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Commodities Roundup: How the Trump Tariffs Will Affect GOES, Nickel Price Momentum

03/16/2018 By

Adobe Stock

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

From price movements to policy decisions, our MetalMiner editors scour the landscape for what matters. This week:

Trump Tariffs and Electrical Steel

As MetalMiner Executive Editor Lisa Reisman wrote earlier this week, the Trump administration’s steel tariffs will affect grain-oriented electrical steel (GOES) differently than it will other forms of steel.

Roger Newport, the CEO of AK Steel — the only remaining U.S. GOES producer — praised the administration’s tariffs announcement, citing the impact of imports on the domestic GOES market.

“Years of surging imports and the subsequent market volatility caused the only other U.S. producer to exit the market in 2016,” he said. “This action by the President could not come soon enough as the surge of electrical steel imports continued throughout last year, with imports nearly doubling in 2017 when compared to 2016.”

After Canada and Mexico secured temporary exemptions from the tariffs, other countries will come calling for exemptions of their own. In the world of GOES, that means Japan, the largest exporter of GOES to the U.S.

“MetalMiner believes that Japanese producers, along with their importing partners and customers, will petition the Department of Commerce for an exception by proving that certain highly engineered grades of electrical steel are not in fact produced in the United States,” Reisman wrote.

Nickel Price Momentum Slows

LME nickel prices dropped last month while stainless steel surcharges rose, Irene Martinez Canorea explained in her monthly Stainless MMI report.

Meanwhile, Europe is enacting trade action of its own vis-à-vis steel pipes from China.

“The European Commission prolonged the already existing anti-dumping measures on Chinese imports of stainless steel seamless pipes and tubes for another five years,” Martinez Canorea wrote. “The duties imposed initially in 2011 ranged from 48.3% to 71.9%. These duties gave European stainless steel producers — like France, Spain and Sweden — some breathing room.”

China’s Steel Exports

As MetalMiner’s Stuart Burns noted earlier this week, Chinese steel exports dropped by over 30% last year.

“China produced 831.73 million tons of crude steel last year,” Burns wrote. “The country has been trying to eliminate excess capacity, in part to assuage global concerns about excess capacity flooding global markets. But, in reality, it’s more because it realizes overcapacity in its steel industry leaves all domestic producers in a precarious position and sees logic in driving the cleanup in favor of its state-owned producers rather than leaving the market to possibly favor the private sector — not what an increasingly state-centered Beijing wants at all.”

There is also a clear preference for state-sector producers, Burns noted.

“State-owned enterprises have benefited at the expense of the private sector with new steel and aluminum capacity coming onstream to partially replace the older shuttered plants,” he wrote. “Permits for new plants seem to have favored the state-sector producers over the private sector; contrary to the position 18–24 months ago, the state sector is doing very well at present.”

Political Unrest, Violence in Congo Continue to Impact Cobalt Market

Cobalt, an increasingly important material use for battery applications like electric vehicles, comes primarily from the Democratic Republic of Congo, where political instability creates shockwaves when it comes to the price of cobalt.

Burns reviewed the current state of political unrest and violence in the country, where Joseph Kabila is holding onto power despite widespread unpopularity and the conclusion of his five-year mandate.

As such, cobalt is different from lithium, another material coveted for its use in batteries.

“So the rise in the price of cobalt — while it mirrors that of lithium and has so far been driven largely by battery and super alloy demand — is fragile to political unrest in a way that lithium is not,” Burns wrote.

Zinc Prices Pull Back

When it comes to zinc prices, have we already seen their peak?

Martinez Canorea delved into the subject this week, noting that prices this month have returned to around $3,200/mt, up 120% since the zinc rally started in 2016.

The price pullback, however, represents a short-term downtrend rather than a true correction, according to Martinez Canorea.

Global zinc output was about the same in 2017 as it was in 2016, while global demand ticked up 2.6%, largely on the back of demand in Australia, Brazil, China and Japan.