Articles in Category: Public Policy

The U.S. steel industry applauded the president’s latest executive order, which targets the augmentation of the percentage of domestic steel content — among other goods — in federal procurements.

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On Monday, July 15, the president signed a proclamation hailing this “Made in America Week,” and also signed an executive order aimed at “maximizing use of American-made goods, products, and materials.”

The order strengthens the requirements under the Buy American Act — originally passed in 1954 during the Eisenhower administration — for federal agencies to buy American-made goods.

According to White House trade adviser Peter Navarro, the order would increase the threshold for domestic content of iron and steel from 50% to 95%, Reuters reported.

The order directs the Federal Acquisition Regulatory Council to, within 180 days, consider proposing an amendment to the Federal Acquisition Regulation (FAR) that would dictate materials be considered of “foreign origin” if “the cost of foreign iron and steel used in such iron and steel end products constitutes 5 percent or more of the cost of all the products used in such iron and steel end products.”

For all other products, the threshold for foreign origin would be applied if “the cost of the foreign products used in such end products constitutes 45 percent or more of the cost of all the products used in such end products.”

“The philosophy of my administration is simple. If we can build it, grow it or make it in the United States, we will,” Trump was quoted as saying by the Associated Press.

Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), praised the move.

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“This announcement is another positive step in ensuring the fullest possible implementation and enforcement of existing domestic procurement laws and ensuring the steel industry remains competitive,” he said in a prepared statement. “Strong domestic procurement preferences for federally funded infrastructure projects are vital to the health of the domestic steel industry, and have helped create manufacturing jobs and build American infrastructure. We applaud President Trump for once again affirming his commitment to the steel industry that built, and continues to build, our nation.”

In an effort to boost the domestic steel sector, the Trump administration invoked Section 232 of the Trade Expansion Act of 1962 last year to impose tariffs of 25% and 10% on steel and aluminum, respectively. Since then, the U.S. steel sector’s capacity utilization rate has trended upward.

According to AISI, the U.S. steel sector’s capacity utilization rate hit 81.1% for the year through July 13, up from 77.0% for the same period in 2018. Production for the aforementioned year-to-date period hit 52.3 million tons, up 5.2% on a year-over-year basis.

Are gold prices really going to keep rising? Source: Adobe Stock/Nikonomad.

Gold powering to $1,400 an ounce sounds rather optimistic, but is actually not too far from the truth.

Spot gold has already gained about $80 so far this month, pushing the price this week to its highest level in more than five years.

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We have reported earlier about the rising appetite for gold in the form of ETFs and physical metal, but investors’ enthusiasm was spurred this week by dovish comments made by the Federal Reserve on Wednesday regarding interest rates.

Where previously the Fed has indicated patience and a watch-and-see policy, this week it signaled a possible interest rate cut as soon as next month.

The Fed is apparently worried about a deteriorating domestic and global economic backdrop, according to Reuters. A combination of damaging trade wars and slowing growth in all the major trading blocs, set against a backdrop of a potential end of a bull market cycle, is getting not just central banks but investors worried, too.

CNBC cited more technical issues around the movement of longer-dated treasuries as a major stimulus to gold buying (at least this week). The article states the 10-year Treasury yield slipped below 2% for the first time since November 2016, breaching an important psychological level, adding that the surge in gold prices was likely driven by the declines in yields of shorter-duration Treasuries ranging between three months and two years. The yield on the three-month Treasury note trickled lower to 2.146%, while the two-year note dropped to 1.716%.

Whether the Fed will cut rates next month will be driven by a number of factors, not least of which will be the impact of a strong dollar on U.S. exporters. The European Central Bank and the Reserve Bank of Australian have both signaled they intend to cut rates.

The Fed’s news this week has taken the edge off the dollar. Relatively speaking, however, other trading blocs appear ahead of the Fed in easing monetary policy. There is talk of quantitative easing returning in Europe, a move that could spark trade tensions between the U.S. and the E.U. as the Euro weakens further (which will be the subject of an upcoming followup piece on MetalMiner).

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Meanwhile, gold is in fashion and, in the absence of any contrarian news, appears set for further gains.

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This morning in metals news, steelmaker ArcelorMittal has concerns over a new law Italy is set to approve later this month, Vietnam plans to impose anti-dumping duties on coated steel from China and South Korea, and a work stoppage continues at Codelco’s Chuquicamata copper mine in Chile.

