TPT July 2018

G LOBA L MARKE T P L AC E

of adequate pipeline capacity is seen as imposing a number of costly restrictions on the nation’s energy sector. The authors of the study, “The Cost of Pipeline Constraints in Canada”, are Elmira Aliakbari, a senior economist at Fraser, and Ashley Stedman, a policy analyst working in the institute’s Center for Natural Resources. Among their main conclusions: • The penalties of the pipeline deficit include an overdependence on the US market and reliance on more costly modes of energy transportation. These and other factors have resulted in depressed prices for Canadian heavy crude (Western Canada Select) relative to US crude (West Texas Intermediate) and other international benchmarks. • Between 2009 and 2012, the average price differential between Western Canada Select (WCS) and West Texas Intermediate (WTI) was about 13 per cent of the WTI price. In first-quarter 2018, the price differential surged to 42 per cent of the WTI price. • From 2013 to 2017, after allowing for quality differences and transportation costs, the depressed price for Canadian heavy crude oil has resulted in C$20.7bn in foregone revenues for the Canadian energy industry. This significant loss is equivalent to almost 1 per cent of Canada’s national gross domestic product (GDP). • In first-quarter 2018, the average price differential was US$26.30 per barrel. If the price differential remains at that level, [Ms Aliakbari and Ms Stedman] estimate that Canada’s pipeline constraints will reduce 2018 revenues for Canadian energy firms by roughly C$15.8bn – approximately 0.7 per cent of Canada’s GDP. In their view, insufficient pipeline capacity has resulted in substantial lost revenue for the Canadian energy industry and thus imposed significant costs on the economy as a whole; worse, it will continue to do so. This, they said, “reaffirms Canada’s critical need for additional pipeline capacity.” › In brighter news from Canada, Canadian Prime Minister Justin Trudeau says he wants a trade deal with the UK “that will flip over the day after Brexit.” Speaking of his 18 April meeting with British Prime Minister Theresa May, Mr Trudeau said he expected a version of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) that would be stand- alone with the UK from day one. Further, he struck a note of optimism that CETA could be the starting point for a longer- term pact between the two countries. “We are very happy with trade with Britain,” he told the BBC. “It’s [Canada’s] largest trading partner in the European Union and we will look to make sure there’s predictability and continuity.” Catherine Neilan of City AM (London) noted that the Canadian prime minister was the latest leader to give a boost to Downing Street’s hopes for a straightforward transition with trade deals. (“Trudeau Wants Canada-UK Trade Deal to ‘Flip Over’ The Day After Brexit,” 18 April) Also on 18 April, Prime Minister Narenda Modi told Mrs May that there would be “no dilution in the importance of the UK to India post-Brexit.” And, the previous week, Norway’s finance minister Siv Jensen said the Scandinavian country would be comfortable with rolling over trade arrangements.

Steel India and Southeast Asia are set to lead an increase in steel demand, unless spreading protectionism roils the global economy The intensive coverage of US President Donald Trump’s imposition of higher tariffs on steel and aluminum imports has centred on concerns about possible US-China trade conflicts. Less attention has been paid to the arguably more important question of whether or not Mr Trump’s action will slow the recent recovery of the steel market – or even deal a serious blow to the global economy. Koji Kakigi, president and CEO of Japan’s JFE Steel Corp (formerly Kawasaki Steel Corp), recently addressed the broader question in the course of a wide-ranging interview in Tokyo with Nikkei Asian Review senior staff writer Tomio Shida. Here, lightly edited, are selections from the question- and-answer session, beginning with Mr Kakigi’s valuable précis of the recent history of the global steel market. (“Asia Remains a Beacon for Global Steel Demand: JFE Steel Chief,” 27 April) Q:  The market has made a sharp recovery. How did it happen? A: For a while, starting in the latter half of 2015, export prices of Chinese hot-rolled coil dipped below $300 per ton. But the rate has now recovered to the $600 level. In response to weak domestic demand in 2014, China moved to expand its steel exports. From 60 million tons in 2013, export volume jumped to around 100 million tons in 2015 and remained at that level in 2016. As a consequence, steel prices plunged, imposing losses on global steel players. Needless to say, China’s steel industry was also hit hard, and Beijing decided to eliminate illegal production of low-quality steel made from scrap iron. The effort led to a reduction of 120 million tons in the country’s annual steel output, coming on top of a cutback of 120 million to 130 million tons for other steel products. At the same time, Beijing increased public works spending to boost the economy. China’s steel exports for 2017 fell about 30 per cent from the previous year. Q: Are there any indications in the steel market of a slowdown of the global economy? A: Steelmaking countries in general seem to be in good condition. The Japanese economy also looks stable, backed by strong automotive and industrial machinery markets. Capital spending is picking up, too. The shipbuilding industry is probably the last remaining concern. Q: What will be the impact of the higher US tariffs? A:  The US imports about 35 million tons of steel a year, of which 65 per cent by volume is from countries exempted

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JULY 2018