Market Analysis

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U.S. steel imports through the first 11 months of 2019 were down 17% compared with the same period in 2018, according to preliminary U.S. Census Bureau data.

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Imports through the first 11 months of 2019 reached 23.9 millions tons, down from 28.9 million tons from January-November 2018.

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Late Friday, the Trump administration announced it would raise the Section 232 steel and aluminum tariffs, originally imposed in 2018, on imports of steel and aluminum derivatives.

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“The Secretary has informed me that domestic steel producers’ capacity utilization has not stabilized for an extended period of time at or above the 80 percent capacity utilization level identified in his report as necessary to remove the threatened impairment of the national security,” President Donald Trump said in a White House statement Friday. “Stabilizing at that level is important to provide the industry with a reasonable expectation that market conditions will prevail long enough to justify the investment necessary to ramp up production to a sustainable and profitable level.”

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This morning in metals news, copper prices have been sliding amid growing fears over the spread of the coronavirus in China, laminated steel manufactured by Tata Steel in the Netherlands has been exempted from U.S. tariffs and China’s Jingye is reportedly considering building a new metals recycling furnace in the U.K.

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Copper prices slide

Copper prices dropped for a ninth consecutive session Monday as fears mount over the spread of the coronavirus in China, Reuters reported.

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The U.S. Department of Commerce (DOC) issued affirmative final determinations in its anti-dumping and countervailing subsidy investigations of fabricated structural steel imports from China, Canada and Mexico.

The DOC issued final determinations in its anti-dumping probe for China, Canada and Mexico, while issuing affirmative determinations in its parallel countervailing duty probe for China and Mexico (the DOC issued a negative determination in the countervailing duty probe for Canada).

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Global aluminum production ticked up in December 2019 to 5.44 million tons, up from 5.26 million in November 2019, according to recent data from the International Aluminum Institute.

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However, December 2019 production was down slightly from December 2018, when it reached 5.50 million tons.

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The Indian solar energy story marked a new milestone after India topped the Asia Pacific Region (APAC) for solar photovoltaic (PV) tenders in December 2019.

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According to analytics company GlobalData, with 49% tenders announced and a 75.4% share, India was No. 1 among all other countries in the region, followed by the Philippines (with six tenders and a 9.2% share) and Pakistan (with five tenders and a 7.7% share), according to a Saur Energy International report.

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Tariffs imposed under the Trump administration on steel and aluminum in 2018 represented a major shift in trade between the U.S. and the rest of the world, with impacts on imports and exports of metal at the forefront.

Meanwhile, although the U.S. and China recently reached a Phase One trade deal that saw the U.S. not go forward with a planned additional $160 billion in tariffs, tariffs on approximately $370 billion in Chinese goods remain in place.

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The National Bureau of Economic Research recently released a report detailing the effects of recent U.S. tariffs. The report, “Who’s Paying for the US Tariffs? A Longer-Term Perspective,” is authored by Federal Reserve Bank of New York researcher Mary Amiti and professors David Weinstein of Columbia University and Stephen Redding of Princeton University.

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Despite noting some positive developments, the International Monetary Fund (IMF), downgraded its growth projections for 2019-2021, citing a number of pressures ranging from climate change to geopolitical tensions to extant trade tensions.

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In its January 2020 World Economic Outlook, the IMF forecast growth will rise from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. However, the forecasts were revised downward from the IMF’s October Outlook — by 0.1% for 2019 and 2020 and by 0.2% for 2021.

“The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years,” the IMF report stated. “In a few cases, this reassessment also reflects the impact of increased social unrest.”

Slowing growth

Concerns have abounded in recent years regarding the prospect of a global recession.

Growth levels in China, for example, started to level off and then decline post-2012, albeit after a period of significant growth that would’ve been unreasonable to expect to continue. In 2007, China’s annual GDP growth soared to 14.23% but fell to 9.65% the following year, according to the World Bank. Growth has continued to slide since then, reaching 6.57% in 2018.

Similarly, Germany, the manufacturing powerhouse of Europe, has seen weakening activity. According to the IHS Markit/BME Germany Manufacturing PMI, German manufacturing activity contracted once again in 2019.

“Germany’s manufacturing sector closed out 2019 with another weak performance and remains a thorn in the side of the economy,” said Phil Smith, IHS Markit’s principal economist. “Falling goods production across the fourth quarter of the year bodes ill for final growth figures, while sustained cuts to workforce numbers at factories continue to pose a threat to Germany’s so-far solid consumer spending.

