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Given the state of trade relations and the imposition of tariffs, it’s not surprising that the U.S. has imported less steel so far this year.

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According to a recent American Iron and Steel Institute (AISI) report, U.S. imports of finished steel fell 10.1% through the first seven months of the year compared to the same period last year.

Import through the first seven months hit 20,862,000 net tons (NT).

As for July, however, imports hit 2,978,000 NT, up 19.4% from the previous month.

Import market share rose in July, up from June’s 21% to 23% in July. Market share surged to 29% in April, but has been on the decline since then as tariffs have taken hold. Import market share sits at an estimated 25% in the year to date, according to the AISI report.

By product, several posted significant increases in import total from June to July, including: reinforcing bars (up 214%), heavy structural shapes (up 123%), tin plate (up 55%), hot rolled sheets (up 44%), cut lengths plates (up 31%), plates in coils (up 24%), sheets and strip all other metallic coatings (up 23%), line pipe (up 17%), cold rolled sheets (up 12%), and mechanical tubing (up 11%).

By country, South Korea led the way in July with 189,000 NT sent to the U.S., which marked a 10% decrease from June.

Trailing South Korea in net tons of steel shipped to the U.S. were:

  • Japan (132,000 NT, up 3%)
  • Vietnam (118,000 NT, down 4%)
  • Italy (107,000 NT, up 225%)
  • Taiwan (99,000 NT, up 7%).

South Korea has also led the way through the first seven months of the year with 1,932,000 NT, down 15% vs. the same period in 2017.

Trailing South Korea are:

  • Japan (873,000 NT, down 7%)
  • Germany (758,000 NT, up 1%)
  • Turkey (721,000 NT, down 58%)
  • Taiwan (659,000 NT, down 16%)

As noted here previously, U.S. President Donald Trump this month announced the doubling of the Section 232 tariffs against Turkey amid rising political tensions that have seen the Turkish lira post significant losses.

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As such, it’s particularly worth keeping an eye on Turkish steel export totals to the U.S. going forward. Turkey is the world’s eighth-largest steel producer, as MetalMiner’s Stuart Burns noted earlier today.

“Earlier this month, the U.S. announced plans to double tariffs on the nation’s steel to 50%, and raise the rate on aluminum to 20%,” Burns explained. “Prior to sanctions, Turkey made up 62% of rebar coming into the U.S. It also accounted for 37% of imported pipes for piling and 14% of cold-rolled sheet. Turkey exported about 500,000 tons to the U.S. in the five months to May, compared with more than 1 million tons in the same period last year; so, even before the sanctions, the U.S. has fallen from Turkey’s main steel buyer to No. 3.”

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On Monday, the U.S. announced an agreement in principle regarding aspects of the North American Free Trade Agreement (NAFTA), albeit in a bilateral sense, as Canada remained on the sidelines of the talks between the U.S. and Mexico.

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“The United States and Mexico have reached a preliminary agreement in principle, subject to finalization and implementation, to update the 24-year-old NAFTA with modern provisions representing a 21st century, high-standard agreement,” the Office of the United States Trade Representative (USTR) said in a release. “The updated agreement will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.”

Talks to modernize the 24-year-old trilateral trade agreement began in August 2017 and underwent numerous rounds, encountering challenges along the way.

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When it comes to coal, India’s litany of woes continues.

Despite high prices in international markets, imports continue to rise — and there’s no letting up on that front.

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After a dip in FY 2017, overall coal imports increased 10% in FY 2018. What’s more, the situation is so bad that India’s largest power producer, the National Therma Power Corporation (NTPC), is running short on supply and has sought bids to import coal.

NTPC Ltd. is seeking 2.5 million metric tons (MT) of imported coal, according to two separate tenders on its website. The last time it sought foreign coal was in 2014.

One of many reasons for the shortage is that India’s largest coal producer, Coal India Ltd. (CIL), which produces more than 80% of India’s coal, continues to fall short in production and just cannot keep up with the rising demand, driven largely by higher electricity generation.

But if you were to ask CIL, it would in turn blame India’s congested railway network and a shortage of railway carriers to ship the coal to its customers; this, they argue, has forced consumers from power plants to aluminum smelters to purchase the fuel from overseas.

