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This morning in metals, Shell’s chief executive says $80 oil is good for energy infrastructure investment, China’s Baowu is reportedly in talks to acquire a rival and base metals prices dropped on Tuesday.

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$80 Oil? Shell CEO Says It’s Not Unreasonable

In a CNBC interview, Shell CEO Ben van Beurden said $80 oil would not be unreasonable and would support energy infrastructure investment.

Van Beurden added some of the Trump administration’s quotas on steel imports have impacted the company’s construction projects.

MetalMiner’s Take: Shell is probably right in estimating the world can afford $80/barrel oil prices without harming growth; certainly, the U.S. economy is testament to that at the moment.

But rising steel costs due to import tariffs are causing oil companies headaches when funding new infrastructure projects, projects the industry desperately needs to overcome transportation bottlenecks and meet rising refined product demand overseas.

Outside of the U.S., oil majors are pushing ahead with large investments in a buoyant refining market. Exxon just announced a half-billion-dollar upgrade to its giant Fawley refinery in the U.K. to meet rising demand, surely a sign the oil price and demand trump construction costs.

Baowu Eyeing Rival Firm

According to a Reuters report, the Chinese steelmaking heavyweight China Baowu Steel Group is in talks to acquire rival Magang Group.

Per the report, the combined output of Baowu and Magang last year surpassed total U.S. production.

Metals Prices Drop

Base metal prices struggled on Tuesday, according to a Reuters report, on the heels of a one-day closure of Chinese markets.

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After surging Friday, LME copper dropped 0.8% on Tuesday.

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Overcapacity was the word of the day at the Global Forum on Steel Excess Capacity last week.

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The forum, which took place Sept. 20 in Paris, brought together the world’s biggest steel-producing nations.

“The global challenge of overcapacity has strained trade relations and the global trade architecture to its breaking point,” E.U. Trade Commissioner Cecilia Malmström said. “Progress in this Forum at this sensitive time demonstrates that multilateral cooperation is not only possible, but that it is actually the best tool to tackle global challenges. Putting this agreed package in place is something that the European Union will now follow closely. Our workforce and our industry depend on these commitments being carried out.”

Vice-President for Jobs, Growth, Investment and Competitiveness Jyrki Katainen added: “This sends a clear message: we will not repeat the costly mistakes of the past, and must tackle excess capacity and its root causes to avoid dire social, economic, trade and political consequences in the future. This will protect growth and jobs in an efficient, sustainable EU steel industry. A lot of work lies ahead though and all members of the Global Forum will have to continue implementing their commitments resolutely and report to G20 Leaders.”

The Paris meeting built on last year’s meeting in Berlin, during which members agreed to embark on a package of reforms to address global steel overcapacity.

According to the European Commission statement, the members will assess subsides contributing to overcapacity by the end of the year and “identify further reductions to be taken” in 2019.

In other steel news, the European Commission statement refers to the U.S.’s Section 232 tariffs, which impact steel and aluminum, calling them “unjustified.”

While a select few countries have negotiated exemptions and quotas with respect to the tariffs, the E.U. remains subject to the tariffs.

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“The Commission has acted among others through trade defence, imposing antidumping and anti-subsidy duties, to shield the EU’s steel industry from the effects of unfair trade,” the release stated. “The EU currently has an unprecedented number of trade defence measures in place targeting unfair imports of steel products, with a total of 53 anti-dumping and anti-subsidy measures. The EU has also activated all legal and political tools at its disposal to fight unjustified US 232 measures.”

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This morning in metals news, copper prices approached a 10-week high, trade tensions continue to rise between the U.S. and China, and an Australian coal miner boasts a $4.4 billion IPO.

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Copper Prices Hover Near 10-Week High

Even with trade tensions weighing on markets, copper prices reached nearly a 10-week high, according to Reuters, despite dropping on Monday.

