CommentaryMarket Analysis

tariffs headline over $100 bills

zimmytws/Adobe Stock

Whether the new Biden administration creates a more insightful or sophisticated approach to trade remains to be seen.

But, if nothing else, a new administration is a chance for a reset on policies that have not worked as intended under a previous administration.

Aluminum tariff policy

The previous administration’s Section 232 tariffs on aluminum of 10% were well intentioned. The tariffs aimed to try to reverse the decline in US domestic aluminium smelting capacity.

In recognition of aluminum’s role in defense and aerospace applications, the government viewed the growing level of imports as a threat to national security. As such, creating a barrier to imports intended to allow US smelters to operate profitably and encouraged firms to reopen idled capacity. Furthermore, the hope was that, in time, firms would open new smelters.

The previous decade had been brutal for the US aluminium smelting industry.

By 2017, capacity utilization had fallen to 37%, according to Reuters.

Many hailed the strategy as a savior for the smelting industry. However, consumers would ultimately have to pay the bill.

Are you under pressure to generate aluminum cost savings? Make sure you are following these five best practices

Flaws in the plan

But even accepting that the COVID-19 pandemic made 2020 a far from typical year, it has become clear the tariff strategy has not worked on a number of levels.

While the inflationary cost of finished goods has been minor, the aluminum content even of a can of beer is a small fraction of the total product cost. It remains true that consumers have had to foot the bill.

It was always the intention that domestic producers would raise their prices to the import plus tariff price. The corresponding uplift was what was supposed to allow them to operate profitably again, to arrest the decline and reopen idled capacity.

Annualized production rose to 1.15 million tons at the end of 2018 from 750,000 tons a year earlier. The increase, however, proved short-lived. By the end of last year, national annualized production had fallen to 920,000 tons and capacity utilization to about 50%, Reuters reported.

Equally worrying the post states, there has been no new smelting capacity. The United States remains as dependent as ever on imports of primary metal.

Aluminum tariff and Canada

Buyers will remember the spike in prices that followed the reinstatement of tariffs on Canadian aluminium predicated on the “surge in imports,” as the Trump administration claimed at the time.

The reality was Canadian-origin metal had simply made up for the absence of Russian metal following Rusal’s pivot away from the US, largely to Asian markets, following the earlier sanctions on owner Oleg Deripaska. Russian imports collapsed from 725,000 tons in 2017 to only 136,000 tons last year. Shipments from Canada simply filled the gap, rising 10% in 2019.

The previous administration seemed to accept that imports from Canada should not be considered a strategic risk. Ultimately, it removed the tariff in September 2020.

But what of potential suppliers elsewhere? Would it not be of value to the US to widen its non-tariff supply base?

Biden rescinded permission to exempt the UAE recently for what seemed like political rather than national security reasons. China has never exported primary metal, so it remains irrelevant to this policy.

The years ahead

How the US handles imports of semi-finished products going forward will be the topic of a separate post. The US has inherited a fractious trade landscape as a result of the last few years.

It does so at a time of a fundamental re-evaluation of its trade priorities. Many would argue that re-evaluation is long overdue.

That re-evaluation includes its relationship with China. In that vein, the US is better off by working in cooperation with its allies and neighbors than the unilateral policies of the previous administration that have largely failed to deliver benefits.

Sign up today for Gunpowder, MetalMiner’s free, biweekly e-newsletter featuring news, analysis and more.

India and US flags

Denis Rozhnovsky/Adobe Stock

It is too early to talk of the direction US-India relations will take under US President Joe Biden’s administration.

But Indian trade circles are keeping a close eye on trade-related developments with a hopeful eye.

Hopes for better US-India relations

Much of the hope for better US-India relations focuses on the desire that the US will focus more on its bilateral ties with India because of the former’s strained relation with China, and why the US would benefit from such a move.

China will be on the new US administration’s mind as it assesses the Indo-US trade relationship. For now, though, the Biden administration has made it clear it would not considering any new free trade deals. Furthermore, it’s unclear whether the Biden administration will maintain or rescind existing Section 232 steel and aluminum tariffs.

The two countries have a lot going on together. The two have a robust bilateral trade. Through the first 11 months of 2020, the U.S. imported goods from India worth $46.3 billion and exported about $24.6 billion in goods. In addition, the countries have cooperation in defense and an ever-increasing reliance on each other in the field of energy.

The appointment of four Indian-Americans to senior posts in the Department of Energy (DOE) is being seen as a positive. Energy expert Tarak Shah was appointed as the department’s chief of staff, making him the first Indian-American to serve in the position. The DOE said the new leaders will direct policy and enact Biden’s vision for “bold action on the climate crisis.”

Find more insight on MetalMiner’s LinkedIn.

Read more

coronavirus

JJ Gouin/Adobe Stock

Could the coronavirus pandemic bring about more reshoring in the U.S.?