Rating agency CRISIL said here in a report that the power sector imports in India were projected to cross 75 MT by FY 2023, most of it driven by demand from imported coal-based plants. This comes even as non-power sector imports are expected to decline to 70 MT due to “improvement in domestic supply post linkage auctions and development of key captive blocks allocated to the non-regulated sector,” according to the CRISIL report.

But a report by news agency Reuters had an even more interesting explanation for the continued shortage.

It cites Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA), as saying that a large part of India’s coal imports was used by consumers other than on-grid power plants. Buckley pointed out to Reuters that there were about 30 gigawatts (GW) of coal-fired generation capacity that was used by captive power plants.

They included aluminum smelters, cement makers and other industrial users, more reliant on coal imports as their demand wasn’t prioritized by Coal India; meaning, these folks were last in the queue.

According to Buckley’s calculation, if this 30 GW was run at 61% capacity, it would need about 96 MT per annum, which represents about two-thirds of current thermal coal imports. So, captive power plants had to resort to imports when Coal India couldn’t meet their needs.

However, the shortages are not limited to just power stations. Coking coal, used in steelmaking, has also seen a sharp surge.

Left with little choice for now, the Indian government has directed CIL to raise daily output and sales to 2 MT from 1.4 MT achieved in the last quarter.

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The coal ministry told Coal India that it must produce and sell 1.9 MT and 1.94 MT, respectively, throughout the year. In the June quarter, CIL managed daily production and sales of 1.4 MT and 1.61 MT, respectively.

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The Aluminum Association this week sent a letter to the Trump administration urging it to address Chinese overcapacity, as U.S. and Chinese officials are set to resume talks Wednesday and Thursday aimed at allaying trade tensions.

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The trade group sent the letter to Treasury Department Under Secretary David Malpass, who will lead the U.S. delegation in this week’s talks, which will be attended by Chinese Vice Minister of Commerce Wang Shouwen.

“With the market demand picture bright, and growth in the U.S. aluminum industry occurring, now is an excellent time to resolve trade issues between the United States and China,” wrote Heidi Brock, president and CEO of the Aluminum Association, in the letter. “We note with interest your upcoming meeting with Vice Commerce Minister Wang Shouwen and other representatives from China. This is an important moment in U.S.-China relations, and we respectfully request that the issue of China’s structural overcapacity across the aluminum value chain be included on the U.S. agenda.”

Throughout the year leading up to the imposition of tariffs on steel and aluminum, the Aluminum Association advocated for a trade remedy with a singular focus on China.

“At the same time, the association’s member companies have a shared belief that China’s trade distorting behavior drives massive structural overcapacity in both primary aluminum production and downstream products,” Brock continued. “This is a foundational problem confronting the industry not only in the United States but also around the world. For this reason, the Association has supported trade remedies that focus on China and leave market economies harmless.”

Despite winter cuts, China’s production has continued to rise. According to a Reuters report, July primary aluminum production was up 12% year over year. At 2.93 million tons, its July production was tied for the country’s monthly record.

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According to data released by the National Bureau of Statistics, Chinese primary aluminum production for the January-July period was up 3.0% compared with the same period in 2017.

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In the latest move in the recent saga of burgeoning tensions between the U.S. and Turkey, the latter has filed a request with the World Trade Organization (WTO) for consultations over the U.S.’s additional steel and aluminum tariffs.

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The request was circulated to WTO members Aug. 20.

The U.S. recently doubled its steel and aluminum tariffs on imports of the Turkish metals, raising the rates to 50% and 20%, respectively.

Tensions between the two nations have increased, as the U.S. has called for the release of a detained American pastor, Andrew Brunson. The Turkish government detained the pastor on espionage and terrorism-related charges. According to media reports, the U.S. rejected a deal offered by the Turkish government, in which the pastor would be released in exchange for forgiveness of billions of dollars in fines on a Turkish bank.

On the other hand, the Turkish government has continued to call for the extradition of religious leader Fetullah Gulen — currently living in exile in Pennsylvania — whom the government claims was behind the failed coup in 2016.

