China

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This morning in metals news, the nickel price has plunged to its lowest level in 11 months, Canadian Prime Minister Justin Trudeau spoke with President Donald Trump over the weekend regarding the U.S.’s steel and aluminum tariffs, and two train derailments appear to have had little impact on Australia’s iron ore sector.

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Nickel Falls to 11-Month Low

The nickel price dropped to an 11-month low Monday, Reuters reported, based on worries of slowing Chinese steel demand.

LME nickel fell 1%, while the most-traded Shanghai nickel contract fell 2.4%, according to the report.

MetalMiner’s Take: While nickel falls to an 11-month low, the MetalMiner analyst team has a close eye on several key metals market price drivers.

Oil prices have begun to drop but remain above the $58/barrel level, which serves as the long-term bear/bull threshold. As oil prices currently remain above that level, the long-term trend remains bullish.

The other key price driver to watch is the U.S. dollar, which has increased. However, it remains below the key resistance level MetalMiner has set as the level at which the markets turn from bullish to bearish.

MetalMiner readers will note the dollar and commodities trade inversely, so a higher dollar results in lower commodity prices.

Metal-buying organizations will want to pay careful attention now to oil prices, the U.S. dollar and China demand. A change in any two of these three could signal a market shift.

Trudeau, Trump Talk Tariffs

As world leaders gathered in France this weekend for the 100th anniversary of Armistice Day, Canadian Prime Minister Justin Trudeau and President Donald Trump exchanged words over the weekend regarding the U.S.’s steel and aluminum tariffs, Reuters reported.

Canada’s temporary exemption to the U.S.’s Section 232 steel and aluminum tariffs expired June 1.

According to the report, Trudeau said he hoped to reach a resolution on the issue before this year’s G20 Summit, which kicks off Nov. 30 in Buenos Aires.

Australian Iron Ore

A pair of recent train derailments have had minimal impact on Australia’s substantial iron ore sector, according to a Bloomberg report.

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According to the report, iron ore futures on the Dalian Commodity Exchange fell 1% Monday.

The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, the Department of Commerce issued an affirmative determination its investigation of imports of common alloy aluminum sheet from China, China boasted strong October exports despite the U.S. tariffs, and aluminum prices are too low for such a tight market, according to analysts.

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DOC Rules on Common Alloy Aluminum Sheet

The U.S. Department of Commerce announced a final affirmative determination in its anti-dumping and countervailing duty investigations of imports of common alloy aluminum sheet from China.

The case is particularly notable because it marked the department’s first self-initiated investigation since 1985.

China October Exports Chug Along

According to Reuters, China posted higher-than-expected exports to the U.S. in October.

The U.S. announced tariffs on Chinese goods worth about $200 billion in September at a rate of 10%, but that rate is set to jump to 25% in January.

A Tight Aluminum Market

According to another Reuters report, prices are too low for what is in fact a tight aluminum market.

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Citing analysts, the report states approximately 40% of the world’s aluminum production is losing money.

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This morning in metals news, two prominent Chinese economists have been publicly critical of China’s economic model, the U.S. Department of Commerce has launched an audit of tariff waivers received by companies, China’s steel demand appears to be a boon for the Indian iron ore sector and U.S. Steel shares dipped after hours Thursday following the firm’s third-quarter earnings release.

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China Critique

As reported by the Financial Times this week, two Chinese economists were publicly critical of China’s economic model, arguing that China is to blame for the current trade crisis.

Zhang Weiying, a professor at Peking University’s National School of Development, delivered a speech in which he outlined his criticism.

“In the eyes of westerners, the so-called ‘China model’ is ‘state capitalism’, which is incompatible with fair trade and world peace and must not be allowed to advance triumphantly without impediment,” Zhang was quoted as saying.

Commerce Department Launches Audit of Tariff Waivers

The Section 232 tariff exclusion request process has been rife with complaints since it began in June, as companies sought exclusions in order to import products they argued are not made in the necessary quantity or quality within the U.S.