The question is not just of interest in the U.S. By many measures, Europe has been hit as severely by the pandemic. If anything, Europe is even more reliant on global supply chains than the U.S.

The political philosophy that underpinned the Trump administration’s efforts to slow China’s advance — that is, to bring jobs back to the U.S. and “level the playing field” — is also prevalent in Europe. However, in the more fragmented political environment of the E.U., that philosophy is arguably taking longer to come into focus.

Sign up today for Gunpowder, MetalMiner’s free, biweekly e-newsletter featuring news, analysis and more.

Supply chains, reshoring and a ‘great reset’

Disruption to supply chains due to lockdowns was a relatively short, albeit very sharp, shock.

Automakers temporarily shut down Japanese production lines due to a shortage of parts from China in Q1. Furthermore, there is ongoing chaos at European, particularly U.K., ports due to a host of pandemic-related factors.

Supply chains far and wide have struggled during 2020. These challenges are prompting many to ask: is this the jolt needed to stimulate a great reset?

As The Economist notes, there can be a business case for it, too.

Read more

Not so long ago on a fall night here in Chicago, I had the opportunity to meet up with a couple of folks from a steel producer. 

What they told me then sounded a little scary — they suggested the “A” word — but not nearly as scary as current market conditions suggest. 

In metals markets, the “A” word does not contain three letters. 

It does, however, connote something far worse for many metal buying organizations: allocation!

Stay up to date on MetalMiner with weekly updates – without the sales pitch. Sign up now.

Dreaded allocation

Allocation markets cause sleepless nights for procurement professionals because, without material, lines get shut down and businesses fail to operate profitably. 

Undoubtedly, the dreaded “A” word is upon us, particularly for steel markets.

Back in May of this year, toward the end of the last COVID-19 “surge,” MetalMiner contemplated what could happen to steel prices once demand came back onstream.

MetalMiner saw two scenarios: a gradual increase in demand followed by panic buying or a rather dramatic increase in demand led by the automotive industry, combined with slow mill restarts and historically low starting inventory levels held by service centers. 

We assumed the first scenario, but obviously the second ensued.

Read more

E.U. and U.S. flags

cunaplus/Adobe Stock

As poll workers continue to count the final votes in the U.S. presidential election, it looks like we have a Biden victory — not by the landslide he and many of his supporters had hoped for, but a victory nevertheless.

There will be ongoing legal arguments, demands for recounts, and claims of fraud. However, the U.S. voting system is one of the most robust in the world: fraud is, in reality, not an issue.

Furthermore, the legal challenges are not intended to change the outcome. They are more about setting the scene for the post-Trump landscape, for what the then-ex-president does next. Even a Trump-stuffed Supreme Court knows it answers to the constitution first and the president second.

Want more from MetalMiner? We offer exclusive analyst commentary in our weekly updates – all metals, no sales fluff. Sign up here.

Market implications of the presidential election

So, now we have a better idea of the political outcome, does that change our election day review of the implications for markets?

Yes and no.

Most of us in business would take comfort from the fact a more constrained government is one that is less able to do anything radical. Markets generally don’t like radical, at least from politicians.

The prospect of a Democrat presidency and a Republican-controlled senate could be a positive for equities. Such an arrangement reduces the possibility that regulation and corporation tax can be increased.

Market sentiment turned a little cautious overnight. For example, new environmental laws are likely to be more limited, helping those sectors that had been sold down in the run-up to the election.

But others have declined that might have benefited from the proposed stimulus program. A split executive and house likely reduces the size and scope of any future fiscal stimulus package in the U.S.

Read more

gold, silver, copper, oil prices

bradcalkins/Adobe Stock

Goldman Sachs came out with a bullish report to investors last week predicting a surge in the price of commodities over the 2021-2025 period, Reuters reported.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Goldman Sachs is bullish on commodities in 2021 — why?

The basis for Goldman Sachs’ bullish view comes down to three price drivers. The extent to which investors weight those outcomes will determine the pace of price rises and markets’ supply-demand expectations by anything from 3-30 months.

There has been stock market pullback this week in the face of rising anxiety over the spread of the COVID-19 pandemic. However, Goldman see this as a temporary setback that will likely wane as the year draws to a close.

The first driver, BusinessInsider noted, is investors pivoting from older polluting areas of the economy towards tech. The huge outperformance of technology stocks over traditional businesses this year illustrates that trend.

This is and will continue to build up cumulative under-investment in what BusinessInsider terms the “old economy” sectors. As a result, businesses in those sector will have too much debt, too much capacity and high emissions.

A focus on rectifying these issues will lead to structural under-investment in new facilities and degradation in the new supply pipeline going forward.

Read more

The widely, if not universally, held belief that globalization is a win-win panacea for growth has never looked shakier.

