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A recent report by the International Lead and Zinc Study Group (ILZSG) details lead and zinc supply and demand levels for the first nine months of the year.

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Lead Demand Exceeds Supply

According to the report, lead demand exceeded supply by 110,000 tons for the first nine months of the year, while reported stock levels fell by 49,000 tons.

Lead mine production dropped 0.9%, “primarily due to lower output in Australia, Kazakhstan, Peru, South Africa and the United States that more than offset increases in Europe, India and Morocco,” according to the report.

Production and usage were up on a month-to-month basis. Mine production hit 400,800 tons in September, up from 380,100 tons in August. Lead usage hits 1,043,700 tons in September, up from 987,900 tons in August.

Meanwhile, global lead usage fell 0.6%, primarily as a result of reductions in South Korea, the U.S., Japan and Mexico. European usage increased 0.3%, paced by upticks in Austria, Italy and Poland.

Zinc Market in Deficit

The global zinc market, on the other hand, was in deficit by 305,000 tons for the January-September period, while total reported inventories dropped by 46,000 tons over the same nine-month period.

“World zinc mine production rose by 1.2%, mainly influenced by increases in Australia, Peru and the United States,” the report states. “In Europe, a 3.2% rise was primarily a consequence of increases in Finland, Greece, Ireland and Macedonia, that more than offset reductions in Poland and Sweden. In Canada, China, India and Mexico, output was lower compared to the first nine months of 2017.”

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Meanwhile, global zinc usage fell 0.3%, primarily due to decreases in China, South Africa and Taiwan. European usage increased 1.3%, led by upticks in Poland, France, Belgium and the Russian Federation.

On a month-to-month basis, mine production hit 1,084,500 tons in September, up from 1,064,200 tons in August. Zinc usage hit 1,155,500 tons, up from 1,141,600 tons in August.

According to International Aluminum Institute (IAI) data released yesterday, global aluminum production jumped 4% year over year in October.

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Global aluminum production hit 5.4 million metric tons in October, up from 5.2 million metric tons in October 2017. The October production total also marked an increase from the previous month, when production hit 5.3 million metric tons.

Estimated Chinese production constituted 57% of global production, with 3.05 million metric tons in October (up 1.3% from 3.01 million metric tons in September).

On a year-over-year basis, October Chinese production jumped 7.0% from October 2017’s 2.85 million metric tons.

Chinese aluminum production. Source: International Aluminum Institute

For the January-October period, Chinese production held just about flat, with 30.231 million tons in the 10-month period in 2017 and 30.227 million tons for the same period in 2018.

Reuters reported earlier this month that lower aluminum prices have prompted a decline in Chinese production in recent months, even before winter cuts take a bite into production total. According to the report, Shanghai aluminum prices fell 2.1% in October.

The most-traded aluminum contract on the SHFE opened at 13,730 yuan per ton yesterday ($1,977 per ton).

Asian production not including China hit 377,000 tons, up from 364,000 tons in September and 352,000 tons in October 2017.

Meanwhile, North American aluminum production hit a 2018 monthly high in October at 323,000 metric tons, up 4.2% from September’s 310,000 metric tons. On a year-over-year basis, the October total marked a 3.6% decrease from October 2017 production.

North American aluminum production. Source: International Aluminum Institute

North American production through the first 10 months of the year hit 3.127 million tons, down from the 3.291 million tons during the same period in 2017.

Production in East and Central Europe hit 343,000 tons in October, up from 332,000 tons the previous month, and up slightly from 342,000 tons in October 2017.

Production in Western Europe hit 321,000 tons in October, up 2.9% from September’s 312,000 tons. On a year-over-year basis, production rose 0.3% from October 2017’s 320,000 tons.

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This morning in metals news, the Mexican ambassador to the U.S. told news agency McClatchy he expects the U.S. to lift its steel and aluminum tariffs, world aluminum production jumped in October, and Norilsk Nickel says it is willing to work with London-listed Kaz Minerals on a copper project in Russia.

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Goodbye, Tariffs?

In an interview with McClatchy, the Mexican ambassador to the U.S., Geronimo Gutierrez, said Mexico expects the U.S. will lift its tariffs on steel and aluminum vis-a-vis Mexico after the signing of the United States-Mexico-Canada Agreement (USMCA).