The U.S. recently announced a new batch of tariffs on Chinese goods amounting to $200 billion, while China responded with $60 billion in tariffs on U.S. goods.

China Says U.S. is Acting Like a Trade Bully

As trade tensions took a big leap forward in recent weeks, China has accused the U.S. of trade bullying, according to a BBC report.

The U.S.’s $200 billion in tariffs and China’s retaliatory $60 billion in tariffs went into effect today.

Coal Miner Has $4.4B IPO

An Australian coal miner, Coronado Coal, boasted a $4.4 billion IPO listing, the highest since the mining boom, according to The Sydney Morning Herald.

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The company expects earnings before interest, taxes, depreciation and amortization (EBITDA) of $578 million for 2018, according to the report.

By now, much has been written on U.S. trade tariffs, the latest being the 10% tariff on Chinese imports amounting to a value of $200 billion. While almost all the countries against whom the U.S. has imposed tariffs have chosen to retaliate and go in for a tit-for-tat policy, India, curiously, has decided to be cautious.

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MetalMiner has followed this story over the last few months. As late as August, we reported that for the second time, India deferred imposing a tit-for-tat duty on the import of over two dozen products from India, including certain flat-rolled stainless steel products. It was supposed to come into effect Aug. 8, but now the new date is Sept. 18.

Sept 18’s come & gone, and it is now being reported that the Indian government has postponed its decision yet again.

A report by Live Mint said India would not be imposing a “revenge tax” against 29 American products worth U.S. $235 million to oppose the move by the U.S. to raise import duties on Indian steel and aluminum.

The Live Mint report quoted a “person with knowledge of the development” as saying the two nations were engaged in arriving at a negotiated solution on the issue.

So when’s the next date? Nov. 3.

It was on June 20 that India had said it would raise tariffs on the U.S. products, including fruits worth $10.6 billion imports in retaliation.

So why is India dithering?

Political observers cite many reasons for India’s reluctance. One is that India is headed for a general election soon and the government does not want Indo-U.S. ties to deteriorate because it could then become a poll issue, giving the opposition a handy weapon.

The other could be that both countries were engaged in what’s known as the “2+2”  negotiations on many fronts, such as defense, so neither wants to ratchet up the heat. Also, U.S. President Donald Trump’s friendly relationship with his Indian Prime Minister Narendra Modi is well-known.

India has been demanding a waiver on tariff hikes similar to the ones the U.S. granted to Argentina, Brazil and South Korea. There were some unconfirmed reports here that the Trump administration had hinted that it was willing to waive off the tariff hikes on steel and aluminum if India were to cap the exports at 70% of its total exports to the U.S. last year. India, though, does not seem to be keen on doing this, though there’s no official word on it.

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India’s exports of steel items to the U.S. went down by 42% in the quarter ending June, mostly because of the sanctions.

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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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This morning in metals news, the Office of the United States Trade Representative (USTR) dished out criticism for a global steel forum and its efforts toward curbing excess steel capacity, Chinese steel rebar prices are up and Walmart warns tariffs could result in price increases.

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USTR Criticizes Global Steel Forum

Following the Global Forum on Steel Excess Capacity ministerial meeting held in Paris yesterday, the USTR released a statement questioning the forum’s efficacy in efforts to curb global steel capacity.

“The United States thanks Argentina for its chairmanship of the Global Forum and for its efforts to achieve meaningful outcomes from the Forum process this year,” the statement begins. “The United States has been an active and committed partner in this process, working to seek prompt implementation of the Forum’s past policy recommendations, which are aimed at reducing excess capacity as well as restoring balance and market function in the global steel sector.”

However, the USTR argued the forum has not done enough to realize its goals.

“Unfortunately, what we have seen to date leaves us questioning whether the Forum is capable of delivering on these objectives,” the statement continued. “We do not see an equal commitment to the process from all Forum members. Commitments to provide timely information critical to the proper functioning of the Forum’s work, for example, have gone unfulfilled. More importantly, we have yet to see any concrete progress toward true market-based reform in the economies that have contributed most to the crisis of excess capacity in the steel sector.”

