Articles in Category: Public Policy

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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.”

Faced with the prospect of perhaps not being able to meet the target of installing 175 GW of renewable energy by 2022, the Indian government has decided to adopt a new tack.

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Media reports in India say the government is mulling a tender calling for the manufacturing of solar power equipment that doesn’t come with the usual clause requiring electricity generation. The aim is to invoke investor interest and meet the demands of this market.

There’s little doubt in anyone’s mind that to meet the 2022 target, things need to, well, be speeded up.

Of the 175 GW of renewable energy capacity, 100 GW will be from solar, the Business Standard reported. Of this, the government expects at least 40 GW to come from installation of rooftop solar projects.

While the interest in solar power as an alternate has been growing in India, interest from solar equipment makers has been poor, which is now coming in the way of Prime Minister Narendra Modi’s ambitious plans on this front.

According to a report by news agency Bloomberg, India has been “struggling” to push its budding domestic solar equipment manufacturing industry. By one government reckoning, as of now, it can meet about 15% of India’s annual needs; India has already imposed a safeguard duty on cheap Chinese import options.

The same Bloomberg report pointed out that a May 2018 tender was “downsized” and also delayed many times before being scrapped due to poor investor interest. It was replaced by a smaller version in January, for which the bidding deadline has been extended three times — more likely than not, the latest deadline of May 14 will be extended again.

But in a case of the opposite, at least one province in India has decided to halt all new solar projects.

A few weeks ago, the southern Indian state of Karnataka has halted the construction of new solar energy projects, Livemint reported. The Karnataka Electricity Regulatory Commission, a regulatory body, stated there would be no further bidding to procure solar energy from large-scale projects until further orders.

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The Karnataka Electricity Regulatory Commission wrote to the state electricity body that because of Karnataka’s power-positive situation, it would have to restrict procurement from high-cost sources. The state’s distribution companies have already contracted to procure adequate power from solar energy sources, enabling them to meet their renewable purchase obligations (RPOs), not just for Fiscal Year 2020, but for another couple of years, as well.

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This morning in metals news, Brazilian miner Vale SA reported its Q1 2019 production totals, ArcelorMittal is idling mills in Europe and U.S. Rep. Betty McCollum questioned Interior Secretary David Bernhardt regarding plans to advance copper-nickel mining in northeastern Minnesota.

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Vale SA Reports Q1 Output

Brazilian miner Vale SA reported its Q1 iron ore output and sales figures this week, showing sharp declines in both.

In late January, a dam breach at a Vale mine in Brumadinho left hundreds dead and hobbled production amid review of safety conditions at other mines; as such, the iron ore price has soared in the ensuing months.

Vale reported iron ore fines production of 72.9 million tons in Q1, down 28% from the previous quarter and down 11% from Q1 2018.

Meanwhile, iron ore fines and pellet sales volume reached 67.7 million tons, which marked a 30% drop from Q4 2018 and a 20% drop from Q1 2018.

ArcelorMittal Idles European Mills

Earlier this week, steelmaker ArcelorMittal announced plans to temporarily idle steelmaking production at its Krakow, Poland facilities and reduce production in Asturias, Spain.

“In addition, the planned increase of shipments at ArcelorMittal Italia to a six million tonne annual run-rate will be slowed down following a decision to optimise cost and quality over volume in this environment,” ArcelorMittal said.

“Together, these actions will result in a temporary annualised production reduction of around three million tonnes.”

U.S. Rep. Questions Interior Secretary Over Minnesota Mining Plans

During a budget hearing this week, U.S. Rep. Betty McCollum questioned Interior Secretary David Bernhardt over plans to advance copper-nickel mining in northeastern Minnesota, the Minneapolis Star Tribune reported.

The Minnesota Democrat raised concerns about the impacts of sulfide ore mining on public lands, referring to the proposed mining plans raise by Twin Metals Minnesota and mine owner Antofagasta.

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McCollum questioned Bernhardt about the status of documents related to the Trump administration’s reversal of an Obama administration decision to terminate Twin Metals’ federal mining leases and cancel a two-year study into the potential impacts of copper-nickel mining in the Superior National Forest on nearby wilderness areas.

