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The Office of the United States Trade Representative (USTR) released its annual Section 301 report late last week, covering intellectual property protection by U.S. trading partners and its so-called Notorious Markets List.

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The Trump administration utilized Section 301 of the Trade Act of 1974 to impose heavy duties on Chinese goods last year, to the tune of $250 billion worth of imports. The move came on the heels of long-standing U.S. criticism of what it sees as China’s unfair trade practices, including forced technology transfer and intellectual property violations, among others. (China retaliated last year with $110 billion worth in tariffs on U.S. goods.)

“The Special 301 Report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights,” a USTR release stated.

According to the release, countries presenting the “most significant concerns regarding IP rights” are placed on either the Priority Watch List or Watch List. In total, the report identifies 36 countries qualifying for inclusion on either of the two lists.

The countries listed under Priority Watch were: Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine and Venezuela.

Meanwhile, the Watch List included: Barbados, Bolivia, Brazil, Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Paraguay, Peru, Romania, Switzerland, Thailand, Turkey, Turkmenistan, the United Arab Emirates, Uzbekistan and Vietnam.

“These trading partners will be the subject of increased bilateral engagement with USTR to address IP concerns,” the USTR release stated. “Specifically, over the coming weeks, USTR will review the developments against the benchmarks established in the Special 301 action plans for countries that have been on the Priority Watch List for multiple years. For such countries that fail to address U.S. concerns, USTR will take appropriate actions, such as enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization or other trade agreement dispute settlement procedures, necessary to combat unfair trade practices and to ensure that trading partners follow through with their international commitments.”

The full Section 301 report can be read here.

The report also features a Notorious Markets List, which includes markets “reported to engage in and facilitate substantial copyright piracy and trademark counterfeiting.” The report identifies 33 online markets and 25 physical markets under the Notorious Markets List.

“This activity harms the American economy by undermining the innovation and intellectual property rights of U.S. IP owners in foreign markets,” the USTR said. “An estimated 2.5 percent, or nearly half a trillion dollars’ worth, of global imports are counterfeit and pirated products.”

The physical markets section of the report highlights China’s role in the distribution of counterfeit products.

“As in past years, several commenters continue to identify China as the primary source of counterfeit products,” the Notorious Markets List report states. “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price) and 87 percent of the seizures by CBP in 2017.

“Some Chinese markets, particularly in larger cities, have adopted policies and procedures intended to limit the availability of counterfeit merchandise. However, these policies are not widely adopted and enforcement 32 remains inconsistent.”

The full report on the Notorious Markets list, including full listings for each online and physical market, can be found here.

The U.S. Chamber of Commerce issued a statement on the heels of the USTR’s release of the special report, calling global IP laws “under-developed” despite “steps in the right direction.”

“Despite steps in the right direction, overall global IP laws remain under-developed, denying cutting-edge American businesses a return of fair value on their innovations and creativity, and leaving many countries unprepared to meet the challenges and opportunities of a 21st century knowledge economy,” said Patrick Kilbride, the U.S. Chamber of Commerce’s senior vice president of the Global Innovation Policy Center, said in a prepared statement. “Lack of enforcement to protect copyright rights-holders; misuse of competition enforcement; price controls; compulsory licenses; and undermining IP protections through multilateral organizations favor domestic commercial interests at the expense of innovators, creators, and consumers around the world.”

Kilbride also highlighted the pending United States-Mexico-Canada Agreement (USMCA), saying the “USMCA and the forthcoming FTAs provide an opportunity to strengthen IP protections around the world.”

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“We applaud the negotiation team on the completion of the USMCA and urge Members of Congress to recognize the benefits of the agreement,” Kilbride added. “GIPC benchmarked the USMCA against the IP standards included in the U.S. Chamber’s International IP Index. The research reveals a significant improvement from the original NAFTA, which scored a mere 48 percent while the USMCA scored 80 percent.”

The USMCA must be approved by each country’s legislature before the agreement can go into effect.

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This morning in metals news, Mexico’s Senate approved changes to the country’s labor laws, Chinese iron ore futures notched their fifth consecutive monthly gain and U.S. steelmaker AK Steel reported its first-quarter earnings.

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Mexico Passes New Labor Laws

As NAFTA partners Canada, Mexico and the U.S. work toward approval of the United States-Mexico-Canada Agreement (USMCA), billed as the successor to NAFTA, Mexico’s Senate approved revisions to the country’s labor laws that addressed some of the U.S.’s complaints vis-a-vis low pay rates in the country.

