Articles in Category: Public Policy

This morning in metals, we’re tracking a travel advisory for China issued yesterday by the U.S. Department of State — which could impact manufacturers and suppliers who have individuals traveling to and from China for business.

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“Exercise Increased Caution”

  • Issued yesterday, the travel advisory cautions U.S. travelers to “exercise increased caution in China due to arbitrary enforcement of local laws as well as special restrictions on dual U.S.-Chinese nationals.” Some of that arbitrary enforcement is taking the shape of “exit bans,” which effectively means that Chinese authorities are preventing travelers from leaving the country on very shaky grounds, and in certain cases not allowing them access to consular services, not disclosing how long the traveler may be detained, and/or not allowing them to leave for years.
  • For manufacturing organizations or their suppliers, individuals traveling in and out of China may be affected by these exit bans. Speculation as to why Chinese authorities have stepped up their arbitrary enforcement of travel regulations abounds, including retaliatory action vis-a-vis recent trade disputes with the U.S. and a Huawei executive being detained in Canada, but MetalMiner will follow up on this story as more details or insight become available.

In Other Metals News

  • European carmakers still need steel imports to remain competitive. That’s what the ACEA, an association representing EU automakers, said recently, in response to the European Commission’s decision to propose definitive steel safeguards, according to Argus Media. “Motor vehicle manufacturing has increased by 5mn units per year since 2014, and some increase in steel imports has been necessary to meet this higher demand,” ACEA secretary general Erik Jonnaert is quoted as saying.
  • According to the article, “hot-rolled coil (HRC) will remain a global quota under the definitive safeguard, but cold-rolled coil and hot-dip galvanized coil — both of which are used by carmakers — have country-by-country and quarterly quotas that could have a greater impact on supply.”

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Few would have predicted this five years ago, but India is facing a real dilemma.

It is exacerbated by the country’s predilection for subsidies and set against the backdrop of a chronic power generation landscape.

As any regular traveler to India will know, while power outages are not as common as they once were, they remain an almost daily occurrence in many areas. According to the FT, quoting figures from the New Delhi-based Energy and Resources Institute, per-capita electricity consumption by the country’s 1.3 billion people is just 38% of the global average, while tens of millions of households still lack grid connections — so demand growth is high and set to continue for decades to come.

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Not surprisingly, the government has made the push for reliable, universally available electricity a long-running key policy priority; a policy based largely on coal-fired coal plants that was roundly condemned by both environmental organizations and many Western governments.

India’s Coal Paradox

Coal is the only fossil fuel India has in abundance, with extensive deposits situated in the northeast of the country, although power plants in the west and south often import coal from Indonesia rather than haul product across the country on a rickety rail network. Oil and gas have never been favored because they are largely imported.

As for those subsidies mentioned earlier, the Gujarat state government has just awarded two major coal plants run by Adani — Tata Power and Essar Power — increased power rates to help stem heavy losses the plants are incurring due to uneconomic imported coal supply costs.

Over the past couple years (and estimated into the future), India’s thermal power capacity additions have given way to solar and wind. Source: FT.

Part of the problem for coal-fired plants has always been competitively priced coal supplies; even though the country has abundant supplies, it suffers from an appalling logistics infrastructure. Today, only plants sited very near to the deposits in northeastern India remain viable. Most of the rest are in trouble, with Credit Suisse estimating half of them as being ‘stressed’ – i.e. interest payment exceeding profits – putting some $35 billion of investments at risk, the FT reports.

Various sources’ share of India’s total electricity capacity. Source: FT.

Renewable Energy Power Price Collapse Plays Its Part

The second — and, in many ways, more profound — dynamic at work is the collapse of renewable energy power prices.

According to the FT, Japan’s SoftBank, as part of a consortium in 2017 agreed to sell power from a northern Indian solar park for Rs2.44 per unit, well below the cost of coal power, which typically costs well over Rs3. Last year, state-run NTPC — by far the biggest thermal power producer in India — has canceled several plans for large coal projects, including one for a giant 4GW plant in southern Andhra Pradesh state, while Adani Power invested more than $600 million in a solar plant in sunny southern Tamil Nadu. Coal is no longer seen as economically viable in India — not from an environmental point of view, but purely based on the cost of production.

Not surprisingly, in recent meetings, state thermal power station equipment manufacturers were bemoaning (off the record) the dire state of the market, with little on offer except repair and maintenance.