“Importantly, however, the forward-looking survey measures for new orders and output expectations both give off more positive signals as we move into the new year. What’s more, the US-China ‘phase one’ trade deal and a potentially clearer path to Brexit make for a more settled backdrop on the international stage.”

Overall, Germany’s GDP has been up and down. After a significant contraction of 5.70% in 2009, growth bounced back to 4.18% in 2019 but hasn’t reached that level since; in 2018, Germany’s GDP growth hit 1.53%, according to the World Bank.

Of course, trade tensions have weighed on economies around the world and generated uncertainty. Despite a so-called “Phase One” trade deal between the U.S. and China, the U.S. maintains an overwhelming majority of its previously imposed tariffs as a bargaining chip for compliance (and for future Phase Two negotiations, if and whenever they occur).

Throw in an escalation of Middle East tensions and a paralyzed WTO Appellate Body (currently unable to make decisions for lack of judges) and it’s not surprising that economic forecasts list more reasons for pessimism than for cheery optimism.

With that said, the Phase One deal and the U.S. Senate’s recent approval of the United States-Mexico-Canada Agreement represented positive steps toward an easing of trade-related tensions; a further rollback of U.S. tariffs on China would certainly ease tensions even more and boost certainty in the global business community.

The world will be watching to see where U.S.-China negotiations go next. Given the negotiating timeline of Phase One and the significant amount of tariffs that remain on Chinese goods, the next phase is likely to be even more complicated and tense — making an agreement before this year’s U.S. presidential election seem unlikely.

Nonetheless, the IMF did point to some positive signs, even as it revised growth projections downward.

“On the positive side, market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO,” the report stated. “However, few signs of turning points are yet visible in global macroeconomic data.”

Emerging markets, developing economies

As the IMF notes, subdued growth in India accounts for “the lion’s share of the downward revisions.”

The IMF estimates India’s 2019 growth at 4.8%, 5.8% in 2020 (1.2 percentage point down from the October outlook) and 6.5% in 2021 (0.9 percentage point down from the October outlook).

“The global growth trajectory reflects a sharp decline followed by a return closer to historical norms for a group of underperforming and stressed emerging market and developing economies (including Brazil, India, Mexico, Russia, and Turkey),” the report stated. “The growth profile also relies on relatively healthy emerging market economies maintaining their robust performance even as advanced economies and China continue to slow gradually toward their potential growth rates.”

Also of note, the IMF reported that without monetary easing efforts in advanced and emerging market economies, the global growth projections would be down an additional 0.5 percentage point for each year in question.

As a whole, emerging markets and developing economies are projected to experience growth of 4.4% in 2020 (up from an estimated 3.7% in 2019) and 4.6% in 2021.

“The growth profile for the group reflects a combination of projected recovery from deep downturns for stressed and underperforming emerging market economies and an ongoing structural slowdown in China,” the IMF stated.

Growth stabilizing in advanced economies

Meanwhile, in advanced economies, growth is expected to reach 1.6% in 2020-2021, down 0.1 percentage point from the IMF’s October outlook, “mostly due to downward revisions for the United States, euro area and the United Kingdom, and downgrades to other advanced economies in Asia, notably Hong Kong SAR following protests).”

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

In the U.S., the IMF projected growth to fall from 2.3% to 2.0% in 2020 and 1.7% in 2021.

In the euro area, growth is expected to pick up from 1.2% to 1.3% in 2020 and 1.4% in 2021.

In the U.K., growth is expected to stabilize at 1.4% in 2020 and 1.5% in 2021, as the U.K. prepares to formally withdraw from the E.U. at the end of the month (after which attention will shift to the type of trade arrangement that can be reached between the two parties in a post-Brexit world).

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The International Copper Study Group (ICSG) reported global copper mine production fell 0.3% through the first 10 months of 2019.

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According to the ICSG, concentrate production during the period was flat, while solvent extraction-electrowinning fell 1%.

Production in Chile declined 0.2%, according to the ICSG, as a result of lower copper head grades and production disruptions earlier in the year.

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The U.S. steel sector reached a capacity utilization rate of 82.3% for the year through Jan. 18, according to the American Iron and Steel Institute (AISI).

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Production for the year to date reached 4.94 million tons, up 2.6% from production during the same period last year (when capacity utilization rate reached 80.4%).

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