Industry News

We’ve written extensively about why certain nations (ahem, China in particular) conveniently seem to keep “forgetting to follow WTO-mandated rules see here and here including the United States. The US is by no means an innocent when it comes to playing the trade game to their advantage, as is the case with the practice called “zeroing.

Zeroing has been used exclusively by the US (none of the other 152 WTO members do this) to bolster their anti-dumping claims and protect trade interests, notably in the steel sector. (See Lisa’s coffee cup-and-Japan example now, now, keep your minds out of the gutter.) Essentially, zeroing happens when, in calculating import prices, the US simply tosses out or “zeroes the instances in which the exporters’ domestic price is lower than the domestic US price, creating a much larger dumping margin, and giving them quite a skewed advantage, many say.

As we’ve previously reported, the WTO called the US out on this in May 2009, ruling against the practice and basically issuing a “cease and desist order. From then on, zeroing was disallowed on a new case basis, but any actions taken on already existent cases were much murkier. (US courts supported the practice.) So the US technically “stopped zeroing, while appealing the ruling. Later that year, they lost the appeal. So, case closed, right?

Apparently not. Other reports indicated the US had stopped zeroing back in December 2006, just before an initial WTO ruling on the issue in 2007. But Bloomberg recently reported that the US Commerce Department just now “proposed ending the way it calculates dumping duties after Japan, the European Union and Thailand said their exports were being penalized. (The steel case with Japan has been ongoing.)

“ËœWhile it has taken a very long time, the Commerce Department has finally acted to remove a serious distortion from antidumping calculations,’ Lewis Leibowitz, a lawyer at Hogan Lovells in Washington who represents U.S. companies that use imported products, said in a statement,’ according to the article.

So what’s the deal? Four years of ambiguity? When did the US actually stop zeroing? Or has it stopped at all? And how long does it really take to comply with WTO laws? Is the WTO effective, then? As the US flails to keep up in the globalized market, it clearly has a hard time letting go of some “tricks of trade that it would just as easily accuse others of employing.

Tell us what you think.

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!


–Taras Berezowsky

Australia has been hit by once-in-fifty-year floods, according the Australian Prime Minister Julia Gillard, as an area equivalent to France and Germany combined has been submerged under floodwater up to 30 feet deep in places, as this map from the LA Times illustrates.

Source: LA Times

A Bloomberg article covering the disaster says miners including BHP Billiton Ltd., Xstrata Plc, Rio Tinto Plc and Peabody Energy Corp. are experiencing problems fulfilling contracts, suggesting many will declare force majeure this week.

Flooded open-pit coalmines and washed-out rail lines in Queensland have seen exports severely impacted, a Reuters report states. The major Queensland coal port of Dalrymple has resumed some operations, but there were nearly 50 ships offshore waiting to be loaded, while the port of Gladstone was operating at a greatly reduced capacity, according to Gladstone Ports Corporation spokeswoman Lee McIvor. “We have just under 1 million tons of coal stockpiled against a capacity of 6 million tons. We are running a very low stockpile,” she said. Gladstone’s capacity to handle 75 million tons per year could be halved this week due to rail system closures and track damage, another Reuters report says. Dalrymple Bay Coal terminal at the Port of Hay Point, the world’s largest coal export port with an annual capacity of 129 million tons, halted operations as stockpiles of metallurgical coal have run too low after a train derailment disrupted supplies. Stockpiles of some 200,000 tons cannot be used because they are in an “unsuitable condition, meaning too wet. And therein lies the next challenge for coal exporters: not only are rail lines damaged or submerged, but so are the mines. Coal mines will need to be pumped out, coal supplies at mine heads will need to dry out and workers (rail and mine), many of whom have been severely disrupted by the floods, will have to be re-housed before they can resume work. Coal production is not going to be turned back on as soon as the floods subside; it could take weeks, even months for full production to be resumed.

Meanwhile China and India are looking to import increasing quantities of metallurgical and thermal coal. Even though China’s total output for the year is expected to rise some 8 percent to over 3 billion tons in 2010, according to data from the China Coal Industry Association, it will still not be enough to satisfy demand and imports will increasingly be required to fill the gap. Net coal imports are expected to reach 145 million tons in 2010, to be higher in 2011. But the coal market was tight before the Australian floods; supply will be severely restricted in coming weeks and prices are already moving higher. According to a Telegraph article, prices are already at a two-year high. The Steel Authority of India has just agreed it will pay $225 per ton to suppliers including BHP Billiton, a level that is 74 percent higher than the price it paid during the year ended March 31. Broker UBS forecasts that prices will hit $250 a ton in the second quarter of 2011. Steel prices (coking coal is a key steel ingredient) were also predicted to rise further this new year than last, and Australia’s floods will add further pressure to China and India’s steel producers’ rising cost base just as fears are taking hold that inflation, particularly in China, is about to take off, as we will be covering in a separate article later this week.

