Articles in Category: Public Policy

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Following Russia’s military intervention in Ukraine in February 2014 — the Ukrainian crisis, as it became known as — a number of countries imposed sanctions on Russia led by the United States and Europe, but supported by many others like Canada, Australia and Japan.

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The impact on Russia’s economy was significant, but by early 2016 many countries, even within the previously united E.U., were calling for sanctions to be lifted (or at least revised).

By that stage, the Russian economy had recovered from the initial shock and, despite the restrictions, was doing rather well.

But this time last year, it all began to go downhill (again, this despite a very pro-Putin president being in the White House).

Initiated by President Barack Obama, Congress passed the Countering America’s Adversaries Through Sanctions Act, which imposed new sanctions on Russia for interference in the 2016 elections and its involvement in Ukraine and Syria.

Then, in March of this year, President Donald Trump imposed financial sanctions under the Act on the 13 Russian government hackers and front organizations that had been indicted by Mueller’s investigation into Russian interference in the 2016 U.S. elections.

This was followed in April by further economic sanctions on seven Russian oligarchs and 12 companies under their control. Among these was Oleg Deripaska, a move that sent such severe shock waves through the aluminum market that the administration hastily backpedaled and gave a stay of imposition until October “to allow the market to adjust.”

Many expected a permanent exception to be made for Rusal or for some fudge of ownership to be manufactured such that Deripaska was no longer deemed to be the controlling entity in holding company En+ or Rusal.

But as the date looms ever closer, questions are being raised about whether this will be how it plays out in practice.

More, rather than fewer, sanctions keep getting added to the list. A recent Economist article reports that in August alone, the U.S. has: slapped penalties on Russian shipping firms accused of trading oil with North Korea; imposed restrictions on the arms trade in connection with the poisoning of ex-Russian spy Sergei Skripal in Salisbury; and began congressional hearings on the two new pieces of legislation designed to punish Russia for its interference in elections.

The Economist report goes on to say the greatest threat to Russia’s economy comes from two proposed bills: the Defending Elections from Threats by Establishing Redlines Act of 2018 (DETER) and the Defending American Security from Kremlin Aggression Act (DASKA).

Sen. Lindsey Graham, one of DASKA’s six bipartisan co-sponsors, is quoted as saying it is the “sanctions bill from Hell.” When details of its contents made their way into the Russian press in early August, the rouble slid to two-year lows and the share prices of Russian state banks began falling, according to the Economist reported.

Source: Thomson Reuters

Russia has been taking active steps to mitigate the effects, funneling rising oil revenues into its National Welfare Fund and building up reserves.

However, despite a weaker rouble helping exporters, the economy is suffering.

The uncertainty around sanctions, their impact and the possibility of further measures is having a dire impact on inward investment. Compared with a year earlier, foreign direct investment fell by more than 50% in the first half of 2018, The Economist reported.

Coming as they do on top of the 10% U.S. import tariff on foreign-sourced aluminum, we will see considerable volatility and disruption to the aluminum markets this autumn if sanctions are applied to Deripaska, not to mention other oligarchs on the sanctions list. Shipments out of Russia for any metals – steel, aluminum, and other base and specialty metals – are already being severely delayed as banks scrabble to run compliance checks on the shareholdings and involvement of already sanctioned parties in those producers.

Delays of a month in paying bills normally processed in an hour are now common, which is disrupting supply chains and work flow. For the first time, the market is asking what will be the impact of a total ban on Russian metal supplies (never mind just Rusal’s aluminum).

Your supplier may not be Rusal, but your supplier’s supplier may be (or even his or her supplier’s supplier). The elevated conversion premiums we have seen this summer among European extruders is a reflection of this anxiety and will only get worse if further sanctions disruption ensues.

This uncertainty should be prompting all U.S. metal importers to explore the supply chain of their suppliers in order to understand the potential risks they face and, if necessary, take appropriate steps to safeguard supplies.

