Commentary

The Financial Times is among many news sources reporting on the announcement made this week in Brussels that the E.U. and U.S. will end 17 years of litigation over claims and counterclaims that both Boeing and Airbus have received unfair state support in one form or another.

Both sides have won cases at the World Trade Organization (WTO) level. Those wins have resulted the threat of some $11.5 billion in tariffs on E.U.-U.S. trade in both directions.

NBC quoted U.S. Trade Representative Katherine Tai as saying the two sides have come to terms on a five-year agreement to suspend the tariffs at the center of the dispute.

The threat remains that the tariffs could be reimplemented if U.S. companies are not able to “compete fairly” with those in Europe. However, the statement left open quite how that would be prosecuted.

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Boeing-Airbus dispute nearing an end? Maybe not quite

Airbus plane

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Much was made about moving away from litigation, a strategy that has clearly failed to achieve much after 17 years of lawyer fees.

“Today’s announcement resolves a long-standing irritant in the U.S.-EU relationship” Tai said.

“Instead of fighting with one of our closest allies, we are finally coming together against a common threat,” she added, stressing it is time to put aside the fight and focus on China’s economic assertiveness.

That final point underlines a key issue here.

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To protect or not to protect, that is the question for Brexit Britain.

Britain was taken into its rupture from Europe on the Global Britain ticket, with the promise of liberating new trade deals once it was unfettered by Europe’s stifling protectionist culture.

That’s not a bad mandate for change. However, it would seem that most of those who voted for Brexit missed the memo that free trade works in both directions.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

UK after Brexit

Brexit

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The U.K. has been successful in rolling over many of the trade deals forged by the E.U. into bilateral agreements. It can now continue with those arrangements in more or less the same guise after Brexit.

Some headline-grabbing new deals are in the cards. Those include ones with Japan and Australia.

But after Britain’s chief negotiator, International Trade Secretary Liz Truss, announced the imminent signing of a new deal with our friends on the other side of the world, howls of protest erupted in the media and among lobby groups against a feared flood of agricultural imports.

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Peru on a map

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You have to feel for poor Peru, the second-largest copper producer in the world.

The country is facing the double affliction of the worst COVID-related death rate per head of population anywhere in the world.

At the same time, it is enduring a presidential election between two almost equally obnoxious candidates.

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Peru faces pandemic hardship

Firstly, the pandemic. According to the Financial Times, on Monday the government revised its figures, saying 180,764 people had died from COVID-19 since the start of the pandemic.

That number is nearly three times the total of 69,342 that it had previously registered.

The new figure means that one in every 177 people in the nation of 32 million people has died from the virus. That amounts to a rate of about 565 deaths for every 100,000 inhabitants — worse even than Brazil’s 509.

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Most of the mainstream press’ coverage of U.S. Steel’s giant Mon Valley plant upgrade project cancelation focuses on several issues, from permitting delays to U.S. Steel stating that a competing steelmaker plans to build a facility in another state.

U.S. Steel logo

Игорь Головнёв/Adobe Stockk

The project, an anticipated $1.5 billion investment across the Mon Valley works sites, would have added an endless casting and rolling facility at the Edgar Thomson plant. In addition, it would have created a cogeneration facility at its Clairton Plant. 

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Mon Valley project details

The combined investments would have allowed U.S. Steel to produce thin gauge HRC at CRC gauges.

Buying organizations would have the opportunity to pay less per ton for this material than the cold rolled coil alternative. In other words, the price of steel from this line would have likely fallen somewhere between hot rolled and cold rolled prices.

Today, only Nucor and Steel Dynamics have this kind of capability.

In theory, these innovations would have helped U.S. Steel boost margins for HRC and garner rapid market acceptance for those premium products. 

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Earth Day concept

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Today is Earth Day, whatever that means for you. For once, though, the politicians are not adding to greenhouse gas emissions by flying around the world first class or, worse, in private jets to talk shop.

Rather, they are gathering virtually.

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Earth Day news

According to The New York Times, they will hear President Joe Biden commit the United States to cutting CO2 emissions nearly in half by the end of the decade.

It’s a target that would require Americans to transform the way they drive, heat their homes and manufacture goods, the post reports.

Although the time frame is longer, the new goal nearly doubles the pledge that the Obama administration made to cut emissions by 26-28% below 2005 levels by 2025. It also builds on the UK’s ambitious plans announced earlier this week.

Nathan Hultman, director of the Center for Global Sustainability at the University of Maryland, described the 50% goal as attainable. However, it will require “pretty significant action across all sectors of the American economy.”

Autos and energy generation are tipped as two of the major industries to feel the impact of the new target, if supported by new legislation.

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Unfortunately for all those who passionately support efforts by people like David Attenborough to force the world to confront climate change – regardless of where you stand on the issue on what is admittedly quite a wide platform – recent reports suggest we are now in the land of political signaling in environmental policy rather than earnest endeavor.

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UK makes major environmental policy shift (on paper, at least)

environmental policy

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As The Spectator reported yesterday, British Prime Minister Boris Johnson and Business Secretary Kwasi Kwarteng announced that the government would enshrine in law the target of cutting the UK’s carbon emissions by 78% by 2035.

That’s 15 years earlier than originally planned.

Why today make Britain a world leader in tackling climate change? Largely, because it is a nice commitment to be announcing in the run-up to the COP26 climate summit in Glasgow this year.

Ardent supporters of environmental issues, of course, welcome the news. However, it would require a lot of big lifestyle changes in terms of diet, transport and housing for the general public. Furthermore, left to government, it will cost both the state and individuals a lot of money.

Environmental policy in the US

Across the Atlantic, the Biden administration is in danger of going down the same road.

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tariffs headline over $100 bills

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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.

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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.

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India and US flags

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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.”

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coronavirus

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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.

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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.

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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!

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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.

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