It may seem like we are on the brink of a trade war Armageddon.

Certainly, stock markets have reacted negatively to the threat of a trade war between the world’s two largest economies, the U.S. and China.

But the reality is we are in the midst of a crude, clumsy and haphazard negotiating process — one that ultimately will be settled.

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The process of threat, bluster and bullying is typical of a property mogul’s approach. It likely works well in that market, but is anathema to diplomats and industrialists who prefer a more nuanced, thoughtful and largely (although not exclusively) collaborative approach.

Unconventional as President Donald Trump’s approach is (though it does not mean it may not be successful), if just seen from the current stage of the “negotiations” it looks pretty appalling.

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The U.S. Department of Commerce (DOC) issued an affirmative preliminary ruling this week in its anti-dumping investigation of imports of common alloy aluminum sheet.

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“The association and its member companies that produce common alloy aluminum sheet are very pleased with this finding that again underscores the Commerce Department’s commitment to combatting unfair trade,” said Heidi Brock, president and CEO of the Aluminum Association, in a prepared statement. “For too long, the Government of China has been unfairly and illegally subsidizing its aluminum industry, leading to massive market overcapacity and challenging producers across the value chain.  Today’s action by the Commerce Department is exactly the kind of strong, targeted trade enforcement we need in support of the rules-based global trading system.”

The DOC announced in November that it would self-initiate anti-dumping and countervailing duty investigations of common alloy aluminum sheet imports from China (typically, cases are initiated after a domestic producer files a petition with the Department of Commerce). The move marked the first self-initiated investigation by the DOC in over 25 years.

The DOC calculated preliminary antidumping margins of 167.16% of the value of the imported aluminum sheet.

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A final determination from the DOC in the anti-dumping probe is expected in late October or early November.

Even Glencore, with all its experience, contacts and resources, is finding the Democratic Republic of the Congo (DRC) a challenging place to do business.

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But this month Glencore has made significant progress in getting its DRC house in order.

Firstly, the miner reached a settlement with the state mining company, Gecamines, to wipe off more than $5.6 billion of debt the mines had been carrying as development costs. Glencore will not actually pay over that money, but by forgiving the debt servicing, costs are not accounted for before profits and dividends are agreed, effectively increasing the amount of money available for dividends to the DRC state.

Secondly, Glencore has reached an agreement with its erstwhile partner in the DRC Dan Gertler, a shady character on the U.S. sanctions list who is said to be a close friend of corrupt DRC President Joseph Kabila.

Glencore paid Gertler $534 million for his shares in Katanga and Mutanda last year. The company was obliged to pay him royalties from the mines, which he had previously acquired from Gecamines, the Financial Times reports. Gertler launched legal action against Glencore earlier this year when the firm failed to pay agreed royalties; he subsequently served freezing orders on Mutanda and Katanga mines in the DRC.

According to the Financial Times, when Glencore established that Gertler had a watertight contract, it concluded it was cheaper to pay the royalties and agreed to pay €21 million in royalties from the Mutanda copper mine in DRC in 2018 and €16.5 million each quarter from the Kamoto Copper Company, starting in 2019. Note the figures in Euros — because Gertler is on the U.S. sanctions list, they have to avoid U.S. Dollar payments and ensure no U.S. citizens are in the chain to meet compliance requirements.

The Kabila regime may well be partial recipients of these royalties — Gertler clearly isn’t saying — but his original “ownership” of the mines probably wouldn’t have come without strings attached. Also, it’s not that keeping the payments in Euros completely protects Glencore. The firm is still facing a bribery probe with the U.K.’s serious fraud office over its dealings with Gertler.

The Financial Times postulates Glencore needed to reach a settlement on its various DRC issues, as Chinese mining firms have been very active buying into DRC assets and are said to be interested in picking up what they could if Glencore were to lose its assets (either in court or via a state grab).

Meanwhile, Glencore continues to tussle with the DRC government over a new mining code and to fight a rear-guard action with another Mutanda shareholder.

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As we say, the DRC is a challenging place to do business, but Glencore is knocking down the barriers gradually and making progress.

Copper has been on a good run, you say?

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It has been drifting down for much of the first quarter and it has only been the scare of a strike at Escondida that has returned prices to levels last seen at the start of the year.

Source: London Metal Exchange

That is good in the sense that despite a persistent deficit market narrative around copper for the last few years, the reality is the copper market is pretty much balanced, according to Reuters.

Figures are approximations at best, in part because figures out of China are notoriously unreliable and partly because global copper supply is made up of two parts – primary, which at least outside of China can be estimated quite well, and scrap, which is an opaque market at the best of times.

When the copper price was low in 2015-16, copper scrap was hoarded, both intentionally and through lack of interest. But as the price hit highs of $7,300 per ton last December, that store was drawn onto the market, causing a surge in supply.

According to ICSG data quoted by Reuters, refined output actually fell slightly in 2017. Scrap, however, has made up the shortfall. According to the ICSG copper supply and demand were almost evenly matched in the last quarter of 2017, a situation that has probably moved into surplus with greater scrap supply this year.