After he was elected in 2014, Prime Minister Narendra Modi and his government set an ambitious target of increasing India’s renewable energy capacity by 2022 to 175GW, equivalent to 40% of the country’s total power capacity. This was a target seen as more for external consumption than a genuine strategy; but last year, despite the backlog of coal-fired plants still in the works, more solar power capacity was brought on stream than coal, suggesting the 40% target may yet be achieved, particularly if better storage solutions can be achieved to smooth out the variability of renewable power supply.

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Until then, coal plants are still needed to provide base-load and increasingly intermittent power, a role they are not as well suited to as gas, but in the absence of anything else may be of such need that those subsidies keep rolling in.

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This morning in metals news, the aluminum price slides to a 16-month low, Liberty House could be looking to expand its presence in the Middle East and the mid-February deadline for the Section 232 auto investigation draws nearer.

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Aluminum Drops Post-Sanctions Delisting

The aluminum price continued to fall Monday after last week’s announcement on the delisting of previously sanctioned Russian companies.

According to Reuters, the LME aluminum price dropped 0.5% Monday, continuing the decline after the price hit a 16-month low last week.

Liberty House Continues on the Acquisitions Trail

As we noted last week, Liberty House recently acquired miner Rio Tinto’s Dunkerque aluminum smelter, as Sanjeev Gupta’s GFG Alliance continues to snap up assets.

According to a report in The National, the steel tycoon could now be turning to the Middle East, specifically the U.A.E.

According to the report, which cites a Liberty House official, the company is in talks to buy steel and aluminum assets in the country.

Section 232 Auto Probe Deadline Inches Closer

The Trump administration’s Section 232 investigation of steel and aluminum import levels came to a close in the spring with much fanfare, yielding blanket tariffs of 25% and 10%, respectively.

However, the administration didn’t stop using Section 232 then and there, as it launched yet another 232 probe in May, this time looking into imports of automobiles and automotive parts.

The law requires Secretary of Commerce Wilbur Ross to present a report to the president within 270 days after the launching of a 232 investigation, making for a mid-February deadline.

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In an interview with the Financial Times, Ross said his report is still a “work in progress” but also noted the president’s flexibility in terms of what he can do with respect to potential automotive tariffs.

The recently signed United States-Mexico-Canada Agreement (USMCA), inked during the Group of 20 summit in Argentina, included stricter auto content rules for tariff-free vehicle trade. The new trade agreement bumps the automotive content threshold from 62.5% to 75%. In addition, USMCA included a provision that 40-45% of auto content must be produced by workers making a minimum of $16/hour.

Well, that was something and nothing, wasn’t it?

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The non-event of the month was the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announcement this week of its intention to end sanctions on En+ Group plc, UC Rusal plc, and JSC EuroSibEnergo, all vehicles associated with Russian oligarch Oleg Deripaska.

Deripaska remains on the sanctions list. However, following his nominal separation from the firms, OFAC decided to end sanctions.

Deripaska is reported to have put plans in place to reduce his shareholding in holding company En+, which is currently 70% to fall to 44.95%, while a Russian bank will take title to a portion of Deripaska’s shares, according to Aluminium Insider.

The article states Deripaska will also be required under the agreement to hand over shares in En+ to charitable foundations and assign voting rights above a 35% threshold to a voting trust. Other shareholders deemed to have a familial or professional relationship will be compelled to do the same.

Once the entire plan has been executed, En+ will retain ownership of 56.88% of Rusal, with Deripaska’s stake reduced to 0.01%.

That’s good news, aluminum buyers may retort, and yes, it is in terms of finally settling a source of some disquiet that has been underlying the market since May.

But the fact that the aluminum price barely moved underlines the reality that the market had long expected this outcome — and barely reacted, accordingly.

What happens next year remains to be seen.

The whole metals complex has been at best trading sideways during the second half this year, buoyed by decent demand but depressed by worries about global growth and trade wars.

The lifting of sanctions frees up some 200,000 tons of Rusal primary metal sitting on the LME for consumption, and potentially 10 times as much sitting in off-warrant or off-market stock and finance trade storage.

The LME metal is unlikely to go anywhere fast. Currently, the LME supports rollover of maturing stock and finance trade contracts with two-year forwards at a sufficient premium to one-month forward to facilitate extension.

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As such, the market is not going to be flooded with Rusal metal that would cause a further weakening of prices. That clearly is the market’s assessment, too, otherwise prices would have fallen significantly after the announcement.