Bloomberg reported the Mexican government passed the changes Monday, including granting workers the right to vote on unions and labor contracts via secret ballots.

United States Trade Representative Robert Lighthizer applauded the move by the Mexican government.

“The USMCA includes the strongest, most advanced, and most comprehensive labor obligations of any U.S. trade agreement,” he said in a prepared statement. “I commend the Mexican Congress and President Lopez Obrador for passing historic labor reforms as part of this agreement and thank President Trump for making strong labor commitments in the USMCA a top priority. These reforms will greatly improve Mexico’s system of labor justice and are exactly what labor leaders in the United States and Mexico have sought for decades. As we move forward with the ratification of USMCA, the Trump Administration will work closely with members of the United States Congress and the Mexican government to ensure these reforms are implemented and enforced.”

Article 23.3 of the UMSCA text addresses labor rights, including “freedom of association and the effective recognition of the right to collective bargaining.”

The legislatures of the three countries must approve the USMCA before it can go into effect.

Chinese Iron Ore Futures Rise

Iron ore prices have been riding a hot streak so far this year, aided by supply-side disruptions in Australia and Brazil.

In addition, Chinese iron ore futures have picked up steam, too, notching their fifth straight month of gains this month, Reuters reported.

According to the report, the most-traded iron ore contract on the SHFE jumped 2.1% to 639 yuan ($94.84) per ton.

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AK Steel Reports 1Q 2019 Earnings

Ohio-based AK Steel unveiled its first-quarter earnings this week, reporting adjusted EBITDA of $160.9 million, up 36% year over year.

Including a $77.4 million charge associated with the firm’s closure of its Ashland Works, AK Steel posted a net loss of $4.5 million in the country, and an adjusted net income of $72.9 million when excluding the Ashland Works special item.

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The World Steel Association released its March global crude steel production report, detailing global crude steel production rose 4.9% year over year.

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March 2019 production reached 155.0 million tons. For the first three months of the year, production reached 444.1 million tons, up 4.5% compared with the first quarter of 2018.

Asia produced 312.9 million tons of crude steel, marking a 7.0% increase over the first quarter of 2018. Elsewhere, E.U. production reached 42.3 million tons of crude steel in the first quarter of 2019, marking a 2.0% decrease. North American crude steel production in Q1 reached 30.7 million tons, up 4.0% year over year.

China’s crude steel production for March 2019 hit 80.3 million tons, up 10.0% year over year. China’s program of winter production cuts ran from November through March, but Reuters earlier this month reported the country’s top two steelmaking cities, Tangshan and Handan, announced they would extend the production cuts.

India produced 9.4 million tons of crude steel in March 2019, falling 1.0% from March 2018. Japan’s production hit 9.1 million tons, holding flat from March 2018. South Korea’s production rose 2.8% to 6.3 million tons.

In Europe, Italy’s crude steel production fell 0.3% to 2.3 million tons, while France’s rose 2.3% to 1.4 million tons. Spain also produced 1.4 million tons, good for an increase of 5.9%.

The U.S. produced 7.8 million tons of crude steel in March 2019, marking a 5.7% year-over-year increase. According to the American Iron and Steel Institute (AISI), the U.S.’s adjusted year-to-date production through April 20 hit 29.95 million net tons, at a capability utilization rate of 81.9%. Production during that aforementioned period was up 6.9% from the equivalent period in 2018, during which the capability utilization rate was 76.4%.

Ukraine’s production spiked 15%, up to 2.0 million tons, while Brazil’s fell 8.6% to 2.8 million tons.

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Turkey’s production continued to decline, falling 11.7% in March down to 3.0 million tons. Turkey has struggled with shrinking export markets in the face of the U.S.’s Section 232 tariffs and the E.U.’s steel safeguard measures passed earlier this year.

According to a release on the China Iron and Steel Association website, the president of the Turkish Steel Exporters’ Association Adnan Aslan recently said Turkish steel exports could decline to 15-16 million metric tons in 2019, down from 21.4 million metric tons in 2018. In addition, Aslan highlighted the importance of tapping into new markets for the Turkish steel sector, including Southeast Asia, West Africa and Latin America.

The International Copper Study Group (ICSG) recently released its copper production report for January 2019, showing that global copper mine production for the month was flat on a year-over-year basis.

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According to the ICSG, production gains in some countries were offset by declines from major producers Indonesia and Chile. Chile’s production declined 4% year over year “mainly due to lower copper head grades.”

