Steel

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The European Union announced Wednesday that it will impose duties on a list of U.S. products, worth approximately €2.8 billion, in response to the U.S.’s steel and aluminum tariffs. The 25% duty will go into effect Friday, June 22.

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The U.S.’s 25% duty on steel imports and 10% duty on aluminum imports went into effect after the U.S. announced at the end of May that it would not continue the temporary exemptions from the tariffs for the E.U., Canada and Mexico.

The list of U.S. products that will be subjected to the tariffs includes steel and aluminum products, in addition to agricultural goods and a “combination of other various products.” Other products subject to the duty include bourbon, motorcycles and orange juice. (A full list of the products is available here.)

“By putting these duties in place the EU is exercising its rights under the World Trade Organisation (WTO) rules,” a release on the European Commission’s website states.

Echoing previous comments, E.U. Trade Commissioner Cecilia Malmstrom alluded to the rules of international trade in justification of the move.

“We did not want to be in this position,” Malmstrom said in a prepared statement. “However, the unilateral and unjustified decision of the US to impose steel and aluminium tariffs on the EU means that we are left with no other choice. The rules of international trade, which we have developed over the years hand in hand with our American partners, cannot be violated without a reaction from our side. Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the US removes its tariffs, our measures will also be removed.”

The E.U. duties on U.S. goods will be “effective for as long as the US measures are in place, in line with the WTO Safeguards Agreement and EU legislation,” according to the release.

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“The EU will rebalance bilateral trade with the US taking as a basis the value of its steel and aluminium exports affected by the US measures,” the statement continues. “Those are worth €6.4 billion. Of this amount, the EU will rebalance on €2.8 billion worth of exports immediately. The remaining rebalancing on trade valued at €3.6 billion will take place at a later stage – in three years’ time or after a positive finding in WTO dispute settlement if that should come sooner.”

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

This morning in metals news, the U.S. released the first round of exclusion request responses vis-a-vis the Section 232 steel tariff, copper bounces back and ThyssenKrupp looks to form a joint venture in China.

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Exclusion Time

The U.S. Department of Commerce announced Wednesday evening that it had begun granting Section 232 exclusion requests.

“This first set of exclusions confirm what we have said from the beginning – that we are taking a balanced approach that accounts for the needs of downstream industries while also recognizing the threatened impairment of our national security caused by imports,” Commerce Secretary Wilbur Ross said in a prepared statement.
The DOC announced it had decided to grant 42 exclusions. The seven requesting companies import steel products from Japan, Sweden, Belgium, Germany and China, according to the DOC release.
The seven companies receiving the exclusions are:
  • Schick Manufacturing, Inc. of Shelton, Connecticut
  • Nachi America Inc. of Greenwood, Indiana
  • Hankev International of Buena Park, California
  • Zapp Precision Wire of Summerville, South Carolina
  • U.S. Leakless, Inc. of Athens, Alabama
  • Woodings Industrial Corporation of Mars, Pennsylvania
  • PolyVision Corporation of Atlanta, Georgia

In addition, the DOC said it would be denying 56 steel tariff exclusion requests from 11 different companies.

Copper Moves Away From Three-Week Low

The price of copper recovered on the heels of hitting a three-week low, as measures by the Chinese government could work to augment demand in the country, Reuters reported.

Three-month LME copper moved up 0.4% on Thursday, according to the report.

ThyssenKrupp JV in China

German firm ThyssenKrupp — which has been in the news of late in the context of its joint venture plans with Tata Steel — has plans to team up with two companies to produce steel wheels in China, according to Reuters.

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ThyssenKrupp would enter a JV with Zhejiang Jingu and Ansteel, according to the report, with the German firm owning 34% of the JV.

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In a letter dated June 18 to Canadian Prime Minister Justin Trudeau, Canadian Chamber of Commerce CEO and President Perrin Beatty — along with nine heads of provincial Chambers of Commerce — wrote to express “support for the government’s efforts to defend Canadian interests in the face of unprecedented trade actions by the United States government.”

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The U.S. announced May 31 that it would impose its Section 232 steel and aluminum tariffs on Canada (as well as Mexico and the European Union), ending the temporary exemption for the country from the duties.

Canada was the world’s 19th-largest steel exporter last year. In 2017, 90% of Canada’s steel exports went to the U.S. (the second-largest export market, Mexico, came in at 7%).