President Trump announced the doubling of the metals tariffs in a tweet Aug. 10, writing: “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”

In response, Turkey imposed tariffs on U.S. imports, including automobiles, alcohol and tobacco.

The Turkish currency, the lira, has suffered in the process, as MetalMiner’s Stuart Burns explained last week. The lira has already been on the decline against the dollar in the past year, and proceeded to fall 20% on the heels of the current standoff with the U.S. As of Monday afternoon, the lira sat at ₺6.1544 to the U.S. dollar, having started the year at ₺3.7915.

According to Turkey, its request for consultations comes as it believes the U.S.’s doubling of the steel and aluminum tariffs is inconsistent with provisions of the WTO’s Agreement on Safeguards and the General Agreement on Tariffs and Trade (GATT) 1994.

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Turkey also argued that the U.S.’s application of Section 232 of the Trade Expansion Act of 1962 — the statute by which the metals tariffs came to be — is also inconsistent with provisions of the GATT 1994.

Whether by design or dint of investors’ view of a currency’s true worth in the wake of tariffs, emerging-market currencies are sliding — in some cases, fast.

The Turkish lira is by far the most dramatically impacted, as the escalating tariff standoff with the U.S. has hastened an already weakening currency toward a 40% decline, according The Economist reported.

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Source: Bloomberg (via The Economist)

Some suggest that global emerging-market currency weakness is a direct cause of the slide in the Turkish lira, but that is too simplistic.

Yes, the lira’s slide has set a very negative tone for emerging-market currencies, but the backdrop of rising dollar strength predates the spat between the Washington and Ankara.

According to The Week, India’s currency fell to an all-time low this week, reaching 70 rupees against the U.S. dollar. The South African rand and Argentinian peso have also seen big drops in recent days.

The devaluation of the rupee has led to fears the “Fragile Five” economies — composed of Brazil, India, Indonesia, South Africa and Turkey — which overly rely on growth fueled by foreign investment are all vulnerable to a debt default crisis.

Some analysts are warning the market could increasingly look at the five as a single asset class and apply the same negative attitude to all of them. That would be despite some, like India, having comparatively limited external foreign debt and good control of inflation and fiscal balances, compared to, say, Argentina, where the central bank unexpectedly lifted its main interest rate by another 5% points to an eye-watering 45% to support the currency.

The rise came after the Argentine peso had fallen for a sixth consecutive day to hit a record low against the dollar. Argentina not only has significant foreign currency denominated debt but poor fiscal control of the economy and weak banks make them very susceptible to a currency crisis.

Emerging-market stability is one thing; in itself it has the potential to create a crisis. Of more worry, however, is the potential for a global currency war, as America’s opponents either deliberately weaken their currencies to counter the impact of tariffs or tacitly allow the market to devalue the currency by not stepping in to support a slide.

The Chinese yuan has already slid 9% since April. This alone has more or less countered the 10% import tariff on aluminum and significantly mitigated the 25% tariff on steel goods into the U.S. for Chinese exporters.

According to aforementioned Economist article, there are fears that if the U.S. slaps tariffs on a further $200 billion of tariffs on Chinese exports, the yuan will slide by a further 5-6% over the coming months to a 15% devaluation. That would not only help Chinese exporters cope with the tariffs, it would put U.S. exporters at a severe disadvantage.

As the yuan (and other currencies) are sold, sellers move funds to safe havens – namely the dollar, further fueling the dollar’s rise. As the yuan falls, it drags down other Asian currencies, as its neighbors allow their currencies to weaken to maintain some degree of parity and continued access for their exporters to China.

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Weakening emerging-market currencies, particularly the yuan, would be seen by Washington as a hostile act, not an inevitable consequence of the tariffs, and in itself may spark further retaliatory action.

It has to be said, so far Beijing does not appear supportive of a weakening currency, but that may change if its trade war with the U.S. escalates.

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The breaking news this week is that Chile’s Escondida mine operator BHP has announced it looks like a strike has been averted and that a settlement plan is being put to the workers.

That is good news for a market widely expected to go into deficit this year, according to Mining.com.

