Chinese steel exports to U.S. causing national security issues?

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Steel

 

U.S. President is launching an investigation about whether the steel imports from foreign countries affects U.S. national interests.

“Steel is critical to both our economy and our military. This is not an area where we can afford to become dependent on foreign countries.”

Firstly, China is the largest national producer. It makes far more steel than it consumes. Secondly, it is exporting the excess output overseas. ” This often leads undercutting domestic producers.”

Trump is pressuring China to do more to rein in an increasingly belligerent North Korea. Which is the unusual step of setting to steel investigation. Two presidents discussed this subjects earlier in Florida. Trump said that he would consider possibility of using trade as a lever to coax China to do more.

 

Opinions on matter

 

“Everything they export is dumping.” (Derek Scissors, Asian economist.)

 

Following, Chinese exports have risen. “Despite repeated Chinese claims that they were going to reduce their steel capacity.” said Ross. Ross was labeled “Mr. Protectionism” for his history of owning businesses protected from foreign competition. “If the Commerce inquiry finds the U.S. steel industry is suffering from too much steel imports, I will recommend retaliatory steps.” That could also include tariffs.

 

Trump ordered a probe under Section 232 of the Trade Expansion Act of 1962. This lets the president impose restrictions on imports for reasons of national security.

 

In October 2001, a Commerce Department investigation found “non probative evidence.” Saying that imports of iron ore and semi-finished steel threaten to impair U.S. national security.

The amounts of steel imported, even though big, cannot represent

the national security problem. It is simply called trading” said an analyst.

Steel shares had raised after Trump won the November election amid promises for increased infrastructure spending.

On Thursday shares of steel makers closed between 4 and 8.5 % higher. Steel Dynamics Inc (STLD.O), AK Steel Holding Corp (AKS.N), Cliffs Natural Resources Inc (CLF.N), Allegheny Technologies Inc (ATI.N) and other.

 

Steel Profits in US

 

The United States has nearly 100 plants that make millions of tons of steel annually. Government tried to protect them with WTO regulations. Then came Trump and said this has to be put on another level.

“The artificially low prices caused by excess capacity and unfairly traded imports suppress profits in the American steel industry.”

Also, Nucor Chairman John Ferriola said that the steelmakers welcomed the president’s move.

“We look forward to continuing to work with the president and Secretary Ross. To ensure our trade laws are enforced so that U.S. manufacturers can compete on a level-playing field.”

“There is no doubt that steel plays a role in our national security and the manufacturing of U.S. weapons systems.” (Jeff Bialos, who has worked on steel trade cases in the past.)

 

“But the Department of Defense only consumes a small portion of domestic steel output. And this has decreased over the past decade as composites technology has advanced,” Bialos said.

 

Scissors said the United States has other ways to take on China over steel trade issues, other than invoking national security.

 

“Talking about it as a national security issue – I don’t think it’s necessary and I don’t think it’s justified,” he said.

 

Vale’s Q1 nickel output falls on operational issues

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About Vale

 

Vale SA is a Brazilian multinational corporation. Engaged in metals and mining. It is one of the largest logistics operators in Brazil. Vale is the largest producer of iron ore and nickel in the world.

Vale’s nickel production declined in the first quarter of 2017. It was affected by planned maintenance shutdowns and operational challenges. Output of finished nickel came to 71,400 tonnes in the first three months of the year. It went down by 2.9% from the corresponding period of 2016.

In the fourth quarter of 2016, the miner produced 83,000 tonnes of nickel. This also represented a 14% decline.

Decline happened “mainly due to planned maintenance shutdowns in Indonesia and Japan. And someoperational challenges”.

Nickel & iron ore production

 

Production at Vale’s Thompson operations came to 4,800 tonnes of nickel in the first quarter of 2017. Down by 22.6% y-o-y and down 33.3% against the fourth quarter of 2016.

This reflects “the scheduled Q1 2017 transition to a single-furnace operation and certain operational issues. Including damaging elements in the founder feed and a hot metal leak in the smelter that resulted in approximately 10 days of production loss”.