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Not surprisingly, the most alarmist headlines were run by the most biased of news channels: the BBC.

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Long advocates of left-wing sympathies, the Beeb — as the BBC is affectionately known in the UK — has for many years also been leading the charge on environmental issues. Not that we have any problem with having an environmental conscience — anyone watching the rapid the bleaching of the world’s barrier reefs can’t help but feel a part of themselves die in the process — but we would much rather see the BBC reporting on sound scientific data than listen to them pushing one political angle, like some mogul-backed, partisan media outlet.

So when a BBC article shouts “UK Parliament declares climate change emergency” you expect it is possibly hyperbole. What does the statement even mean, you may ask. Are we about to be inundated by a monsoon, fry in a heatwave, be washed away in a tsunami or blown away in a typhoon?

Apparently desperate to address something other than Brexit, the British government appears likely to commit the U.K. to an even tougher carbon emissions target than it already has — indeed, tougher than any other major economy in the world.

According to the Financial Times, the proposals build on the 2008 Climate Change Act, which targeted reducing emissions by 80% from 1990 levels by 2050. The U.K. is on track to achieve this, having made steady progress in the interim with emission levels falling more than 40% over the last 29 years.

But the last 20% will be the hardest if the U.K. seeks to achieve zero emissions. The rest of Europe has signed up to similar targets, but exempted certain key industries (such as agriculture, aviation and shipping).

True zero emissions represent a significant challenge, whatever politicians may say.

It will require a sweeping overhaul of energy use from homes to transport to even what we eat. It involves a pledge to phase out diesel and electric cars by 2040, quadruple energy supplies from low-carbon sources such as renewables and supplement a hydrogen economy where natural gas is currently used (80% of British homes are reliant on natural gas for heating and/or cooking).

Heavy carbon-emitting industries will have to adopt carbon capture technology, which has to date proved less than satisfactory and expensive to operate. Nevertheless, the government has already invested some limited funds in pilot projects and has undertaken to do more.

The tough ones will be aviation (an alternative to fossil-fueled jet engines is a long way off), shipping (which is moving to 0.5% low sulfur fuel but still remains a massive source of carbon emissions) and agriculture, which is probably the worst offender.

There is no known trick of science that stops a cow breaking wind and little that can be done about the acres of corn that need to be cultivated to feed that cow. The Committee on Climate Change acknowledges one of the biggest and hardest changes will be to humans’ diets. More plant-based and less animal- and fish-based protein would have a profound impact on carbon emissions but will take a fundamental shift in the wider population’s habits.

Still, some trends are in favor of the needed changes.

Electric cars are predicted to be cheaper to buy and run than petrol- or diesel-fueled vehicles by 2030 (if not before). Wind power is already said to be cheaper than natural gas, the Financial Times says, providing storage costs to achieve continuity are subsidized, but even that may cease to be necessary as battery technology improves and wind turbine costs continue to fall.

The committee’s report suggests the changes needed, spread over the next 20-30 years, need not be onerous or disruptive to growth; indeed, they may present significant opportunities for new technologies and for the industries that exploit these opportunities.

Whether the world has 30 years, none of us knows. The U.N. says we could have just 12 years to effect change before we reach a point of no return; they may, like the BBC, be trying to promote a project fear agenda to effect change (we really don’t know).

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In the meantime enterprising firms have the opportunity to develop new products and services to meet what is already becoming a relentless process of change.

Every cloud has a silver lining.

One of India’s premier industrial representative bodies, the nonprofit Federation of Indian Chambers of Commerce & Industry (FICCI) has expressed concern over the drop in mining concessions being awarded every year.

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In a presentation to Niti Aayog, a policy think tank of the Government of India (GoI), the Chamber called for the government to “expedite” auctions of mineral blocks, moneycontrol.com reported. The FICCI pointed out that the average of such sales had come down to 15 mines annually today, compared with the 300-400 mineral concessions given prior to 2015.