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ArcelorMittal Looks for ‘Legal Certainty’ in New Italian Law

Steelmaker ArcelorMittal and its Italian subsidiary, ArcelorMittal Italia (AMI), have expressed concerns to the Italian government regarding its new Crescita law decree, which it is scheduled to be ratified later this month.

“If ratified as currently drafted, the provision concerning the Taranto plant would impair any operator’s ability to operate the plant while implementing the environmental plan approved by the Italian Government in September 2017, including for ArcelorMittal,” the steelmaker argued in a release. “The Taranto plant has been under seizure since 2012 and cannot be operated without legal protection until the environmental plan is implemented.”

The steelmaker continues added the Crescita law removes “legal safeguards.”

“However, the Crescita law decree removes the legal safeguards existing when ArcelorMittal agreed to invest in the Taranto plant,” the firm said. “These safeguards are necessary until the company has completed the environmental plan to avoid incurring liability for issues that it did not create.”

With the law set to be ratified by June 29, the steelmaker said amendments can be made.

“AMI remains hopeful that, as part of the amendment process, legal certainty will be restored in the interest of the Italian economy and of the stakeholders of ArcelorMittal Italia, enabling AMI to continue operate of the plant while completing the environmental requalification plan,” the firm said.

Vietnam Imposes Anti-Dumping Duties

Vietnam will impose anti-dumping duties on imports of coated steel from China and South Korea, S&P Global Platts reported.

According to the report, the duties are set to take effect June 25 and extend for about four months.

Work Stoppage Continues at Chuquicamata

The No. 1 copper producer in the world, Chile’s Codelco, is facing a work stoppage at its Chuquicamata mine, Bloomberg reported.

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The stoppage hit its seventh day Thursday, according to the report, after labor unions called the latest Codelco offer “irresponsible.”

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This morning in metals news, iron ore continues its hot streak, the Chinese government has summoned executives of 48 regional companies to demand they curb pollution from their facilities and a series of Section 301 public hearings kicks off today.

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Iron Ore Rises

The iron price has been ascendant so far this year, aided in large part by supply-side constraints.

According to the Australian Financial Review, the iron ore price last week posted its biggest weekly gain since February en route to a record high.

According to the report, the most-actively traded September Dalian iron ore contract jumped as much as 4% to $115.20/ton.

China Targets Pollution

The winter heating season in China officially ended in March, and steel production has ramped back up after the winter production curbs.

Despite the end of those curbs, the Chinese government is still asking companies to limit their pollution. According to Reuters, the government is summoning executives from 48 regional companies for a meeting in which they will order the firms to cut output.

Section 301 Hearings Begin

This week, a series of hearings will commence related to the ongoing Section 301 tariff saga, which now could see tariffs applied to the remaining $300 billion in Chinese goods that have yet to be slapped with duties by the U.S.

As such, the Office of the United States Trade Representative is hosting a series of public hearings on the subject, beginning today and concluding Tuesday, June 25.

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“The proposed tariffs are a supplemental action in response to China’s unfair trade practices related to technology transfer, intellectual property, and innovation, based on the findings in USTR’s investigation of China under Section 301 of the Trade Act of 1974,” the USTR said in a release. “Tariffs on $250 billion in goods from China are currently in effect under Section 301 trade action.”

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A new government in India has steel companies and iron miners rushing to it with urgent pleas on iron ore mine auction.

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One appeal is for the government to auction iron ore mining licenses held by private miners when they expire in March 2020.

If that happens, it will come as a relief for India’s steel companies, as they will no longer have to rely on costly imports.

Mining leases of at least 59 iron ore mines with a total capacity of 85 MTY are set to expire March 31, 2020. These have a combined production capacity of around 60 MTY, but none of them has been put up for new auctions.

A few days ago, the Indian Chamber of Commerce (ICC), Associated Chambers of Commerce and Industry of India (Assocham) and the Chattisgarh Sponge Iron Manufacturers’ Association (CSIMA) sent off letters to NITI Aayog, India’s planning commission, and the mines ministry, making a case for mine auctions, Livemint reported.

Experts say production at non-integrated steel companies, which do not have access to captive iron ore resources, will be disturbed if the auctions were delayed any more, affecting even major steel companies like Rashtriya Ispat Nigam Ltd, Essar Steel and JSW Steel.

