China

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This morning in metals news, exports from China to the U.S. took a dive in December, India will drive global steel demand in the coming years and Serbia has requested an exemption from the E.U.’s imminent quotas on steel imports.

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December Exports to the U.S. from China Drop

While the U.S. and China have kickstarted the new year with trade talks that have some feeling optimistic of a resolution, U.S. tariffs on $250 billion worth of Chinese imports appear to have had an effect on trade flows last month.

According to a report by the Associated Press, China’s exports to the U.S. fell in December, down 3.5% compared with December 2017.

For the year as a whole, however, China’s exports to the U.S. in 2018 were up 11.3%, according to the report.

Indian Steel Demand

India last year overtook Japan as the No. 2 steel producer in the world, according to data from the World Steel Association last month.

And per a recent post by Adam Szewczyk, head of data management for the World Steel Association, Indian steel demand will likely continue to drive production growth.

“According to worldsteel’s October Short Range Outlook, it is likely that India will also become #2 in steel use by the end of 2019 as its steel demand is expected to grow by 7.3%,” Szewczyk wrote.

“The Indian steel industry, after recovering from the twin shocks of demonetisation and the Goods and Services Tax (GST) reform, is one of the few bright spots for the world’s steel industry in what is forecasted to be a lower growth era.”

Serbia Requests Exemption From E.U. Steel Quota

With E.U. member states set to vote on new steel quotas Wednesday — in response to the U.S.’s implementation of a 25% steel tariff last year, pursuant to Section 232 of the Trade Expansion Act of 1962 — one country has already asked for an exemption.

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According to a Reuters report, Serbia, home to the Chinese-owned Zelezara Smederevo mill, has asked for an exemption from the quotas, which is expected to be approved by E.U. member states and will cover 26 product categories.

If approved, the safeguard measures would replace provisional measures passed in July 2018.

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This morning in metals news, China is eyeing improvements to its steel capacity structure, China’s 2018 aluminum exports surged and Shanghai rebar futures hit a two-month high.

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China’s Steel Structure

According to Reuters, China is looking to shift the focus of its steel industry in 2019 from one of fast growth to more optimized, high-quality development.

The report cites Yu Yong, chairman of the China Iron and Steel Association, who said a major push in 2019 will come in the form of “optimising production structure, adjusting layout of steel mills and pushing merger and acquisition.”

China’s Aluminum Exports Surge

China’s exports of unwrought aluminum and aluminum products jumped 20.9% in 2018 year over year, S&P Global Platts reported.

Per the same report, December exports were up 19.8% on a year-over-year basis.

Shanghai Rebar Price on the Rise

The Shanghai rebar price hit a two-month high Monday, Reuters reported.

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According to the report, rebar futures rose 1.6% to reach $528.44 per ton.

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This morning in metals news, U.S. steel shipments in November surged on a year-over-year basis, the next chief of Nippon Steel and Sumitomo Metals Corp. hopes to make the company the world’s No. 1 producer and U.S.-China trade talks could formally continue later this month.

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Steel Shipments Jump in November

According to a report by the American Iron and Steel Institute (AISI) this week, November shipments of steel from U.S. steel mills were up 5.6% from November 2017, hitting 7.8 million tons.

November shipments were down from October totals, however, by 4.2%.

Top Spot

Japanese firm Nippon Steel and Sumitomo Metal Corp., which will undergo a name change this year (to Nippon Steel Corp.), has a new chief.

The company announced Thursday that Executive Vice President Eiji Hashimoto will become the firm’s new president as of April 1 (when the firm’s name change will go into effect), The Japan Times reported.

According to the report, Hashimoto indicated a desire to make Nippon the world’s No. 1 steel producer.

Trade Talks to Continue?

Trade delegations from the U.S. and China met over three days this week, building on talks between U.S. President Donald Trump and Chinese President Xi Jinping during the G20 summit late last year.

According to a Reuters report, however, trade representatives from the two countries might not be done talking this month.

Per the report, U.S. Treasury Secretary Steven Mnuchin said a top Chinese trade official will “most likely” come to Washington, D.C. later this month for additional talks, as the two countries look for a deal to settle the trade tensions that escalated last year. The two countries traded a total of $360 billion in tariffs last year.

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However, time is quickly running out on the 90-day negotiating window set by Trump and Xi at G20, at the end of which the U.S. will move forward with a previously planned tariff rate increase.

