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Announced by the European Commission yesterday, provisional steel safeguard measures went into effect today, covering 23 steel product categories.

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The measures were instituted in response to a challenge about which European leaders have frequently expressed concern: diverted steel as a result of the U.S.’s Section 232 steel tariff.

The provisional measures can only remain in place for a maximum of 200 days. After review, the European Commission will decide by early 2019 if permanent measures are needed.

“There are already indications that, as a consequence, steel suppliers have diverted some of their exports from the US to the EU,” the European Commission release states. “In order to avoid a sudden increase of imports that would cause further economic problems for EU steel producers – who are already suffering from global overcapacity – the Commission considers that provisional safeguard measures are necessary and justified.”

A 25% quota will be imposed on products from each of the 23 categories once imports have exceeded the previous three-year average.

Members of the European Economic Area (EEA) — including Norway, Iceland and Liechtenstein — are exempted from the measures, in addition to “some developing countries with limited exports to the EU.”

E.U. Trade Commissioner Cecilia Malmström emphasized that the U.S.’s steel tariff has left Europe with no choice but to act.

“The US tariffs on steel products are causing trade diversion, which may result in serious harm to EU steelmakers and workers in this industry,” Malmström said in a prepared statement. “We are left with no other choice than to introduce provisional safeguard measures to protect our domestic industry against a surge of imports. These measures nevertheless ensure that the EU market remains open, and will maintain traditional trade flows.

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“I am convinced that they strike the right balance between the interest of EU producers and users of steel, like the automotive industry and the construction sector, who rely on imports. We will continue to monitor steel imports in order to take a final decision by early next year, at the latest.”

Axel Eggert, director general of the European Steel Association, offered praise for the institution of the safeguard measures.

“The Commission has received overwhelming support for this vital safeguard measure from both member states and business,” Eggert said in a prepared statement. “The measure will go someway to ensuring the continued stability of the internal market for steel and ensure that EU steel producers do not suffer extreme surges of imports of steel deflected away from the now constricted US market.”

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Cobalt is a product we don’t often talk about, partly because of its relative scarcity but also because of the specificity of its industrial application.

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With that said, the industries it does draw interest from are high-profile ones, including the growing electric vehicle (EV) sector.

Given cobalt’s relative scarcity and the sometimes volatile state of its supply chains, even small shifts in supply can have massive impacts. According to a report by S&P Global Market Intelligence, global mined cobalt production in 2017 fell to 115,071 tons from 116,272 tons in 2016. Much of the drop came as a result of halted operations at the Lububashi Slag Hill operation in the Democratic Republic of the Congo (DRC).

A majority of the world’s cobalt is mined in the DRC (at 60.5% in 2017), meaning the cobalt price is subject, in many cases, to the political instability of the country, often leading to production stoppages.

According to the the Herfindahl-Hirschmann Index (HHI), which helps to assess the level of competition between companies in an industry, the cobalt sector is, unsurprisingly, very concentrated.

According to the S&P report, a reading greater than 0.25 indicates a concentrated market. As of 2009, the cobalt HHI stood at approximately 0.25 and, in the ensuing years, has risen to approximately 0.38 in 2017.

Per the report, that market concentration is likely to increase in the coming years, as the S&P report claims there is “very little likelihood that the DRC will cease to be the most important source of cobalt globally.”

Outside of the DRC, the S&P report indicates cobalt production has increased at Vale’s Voisey’s Bay operation in Canada. As we recently noted, Vale inked a deal with two Canadian companies worth a total of $690 million. That, combined with the approval of an underground mine at Voisey’s Bay, will provide a “significant source” of cobalt from outside of the DRC, with the mine life possibly extending into the 2030s, the S&P report states.

As for political considerations, elections in the DRC are scheduled for the end of 2018. The country has been entrenched in a state of political limbo after President Joseph Kabila refused to step down at the end of 2016 (the end of his mandate). Kabila assumed power in 2001 shortly after the assassination of his father, Laurent-Désiré Kabila, and was elected in 2006 and re-elected in 2011.

According to the S&P analysis, post-2016 unrest “has not had a significant effect on the historically restive Lualaba and Haut-Katanga provinces hosting the Roan copper-cobalt belt,” but that there has been “lingering concern that the violence and disturbance could spread throughout the country.”

