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This morning in metals news, China’s steel sector continues to churn out more and more steel, copper prices soared to a nine-month high, and the oil price surged on falling U.S. stockpiles.

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China Steel Production

Despite a program of winter production curbs, 2018 proved to be a record year for Chinese steel production.

In the early months of 2019, that production shows no signs of abating (much to the chagrin of producers in other markets decrying the state of global overcapacity).

China’s first-quarter steel production hit 231 million tons, up 10% year over year and marking the largest Q1 output on record, Bloomberg reported.

Copper Hits 9-Month High

The copper price continues to ride a hot streak, hitting a nine-month peak Wednesday, Reuters reported.

Powering the rise was stronger-than-expected growth in the Chinese economy, according to the report, which grew 6.4% in Q1.

Oil Prices Rise to 2019 Peak

Speaking of price gains, the oil price has also shown upward momentum.

Brent crude reached $72/barrel on Wednesday, Reuters reported, partially driven by a drop in U.S. crude stocks.

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Meanwhile, the Energy Information Administration (EIA) released its Summer Fuels Outlook today, which forecasts U.S. gasoline prices will be lower this coming summer compared with summer 2018.

“Because gasoline and diesel taxes and distribution costs are generally stable across the United States, changes in U.S. retail gasoline and diesel prices are generally driven by changes in crude oil prices,” the EIA report explained. “EIA forecasts the Brent crude oil price to average $67 per barrel (b) this summer, the equivalent of $1.60/gal, compared with an average of $75/b, or $1.78/gal, last summer.”

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The Indian government has initiated an inquiry into an allegation of dumping of aluminum and zinc-coated flat steel products from China, the Republic of Korea and Vietnam.

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The probe will cover the October 2017-September 2018 period, but data from 2015 will also be looked at by India’s Directorate General of Trade Remedies (DGTR), which falls under the Commerce Ministry.

A report by the Press Trust of India said the investigation had been launched following a complaint by domestic producer JSW Steel Coated Products.

India, one of the fastest-growing economies in the world, has one of the highest trade tariffs in the world; for decades, its highly protectionist trade policy received flak.

Some experts have argued there was a risk that this protectionism could backfire somewhere down the line.

In the latest anti-dumping probe, it must be remembered that aluminum and zinc-coated steel are used largely in solar power projects, roofing and appliances (to name a few). India is currently very bullish on solar power projects; naturally, local producers are worried these projects have started using cheaper products from foreign shores.

If the allegation is eventually found to be true, the DGTR will then recommend imposition of the anti-dumping duty on the imports. The investigation has been initiated because there was some prima facie evidence found of dumping by the three countries.

The probe into the alleged dumping will help determine the existence, degree and effect of alleged dumping, and to recommend the amount of anti-dumping duty, which if levied, would be adequate to remove the injury to the domestic industry, according to the DGTR.

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Dumping of commodities negatively impacts the price of the same products in domestic markets.

According to Reuters, spot 62% grade iron ore for delivery to China recently rose 1.6% to $93 per metric ton and the most-traded May 2019 iron ore contract on the Dalian Commodity Exchange soared as much as 4.1% to 710.5 yuan ($106) per ton — the highest for the Asian benchmark since 2013.

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Such robust price performance was not a one-day spike, but was reflected across the week as the contract gained nearly 10% during the first week of April on a combination of strong steel mill buying and concerns over constrained supply from both Australia and Brazil.

Nor was the bullish sentiment confined to iron ore, as Reuters reported coking coal on Monday rose 1% to 1,258.5 yuan ($187.29) a ton, and coke rose 1.4% to 2,048.5 yuan ($304.86).

Demand is at its seasonal peak as the weather warms in China and construction work begins in earnest, pushing up steel futures by more than 3% in early April. According to Reuters, the most-active construction steel rebar contract on the Shanghai Futures Exchange recently rose as much as 3.6% to 3,710 yuan ($552) a ton, its highest since Aug. 22, while hot-rolled coil jumped as much as 3.4% to 3,955 yuan a ton ($588).

Such performance suggests the steel market is roaring in China, fueled by another infrastructure spending spree, but the reality is something different.

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This morning in metals news, iron ore shipments into China picked up in March after February’s 10-month low, India’s top court blocked ArcelorMittal’s attempt to buy the bankrupt Essar Steel and the E.U. opened the door to formal trade negotiations with the U.S.

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China’s Iron Ore Import Levels Rise in March

With winter production curbs winding down in China, imports of the steelmaking material iron ore picked up in March, Reuters reported.

China imported 86.42 million tons of iron ore in March, up from 83.08 million tons in February.