The letter to NITI Aayog by the ICC said accepting merchant miners’ request to extend their license till 2030 would mean a huge revenue loss by way of auction premium for the exchequer. It takes about two years for operations to restart once regulatory clearances are received.

For India’s iron ore miners, there’s new hope, however, given that international prices are over $100 a ton, the highest in five years, which means a restart in export of lower grades of ore from India.

The Indian province of Odisha has in excess of 100 million tons of inferior grade iron ore accumulated at mine heads, which nobody wants in India. Similar inventory is to be found in the province of Jharkhand. Both provinces account for over 80% of India’s accumulated iron ore stockpile, the Business Standard reported.

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In the recent past, export of iron ore failed to pick up, despite incentives. Miners are hopeful a supply disruption in Brazil and Australia will make global steelmakers look to source more iron ore from India.

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It almost sounds like an oxymoron, doesn’t it: how can an event be good for the economy but bad for the country?

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As former President Bill Clinton’s campaign strategist James Carville quipped, “it’s the economy, stupid,” meaning if the country is doing well then everyone benefits, and that that’s all voters care about.

Where better to focus solely on the economy than the second-most populous country in the world that is still ranked only No. 124 on the list of wealthiest countries by Global Finance?

Narendra Modi’s Bharatiya Janata Party (BJP) has its critics, even regarding the economy. While there have been failings, there have also been significant gains, some of them not so readily reflected in GDP figures.

Anyone accustomed to dealing in India will attest to the transformation in business attitudes and practices over Modi’s first term. Corruption has been tackled head-on; further work needs to be done, but the landscape is changing fast to the benefit of both domestic consumers and foreign firms trying to do business there.

Decision-making in a notoriously bureaucratic country has also significantly improved. Middle-ranking officials still prevaricate, a national pastime only exacerbated by the clampdown on corruption as lesser officials fear to make decisions on their own. But the more dynamic individuals, both in private and public office, have risen faster and meritocracy is overtaking political connections, with the cream rising to the top as a result.

So, more of the same should be good, right?

Well, India still faces considerable challenges, as Edward Luce recently wrote in his Financial Times Swamp Notes.

India is facing serious economic challenges, including slowing growth, a persistently high fiscal deficit, tepid private investment, and weakness and instability in the financial system.

Modi achieved some gains in his first term, such as introducing universal GST in place of state taxes and the aforementioned clampdown on corruption. However, he remains widely criticized for not doing more to tackle long-standing challenges, such as selling unprofitable state enterprises, relaxing restrictive labour laws, modernizing the land market or tackling the state-dominated banking system.

Such moves, if he had the courage to tackle them, could begin to unlock long-term growth in an economy that has brief spurts of growth, but in the medium to longer term disappoints repeatedly.

It remains to be seen, with a single-party majority, if Modi has the vision and courage to effect real change in these areas.

He has a mandate for change — even 15% of Muslims are said to have voted for the BJP despite its overtly Hindu overtones.

What is worrying is that running as an undercurrent, not just to the election but increasingly throughout the first term, is a progressively more nationalistic, Hindu- centered philosophy that, according to the Financial Times, breaks ranks with the vision laid out by anti-colonial leader Mahatma Gandhi and his political heir Jawaharlal Nehru, the country’s first post-independence prime minister. They believed India’s interests were best secured by a secular state, governing a religiously and linguistically diverse society whose members all had an equal claim as citizens.

The BJP and its close cousin, the right-wing Rashtriya Swayamsewak Sangh, clearly stand for something different.

The RSS was founded in 1925 and is based on the belief India should primarily be a Hindu nation, where the rights of the Hindu majority should trump those of Muslims and Christians, seen as alien religions that pose existential threats to Hindu society, the Financial Times asserts. Modi himself may not be a signed-up member, but BJP President Amit Shah is — and so are many other party leaders.

Much like populist parties elsewhere, the BJP is not averse to bending the truth to present the message it would like its voters to hear.

India’s swift and decisive response to Pakistan’s killing of scores of Indian military personnel earlier this year clearly contributed to Modi’s popularity at the polls, despite the fabrication of the news to suggest terrorist camps had been struck when in reality all the air force managed was to lose a plane and leave two craters in a field.

To be fair to the BJP, such tactics are regularly used, even in the U.S., with “fake news” fighting real news for credibility. However, the extensive use of social media to spread influence has sinister undertones, particularly as it is used as much for promoting a Hindu nationalist agenda as it is simply boosting the party’s standing.