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But the prospect of a strike was all that was holding up the copper price, which promptly fell 5% on the news, touching a low of $2.55 a pound ($5,622 a metric ton) in New York and down more than 20% from a nearly four-year high struck a little over two months ago, according to Mining.com.

Production in the world’s largest copper producer, Chile, has been plagued this year by a number of issues (in addition to BHP’s problems).

Competitor Antofagasta announced this week a disappointing set of first-half results. The miner reported production was down 8.5% in the first six months of the year compared to last, due to poor ore grades and infrastructure issues at its biggest mine. Revenue rose on higher prices earlier in the year, but profitability still fell 32%.

The copper price has taken a beating recently on widespread fears about global trade and political turmoil in places like Turkey, but a recent S&P Global report paints a rosy picture for producers regarding future prices, saying new discoveries are falling way below historical standards.

Producers have increasingly focused on developing their existing resources, the report states. This may be due to lack of faith in future prices — the end of the super cycle, or a more cautious post-financial-crash investment climate.

Chinese growth is slowing and producers are more inclined to maximize existing resources than bet the farm on new exploration and invest in new greenfield projects.

S&P reports Latin America hosts over half of copper discovered. Chile and Peru alone account for 83% of copper discovered in Latin America and 46% of the global total found since 1990. Of the 139.9 Mt of copper contained in the 29 discoveries made over the past 10 years, almost two-thirds is contained in the four largest deposits, S&P reports, illustrating the somewhat precarious nature of the copper supply market.

The pool of projects likely to come to market over the next decade is limited by the low level of investment and the long, up to 20-year lead in from discovery to production.

Although prices are currently under pressure from trade fears and a strong dollar, global demand has held up well so far, in the region of 2-3% annually.

Not surprisingly, miners are flagging up supply risks as a bigger issue for the copper market than lack of demand.

In the medium term, they are probably right. Despite all the noise about trade fears and tariffs, the reality is global growth and metals demand has remained robust. Contemporary developments are likely to trump medium-term supply risks in the minds of investors. As such, prices are going to remain subdued this year — if not bearish, then at least trading sideways.

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How we go next year, though, is another matter.

If trade issues can be even partially resolved and some degree of confidence restored, prices could recover; but, for the time being, it is buy as needed.

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The U.S. Department of Commerce (DOC) announced this week that it had made a final affirmative determination in its anti-dumping and countervailing duty investigations of steel flanges imported from India.

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Stainless steel flanges from India were sold in the U.S. at less than fair value, ranging from 19.16% to 145.25%, according to the DOC. In addition, the DOC determined India has providing countervailable subsidies to its producers of stainless steel flanges, at rates ranging from 4.92% to 256.16%.

Imports of stainless steel flanges from India were valued at $44 million in 2017, according to the DOC. In 2015, the U.S. imported 10,584 metric tons of the product from India, coming in at a value of just over $54.8 million. That dropped to 8,031 metric tons in 2016 ($32.1 million) before moving back up to 10,975 metric tons last year.

The petitioners in the case were the Coalition of American Flange Producers and its two members: Core Pipe Products, Inc. (of Carol Stream, Illinois) and Maass Flange Corporation (of Houston, Texas).

The case now moves to the U.S. International Trade Commission, which is expected to make a final determination by Sept. 24. If it also rules in the affirmative, the DOC will issue anti-dumping and countervailing duty orders.

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The ruling marks a continuation of the Trump administration’s aggressive stance on trade. According to the DOC release, the Trump administration to date has launched 120 new anti-dumping or countervailing duty investigation, marking a 216% increase in such cases compared with the same time period during the Obama administration.

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Import tariffs appear to have become the weapon of choice for this U.S. administration.

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Some administrations use military power, but Trump prefers economic pressure to achieve his ends.

His latest skirmish is with Turkey — not that many in the U.S. would notice yet, but in Turkey it is abundantly clear they are under attack.

Value of Turkish Lira Plunges

What sparked the crisis we will come to, but the immediate impact has been a collapse of the Turkish lira, plunging 12% late last week to a new record low — off by a third since the start of the year — in a slide that started with fears of mismanagement of the economy, according to the Financial Times. However, weakness this year has been greatly exacerbated by the current standoff with the U.S.