Meanwhile, Indonesian copper concentrate production fell 45% “as a consequence of the transition of the country’s major two mines to different ore zones leading to temporary reduced output levels.”

On the other side of the ledger, production in the No. 2 producer Peru, Australia, China and Mongolia increased. Restarts of temporarily closed capacity in the Democratic Republic of the Congo and Zambia saw to production increases in those countries to start the year.

World refined production increased by an estimated 3%, with primary production (i.e., electrolytic and electrowinning) increasing approximately 3.1% and secondary production (i.e., scrap) increasing by 1.9%. Growth in China paced the global growth in this department, while Australia and Brazil also contributed to the uptick.

In Chile, however, refined production was also down, falling 14% year over year on account of temporary smelter shutdowns related to compliance with new environmental regulations.

Indian copper production continues to be affected by the ongoing shutdown of Vedanta’s Tuticorin smelter. The smelter shut down in May 2018 on the heels of protests by locals regarding the environmental impact of the plant. Police fired on the protestors, resulting in 13 deaths. The Economic Times earlier this month reported that the Indian Supreme Court rejected Vedanta’s plea for an early hearing regarding the smelter in the southern state of Tamil Nadu.

According to the ICSG’s estimates, refined copper output increased in Africa by 7%, in Asia by 6%, in Europe by 2% and in Oceania by (25%), but dropped by 7.5% in the Americas.

As for the price of copper, the metal saw an increase of 2.8% from February to March, with an average LME price of $6,451.02/mt in March and $6,278.20/mt in February.

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However, the average LME price of $6,214.92/mt through the first quarter of 2019 marked a 4.7% dip below the full-year 2018 average.

The U.S. Department of Commerce (DOC) last week made a preliminary affirmative determination in an anti-dumping probe related to imports of steel wheels from China.

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“Today, the U.S. Department of Commerce announced the affirmative preliminary determination in the antidumping duty (AD) investigation of imports of steel wheels 12 to 16.5 inches in diameter from China, finding that exporters from China have been dumping certain steel wheels in the United States at margins ranging from 38.27 to 44.35 percent,” the DOC announced.

The case was prompted by a petition from Elkhart, Indiana-based Dexstar Wheel, a division of Americana Development, Inc.

According to the DOC, imports of steel wheels from China in 2017 were valued at $87.2 million. By volume, the U.S. imported 42,195 metric tons of the product in 2015, which jumped to 46,264 metric tons in 2016 and 50,656 metric tons in 2017, according to a DOC fact sheet.

The department calculated dumping margins of 38.27% for Changzhou Chungang Machinery Co., Ltd and a 44.35% China-wide margin.

The scope of the investigation included “certain on-the-road steel wheels, discs, and rims for tubeless tires with a nominal wheel diameter of 12 inches to 16.5 inches, regardless of width.”

The next step is a final determination by the DOC, scheduled to come down by July 2, 2019. If the DOC rules in the affirmative again and the U.S. International Trade Commission (ITC) also issues a final affirmative determination, the DOC will then issue an anti-dumping order.

The ITC is scheduled to make its final determination by Aug. 15, 2019.

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According to the DOC, the Trump administration has initiated 157 new anti-dumping and countervailing duty investigations, marking a 283% increase from investigations launched during the equivalent period of the previous administration.

Trade talks aiming at a resolution to trade differences between the U.S. and China are ongoing. Reuters reported the next round of talks is scheduled for April 30 in Beijing, with additional talks scheduled for May 8 in Washington, D.C.

A year on from the U.S.’s anti-dumping and countervailing duty orders on Chinese aluminum foil, imports of the product have plunged.

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The Aluminum Association Trade Enforcement Working Group filed a petition requesting relief from imports of Chinese aluminum foil in May 2017. Almost one year later, the U.S. Department of Commerce issued anti-dumping and countervailing duty orders on aluminum foil from China ranging from 55-176%.

Since then, according to an Aluminum Association white paper released Tuesday titled “Targeted Trade Enforcement in Action: Aluminum Foil AD/CVD One Year Later,” imports of Chinese aluminum foil have fallen significantly.

Imports of aluminum foil from China by volume fell 64% from 2017 to 2018, down from 272.4 million tons to 97.7 million tons. The white paper also notes imports of “unfairly traded aluminum foil” from China accounted for 60% of U.S. import market share in 2017, but just 20% in 2018.