The USMCA is slated to supersede the North American Free Trade Agreement (NAFTA). The U.S. first reached a deal with Mexico, with Canada coming on afterward. However, despite the deal reached at the end of September, the U.S. tariffs on steel and aluminum remained in effect with respect to imports from Canada and Mexico, which has remained a primary sticking point for the two countries in the weeks following the USMCA announcement.

The two countries initially won temporary exemptions from the Section 232 tariffs this spring, but the exemptions were allowed to expire as of June 1.

MetalMiner’s Take: One of the most frequently asked questions from MetalMiner readers involves how long the Trump administration would maintain the Section 232 tariffs.

Throughout much of the year, MetalMiner has said the tariffs will remain in place for the mid-term (6-9 months). USMCA will likely result in some modifications on 232, either through exemptions or quotas. Despite a potential 232 adjustment for USMCA, MetalMiner believes the tariffs will remain intact.

Aluminum Production Rises

Global aluminum production in October jumped 4% year over year, according to International Aluminum Institute data released today.

October production reached 5.4 million net tons, up from 5.2 million net tons in October 2017.

Norilsk Nickel Indicates it Could Work With Kaz Minerals

As reported by the Financial Times, palladium and nickel giant Norilsk Nickel has said it is willing to partner with Kaz Minerals on the latter’s Baimskaya copper project in Russia’s Chukotka region.

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The London-listed Kaz Minerals purchased the Baimskaya project in August for $900 million in cash and shares.

According to a Kaz release at the time, the Baimskaya project is “one of the world’s most significant undeveloped copper assets with the potential to become a large scale, low cost, open pit copper mine.”

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The U.S.’s capacity utilization rate for steel continues to inch toward that magic 80% benchmark.

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According to data from the American Iron and Steel Institute (AISI), the U.S.’s steel capacity utilization rate for the year through Nov. 17 reached 78%, up from 74.2% through the same point in 2017. U.S. steel mills have produced 83.7 million tons of steel through Nov. 17, up from 79.4 million in the same time frame last year.

For the week ending Nov. 17, domestic raw steel production hit 1.9 million net tons, with a capacity utilization rate of 82.1%. Meanwhile, for the same week in 2017, production was 1.7 million net tons, with capacity utilization rate of 73.3%.

On a week-to-week basis, production for the week ending Nov. 17 jumped 0.5% from the previous week.

Production by region (in thousands of tons) went as follows for the week ending Nov. 17, 2018: North East, 225; Great Lakes, 711; Midwest, 214; Southern, 692; and Western, 82.

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Earlier this year, when the U.S. announced its Section 232 tariffs on steel and aluminum imports, the 80% mark was identified as the goal for the domestic steel and aluminum industries, being the mark at which the sectors are considered profitable and healthy. The capacity rate for 2017 reached 74.3% (through Dec. 30, 2017), up from 70.5% for 2016.

Earlier this month, AISI released its Steel Import Monitoring and Analysis (SIMA), which showed the finished steel import market share for October hit 21%, and was 23% through the first 10 months of the year.

The past year’s developments in global trade have offered a stiff test to the international trading order and, more specifically, the World Trade Organization (WTO).

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Amid a surge in protectionist measures, the WTO has come under pressure. U.S. President Donald Trump has criticized the system on several occasions, even threatening to pull the U.S. out from the WTO if it did not “shape up.”

The fulcrum of the trade angst has been U.S.-China relations, as the U.S. has imposed a total of $250 billion in tariffs on Chinese imports so far this year. China has responded with retaliatory tariffs, matching the initial $50 billion tariff package and then responding with $60 billion in tariffs when the U.S. slapped an additional $200 billion in tariffs on Chinese goods.

During a briefing Friday, Trump reiterated his stance that China has “taken advantage of the U.S. for many, many years.” He added that, with respect to the previously mentioned additional $257 billion in potential tariffs — which would essentially subject all Chinese products coming into the U.S. to duties — the U.S. may not have go to that route.

“China would like to make a deal,” Trump said.

Meanwhile, also on Friday, WTO Director-General Roberto Azevêdo spoke at a Paris conference titled “A WTO Fit for the 21st Century: What Needs to Change,” outlining ways in which the organization must adapt for such turbulence on the global trading scene.

Referring to ceremonies held Nov. 11 in remembrance of the 100th anniversary of the end of World War I, Azevêdo referred to the international bodies’ origins in the aftermath of that conflict.

