Trade tensions threaten stability
While the European metals industry looked fairly strong for most of 2017, US steel tariffs and a growing tendency towards protectionism signal trouble on the horizon. Sean Milmo reports.
T
he European metals industry had a relatively good year in 2017 with demand, sales, prices and profitability being boosted by buoyant economies in Europe, North America, China and much of the rest of the world. In the wake of strong rises in demand, average global steel prices almost doubled in the second half of the year. Average price increases in non-ferrous metals at around 20 per cent during 2017 were the highest among all commodity sectors. Aluminium prices went up by over 15 per cent, copper by over a quarter and nickel, driven by sharp increases in demand for stainless steel, by over a third in the second half. Prices for metals used in high tech products also soared. Those for cobalt doubled. For some speciality metals supply could not keep up with demand.
Trade disputes However by early 2018 economic confidence began to falter and prices of many metals started to soften. Prices of non-ferrous metals actually went down in the first quarter.
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The biggest worry was that a global trend towards protectionism across the world would suddenly accelerate with President Donald Trump’s US government taking the lead. His first target was steel and aluminium on which he introduced 25 per cent and 10 per cent increases in tariffs respectively in March. Then he threatened to slap 20 per cent tariffs on European car imports which would have a double whammy effect on steel and aluminium producers because the automobile sector is one of their main customer industries. A key factor behind the trade tensions, particularly in base metals, was excess production capacity, especially in China. For European metal producers the big fear behind higher tariffs was not just a loss of competiveness in major export markets like the US but that large amounts of metals destined for the US market would be diverted into Europe. When welcoming the success of the European Commission’s negotiation of a temporary exemption for aluminium in March to the US 10 per cent tariff, Gerd
Gotz, director general of European Aluminium, the aluminium producers association, pointed out that the “real problem... is how to tackle Chinese overcapacity.” European Aluminium warned that as a result of higher US tariffs, an additional 20 per cent of primary aluminium and 35 per cent of semifabricated aluminium exports could be redirected into Europe, much of it from China. In 2017 there was a double-digit rise in Chinese semi-fabricated exports into the region. Steel imports into Europe went up by 8 per cent in the first half of the year. Gert van Poelvoorde, president of Eurofer, the European steel producers association, likened the surge to a ‘tsunami’ which if left unchecked would ‘destroy’ the European industry. For the European Union’s steel sector, which with an annual output of 170 million tonnes is the second largest in the world, 2017 was a year of recovery with demand growing by 1.3 per cent, which it predicted could rise to 2.3 per cent in 2018. But all the industry’s recent gains could be put at risk by the ramifications of trade disputes, according to Eurofer.