For those consumers thinking they only buy domestically and are therefore not affected — think again. You may be buying foreign made metal via a distributor and are potentially still exposed. Even if you are not, domestic prices will rise if there is any significant disruption to foreign supplies.

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As we saw with the 25% tariff on steel and 10% on aluminum, tariffs cause domestic producers to move swiftly to capitalize on competitors’ cost increases by raising their own prices.

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

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  • MetalMiner’s Stuart Burns took a look at Chinese domestic consumption and its impact on commodities.
  • On Monday we delved into recent trends in the world of aluminum, from prices to company investments.
  • How big of an impact are U.S. tariffs having on Turkey? In short, a big one, given the prominent place its steel sector has in its overall economy.
  • The U.S. and Mexico announced an agreement in principle on certain NAFTA provisions, as talks awaited between the U.S. and Canada with respect to the 24-year-old trilateral trade deal.
  • You’ve probably heard President Trump’s call for a s0-called “Space Force,” touted as a sixth branch of the armed forces. Burns looked into that and what the call for a Space Force will, in all likelihood, turn out to be (if anything).
  • Not surprisingly, U.S. imports of steel are down through the first seven months of the year.
  • The Department of Commerce made an affirmative determination in a countervailing duty investigation of imports of steel wheels from China. The case will now move on to the U.S. International Trade Commission.
  • Global crude steel production was up 5.8% year over year in July, according to a World Steel Association report.
  • Sohrab Darabshaw touched on Vedanta and its plans to invest billions of dollars, namely in Indian oil and energy businesses.

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You never quite know with Donald Trump whether a new announcement is a case of international headline grabbing or whether the true motivation is the financial deal.

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But the president’s push for the U.S. to create a sixth branch of the armed forces in the form of a “Space Force” could possibly be satisfying both objectives.

The need to create a sixth armed services — in addition to the Army, Navy, Air Force, Marines and Coast Guard — in the form of a Space Force is hard to justify when the U.S. is already so well-endowed with military capability and structure. However, it should be eminently possible to create an extension of, say, the Air Force with a space division at much lower cost; the need for U.S. to focus attention on the potential threat from new space-based or space-enabled technologies is undeniable.

Not since Ronald Reagan created America’s Strategic Defense Initiative, called “Star Wars” by some, 35 years ago has the threat to America suddenly so jarringly transformed from invulnerable to at risk. Both Russia and China are investing heavily in hypersonic projectiles and the president’s fear is that if the U.S. does not take the risk seriously it will be left behind.

If Congress agrees it would be a bonanza for aerospace and defense companies in the sector.

Already flush with both civilian and military programs, a heavy injection of federal defense dollars into R&D to develop such capabilities and the ability to counter them would further swell returns in the sector.

Hypersonics are one area that has come in for particular attention, according to a report in The Telegraph.  Russia and China are said to be actually testing such technology which operates at Mach 5 or higher, or at least five times faster than the speed of sound.

Traditional jet engines work up to about Mach 4, so a supersonic combustion ramjet (SCRAMJET) is required to power missiles and aircraft which can operate between Mach 5 and Mach 15. These would power a new breed of super-high-speed missiles able to outrun even the fastest fighter jets, or via piggybacking on rockets, could reach low-earth orbit and cruise until required.

According to CNBC, hypersonic cruise missiles are powered all the way to their targets and take just six minutes from the time of launch until the time it strikes. They can fly at altitudes up to 100,000 feet, after which hypersonic glide vehicles are preferable. They are placed on top of rockets, launched, and then glide on top of the atmosphere, the article reports, before being flown to target. Such missiles are almost impossible to counter with current anti-ballistic missiles systems because their trajectory can be varied and, hence, are unpredictable.

Washington isn’t taking the threat of foreign powers testing such technology lightly: it has already awarded a $480 million (£373 million) contract to Lockheed Martin to work on a similar weapon.