Investors rushing for the exit in the form of mass dumping of long positions since the end of last year signals just how significant the perceived turnaround in copper’s fortunes has been. Year-end positions were in the region of 100,000 contracts but stand at just under 4,000 contracts now. Meanwhile, global inventories have surged, with 348,000 tons added across the three global exchanges (LME, CME, SHFE), according to Reuters. At a cumulative 889,000 tons at the end of March, exchange inventory was at its highest since 2003, the news source reports.

Under the circumstances, the copper price has held up rather well.

The narrative of strong global growth only recently took a knock from slower Chinese growth following a crackdown on debt in Asia’s largest economy, despite the fact copper imports – both refined and unrefined – have held up well this year.

So, is copper ripe for a correction? No, probably not — the market is balanced and threats to supply remain the most significant dynamic, but a return to a bull run is looking unlikely.

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Consumers can probably look for a settlement in Chile to herald an easing in prices rather than a collapse.

Last week Rio Tinto announced a new 50-50 joint venture with Beijing-based Minmetals, a partnership that will seek to explore “world-class mineral deposits” in China.

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According to a Rio Tinto release, the registered capital of the joint venture amounts to $31.3 million, plus initial contributions of $5.5 million by both Rio Tinto and Minmetals within six months of the establishment of the joint venture.

“The formalisation of the exploration joint venture is an important milestone in our growing partnership with China and Minmetals, who is an increasingly important player in the global mining industry,” Rio Tinto CEO J-S Jacques said in a prepared statement. “Our complementary strengths in exploration put us in the best possible position to find metals and minerals essential to human progress.”

China Minmetals Corporation President Guo Wenqing underscored the parties’ complementary expertise.

“The collaboration is very significant to Minmetals,” he said. “Rio Tinto has rich prospecting experience and great discoveries worldwide, while Minmetals has solid technical expertise and extensive experience – the two strong partners will drive breakthroughs, pioneer progress, and promote the exchanges and collaboration of the global resource industry.”

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The parties signed a Technical Collaboration Agreement in November 2017.

China could be said to be making hay while the sun shines.

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A report in AluminiumInsider quotes China’s General Administration of Customs, saying the country’s total exports last month came to 485,000 metric tons, accounting for the second-highest total in the administration’s record-keeping history.

May’s output beat April’s total of 451,000 metric tons by 7.5% and bested May shipments a year earlier of 430,000 metric tons (a 12.8% increase). Only December 2014 had been higher at 542,700 metric tons.

But suggestions that this is the start of a flood may be premature.

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After a sharp run up from the middle last year, the oil price is hovering below U.S. $80 per barrel.  The market is finely balanced in terms of threats to supply and still has robust demand growth.

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Capacity cuts implemented by Russia, OPEC and a number of non-OPEC countries have successfully brought excess supply under control and reduced inventory. As a result, the oil price has risen with the expectation that the cartel will continue to restrict output into 2019.

So far, all significant producers appear on board with that position. The International Energy Agency (IEA) says the market is broadly balanced, with further price increases unlikely to be as significant as those of the previous 12 months.

The oil market still faces serious supply risks from the potential losses in Venezuela and Iran, the International Energy Agency (IEA) said in a new report, with only the U.S. continuing to add output. The IEA sees non-OPEC supply growing by 2 million barrels per day in 2018, followed by another jump of 1.7 million barrels per day in 2019, OilPrice.com reports; the U.S. makes up three- fourths of both of those figures, despite severe pipeline restrictions in Texas hampering development.

Growing U.S. output, though, is barely making up for declines in Venezuela, which the report describes as “catastrophic,” and potential loss of Iranian supply if sanctions are reimposed further (thus tightening the market).

So far, Russia and Saudi Arabia are not willing to increase output to dampen price rises. President Trump’s tweets this week about the oil price already being too high should be seen as an attempt to pressure OPEC to increase output to cap prices.

Interestingly, The New York Times sees the current failure of the oil price to break through $80 as evidence that the U.S., Russia and Saudi Arabia are already working behind the scenes to increase output and cap further rises. Whether that is true is unclear — judging by the president’s tweets, it’s probably not being done in any concerted or coordinated manner.

President Trump’s comments over the oil price aren’t altruistic concern for consumers; rising oil prices have added to inflationary pressures in the U.S. The Wall Street Journal reports oil price rises have contributed to a number of factors forcing up consumer prices and encouraging the Fed to consider four rate hikes this year. Even though the WTI $10 discount to Brent leaves U.S. consumers at an advantage to the rest of the world, costs are still rising this year.

The president not unreasonably does not see any need for further oil price rises. While the demand market is growing, there is plenty of capacity to meet it if producers allow it; but for various reasons, OPEC is keen to see higher prices. For Saudi Arabia, it’s because of budget deficits and maximizing the value of the upcoming Aramco float. For most other OPEC members, it’s to make up state budgets requiring close on $100 per barrel to balance the books.