Chinese Rebar Prices Rise

Chinese construction steel rebar prices were up Friday, according to a Reuters report.

According to the report, the most-active contract on the SHFE rose 0.1% on Friday.

Walmart Warns of Price Increases as a Result of Tariffs

On the heels of Washington’s announcement this week of the forthcoming imposition of tariffs worth $200 billion on imports of Chinese goods, Walmart wrote a letter to USTR Robert Lighthizer warning that it may have to raise prices, Reuters reported.

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According to the report, the letter cited products which could be hit with price increases, which included gas grills, bicycles and Christmas lights.

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This morning in metals news, contract talks between United Steelworkers and U.S. Steel have been “frustrating,” China’s scrap usage increased during the first six months of the year and Thyssenkrupp’s CEO says the firm will forge on with plans to merge its European operations with those of Tata Steel

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Negotiations Continue

Contract talks between U.S. Steel and United Steelworkers continue to drag on, with the union referring to the dialogue as “frustrating,” according to a report by the Times of Northwest Indiana.

The union’s contract expired Sept. 1, but union members have stayed on the job. Earlier this month, the union voted to authorize a strike at U.S. Steel.

“These workers have made a number of sacrifices over the past several years – including three years with a wage freeze – to put this company back on track,” USW International President Leo W. Gerard said in a prepared statement Sept. 10. “Now that U.S. Steel is expecting to make a profit of nearly $2 billion this year, it is time for the workers to share in the success U.S. Steel is seeing now.”

Scrap Usage on the Rise in China

According to S&P Global Platts, China’s scrap usage in the first half of 2018 increased.

Per the report, 87.72 million mt of scrap was used by steel mills in the first half of 2018, while 148 million mt was used in all of 2017.

Thyssenkrupp CEO Says Tata Deal Still On

The interim chief executive of Thyssenkrupp says the German firm’s previously agreed upon deal to merge its European operations with those of Tata Steel will continue as planned, according to a Reuters report.

Heinrich Hiesinger, the previous CEO, stepped down in July, forcing the German firm to replace the chief executive who helped bring the Tata deal to fruition. Guido Kerkhoff has served as interim CEO following Hiesinger’s departure.

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The merged operations would combined to create Europe’s second-largest steelmaker, behind only ArcelorMittal.

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As readers of MetalMiner are no doubt familiar, tariffs have changed the commodities landscape over the last year-plus.

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That very subject was at the center of a conference last week in Grand Rapids, Michigan.

During The Right Place/Supply Chain Management Council’s Commodity Trends 2019 Outlook, MetalMiner Executive Editor Lisa Reisman delivered an address on steps companies are taking toward tariff mitigation. Businesses have been forced to pay extra attention to risky links in their supply chains, particularly as tariff totals continue to rise between the U.S. and China.

Other speakers at the event covered other angles of the tariff topic, including exemptions, Section 301 at large and the long-term view.

MetalMiner’s Taras Berezowsky covered the event for sister site SpendMatters:

From the multiple expert presentations to numerous audience questions and comments on the topic, it didn’t take much to pinpoint the effects of tariffs as a recurring theme of the half-day conference, at which MetalMiner Executive Editor Lisa Reisman presented our 2019 metals outlook. Indeed, the current onslaught of tariffs — including those implemented under Sections 201, 232 and 301 of U.S. trade law — seemed to be one of the primary concerns on everyone’s minds.

 

The hosting group’s primary goal is to equip West Michigan businesses, mainly small and medium-sized manufacturers, with the knowledge they need to manage their commodity strategies. Given the current trade environment, it’s no surprise that many of the event’s key takeaways centered around what types of actions these manufacturers can — or should — take to avoid risks created current and potential tariffs.

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Read Berezowsky’s full recap of the event here.