“The multilateral trading system, like other international bodies, was born out of the conflicts of the early 20th century, with the aim of making this vision a reality,” he said. “It was created to advance the cause of co-operation between nations, to preserve peace and stability, and thereby to support growth, jobs and development – the essential conditions for economic wellbeing. This mission is just as important today as it was back then. Co-operation, under shared rules, through the multilateral system, remains the best way of delivering it.”

He added the WTO system covers approximately 98% of global trade, and that the “trading system may not be perfect, but it is essential and it has proved very effective.”

Nonetheless, while pointing out the WTO’s successes, he acknowledged the need for change, particularly vis-a-vis the rise in tariffs over the past year.

“Our economists have been assessing a variety of possible scenarios to develop this picture, including the impact of a full, global trade war,” Azevêdo said. “By this we mean a breakdown in international trade cooperation, where instead of tariffs being set cooperatively in the WTO, they are set unilaterally. Under this more mercantilist, nationalist mindset, tariffs would rise sharply. We would see a reduction of global trade by around 17%.”

World leaders, including Trump and Chinese President Xi Jinping, will soon gather in Buenos Aires at the end of the month for the G20 Summit, a crucial moment for dialogue between the U.S. and China. The rate for the $200 billion tariff package implemented by the U.S. is set to jump from 10% to 25% at the end of the year unless a deal precluding the hike is reached.

“WTO reform has been raised with me in my interactions with a variety of leaders – including President Macron,”Azevêdo said of the French president. “And no doubt it will be a key issue when we meet at the G20 summit in Buenos Aires in two weeks’ time. That meeting will be an important moment.”

He also listed a number of initiatives and objectives that have been suggested by various WTO members, which included:

  • resolving disputes and reaching agreements more rapidly and effectively
  • addressing a variety of trade distorting practices that are either not covered or are just partially covered by existing disciplines
  • avoiding protectionism and unilateral actions
  • advancing current work
  • and improving notifications and transparency

However, challenges faced by the WTO’s dispute settlement system present the most urgent issue, he said.

“The specific issue here is the impasse in appointments to the Appellate Body,” he said. “This could eventually threaten the functioning of the whole dispute settlement system as we know it. There are some signs that members are engaging more deeply here. And proposals are being brought forward. But we need to see a major shift in gears and positions if we are to make progress.”

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According to the WTO release, at the Paris conference Azevêdo held bilateral meetings with France’s Minister of Economy and Finance, Bruno Le Maire; Minister of State, attached to the Minister for Europe and Foreign Affairs, Jean-Baptiste Lemoyne; and E.U. Trade Commissioner Cecilia Malmström.

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This morning in metals news, Tokyo Steel plans to raise plate prices, Rio Tinto says new aluminum capacity is needed outside of China and copper prices tick upward.

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Plate Prices Rise

Tokyo Steel plans to raise heavy plate prices by 2.5% in December, according to a Reuters report. The steelmaker had not raised heavy plate prices since January, the report noted.

MetalMiner’s Take: Plate prices have always had their own price dynamics separate from the other forms of flat rolled steel (such as HRC and CRC).

Plate prices in the U.S. have remained fairly well-supported compared to the other forms of steel, so it should come as no surprise that in markets with strong construction demand, like Japan, mills would announce price increases.

Interestingly, Chinese plate prices have started to slip, but those dynamics could change based on environmental curbs, whether the Japanese plate price increases stick and Chinese demand.

U.S. metal-buying organizations will want to pay close attention to these price dynamics in Japan and China.

Aluminum Capacity

Rio Tinto Group says the world needs new aluminum capacity outside of China in the coming years, Bloomberg reported.

Copper Price Rises

Prices of LME and SHFE copper increased Monday, Reuters reported, on the heels of positive sentiment stemming from comments made by President Donald Trump regarding tariffs on China.

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During a press briefing Monday, Trump said the U.S. might not need to impose further tariffs on China, the world’s top copper consumer.

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Strengthening the domestic steel and aluminum industries and bringing jobs back to the sectors stood out as one of the primary stated objectives of the Trump administration’s Section 232 tariffs on steel and aluminum.

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Detractors have argued that while the tariffs could spur employment in primary metal producing sector, employment in metal-using sectors could suffer by virtue of higher prices.