Indian Supreme Court Blocks ArcelorMittal’s Bid to Buy Essar Steel

India’s National Company Law Tribunal (NCLT) in early March gave the OK to ArcelorMittal’s plans to buy the bankrupt Essar Steel, thus allowing the former to enter the Indian market.

However, India’s Supreme Court had other ideas.

The Economic Times reported the country’s high court superseded the NCLT approval by ordering a halt to ArcelorMittal payments to buy the debt-laden Essar Steel.

E.U. Gives Initial OK Toward Initiation of Formal Trade Talks with U.S.

As the Trump administration this week announced it is considering imposing $11 billion worth of tariffs on a wide range of imports from the E.U., European countries gave the green light in the process to initiate formal trade talks with the U.S., Reuters reported.

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According to the report, two mandates have been put forth (still requiring final approval): cutting tariffs on industrial goods and “making it easier to show products meet E.U. or U.S. standards.”

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This morning in metals news, the International Monetary Fund (IMF) released a slightly more positive 2019 growth forecast for China, a fire led to damages at one of Rio Tinto’s Pilbara iron ore operations, and Polish copper producer KGHM said it may freeze operations in Canada and the U.S.

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IMF Sees 6.3% Growth in China This Year

The IMF has revised its 2019 growth forecast for China, up to 6.3% from 6.2%, CNBC reported.

The world continues to wait for some sort of resolution to the ongoing trade talks between the world’s preeminent economic powers, the U.S. and China.

Growth has been slowing around the world, and China was no exception, posting its lowest growth level in 28 years, CNBC reported.

Fire Hits Rio Tinto Iron Ore Mine

Miner Rio Tinto announced a fire had damaged one of its Pilbara iron ore operations in Australia, Reuters reported.

According to the report, the fire broke out Saturday night at the miner’s East Intercourse Island port operation.

Recently, Rio Tinto declared force majeure on some contracts after Tropical Cyclone Veronica battered the northwest Australian coast, damaging the Cape Lambert A port terminal.

KGHM Could Freeze U.S., Canada Mines

Polish silver and copper producer KGHM said it doesn’t have plans to sell its assets abroad, but it would consider freezing its mines in Canada and the U.S. if they require major investments, Reuters reported.

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“We are not currently thinking about selling foreign assets. We’re considering strategies for the next few years,” KGHM Chief Executive Marcin Chludzinski told Reuters.

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The Rare Earths Monthly Metals Index (MMI) picked up one point, rising to a value of 19.

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Lynas Considers Initial Ore Processing at Home Amid Pressure in Malaysia

Australian rare-earths miner Lynas Corp., as we’ve noted in previous Rare Earths MMI reports, has been facing regulatory pressure in Malaysia of late.

The Malaysian government has issued two conditions for renewal of the miner’s license in the country, which expires in September, related to disposal of two types of waste. Last month, Lynas appealed one of the conditions put forth by the government related to disposal of water leached purification residue.

As such, the miner is considering building out initial ore processing near its Australian mine, Reuters reported.

“We have been giving great consideration to … our future industrial footprint,” CEO Amanda Lacaze was quoted as saying during an analyst and investor call. “We remain confident that we can agree a path forward with the Malaysian government which is good for Malaysia and good for our business.”

Lynas is the biggest miner of rare earths outside of China.

“We see value in operating alternative cracking and leaching processing close to our resource, and therefore the primary locations that we have been considering for growth are in Western Australia,” the miner said in a statement posted to its website. “Part of this planning has been to scope our future industrial footprint. Our preference has always been to add to our Malaysian capability, not replace it. Our Malaysian cracking and leaching operations are performing very well as a result of the IP our Malaysian team has developed and owned – IP which others cannot use – and the hard work of all the Lynas team. We remain committed to supporting the Malaysian economy and protecting our people’s jobs. However, this same work means we are well placed to deal with any change in Malaysian government policy.”

The company received a shock last Friday following comments by Malaysian Prime Minister Mahathir Mohamad, who indicated the miner’s Malaysian operations were being put up for buyers who can make good on cleanup of the radioactive waste.

“With regard to Lynas, we have imposed an extra condition, that is they must take away the waste,” Mohamad said. “But they want to take away the waste to where? They want to take it to Australia, but Australia doesn’t want to accept it, so they can’t do it anyway.

“So what we have done is we have opened up the business to other people, and there are other companies willing to buy up or somehow or other acquire Lynas, they have given us a promise that in future before sending the raw material to Malaysia they will clean it up first, they will crack it and decontaminate it in some way with regard to radioactivity, so that when the raw material comes here, the volume is less and the waste from that raw material is not dangerous to anybody.”

The comments came just over a week after Lynas rejected a $1.5 billion takeover bid from Australian conglomerate Wesfarmers.