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Modi’s majority could be either a great opportunity to force through real economic and structural change, or it could allow the BJP/RSS to push society further toward nationalism and the ostracization of minorities.

Let’s hope common sense prevails. Despite — or rather, because of — the landslide victory, the country has testing times ahead, in more ways than one.

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This morning in metals, U.S. imports of foreign steel have dropped 7.8% through the first four months of the year, the Department of Commerce announced changes to its countervailing duty process and the copper price is on its way to its sixth consecutive weekly drop.

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U.S. Steel Imports Down

U.S. imports of steel for the year through April dropped 7.8%, according to the American Iron and Steel Institute (AISI).

Total imports for the first four months of the year reached 11.5 million tons. In April, however, imports reached 3.3 million tons, up 45.5% from the previous month.

DOC Amends Countervailing Duty Process

The U.S. Department of Commerce announced changes to its countervailing duty process with respect to “countries that act to undervalue their currency relative to the dollar.”

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a prepared statement. “Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses. This proposed rulemaking is a step toward implementing President Trump’s campaign promise to address unfair currency practices by our trading partners.”

Copper Price Heads for Sixth Straight Week of Losses

The copper price has been on a steady decline in recent months, in part weighed down by trade tensions between the U.S. and China.

According to Reuters, the LME copper price is headed for its sixth consecutive week of losses.

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Earlier this month, trade talks took a hit when President Donald Trump opted to raise tariffs on $200 billion in Chinese goods, after which China retaliated with tariffs on $60 billion in U.S. goods.

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This morning in metals news, the May 18 deadline for the president’s decision on potential new automotive tariffs is being pushed back up to six months, Chinese iron ore futures rose to a record high and the Trump administration reversed an Obama-era pause on mining in a northeastern Minnesota wilderness area.

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Pumping the Brakes

May 18 marked the statutory deadline for President Donald Trump to make a decision regarding whether or not to impose new tariffs on imported automobiles and automotive parts. The decision is prompted by a Section 232 investigation — launched in May 2018 — into whether those imports negatively impact U.S. national security.

However, the decision is being delayed by up to six months, CNBC reported.

China’s Iron Ore Futures Soar

China’s iron ore futures rose to a record high Thursday, Reuters reported, on the back of rising demand and tight supply.

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According to Reuters, the most-trade September iron ore contract on the Dalian Commodity Exchange rose by as much as 4.5% Thursday to reach 678.5 yuan ($98.62) per ton.

Trump Administration Opens Door to Potential Minnesota Copper Mining

The U.S. Interior Department this week renewed two mining leases near the Boundary Waters Wilderness area in northeastern Minnesota, leases which had been suspended under President Barack Obama, Reuters reported.

According to the report, the Bureau of Land Management granted the leases to Twin Metals Minnesota LLC, which is a subsidiary of Chilean copper giant Antofagasta.

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The press has been all over the trade war-induced falls across stock markets. The New York Times reported this week that the S&P 500 was off 2.4% on Monday, the worst day since early January.

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In all, the S&P 500 is down 4.6% so far this month, while the tech-heavy Nasdaq composite index fell 3.4% — its worst decline in 2019.

European and emerging markets have likewise fallen sharply following tit-for-tat announcements between President Donald Trump and President Xi Jinping. This all comes despite the U.S. economy doing well, expanding 3.2% annualized in the first three months of the year and with unemployment down to 3.6%, its lowest level since 1969, the paper reports.

Indeed, it is suggested it is just those healthy numbers that have encouraged the president to up the ante in the face of apparent Chinese intransigence on certain key issues.

To keep stock-market falls in perspective, though they come on the back of a 17% rise so far this year, arguably the market has already achieved a year’s gains in just four months; a correction was to be expected.

The sharp falls, though, show how complacent the markets had become trusting a deal between the U.S. and China was just weeks, if not days away.

That this escalation of trade tensions came on the back of a return to robust growth is no surprise.

It is suggested by The New York Times that both sides have been emboldened by solid domestic growth, not to mention a need to pander to their domestic audiences – in Trump’s case, in the run-up to next year’s elections. Meanwhile, Xi is cognizant of his own nationalist rhetoric of recent years, making compromises to China’s Made in China 2025 march to global pre-eminence a personal humiliation.