“We fully support the government’s firm position that steel and aluminum exports from Canada do not pose a national security threat to the U.S. Our members are on the front lines of the cross-border supply chains that help drive the Canadian and American economies and support mutual national security through our joint defence industrial base,” the letter reads.

In the letter, Beatty supported the “dismantling of trade barriers,” while arguing the U.S. tariffs have forced Canada’s hand.

“However, the American government’s actions leave our country no choice but to respond in a fashion designed to encourage the withdrawal of U.S. steel and aluminum tariffs at the earliest possible opportunity,” the letter reads. “We urge the government to maintain an open dialogue with Canadian businesses to ensure that any unintended consequences for companies and workers are mitigated, particularly in those sectors that are most trade-dependent.”

According to U.S. Census Bureau data, the U.S. had a $4.55 billion deficit in goods with Canada through the first four months of 2018. The U.S. had a $17.05 billion deficit with Canada in 2017.

“Despite the unprecedented environment created by the U.S. government’s actions, we fully support the government’s continued efforts to achieve a modernized North American Free Trade Agreement,” the letter concludes. “Canadian negotiators should remain at the table and not allow the illegal and unjustified U.S. steel and aluminum tariffs to derail negotiations for an agreement that meets 21st century business needs.”

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The other signatories to the letter, all presidents of their respective Chambers of Commerce, were (province in parentheses): Ken Kolby (Alberta), Trevor Wever (Northwest Territories), Sheri Somerville (Atlantic), Rocco Rossi (Ontario), Val Litwin (British Columbia), Steve McLellan (Saskatchewan), Stephane Forget (Quebec), Peter Merrick Turner (Yukon) and Chuck Davidson (Manitoba).

Speaking of Chambers of Commerce, the U.S. Chamber of Commerce last week panned the U.S. announcement on tariffs to be placed on Chinese imports.

“Imposing tariffs places the cost of China’s unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers, and ranchers,” U.S. Chamber of Commerce President and CEO Thomas J. Donohue said in a prepared statement on the Chamber’s website. “This is not the right approach.”

Source: wto.org

Norway became the latest country to request consultations at the World Trade Organization (WTO) with the U.S. over its Section 232 steel and aluminum tariffs. The dispute complaint was circulated to WTO members June 19.

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“In Norway’s view, the additional tariffs imposed by the US on steel and aluminium imports are a violation of the WTO rules,” Minister of Foreign Affairs Ine Eriksen Søreide said in a prepared statement last week. “Today we have therefore requested dispute settlement consultations with the US in the WTO. The WTO and its dispute settlement system is the established forum for handling disagreements about trade policy.”

Norway, which is home to aluminum producer Norsk Hydro, is Europe’s top aluminum producer (the country is not a member of the European Union, but has membership in the European Economic Area).

According to the release from Norway’s Ministry of Foreign Affairs, only 0.2% of Norway’s steel and aluminum exports go to the U.S.

“In the long run, we all benefit from a situation where right trumps might in international trade,” Eriksen Søreide said. “Such a disregard for WTO rules weakens the credibility of the United States in international trade, and risks undermining the rules based multilateral trading system.”

India initiated a complaint against the U.S. tariffs in May. Mexico also requested consultations, while the E.U. and Canada have also done so.

Trade tensions have picked up in recent months, as the U.S. tariffs have sparked backlash from some of the U.S.’s closest trading partners. The WTO has come in for much criticism from President Trump, but figures to be a battleground — albeit a slow-moving one — for trading partners formally objecting to the U.S. tariffs.

In addition, last weekend the G7 summit in Charlevoix, Quebec, during which trade issues were paramount, ended acrimoniously when Trump tweeted that he would withdraw his support for the summit’s communique.

The communique, among other things, addressed tariffs:

“We acknowledge that free, fair and mutually beneficial trade and investment, while creating reciprocal benefits, are key engines for growth and job creation. We recommit to the conclusions on trade of the Hamburg G20 Summit, in particular, we underline the crucial role of a rules-based international trading system and continue to fight protectionism. We note the importance of bilateral, regional and plurilateral agreements being open, transparent, inclusive and WTO-consistent, and commit to working to ensure they complement the multilateral trade agreements. We commit to modernize the WTO to make it more fair as soon as possible. We strive to reduce tariff barriers, non-tariff barriers and subsidies.”