So severe has been the currency’s slide that it is causing contagion in other emerging market currencies. The Russian rouble is at a two-year low – itself suffering from a similar standoff with the U.S. over sanctions. But other emerging-market (EM) currencies are also down, as are global stock markets, in a marked risk-off shift by investors unnerved by deteriorating trade relations between the U.S. and the rest of the world.

Commodities have followed suit. Oil and gold are both down. It remains to be seen if metals will come off as the dollar rises relative to other currencies, as U.S. Treasuries are back in fashion for a risk-averse market.

How Did the U.S., Turkey Get Here?

So, what caused the rift that led to two NATO allies getting to such a situation?

Turkey was already subject to the 10% on aluminum and 25% on steel import tariffs applied to much of the rest of the world, but a breakdown in negotiations between the two governments for the release of an American pastor, Andrew Brunson, seems to have sparked the announcement by President Trump that tariffs on Turkish metal products should be doubled to 20% for aluminum and 50% for steel. We say “appear” because no reason for the increase was given and some speculation remains that the 15% devaluation in the Lira was undoing the impact of the original tariffs, so the simple answer from the White House was to double them.

However, the detention of the American pastor on terrorism-related charges is certainly an issue. The U.S. claims the allegations are bogus and have been trumped up to use as a negotiating tool to force the U.S. to extradite Fethullah Gülen, a Turkish preacher who Turkish President Erdogan claims is responsible for a failed 2016 coup attempt. There is little or no evidence this is true and the demand for extradition probably has more to do with Ankara’s angst at Gülen’s ongoing criticism of the regime’s behavior and legitimacy than any hard evidence he was involved in the coup.

However, Turkey blocked the agreed release of Brunson from prison and commuted his position to house arrest rather than repatriation to the U.S., sparking the breakdown between Washington and Ankara.

Ripple Effects

What started as a minor spat has, to Ankara’s dismay, spiraled into an economic crisis.

Foreign banks are withholding funding for fear of further sanctions and may soon call in lira debts over fears companies will not be able to meet their commitments. Certainly, the European Central Bank was looking into lenders with the biggest exposure to Turkey’s economy prompting a slide in bank share prices across Europe.

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According to the Washington Post, steel imports from Turkey have already fallen sharply, with only 4% of U.S. steel imports coming from Turkey in the first half of 2018, almost 50% below 2017.

The headline news for grain-oriented electrical steel (GOES) involves the continued drop in total import levels into the U.S.

The U.S. had imported at least 2,500 metric tons per month since the start of this year, but after the announcement of tariffs, imports shrank to 411 metric tons in July.

However, some steel pundits speculate imports will begin to notch up, particularly for the wider steel market.

While total U.S. import volumes fell in July, Japan still held 59% of total import volume, up 1% from June’s import levels.

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In the meantime, companies continue to file exclusion requests.

Interestingly, only three companies have filed the bulk of exclusion requests for grain-oriented electrical steel and no firm received an approved exemption.

The only exclusions within the broader GOES HTS codes includes Nachi America Incorporated for hot-rolled M2 high speed steel sheet on the basis of insufficient domestic capacity.

Meanwhile, Electrical Mechanical Corporation filed approximately 34 exclusion requests for GOES M6 and M4, arguing that longer lead times from the sole domestic supplier, AK Steel (2-3 times longer) have led to increased manufacturing costs, delayed shipments and a weaker competitive position in the market.

So far, companies have filed nearly 25,000 exclusion requests and MetalMiner is aware of some companies obtaining exemptions — approximately 1,400-plus exemptions have been granted — but none have been for GOES.

AK Still Looking for Import Relief

In AK Steel’s most recent earnings report, on a trade update slide the company pointed to not only GOES products but also stated that it is, “Critical that downstream electrical steel products be adequately addressed.”

Next month, MetalMiner will address 301 exemptions, which also include GOES.

Exact GOES Coil Price This Month

The U.S. grain-oriented electrical steel (GOES) coil price fell from $2,914/mt to $2,857/mt. The GOES Monthly Metals Index (MMI) fell four points from 211 to 207.

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The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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