So with the scene set for a possibly protracted standoff, you have to wonder why Trump has opened a second front with the European Union.

Conventional wisdom suggests generals wage one war at a time, as fighting on two fronts risks aligning your opponents against you and dividing your forces.

So why has the president chosen this moment to escalate his previous rhetoric with the E.U. over trade issues, threatening again in recent days to levy tariffs on automobiles from the E.U., among other categories? Possibly because the chances of securing a really meaningful victory over China are receding. Counterbalancing that with a win against Europe would allow some face-saving in the run-up to next year’s elections, but the risks are huge.

President Trump faces a May 18 deadline to decide whether to put tariffs on up to $53 billion worth of European cars. E.U. Trade Commissioner Cecilia Malmström is quoted by CNBC as saying she hopes the Trump administration could delay the deadline as it focuses on inking a deal with China, but recent comments from the White House suggest otherwise.

Trump may judge the Europeans more likely to compromise than China, as they certainly have more to lose. Europe is facing a shaky domestic economy already battered by trade tensions with China in the fallout from U.S. action, a decline in sanctions hit Russian trade and rising energy prices (in part due to U.S. action against Iran).

Last but not least, the ink is barely dry on the revised and still to-be-ratified United States-Mexico-Canada Agreement (USMCA). Cracks are showing among the trade partners, as Canada and Mexico mull tariffs of their own in order to pressure Trump to drop his steel and aluminum tariffs.

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If there is any takeaway from the current highly uncertain political and economic outlook, it is consumers need redundancy and options in their supply chains. Well-established, multiyear supply chains are having their economic fundamentals upturned on a tweet. While companies do not want to be chopping and changing suppliers on a whim, having options at least enhances supply chain durability and may just keep production lines running.

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This morning in metals news, President Donald Trump added sanctions on Iran targeting its metals industry, Rio Tinto is shipping more aluminum to Europe and ArcelorMittal reported its Q1 2019 financial results.

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Trump Targets Iran’s Metals Sector

A year on after withdrawing from the 2015 Iran nuclear deal, President Donald Trump took aim at Iran’s largest source of non-oil export revenue: metals.

On Wednesday, the president signed an executive order imposing sanctions on Iran’s metals industry, including exports of iron, steel, aluminum and copper.

Rio Tinto Supplying More Aluminum to Europe

According to Rio Tinto CEO Jean-Sebastien Jacques, the miner has begun to ship greater volumes of aluminum to the European market amid flagging U.S. demand, Reuters reported.

The CEO cited the ongoing U.S.-China trade conflict as a factor contributing to the decline in U.S. demand.

Although negotiations between the U.S. and China continued this week, tensions escalated as President Donald Trump has threatened to increase the rate on a previously announced $200 billion in tariffs from 10% to 25%, setting a Friday deadline for the increase. The tariffs were originally imposed in September, with the tariff rate increase scheduled for Jan. 1 before the two countries reached an agreement on a negotiating timetable.

ArcelorMittal Reports Q1 Results

Steelmaker ArcelorMittal reported EBITDA of $1.7 billion in Q1 2019, down from $2.0 billion in Q4 2018.

Steel shipments were up 7.9% from Q4 2018 “primarily due to higher steel shipments in Europe (+14.4%) due in part to the acquisition of ArcelorMittal Italia (following its consolidation from November 1, 2018) and NAFTA (+2.8%), offset in part by lower steel shipments in Brazil (-5.7%).”

“Our first quarter results reflect the challenging operating environment the industry has faced in recent months,” ArcelorMittal Chairman and CEO Lakshmi Mittal said. “Profitability has been impacted by lower steel pricing due to weaker economic activity and continued global overcapacity, as well as rising raw material costs as a result of supply-side developments in Brazil.”

Mittal also addressed high import levels, even after Europe’s approval of steel safeguard measures earlier this year.

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“We continue to face a challenge from high levels of imports, particularly in Europe, where safeguard measures introduced by the European Commission have not been fully effective,” Mittal said. “Although we are somewhat encouraged by the firmer price environment in China, this is not being reflected in Europe where in order to adapt to the current market environment we have recently announced annualized production cuts of three million tonnes in our flat steel operations. It is important there is a level playing field to address unfair competition, and this includes a green border adjustment to ensure that imports into Europe face the same carbon costs as producers in Europe.”