Meanwhile, production from the Sudbury mines, in Canada, reached 17,900 tonnes in the first quarter of 2017. 8.2% lower than in the first quarter of 2016 and down by 10.1% from the fourth quarter of 2016.

According to Vale, “Sudbury source production was adversely affected, mainly due to inventory drawdown during the Q4 2016 and Q1 2016 periods”. (Fastmarkets)

Sudbury is expected to transition to a single furnace in the fourth quarter of 2017. It took its furnace number 2 offline in March. For a three-month rebuild and expansion

of its capacity.

“This will be the stove in operation when Sudbury officially transitions to a single furnace. Sudbury will have a three-week surface plant-wide scheduled maintenance shutdown in the second quarter of 2017.”

Nickel production decline

 

Vale’s total nickel production from all its Canadian operations came to 36,100 t in the first quarter of 2017, down by 1.4% from a year earlier and 16.8% lower than in the fourth quarter of 2016.

Meanwhile, Vale’s Indonesian operation saw its nickel in matte production reach 17,200 t in the first quarter of 2017. 2.0% higher than in the same period of 2016. But 12% lower than in the fourth quarter of 2016.

“The weaker nickel in matte production was due to the adverse impact of a planned maintenance works in its kilns and furnaces, if compared with Q4 2016.” (Vale)

Meanwhile, production of finished nickel from PTVI totaled 16,300 t in the first quarter of 2017, down by 8.4% on an annual basis and 25.2% lower than in the fourth quarter of 2016.

The output was negatively affected by a scheduled annual maintenance shutdown at the Matsusaka refinery in Japan.

By contrast, production of finished products from Vale’s New Caledonia operation (VNC) reached a record of 10,200 t in the first three months of 2017.

 

This represents an increase of 5.2% from the first quarter of 2016 and is 14.6% higher than in the fourth quarter of 2016.

China is creating a state-owned consortium to discuss about Saudi’s Crown Jewel Aramco

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Saudi Aramco

Most popularly known as Aramco, is a Saudi Arabian national petroleum and gas company. Firstly, it is based in Dhahran. Its value has been estimated between US$1.25 trillion and US$10 trillion. Which makes it the world’s most valuable company.

Secondly, Saudi Aramco has the world’s largest proven crude oil reserves. Estimated at more than 260 billion barrels. It also has the largest daily oil production. It owns, operates and develops all energy resources based in Saudi Arabia.

 

Vision 2030

Saudi Arabia’s Deputy Crown Prince, Mohammad bin Salman, has accepted a report from the consulting firm of Mc Kinsey & Co. Named entitled Vision 2030. Seems as his blueprint for turning the Saudi economy from oil. Laying the foundations for advanced private sector. Following, he has also decided to sell a 5-10 percent stake in the country’s national oil company.

Through an initial public offering. A number of international investment banks think the IPO and Aramco’s market capitalization will be in the vicinity of two trillion dollars. Therefore, newly listed company with the largest market capitalization on the planet.

Financial and industry experts do IPOs determination and the pricing of shares. On the basis of the company’s economic and financial data. And prevailing market conditions.

In the case of a ‘standard’ oil company, this would be based on extensive geological findings of retrievable reserves. And ultimately on discounted annual earnings of the company after all applicable taxes. Would these requirements and projections be followed in the same format for an Aramco IPO? Probably not. Because the calculations would require extensive intrusion into Saudi Arabia’s perception of a number of highly queasy covenants.

 

China State-Owned Consortium

China is gathering a consortium that will act as a headstone financier in the initial public offering of Aramco. People present at this meeting will possess high prudence of the discussions. This consortium includes state-owned oil giants and banks and its sovereign wealth funds.

Saudi Aramco is a key exporter to China together with Russia’s Rosneft. With potential $100 billion equity sale that would be the world’s largest to date.