If a deal is not reached by March 1, the U.S. plans to increase the tariff rate on the $200 billion in tariffs imposed in September. The tariff rate on the affected products had previously been set to make the jump from 10% to 25% as of Jan. 1, but the U.S. delayed the increase following the G20 talks.

In addition, China agreed to temporarily slash its tariff on imported U.S.-made automobiles, bringing it back down from 40% to 15%.

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This morning in metals news, copper prices are buoyed by a softening U.S. dollar, Dalian iron ore drops and trade ministers from the U.S., Japan and the European Union met in Washington, D.C. yesterday.

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Copper Prices Rise

The price of copper has received some support this week, picking up steam on positive sentiment stemming from U.S.-China trade talks held Jan. 7-9.

On Thursday, the metal’s price rose for the fourth time in five sessions, Reuters reported, aided by a weakened dollar. The U.S. dollar and copper, like many metals, are inversely correlated.

The dollar index has been steadily declining over the last month and fell to 95.35 Thursday morning, down from 97.44 as of mid-December.

Dalian Iron Ore Falls

Chinese iron ore futures fell by 1% Thursday, according to another Reuters report.

According to the report, emergency anti-pollution measures announced in China this week impacted demand for steelmaking materials like iron ore.

U.S., Japan, E.U. Trade Ministers Meet

While the U.S.-China trade talks this week dominated the headlines, the U.S. also held talks with representatives from the E.U. and Japan in Washington, D.C. on Wednesday.

United States Trade Representative Robert Lighthizer, E.U. Trade Commissioner Cecilia Malmström and Hiroshige Seko, Japan’s minister of economy, trade and industry, discussed their “shared objective to address non market-oriented policies and practices of third countries that lead to severe overcapacity, create unfair competitive conditions for their workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade, including where existing rules are not effective,” according to a USTR release.

Related to forced technology transfers — a central component of the U.S.’s Section 301 probe vis-a-vis Chinese trade practices — the ministers agreed to work together on the issue, according to the USTR release.

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“In the area of forced technology transfers, Ministers confirmed their agreement to cooperate on enforcement, on the development of new rules, on investment review for national security purposes and on export controls and further take stock of this cooperation by spring,” the release stated.

ThomasNet ran a piece this week on China’s latest blockbuster in the electric vehicle (EV) market: the Ora R1 hatchback from domestic automaker Great Wall.

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I say “blockbuster” not because it’s a rival to Tesla or a similar high-end brand — quite the opposite.

At under $9,000 (after massive subsidies available at the state and federal level in China), the Ora R1 could be a blockbuster in terms of sales.

With a projected range of 194 miles between charges and four doors, the article suggests the vehicle is firmly aimed at the less well-off commuter. In that context, it could have massive appeal for the authorities fighting smog and other forms of air pollution in China’s crowded cities.

The Ora R1 runs on just 47 horsepower with a top speed of about 62 mph, according to the report, which also quotes experts who say it should be capable of powering commuters for about a week per charge (based on real-world driving patterns).

Sounds like a winner, doesn’t it?

Maybe it will be, but for us it has echoes of Tata’s Nano “people’s car,” designed to lure consumers off their cheap motorcycles and into their set of four wheels.

Poor quality, reliability and growing losses forced Tata out of the sector. It was not helped, it should be added, by a PR disaster when the Nano displayed a tendency to burst into flames, frequently recorded on social media.

The Ora is packaging the R1 with a three-year, 120,000-kilometer (74,500 mile) warranty for the entire car, and an eight-year, 150,000-kilometer (93,200 mile) warranty for “core components,” suggesting reliability shouldn’t be a worry – providing the manufacturer honors its commitments.

Source: Great Wall Motors

Whether the Ora R1 will fare any better than the Nano remains to be seen. At prices between U.S. $8,680 to U.S. $11,293, the price is heavily subsidized and should retail at twice that level.

Even so, a $20,000 price in unsubsidized markets would pitch the Ora well under current small car contenders, such as the Nissan Leaf.

But success or failure hinges even more on quality and reliability in this sector than it did for the Nano in India, where consumers’ expectations were not high. EVs outside of China have so far been relatively high-end products with classy interiors and many modern innovations.

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A first road test for the R1 has yet to be released by the Western press. It has to be said, in the visual sense the car looks as bad as the old East German Trabant — but if it drives well, achieves its range projections and holds up from a reliability perspective, owners may yet ignore its ugly duckling looks and flock to what could prove to be a disrupter for the lower end of the EV market.

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This morning in metals news, trade delegations from the U.S. and China concluded talks this week, the E.U. is expected to impose steel import curbs and copper rises to a one-week high.

