Articles in Category: Public Policy

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

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

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

This morning in metals news, the Department of Commerce launched another Section 232 investigation, the Section 232 auto probe hearings kicked off earlier this morning and Turkish steel production increased during the first six months of the year.

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Commerce Launches Uranium Investigation

As the Department of Commerce prepared to host hearings related to its automotive probe, the DOC announced yesterday that it was launching an investigation of uranium imports.

“Our production of uranium necessary for military and electric power has dropped from 49 percent of our consumption to five percent,” Secretary of Commerce Wilbur Ross said in a release. “The Department of Commerce’s Bureau of Industry and Security will conduct a thorough, fair, and transparent review to determine whether uranium imports threaten to impair national security.”

In January, U.S. uranium mining companies, UR-Energy and Energy Fuels, formally petitioned the DOC, asking it to initiate a Section 232 investigation into imports of uranium ore and products.

Section Auto Hearings Underway

Speaking of the automotive and automotive parts probe, public hearings began earlier this morning.

Those interested can check out the live stream of the hearing on the DOC website, www.commerce.gov.

Turkish Steel Production on the Rise

Steel production in Turkey through the first six months of the year jumped 3.7%, according to a report from the Anadolu Agency.

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Production through the six-month period hit 18.9 million tons, according to Turkish Steel Producers’ Association data cited by the report.

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Announced by the European Commission yesterday, provisional steel safeguard measures went into effect today, covering 23 steel product categories.

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The measures were instituted in response to a challenge about which European leaders have frequently expressed concern: diverted steel as a result of the U.S.’s Section 232 steel tariff.

The provisional measures can only remain in place for a maximum of 200 days. After review, the European Commission will decide by early 2019 if permanent measures are needed.

“There are already indications that, as a consequence, steel suppliers have diverted some of their exports from the US to the EU,” the European Commission release states. “In order to avoid a sudden increase of imports that would cause further economic problems for EU steel producers – who are already suffering from global overcapacity – the Commission considers that provisional safeguard measures are necessary and justified.”

A 25% quota will be imposed on products from each of the 23 categories once imports have exceeded the previous three-year average.

Members of the European Economic Area (EEA) — including Norway, Iceland and Liechtenstein — are exempted from the measures, in addition to “some developing countries with limited exports to the EU.”

E.U. Trade Commissioner Cecilia Malmström emphasized that the U.S.’s steel tariff has left Europe with no choice but to act.

“The US tariffs on steel products are causing trade diversion, which may result in serious harm to EU steelmakers and workers in this industry,” Malmström said in a prepared statement. “We are left with no other choice than to introduce provisional safeguard measures to protect our domestic industry against a surge of imports. These measures nevertheless ensure that the EU market remains open, and will maintain traditional trade flows.

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“I am convinced that they strike the right balance between the interest of EU producers and users of steel, like the automotive industry and the construction sector, who rely on imports. We will continue to monitor steel imports in order to take a final decision by early next year, at the latest.”

Axel Eggert, director general of the European Steel Association, offered praise for the institution of the safeguard measures.

“The Commission has received overwhelming support for this vital safeguard measure from both member states and business,” Eggert said in a prepared statement. “The measure will go someway to ensuring the continued stability of the internal market for steel and ensure that EU steel producers do not suffer extreme surges of imports of steel deflected away from the now constricted US market.”

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

The U.S. Department of Commerce launched a new investigation, under the aegis of the little-used but now ubiquitous Section 232 of the Trade Expansion Act of 1962, this time investigating imports of automobiles and automotive components.

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Unsurprisingly, while no decisions have been made as of yet regarding the imposition of new tariffs, the investigation in and of itself has led to outcry from automakers. In fact, as part of the Department of Commerce review process, more than 2,300 public comments were submitted in relation to the Section 232 automotive probe.

So, now that all parties involved are all revved up, what’s next?

The Department of Commerce will hold public hearings on the issue, beginning Thursday, July 19, and concluding Friday, July 20.

The first day of the hearing will kick off at 8:30 a.m. and include testimony from individuals “representing domestic and international companies, industry groups, labor, and foreign countries.”

The full agenda can be found here.

Jennifer Thomas, vice president of federal governments affairs for the Alliance of Automobile Manufacturers (AAM), will be the first speaker Thursday. The AAM released a statement late last month in response to the Trump administration’s decision to look into auto imports.

“While we understand that the Administration is working to achieve a level playing field, tariffs are not the right approach,” the statement read. “Tariffs on autos and auto parts raise vehicle prices for all customers, limit consumer choice and invite retaliatory action by our trading partners. Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade.”