–Stuart Burns

Last week, we posted a look at Xstrata’s recent spending surge and opined on how this capex push hardly addresses any short-term metal price alleviations. The long-term nature of mining projects – requisite permits, tests, etc. – does nothing for metal availability, even 10 to 15 years out from now.

Recent reports show that even more mining companies are using the high-demand/high-price market to justify more spending in new and existing markets. Brazil’s MMX Mineracao e Metalicos SA announced a $2.9 billion expansion in iron ore mines, after beginning to export to China not too long ago. Ontario, the most populous province of the US’ largest trading partner, Canada, expects to see $8.5 billion in capex over a five-year period. The biggies Rio Tinto, Vale, BHP Billiton, etc., are all upping their capex significantly, with collective investment that could reach $120 billion in 2011, according to the Financial Times. That’s three times their average spend between 1988 and 2003. For context, the graph below shows Australia’s total capex by industry:

Source: Australian Bureau of Statistics

But the angle of the FT article is that this influx of capital spending mainly helps the suppliers in the short term. Those who provide earth-moving equipment (such as Caterpillar, Joy Global, Komatsu, Atlas Copco and Boart Longyear) and explosives (Orica and Bulk Mining Explosives) are expecting to see a boost in orders over the next several years. Some are already getting a taste: Joy Global, for example, experienced an 18 percent increase in Q4 profit after their orders for new equipment doubled. “Based on both market fundamentals and the discussions directly with our customers, we are confident that this is the early stage of another multi-year expansion of the mining industry,” Joy’s CEO Mike Sutherlin was quoted as saying.

But the question remains: what happens to metal prices in the interim? Sure, it’s all good for mining firms’ or their suppliers’ shareholders when their company stock prices spike on capex news, but in the climate we’re in, there’s never any guarantee that their raw materials prices won’t rise proportionally with their orders. After all, it takes metal to mine and make metal, so the historic highs we’ve been seeing in base metal prices should certainly be a consideration for suppliers. But, if the expansion investments are not made now, we’re sure to have supply droughts for longer than just the next decade.

–Taras Berezowsky

With our office currently very attuned to the world of babies (Lisa and Jason welcomed their third boy, Simon, into existence nearly two weeks ago), not to mention their feeding schedules, this little news item certainly set off the baby radar.

The Chicago Tribune reported that the Consumer Product Safety Commission just passed the toughest rules regulating baby cribs in US history. The main target is the “drop-side model, in which the sidepiece that drops down can cause babies to become trapped and hang themselves to death. Beginning this summer, drop-side cribs, and also those with unsafe mattress supports/slats, will be illegal to put or keep on the market. Another historic rule prohibits the sale of almost all second-hand cribs, since most would not pass the new standards.

Source: CPSC via Chicago Tribune

(For the record, Lisa and Jason are not using a drop-side crib. Whew.)

Needless to say, this will have quite an effect on both babies and their parents, and manufacturers.

In terms of baby safety, the rules are reportedly a long time in coming according to the Tribune, between November 2007 and April 2010, at least 35 fatalities attributed to structural crib problems were reported. Since 2007, 11 million cribs have been recalled. Earlier this year, “seven firms, including Million Dollar Baby, Jardine Enterprises and LaJobi Inc., voluntarily recalled more than 2 million drop-side cribs, according to an LA Times article.

On the manufacturing side, will this cause new supply chain disruptions, with new plans for production and distribution having to go into effect pretty soon?

The Juvenile Products Manufacturers Association, a non-profit trade association, doesn’t think so.

“There will be a negligible impact to manufacturers upon passing of the final rule in terms of product being able to meet the new federal standard, the association writes on its Web site.

But JPMA is worried about potential re-testing of already-safe cribs creating hiccups in getting the product to market efficiently.