As part of reforms and in the interest of mining sector transparency, the Indian Parliament passed the Mines and Minerals Development and Regulation Amendment Bill in 2015. The Indian government claimed this had removed the arbitrariness seen earlier in such auctions.

FICCI said although the 2015 act does grant the winner of the mineral block with sub-surface mineral rights, the company had to face a lot of red tape to seek the surface rights and obtain necessary statutory clearances. This was a hindrance in converting successful auctions into production on the ground.

Citing unnamed sources, moneycontrol.com reported officials from Rio Tinto, Tata Steel, Vedanta and the Federation of Indian Mineral Industries (FIMI) also were part of the presentation.

The mining sector of India had already been demanding further reforms, including the implementation of a “One Tax Regime” in mineral production along the lines of GST, with the effective taxation rate (ETR) capped at 40%, the Hellenic Shipping News reported.

A few days ago, Niti Aayog itself set up a high level committee to look at ways and means of boosting mining in the country, according to CNBC-TV18 reported.

Mining contributes about 2% to India’s GDP, but some in India claim it could go up to as much as 10%.

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In FY 2018, for example, India’s import bill hit U.S. $465 billion, of which $126 billion, or 27%, consisted of metals and minerals alone.

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This morning in metals news, the copper price got a boost from optimism stemming from the resumption of trade discussions between the world’s top two economies, the CEO of Australia’s Fortescue was bullish about the Chinese steel sector and British Steel received a £100 million government loan.

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Copper Price Picks Up

As it has been wont to do throughout the U.S.-China trade talk saga, the copper price was supported by Wednesday’s restart of trade talks in Beijing between the two economic superpowers.

Three-month LME copper moved up 0.2% Wednesday to $6,426 per ton, Reuters reported.

Fortescue CEO Optimistic About Chinese Steel Production

While some economic indicators suggest the Chinese economy is slowing down, China’s steel sector does not appear to be following that trend, according to Fortescue CEO Elizabeth Gaines.

Fortescue is one of the world’s largest iron ore producers. In 2018, China posted a record 928.3 million tons of crude steel production.

“When it comes to China, what we’ve really seen, particularly in that first quarter, is strong growth in steel production,” Gaines said while appearing on CNBC’s “Capital Connection.”

Gaines added that based on conversations with customers in China, she expects steel production growth in China to come in at 3-4% this year.

British Steel Gets £100M Loan

The BBC reported British Steel has secured a £100 million loan from the government to pay off its E.U. carbon bill.

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As the report notes, amid Brexit uncertainty, the European Commission last year opted to suspend U.K. firms’ access to free carbon permits — which can be used to pay for emissions bill or can be traded to raise money — under the E.U. emissions trading system.

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The Office of the United States Trade Representative (USTR) released its annual Section 301 report late last week, covering intellectual property protection by U.S. trading partners and its so-called Notorious Markets List.

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The Trump administration utilized Section 301 of the Trade Act of 1974 to impose heavy duties on Chinese goods last year, to the tune of $250 billion worth of imports. The move came on the heels of long-standing U.S. criticism of what it sees as China’s unfair trade practices, including forced technology transfer and intellectual property violations, among others. (China retaliated last year with $110 billion worth in tariffs on U.S. goods.)

“The Special 301 Report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights,” a USTR release stated.

According to the release, countries presenting the “most significant concerns regarding IP rights” are placed on either the Priority Watch List or Watch List. In total, the report identifies 36 countries qualifying for inclusion on either of the two lists.

The countries listed under Priority Watch were: Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine and Venezuela.

Meanwhile, the Watch List included: Barbados, Bolivia, Brazil, Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Paraguay, Peru, Romania, Switzerland, Thailand, Turkey, Turkmenistan, the United Arab Emirates, Uzbekistan and Vietnam.

