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Dry Bulk: Iron ore trade could face further complications from US steel policy

  • Friday, July 7, 2017
  • Source:ferro-alloys.com

  • Keywords:Iron ore
[Fellow][ferro-alloys.com] As if the dry bulk market didn’t its own problems to solve, it risks facing further complications from the looming shifts in steel trade policies.

As if the dry bulk market didn’t its own problems to solve, it risks facing further complications from the looming shifts in steel trade policies. in its latest weekly report, Allied Shipbroking noted that “trouble seems to be looming once more in the steel industry as US President Trump puts forth his plans for specialist protectionist measures for the badly weathered US steel industry. This latest push has been based on a Cold War-era trade law that would allow him to restrict imports of any goods or in this case commodity, which is deemed to be critical to national defense. As far back as April, the new administration took steps to launch a special investigation into steel imports so as to ascertain whether under the 1962 law conditions were met to justify a limit to imports under the pretense of a threat to the country’s security”.

According to Allied’s Head of Market Research & Asset Valuations, George Lazaridis , “with this backing, it looks as though the Trump administration is now set on course to impose such quotas and tariffs and to make matter worse it could in effect cherry pick particular exporters and in effect freeze any further imports from those locations of origin. As expected this came under a “fire barrage” at the World Trade Organization last Friday, with some of the most prominent countries to be affected, namely China, the European Union, Brazil, Australia, Taiwan and Russia, raising serious concerns. It seems as though we are now in the midst of a potential trade war, as countries take steps to retaliate in the case that the proposed protectionist measure is implemented”.

Lazaridis added that “at the same time, it will be one of the biggest test for the global trade referee, namely the World Trade Organization, which will face a difficult choice with either side, bringing with it potential fallout. A ruling against the US could be a huge blow to the WTO’s credibility and power if the US were to choose to ignore the decision, while siding with the US would open the door for all WTO members to invoke similar reasoning behind the choice to bring forth taxes and quotes as they please. The potential fallout would not be just limited to the WTO, with the US likely to do more harm than good to its own economy, as other countries take on options to impose their own trade restrictions on steel imports or to retaliate against the US in other ways”.

According to the analyst, “what’s more is that this could not have unraveled at a worst time, as iron ore had been managing to show glimpse of a recovery rally in its price up from its low of US$ 54 in mid-June to a recent high of US$ 64.3 on Thursday. This has also been evident from the recent pick-up in trade activity, with Capesize freight rates having shown positive movements in the second half of June (with only exception being the final days of the month were a small downward correction started to show face)”.Additionally, “the difficulties being faced in the global trade of steel and iron ore however go way beyond this most recent episode. The market has been plagued by a glut in supply for several years now and in part China has played a major role in this. In fact, this recent decision by the US to find a way to pass such trade restrictions seemly to be mainly as a way to target China and its flow of cheap steel products. Given that the problem is still there, whether or not Trump manages to pass and impose his restrictions means that we are likely to face a downward correction in steel production and iron ore trade at some point, that is only if we were to suddenly see a spur in consumption that could in effect quickly absorbed most of the excess being produced. India could be such a success story with its need for large scale industrial expansion, however even if we were to see such an Indian economic miracle, this would most likely be fueled by its own quickly expanding steel producing industry”, Lazaridis concluded.

As if the dry bulk market didn’t its own problems to solve, it risks facing further complications from the looming shifts in steel trade policies. in its latest weekly report, Allied Shipbroking noted that “trouble seems to be looming once more in the steel industry as US President Trump puts forth his plans for specialist protectionist measures for the badly weathered US steel industry. This latest push has been based on a Cold War-era trade law that would allow him to restrict imports of any goods or in this case commodity, which is deemed to be critical to national defense. As far back as April, the new administration took steps to launch a special investigation into steel imports so as to ascertain whether under the 1962 law conditions were met to justify a limit to imports under the pretense of a threat to the country’s security”. According to Allied’s Head of Market Research & Asset Valuations, George Lazaridis , “with this backing, it looks as though the Trump administration is now set on course to impose such quotas and tariffs and to make matter worse it could in effect cherry pick particular exporters and in effect freeze any further imports from those locations of origin. As expected this came under a “fire barrage” at the World Trade Organization last Friday, with some of the most prominent countries to be affected, namely China, the European Union, Brazil, Australia, Taiwan and Russia, raising serious concerns. It seems as though we are now in the midst of a potential trade war, as countries take steps to retaliate in the case that the proposed protectionist measure is implemented”. Lazaridis added that “at the same time, it will be one of the biggest test for the global trade referee, namely the World Trade Organization, which will face a difficult choice with either side, bringing with it potential fallout. A ruling against the US could be a huge blow to the WTO’s credibility and power if the US were to choose to ignore the decision, while siding with the US would open the door for all WTO members to invoke similar reasoning behind the choice to bring forth taxes and quotes as they please. The potential fallout would not be just limited to the WTO, with the US likely to do more harm than good to its own economy, as other countries take on options to impose their own trade restrictions on steel imports or to retaliate against the US in other ways”. According to the analyst, “what’s more is that this could not have unraveled at a worst time, as iron ore had been managing to show glimpse of a recovery rally in its price up from its low of US$ 54 in mid-June to a recent high of US$ 64.3 on Thursday. This has also been evident from the recent pick-up in trade activity, with Capesize freight rates having shown positive movements in the second half of June (with only exception being the final days of the month were a small downward correction started to show face)”.Additionally, “the difficulties being faced in the global trade of steel and iron ore however go way beyond this most recent episode. The market has been plagued by a glut in supply for several years now and in part China has played a major role in this. In fact, this recent decision by the US to find a way to pass such trade restrictions seemly to be mainly as a way to target China and its flow of cheap steel products. Given that the problem is still there, whether or not Trump manages to pass and impose his restrictions means that we are likely to face a downward correction in steel production and iron ore trade at some point, that is only if we were to suddenly see a spur in consumption that could in effect quickly absorbed most of the excess being produced. India could be such a success story with its need for large scale industrial expansion, however even if we were to see such an Indian economic miracle, this would most likely be fueled by its own quickly expanding steel producing industry”, Lazaridis concluded.

  • [Editor:Wang Linyan]

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