Boeing braces for trade war headwinds in China

At Airshow China, the president of Boeing China said that the company was “confident” that dialogue would resume between US and Chinese negotiators. (AFP)
Updated 08 November 2018
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Boeing braces for trade war headwinds in China

  • While Boeing has so far escaped the rounds of tit-for-tat tariffs, analysts say it is at risk of being the next victim if the trade war escalates
  • Tariffs would bite deep for the Chicago-based company as China — the world’s second biggest aircraft market — represents one fifth of its global orders

ZHUHAI: At China’s biggest air show, a top Boeing executive voiced hope that the US and China would resume trade talks. He has reason to worry: The US aerospace giant could fly into turbulence in a protracted commercial conflict.
While Boeing has so far escaped the rounds of tit-for-tat tariffs, analysts say it is at risk of being the next victim if the trade war escalates, which would benefit its European rival Airbus.
Tariffs would bite deep for the Chicago-based company as China — the world’s second biggest aircraft market — represents one fifth of its global orders.
At Airshow China in the southern city of Zhuhai, the president of Boeing China, John Bruns, said that the company was “confident” that dialogue will resume between US and Chinese negotiators.
“A healthy airspace industry is in the best interests of both countries,” Bruns said at a news conference on Tuesday on the sidelines of the exhibition, where companies are showing off their latest planes, helicopters and drones this week.
While Boeing’s large planes have avoided tariffs, China has other ways to hurt the company, just as it battles Airbus for bigger shares of the massive market.
“The retaliation would mainly be in the form of canceled orders with a redistribution to Airbus, perhaps as much as 30-40 percent of the existing order book,” said Vinay Bhaskara, a senior business analyst for Airways Magazine.
“At the current moment, I give perhaps a 25 percent chance of this scenario where China cancels Boeing orders wholesale,” Bhaskara told AFP.
The trade war comes at a particularly awkward time for Boeing, which announced last year it had won a major contract worth about $38 billion to sell 300 aircraft to China.

 

In a worrisome signal, China’s Xiamen Airlines — a company that has bought exclusively from Boeing for three decades — is in talks with Airbus, according to Bloomberg News.
“This could be very good news for Airbus. It might just allow them to get to their rumored goal of 70 single aisle (A320) jets per month,?” said Richard Aboulafia, an aviation industry analyst at US consultancy Teal Group.
China is expected to surpass the US as the world’s biggest aircraft market in the mid-2020s, according to the International Air Transport Association. Boeing delivered 202 aircraft in China last year, beating Airbus, which sold 176.
Despite his rival’s potential woes, the head of Airbus China, Xu Gang, was also worried by the prospects of more tariffs. “I think nobody will be the winner of this kind of trade war,” Xu said, adding that his company welcomes dialogue between the US and Chinese governments.
“The trade war damages the trade relationship, which also damages a lot of commercial expectations of many private companies, and this will cost a lot of employment” and hurt salaries of the middle-class. This, of course, will have a negative impact on the aviation growth.”
Airbus would not necessarily have much to celebrate if China dropped Boeing orders.
“Airbus’ order book is backlogged for several years, so it doesn’t stand to gain from any challenges which Boeing may face,” said John Strickland, aviation analyst and director of JLS Consulting in London.

FASTFACTS

China is expected to surpass the US as the world’s biggest aircraft market in the mid-2020s, according to the International Air Transport Association.


EU takes aim at Turkish steel sector

Updated 29 min 2 sec ago
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EU takes aim at Turkish steel sector

  • The Commission said it will extend and beef up its existing ‘safeguard’ steel import caps until July 2021
  • For Turkey’s vast steel sector, the fourth largest contributor to the country’s economy, the caps could prove particularly painful

LONDON: The European Commission’s move to extend its steel import restrictions threatens to force Turkish mills, already buckling under the weight of US tariffs, to cut production further or in some cases close down, sources said.
The Commission said on Wednesday it will extend and beef up its existing “safeguard” steel import caps until July 2021 to counter concerns that European Union markets are being flooded with steel no longer being exported to the US.
For Turkey’s vast steel sector, the fourth largest contributor to the country’s economy, the caps could prove particularly painful as the EU has given it additional “country-specific” quotas.
Under the safeguards, Turkey has a tariff-free quota for rebar, a construction steel that makes up most of its steel exports, of around 300,000 tons for the first nine months of the respective quota periods, down 60 percent from its 2018 exports.
Country-specific restrictions do not apply in the last three months of the quota periods and Turkey could make up some sales then, but its annual export levels will still be sharply lower.
“Our export markets have disappeared, the local market hardly exists, we’ve got lots of capacity and no market,” said a London-based Turkish steel trader.
He added that hopes the US would soon cut its 50 percent tariff on Turkish steel imports were also fading given it is demanding that in return, Ankara hold fire on Kurdish forces in Syria, something Turkish President Tayyip Erdogan cannot do ahead of local elections.

 

 Major Turkish mills such as Cebitas and Ekinciler said they had, before the EU announcement, already slashed output while Koc Metalurji said it had stopped output for about a month.
Erdemir, Turkey’s largest producer, said it was producing as normal.
Investment bank Jefferies estimates EU caps on rebar from all countries combined should reduce its total rebar imports by at least 28 percent a year, adding that producers such as ArcelorMittal and CMC should benefit most from EU caps on long products like rebar.
“(EU) quotas for (Turkish) rebar are extremely low and will be exceeded in the first one or two months. Local demand is also extremely poor,” said Turkish Steel Exporters’ Association (CIB) head Adnan Aslan.
The CIB estimated late last year, before the latest EU move, that Turkey’s steel production, consumption and exports would fall 30 percent this year.
Wednesday’s beefed-up EU safeguards come after the US placed tariffs of 25 percent on
imported steel early last year, while singling out Turkey later in the year with tariffs of 50 percent due to political tensions with
Ankara.
The US had been Turkey’s largest steel export destination in 2017, but the country’s steel flows to the EU ballooned 80 percent last year, according to Jefferies, making the EU Turkey’s the largest steel export destination.
“Traditional export destinations (for Turkish mills) are closing one after the other. Most probably, the (EU) quotas will be filled immediately, so EU producers will have a relatively good year,” the International Rebar Producers and Exports Association said in a note.

FACTOID

The US had been Turkey’s largest steel export destination in 2017, but the country’s steel flows to the EU ballooned 80 percent last year.