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Large multinational miners have still, nonetheless, looked to cash in on the country’s cobalt reserves, despite the challenges to the business environment posed by political instability. In addition, miners have attempted to grapple with a revamped mining code, signed into law by President Kabila in April. The new code calls for higher royalties due to the government from minerals sales. With respect to cobalt, the revamped code called for a royalty increase to 10% (up from 2%).

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

Last week, the U.S. Department of Commerce announced it had launched anti-dumping (AD) and countervailing duty investigations of steel rack imports from China.

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The alleged dumping margins in the AD case are 130.0-144.5%, according to a DOC release.

The DOC added there 28 alleged subsidy programs for steel racks, “including five preferential loan and interest rate programs, one debt-to-equity swap program, six income tax and other direct subsidy programs, two indirect tax programs, seven less than adequate remuneration (LTAR) programs, as well as seven grant programs.”

The petition in the case was filed by the Coalition for Fair Rack Imports, which estimates that imports of steel racks in 2017 were valued at approximately $200 million.

Products covered in the investigation includes “steel racks and parts thereof, assembled, to any extent, or unassembled, including but not limited to, vertical components (e.g., uprights, posts, or columns), horizontal or diagonal components (e.g., arms or beams), braces, frames, locking devices (i.e., end plates and beam connectors), and accessories (including, but not limited to, rails, skid channels, skid rails, drum/coil beds, fork clearance bars, pallet supports, column and post protectors, end row and end aisle protectors, corner guards, row spacers, and wall ties).”

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The U.S. International Trade Commission is scheduled to make a preliminary ruling by Aug. 6, with the DOC following suit Sept. 13.

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The U.S. and India are scheduled to sit across the table this week in Geneva to discuss the case filed by India with the World Trade Organization’s (WTO) dispute settlement mechanism over the U.S.’s imposition of import duties on steel and aluminum.

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The talks will be held under the aegis of WTO’s dispute settlement mechanism, according to a news report by the Press Trust of India.

India is part of the group of nations — which includes China, Russia and Norway, among others — to have filed separate dispute claims on the topic with the WTO. The meeting is part of the consultations the U.S. will be holding with all such countries on July 19-20.

It may be recalled that the U.S. had imposed a 25% tariff on steel and a 10% tariff on aluminum imports from India. India’s exports of the two commodities to the U.S. stands at about U.S. $1.5 billion per annum. India had initially tried to raise the issue with the U.S., and then informally with the WTO, calling the move an “abuse of global trade provisions that could spiral into a trade war,” — sentiments similar to the one expressed by India’s neighbor, China.

In May, India dragged the U.S. to the WTO dispute settlement mechanism over the imposition of import duties.

Consultation is the first step of the dispute settlement process. Incidentally, both the countries are already involved in disputes at the global trade body in the areas of poultry, solar, and export subsidies, to name a few.

According to another news report, senior trade officials of India and the U.S. will meet later this month in Washington to conclude negotiations on a “mutually-acceptable trade package.” Quoting an unnamed official source, it said the meeting comes amid an escalation of the global trade war.

Since India’s proposed additional tariff worth U.S. $235 million on 29 U.S. goods — including almonds and apples — are retaliatory in nature, any rollback of the additional duty on Indian steel and aluminum by the U.S. will lead to a withdrawal of corresponding taxes by the Indian Government on U.S. goods, too.

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The U.S. sees good prospects for its companies in the Indian civil aviation, oil and gas, education service, and agriculture segments.

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Here’s What Happened

MetalMiner’s Global Precious Monthly Metals Index (MMI), tracking a basket of precious metals from across the globe, dropped four points (a loss of 4.5%) for the June reading after holding flat for three straight months.

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Incidentally, the July 2018 MMI value hit its lowest point since exactly one year ago, when it last clocked in at 84.

Individual price points within this precious metals basket hit some historic lows as well.

The U.S. silver price hit $16.09 per ounce for the July 1 reading, the lowest since January 2017 (when it took an anomalous dip down to $15.80 for one month before bouncing back up). U.S. gold bullion has languished back down to the mid-$1,200s, a one-year low.