Chinese possible investment, makes it more probably that the national energy giant would search for a listing in Asia. With Hong Kong instantly the favorite among stock markets in the region.

“The IPO will help decide which country can secure the crude supplies from the company and Saudi Arabia going forward.

 

“The company would consider participating in the IPO depending on market conditions.” (Wang Dongjin’s words.) Sinopec says the oil giant would discuss the IPO with Aramco.

 

Asia Register

In conclusion, Saudi authorities plan to list up to 5 percent of Aramco. On the Saudi stock exchange in Riyadh, and also one or more international markets.

Also, the $100 billion IPO price tag is based on Aramco being valued at $2 trillion. There are different versions about valuation of this giant.

“The Saudis are serious about Asia. They can maintain market share there. At the end of the day, Aramco needs to sell its oil. This is just another way of guaranteeing a long-term market.” (Reuters)

 

 

Rio Tinto’s iron ore output cut by weather conditions

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About the company

 

Rio Tinto is a British-Australian multinational, and one of world’s largest metal and mining corporations. Rio Tinto(RIO.AX) (RIO.L) on Thursday said first-quarter iron production from Australia fell 3 percent. In comparison with the same period a year ago. Mostly due to wet weather at its mines. Heavy rain ruined Rio’s outputs. Despite weakening ore prices it kept its full-year guidance intact.

 

Pilbara

The Pilbara is a large, dry, thinly populated region in the north of Western Australia. Also It is known for its Aboriginal peoples. Furthermore, having ancient landscapes, the red earth, its vast mineral deposits, in particular iron ore. Pilbara mines output totaled 77.2 million tonnes, the company said. Full-year shipping guidance was kept at 330 million-340 million tonnes.

Shipments from Australia

 

Shipments from the Australian mines in the first quarter were flat at 76.7 million tonnes against the year-ago period, but down 13 percent from the previous quarter.

Ship loading was impacted by a cyclone, with parts of its rail line hit by heavy rainfall.

“Despite these disruptions, shipments were in line with the first quarter of 2016 and guidance for 2017 remains at 330 to 340 million tonnes,” the company said.

 

Iron ore producers are facing a promptly cut down of the iron ore prices. Rio Tinto and rivals Vale (VALE5.SA), BHP Billiton (BHP.AX) (BLT.L) and Fortescue Metals Group (FMG.AX) . It is happening amid waning demand from China, the biggest market for ore.

China imported 90.3 million tonnes of iron ore in March this year. China has the biggest appetite for iron ore and also the biggest market.

The worldwide iron ore surplus reached 70 million tonnes last year – more than total U.S. consumption last year – and could balloon to 90 million tonnes in 2017, according to Citigroup.

Iron ore prices are down more than 33 percent since a mid-February peak of $94.86 a tonne and forecasters are warning of a further pullback. (Reuters)

 

Iron ore prices would backtrack to U$55 a tonne in the fourth quarter. Australia’s Department of Industry, Innovation and Science predicted. Next year’s forecast calls for iron ore prices to reach $51.60 a tonne at the end of the year.

 

Other minerals

In other minerals, Rio Tinto stuck to a full-year target of producing between 3.5 million 3.7 million tonnes of aluminum following a 2 percent rise in first-quarter production.

 

Mined copper guidance was subdued to 500,000-550,000 tonnes from as much as 665,000 tonnes as a result of a strike at the Escondida mine in Chile. And the curtailment of production at the Grasberg mine in Indonesia. While Chile is the world’s biggest copper producer, and sales of the metal make up for about 60% its export earnings. In Escondida mine strike, workers gave up because they asked for different conditions.

In conclusion, refined copper production guidance remains unchanged at 185,000 to 225,000 Rio said.

 

OPEC and non-OPEC dedicated to restoring OIL market stability

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Bringing global inventories down

 

Mohammad Barkindo, OPEC secretary-general, saying that all OPEC and non-OPEC oil producers are taking part in a bringing the global stability to the Oil market.

Speaking in the UAE, he said agreement data in March is showing better conformity by the oil producers than in February.