This week, CNBC reported that the Department of Commerce has launched an audit of the tariff waivers.

According to the report, the Department of Commerce has received nearly 50,000 tariff exemption requests.

MetalMiner’s TakeThe process in which buying organizations request exclusions from the Department of Commerce has indeed come under much criticism.

The criticism appears to be justified.

The sheer number of exclusion requests and the time necessary to evaluate the requests could take many months at a minimum and, second, the fact that the exclusions granted to date appear to get awarded to only those who do not have a mill or producer arguing against the request.

In other words, if the request goes unopposed, the exclusion request has a higher likelihood of being granted. MetalMiner is not aware of any exclusion request being granted in which a mill or producer has opposed the request.

The audit process should provide clarity around the provisioning of exemptions when mills/producers object to the request. But buying organizations should not expect any quick answers or resolution to their requests — audits take time to conduct and any recommended process changes will take time to implement.

Chinese Steel and Indian Iron Ore

According to a Bloomberg report, China’s steel mills have been searching for higher quality iron ore, part of the country’s battle against pollution.

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As a result, the Indian iron ore sector has sought to ramp up its capacity to meet that demand, particularly in the form of iron ore pellets.

U.S. Steel Shares Fall

Shares of U.S. Steel fell Thursday after the firm’s Q3 2018 earnings release, MarketWatch reported.

Shares fell 1.6% after hours Thursday, according to the report. U.S. Steel reported third-quarter net earnings of $291 million, up from $147 million in 3Q 2017.

As the prospect of an additional $257 billion in tariffs on Chinese goods looms, China’s ambassador to the U.S. said the countries should look to their “better angels” to guide them toward a resolution of their trade dispute, the state-run Xinhua News Agency reported.

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During a visit to the National Press Club on Tuesday, Chinese Ambassador Cui Tiankai cited President Abraham Lincoln’s famous words, as the event included a screening of the film “Better Angels.”

“It has made great strides, while also has had its share of setbacks,” said Cui, as quoted by Xinhua, of U.S.-China relations. “But every time it risked being stranded, every time its future was cast into doubt, the people of our two countries would be there, quietly but persistently, doing their part, lifting it out of the quagmire, and moving it forward.”

The ambassador’s comments came after Bloomberg reported Tuesday that the Trump administration was preparing to impose an additional round of tariffs on Chinese goods worth $257 billion — in addition to the $250 billion in tariffs already imposed this year — if talks to resolve the conflict fail.

President Donald Trump and President Xi Jinping are scheduled to attend the Nov. 30 G20 summit in Buenos Aires.

In September, the U.S. imposed $200 billion in tariffs on a wide range of Chinese products, adding to the total $50 billion in tariffs that had already been imposed earlier in the year.

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In 2017, the value of U.S. imports of Chinese goods hit just over $505 billion, according to Census Bureau data (the U.S. had a deficit in goods trade with China of over $375 billion last year).

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This morning in metals news, another major tariff hammer could be set to fall on Chinese goods coming into the U.S., iron ore prices continue to rise and copper falls.

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More Tariffs on the Way?

The U.S. has already imposed tariffs worth a total of $250 billion on imports from China.

Since last month’s imposition of $200 billion in tariffs, tensions between the countries have not abated. According to Bloomberg, the U.S. plans to impose an additional $257 billion in tariffs — essentially covering all imports from China – if talks between President Donald Trump and President Xi Jinping fail to reach a resolution.

Iron Ore on the Rise

Iron ore prices were up Monday despite lower Chinese steel prices, Business Insider Australia reported.

Tuesday Tumble

Copper and other metals dropped Tuesday, affected by ongoing trade tensions between the U.S. and China, Reuters reported.

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Trump and Xi are expected to attend next month’s G20 meeting in Buenos Aires, the report notes.

The ripples continue to spread across the pond of international trade from President Trump’s steel and aluminum tariffs.