And both platinum and palladium have come off considerably, with the U.S. bar price of the former dipping below $900 per ounce for the first time since February 2016.

What Buyers Should Consider

  • Keep an eye on the U.S. dollar. A stronger dollar of late, which had gotten a bump from recent better-than-expected U.S. manufacturing data at the beginning of the month, pressures platinum prices because “it makes greenback-priced precious metals more expensive for holders of other currencies,” according to Reuters.
  • Gold is also in the crosshairs of a stronger dollar. In fact, that has become “the biggest obstacle” for gold prices in the near and long term, according to a recent JP Morgan price forecast report cited by Kitco.
  • The threat of auto tariffs has also burned platinum pricing. Due to the pricey PGM’s use in diesel engines, “the threat of protectionist policies has fueled bets that slower trade activity will disrupt the global economy, reducing commodity consumption” — including that of platinum in cars, according to the Wall Street Journal (paywall).

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And Now For Some Mid-Summer Metal Fun

While the product contains trace amounts, at best, of gold’s shiny, less expensive cousin — not to mention that it’s fake — Alexa Silver is still pretty hilarious.

The Stainless Steel Monthly Metals Index (MMI) fell slightly this month, down to 82 from 84.

Despite the fall in the Stainless Steel MMI, the index remains at February 2015 highs.

The index dropped due to a slight decrease in LME nickel prices in June. However, stainless steel surcharges inched higher again this month, remaining in a strong uptrend.

LME Nickel

In June, nickel price momentum slowed down slightly. However, the short-term slide in June came as a result of a general downtrend in base metals. LME nickel prices remain in a long-term uptrend since June 2017.

Nickel long-term prices. Source: MetalMiner analysis of FastMarkets

Buying organizations can expect higher prices in the coming months.

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.

A fundamental tightness in the nickel market has also added support to the latest nickel price increases.

President Rodrigo Duterte of the Philippines announced a possible halt to mining in the country due to environmental damage. In June, 23 out of 27 mines passed an environmental review, easing the uncertainty of supply. However, nickel supply uncertainty still remains as a result of environmental measures.

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 $1.06/pound, while the 304/304L went up to $0.7698.

Source: MetalMiner data from MetalMiner IndX(™)

The pace of stainless steel surcharge increases appears to have recovered its previous level again this month. Stainless steel surcharges remain in a clear uptrend and appear well above 2015-2017 lows.

What This Means for Industrial Buyers

Stainless steel momentum slowed down slightly this month. However, both steel and nickel remain in a bull market. Therefore, buying organizations may want to follow the market closely for opportunities to buy on the dips.

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Actual Stainless Steel Prices and Trends

Chinese 304 stainless steel coil prices fell this month by 5.91%, while Chinese 316 stainless steel coil prices fell by 4.98%.

Chinese Ferrochrome prices decreased this month by 1% to $1,970/mt. Nickel prices fell 1.38% to $15,000/mt.

The July Aluminum Monthly Metals Index (MMI) fell six points, falling to April 2018 levels. The Aluminum MMI now stands at 95 points.

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LME aluminum prices fell in June and have continued to slide so far in July.

However, the rate of the declines has slowed.

Price changes do not appear sharp and selling trading volume remains weak. The price decrease looks like a retracement after the peak in April due to Russian sanctions.

Source: MetalMiner analysis of FastMarkets

LME aluminum prices have fallen toward December 2017 and April 2018 lows. These levels served  as a support to aluminum prices both times, and could cause aluminum prices to bounce back after reaching support.

Global Aluminum

At least for the short term, it appears as though trade policies will impact the global aluminum market.

After the U.S. tariffs on steel and aluminum in March, plus additional sanctions on Russia, aluminum now waits for its next cue.

Canada announced punitive measures on C$16.6 billion ($12.63 billion) worth of American goods in response to U.S. tariffs. The measures will stand until Washington changes the current aluminum and steel tariffs on Canada. Europe also responded to the U.S., approving provisional measures.

Russia became the seventh complainant to ask for a consultation with WTO members against the U.S. duties on steel and aluminum. China, India, the E.U., Canada, Mexico and Norway previously filed similar complaints.