Meanwhile, in perhaps promising news for Lynas, the Sydney Morning Herald reported the government of Western Australia has indicated it would consider offering assistance if the company should decide to build a new processing plant in the state.

China Becomes Top Rare Earths Importer

Speaking of China, the country exerts an overwhelming dominance in the rare earths market, which includes materials used in a wide variety of high-tech capacities, from smartphones to laptops and more.

Now, China is also the world’s top rare earths importer, Reuters reported.

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Citing data from consultancy Adamas Intelligence, China’s imports of rare earths surged 167% last year. In addition, China became a net importer of at least seven rare earths, including praseodymium and yttrium, for the first time in more than 30 years.

Actual Metal Prices and Trends

The yttrium price fell 0.3% month over month as of April 1, down to $33.52/kg. Terbium oxide rose 4.7% to $465.52/kg.

Neodymium oxide dropped 5.2% to $43,573/mt.

Europium oxide fell 0.3% to $38.73/kg. Dysprosium oxide jumped 15.4% to $218.98/kg.

We are used to dire stories emanating from the automotive industry in Europe of late.

The swing from diesel engines has hit European producers hard, as the region had been heavily biased toward the economical but historically carbon particulate polluting oil burners.

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Some manufacturers, like Jaguar Land Rover, were more heavily dependent on the sale of diesel engines than others, and had relatively little to offer as an alternative. Big SUVs powered by petrol or electric engines have not been big sellers in Europe, so manufacturers’ lineups have been limited.

Nevertheless, sales are down across the board.

Fiat Chrysler sales fell by 14.9%, Ford by 6.6% and Volkswagen Group by 6.4% last year, Reuters reported. Renault’s alliance partner Nissan also recorded a 24.7% decline, with new car registrations across the board recording a 4.6% fall in January.

It could be argued a mature market like Europe is going to face good years and bad — most consumers already own a car and postponing a decision to replace it is a relatively easy one to make.

But consumers in faster-growing emerging markets exist in a different dynamic; as such, we are used to seeing strong year-on-year growth in places like China.

But last year auto sales there suffered their first decline in nearly three decades, falling 4.1% from 2017 year to 23.7 million, according to the AFP.

This year has gotten worse, as sales of SUVs, minivans and sedans plunged 17.5% from a year earlier to 3.2 million in the first two months of 2019, according to the China Association of Auto Manufacturers. Total vehicle sales, including trucks and buses, fell 15% to 3.8 million units.

Painful as this has been for all suppliers, Chinese brands have fared the worst, falling 23% to 1.3 million units in January and February, debunking the theory this is a backlash against Western brands due to the trade war.

Even SUVs, usually a bright spot for the industry, contracted 18.6% to 141,000, AFP reports. Only sales of pure-electric and hybrid vehicles, heavily promoted by Beijing with subsidies, rose this year (almost doubling to 148,000 units over a year ago).

It seems wherever subsidy goes, consumption follows.

The standout exception to Europe’s woes is Norway, where one-third of all new car sales were electric last year, Reuters reports. Norway exempts battery-driven cars from most taxes and offers benefits such as free parking and charging points as it tries to drive a shift from diesel and petrol engines to an all-electric market by 2025.

The independent Norwegian Road Federation (NRF) was reported to have said that electric cars rose to 31.2% of all sales last year — from 20.8% in 2017 and just 5.5% in 2013 — while sales of petrol and diesel cars, not surprisingly, plunged.

Even the U.S. is posting poor new car sales.

General Motors, the U.S.’s biggest automaker, sold 665,840 vehicles in the first three months of the year, down 7% from the same period in 2018 period. Fiat Chrysler was down 3% for the first quarter to 498,425 and Toyota down 5% to 543,716 units.

However, the U.S. has reasons to be more upbeat than elsewhere. Manufacturers point to consumer sentiment recovering in March and the other key drivers of auto sales like employment, wage growth and household balance sheets looking healthy. GM Chief Economist Elaine Buckberg noted the Fed’s pause on interest rate hikes, which eases a headwind facing auto sales.

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The combination of slowing global auto sales and the swift rise of electric — in markets outside the U.S., anyway — is posing challenges for established automakers as they strive to maintain earnings in a rapidly changing landscape.

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This morning in metals news, two major Chinese steelmaking cities will have to extend their winter output curbs, Russian aluminum maker Rusal has once again started shipping aluminum supplies to the U.S. market and iron ore on the Dalian Commodity Exchange surged to a seven-week high.

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Tangshan, Handan Extend Output Curbs

Two of the biggest steelmaking cities in China have announced they will extend their steel output curbs, according to Reuters.

Beijing imposed blanket production curbs two winters ago, but this past winter announced it was delegating production curbing authority to local governments. The cuts are aimed at tackling rampant pollution throughout the country stemming from industry, like the steel sector.