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This morning in metals news, the U.S. Treasury Wednesday announced it will lift its sanctions against companies owned by Russian oligarch Oleg Deripaska (which includes aluminum giant United Company Rusal), Chinese steel prices hit a five-week high and Alcoa cuts aluminum production amid a labor dispute at its Becancour smelter in Quebec.

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U.S. to Lift Sanctions on Russian Firms

On Wednesday, the U.S. Treasury Department announced it would delist several Deripaska-controlled companies, not long after previously announcing a sanctions deadline pushback to Jan. 7.

“Treasury sanctioned these companies because of their ownership and control by sanctioned Russian oligarch Oleg Deripaska, not for the conduct of the companies themselves,” Treasury Secretary Steven T. Mnuchin said. “These companies have committed to significantly diminish Deripaska’s ownership and sever his control. The companies will be subject to ongoing compliance and will face severe consequences if they fail to comply. OFAC maintains the ability under the terms of the agreement to have unprecedented levels of transparency into operations.”

According to the Treasury Department’s announcement, it will terminate the sanctions imposed on En+ Group plc, UC Rusal plc and JSC EuroSibEnergo in 30 days.”

MetalMiner’s Take: LME aluminum prices have increased slightly today on the news knowing that the Trump administration will lift sanctions on Russian companies owned by oligarch Oleg Deripaska.

However, the increase does not appear sharp. Prices increased following the previous pattern, and aluminum prices are still lower than they were at the beginning of the month. This decision will not have a large impact on the aluminum market.

In April, when the sanctions were announced, the aluminum market felt constraint regarding supply; prices subsequently spiked.

However, current market conditions are far different from April 2018.

Crude oil prices are lower, commodities are decreasing and the U.S. dollar is rising. Also, Section 232 and all the other tariffs still remain in effect.

Therefore, buying organizations won’t see dramatic changes in LME aluminum prices, in both the short and long terms.

Alcoa to Cut Production at Quebec Smelter

Alcoa announced Wednesday that it will cut production by half at its Aluminerie de Bécancour Inc. smelter in Quebec.

“The Bécancour aluminum smelter, owned by Alcoa (74.95%) and Rio Tinto Alcan Inc. (25.05%), has nameplate capacity of 413,000 metric tons per year, across its three potlines,” Alcoa said in a release. “Two of the facility’s potlines were curtailed on January 11, 2018, after union members rejected a proposed labor agreement for hourly employees.”

Alcoa said curtailment of the one operating potline, which has a nameplate capacity of 138,000 metric tons per year, was “necessary to ensure continued safety and maintenance in light of recent retirements and departures.”

Alcoa and the union representing its workers still remain without a labor agreement almost a year after the other two potlines were curtailed.

“After extensive negotiations this year, ABI and the union have yet to reach an agreement on key terms to improve productivity and profitability,” Alcoa said in its release. “ABI’s management remains committed to reaching a negotiated agreement.”

According to Alcoa, curtailment of the one operating potline will begin Friday, Dec. 21.

Chinese Steel Prices Hit Five-Week High

Chinese steel prices, which have lagged of late, rose to their highest level in five weeks, Reuters reported.

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Shanghai rebar steel prices rose as much as 1.8% Thursday before settling up 1.5%, according to the report.

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In a ruling that caught many by surprise, an environment court in India set aside a provincial government order to shut down Vedanta’s copper smelter plant permanently.

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This is the same plant over which the local population in the southern Indian state of Tamil Nadu have been protesting primarily because of pollutants from the smelter.

It was this plant in Tuticorin that was ordered shut down by the government after hundreds of angry local residents had, in May this year, spilled out on the road to protest against the plant’s environmental impact. As we noted earlier this year, the protests turned bloody, as police fired on the protesters, killing 13 people.

With this new legal order, Vedanta has high hopes of restarting this vital smelter, but the Tamil Nadu government says it will not budge, and would file an appeal in the country’s highest court.

A report on moneycontrol.com said the National Green Tribunal’s (NGT) ruling had raised hopes of a revival, especially because the shutdown of Vedanta’s copper smelter had “dealt a blow to its valuations.”

The tribunal directed the Tamil Nadu state pollution regulator to pass a new order of renewal of consent for the smelter within three weeks. It also directed Vedanta to spend about U.S. $14 million (about 1 billion rupees) in three years for the local people’s welfare.

But the Tamil Nadu Environment Minister told reporters after the ruling that his government will fight this order, since it does not want the smelter to reopen.