According to their site: “JPMA does anticipate impact on the cost to be in compliance with the new mandatory rule to the manufacturers from a material standpoint. JPMA estimates the impact to be upwards of approximately 10% due to additional materials being utilized in order to meet some of the new requirements.

Even if companies like Child Craft, the world’s largest crib manufacturer, have to do an about face to adjust to the new regulations, babies around the country will undoubtedly be safer in the long run.

So, anyone want to speculate on future used-crib scrap market trends?

–Taras Berezowsky

China has embraced the high speed train (trains that travel at over 250 km/hr) far more enthusiastically than any other country. The current 7,531 km (4680 miles) of high speed track is already more than the rest of the world put together, according to the FT, and under current plans the central government has authorized a high-speed network that will reach 16,000 km by 2020 at a cost of some Rmb 4 trillion ($600 billion) during the next five-year plan alone. The FT reports this figure is expected to account for more than half of all global railway spending during that period, according to World Bank estimates. Even as part of the current stimulus plan, the network is expected to reach 13,000 km by 2012.

But critics are beginning to be heard even within China. One article points out that bullet train services, such as the 1,000 km Wuhan to Guangzhou connection that opened this year, are operating at less than half their full capacity and will never make enough money to repay the large bank loans used to build them. A report submitted by the China Academy of Science to the State Council, urged a rethink of the emphasis on (among other massive infrastructure investments) the bullet train expansion program. One of the concerns expressed in the report is the unsustainable level of debt and that the breakneck expansion has not been properly thought out, leaving airports, bus services, subways and highways not connected depriving the investment of efficiency gains even before the massive debt burden is taken into account.

Does this massive investment in cutting-edge rail technology represent a major opportunity for western rail firms? As an FT article points out, in 2002 China invested nearly $5.4 billion in the segment of the high-speed market in which foreign companies compete carriages, signaling equipment and other high-tech track components and foreign companies captured about 70 percent of that. Today China invests as much as $23 billion in the segment, of which foreign companies account for only 15-20 percent, earning roughly the same as eight years ago, according to industry figures. As a result of a highly successful drive to force foreign companies to transfer technology in exchange for access to earlier projects, China now builds Japanese and European trains in all but name.

But back to the economics. As other countries look on with envy at the shiny new trains, academics — even in China — ask, does it make economic sense? The article quotes Zhao Jian, a professor at Beijing Jiaotong University who favors conventional rail rather than high-speed projects. “This high-speed program is a political project with little economic value, he says. “The government just wants to have the biggest and fastest train set in the world. The railway ministry accounts for as much as 10 percent of all outstanding debt in the country, according to World Bank estimates. Chinese analysts say the proportion of railway construction funded by debt has increased from under 50 percent in 2005 to more than 70 percent last year. That would be fine if the economics were sound and the traffic was sure to generate enough revenue to pay it back. But Mr. Zhao is not so sure. “This is a real debt crisis building up for the government and it is going to break at some point, he said. It sounds not a little like the great American railway building boom of the 1800s, but in this case it will doubtless be Beijing that eventually steps in to pick up the tab, not bond holders.

–Stuart Burns

A new Commerce Department report last Friday shed light on potential good news for the US economy and its trade deficit, showing that overall US exports increased while imports were down. As MetalMiner continues to digest the report, we’re also beginning to investigate the implications of the KORUS Trade Agreement between the US and South Korea on the metals industry.

According to the report and corresponding fact sheet, U.S. exports of goods and services increased by 3.2 percent in October 2010 to $158.7 billion since September 2010, while imports decreased 0.5 percent to $197.4 billion over the same period. This means the monthly U.S. goods and services trade deficit decreased by 13.2 percent to $38.7 billion when compared to September 2010. Industrial materials and supplies were primary drivers for both the increases in exports and decreases in imports.

Putting a spotlight on the KORUS agreement, manufactured goods made up 81 percent of U.S. merchandise exports to Korea in 2009. Semiconductors and other electronic components were the largest manufactured export category, with $3.0 billion, or 10 percent of total U.S. shipments of merchandise. Aerospace products and parts accounted for $2.0 billion, while industrial machinery accounted for $1.3 billion.