“OPEC and non-OPEC producers agreed in December to cut supplies for six months. Helping lift oil prices to about $55 a barrel after a two-year slump. OPEC will review policy for the second half of this year at a May 25 meeting.”(Reuters)

Any decision taken in this field would be brought up to maintain good interest of all producing and consuming countries. He didn’t say whether the agreement would be extended for another half year. But he promised all the resolutions will help the OIL market stability.

 

Oil market Facts

 

Oil steadied on Wednesday. After OPEC said it was committed to eroding a global supply. Overhang that has dogged markets since 2014, but with U.S. output and inventories rising, analysts said prices looked vulnerable. (Yahoo finance)

The oil price got an early lift from comments by Mohammad Barkindo.

Brent crude futures LCOc1 were up 5 cents at $54.94 a barrel at 0908 GMT, while U.S. West Texas Intermediate (WTI) futures CLc1 were up 3 cents at $52.44 a barrel.

“Is sentiment on the oil market now taking a negative turn again? Looking at the latest price reactions, one might conclude that the only reason for the previous price rise was the expectation of further production cuts on the part of OPEC,” (Commerzbank strategist Carsten Fritch’s comment.) (Reuters)

“After all, the oil price is dismissing reactions to the factors which would normally sustain it. Ever since the Saudi oil minister (Khalid) al-Falih put at least something of a dampener on such expectations.”

OPEC and other producers such as Russia have agreed to cut output by almost 1.8 million bpd during the first half of 2017.

 

 

U.S. Impact on oil supplies

 

Speaking about politics, U.S. President Donald Trump ordered examination of whether the elevation of sanctions against Iran was in the United States’ national security interests.

Most of U.S. sanctions against Iran were lifted in late 2015 under a nuclear deal. Letting Tehran to more than double its crude exports over 2016. This move just added a bit to the global oversupply.

U.S. markets remain heavily oversupplied, as well as the global markets.

Although crude inventories fell by 840,000 barrels in the week to April 14 to 531.6 million barrels. They held near record highs, while gasoline stocks rose by 1.4 million barrels as refinery runs increased by 334,000 bpd.

 

Solving the problem

 

“Unless the (EIA) data shows something drastically different, this report should cause a severe dent in the bullish case (for oil prices),” said Sukrit Vijayakar, director of energy consultancy Trifecta. (Reuters)

Restoring the OIL market inventories and the unlikely trends which are increasing every day would be a serious deal. The enormous supplies of oil from U.S. part, and the prices downward trend in global markets are making a fuss and ruining the stability of this resource.

It is represented as a huge problem, as well as on global level, mainly for OPEC countries. Whose aim is to control their oligopoly over Oil supplies.

‘Buy American, Hire American’ might have some impact on U.S. steel

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Buy American, Hire American

 

Executive order of U.S. president, Mr. Donald Trump left a few open questions behind. Trump made a decision about reviewing the U.S. Visa program. Changing the position of high-skilled foreign workers in the country. Putting technology firms and the outsourcing companies that serve them, on notice that possible changes may happen.

Policing “Buy American” provision has been difficult till now. Even if it exists in the U.S. law for a long period. Negations granted to foreign companies that undercut their U.S. counterparts on pricing.

Trump promised to regularly police these provisions, but avoided to tell details about how that is going to happen.

 

Different Opinions On Subject

President of Chicago-based Lapham-Hickey Steel, Bill Hickey, said: “Talk of Buy American is in the game for decades. Even if so, American or foreign contractors often find loopholes to use imported steel.”

“Politicians all talk the same, but at the end of the day it just doesn’t work.”

Charles Bradford said focusing on “Buy American” for U.S. steel does not take into account that some steel products are not produced in the United States. So if applied improperly, it could cause supply problems in a U.S. market. In which up to 25 percent of steel was imported in the first quarter of this year.

“The people who have pushed for this don’t have a clue and they don’t know math. Cutting off the supply of goods not made in the United States would create fresh problems for U.S. companies.”