Vedanta Ltd is part of the oil-to-metals conglomerate Vedanta Resources, run by Indian businessman Anil Agarwal. The Tuticorin smelter is one of the two largest in India, and Vedanta desperately wants it to resume operations as the group braces for rising raw material costs.

At the time of the closure in May, Sterlite Copper Vedanta Ltd CEO P. Ramnath said the closure of the plant would push India’s annual import bill by an estimated $2 billion.

The Tuticorin facilities include a custom smelter, a refinery, a phosphoric acid plant, sulphuric acid plants and a copper rod plant.

News of the tribunal order was welcomed by the Indian share market.

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On Dec. 17, Vedanta’s shares rose by 6.5% in early trading following news of the ruling. Towards the end of the day, it cooled off a little after the Tamil Nadu government made it clear that it planned to challenge the order at the Supreme Court of India.

Ed. note: Enjoy this timely dispatch from London by MetalMiner’s Editor at Large.

Not just Europe but the entire world was surprised at Britain’s decision following a referendum in 2016 to leave the EU.

At the time, the media was full of the story but in the interim we have all rather switched off as the negotiations have taken a tortuous route back and forth without appearing to make any progress. Brits have largely despaired that their government will ever come to a workable solution, an opinion reinforced last week when the latest (and according to the EU) final deal was presented to parliament, only for it to be roundly rejected and face the prospect this week of being formally thrown out if it is put to a vote.

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Now, even though Prime Minister Theresa May has just delayed a Commons vote for the plan that was originally scheduled for tomorrow, the prospect of Brexit is not some far-off threat; come the end of March, the UK formally leaves the EU and — whatever happens — will have to accept a new form of relationship with its neighbors.

The questions is, how will we get there at this point?

Read more

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

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  • Sohrab Darabshaw covered India’s view of the Regional Comprehensive Economic Partnership (RCEP).
  • The oil price has plunged — MetalMiner’s Stuart Burns looked into the reasons why.
  • October global crude steel production jumped 5.8% year over year, according to data in a recent World Steel Association report.
  • A recent Section 301 report by the United States Trade Representative on China’s trade practices painted a familiar picture.
  • Through the first 10 months of the year, steel imports were down 11% compared with the first 10 months of 2017.
  • There is talk of a potential merger between two Chinese steelmakers whose combined annual capacity would exceed that of the U.S. as a whole.
  • Housing starts in October were up from the previous month.
  • General Motors’ announcement this week of plant closures and a 15% workforce reduction could be a sign of cost-saving measures to come for other automotive brands.
  • Several CEOs spoke earlier this week during a panel discussion event in Washington, D.C., focusing primarily on the impact of the U.S.’s steel and aluminum tariffs.
  • Lastly, in case you missed the news earlier today, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement during the G20 summit in Buenos Aires (the trade deal still needs to be ratified by each country’s legislature).

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With the United States-Mexico-Canada Agreement (USMCA) potentially being signed by the three parties this week during the G20 Summit in Buenos Aires — which will take place over two days, Nov. 30-Dec. 1 — the trade deal and tariffs are on the minds of industry CEOs, from manufacturing to agriculture.

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Several industry executives gathered in Washington, D.C. Tuesday for a panel discussion on the impact of the U.S.’s Section 232 steel and aluminum tariffs and their relationship to the USMCA.

Speaking at the event were:

  • Michael Dykes, CEO, International Dairy Foods Association
  • Jennifer Thomas, vice president, Federal Government Affairs, Alliance of Automobile Manufacturers
  • Buddy Stemple, CEO of Constellium, Aluminum Association member
  • Brandon Skall, CEO and co-founder, D.C. Brau, Brewers Association member
  • Catherine Boland, vice president, legislative affairs, Motor Equipment Manufacturers Association

Heidi Brock, president and CEO of the Aluminum Association, also offered opening remarks during the event, reiterating the Association’s public stance that Canada and Mexico should be granted quota-free tariff exemptions. (Brock also spoke on the subject during a U.S. International Trade Commission hearing earlier this month.)

The focus should be on China, not Canada and Mexico, Brock said, according to a transcript of her remarks.

“Across-the-board tariffs are not addressing the problem of China’s illegally subsidized aluminum overcapacity,” she said. “We have seen very little evidence that the Section 232 tariffs are impacting behavior in China, which continues to illegally subsidize its aluminum industry. China’s aluminum capacity has grown by 73 percent over the past five years, and an additional eight percent just this year, despite the Trump administration’s tariff regime. In fact, there is some evidence that the tariffs may actually be helping Chinese aluminum producers to enter new markets by increasing China’s price advantage over aluminum produced in North America.”