The Association of Global Automakers (AGA) will be represented by President and CEO John Bozzella. In May, the AGA released its own statement.

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“Contrary to the assumption underlying the investigation on import vehicles, the U.S. auto industry is thriving,” the statement read. “To our knowledge no one is asking for this protection. If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices. This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners.”

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This morning in metals, China’s biggest steel city has ordered five-day output curbs to tackle pollution, the deputy USTR criticized Indian retaliatory tariff measures and it was another down week for copper.

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Tangshan Launches Cuts Ahead of Expected Smog

China’s top steelmaking city, Tangshan, has begun industry output cuts that will last five days, Reuters reported.

According to the report, the city has ordered steel mills to shut down sintering plants. In addition, coke and cement factories have been asked to cut their outputs.

USTR Criticizes Indian Trade Measures

Jeffrey Gerrish, the deputy United States Trade Representative, said this week that India’s retaliatory tariff measures are not “appropriate” and that India has not done enough to bring down the U.S.’s trade deficit with it, the Economic Times reported.

India is among the group of World Trade Organization (WTO) members to have requested consultations with the U.S., through the WTO dispute settlement mechanism, over its steel and aluminum duties.

Copper Down Again

It was another down week for Dr. Copper, as general trade anxiety continues to weigh on the market.

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According to Reuters, this week marked copper’s fifth consecutive week of price declines, as simmering trade tensions between the U.S. and China have impacted copper demand in China (the world’s top copper consumer).

This is not the first time critics have lined up to suggest Glencore is on the ropes, but close to the wind as the trader often sails, the firm will likely find solutions to its current challenges, substantial as they are.

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And let’s not belittle the challenges the firm is facing. The U.S. Department of Justice, no less, is investigating the company’s business dealings in the Democratic Republic of the Congo, Venezuela and Nigeria as part of a corruption probe, Reuters reports.

If wrongdoing is proven, then Glencore and its executives could face huge fines or even criminal prosecution under the Foreign Corrupt Practices Act the U.S. is pursuing.

Some have speculated that the DoJ’s action was triggered by Glencore’s announcement that it would settle a case for mining debts with Dan Gertler — a mining billionaire on a U.S. sanctions list — in Euros to avoid the sanctions, which forbid payments in dollars. It is suggested the authorities would have taken a dim view of circumventing the sanctions by switching currencies, even though Glencore claims it had taken advice from the appropriate authorities.

Source: Financial Times

Not surprisingly, the share price reacted negatively to the news, dropping 12% and suffering its worst day in over two years following this week’s announcement of the U.S. subpoena.

The share price is down about 18% this year and was hovering near one-year lows as the company’s share price continues to underperform its peers, despite producing healthy profits and slashing its debts. The company reacted by announcing a $1 billion share buyback. Some critics saw that as an act of hubris, but the announcement helped the share price recover (at least in the short term).

In the longer term, investors will want to see a lower risk profile, but in life you can rarely have your cake and eat it too. Much of Glencore’s success and phenomenal growth has been down to successfully managing a high-risk profile, operating in unstable parts of the world and dealing with less scrupulous regimes in the process. That doesn’t make Glencore unscrupulous themselves, but it does open them up to the attention of authorities keen to ensure such a major corporation is behaving responsibly.

Suggestions that this investigation is the beginning of the end of Glencore are far overdone, but the investigation will prove lengthy, absorbing of management time and has the potential to unearth connections and dealings that the firm may not even be aware of (guilty by association, if you like).

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Still, Glencore has been here before and will no doubt weather this storm as it has previous ones.

President Donald Trump will not be the first commander-in-chief to find that waging wars on multiple fronts is a strategy with significant drawbacks.

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Taking on America’s NAFTA partners, Canada and Mexico, at the same time as the European Union is encouraging multiple retaliatory measures at a time when most people believe the real target was always intended to be China.

Many hold-up Caterpillar as the bellwether of U.S. industry, but if Caterpillar is the bellwether then Harley-Davidson must surely be the most iconic of American manufacturers. Its unique style of motorcycle is recognized and admired the world over and has come to epitomize the confident, free-spirited American dream.

So, when a firm like Harley-Davidson, which was repeatedly lauded by the president during his election campaign as an American icon and job creator, announces that it is going to have to shift production of its bikes overseas to avoid retaliatory tariffs imposed by the European Union, you have to ask if something is going a little wrong with the trade policy.