While President Donald Trump has led the charge on calling out the failings of unfettered engagement with China and all that entails in terms of loss of manufacturing capability and sharing of hard-won technology, he is by no means alone.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Globalization and China

There is a growing groundswell of opinion that the long-held liberal beliefs that engagement would change China’s behavior have proved flawed.

China today is arguably more centrist, more actively and belligerently nationalistic and worryingly less influenced by world opinion than it has been for decades.

And yet it has, from an economic point of view, proved remarkably successful so far.

China’s economy has bounced back faster than those in the West. Furthermore, its economy has recovered faster than even its close Asian neighbors. That is because, in part, the party’s control meant it could enforce harsh — compared to in the U.S. or Europe — lockdown measures in the face of the pandemic. That enforcement extends to continued adherence to social distancing and hygiene standards since.

It is unlikely that a change of president in January, were that to happen following the November election, would have a meaningful impact on U.S.-China relations. A Biden presidency may try to foster a more collaborative international approach. However, the direction would likely be similar.

Europe, too, is following a less bellicose but similar path.

Europe’s investments in China and reliance on China as a trading partner are greater than that of the U.S., for whom China trade still represents a modest percentage of GDP.

Yet, even in Europe, there is increasing talk of decoupling supply chains and restrictions of technology transfers to China. Furthermore, these is talk of restricting Chinese technology companies’ access to the European market.

Read more

green energy

sdp_creations/Adobe Stock

Most of the focus on the upcoming presidential election has been around the handling of the coronavirus pandemic, choice of running mates and candidates’ reactions to protests centered around the BLM movement.

Not surprisingly, such issues attract the headlines and, of course, matter for society at large.

Policy has not taken center stage to the extent it has in previous campaigns. However, we should be aware that some policy ideas coming out of the Biden camp could have profound implications in the years ahead (if the polls are proved right and he enters the White House in January 2021).

Want more from MetalMiner? We offer exclusive analyst commentary in our weekly, monthly, or quarterly updates – all metals, no sales fluff.

Net-zero emissions by 2035?

In a far-reaching policy initiative, the presidential hopeful would set the U.S. on the path of cutting net carbon emissions from the country’s electricity production to zero by 2035, according to the Financial Times.

Achieving that goal would mean all power comes from either one of two sources. On the one hand, power would come from clean energy sources such as nuclear, hydro, solar or wind. Aside from that, any carbon emitted by fossil fuels sources, such as coal or natural gas, is captured and stored (e.g., carbon sequestration).

As the post observes, that would be no mean feat in just 15 years.

Last year, 61% of U.S. electricity came from either coal or natural gas. Nuclear and renewables accounted for 37%.

Implications, changes Biden’s plan would bring

Such a policy would require a number of fundamental changes with far-reaching implications for industry and consumers.

Net-zero would require, on the one hand, a massive ramp-up in renewable capacity. While economically viable in terms of power costs, that is already facing opposition from groups opposing huge wind or solar farms.

On the other hand, to counter variability it would create huge opportunities for power storage, such as power banks and pump storage schemes. It would also require a dramatic upgrading of the U.S.’s aging power distribution network to handle distribution and fluctuating supply.

But most controversially it would require — for the moment, at least — the subsidy of carbon capture and sequestration technology. Despite numerous, largely government-sponsored trials around the world, it still remains stubbornly uneconomic at current carbon prices.

Even worse, most carbon dioxide so captured is used to recharge depleted oil wells for enhanced recovery. That application will decline as quickly as renewables rise to take its place in generating power for electrification of the automotive sector.

Cost, cost, cost

While we are not passing judgment on the desirability of such an ambitious target, we should not lose sight of the cost.

California has driven the green narrative in the U.S. in recent years.

The state has the most aggressive decarburization goals. California has also seen a dramatic increase in the cost of electricity. Electricity costs are rising five times faster in California than in the rest of the U.S.

Despite being an early adopter in the vanguard of renewables, California’s experience has been more costly than wider adoption across the country would prove in the future. The goal requires newer technology and a countrywide upgrading of transmission infrastructure. Realistically, it also requires zero-carbon assumes carbon capture and sequestration.

Unless there is a technological game-changer to reduce the cost and find a market for the 1.6 billion tons of carbon dioxide produced it’s hard to see how these costs won’t be passed on to consumers.

Undoubtedly, there will be tremendous opportunities for firms. With the development of new technologies that such ambitious targets will create, there will be winners and losers.

Let’s hope the former outweighs the latter.

Sign up today for Gunpowder, MetalMiner’s free, biweekly e-newsletter featuring metals news, analysis and more.

This has been a volatile year for global markets, with already slowing economic growth compounded by the destructive impact of the coronavirus pandemic.

Read more

MetalMiner had the opportunity today to interview respected geopolitical intelligence firm Stratfor, acquired earlier this year by RANE (Risk Assistance Network + Exchange) and quiz Rodger Baker, Stratfor’s senior VP of strategic analysis, on forthcoming sanctions against China.

Read more

1 2 3 325