, of course, will lead to a rise in costs for consumers. As Home writes, the beverage industry and can makers will seek exemptions on the grounds that domestic production won’t be able to meet their demand, while also arguing that imported aluminum for their purposes doesn’t constitute a national security threat.

This afternoon, President Trump signed a proclamation to impose the 25% tariff on imported steel and 10% tariff on imported aluminum products, both of which were announced on March 1. The tariffs will go into effect in 15 days, and will exclude Canada and Mexico for the moment, until NAFTA negotiations finish, according to several news sources.

Other countries such as China, South Korea, Japan, Germany and Brazil may be hit by these tariffs, according to the New York Times. However, the President claimed they would be flexible when imposing the tariffs, which were implemented in the wake of the Commerce Department’s Section 232 investigation.

We’re going to be very flexible,” Mr. Trump said. “At the same time, we have some friends and some enemies where we have been tremendously taken advantage of over the years.”

The President also said that the tariff order may exclude some additional countries and would give him the authority to raise or lower levies on a country-by-country basis and add or take countries off the list as he deems fit.

President Trump extolled the benefits of the tariff order and the relevance of the U.S. as a primary metal producer. The recent announcements of steel mill openings made since the President’s first comments about the tariffs on March 1 were also highlighted at the White House event.

He mentioned the United States’ current relationship with China, characterizing it as a “great” one, but noting that “something has to be done about the trade deficit,” according to the Guardian. The China question has been at the center of the tariff debate from the beginning, with that country’s metal production overcapacity and questionable trade practices spurring President Trump’s campaign promise.

Not surprisingly, organizations representing upstream steel and aluminum industries saw the results differently than those representing downstream players.

“The president’s commitment to addressing the steel crisis is already producing benefits in Granite City, Ill., where U.S. Steel will be restarting one of the blast furnaces that has been idle since December 2015 due to global excess steel capacity and unfairly traded steel imports,” said Tom Gibson, president and CEO of AISI, in a statement. “With the signing today, the steel industry can be on track to maintain our essential contributions to national security and critical infrastructure like transportation, public health and safety, energy and the power grid – all of which rely heavily on steel.”

Other sectors of the aluminum industry were opposed. For example, the Beer Institute, on behalf of U.S. brewers, implored the President to exempt aluminum can-sheet imports, making an argument based on job loss and overall economic loss, in a press release.

“We have not yet seen the order formalizing these tariffs,” said the Institute’s president and CEO Jim McGreevy, in the statement. “If possible, the Beer Institute will work with our member companies to file an exclusion request with the Department of Commerce. It is critical that if the president and his administration choose to impose any tariffs, they be carefully targeted only to protect America’s national security interests.”

For more in-depth scenario-based analysis, including buying strategies, check out MetalMiner’s report, “Section 232 Impact by Scenario on Aluminum, Stainless Steel and Steel Prices.

The Copper MMI (Monthly Metals Index) traded lower this month, falling two points to 87 for our March reading.

The Copper MMI fell for the second consecutive month, after the sharp increase in prices at the end of last year. In February, LME copper prices fell by 3.5%.

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The LME copper short-term downtrend does not seem that bearish when looking at the two-year chart. Copper prices retraced this month again, but still hold above the blue dotted line, which represents the trend line (prices below that line might indicate a change in trend). In December, copper prices skyrocketed and breached the $7,000/st level, confirming long-term bullish sentiment remains intact.

Source: MetalMiner analysis of FastMarkets

Meanwhile, this month, a stronger U.S. dollar added downward pressure to commodities and industrial metals. Analysts also claim the latest “bearish” downtrend occurred due to increasing LME stocks.

MetalMiner analyzes copper supply from two different perspectives: copper stocks and global copper supply.

Copper Stocks

Copper stocks at the major metal exchanges totaled 537,722 tons at the end of November 2017, reflecting a decrease of 0.3% from stocks in December 2016. In particular, LME stocks fell by 41%, while SHFE stocks increased by 12% in 2017.

However, 2018 has come with some recoveries for LME copper stocks.