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U.S-China Trade Talks

The new year has begun with dialogue.

In 2018, trade tensions between the U.S. and China escalated, leading to the exchange of a total of $310 billion in tariffs on each other’s products. The tensions between the two economic giants has strained global markets.

This week, however, trade delegations from the two countries met for talks Jan. 7-9. The Office of the United States Trade Representative (USTR) released a statement today.

“On January 7-9, an official delegation from the United States led by Deputy U.S. Trade Representative Jeffrey Gerrish held meetings in Beijing with Chinese officials to discuss ways to achieve fairness, reciprocity, and balance in trade relations between our two countries. The officials also discussed the need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement,” the USTR statement read.

“The meetings were held as part of the agreement reached by President Donald J. Trump and President Xi Jinping in Buenos Aires to engage in 90 days of negotiations with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture.”

E.U. to Impose Steel Import Curbs

The European Union will vote Jan. 16 on a plan to limit imports of steel into the trading bloc, Reuters reported, in response to the Trump administration’s Section 232 tariffs on imported steel and aluminum last year.

In July 2018, the E.U. imposed provisional safeguard measures on 23 steel products, measures that are set to expire in February.

Copper Gets a Boost

The copper price rose Wednesday to a one-week high, Reuters reported.

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The LME copper price rose to $5,958 per ton, according to the report, buoyed by optimism surrounding the aforementioned U.S.-China trade talks and stimulus measures in China boosting demand.

Thought you had the China supply risks covered? More than one supplier, multiple logistics options, natural disaster contingency planning… yep? Try this: employee arrest and detention.

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Here’s What Happened

As we reported soon after it happened last week, the Bureau of Consular Affairs under the U.S. Department of State has issued a warning of an increased risk of arbitrary arrest and detention when U.S. citizens, particularly those of dual nationality, come to leave China. According to the notice, Chinese authorities have asserted broad authority to prohibit U.S. citizens from leaving China by using ‘exit bans.’ The post states China uses exit bans coercively:

  1. “To compel U.S. citizens to participate in Chinese government investigations,
  2. To lure individuals back to China from abroad, and
  3. To aid Chinese authorities in resolving civil disputes in favor of Chinese parties.”

According to the notice, U.S. citizens may be detained without access to U.S. consular services or information about their alleged crime. U.S. citizens may be subjected to prolonged interrogations and extended detention for reasons related to “state security.”

Why It Happened

Sounds serious, doesn’t it? But to be fair, the current notice is largely a repeat of one issued the same time last year and China retains a Level 2 caution, according to U.S. authorities — meaning two out of four travelers should “exercise increased caution” when in the country. This is a warning that has at times applied to parts of Europe due to a perceived risk from terrorism.

According to Conde Nast Traveler, the advisory follows high-profile cases in December in which two Canadian businessmen, Michael Spavor and Michael Kovrig, were detained for unspecified reasons, citing a Reuters report. Both Kovrig and Spavor remain in detention in China and are awaiting trial, with the U.S. and Canada calling for their release. In total, some 13 Canadians have been detained of late in moves said to be linked to the arrest of Huawei executive Meng Wanzhou.

Some put the restatement of the travel advisory down to increased trade tensions between the U.S. and China following President Trump’s trade war, but while such issues don’t help, the reality is China has always imposed strict censorship laws and still rigidly controls free speech. It uses such laws in situations that Western societies find arbitrary and unrelated, but the Chinese no doubt brought in the laws with the express intention of giving them a catch-all legal framework to bring leverage if they felt an individual, company or even country was not acting in China’s best interests.

What It Means for Metal Buyers

Buying organizations should, from time to time, be reminded that China is not a benign democracy, but an autocratic single-party state controlled by an increasingly powerful centrist elite.

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The West’s view that China would become progressively more liberal and democratic over time has proved to be fundamentally flawed — and with that realization, our perception of risk for employees and contractors we send or employ there should change too.

This morning in metals, we’re tracking a travel advisory for China issued yesterday by the U.S. Department of State — which could impact manufacturers and suppliers who have individuals traveling to and from China for business.