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At under $80, there is clearly more incentive for producers to continue restrictions and push for higher prices. However, unexpected supply-side disruption excepted, the probability is they will be disappointed — at least in the short term — as prices show little inclination to drive higher.

So far in June, base metal prices have increased. Copper, zinc and tin increased sharply. Meanwhile, aluminum and nickel also increased, but a little less dramatically.

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Copper Rally

Copper prices breached the $7,300/mt level. Prices trading over this resistance level signals strength for the metal.

Source: MetalMiner analysis of FastMarkets

Copper has also outperformed in China, which may support copper prices longer.

Chinese copper imports have surged since the beginning of the year. According to Chinese customs data released at the beginning of this month, copper imports increased to 475,000 tons. The 22% increase compared to April imports marks the highest total in more than 17 months.

A strong copper appetite for the biggest world consumer, China, adds support to the current copper uptrend.

Zinc Price Rise

Zinc prices also increased this month. Zinc prices started a short-term downtrend in February. However, prices started to increase again this month.

Trading volumes seem strong, which could signal additional price strength.

Source: MetalMiner analysis of FastMarkets

Zinc prices remain in a long-term rally, which started at the beginning of 2016. During this rally, zinc prices have reached more than 10-year highs.

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What This Means for Industrial Buyers

Buying organizations should remember that industrial metals remain in a bullish market. Commodities increased, while the U.S. dollar showed weakness again. Therefore, base metals could continue to increase in the medium term.

Buying organizations reading the Metal Monthly Outlook had the opportunity to identify some buying signals at the beginning of April to reduce price risk by purchasing some volume.

For those who want to understand how to reduce risks, take a free trial now to the MetalMiner Monthly Outlook.

Trade relations between the U.S. and the European Union are in a tough spot these days, as the U.S. imposed its Section 232 steel and aluminum tariffs on the 28-member bloc (plus Canada and Mexico) recently, a decision yielding much consternation from the U.S.’s trading partners.

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European Steel Association President Geert Van Poelvoorde, speaking before European Steel Day last week, addressed the issue of the U.S. tariffs.

“The European steel industry condemns the US import tariffs on steel. This protectionist trade action is absurd – it hits the US’ own allies hardest,” Van Poelvoorde said. “We also now expect to face a large loss of market share in the US, a market that accounts for 16% of EU exports.”

Van Poelvoorde also reiterated the claim that the focus should be on global overcapacity (implicitly pointing the finger at China).

“There is the need to continue discussions with the US to address the root cause of this trade dispute: global steel excess capacity,” Van Poelvoorde. “We have to deal collectively with countries that subsidise production in order to target export markets, and there are international fora for this process. Unilateral measures are not the answer.

“In the meantime, we call for an EU safeguard to be deployed as quickly as possible – the longer the delay, the greater the injury to the European steel industry will be.”

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Referring to Canadian Prime Minister Justin Trudeau, President Trump on Sunday announced his decision to withdraw from the G7 communique.

“Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!” he tweeted.

Then, on Sunday, German Chancellor Angela Merkel announced the E.U. plans to strike back against the U.S. steel and aluminum tariffs with duties of its own, Reuters reported.

The Stainless Steel Monthly Metals Index (MMI) skyrocketed this month, increasing by seven points. The current reading stands at 84.

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The index inched higher driven by the increase in stainless steel surcharges and a sharp increase in LME nickel prices in May. Other related metals in the stainless steel basket also increased.

LME Nickel

Nickel price momentum seems to have recovered again.

LME nickel prices increased at a quicker pace in May. The increases continued through the beginning of June, driving prices to 2014 highs. 

Source: MetalMiner analysis of FastMarkets

LME nickel prices keep moving away from 2017 lows.

MetalMiner previously recommended buying some volume forward. Given the current uncertainty in the steel and stainless industries, nickel prices remain supported for the short term.

In addition, a fundamental tightness in the nickel market has added support to the latest nickel price increases.

Domestic Stainless Steel Market

Following the recovery in stainless steel momentum, domestic stainless steel surcharges increased again this month. The 316/316L-coil NAS surcharge reached $1.02/pound.

Source: MetalMiner data from MetalMiner IndX(™)

The pace of stainless steel surcharge increases, however, appears to have slowed again this month. Yet stainless steel surcharges remain in a clear uptrend and rest well above 2015-2017 lows.

What This Means for Industrial Buyers

Stainless steel momentum appears stronger this month, as steel prices are skyrocketing. As both steel and nickel remain in a bull market, buying organizations may want to follow the market closely for opportunities to buy on the dips.

To understand how to adapt buying strategies to your specific needs on a monthly basis, take a free trial of our Monthly Outlook now.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

Actual Stainless Steel Prices and Trends

Chinese 304 stainless steel coil prices increased again this month by 2.02%, while Chinese 316 stainless steel coil prices rose further by 6.61%. Chinese Ferrochrome prices increased this month by 2.9%, to $1,990/mt.

Nickel prices increased by 10.5% to $15,210/mt.