In a New York Times article, Harley-Davidson is quoted as saying the move “is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the E.U. and maintain a viable business in Europe.” Europe is the firm’s second-largest market after the U.S. However, as popular as its bikes are, the E.U.’s recently announced 31% import tariff — levied in retaliation for U.S. steel and aluminum import tariffs imposed by the president, the E.U. claimed — will, in the firm’s opinion, decimate sales.

Currently, Harley-Davidson incurs a 6% import tariff into the E.U., a cost the company appears comfortably able to absorb and still compete with domestic E.U. and Japanese motorcycle makers. But an increase to 31% would see on average a price increase of $2,200 per motorcycle, according to the article (although with the cheapest Sportster retailing for over $12,000 and top of the range models going for well over $20,000, that figure seems conservative).

Harley-Davidson agrees passing on the price increase to consumers is not viable. While no plans have been announced, the word is India may be the recipient of Milwaukee’s finest.

Not that India would be a significant market for Harley-Davidsons, as they have a heavy tax burden on larger bikes and you almost never see anything larger than the Royal Enfield 350 Bullit on the streets – the exception being the smart set in downtown Mumbai on their Ducatis and higher-end Japanese bikes (but that is still a small niche market).

Harley-Davidson sold 40,000 bikes in the E.U. last year and has vowed to absorb the tariff hike to preserve market share, at least for the remainder of this year, a move that could wipe out one-third of the company’s net profit. But Harley-Davidson does have options — it already manufactures in Brazil, Australia, India and Thailand, with India and Thailand becoming increasingly important assembly points.

These tariffs look set to hasten that trend, at least for sales outside of the U.S., as U.S. component costs rise due to import tariffs and retaliatory tariffs make U.S. manufactured goods less viable.

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Harley-Davidson is not alone in feeling the heat of such tariffs. Bourbon makers, orange juice producers and even playing card manufacturers are said to be in the same position.

But none are as quintessentially American as Harley-Davidson.

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This morning in metals news, U.S. Trade Representative Robert Lighthizer lashed out at the E.U.’s retaliatory tariffs, the Section 232 exclusion request process has allowed for some commercial gamesmanship and automakers warns against potential tariffs on imports of foreign cars.

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Lighthizer Tut-Tuts E.U. For Retaliatory Tariffs

Lighthizer was deeply critical of the European Union and the global trading system at large, calling out the “hypocrisy” of the latter in a statement Wednesday.

“President Trump has taken actions on trade in steel and aluminum to protect our national security interests,” he said. “These actions are wholly legitimate and fully justified, both as a matter of U.S. law and WTO rules. By contrast, the European Union has concocted a groundless legal theory to justify immediate tariffs on U.S. exports. Other WTO Members, including China, have adopted a similar approach.

“These retaliatory tariffs underscore the complete hypocrisy that governs so much of the global trading system. For months, the EU, China, and others have criticized the trade policy of the United States, while claiming to champion the WTO. But their recent tariffs prove that they simply ignore WTO rules whenever doing so is convenient.”

While other nations subjected to the Section 232 steel and aluminum duties have argued that the U.S. is in violation of WTO rules and are stretching the definition of national security vis-a-vis application of the tariffs, Lighthizer reciprocated with a similar accusation.

“When the EU and others falsely assert the U.S. steel and aluminum duties are safeguard measures, and impose retaliatory duties under this pretense, they do great damage to the multilateral trading system,” his statement continued. “Indeed, they show that they are willing to distort WTO rules to mean whatever they want, whenever they want.

“Faced with these unjustified tariffs, the United States will take all necessary actions under both U.S. law and international rules to protect its interests.”

Section 232 Exclusion Process and Sensitive Info

The Section 232 exclusion process has allowed domestic businesses to apply for the chance to be exempted from the tariffs on the grounds that a certain product is not made in enough quantity or quality in the U.S.

According to Reuters, more than 22,500 requests have been filed so far. As we noted last week, the Department of Commerce announced it had approved 42 requests and denied 56.

In the process, sensitive information is being information is being broadcasted, information that competitors can potentially use to their advantage, according to the report, particularly related to company supplies and, potentially, imminent price hikes.

Pump the Brakes on Tariffs, Automakers Say

The U.S. Department of Commerce last month launched a new Section 232 investigation into auto imports, beginning a new round of speculation regarding the potential imposition of tariffs.

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Unsurprisingly, automakers think tariffs would be a bad idea, with industry groups saying they could cost hundreds of thousands of jobs and hike prices, Reuters reported.

If the aim of President Trump’s 10% import tariff on aluminum was to impact China or to encourage the reshoring of primary aluminum production into the U.S., it has, at least so far, been at best only a partial success.