The World Trade Organization (WTO) came to be in January 1995, and has since served as a global body for mediation of trade disputes between nations.

But much has changed since 1995.

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Now, nearly a quarter of a century later, some are asking how the WTO can be modernized for the 21st century while also addressing challenging currently facing the system.

The European Commission published an outline of its proposals to modernize the WTO, which will be presented Wednesday, Sept. 20, during a meeting of E.U. members in Geneva.

“The multilateral trading system has for the past decades provided a stable, predictable and effective framework for companies across the world, helping many economies to grow rapidly,” E.U. Trade Commissioner Cecilia Malmström said in a release. “Also today, the WTO is indispensable in ensuring open, fair and rules-based trade. But despite its success, the World Trade Organisation has not been able to adapt sufficiently to the rapidly changing global economy. The world has changed, the WTO has not. It’s high time to act to make the system able to address challenges of the today’s global economy and work for everyone again. And the EU must take a lead role in that.”

According to the European Commission release, the concept paper outlining the proposals focuses on three main areas:

  • updating the rule book on international trade to capture today’s global economy
  • strengthening the monitoring role of the WTO
  • overcoming the imminent deadlock on the WTO dispute settlement system

Rising trade tensions have put pressure on the WTO in the last year, particularly vis-a-vis the escalating tariffs levied between the U.S. and China (earlier this week the Trump administration announced it would impose an additional $200 billion worth in tariffs on Chinese goods). President Trump has been a vocal critic of the WTO, even threatening to withdraw from the global trade body during an interview with Bloomberg News last month.

The E.U. concept paper argues the WTO is up against the “deepest crisis” it’s faced since its inception, but remains committed to its purpose.

“The EU remains a staunch supporter of the multilateral trading system and firmly believes that the WTO is indispensable in ensuring free and fair trade,” the paper states. “The multilateral system has provided the basis for the rapid growth of economies around the world and for the lifting of hundreds of millions of people out of poverty. It has been the guarantor of trade at times of growing tensions and the backbone of the international system of economic governance.

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“Even at a time of the harshest economic conditions during the great recession, it has helped avert recourse to the trade wars that have fuelled economic decline in the past. As such the health and centrality of the multilateral system needs to be preserved. Its marginalisation, weakening and decline have to be prevented at all costs.”

In the paper, the E.U. warns the crisis could get worse.

“The crisis is set to deepen further in the coming months, as more unilateral measures are threatened and imposed, leading, in some cases, to countermeasures, or to mercantilist deals,” the paper states. “In parallel, as more Appellate Body members leave office while the new appointments are being blocked, the dispute settlement system will soon fall into paralysis, rendering enforcement of the rules impossible.

“That would equate to a 20-year step backward in global economic governance. It would mean going back to a trading environment where rules are only enforced where convenient and where strength replaces rules as the basis for trade relations.”

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This morning in metals news, India is considering upping its steel import duty, China’s spending on subways could assist its steel sector and an update in the Rusal sanctions saga.

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Supporting the Rupee

In order to give support to its currency, the Indian government is considering increasing its import duty on some steel products, according to a Reuters report.

Current duties range from 5% to 12.5%, according to the report, while the government is considering raising the duty to 15%.

Steel and Subways

China’s push toward subway investment could be a boon for its steel sector, Reuters reported.

Last month, the cities of Suzhou and Changchun announced plans to spend the equivalent of billions of dollars to add approximately 1,000 miles to their underground subway systems, according to the report.

A Little Leeway

With the Oct. 23 deadline approaching, many are wondering if the U.S. will in fact rescind the sanctions imposed back in April on Russian companies (including aluminum giant Rusal).

Even so, a new development could help to mitigate the type of market reaction seen in April, when aluminum prices skyrocketed on the news of the sanctions.

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According to Bloomberg, the U.S. Treasury Department is allowing Rusal’s existing customers to negotiate new contracts.