Despite the output cuts, however, China produced a record amount of steel in 2018 at 928.3 million tons.

Rusal Returns to the U.S. Market

Russian aluminum company Rusal has begun sending supplies to the U.S. market once again, Reuters reported.

The return comes as last year the aluminum giant was hit with U.S. sanctions that shocked the aluminum market last April, sending aluminum prices skyward. According to the Reuters report, the company is hoping to win back lost contracts by September (the pivotal time for the closing of supply deals for 2020).

Dalian Iron Ore Rises

Iron ore on the Dalian Commodity Exchange has jumped to a seven-week high, Reuters reported.

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According to the report, the most-active iron ore contract on the DCE jumped 5.2% on Monday, up to 653.5 yuan ($97.40) per ton.

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This morning in metals news, U.S. Treasury Secretary Steven Mnuchin tweeted Friday that this week’s round of trade talks with China were “constructive,” LME copper is on its way for its first quarterly gain since the end of 2017 and China’s imports of copper are forecast to dip this year.

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U.S.-China Talks Continue

Markets reacted positively late this week on optimism from the latest round of U.S.-China trade talks, this time held in Beijing over Thursday and Friday.

U.S. Treasury Secretary Steven Mnuchin tweeted that the talks were constructive.

As Mnuchin noted, trade talks are scheduled to continue next week in Washington, D.C.

Copper Makes Gains

According to Reuters, LME copper is set to notch its first quarterly gain since the end of 2017.

Copper stockpiles in LME-registered warehouses are moving toward 11-year lows, according to the report.

China Copper Imports

Speaking of copper, China is expected to import far less of the metal in 2019, according to a Reuters report citing research house Antaike.

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According to the report, China’s copper imports are forecast to fall 14.7% on account of increased domestic production.

Global crude steel production increased 4.1% in February compared with February 2018 production, according to the World Steel Association’s monthly production report.

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China’s Steel Production Growth Continues

Global production hit 137.3 million tons in February, down from 150.3 million tons in January. February 2018 production reached 131.9 million tons.

In Asia, China’s crude steel production for February 2019 hit 71.0 million tons, up 9.2% year over year (China’s steel production growth also hit 9.2% the previous month). India produced 8.7 million tons, marking a 2.3% year-over-year increase.

Japan’s production reached 7.7 million tons, which marked a 6.6% year-over-year decline. Earlier this month, the Nikkei Asian Review reported Japan’s economic index slipped for the third consecutive month, fueling concerns the country may be headed for a recession (or may already be in one).

South Korea’s crude steel production, meanwhile, rose 1.1% to 5.5 million tons.

U.S. Steel Production Up 4.6%

U.S. production continues to chug along, reaching 6.9 million tons in February, up 4.6% from the same month in 2018. As reported earlier this week, a legal challenge from the American Institute for International Steel (AIIS) of the constitutionality of the president’s Section 232 powers was struck down by the U.S. Court of International Trade (CIT).

Also of note, earlier this week — March 23 — marked the one-year anniversary of the Trump administration’s Section 232 tariffs on steel and aluminum. Since imposition of the duties, the U.S. steel sector has eclipsed the targeted 80% capacity utilization mark (identified as a goal of the Department of Commerce for both the domestic steel and aluminum sectors).

Despite the CIT ruling, the AIIS said it will appeal. In addition, a bipartisan bill addressing the authority over Section 232 is likely coming down the pipeline, as indicated by a release by Sen. Chuck Grassley (R-Iowa), who chairs the Senate Finance Committee.

“The U.S. Constitution gives Congress alone the job of regulating commerce with foreign nations,” Grassley said in a prepared statement. “During the height of the Cold War, Congress delegated sweeping power to the executive branch to adjust imports on the basis of national security. That was understandable given the era, but the benefit of time and experience has proven our Founders right in tasking Congress with authority over tariffs.

“Congress should take back some of this delegation of its Constitutional authority and rebalance trade powers between the two branches in a responsible way that doesn’t impede a president’s ability to protect America’s national security. I would like to work with the Ranking Member and my colleagues to find a path forward that can receive broad, bipartisan support.”

Around the World

Elsewhere, Italy’s crude steel production fell 2.7% to 2.0 million tons, while France produced 1.2 million tons of crude steel (down 0.3%) compared to February 2018. Spain’s production rose 2.5% to 1.1 million tons.

Ukraine’s production rose 5.0% to 1.7 million tons, while Brazil’s fell 1.7% to 2.7 million tons.

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Turkey’s steel sector continues to struggle, as it remains subject to double the standard Section 232 steel duty and is also impacted by the E.U.’s recently approved steel safeguards. Turkey’s crude steel production fell 12.5% in February, down to 2.6 million tons.