In a recent post from India reported in Aluminium Insider, an analysis of the scrap, primary and downstream semi-finished metals trades into and out of India reveal how economies on the other side of the globe are grappling to contain the fallout of U.S. sanctions.

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India is becoming a growing force in the global aluminum market. With domestic bauxite reserves, relatively low cost (if environmentally polluting) coal-fired power and a huge domestic market, it should come as no surprise the country has invested heavily in aluminum production.

Naturally, that investment, much of it led by the private sector, is patchy and not fully integrated. The country imports significant quantities of scrap for its growing die casting industry, in large part because, as a newcomer to aluminum consumption, domestic arisings are far too low to meet demand.

The article states India’s overall scrap imports have risen 24% year-on-year, so far fueled by cheap U.S. exports looking for a home after China raised import tariffs. Domestic primary producers are complaining because die casters and billet casters are therefore incentivized to use more scrap than primary metal.

Primary producers are facing competition not just from scrap, the article explains. India is facing increased imports of wire rods and aluminum alloy ingots from the Association of South East Asian Nations (ASEAN) region. India signed free trade agreements (FTAs) with the countries comprising the ASEAN at a time when market dynamics allowed Indian producers to compete more effectively.

Now, with duty-free trade and a distorted regional market awash with product, India has become a target for excess supply.

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This morning in metals, Ford Motor Co. says prices of U.S. steel are higher than anywhere else in the world, China’s alumina exports surged in September and the LME copper price dropped Tuesday.

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High Prices

U.S. automaker Ford has been vocal about what it views as the negative impact of the U.S.’s steel and aluminum tariffs.

According to a Detroit News report, Ford’s president of global operations on Monday said “U.S. steel is costing more than anywhere else in the world” as a result of the tariffs.

MetalMiner’s Take: It’s a bit difficult to understand what has driven the public complaints from Ford about steel and aluminum tariffs, particularly when most OEMs take long positions on their metal spend.

Some OEMs have locked-in contract prices that simply do not fluctuate, according to MetalMiner benchmark data. The manufacturing organizations that make stronger arguments against tariffs are those that remain subject to spot-price movements, have a corporate policy that forbids hedging or lack the buying power to demand fixed prices.

Perhaps the vocalization of the complaints have heated up because many OEMs have entered the fourth quarter contract negotiation season and the producers want to open discussions at much higher price levels. In defense of Ford’s complaints, the multi-tier extended supply chain remains far more exposed to metal price volatility than a company like Ford.

In this environment, OEMs will need to work double time to create programs and opportunities for aggregating volumes across supply chains, developing directed buy and enablement programs, aggregation opportunities and using technology to better support the entire extended global supply chain.

China’s Alumina Exports Rise in September

China’s exports of alumina hit a 2018 high in September, Reuters reported.

Exports of alumina in September hit 165,839 tons, up from 29,722 tons in August.

LME Copper Falls

The LME copper price fell 1.1% on Tuesday, Reuters reported.

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The drop comes a day after London copper had reached a one-week high.

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This morning in metals news, mills in the Chinese city of Tangshan have increased steel production despite the official start of winter cuts, LME copper prices fell and U.S. imports of aluminum from Australia have been on the rise.

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Tangshan Boosts Steel Production

The Chinese city of Tangshan, a steelmaking hub in the country, has seen its steel mills boost production despite the start of winter cuts, Reuters reported.

According to the report, local officials did not give precise instructions on the targeted emissions curbs. Recently, Beijing delegated the imposition of its annual winter caps — part of the government’s effort to tackle pollution in the country — to local governments.

LME Copper Price Falls 1%

Also according to Reuters, the price of LME copper fell 1% Thursday as a result of a stronger U.S. dollar — the two are inversely correlated — and pressure on the Chinese economy.

MetalMiner’s Take: LME copper fell slightly this month. However, LME copper prices have shown a recovered momentum since September, when prices breached the psychological level of $6,000/mt.

