Recent developments in trade policies could impact metal buyers, prompting a need for vigilance and strategic adjustments. Here is a look at three developments and their potential impact on the metal-buying community.
Recent developments in trade policies could impact metal buyers, prompting a need for vigilance and strategic adjustments. Here is a look at three developments and their potential impact on the metal-buying community.
1. Potential Tariff Hikes by the White House: The White House has signaled intentions to increase Section 201 tariffs for solar cells, panels, and washing machines, with some exclusions (currently sitting at 7.5%), aligning with a trend toward safeguarding American workers. While tariffs are already in place on products like Chinese steel and aluminum sheet, the proposed escalation could further impact trade.
In addition, President Biden is directing his Trade Representative to increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion of imports from China. This move is in response to China’s unfair trade practices, including technology transfer, intellectual property theft, and flooding global markets with low-priced exports. Tariffs on steel and aluminum products under Section 301 will increase from 0-7.5% to 25% in 2024.
2. Mexico's Recent Tariff Actions: Mexico’s recent announcement created a lot of buzz when first announced on April 22, 2024. Mexico imposed tariffs ranging from 5-50% on over 500 product categories encompassing multiple industries. Several categories of Chinese steel and aluminum were included in the list.
Jeff Penz, Ryerson’s Director, International Procurement & Recyclables, notes that Mexico's government revoked its 35% tariff on primary unalloyed aluminum and 20% tariff on primary alloyed aluminum, citing no national production of primary raw aluminum (unalloyed and alloyed) which is required to supply the domestic industry. This move could impact the cost of importing metal into Mexico, prompting companies to potentially reassess supply chain strategies.
According to Penz, it is important to keep in mind that the duty is only applied to countries that do not have a free trade agreement with Mexico. He says that there appears to be several exceptions depending on the type of programs that companies have in place.
3. Restrictions on Russian Metal: 3. Restrictions on Russian Metal: The U.S. and the UK have imposed bans on the import of Russian copper, nickel, and aluminum. Additionally, Russian metal made on or after April 13, 2024, is now barred from the exchange warehouse systems (see chart one below). These restrictions limit the availability of Russian-origin metal, particularly on commodities exchanges.
Implications and Adaptations: Metal buyers must navigate a tiered system of commodities (see chart two below), considering the origin and production dates of the metal.
Tier-one comprises metal from non-sanctioned countries. Tier two includes Russian metal produced before April 13, 2024. Tier three comprises newly produced Russian metal, and will not be accepted by the exchange warehouse system, thus facing restricted market access.
Considerations for Metal Buyers: Amidst these changes, buyers need to further scrutinize the origin of their metal purchases and engage with suppliers to ensure compliance with the evolving trade regulations.
Swift adjustments to supply chain strategies may be necessary to mitigate risks and maintain operational continuity.
Steel Mill Spot Indexes: Your Questions Answered
Recently. Nucor and Cleveland Cliffs introduced spot indexes for hot-rolled steel as an alternative to the established CRU index. Nucor will publish its index weekly, while Cleveland Cliffs will do so monthly. These spot prices are expected to become the standard for spot transactions at the respective mills, without discounts or volume metrics.
Nick Webb, Ryerson’s director of risk management, commodity hedging, answers questions on the potential impact this could have on the steel supplies and futures markets.
Q: How do these spot indexes differ from the CRU index?
Webb: The CRU index, which is widely used for contract pricing, operates based on surveys from a customer base whose size isn't disclosed. In contrast, Nucor and Cliffs are introducing spot indexes, providing real-time pricing without volume-based discounts.
Q: Why have Nucor and Cliffs introduced these spot indexes?
Webb: At this point, the consensus seems to be that by offering their spot indexes, Nucor and Cliffs seek to provide more accurate and transparent pricing options.
Q: How are these spot index prices determined, and how do they compare to CRU's prices?
Webb: At least at the early onset, we are seeing a slight difference between the indexes from Nucor and Cliffs when compared to the CRU. For example, on May 7 Nucor and Cliffs were offering spot index prices of $825 and $850, respectively, for hot roll coil. Interestingly, the CRU index that week stood at $813, suggesting a discrepancy between spot and contract prices.
Q: What impact could these spot indexes have on the steel market?
Webb: For now, the impact seems limited, with most contracts still tied to the CRU index or scrap-based pricing. However, if spot index prices gain traction and influence, they could reshape how steel transactions are conducted and priced in the future.
Q: How do futures contracts tie into this scenario?
Webb: Futures contracts settle against the CRU index, indicating its continued dominance in setting market benchmarks. While spot indexes will offer real-time pricing, futures contracts still largely reflect CRU-based pricing, maintaining its influence in the market.
Stainless Steel Market Sees Upsurge
The stainless steel market has witnessed a notable resurgence in recent months, driven by a combination of factors that have reshaped trade dynamics and market sentiment.
One significant factor contributing to this upsurge is the shifting landscape of base metals trading, particularly in response to protectionism and tariff measures. These developments have injected a degree of risk premium into the market, prompting traders to reassess their positions and strategies.
Furthermore, the commitment of trader’s report reflects a notable shift in sentiment, with the trading community transitioning from a bearish to a slightly bullish stance.
This shift, while not indicative of overwhelming bullishness, suggests a more nuanced outlook on stainless steel pricing.
Nickel prices soared over 5% due to unrest in New Caledonia, raising concerns about supply disruptions from the French territory. The South Pacific archipelago, the world's third-largest producer of nickel for electric vehicle batteries, has seen protests over new voting rules. T
his has impacted output from French miner Eramet SA, operating at minimum capacity. Nickel futures surged as much as 5.7%, the largest gain since April, reaching $20,880 a ton on the London Metal Exchange. Other base metals also saw increases, with aluminum and copper rising 1.1%. This comes after previous supply cuts and delays in mine licensing in Indonesia, along with sanctions on Russian metal, driving nickel prices back above $20,000/ton.
What's Driving Aluminum Prices Higher?
Aluminum prices had been skyrocketing, rising upwards of 20% in early May. Analysts attributed this surge to a combination of factors, including sanctions news, technical indicators, and a renewed sense of optimism from China.
After two years of stagnation, characterized by minimal profitability for smelters and challenges in production costs, recent curtailments in Spain and China have created a supportive floor for prices.
Additionally, global supply-demand models for aluminum are showing a more balanced outlook, further bolstering market sentiment.
However, some analysts warn that the recent 20% price spike may have been excessive, leading to a slight pullback in prices as investors assess the situation.
Nonetheless, the overall momentum remains bullish, with traders showing a significant increase in optimism, reminiscent of the market's performance in 2021.