For example, The Beer Institute was among the metal-using industry groups to express displeasure with the Trump administration’s decision to maintain the metals tariffs on Canada and Mexico (even as the countries came together in agreement on the United States-Mexico-Canada Agreement).

“It is disappointing that President Trump did not lift tariffs on aluminum as the United States, Canada, and Mexico announced a new trade agreement,” said Jim McGreevy, president and CEO of the Beer Institute. “Aluminum used to make beer cans has nothing to do with our nation’s national security, and continuing to impose these tariffs on some of the United States’ closest allies unnecessarily increases costs on our nation’s vibrant beer industry–which is a crown jewel for American manufacturing.”

Those criticisms aside — it is still too early to make any grand conclusions about tariffs and their impacts on jobs, whether for or against — let’s take a quick look at employment figures in primary metals manufacturing for the year.

According to the Bureau of Labor Statistics (BLS), preliminary October data show employment in primary metals manufacturing reached 381,900, down 300 from the September total of 382,200. Meanwhile, the industry saw primary metals manufacturing employment of 379,100 in January 2018, marking a 0.7% increase from January to October.

U.S. primary metals manufacturing employment, 1990-2018. Source: Bureau of Labor Statistics

The fabricated metals sector fell slightly to 1,495,400 jobs in October, down from 1,495,500 in September. Fabricated metals employment hit 1,462,000 jobs in January 2018.

U.S. fabricated metals sector employment, 1990-2018. Source: Bureau of Labor Statistics

The metal ore mining sector added 200 jobs, going from 38,900 to 39,100 in October.

Meanwhile, the manufacturing sector as a whole made gains in October, adding 32,000 jobs last month and 296,000 in total so far this year.

U.S. manufacturing employment, 1990-2018. Source: Bureau of Labor Statistics

“It’s good news that factories hired 32,000 new workers in October,” said Scott Paul, president of the Alliance for American Manufacturing, in a release earlier this month. “If there is any employment impact from tariffs or retaliation, it’s being more than washed away by the overall strength of the manufacturing economy. That said, tariffs alone aren’t going to keep manufacturing strong.

“We need to see structural economic reforms in China, a better deal for workers through fairer trade agreements with Mexico, Canada, Japan and the European Union, as well as a renewed effort to crack down on exchange rate misalignment and manipulation.”

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Those are the numbers — the jury is still out on the overall efficacy of the tariffs, and to what extent the tariffs have contributed to new jobs this year in primary metals manufacturing.

Thus far, companies like U.S. Steel have credited the tariffs in jobs announcements this year. U.S. Steel on June 1 announced the addition of 300 jobs related to the restart of a blast furnace at its Granite City plant in southwestern Illinois. (Prior to that, in March, U.S. Steel announced the restart of another blast furnace at the Granite City plant, which included the addition of 500 jobs.)

Industry groups testified before the U.S. International Trade Commission (USITC) late last week on the United States-Mexico-Canada Agreement (USMCA) and its potential impact on the U.S. economy and industry sectors.

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The Aluminum Association was one of the groups to comment, particularly focusing on the Section 232 steel and aluminum tariffs. Despite the three countries reaching a deal on USMCA — which is set to serve as the successor to the North American Free Trade Agreement (NAFTA) if ultimately finalized — the U.S. metals tariffs remain in effect for Canada and Mexico.

During her testimony, Aluminum Association President and CEO Heidi Brock renewed the industry group’s call for quota-free tariff exemptions for Canada and Mexico.

“Limiting access for U.S. aluminum producers to reach their suppliers and customers – and in some cases, their own subsidiaries and facilities – in Canada and Mexico, as we see with the Section 232 tariffs today, will hamper continued growth and investment for our industry here at home,” Brock said. “This is why we continue to call for quota-free exemptions from these tariffs for our USMCA partners. The U.S. aluminum industry faces an acute and persistent issue of illegally subsidized Chinese aluminum overcapacity in the market, but tariff or quota actions against countries like Canada and Mexico that operate as market economies do not address the China challenge and instead harm the overall competitiveness of the region.”

Brock concluded the USMCA cannot work without removal of the tariffs on Canada and Mexico.