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“Exercise Increased Caution”

  • Issued yesterday, the travel advisory cautions U.S. travelers to “exercise increased caution in China due to arbitrary enforcement of local laws as well as special restrictions on dual U.S.-Chinese nationals.” Some of that arbitrary enforcement is taking the shape of “exit bans,” which effectively means that Chinese authorities are preventing travelers from leaving the country on very shaky grounds, and in certain cases not allowing them access to consular services, not disclosing how long the traveler may be detained, and/or not allowing them to leave for years.
  • For manufacturing organizations or their suppliers, individuals traveling in and out of China may be affected by these exit bans. Speculation as to why Chinese authorities have stepped up their arbitrary enforcement of travel regulations abounds, including retaliatory action vis-a-vis recent trade disputes with the U.S. and a Huawei executive being detained in Canada, but MetalMiner will follow up on this story as more details or insight become available.

In Other Metals News

  • European carmakers still need steel imports to remain competitive. That’s what the ACEA, an association representing EU automakers, said recently, in response to the European Commission’s decision to propose definitive steel safeguards, according to Argus Media. “Motor vehicle manufacturing has increased by 5mn units per year since 2014, and some increase in steel imports has been necessary to meet this higher demand,” ACEA secretary general Erik Jonnaert is quoted as saying.
  • According to the article, “hot-rolled coil (HRC) will remain a global quota under the definitive safeguard, but cold-rolled coil and hot-dip galvanized coil — both of which are used by carmakers — have country-by-country and quarterly quotas that could have a greater impact on supply.”

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This morning in metals news, the U.K.’s steel export levels to the U.S. have come down this year, China’s steel output surged through the first 11 months of the year and 2018 proved to be a down year for a number of commodities, including copper.

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U.K. Steel Exports to the U.S. Down 20%

According to a report by The Daily Mirror, the U.K.’s steel exports to the U.S. have dropped 20% since the U.S. imposed a Section 232 steel tariff.

Like Canada and Mexico, the U.K. — and the E.U. at large — was subject to the tariff after a temporary exemption was allowed to expire.

Chinese Steel Production

Despite winter season cuts, Chinese steel production from January to November rose 8.3% year over year, according to the Hellenic Shipping News.

The winter heating season in the country began mid-November, during which the government mandates production curbs in an effort to mitigate pollution. This year, however, Beijing opted to delegate the cuts to local authorities, as opposed to the previous season’s blanket cuts.

Copper Continues Downward Trend

Dr. Copper has been trending downward since hitting a peak over $7,200/mt in June.

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The metal closed the year on a down note, falling 18% on the Comex, according to Bloomberg.

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Global crude steel production in November jumped 5.8% year over year, the World Steel Association reported today.

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Production from the 64 countries reporting to the World Steel Association hit 148.6 million tons (MT) in November, continuing an upward production growth trend that began in August. Steel production growth of 5.8% in November jumped from 5.1% in October.

Broken down by key producers, China’s crude steel production reached 77.6 MT, up 10.8% compared to November 2017. The production growth marked an increase from October, when year-over-year growth hit 9.1%.

The increase comes even with the winter heating season underway, with it production cuts aimed at tackling pollution in the country. Unlike last year, however, Beijing opted not to impose blanket cuts, instead delegating the scope of the cuts to local authorities.

Chinese steel rebar prices hit a five-week high this week, but the more relaxed program of winter cuts could see prices continue softening in the coming months. Chinese steel prices have lagged on account of weaker demand and the continued increases in production. However, a comprehensive trade detente between the U.S. and China would likely give a boost to China’s economy and augment steel demand.

The most-traded rebar contract on the SHFE closed at 3,481 yuan per ton ($506) on Thursday, up from an opening price of 3,433 yuan per ton ($496).

U.S. production continues to boast strong growth after the Trump administration’s Section 232 tariff on imported steel went into effect earlier this year. U.S. production in November hit 7.4 MT, marking an increase of 11.8% year over year.

Japanese production hit 8.7 MT, marking a year-over-year decrease of 0.5%. South Korea produced 5.9 MT in November, up 1.1% on a year-over-year basis.

In Europe, France produced 1.4 MT of crude steel in November, marking an increase of 12.8% compared to November 2017. Italy’s crude steel production hit 2.2 MT, down by 1.0%. Spain produced 1.3 MT, down 0.7%.

The European Commission launched a steel safeguard investigation in March in response to the U.S.’s Section 232 tariff and the subsequent concerns about diverted steel flooding the European market. The investigation, which covers 28 product categories, was to last nine months; however, the European Commission this week announced an extension of the duration of the probe, pushing its conclusion to Feb. 1, 2019.

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Elsewhere, Brazil’s production reached 2.8 MT, down 6.1% year over year. Turkey’s crude steel production hit 3.1 MT, a decrease of 2.1% year over year. Crude steel production in Ukraine reached 1.7 MT, marking an 11.2% year-over-year decline.