Monthly U.S. imports of Chinese aluminum foil, 2010-2018. Source: Aluminum Association

The white paper also touts an increase in investment in the domestic aluminum industry.

“Companies like JW Aluminum and Granges worked for the past several years to reinvest in the U.S. foil industry,” the Aluminum Association white paper states. “These firms have announced substantial capital investments – with a combined value of approximately $169 million – to expand and strengthen facilities at which they manufacture aluminum foil.”

Aluminum Association President and CEO Heidi Brock lauded the trade action’s impact on the domestic aluminum industry.

“One year after taking strong action to enforce our nation’s trade laws, we are seeing clear and significant progress in the U.S. aluminum foil market,” Brock said. “We’d once again like to recognize the hard work of the administration, including the Commerce Department and the International Trade Commission, in helping aluminum foil producers in the U.S. to compete on a level-playing field.”

Brock also highlighted the action taken vis-a-vis aluminum foil compared with the Trump administration’s blanket tariffs on steel and aluminum imports via a Section 232 probe. In that case, the Aluminum Association has called for the tariffs on trading partners like Canada and Mexico to be removed and for the Trump administration’s trade enforcement focus to be squared on Chinese overcapacity.

“Not all tariffs are created equal,” Brock said. “Targeted trade enforcement as we’ve seen successfully deployed in the aluminum foil and, more recently, common alloy sheet, markets are the best way to make an impact. This approach allows us to effectively address issues in the marketplace while avoiding needless and disruptive tariffs on vital trading partners who play by the rules.”

The Section 232 tariffs on imported steel and aluminum — of 25% and 10%, respectively — remain in effect with respect to imports from Canada and Mexico. That fact remains a sticking point in the ongoing process to approve the pending United States-Mexico-Canada Agreement (USMCA), the intended successor to the 1994 North American Free Trade Agreement (NAFTA).

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The USMCA was signed by President Donald Trump, Canadian Prime Minister Justin Trudeau and then-Mexican President Enrique Peña Nieto during the G20 Summit in Buenos Aires late last year. However, the agreement must be ratified by each country’s legislature before it can go into effect.

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This morning in metals news, the Chinese government’s decided to continue stimulus measures offers a boost to steel and iron ore, India could move past the U.S. in steel use and Tokyo Steel holds prices steady for a fifth consecutive month.

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China to Continue Economic Support

A recent announcement by the Chinese government offered support to steel and iron ore prices.

In fact, Reuters reported China’s steel and iron ore futures rose nearly 3% Monday after the government announced it will continue policy-based efforts to boost the economy.

India to Surpass U.S. in Steel Use

This past year, India moved past Japan into the No. 2 spot in terms of steel production, behind only China in that department.

Now, a study says India will become the second-largest steel using nation, too, bypassing the U.S. on the list, the Business Standard reported.

Tokyo Steel Prices Hold Steady

For the fifth month in a row, Japanese steelmaker Tokyo Steel Manufacturing Co. Ltd. has decided to keep its steel prices steady, Reuters reported.

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“Local flow of steel products have slowed as a shortage of some materials such as bolts caused delays in some construction projects, while higher imports also helped boost local steel inventories,” Tokyo Steel Managing Director Kiyoshi Imamura was quoted as saying.

The Chinese government frequently mandates steel production cuts, especially for environmental reasons. But the cuts have also aimed to cut production volume in support of maintaining higher steel prices and, therefore, a healthier domestic industry.

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A recent goal of cutting 150 million metric tons of steel production capacity by 2020 was achieved by the end of 2018, according to the Chinese government. (By the way, no such purely production-focused reduction goal exists for 2019).

According to a recent Reuters article, on the other hand, in June 2018, China’s State Council banned new capacity development for steel, among so2me other primary commodity products, in some key geographic areas, such as Beijing-Tianjin-Hebei and the Yantze River Delta Regions.

The Chinese government mandated that blast furnace steel operations in Tangshan and Handan, China’s largest steelmaking cities, continue production cuts, but at a reduced rate of 20% of total capacity for April-June (compared to the 30% capacity reduction ordered for the November-March period).

These cuts target improvement in air quality by reducing the concentration of PM2.5 particulate matter by a minimum of 5% this year, when compared to 2018. Some production facilities must even leave the region as the government seeks to improve the quality of life in pollution-affected areas, such as Beijing, which is surrounded by Hebei province (the location of multiple steelmaking cities, including Tangshan and Handan).

When prices rise, however, these mandates become more difficult to enforce.

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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.