The first round of talks on the topic of modernizing the North American Free Trade Agreement (NAFTA) concluded Sunday in Washington D.C.

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United States Trade Representative Robert Lighthizer last week said the U.S. is not looking for minor changes to the expansive, 23-year-old trade agreement with Mexico and Canada. The U.S. wants big changes, changes to help it chip away at its trade deficit with its two NAFTA partners.

Beginning Aug. 16, Lighthizer met with Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of the Economy Ildefonso Guajardo to hash out possible changes to the agreement, viewed as largely a success by corporations but panned by labor interests in the U.S., who point to the outflow of jobs.

According to a joint statement on the Office of the United States Trade Representative website, negotiators will not get much of a breather — the next round of talks is scheduled for Sept. 1-5 in Mexico.

“The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area,” the statement says.

The schedule does not hit the brakes there, either, as another round of talks is scheduled for late September in Canada, another round in the the U.S. in October, and additional rounds planned throughout the remainder of the year, the joint statement says.

The talks are accelerated partially because the parties want to avoid the discussions brushing up against 2018 elections (midterms in the U.S. and the presidential election in Mexico). As Reuters notes, the current poll favorite in next year’s Mexican presidential race, Andrés Manuel López Obrador, has been critical of President Donald Trump and his trade objectives.

After practically immediately pulling the U.S. out of the Trans-Pacific Partnership (TPP) in January, President Trump nearly pulled the U.S. out of NAFTA in April, until calls from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto convinced him to hold off.

Some see the pace of the NAFTA negotiation schedule as unrealistic.

John Masswohl, director of government relations at the Canadian Cattlemen’s Association, told Reuters that it’s a matter of substance versus speed.

“It’s hard to imagine how they can do something very substantive and do it very quickly,” he said. “It’s almost as if you can have one or the other. You can have it quick, or you can have it meaningful.”

Free Download: The August 2017 MMI Report

Given the large-scale changes the U.S. negotiators want to see, it remains to be seen whether such a schedule can accommodate their goals.

BHP Billiton’s decision announced last week to approve a capital expenditure of U.S. $2.46 billion for the Spence Growth Option (SGO) at the Spence open-cut copper mine in Chile should come as no surprise given the roll copper has been on this year and the forecasts of supply shortages toward the end of the decade.

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Whether criticism from activist investors Elliot Advisors had anything to do with the decision is doubtful, but comments from CEO Andrew Mackenzie on announcing the investment may well have had one eye on shareholder approval.

The investment will “create long-term value for shareholders in one of our preferred commodities,” the Financial Times quotes him as saying.

Elliott this week disclosed it has a 5% stake in the U.K.-listed shares of the miner, up from a 4.5% position held mostly in derivatives. The fund, founded by billionaire Paul Singer, is right when it says BHP has underperformed rivals and spent billions on mistimed acquisitions.

It is wrong in its solution, however, by demanding the firm return more money to investors through dividends and buybacks and to review an exit from its U.S. shale business.

Share buybacks reward current investors, but do nothing for the firm’s long-term growth. If you are a short-term activist after a quick buck, buybacks have a lot of appeal.

If you are a pension fund, life insurance company or other long-term investor you want to see a 10- to 20-year growth strategy, not a quick buck.

The investment in Spence represents just that kind of solid long-term bet on copper demand.

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This afternoon in metals news, London copper reached its highest price since late 2014, exchange-traded funds tracking palladium are losing cash and one analyst looks at how high zinc can go.

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LME Copper Keeps Rising

LME copper hit a three-year high Tuesday, lifted by strong Chinese steel prices and positive news from the mining sector, Reuters reported.

LME copper soared to $6,642.50 per ton, its highest since November 2014.

What’s the Deal with Palladium ETFs?

According to a Bloomberg report, investors have made quite a bit of money on palladium this year, yet ETFs that track the metal are losing cash, fast.

Why?

“The explanation for the outflows lies in part in the scarcity of physical palladium and a robust borrowing market that has developed among users and speculators,” the Bloomberg report states.

According to data compiled by Bloomberg, more than $49 million has flowed out of the two main palladium ETFs in the U.S. and Europe (the ETFS Physical Palladium Shares and the ZKB Palladium fund) through Aug. 21 of this year.

The Zinc Ceiling

Like copper, zinc has also had a record-setting time, recently hitting a high not seen in a decade ($3,180.50).

On Monday, Reuters’ Andy Home wrote about just how high zinc can be expected to go.

