Tag Archives: Steel

The Global Steel Trade that Trump Just Hit with Tariffs? by Wolf Richter

China dominates the global steel trade. From Wolf Richter at wolfstreet.com:

Who totally dominates it?

Steel tariffs are now in place, and the world is grumbling and threatening retaliation against the US. Its closest partners, such as Canada, are trying to figure out how to navigate the waters. Part of Corporate America is lobbying against it and wagging its checkbook. The other part of Corporate America — the part that has been lobbying for it — is now grinning from ear-to-ear. And the media is steeped in this melee. But just who is producing all this steel, and who is dominating this trade?

In April, China’s crude steel production rose 4.8% from a year ago to 76.7 million tonnes (Mt), the highest on record, according to the World Steel Association. This was nearly 11 times as large as the 6.9 Mt of crude steel that the US produced.

China’s production was nine times as large as that of the second and third largest producers, Japan and India, each with 8.7 Mt. World production of crude steel in April was 148.3 Mt, of which China’s share was 51.7%.

And with somewhat awkward timing, the World Steel Association, whose members represent approximately 85% of the world’s steel production, just released its World Steel in Figures 2018, with data through 2017. So here we go, step by step.

Steel production has grown sharply over the years. Since 1996, there were only three years when production declined: In 1998, as a result of the Asian Financial Crisis, in 2009 as a result of the Global Financial Crisis, and in 2015, when China made a short-lived effort to get a grip on its rampant overproduction.

So how big of a role does China play in this?

The chart below shows steel production by some of the major regions: China (red line); Asia/Oceania without China (green line), which includes Japan, South Korea, and India; the EU (mauve line); North America, the NAFTA countries (black line), and the CIS (brown line) which includes Russia, Ukraine, and others. Note that production growth in China blew right through the Asian Financial Crisis and the Global Financial Crisis, but dipped in 2015:

To continue reading: The Global Steel Trade that Trump Just Hit with Tariffs?

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WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

Trump is shooting himself in the foot on trade. From the editors of the Wall Street Journal, via zerohedge.com:

With Peter Navarro egging him on, and a handful of US steel and aluminum producer CEOs patting him on the back, President Trump’s decision to impose tariffs has prompted worldwide outrage from the establishment as a sign of impending trade wars and the end of the world as we know it.

While many are purely political kneejerk reactions – just as anything Trump does is a negative (think “crumbs”) to those on the ‘other’ side – The Editorial Board at  The Wall Street Journal,  believe that Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum.

This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.

The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.

Apparently Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

To continue reading: WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next, by Tyler Durden

Tariffs didn’t work out too well for President Bush; they probably won’t work out too well for President Trump. From Tyler Durden at zerohedge.com:

an eerie analogue of what is about to take place, on March 5, 2002 President George W. Bush imposed tariffs as high as 30% on global steel imports.

The temporary tariffs of 8–30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports, as more than 30 steel makers had recently declared bankruptcy. Canada and Mexico were exempt from the tariffs because of penalties the United States would face under NAFTA. Additionally, some developing countries such as Argentina, Thailand, and Turkey were also exempt.

The response was immediate.

Domestically, some of the president’s political opponents, such as Democratic House Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president’s conservative allies, imposing the tariff was a step away from Bush’s commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry.

The international response – like now – was more vocal.

Immediately after the announcement, the European Union announced that it would impose retaliatory tariffs on the United States, risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization (WTO). Japan, Korea, China, Taiwan, Switzerland, Brazil and others joined with similar cases.

In a decisive decision, on November 11, 2003, the WTO came out against the steel tariffs, saying that they had not been imposed during a period of import surge—steel imports had actually dropped a bit during 2001 and 2002—and that the tariffs therefore were a violation of America’s WTO tariff-rate commitments. The ruling authorized more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state, if the United States did not quickly remove the tariffs.

To continue reading: In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next

‘National Security’: The Last Refuge of Vote-Buying Politicians, by Thomas Knapp

Can you think of one good that somebody, somewhere, couldn’t claim is important for our national security? From Thomas Knapp at antiwar.com:

More than half a century ago, Congress passed the Trade Expansion Act of 1962. Since mid-April, US president Donald Trump has twice invoked one of the law’s nearly forgotten provisions, ordering Commerce secretary Wilbur Ross to investigate the possibility that steel and aluminum imports “threaten to impair the national security.”