“These trading partners will be the subject of increased bilateral engagement with USTR to address IP concerns,” the USTR release stated. “Specifically, over the coming weeks, USTR will review the developments against the benchmarks established in the Special 301 action plans for countries that have been on the Priority Watch List for multiple years. For such countries that fail to address U.S. concerns, USTR will take appropriate actions, such as enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization or other trade agreement dispute settlement procedures, necessary to combat unfair trade practices and to ensure that trading partners follow through with their international commitments.”

The full Section 301 report can be read here.

The report also features a Notorious Markets List, which includes markets “reported to engage in and facilitate substantial copyright piracy and trademark counterfeiting.” The report identifies 33 online markets and 25 physical markets under the Notorious Markets List.

“This activity harms the American economy by undermining the innovation and intellectual property rights of U.S. IP owners in foreign markets,” the USTR said. “An estimated 2.5 percent, or nearly half a trillion dollars’ worth, of global imports are counterfeit and pirated products.”

The physical markets section of the report highlights China’s role in the distribution of counterfeit products.

“As in past years, several commenters continue to identify China as the primary source of counterfeit products,” the Notorious Markets List report states. “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price) and 87 percent of the seizures by CBP in 2017.

“Some Chinese markets, particularly in larger cities, have adopted policies and procedures intended to limit the availability of counterfeit merchandise. However, these policies are not widely adopted and enforcement 32 remains inconsistent.”

The full report on the Notorious Markets list, including full listings for each online and physical market, can be found here.

The U.S. Chamber of Commerce issued a statement on the heels of the USTR’s release of the special report, calling global IP laws “under-developed” despite “steps in the right direction.”

“Despite steps in the right direction, overall global IP laws remain under-developed, denying cutting-edge American businesses a return of fair value on their innovations and creativity, and leaving many countries unprepared to meet the challenges and opportunities of a 21st century knowledge economy,” said Patrick Kilbride, the U.S. Chamber of Commerce’s senior vice president of the Global Innovation Policy Center, said in a prepared statement. “Lack of enforcement to protect copyright rights-holders; misuse of competition enforcement; price controls; compulsory licenses; and undermining IP protections through multilateral organizations favor domestic commercial interests at the expense of innovators, creators, and consumers around the world.”

Kilbride also highlighted the pending United States-Mexico-Canada Agreement (USMCA), saying the “USMCA and the forthcoming FTAs provide an opportunity to strengthen IP protections around the world.”

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“We applaud the negotiation team on the completion of the USMCA and urge Members of Congress to recognize the benefits of the agreement,” Kilbride added. “GIPC benchmarked the USMCA against the IP standards included in the U.S. Chamber’s International IP Index. The research reveals a significant improvement from the original NAFTA, which scored a mere 48 percent while the USMCA scored 80 percent.”

The USMCA must be approved by each country’s legislature before the agreement can go into effect.

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This morning in metals news, iron ore shipments into China picked up in March after February’s 10-month low, India’s top court blocked ArcelorMittal’s attempt to buy the bankrupt Essar Steel and the E.U. opened the door to formal trade negotiations with the U.S.

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China’s Iron Ore Import Levels Rise in March

With winter production curbs winding down in China, imports of the steelmaking material iron ore picked up in March, Reuters reported.

China imported 86.42 million tons of iron ore in March, up from 83.08 million tons in February.

Indian Supreme Court Blocks ArcelorMittal’s Bid to Buy Essar Steel

India’s National Company Law Tribunal (NCLT) in early March gave the OK to ArcelorMittal’s plans to buy the bankrupt Essar Steel, thus allowing the former to enter the Indian market.

However, India’s Supreme Court had other ideas.

The Economic Times reported the country’s high court superseded the NCLT approval by ordering a halt to ArcelorMittal payments to buy the debt-laden Essar Steel.

E.U. Gives Initial OK Toward Initiation of Formal Trade Talks with U.S.

As the Trump administration this week announced it is considering imposing $11 billion worth of tariffs on a wide range of imports from the E.U., European countries gave the green light in the process to initiate formal trade talks with the U.S., Reuters reported.

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According to the report, two mandates have been put forth (still requiring final approval): cutting tariffs on industrial goods and “making it easier to show products meet E.U. or U.S. standards.”