“But right now the LME zinc market is bubbling away with stocks falling and spreads tightening,” Home writes. “Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580?

Free Download: The August 2017 MMI Report

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Earlier this month, the U.S. Department of Commerce issued a preliminary determination on Chinese aluminum foil — one that could have a major impact on Chinese aluminum foil producers.

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On Aug. 8, Secretary of Commerce Wilbur Ross announced that Chinese aluminum foil has benefited unfairly from government subsidies ranging from 16.56 to 80.97%.

“The United States is committed to free, fair and reciprocal trade, and will continue to validate the information provided to us that brought us to this decision,” Ross said in a release. “The Trump Administration will not stand idly by as harmful trade practices from foreign nations attempt to take advantage of our essential industries, workers, and businesses.”

Well, China’s Ministry of Commerce had a response of its own last week.

Wang Hejun, director of the Ministry of Commerce’s Trade Remedy and Investigation Bureau, questioned the ruling, citing the Chinese government’s cooperation, according to a release on the Ministry of Commerce’s website.

The release also states Hejun said China urges the U.S. to act “prudently” to avoid negative impacts bad influence on the economic and trade relationship between the U.S. and China.

According to Reuters, the Ministry of Commerce posted a statement on its Wechat account, in which Hejun said the United States rebuffed the Chinese government’s offers to cooperate with the investigation before making its ruling.

The Department of Commerce’s Aug. 8 ruling was only a preliminary determination. However, at the conclusion of the countervailing duty investigation, duties of approximately 81% could be slapped onto Chinese foil imports.

According to the Department of Commerce release, barring any delays it is expected to announce its final determination on Oct. 24.

In 2016, imports of aluminum foil from China were valued at an estimated $389 million, according to the Department of Commerce.

The aluminum foil countervailing duty investigation is one of 64 initiated from Jan. 20 to Aug. 8 — a 40% increase from the same time period last year, according to the Department of Commerce.

In other aluminum investigations, the Department of Commerce’s Section 232 investigation of aluminum imports is still pending. The investigation was launched April 17 (along with a 232 investigation of steel imports). Although those investigations do not specifically target China, much of the discussion from the administration and those within the domestic steel and aluminum industries has focused on China and excess capacity. Other nations, however, including the European Union bloc, have expressed concern about the impact of Section 232 actions and their effects.

Free Download: The August 2017 MMI Report

According to Section 232 of the Trade Expansion Act, Ross has 270 days to present the president with a report outlining recommendations, which makes for January deadlines for the aluminum and steel cases.

You don’t come from near obscurity to become the largest aluminium producer in the world, seemingly overnight, without courting some controversy — but China Hongqiao Group seems to have garnered more than its fair share.

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The company is mired in allegations of misreporting profits, underreporting power costs and saddled with massive debts built up as the company went on a spending spree opening new smelters and buying rivals, the company. According to the South China Morning Post, net debt has surged to 62 billion yuan (U.S. $9.3 billion) at the end of last year, or 137% of Hongqiao’s shareholders’ equity. That is up from 97% two years earlier.

Unable to raise more capital on the markets following the suspension of shares earlier this year, the firm has had to turn to Citic Group, founded in 1979 to handle China’s overseas investments and run directly by the central government.

Hongqiao has enjoyed Citic’s support for some years as the investment conglomerate has funded previous acquisitions for the group. China Hongqiao Group will get a HK$8 billion (U.S. $1.02 billion) financial lifeline from Citic Group to repay bank loans, following its agreement to sell 806.6 million new shares and U.S. $320 million of convertible bonds to Citic and the conglomerate’s unit CNCB (Hong Kong) Investment. If they are fully converted into shares this could give Citic up to 13.3% of Hongqiao, making the conglomerate the smelter’s second-largest shareholder, the South China Morning Post reports.

The Fast Rise and Criticism

China Hongqiao Group’s rise has been dramatic.

With an installed capacity of 6.46 million tons, the firm has overtaken domestic rival Chalco and Rusal to become the world No. 1.

But the achievement is not without its critics.

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This morning in metals news, the Chilean government said no to a proposed $2.5 billion copper and iron project, Chinese aluminum demand rose by nearly one-tenth in the first half, and LME zinc and nickel get a boost from steel.

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Chile Rejects Andes Iron Proposal

The Chilean government on Monday rejected a $2.5 billion project proposal from private company Andes Iron, according to Reuters.