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Just last month, Alcoa announced it will permanently close one of four potlines at the fully curtailed facility in Wenatchee, Washington, preferring to take a $62.4 million payment to the local energy provider Chelan Public Utility District (PUD) on the chin than invest in restarting the facility.

According to Alcoa, the potline planned for closure, Line 3, with a capacity of 38,000 metric tons per year, has not operated since 2001. Three other lines at the Wenatchee site, totaling some 146,000 metric tons per year, have been curtailed since December 2015. Another line at the Wenatchee site was permanently closed in 2004, underlining that not even significantly higher aluminum prices are enough to justify restarting.

Down in southwest Indiana, however, the firm is restarting its Warwick smelter, closed in March 2016 due to low aluminum prices. A local source advised Alcoa would reopen three of five smelter lines and add about 275 jobs at the complex, where its smelter feeds a rolling mill making aluminum for food and beverage packaging.

It would seem the U.S. will never (or not for years) be able to replace the 5 million tons it imports. Rather than generate American jobs, it will simply mean American consumers will have to pay more.

The CME spot contract tracking the U.S. Midwest physical aluminum premium is currently at 21.25 cents per pound ($468 per metric ton), Reuters reports. Now, admittedly there is a Russian premium in that premium, reflecting the sanctions applied to America’s second-largest supplier of primary aluminum, Rusal. But the Russian disruption is also being priced into higher premiums everywhere else and Japanese buyers are only paying a premium of just $160 per ton for the next quarter, the news source reports.

Source: Reuters

Meanwhile, Australia and Argentina, bizarrely exempt from the tariffs, will no doubt ship all they can up to their quota limits. Last year’s 100,000 tons and 250,000 tons, however, will not make much of a dent on Canada’s 2.5 million tons of metal supplied into the U.S. market.

Back to our opening question — if the intention on the other hand was to impact China, the strategy looks like it will have even less impact.

China exports no primary aluminum to the U.S. and precious little semi-finished metal following previous anti-dumping and tariff actions. Sadly, an opportunity for multilateral action at the G7 summit in Canada was missed, as the summit imploded amid infighting and disagreement.

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Multilateral action, Reuters proposes, had some effect in forcing China to rationalize its steel industry. A similar approach may bear fruit for aluminum if multilateral action were a strategy the U.S. embraced, but it does not.

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Rising trade tensions are all the talk these days, stemming from an increasingly complicated web of tariffs, counter-tariffs and World Trade Organization (WTO) disputes, not to mention the ongoing talks surrounding renegotiation of the 24-year-old North American Free Trade Agreement (NAFTA).

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On Wednesday, Secretary of Commerce Wilbur Ross testified before the Senate Finance Committee, during which he was grilled by committee members on the Trump administration’s current and proposed trade actions, including Section 232 steel and aluminum tariffs, the recently launched Section 232 automotive probe and the Section 232 exclusion request process. (The Department of Commerce this week announced it would grant 42 exclusion requests and deny 56. The total 98 requests in question represented less than 1% of the more than 20,000 requests received.)

The full video of the Wednesday hearing is available on the Senate Finance Committee website.

“Commerce has received more than 20,000 steel and aluminum exclusion requests (including resubmissions) and has posted more than 9,200 for public review and comment,” Ross said during his opening statement. “Commerce has also received more than 2,300 objections to exclusion requests. Review of exclusion requests and related objections is being conducted on a case-by-case basis in a fair and transparent process.”

In his opening statement, Senate Finance Committee Chairman Orrin Hatch (R-Utah) expressed concerns about the tariffs’ impact on domestic businesses.

“American manufacturers are already suffering the consequences of increased cost and decreased supply of steel and aluminum inputs,” Hatch said. “Take for example, Bish’s Steel Fabrication. Bish’s makes custom industrial equipment in my hometown, Salt Lake City, Utah, and sells to customers in the United States and around the globe. Bish’s has been in business since 1945, but because of the Section 232 tariffs, they are worried about their future. Steel prices are going up. Not just foreign steel subject to tariffs, but also U.S. steel.

“As a consequence, Bish’s has lost its competitive edge against foreign manufacturers and the company tells me that contracts for future work have all but dried up.”

Questions on the 232 Exclusion Process

Hatch also expressed reservations regarding the Section 232 tariff exclusion process.

“It should come as no surprise that many of us on the committee have concerns about the process, effects, and strategy behind these investigations and resulting actions,” he said. “That includes the serious problems that Senator Wyden and I raised in April about the product exclusion process, a process that still needs significant improvement.”