Copper stocks are at a current 324,900 tons. This means LME copper stocks are 13,075 tons higher than at the beginning of 2017, and 85,500 tons higher than at the beginning of 2016.These numbers show some recovery for LME copper stocks; this information has likely fueled trading sentiment this month.

CME stocks also increased at the beginning of the year. In 2015, CME stocks were just at 20,000 tons, compared to the current 209,000-ton level. Both of these numbers (CME and LME stock levels) have moved trader sentiment.

Global Copper Supply

The Indonesian unit of Freeport-McMoran’s copper mine and Amman Mineral Nusa Tenggara (AMNT) are waiting for last-minute ministry approvals to their application for an extension to continue with copper concentrate exports. Freeport’s export order for the Grasberg mine expires this month (copper mines have to reapply for export licenses every year).

Freeport had an export quota of 1.1 million tons of copper ore concentrate ending February 2018. Exports could stop this month, but mine production could continue.

Meanwhile, the Chinese Ministry of Environmental Protection has tightened the “allowable” impurities levels further. Therefore, instead of importing scrap, China now imports unwrought copper for downstream production.

Copper supply also looks threatened in Chile and Peru, particularly if workers go on strike since labor contracts expire soon. The powerful labor union at the Escondida copper mine cast doubt on the chances of starting talks on a new labor agreement with the company before formal negotiations commence in June.

Global copper supply still shows some uncertainty with possible copper supply shortages coming in 2018. Therefore, buying organizations may want to understand the global picture rather than just considering the trend based on stock levels and actual copper supply.

What This Means for Industrial Buyers

In February, buying organizations had some opportunities to buy some volume. As long as copper prices remain bullish, buying organizations may want to buy on the dips. For those who want to understand how to reduce risks, take a free trial now to the MetalMiner Monthly Outlook.

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Actual Copper Prices and Trends

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After last month’s increase, the March Aluminum MMI (Monthly Metals Index) fell two points for this month’s reading. A weaker LME aluminum price led to the retracement. The current Aluminum MMI index stands at 97 points, 2% lower than in February.

LME aluminum price momentum slowed this month. Despite the price retracement, trading volumes still support the current uptrend. The long-term uptrend remains in place.

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Source: MetalMiner analysis of FastMarkets

Domestic Aluminum Market

February brought much uncertainty to the domestic aluminum market with the release of the Trump administration’s Section 232 reports and recommendations vis-a-vis aluminum and steel imports.  That release, together with President Trump’s announcement last Thursday of a 10% aluminum tariff on all imports have activated price warning systems for all aluminum and aluminum products.

LME aluminum reacted to the news, increasing only slightly.

Additional information about Trump’s announcement, combined with specific buying strategies, can be found in the MetalMiner team’s Section 232 Investigation Impact Report.

On top of that, the U.S. Department of Commerce announced its final determination on the Chinese aluminum foil import case initiated in March 2017. The aluminum foil investigation includes all Chinese aluminum imports, and the anti-dumping margins vary from 48.64 to 106.09%, while the countervailing margins vary in the 17.14-80.97% range. This case may also add some support for LME aluminum prices in the short term.

MW Aluminum Premiums on the Rise

U.S. Midwest aluminum premiums moved again at the beginning of March and are currently trading at $0.16/pound. The U.S. Midwest Premium has now reached the same levels from March 2015; the pace of the increases appears to have accelerated since the Section 232 report release.

Source: MetalMiner data from MetalMiner IndX(™)

The Section 232 outcome and President Trump’s comments around possible import remediation measures have caused increased volatility in the U.S. Midwest premium.

What This Means for Industrial Buyers

LME aluminum price retracement may give buying organizations a good opportunity to buy, as prices may increase again.

In bullish markets, buying organizations still have many opportunities to forward buy. Therefore, adapting the right buying strategy becomes crucial to reducing risks.

Given the ongoing uncertainty around aluminum and aluminum products, buying organizations may want to read MetalMiner’s Section 232 special coverage.

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Actual Aluminum Prices and Trends

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