After the most recent agreement between the Obama administration and the South Koreans on Dec. 6, critics in both countries were unhappy, citing concerns for their respective manufacturing sectors. The United Steelworkers union and the United States Business and Industry Council said the U.S.-Korea Free Trade Agreement would benefit South Korea’s interests at the expense of U.S. manufacturing, as reported in a Crain’s publication. “The final agreement will result in increased access to the U.S. market for Korean producers with insufficient assurance that the closed South Korean market will sufficiently open up to our auto exports and other manufactured goods, the USW union is quoted as saying. On the other end, South Korea’s Democratic Party also denounced the deal as humiliating and treacherous, preventing “South Korea’s access to the US auto market, which should be a key pillar of the FTA, reported by The Business Times.

Please check back in this week, as we continue looking into how metal buyers and sellers perceive the trade situation between the US and Korea, and how reductions of tariffs on both sides help or hurt their respective bottom lines.

–Taras Berezowsky

The New York Times published a profile of Jeffrey Immelt, GE’s CEO, last Sunday titled “G.E. Goes With What It Knows: Making Stuff, lauding his singular efforts to bring the company back from focusing on its financial divisions, instead putting the emphasis on gasp! actually making and building things.

Yep, you know that when one of the “bluest of blue-chip companies has to get out the media megaphone to announce its “come to Jesus moment realizing that manufacturing, the cornerstone of the past that the company was built on is now the wave of the future something is changing in the air.

Indeed, Steve Lohr, the Times’ veteran business reporter, invokes the term (as well as the feeling of) “change in the profile almost as many times as there are numbers of GE products “drive change, “drive growth and change, “efforts to push large-scale change but, alas, as the saying goes: the more things change, the more they stay the same. The issue here isn’t change at all. A return to manufacturing simply seems imminent, so going back to an old classic shouldn’t feel any different at all.

But, after a decade or more of so many companies getting on the financial services bandwagon, it seemed natural for builders and makers like those at GE to get caught up in the financial world.

“The big buildup of GE Capital occurred during the tenure of Mr. Immelt’s famous predecessor, Jack Welch, Lohr writes. “But while Mr. Immelt, who took over in 2001, spun off the unit’s insurance business, he also bulked up on commercial real estate and other loans. In 2004, G.E. even bought a subprime lender in California, WMC Mortgage, which it shed in 2007 for a $1 billion loss.

We’ve long known that many companies in the metals sphere realize building things is the key to future economic stability look no further than Nucor, whose progressive and extremely effective corporate culture needs no significant overhaul.

Ultimately, it’s good for metals suppliers that CEOs are re-emphasizing manufacturing and exporting, not divesting valuable resources by padding meaningless financial investment. GE is undoubtedly one of the largest metals buying companies in the world, with their hands in so many sectors of global infrastructure aviation, power generation, transportation, oil and gas, water supply, health care, appliances, media the list goes on. Their Commercial Aviation Services arm alone has a fleet of over 1,800 owned and managed aircraft with approximately 245 airlines in over 75 countries, according to their Web site. GE is also America’s largest exporter after Boeing, with commercial and military clients, so their role as buyer/producer/seller of metal products, especially in the aviation sector, is far-reaching.

With someone as “influential as Immelt leading the way as an industrial advocate (as a member of the White House’s Economic Recovery Advisory Board, he has called for a doubling of the country’s manufacturing employment, to 20 percent of the workforce, Lohr writes in the Times article), hopefully manufacturing will thrive in new ways in the next decade as long as we can create and sufficiently sustain increased demand of US exports worldwide. And that’s not simply up to just one company, or one heady, ambitious CEO.

–Taras Berezowsky

The last time Mozambique hosted any battles on its soil, the Bill Clinton era was just getting underway and the grunge band Nirvana was at the height of its popularity. Now that the country’s long civil war is over, a potential new skirmish, albeit of the economic variety, could begin full-force between Rio Tinto and other miners for Mozambique’s hard coking coal.

Rio Tinto, the Australian-based world’s No. 3 mining giant, has been very busy lately. Not long after calling off a potential deal with BHP Billiton to cut costs, Rio made a deal for a joint venture with Chinalco, a.k.a. The Aluminum Corp. of China, to solidify its mineral exploration in the northern and northeastern parts of that country. (The focus will be copper and coking coal.) This came on the heels of “an agreement with Sinosteel Corp. to extend cooperation at the Channar iron ore project in the Pilbara region of Western Australia, according to a recent WSJ article. Now, earlier this week, Rio Tinto is reported to have entered talks to take over Australia’s Riversdale Mining for $3.5 billion.