SHFE Aluminum

Chinese SHFE aluminum prices decreased slightly in June, following the LME aluminum trend.

The slide appears less sharp than for LME aluminum prices, but still follows the main short-term downtrend.

Source: MetalMiner analysis of FastMarkets

U.S. Domestic Aluminum

As a result of ongoing uncertainty in the aluminum market, U.S. Midwest aluminum premiums have skyrocketed this year.

July’s premiums, however, have held flat since last month at $0.20/pound. Current levels remain  at more than four-year highs.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Despite the recent downtrend, the LME aluminum price trend suggests a continuation of the bull market that started last year.

Tariffs, sanctions and the latest tariff non-exemptions to Canada, Mexico and the E.U. may add support to rising prices, both for LME aluminum and the U.S. Midwest premium. Adapting the right buying strategy becomes crucial to reducing risks.

Buying organizations that want to start doing so now may want to take a free trial now to our Monthly Metal Buying Outlook.

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Actual Aluminum Prices and Trends

The Aluminum MMI basket generally fell this month. LME aluminum prices decreased this month by 5.51%, with a closing price in June of $2,160/mt.

Meanwhile, Korean Commercial 1050 sheet fell by 1.38%. Chinese aluminum primary cash prices decreased by 7.21%, while Chinese aluminum bar just fell 5.22%. Chinese aluminum billet prices also decreased 5.30% this month, down to $2,323/mt.

The Indian primary cash price fell by 7.36% to $2.14/kilogram.

The Renewables Monthly Metals Index (MMI) held steady this month, coming in for a reading of 108 for the second straight month.

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Cobalt Prices

Cobalt prices are notorious for being both high and incredibly finicky given the relative scarcity of supply (not to mention the fact that the majority of the world’s cobalt is mined in the Democratic Republic of the Congo, which has been plagued by political instability, violence and concerns regarding supply-chain ethics).

With that in mind, it might be news to some that the cobalt price has drawn back from record highs of late.

According to one Bloomberg report, that is good news for those looking for an in to the market and, subsequently, a chance ride the electric vehicle (EV) demand boom.

Per the report, cobalt sulfate has dropped more than 20% since April.

As China continues its efforts to battle rampant pollution in the country, so, too, continues the EV demand apace. According to the report, the country already is responsible for more than half of global EV sales.

Vale Inks Deal With Canadian Firms to Sell Cobalt

Sticking with the cobalt theme, Reuters reported Brazilian miner Vale has reached a deal with two Canadian companies that will, ultimately, lead to the sale of the coveted metal from the Voisey’s Bay mine in Canada (in the province of Newfoundland and Labrador).

Vale inked separate agreements with Wheaton Precious Metals Corp and Cobalt 27 Capital Corp “to sell an aggregate total of 75% cobalt stream with reference to the cobalt by-product to be delivered from January 1st, 2021, which encompasses the ramp-down from the existing Voisey’s Bay mine (Voisey’s Bay) and from the Voisey’s Bay underground mine expansion project (VBME), for a total upfront payment of US$ 690 million plus additional payments of 20%, on average, of cobalt prices upon delivery.”

According to the deal, Vale will receive an initial cash payment of $390 million from Wheaton Precious Metals Corp and an additional $300 million from Cobalt 27 Capital Corp.

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Actual Metal Prices and Trends

Japanese steel plate fell 1.7% month over month to $722.52/mt. Korean steel plate rose 3.8% to $672.43/mt. Chinese steel plate dropped 2.5% to $739.87/mt.

U.S. steel plate, meanwhile, traded flat, sticking at $937/st.

U.S. grain-oriented electrical steel (GOES) coil surged 17.8% to $2,915.

Chinese cobalt cathodes fell 3.3% to $100,411/mt.

The Construction Monthly Metals Index (MMI) dropped two points, falling for a reading of 93 this month.

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U.S. Construction Spending

May construction spending rose 0.4% compared with the revised final estimate for April, according to Census Bureau data released this week.

Spending in May hit $1,309.5 billion, up from $1,304.5 billion in April.

The May spending estimate greatly exceeded the May 2017 total, rising 4.5% year over year.