“From the beginning, we have supported a modernized North American trade agreement, and USMCA achieves that in important ways,” she said. “However, we urge the president to resolve the Section 232 tariffs on aluminum imports for our neighbors to ensure free movement of aluminum and aluminum products within North America. The new agreement simply cannot work as intended for the aluminum industry and our customers with those tariffs – or quotas to limit access to supply – in place. Full, quota-free exemptions for Canada and Mexico from aluminum tariffs as part of this agreement will benefit the U.S. aluminum industry and the hundreds of thousands of American workers who depend on its success.”

Almost two weeks after the USMCA was announced, the USITC announced Oct. 12 that it would investigate the potential impacts of the deal. The investigation came at the request of U.S. Trade Representative Robert Lighthizer.

Kevin Dempsey, the senior vice president for public policy and general counsel for the American Iron and Steel Institute (AISI), also testified at the hearing.

Dempsey said the U.S. steel industry views NAFTA as a “successful agreement,” but one that should be modernized and strengthened. He went on to list provisions of USMCA that he said would benefit the steel industry, including a strengthened rules of origin benchmark and provisions promoting “increased cooperation and information sharing between the three North American governments to address circumvention and evasion of trade remedy orders.”

As we noted Friday, it remains to be seen what impact, if any, the new Democrat-majority House of Representatives will have on implementation of the USMCA.

Some Democrats have expressed concerns about the deal, including New Jersey Rep. Bill Pascrell, the leading Democrat on the House Ways and Means Subcommittee on Trade.

“As claims start to be made about the miracles that the new NAFTA will bring, we are relying on you, this commission, the International Trade Commission, to tell it like it really is,” Pascrell said in his opening remarks during the USITC hearing last Thursday.

Pascrell said he is reviewing the text of the USMCA and plans to use the USITC’s analysis, among other analyses, to inform his views on the agreement.

“There are certainly some improvements in the USMCA over the previous NAFTA, but the jury is still out as to whether this deal meets my standard for a better deal for American workers,” Pascrell said. “The Commission’s report on the potential economic impact of the USMCA is a critical component in assessing the merits or flaws of the new deal. Any new deal will not be a success unless it eliminates the incentives for outsourcing in the original NAFTA and boosts jobs and wages in a meaningful way in the United States.

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“For these reasons, we need a comprehensive and meaningful ITC report to determine whether all of the Administration’s rhetoric around transforming and rebalancing U.S. trade policy will actually carry the day.”

The full text of the USMCA is available on the Office of the U.S. Trade Representative’s website.

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

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This morning in metals news, the zinc and copper prices made gains this week, automakers expressed criticism of the U.S.’s steel and aluminum tariffs, and Shanghai rebar prices fell.

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Zinc, Copper Prices Rise

Both metals made gains this week on concerns of supply tightness, Reuters reported.

Per the report, LME copper was up 1.8% on the week.

MetalMiner’s Take: Copper prices are behaving like most base metals. Base metals are currently being moved by two drivers: the Chinese economy and tightening supply.

The Chinese economy seems to have slowed down recently and analysts’ main concern has been how that would affect demand for metals. In addition, supply is tightening, which usually drives prices up.

LME prices are currently balancing between these two drivers. The Chinese economy may be the decisive indicator for prices to move down or to continue increasing slightly.

Automakers Critical of Metals Tariffs, Potential Auto Tariffs

Groups representing the automotive industry were intensely critical of the Trump administration’s steel and aluminum tariffs, in addition to the specter of possible additional tariffs on imported automobiles, the Detroit News reported.

Groups made the comments during a U.S. International Trade Commission (USITC) hearing Thursday morning on the United States-Mexico-Canada Agreement (USMCA), the trade deal agreed upon by the three countries that is to supersede the North American Free Trade Agreement (NAFTA).

MetalMiner’s Take: Manufacturers can expect their trade associations to continue putting pressure on the Trump administration to remove or adjust the steel and aluminum tariffs, particularly for Canada and Mexico.

Mexico has previously indicated it would not approve the deal if the tariffs are not addressed. The real question involves what a Democratically controlled house might do about USMCA; however, many of its provisions support labor more than the existing NAFTA agreement.

Will the new House of Representatives view USMCA as a piece of legislation that crosses partisan boundaries, or will it use USMCA as its first opportunity to obstruct the president’s legislative agenda?

Only time will tell.

But rest assured the Trump administration won’t move on tariffs until it absolutely needs to.

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Shanghai Rebar Price Drops

The Shanghai rebar price dropped to close the week, Reuters reported, down 0.4%.