Instead of courageous action promised last year by Trump, on the NAFTA , on China, and free trade agreements, the new administration has “not shown much evidence of doing so.” (Said KeyBanc Capital Markets steel analyst Philip Gibbs.)

“I’m a lot less optimistic than I was few months ago. So far what I’ve seen coming out of the Trump administration is the same as the prior administration.”

As a result, Gibbs said investors should dial back expectations that Trump will do anything meaningful on trade, or on infrastructure. Which is where such an order could make a difference.

 

Investors Reaction

 

Investors seemed to shrug off Tuesday’s executive order.

 

Nucor Corp shares closed up 0.2 percent at $57.33, AK Steel Holding Corp gained a penny to end at $6.32 and United States Steel Corp closed down 0.5 percent at $28.73.

 

Labor Unions

 

 

The move was welcomed by labor unions. Workers said that under current practice, “contractors often try to avoid the law through loopholes to buy cheap and often substandard foreign products like many from China.”

 

Steel Impacts

 

Thomas Gibson, chief executive of lobby group the American Iron and Steel Institute, said in a statement that “Buy American” provisions “are vital to the health of the domestic steel industry. Also they have helped create manufacturing jobs and build American infrastructure.”

 

Michelle Applebaum, Veteran steel industry analyst said : “Trump has just created more risk for anyone who wants to import steel. If he puts money behind enforcement that will force people to play by the rules, that will be a good thing.”

Citigroup Inc. joined Goldman Sachs Inc. believing in better second quarter of 2017

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“It’s time to have faith in raw materials, and oil will probably recover to the mid-$60s by the end of the year.” Citigroup Inc. who joined Goldman Sachs Group Inc. said.

Even if U.S. shale output may come “booming back” midst of higher crude prices, production control by OPEC and its leaguers should help neutralize that increase over the next six to nine months.

The producers need to widen their deal to cut supplies by the end of the year.

Goldman Sachs has also made similar comments, saying extensive inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.

 

Bank sees commodity investment flows rising in second quarter

 

“With a continuation of the OPEC and non-OPEC producer deal in the second half of 2017 and the expected combined inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year.” (Market analysts wrote.)

Still, bigger supplies from producers in the fourth quarter of 2016 at this moment seem “a dark cloud hanging over the market.” And also a failure to extend the output agreement which would send prices “precipitously lower.”

 

The bank expects U.S. West Texas Intermediate oil to average $62 a barrel. Global benchmark Brent crude is expected to average $65 a barrel in the fourth quarter. WTI was trading 30 cents lower at $52.35 a barrel on the New York Mercantile Exchange at 10:34 a.m. London time on Tuesday. Brent on the ICE Futures Europe exchange was down 35 cents at $55.01 a barrel. (Bloomberg)

The production-cut agreement urged a change in market structure. That change meant traders had less incentive to store oil at sea prompting the flow of supplies floating on ships to onshore sites. That set the stage for boosting U.S. inventories to a record in the first quarter of 2017.

This gain and agitated output by the OPEC in the fourth quarter had an effect that would “ultimately hinder and reverse the very rebalancing they were trying to accelerate,” the analysts said. The bank expects U.S. liquids output to grow y-o-y at 1 million barrels per day or more by December.

U.S. Crude Oil Inventory, Source: Bloomberg

Factors that lead to Declines across commodities

The drop in oil prices during March led declines across commodities, according to Citigroup. It estimates commodity assets under management grew about $45 billion in the first two months of the year but gave up $35 billion during the selloff in raw materials in March. Investment inflows should increase in the second quarter.” (The Citi bank predicted.)

“Do commodities need a bit of a prayer to bounce again in ‘17? Not necessary. Commodities stumbled through the first quarter following what was clearly the healthiest year for the sector since the decade began. There was too much froth in critical sub sectors like oil, copper and iron ore. In conclusion, signs of better performance are increasingly clear, despite major risks.”