Meanwhile, through the first five months of the year, spending increased 4.3% compared with the January-May period in 2017.

Private construction spending was $1,005.4 billion, or 0.3% above the revised April estimate of $1,002.3 billion. Within private construction, residential construction was $553.8 billion in May, up 0.8% from April. Nonresidential construction, on other hand, was $451.5 billion in May, down 0.3% from the previous month.

As for public construction, spending was $304.1 billion, up 0.7% from April. Within public spending, educational construction was at a seasonally adjusted annual rate of $74.3 billion, up 0.9% from April. Highway construction hit $94.6 billion, down 0.2% from April.

Billings Growth Continues

The Architecture Billings Index (ABI), put out monthly by the American Institute of Architects, once again showed growth in May.

The ABI hit 52.8 (anything above 50 indicates billings growth), up from 52.0 in April.

“Slightly more firms reported an increase in firm billings than in April, and May also marked the eighth consecutive month of billings growth,” the May ABI report states. “Inquiries into new projects and value of new design contracts also continued to grow at a steady pace, indicating ongoing interest from clients in starting new projects.”

This month’s report included survey data from architecture firms that were asked about productivity levels. According to the report, 55% of respondents said firm-wide productivity levels were up by either a little or a lot over the last few years. Meanwhile, only 20% said productivity levels were down in recent years.

In terms of realizing greater productivity, 40% of respondents said staff and/or staff training were the biggest factors in “determining changes in staff productivity.” In addition, 22% said the biggest factors were the economy or project workloads.

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Actual Metal Prices and Trends

Chinese rebar rose 0.9% to $625.11/metric ton, while Chinese H-beam steel jumped 1.0% to $644.74/mt.

U.S. shredded scrap steel picked up a dollar to reach $371/short ton.

European commercial 1050 sheet aluminum fell 2.4% to $3,000.12/mt.

Chinese iron ore PB fines fell 3.3% to $79.27/dry metric ton.

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Until a few years ago, Tata Steel was in the process of selling off most of its businesses in Europe because of the poor performance of steel globally.

A few days ago, though, the Indian steel major announced its joint venture (JV) with German company thyssenkrupp.

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Tata Steel Chief Financial Officer Koushik Chatterjee was quick to point out that the main reason for the deal was to establish three manufacturing bases in the U.K., the Netherlands and Germany.

In reply to a question by CNBC on why the need for a European presence now, the CFO explained that in 2015-2016, the steel industry globally was in a very difficult situation. Things had, however, changed externally, and also internally in Tata Steel, as the company had undertaken a series of portfolio restructuring moves.

What’s more, the signing of the deal is expected to spell relief for Tata Steel in India, with multimillion-dollar debt offloaded from its own books to the JV.

Tata Steel and thyssenkrupp signed a deal on Saturday after months of protracted negotiations to form Europe’s second-biggest steel company (behind ArcelorMittal) in which Tata and thyssenkrupp will have a 50:50 partnership.

Tata Steel Chairman N. Chandrasekaran told reporters at a press conference in Brussels on Monday that his company would be able to nearly double its capacity because of the JV.

Chandrasekaran and thyssenkrupp CEO Heinrich Hiesinger jointly addressed the conference. The deal will allow Tata Steel to transfer up to U.S. $3 billion (2.6 billion euros) of debt on its European business to the JV company. The chairman added Tata Steel aims to increase its capacity in India from 13 million tons per annum currently to 25 million tons, possibly within the next five years.

In the last few months, Tata Steel has been quite bullish in picking up distressed steel assets after a new bankruptcy code pushed several steel companies into debt resolution in India.

A few weeks ago, for example, it picked up the debt-ridden Bhushan Steel Ltd for about $5.12 billion (Rs 352.33 billion).

But the move does not seem to have gone down well with the stock markets in India. Brokerages gave a thumbs down to the JV, citing economic fallout and uncertainty in the short to mid term.

Most brokerages cut the target price of Tata Steel, citing concerns of a bloated balance sheet and a potential fall in economic interest in the partnership during an IPO.

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Both firms will have to hold a combined stake of at least 50% for at least six years, but at the time of the IPO upon conversion of warrants, thyssenkrupp’s stake will likely increase to 55%.