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Commodities Roundup: Zinc and Copper Prices Plunge, the Specter of Automotive Tariffs and Thyssenkrupp Tata Steel

07/06/2018 By

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, we scour the landscape for what matters. This week:

Zinc Prices Plummet

Those in need of zinc may want to consider buying now, as prices for the metal have dropped to their lowest level in just over a year.

Last week, the zinc price got a little boost from news that Chinese smelters plan to cut production by 10%. That boost, however, was short-lived, as Reuters reported Wednesday that zinc had plummeted to its lowest level since June 2017.

On a macroscopic level, zinc remains in a long-term uptrend dating back to late 2015, when prices hovered around the $1,500/mt mark. The LME zinc price surged above the $3,500/mt mark as of late 2017/early 2018, but has trended downward in the new calendar year.

The zinc price fell 3.2% Wednesday, dropping to $2,700/mt, Reuters reported.

A surplus of the metal has contributed to the decline. According to the International Lead and Zinc Study Group (ILZSG), the global refined zinc market boasted a 25 kt surplus in Q1 2018.

Copper Prices Also Plunge

Zinc is not alone in its descent, as copper has also plummeted recently.

According to the aforementioned Reuters report, London copper dropped to its lowest level since August 2017 this week.

Global trade tensions — particularly between the U.S. and China, the latter being the world’s biggest consumer of copper — continue to destabilize the market.

Automakers Ask Administration to Pump the Brakes on 232 Tariffs

The Trump administration announced in May it had launched yet another Section 232 investigation, this time looking into automobiles and automotive components. The administration used the same little-used statute to investigate steel and aluminum imports’ impact on national security, which eventually yielded the now much-discussed tariffs of 25% and 10% on steel and aluminum.

The administration has yet to make a decision on potential tariffs on automobiles. Commerce Secretary Wilbur Ross, during a Senate Finance Committee hearing on trade policy June 20, told the committee it was still too early to comment on whether tariffs would be forthcoming.

However, as part of the review process, interested parties could submit comments related to the investigation — and, indeed, many comments were submitted.

The committee received more than 2,300 comments, all available for perusal on Among those submitting comments were automakers, including General Motors, which cautioned that tariffs would have a deleterious impact on the automaker.

“If import tariffs on automobiles are not tailored to specifically advance the objectives of the economic and national security goals of the United States, increased import tariffs could lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less — not more — U.S. jobs,” GM’s comment reads. “The threat of steep tariffs on vehicle and auto component imports risks undermining GM’s competitiveness against foreign auto producers by erecting broad brush trade barriers that increase our global costs, remove a key means of competing with manufacturers in lower-wage countries, and promote a trade environment in which we could be retaliated against in other markets.”

Public hearings are scheduled for July 19-20 on the issue.

In a development from across the pond, Europe is considering holding international talks to cut its automotive tariff barriers in an effort to prevent escalation into an all-out trade war, according to a Financial Times report.

Speaking of automotive news, June proved to be a strong month for U.S. sales, particularly for the Big Three, which each posted sales increases. GM, for example, reported its Q2 sales were up 5% year over year. Ford’s sales were up 1.2% in June compared to June 2017, while Fiat Chrysler’s June sales were up 8%.

Tata, Thyssenkrupp Approve Merger

Indian firm Tata Steel and Germany firm Thyssenkrupp have signed a finalized deal to merge their European operations, an undertaking that will ultimately yield Europe’s second-largest steelmaker (behind ArcelorMittal).

MetalMiner’s Stuart Burns delved into the merger and the new company, Thyssenkrupp Tata Steel, which will reportedly be able to produce 21 million tons of steel per year.

Given the climate of international trade, Burns opines the deal may be a timely one.

“Importantly, it gives the two companies an increased scale and opportunity to achieve some economies as a result,” he wrote.

“Steel prices have picked up this year. Generally, Europe’s steelmakers are doing better, but they face considerable uncertainty as to the impact and duration of the current U.S.-European trade conflict, the level of increased Chinese imports and the possible impact of Brexit.”