In a meeting Monday after the G7 dust had settled, German Chancellor Angela Merkel met with several leaders of multilateral agencies to stress the importance of cooperation.

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“Rising trade tensions risk a major economic impact, undermining the strongest sustained period of trade growth since the financial crisis,” WTO Director-General Roberto Azevêdo said in a joint statement. “They also pose a real systemic threat, risking far greater impacts in the longer term. We will continue working to resolve these tensions and to avoid further, damaging escalation which draws in new sectors, potentially harming more workers.”

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This morning in metals news, energy companies are lobbying for exemptions from the U.S. steel tariff, U.S. steel exports dropped in April compared with the previous month, and steel and iron ore prices fell by the greatest amount since March.

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Asking for Exemptions

Several U.S. energy companies are looking to win exemptions from the U.S.’s 25% steel tariff, Reuters reported.

Of the nearly 21,000 exclusion requests received by the U.S. Department of Commerce, more than 500 are related to pipes and related materials, according to the report.

U.S. Steel Exports Down in April

The U.S.’s steel exports fell by 1% in April compared to the previous month, according to American Iron and Steel Institute (AISI) data cited by the Times of Northwest Indiana.

The steel export level in April, however, was up 0.5% compared with April 2017.

Steel Prices Drop

Prices of steel and iron ore fell by the greatest amount since March, according to Bloomberg, as trade tensions ratcheted up in the last week. The U.S. announced $50 billion in tariffs on Chinese imports on Friday, and President Donald Trump threatened an additional $200 billion in tariffs.

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Iron ore prices fell to a two-month low, according to the report, while LME nickel, zinc and copper all also fell.

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.

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This morning in metal news, steel and aluminum exports from China were up in May; the National Retail Federation CEO panned the U.S.’s tariffs; and a White House economic analysis reportedly concludes President Trump’s tariffs will hurt economic growth.

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Exports on the Rise

Despite rising trade tensions, including Section 232 tariffs on steel and aluminum, China’s export totals of steel and aluminum were both up in May, according to Reuters.

Chinese aluminum exports were at their highest level in 3 1/2 years, according to the report.

NRF CEO Criticizes Tariffs

Matthew Shay, president and CEO of the National Retail Federation, was critical of the Trump administration’s trade agenda vis-a-vis tariffs, CNBC reported.

Shay, who spoke positively about the president’s December tax cut, argued the tariffs are counterproductive.

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“It makes no sense to go down this road when we have all this momentum,” Shay told CNBC.

White House Economic Analysis Bearish on Tariffs

According to a report by The New York Times, a White House economic analysis of the impact of Trump’s tariffs concludes they will hurt economic growth.

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This morning in metals news, Mexico hits back against the U.S.; tariffs aren’t good for relationships with allies, the Aluminum Association’s CEO says; and the E.U. could impose steel and aluminum safeguard measures as early as July.

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Mexico Hits Back

Retaliation on the heels of the U.S.’s decision to allow for the expiration of the temporary tariff exemptions for the E.U., Canada and Mexico is something that was expected.

Mexico did just that, placing tariffs on steel products and farm products, according to an NPR report.

According to the report, the steel products on the list are steel plates, bars and rods, and rolled steel.

Tariffs Don’t Make Friends

The Aluminum Association, the industry group representing American aluminum, has consistently expressed over the last year that any trade remedies vis-a-vis aluminum should focus primarily on Chinese overcapacity and should not harm market-economy trading partners.

Heidi Brock, CEO of the Aluminum Association, told NPR’s Rachel Martin that the tariffs could alienate the U.S. from its allies.

“In our view, illegally subsidized Chinese overcapacity is the problem,” Brock told NPR. “Tariffs and quotas on market economies really, in our concern, would be ultimately alienating allies that we need to help us on that problem.”

Needless to say, based on rhetoric since June 1 from the E.U., Canada and Mexico, it seems like that alienation has already begun to take shape.

Meanwhile, in Europe…

Speaking of retaliation, the E.U. could be set to do just that in the near future.

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E.U. Trade Commissioner Cecilia Malmstrom told Reuters that steel and aluminum safeguard measures could be instituted next month.

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Well, he went and did it, didn’t he?

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Against advice from consumers and pleading from politicians in Europe and the Americas, President Trump went ahead with the imposition of 25% import tariffs on steel and 10% on aluminum from the E.U., Canada and Mexico.