According to a Reuters report earlier this month, Ildefonso Guajardo, Mexico’s economy minister, said he expects the U.S., Mexico and Canada to sign the USMCA during the G20 Summit.

Buddy Stemple, CEO of Constellium Rolled Products, a downstream aluminum manufacturer based in Ravenswood, West Virginia (primarily serving the aerospace, automotive, packaging and defense industries), applauded the Trump administration for its trade actions on Chinese common alloy aluminum, but, like Brock, indicated the Section 232 tariff on aluminum casts too wide of a net.

“And the Section 232 tariffs, which imposes a 10 percent tariff on virtually all aluminum and aluminum product entering the United States – not just from China but from all countries – is the wrong solution to a real problem,” he said, according to a transcript of remarks. “While well-intentioned, the tariffs are making the U.S. aluminum industry, including Ravenswood, less competitive on the world stage.”

The U.S. aluminum industry does not make enough to support domestic demand, he argued, an argument we echoed yesterday in our discussion of the tariff waiver process:

In the case of aluminum, a real common alloy shortage exists. The exclusion request process ought to consider where the U.S. runs market deficits and shortages versus only who, in theory, can produce the particular metal.

The same can not be said for many of the common forms of steel, where ample domestic supply exists to meet demand.

He also called for a USMCA without steel and aluminum tariffs for Canada and Mexico. In addition, referred to the “unintended consequences” of the administration’s tariff exemption process.

“Requests for massive volumes of common alloy aluminum sheet have been approved, even though some of these imports are coming from China,” he said. “In particular, the approval of exclusion requests by Ta Chen International now allow for import of more than 1 billion pounds of Chinese common alloy sheet – a substantial share of the U.S. market for common alloy products.”

Continuing in the same vein, Jennifer Thomas, of the Alliance of Automobile Manufacturers, referred to the statutory basis for the Section 232 tariffs.

“At the end of the day, Canada and Mexico are not national security threats,” Thomas said.

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All eyes will be on Buenos Aires tomorrow and Saturday, when G20 leaders will convene. Global markets will be looking to the summit for developments with respect to USMCA (i.e., its potential signing and whether the steel and aluminum tariffs will be removed for Canada and Mexico) and whether President Donald Trump and Chinese President Xi Jinping can make any progress with respect to the ongoing U.S.-China trade war.

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This morning in metals news, U.S. senators are asking for an independent review of the Trump administration’s Section 232 tariff waiver process, LME copper is down for the third straight day and Chinese steel mills are preparing for difficult times ahead.

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Another Look

The review of Section 232 tariff exemption requests from domestic companies has been going on since June, and the process has come in for much criticism.

According to a Bloomberg report, a bipartisan group of senators have asked for an independent review of the tariff waiver process, noting that as of last month only about one-third of the approximately 50,000 requests had been addressed.

LME Copper Down Again

London copper has been on the slide of late, dropping Tuesday for the third straight day, Reuters reported.

According to the report, the drop comes after comments by President Donald Trump to the Wall Street Journal related to China. The president said it was unlikely the U.S. would agree to China’s request to delay the scheduled Jan. 1 tariff rate increase — up to 25% from 10% — on the previously announced $200 billion tariff package.

Chinese Steel Mills Hit a Rough Patch

According to another Reuters report, Chinese steel producers posted losses for the first time in three years.

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Per the report, as a result of falling prices, some mills are looking to utilize more low-grade iron ore in the steelmaking process in an effort to tamp down costs.

MetalMiner’s Take: In markets in which profit margins erode, simple supply and demand fundamentals ought to take hold — producers ought to limit supply to boost profits.

In the U.S., producers did exactly that for years and years, operating at below 80% utilization rates (U.S. producers have only recently hit those production rates as a result of the tariffs, the bullish commodity market and a booming economy).

When Chinese producers start to run losses, those producers ought to take a lesson from their American peers — and limit production to shore up profits.

But Chinese steel producers won’t do that. In fact, they will do the opposite — continue to produce, even at a loss, to keep people employed.

And once again, that excess steel will flow to the rest of the world.

Too much steel always has and always will put a lid on prices. Therefore, steel-buying organizations will want to watch very closely how much steel China produces, as well as the price per ton, as Chinese steel production and steel prices lead the U.S. market.