But the president — or, more likely, the industry lobbying behind the scenes — feels much more needs to be done.

The big winners, according to the Telegraph are likely to be Lockheed Martin, Boeing, Northrop Grumman, SpaceX and Aerojet Rocketdyne.

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Whether increased military focus on space in general and hypersonics in particular will result in a new Space Force is doubtful; in reality, it doesn’t need to.

Talk of a Space Force is grabbing headlines and creating some momentum to free up funds for the U.S. to develop such technology and the capability to deliver if ever needed.

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This morning in metals news, a group of Tennessee manufacturers sent the president a letter urging him to rescind the Section 232 tariff on imported steel, the Trump administration has proposed a new rule for emissions standards that would undo Obama-era limits and copper hit a one-week high.

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Manufacturers Ask Trump to Rescind Steel Tariff

A group of manufacturers in Tennessee have sent President Trump a letter asking him to remove the tariff on imported steel, The Tennessean reported.

According to the letter, the companies believe the tariff impacts their ability to compete with foreign companies.

“These employees and our businesses depend on access to competitively priced steel to fabricate our products and compete in a global marketplace,” the letter stated. “We cannot compete globally when the cost of our most important input has spiked and delivery times are extended.”

Trump Administration Proposes New Rule for Emissions Standards

The Trump administration Tuesday proposed a new rule governing emissions standards, which would undo Obama-era restrictions on carbon emissions, the Washington Post reported.

The Environmental Protection Agency (EPA) released a statement on what is being called the Affordable Clean Energy Rule.

“The ACE Rule would restore the rule of law and empower states to reduce greenhouse gas emissions and provide modern, reliable, and affordable energy for all Americans,” EPA Acting Administrator Andrew Wheeler said. “Today’s proposal provides the states and regulated community the certainty they need to continue environmental progress while fulfilling President Trump’s goal of energy dominance.”

Copper Bounces Back

Copper hit a one-week high Tuesday on the dollar’s losses and ahead of planned talks between the U.S. and China this week, Reuters reported.

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LME copper jumped 1% Tuesday, Reuters reported, rising to $6,053 per ton.

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Many had hoped the announcement last month of 10% tariffs on China would be the signal for serious negotiations between the two trading partners, that China may come to the table and be willing to discuss some of the U.S.’s genuine concerns about theft of intellectual property and reciprocal access rights to each other’s markets.

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While much was made about the trade imbalance, most realized there was no quick fix to the U.S. addiction to low-cost Chinese imports or the Chinese state-sponsored export model – both would take years to correct.

But a road map as to how that may be achieved would in itself be a major win from the confrontation. Indeed, a resetting of those issues to a more equitable position would be a legacy that would seal President Donald Trump’s place in history, without any advance on the myriad other battles he has started with friends and foes alike.

Alas, no such progress is being made.

According to a recent Financial Times article, if anything the opposite seems to be the case.

Negotiations have stalled at a low level, the report states, with discussions now limited to, at best, “conversations about whether we are going to be able to have a fruitful negotiation or not,” according to one senior administration official quoted by the news source.

China really had little alternative if it wanted to maintain face than to announce reciprocal tariffs to those originally applied by the U.S., but in so doing the tables were balanced in the view of U.S. negotiators. The president announced his intention to extend tariffs on $200 billion in annual imports from China, plus a possible increase from 10% to 25% on that $200 billion to give U.S. negotiators room to maneuver.

Unfortunately, the decision now seems to have stalled what little progress was being made. On Friday, China announced plans to impose tariffs on $60 billion of U.S. goods, according to a statement on the Ministry of Commerce website.

Beijing seems in no hurry to capitulate, despite the Shanghai stock market down 3.6% and Hong Kong’s Hang Seng index down 2.6% to the lowest level in 10 months. Opposition at home is muted to non-existent. Chinese media and much of the industry see themselves as the victims of an unprovoked attack and, as such, support Beijing in what is seen as resistance to an external threat.