And that’s where Mozambique comes in. According to several reports, an all-out bidding war for Riversdale may ensue. The company has hard coking-coal projects in Mozambique that “could eventually supply 5% to 10% of the global market for the steel-making material, Sonali Paul reported for Reuters. This is important for Rio, as they are trying to diversify as much as possible with high-quality coking coal becoming increasingly scarcer. They may face bidding competition from Xstrata, Anglo American and Peabody Energy. Rio’s biggest bidding competitor, however, is likely to be Brazil’s Vale, which already owns mines near Riversdale’s in Mozambique.

A recent Mineweb article examines the extent of Vale’s infrastructure investments in Mozambique, and upon reading the laundry list, it’s apparent that they’re the company to beat for future African metal-market share.   Vale exercised an option for a majority share of the Sociedade de Desenvolvimento do Corredor do Norte SA (SDCN), which controls more than 1600 kilometers of railroad in Mozambique and Malawi. This way, Vale ensures that product transport from the Moatize coal project development with nominal production capacity at 11 million metric tons of coal, 80 percent of it metallurgical, when it starts up in the first half of 2011 will be secure and efficient.

If Rio Tinto wins out in this acquisition, they can plant a legitimate foothold in Vale’s proverbial backyard, bolstering their other global deals and gaining a share of Africa’s rich coking coal reserves. With Rio becoming more streamlined (already shedding more than half of its net debt in 2008 following their purchase of Alcan), they just may be able to swing their weight around a bit more nimbly than others.

–Taras Berezowsky

The jury is still out on whether Tata’s Nano has failed, but sales of just 509 cars in November hardly sound like a rip-roaring success when compared to the frenzy reported around its launch. Just a year ago, Tata felt forced to hold a lottery to prioritize initial sales — so heavy was the demand. Against an overall car sales rise of 38 percent on a year ago and Nano sales of 3,065 in October, down from 5,520 in September according to an FT article, Tata managed just 509 in November. In total, the Nano has managed sales of just 70,000 sold since it entered the market in July 2009, according to CarNews.com.

Source: rpmgo.com

The 0.6-liter two-cylinder-equipped Nano is assembled in the western Indian state of Gujarat, where the plant is capable of churning out 250,000 models per year at full capacity. At just 123,360 to 172,360 Indian rupees in India, which is around $2700 to $3800, the Nano was aimed firmly at the motorcycling family looking to move up to the comfort and convenience of four wheels. The Nano’s low-cost innovations include using three lug nuts to secure the wheels instead of four, reduced use of steel, a single wiper blade and side-view mirror, and a trunk that’s only accessible from the inside.

The poor sales are blamed on two factors.

Source: news.nationalpost.com

As we reported back in March of this year, the Nano suffered isolated reports of catching fire, forcing Tata to offer a safety recall (in all but name) to users. This bad press put off buyers and from the late summer onwards, sales dwindled. Possibly more of an issue according to company executives is the disconnect between product and market. As we have said, the Nano is aimed at the poor. Ratan Tata’s vision was to provide safe and comfortable transport for India’s scootering public. Anyone familiar with the country so often sees those families with father, mother and two children all perched precariously on a scooter in sweltering heat or monsoon rains or just dodging through India’s crowded city roads, risking death or injury to two generations. The Nano is aimed squarely at the poor, but this group also finds it nearly impossible to raise finances at affordable levels. Once the initial wave of novelty-seeking or more wealthy poor had placed their orders, new buyers dried up, so Tata is developing in-house financing and may be looking at the success over the years of GM’s GMAC model, to provide finance in support of sales.

How successful they will be remains to be seen. The Nano has its problems, but it is a brave attempt at low-price car manufacturing and Tata deserves credit for going where others feared to tread. At the other end of the range, Tata is making a success of Britain’s luxury mark Jaguar — let’s hope they can pull the same rabbit out the hat with the Nano.

–Stuart Burns

Source: Reuters Insider

RUSAL is sitting pretty these days.

As the world’s largest aluminum maker by output — responsible for about 4 percent of the global aluminum production — the Russian company has a rosy outlook on where prices are going in 2011, mainly due to China’s import needs. (The company already purchased a 33 percent stake in Chinese aluminum trader Shenzen North Investments.) The implications of Russia’s metal industry relations with emerging economies, China and India in particular, are huge.

See what Maxim Sokov, RUSAL’s head of strategy and deputy CEO had to say about it in a recent Reuters Insider interview.

Check out the video here, or click on the image above.

–Taras Berezowsky

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