If Ross says they do and Trump agrees, the law empowers him to “take such action, and for such time, as he deems necessary to adjust the imports of such article and its derivatives so that such imports will not so threaten to impair the national security.”

Keep in mind that when a president orders “investigations” of this sort it’s not for the purpose of arriving at the truth of the matter, but rather for the purpose of getting the answers he wants to hear so that he can claim justification for doing the things he wants to do.

For that reason, I can confidently predict that in the near future we’ll see restrictions on the importation of aluminum and steel, in the name of, but not actually for the purpose of, enhancing “national security.” In fact, those restrictions will have exactly the opposite effect.

Trade is one of the best guarantors of peace. Economist Otto T. Mallery perhaps overstated it a bit in saying that when goods don’t cross borders, armies will. But it should at least be obvious that when goods DO cross borders, armies are less likely to cross those same borders. Merchants and customers who are happy with each other don’t look for fights with each other.

If “national security” is just an excuse, what is the real reason? Why does Trump want to ban – or at least drastically reduce – steel and aluminum imports?

If you have to ask why, the answer is usually “money.” In this case, it’s “money and votes.”

Trump’s narrow victory in last year’s presidential election came down to a few tens of thousands of votes from Rust Belt workers who believed he would “bring the jobs back.” He wants to keep his promise – or, at least, he wants to keep their votes for his party in 2018 and himself in 2020. He also wants the financial and political support of American companies benefiting from captive steel and aluminum markets.

To continue reading: ‘National Security’: The Last Refuge of Vote-Buying Politicians

China Warns “Social Stability Threatened” As 400,000 Steel Workers Are About To Lose Their Jobs, by Tyler Durden

From Tyler Durden at zerohedge.com:

In late September, we were stunned to read (and report) that in the first mega-layoff in recent Chinese history, the Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group for short, the biggest met coal miner in northeast China had taken a page straight out of Jean-Baptiste Emanuel Zorg’s playbook and fired 100,000 workers overnight, 40% of its entire 240,000 workforce.

For us this was the sign that China’s long awaited “hard landing” had finally arrived, because as China’s paper of record, China Daily, added then: “now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.”

We added that “if there is one thing China’s politburo simply can not afford right now, is to layer public unrest and civil violence on top of an economy which is already in “hard-landing” move. Forget black – this would be the bloody swan that nobody could “possibly have seen coming” and concluded that as for the future of China’s unskilled labor industries, the Fifth Element’s Jean-Baptiste Emanuel Zorg has a good idea of what’s coming.

Fast forward to today when, if not a full million, Xinhua reports that as part of China’s proposed excess capacity production curtailments the country’s steel production slash will translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. According to some estimates just like every banker job in New York “feeds” up to three downstream jobs, so in China every worker in the steel industry helps support between 2 to 3 additional job.s Which means, 400,000 primary layoffs would mean a total job loss number anywhere between 1.2 and 1.6 million jobs!

As a reminder, previously China had announced that it would cut steel production capacity by 100 to 150 million tonnes, while coal production will be reduced by “a relatively large amount,” according to a statement released Sunday by the State Council. We have yet to get an estimate of how many coal jobs will be lost.

The reason we were, and remain, skeptical about China ever following through on this production curtailment is precisely the massive layoffs that will result: layoffs which would enflame an already tenuous employment situation because as we showed recently, the number of worker strikes in China has gone parabolic in the past year, soaring to a record high over 2,700 in 2015, more than double the previous year’s total.

Li confirmed this very disturbing trend when he told Xinhua that “large-scale redundancies in the steel sector could threaten social stability.”

To continue reading: China Warns “Social Stability Threatened” As 400,000 Steel Wrokers Are About To Lose Their Jobs

The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports, by Tyler Durden

From Tyler Durden at zerohedge.com:

Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.

How did this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in “Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities.”

As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

To continue reading: The Trade Wars Begin

When It Rains It Pours as China Unleashes Commodity Torrent, by Heesu Lee

From Heesu Lee at bloomberg.com:

Net oil-product exports surge to record; aluminum, steel rise
Flood threatens global producers, prompts trade disputes

There’s no let-up in the onslaught of commodities from China.

While the country’s total exports are slowing in dollar terms, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.

“It puts global commodities producers in a bad situation as China struggles with excess supplies of base metals, steel and oil products,” Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co., said by phone from Seoul. “The surplus of commodities is becoming a real pain for China and to ease the glut, it’s increasing its shipments overseas.”

To continue reading: China Unleashes Commodity Torrent