Stock markets dropped on the news and politicians blustered while the biggest loser, U.S. consumers, resigned themselves to paying higher prices for the foreseeable future.

According to the Financial Times, those three economies accounted for 44% of all U.S. steel imports in the first quarter of 2018. U.S. consumers are already paying more for their raw materials than the rest of the world following tariffs announced on other countries earlier in the year, the Financial Times reports.

Source: Financial Times

About the only people not complaining are producers (at least here in Europe).

Speaking to sales offices of European producers, there is firm belief little will change except U.S. consumers will end up paying 25% and 10% more for steel and aluminum, respectively. The U.S. does not produce anywhere near enough finished steel or aluminum to meet its massive domestic demand, and you do not bring new rolling or extrusion mills online in months — it takes years.

So, imports will continue to flow and consumers will just pay more. Admittedly, there will be a short-term blip; U.S. consumers have been buying ahead of the curve. One aluminum mill interviewed by MetalMiner confirmed its normal 3,000 tons of monthly sheet sales has been running at 8,000 tons recently in an effort by consumers to stock up ahead of a possible tariff. That stock will carry over into the summer, but if tariffs are still in place Q3 deliveries will resume as before, just at higher delivered prices.

Meanwhile, Mexico has already hit back with retaliatory tariffs against U.S. products. The Financial Times reports a Mexican minister saying, “Given the tariffs imposed by the US, Mexico will put in place equivalent measures on a range of products including flat steel . . . legs and shoulders of pork, sausages and other food preparations, apples, grapes, blueberries, and various cheeses, among others.” Sen. Patrick Toomey (R-Pa.) pointed out that the tariff on Mexico is particularly bizarre, as the U.S. runs a trade surplus on steel with Mexico.

Although European politicians have howled with fury at the imposition of the tariffs, it has to be said there appears to have been scant progress on talks over the last month aimed at avoiding a crisis.

The U.S., trying to negotiate on a range of bilateral trade terms, has argued that U.S. tariffs on European cars are much lower than E.U. tariffs on American cars – a seemingly unfair situation that as an observer is hard to see how it could be justified.

Never let it be said, though, that logic gets in the way of European Commission President Jean-Claude Junker. After calling the move “protectionism, pure and simple,” he reiterated retaliatory measures listed in a 10-page document published in March, which included Kentucky bourbon and Harley-Davidson motorcycles.

In reality, the E.U. has more to lose than the U.S. in a full-blown trade war. Although Germany’s exports of steel products are in a low single-digit percentage of German steel industry output, the country is a major exporter of automobiles and machine goods. Of all the countries in the E.U., Trump probably has his eyes set on Germany’s massive trade deficit with the rest of the world as much as he does the E.U. as a whole.

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Still, where this goes from here is anyone’s guess. If either side blinks first and shows willingness to negotiate rather than ratchet up the stakes, then there is a chance a trade war can be avoided.

A trade war is not what either side wants, but it is a risk Trump has shown he is willing to take.

After the instability in the industrial metals complex in April, May closed with an overall increase in metal prices.

However, the increases are, in general, less sharp and less volatile than last month.

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Aluminum, Copper and Nickel

The three main metals have seen slight increases in prices.

The LME aluminum price pace seems to have slowed down after the deadline for U.S. sanctions on  Russian aluminum companies moved to Oct. 23. However, aluminum prices could remain supported given the current turmoil.

Source: MetalMiner analysis of FastMarkets

Zinc and Lead

Meanwhile, the close brothers zinc and lead seem to have gotten into a little disagreement.

Zinc prices fell slightly in May. However, lead prices increased at the beginning of the month. The increase comes after lead prices fell to support levels, the buying dip MetalMiner recommended buying organizations take advantage of. Buying organizations following the Monthly Metal Outlook had the opportunity to lock in lower prices then.

Source: MetalMiner analysis of FastMarkets

The lead price’s upward trend seems strong, as buying volume supports the increase. Therefore, buying organizations can expect lead prices to move higher.

Zinc buyers may want to follow zinc movements closely this month, too.

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Steel Prices Continue to Rise

Steel prices remain at more than seven-year highs. Steel prices continued the slight increase in May.

Buying organizations who want to read more about steel price trends and the tariff exemption analysis should take a free trial of our Monthly Outlook now.