Chile’s Ministers’ Committee delivered the decision Monday. According to Reuters, the project would have produced 12 million tons of iron annually and 150,000 tons of copper.

Environmental concerns and questions of political bias ultimately downed the project, according to the report`.

Aluminum Demand Surged in H1 China

In the first half of the year, Chinese aluminum demand leaped 9.6% from the same time frame in 2016, according to Platts.

Demand rose to 17.5 million metric tons, according to the Antaike, China’s state-owned nonferrous metals information division.

Zinc, Nickel Get a Lift

Zinc and nickel both posted gains on Monday, with the former reaching its highest price in a decade, according to Reuters.

Strong demand from China’s steel sector helped overcome capacity-constraining efforts from Beijing.

Free Download: The August 2017 MMI Report

Hitting its highest price since October 2007, LME zinc reached $3,180.50 per ton.

Before we head into the weekend, let’s take a look back at the week that was.

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• In case you missed it, our August MMI Report is out. Metals like copper and aluminum hit record highs, and nine of our 10 sub-indexes posted upward movement as a result of a strong July. Will that momentum continue? Check back next month for the September MMI report.
• Many have predicted a decline for iron ore prices, but as our Stuart Burns wrote on Monday, reports of its demise have been greatly exaggerated. A weak U.S. dollar, combined with strong equities and global GDP, have helped keep iron ore performing well, not to mention Chinese steel and the wider metals market. Read through for Burns’ assessment of the iron ore market.
• In India, a boom of bauxite production is expected, wrote our Sohrab Darabshaw. In fact, it is expected to more than double by 2021. How is that possible? One reason, Darabshaw writes, is “increased domestic demand for aluminium, which will largely be sourced from the quintupling of land under mining lease in the Odisha province (which has the bulk of India’s bauxite reserves).”
• One commodity almost everyone is interested in is oil. On Tuesday, Burns wrote about the future of oil prices. But, since this is MetalMiner, after all, those prices also have an effect on metal markets.
• Everyone loves a good M&A story, and Burns had one earlier this week on the ongoing talks between Indian steel giant Tata Steel and Germany’s ThyssenKrupp. Plus, he touches on ArcelorMittal’s takeover of Italy’s Ilva. Burns writes: “For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.”
• How about zinc? Burns wrote about the metal’s rise to $3,000, and the reasons behind zinc’s price hitting its highest point since 2007.
•  Last week was a busy one for the U.S. Department of Commerce, which handed down preliminary determinations in countervailing duty investigations for both Chinese aluminum and silicon coming from a trio of countries.
• Back in India, steel exports are on the rise as the Indian government’s protectionist measures seem to be paying off for its domestic industry.
• Lastly, representatives of the U.S., Canada and Mexico began talks on Wednesday regarding renegotiation of the North American Free Trade Agreement (NAFTA), the trade deal instituted in 1994. The U.S. is focused on, among other things, bringing down ballooning trade deficits with the two countries (particularly Mexico). The talks are scheduled to continue until Sunday, so check back for updates on the proceedings.

Free Download: The August 2017 MMI Report

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Renegotiation of the North American Free Trade Agreement (NAFTA), the 23-year-old trilateral trade agreement, has been a talking point for President Donald Trump. After all, let’s not forget: during the first presidential debate last September, Trump called NAFTA “the worst trade deal ever signed, maybe anywhere.”

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In January, Trump pulled the U.S. from the Trans-Pacific Partnership negotiate under former President Barack Obama. In April, Trump reportedly nearly pulled the U.S. from NAFTA, but ultimately backed off after conversations with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto.

With that, the stage was then set for the first round of negotiations, which kicked off Aug. 16 in Washington, D.C. The talks are scheduled to continue until Aug. 20.

In recent months, the Trump administration made it clear that attacking the sizable trade deficits the U.S. has with Mexico and Canada will be a major focus of the negotiations. United States Trade Representative Robert Lighthizer said as much in his opening statement:

“I’ve always thought that communities along our borders have a particular equity in this agreement. In many cases their lives, businesses, and families are very much on both sides of the dividing line,” Lighthizer said. “They too are hardworking men and women trying to raise a families and accumulate wealth. We must keep their interests paramount. But for countless Americans, this agreement has failed. We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives — intended or not — in the current agreement.”

According to Census Bureau data, in 2016 the U.S. had a $64 billion trade deficit with Mexico and an $11 billion deficit with Canada. In 1994, when NAFTA went into effect, the U.S. had a $1.3 billion trade surplus with Mexico.