Copper prices tend to react to Fed index rate increases — or, at least, the expectation of Fed rises. When that happens, the U.S. dollar tends to have a short-term trend reaction and prices move higher for a week. However, the long- and mid-term trend does not change for that reason.

Therefore, copper prices may continue their uptrend. Buying organizations can expect LME copper prices to trade higher.

Imports of Aluminum From Australia Rising

Imports of aluminum from Australia into the U.S. have been increasing of late, according to an S&P Global Platts report.

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Per the report, imports of aluminum from Australia have jumped 23% from July to August.

MetalMiner’s Take: It should come as no surprise to anyone that Australian P1020 aluminum ingots have started to arrive on U.S. shores at a discount.

Interestingly, the discount represents two driving factors: the fact that Australia is exempt from Section 232 aluminum tariffs and that U.S. buyers prefer T-bar or sows and not ingot (which is the form coming from Australia).

The U.S. does not produce enough primary material domestically and the tariffs have driven the trade shift from Canada (the previous dominant supplier) to Australia. What will become more interesting to OEMs and other large buying organizations, however, involves the semi-finished material market, in which the U.S. currently operates with a significant deficit.

MetalMiner expects large volumes of semi-imports from Europe to help mitigate domestic supply shortages.

The U.S. Department of Commerce. qingwa/Adobe Stock

The U.S. Department of Commerce (DOC) announced late last week that it had initiated anti-dumping and countervailing duty investigations related to imports of aluminum wire and cable from China.

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According to the DOC, imports of the products from China in 2017 were valued at $157.2 million (up from $116.6 million in 2016).

The petitioners in the case were Encore Wire Corporation (of McKinney, Texas) and Southwire Company, LLC (of Carrollton, Georgia), which filed petitions with the DOC on Sept. 21.

The DOC calculated dumping margins of 53.54-63.47% with respect to the aluminum wire and cable imports.

The case now moves to the U.S. International Trade Commission (USITC), which is scheduled to make a preliminary determination on or before Nov. 5. If the USITC rules in the affirmative, the case moves back to the DOC, which would be scheduled to make a preliminary ruling in the countervailing duty probe by Dec. 17 and a preliminary anti-dumping ruling by Feb. 28, 2019.

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According to the DOC fact sheet for the case — citing the U.S. Census Bureau — the U.S. imported 42,788 metric tons of the product from China in 2017, up 48.4% from the 28,839 tons imported in 2016.

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This morning in metals news, Canada plans to impose tariffs and quotas on seven categories of steel, the VIX surged this week to an eight-month high, and China’s steel and aluminum exports held relatively steady last month.

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Canada to Impose Steel Safeguards

The Canadian government announced Thursday it plans to impose quotas and tariffs on seven categories of steel, Reuters reported.

A 25% tariff will be applied beginning Oct. 25.

MetalMiner’s Take: Although the popular press will likely emphasize that Canada has now engaged in a trade war with the U.S. on steel, buying organizations should note that the 25% tariffs will be applied, “in cases where the level of imports from trading partners exceeds historical norms,” according to a government statement. Jerry Dias, the head of Canada’s plargest private sector union, said the tariffs will protect from subsidized steel from China and South Korea, according to Global News.

Fear Index Surges

The VIX, sometimes known as the “fear index,” has surged this week.

The index, which serves as an indicator of market volatility, reached its highest level since February.

MetalMiner’s Take: Stocks have since rebounded from a two-day rout. Although the VIX spiked to an eight-month high, these sharp moves in the past few days likely came as a result of the Federal Reserve’s actions on interest rates and the perception of rising inflation. Time will tell if the VIX blip portends any longer-term trend change or not.

Today, the VIX has flattened on news that consumer inflation remains in check. Commodities and stocks don’t have a strong correlation, meaning the movement in one may or may not impact the movement in the other. The only exception to that rule involves precious metals, which tend to increase when the stock market declines.

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Chinese Aluminum, Steel Exports

China’s exports of aluminum fell slightly in September while steel exports rose slightly, Reuters reported.