Ranking Member Ron Wyden (D-Oregon) also offered criticism of the process and its efficacy, and requested that Ross provide a specific timetable with specific fixes for the process so that “the small businesses and the workers who are contacting us can really have a sense of what’s going to happen.”

“It’s impossible to commit to a specific timetable when we don’t know how many requests are yet to come in,” Ross said. “That’s one big problem. As you can see, there are still requests coming in.”

Wyden, however, suggested the Department of Commerce was not prepared for the volume of requests that have come in.

Section 232 Auto Probe

On May 23, the Department of Commerce self-initiated a new Section 232 investigation into whether imports of automobiles and automotive parts threaten to impair the country’s national security.

In response to a question from Hatch regarding national security implications, Ross responded that it was still too early in the investigation to identify those factors. He added that as required by the law, he has sent a notification to Secretary of Defense James Mattis to seek his input on the investigation, as was done with the steel and aluminum cases.

In response to a later question from Sen. Chuck Grassley (R-Iowa), Ross added there is no decision yet as to whether to recommend tariffs.

“We are at the early stages of the process,” Ross said. “We have invited the various participants in the industry to make their submissions. They requested some extra time, so we gave them an extra week to do so.”

Production Restarts

In his opening statement, Ross argued for a positive effect of the tariffs, that being domestic manufacturers restarting previously idled capacity, listing a number of company announcements (including U.S. Steel’s announcements this year that it will restart two blast furnaces at its Granite City, Illinois plant).

Grassley asked Ross how long it will take for domestic plants to be able to ramp up production enough to bring prices of steel back down. Ross said he couldn’t identify exactly when the production restarts would come to fruition, but that they should happen in most cases by the end of the year.

He added, however, that certain “intermediary parties” withholding inventory from the market has contributed to price increases and that an investigation is being started to determine whether people “illegitimately are profiteering out of the tariffs.”

“So the price of steel and for a while the price of aluminum went up far more than is justified by the tariffs,” Ross said.

Canadian Steel

The Trump administration’s announcement late last month that it would let temporary exemptions from the Section 232 steel and aluminum tariffs expire for the E.U., Canada and Mexico have led to threats of retaliation from the intended parties and questions from some domestically about the purpose of such tariffs against market-economy trading partners and allies.

Sen. Michael Bennet (D-Colorado) asked Ross about Canada and how its steel industry is considered a threat to national security in the context of Section 232.

“What is the national security rationale for putting a tariff on the Canadian steel industry with whom we have a trade surplus?” Bennet asked.

Ross noted the remedy has to be a global solution, citing efforts by China, for example, to reroute exports through third-party countries in order to avoid tariffs.

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“The only way we’re going to solve the global steel overproduction and overcapacity [problem] is by getting all the other countries to play ball with us,” Ross said. “And while they’re complaining bitterly about the tariffs, the fact is they’re starting to take the kind of action, which if they had taken sooner, would have prevented this crisis.”

Sen. Pat Toomey (R-Pennsylvania), however, was not satisfied with Ross’ answer.

“What policy change would the Canadians have to make, what would they have to do so that the administration would stop taxing my constituents on the steel that they buy from Canada?” Toomey asked.

Ross suggested breakdown of talks on NAFTA contributed to the decision to lift the Section 232 exemptions for Canada and Mexico, and that the NAFTA talks could get a second wind on the heels of the July 1 Mexican presidential election.

“Our objective is to have a revitalized NAFTA, a NAFTA that helps America,” Ross said. “As part of that, the 232s would logically go away, both as it related to Canada [and] Mexico.”

Toomey followed up by arguing the proposed sunset clause suggested by the American negotiating team would lead to a “lesser” NAFTA and said the administration’s trade actions are based on “economic nationalism,” not national security considerations.

He also alluded to the recent bill he proposed along with Sen. Bob Corker (R-Tennessee), a bill which calls for giving Congress the authority to block the president’s tariff actions.

“I would urge my colleagues to support the legislation that Sen. Corker and I have, which would restore to Congress the authority to make the final decisions about the imposition of those tariffs.”

Sen. Rob Portman (R-Ohio) said he supported enacting trade remedies in the case of China, but that Section 232 should be used “very carefully and very selectively” and, more specifically, for national security reasons.

“Although the WTO has not yet adjudicated this case, if we’re pushing the envelope beyond national security, I think we lose a tool that could be very important for us in a true national security situation,” he said. “[I’m] deeply concerned about its application to Canada, as an example. … Mexico, the E.U., I don’t see the national security perspective there.”