This year, from January-June, Census Bureau data show a nearly $36.3 billion trade deficit with Mexico and a $10.5 billion trade deficit with Canada.

As with most things, various stakeholders have differing opinions on the success of NAFTA.

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India’s protectionist measures to safeguard its steel industry seem to be paying off.

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As reported consistently by AG Metal Miner, the Indian government, responding to the call of its steelmakers, had time and again imposed various forms of anti-dumping measures and fines to stop cheap imports of steel — especially from the world’s steel manufacturing leader, China.

Along with the U.S. and Brazil, India was said to be one of the world’s leading initiators of anti-dumping investigations, according to the World Trade Organization (WTO).

Well, now, all this has resulted in India’s steel exports doubling to 8.2 million tons and imports have been slashed by about one-third in 2016-17.

As per a report by the Press Trust of India (PTI), quoting from portions of the released Economic Survey, the rise in exports of steel could also wipe away the excess capacity built up in the steel sector. The mid-year survey by the government said steel imports had declined in 2016-17, while exports of steel had doubled.

Alloy imports dipped by 36.6% to 7.4 million tons in 2016- 17 against 11.7 million tons in the previous fiscal year. Exports doubled to 8.2 million tons last fiscal year, over 4.1 million tons in the corresponding year.

The news was welcomed by steel companies like Tata Steel. T.V. Narendran, managing director for Tata Steel India and South East Asia, told newsmen that steel demand in India was increasing, making it just right to make future investments. Stability was being witnessed in the steel sector globally, though it had faced some problem two years ago, Narendran told reporters.

Ironically, much of Indian steel joy stems from its traditional rival China, where there’s been a visible improvement in the economy — which meant much of its steel being produced was once again being used within the country. It was against the backdrop of China’s economic slowdown that the global steel industry had faced distress due to decline in global demand.

The Indian survey report said, in response to the dumping of cheap imports, the government in 2016 introduced a host of measures like raising Basic Customs Duty, imposition of Minimum Import Price (MIP) and anti-dumping duties in order to shield domestic producers. The government imposed the MIP for steel in February 2016 for a period of one year.

On April 12, 2016, India initiated countervailing duty investigation concerning imports of certain hot-rolled and cold-rolled stainless steel flat products originating in China.

According to the WTO, India’s share in total global steel exports increased from 1.1% in 2000 to 2.8% in 2016. During this period, China’s share in total steel exports rose from 3.7% in 2000 to 19.2% in 2016. Japan’s share in total steel exports in 2000 which was 12.2%, but fell to 9.1% in 2016.

Free Download: The July 2017 MMI Report

Meanwhile, the U.S. share in total steel imports was 17.0% in 2000, but has since come down to 12.1% in 2016.

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This morning in metals news, European aluminum maker Constellium moves its U.S. offices from New York to Baltimore, copper and aluminum take a step back, and AK Steel announces a price hike.

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Constellium to Set up Shop in Baltimore

European aluminum firm Constellium announced it will move its U.S. corporate offices from New York to Baltimore, The Baltimore Sun reported Wednesday.

According to a statement from Constellium, at least 25 senior management and executives will be relocated to the new Baltimore office by the end of 2018.

Constellium, which has its corporate headquarters in Amsterdam and two additional corporate offices in Paris and Switzerland, produces aluminum products for a wide range of industries, including aerospace, automotive, transportation, defense and packaging.

Copper, Aluminum Fall Back

After recently hitting multi-year highs, copper and aluminum fell on Thursday.

According to Reuters, the drop is the result of investors who “locked in profits from a steep rally amid doubts about future demand in top metals consumer China.”

Speculator activity has seen the LME index rise 16% from early June, according to the report.

AK Steel Announces Price Hike

Effective immediately, AK Steel will raise the price for all carbon flat-rolled steel products by a minimum of $30 per ton, according to a report on Nasdaq.com.

Since last August, AK Steel’s shares have risen 5%, compared with 21.8% for the industry, according to the report.

Despite that disparity, AK Steel had a strong second quarter, topping earnings and sales estimates, according to the Nasdaq report.

Free Download: The July 2017 MMI Report

The company reported net income of $61.2 million (or 19 cents per share), up 253.7% from net income of $17.3 million (or 8 cents) recorded in the prior-year quarter, the report says.  The company also recorded net sales of $1,557.2 million for the quarter, up 4.3% from the year-ago quarter, exceeding the Zacks Consensus Estimate of $1,530 million.