In the U.S., however, opinions are more diverse.

Some among the president’s traditional hardcore supporters are still staunchly behind him, but criticism has been growing from other quarters, not least farmers who see themselves in the firing line as China switches buying from the U.S. to South America.

The president’s case may garner more national support if the case were articulated more comprehensively.

There is only so much national consensus that can be achieved via Twitter. The case for nurturing domestic industry has huge merit and, in reality, the cost to U.S. consumers could be relatively low. However, rather than debate and persuade, the barrage of tweets — mixed in with tweets about building a border wall and FBI investigations into Russian attempts to influence voting — creates a chaotic message board. As a result, trade – the most important issue of the day – is subsumed in a barrage of messages and policy priorities.

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To give the “Art of the Deal” space to work on the international stage, the president needs, whether he realizes it or not, the ongoing support of voters, impacted communities (farmers, for example) and the manufacturing sector he purports to represent. As negotiations stall and the process drags on, this imperative will only intensify.

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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®:

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

Want to see an Aluminum Price forecast? Take a free trial!

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This morning in metals, U.S. Trade Representative (USTR) Robert Lighthizer said Canada is a national security threat with respect to steel, the U.S. posted 4.1% GDP growth in Q2 and The Coca-Cola Company says it is raising prices on account of the Trump administration’s 10% aluminum tariff.

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Canada…Steel Threat?

Answering a question regarding whether Canada presents a national security threat to the United States, USTR Robert Lighthizer responded in the affirmative — in the case of steel, according to a report in the Globe and Mail.

GDP Growth Rises to 4.1%

The U.S. posted GDP growth in Q2 of 4.1%, up from 2.1% in Q1, the Bureau of Economic Analysis reported, marking the highest quarterly growth level since 2014.

The figure represents an estimate; according to the BEA, a second estimate encompassing more data will be released Aug. 29.

According to the Bureau’s analysis, the Q2 increase reflected “positive contributions” in personal consumption expenditures, exports, nonresidential fixed investment, federal government spending, state and local government spending, and residential fixed investment.

Coke Raises Prices Because of Tariffs

Beverage giant Coca-Cola is raising prices on account of the 10% aluminum tariff, CEO James Quincey said during the company’s earnings call this week, CNN reported.

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“Obviously, while [customers] may understand the cost pressures that are out there on freight, on the increases in steel and aluminum and other input costs that affect the bottling system and affects some of our finished products, clearly, these conversations are difficult,” he was quoted as saying on the call.

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After last week’s hearings on the Department of Commerce’s Section 232 investigation of automobile and automotive part imports, this week the Office of the United States Trade Representative (USTR) will holding public hearings on the proposed list of items to be subjected to tariffs pursuant to Section 301.

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The USTR hearing begin Tuesday, July 24, at 9:00 a.m. ET. The hearings will cover the $16 billion in proposed tariffs, the second tranche of the previously announced $50 billion in tariffs.

The first tranche of the tariff package, amounting to $34 billion, went into effect July 6. China responded in kind with $34 billion in tariffs on U.S. goods, sparking harsh words from the U.S. and threats of more tariffs.

Trade tensions have only escalated in the weeks since the implementation of the $34-billion tranche.

“As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports,” UTSR Robert Lighthizer said in a prepared statement earlier this month. “This is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies. USTR will proceed with a transparent and comprehensive public notice and comment process prior to the imposition of final tariffs, as we have for previous tariffs.”

President Trump ramped up the stakes even further this past week, as he said in an interview with CNBC that he would be willing to impose $500 billion in tariffs on Chinese goods — or, essentially, tariffs on all Chinese imports.

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The schedule for the Tuesday hearing, including a list of individuals giving testimony, can be found here.

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®:

Need buying strategies for steel? Try two free months of MetalMiner’s Outlook

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

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.