Author Archives: Lisa Reisman

Many grain-oriented electrical steel market participants know that macroeconomic drivers and general steel price trends often diverge from GOES trends.

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Comments from the most recent Steel Market Update summit at the end of August suggest it may be hard to “buck the trend.”

Macro Trends

What are these macro trends?

  • Steel demand looks weak overall and overcapacity will continue unabated. According to Tony Taccone, Partner at First River Consulting, “global steel demand has stalled and there will be no growth going forward.” In addition, Taccone indicated the world has 700 million metric tons of overcapacity and the problem is set to become worse.
  • Trade cases will put the kabash on Chinese export growth. China has produced too much steel at unsustainable prices and has exported materials at the marginal cost of production, according to Taccone.
  • Automotive demand may have peaked and aluminum demand may weaken steel demand.

Despite weak demand in some sectors, others paint a more positive picture. According to Alan Beaulieu, Principal of the Institute for Trends Research, many factors look more positive for demand including light vehicle production, U.S. industrial machinery production (recently turned positive), a booming office building construction market, a stabilized oil and gas extraction market and healthy global demand for crude oil.

GOES_Chart_September_2016_FNL

In addition, Beaulieu pointed to rising mining, electricity generation and manufacturing sectors, that certainly bodes well for power equipment production and demand.

Micro Trends

With the loss of Allegheny Technologies, Inc. capacity for GOES, the uptick in electricity generation and construction, and the more bullish outlook for other commodities and non-ferrous metals, we might expect GOES prices to creep up accordingly.

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Though the macro trends paint a slightly more negative picture for steel prices in general (negative for producers, positive for buying organizations) for the near term, GOES markets don’t cleanly align with steel markets. September marks the second month of a rising price trend.

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However, it appears unclear as to who will reap the benefits.

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The story begins with the U.S. GOES trade case that resulted in no duties applied to imported products to the U.S. However, U.S. power equipment manufacturers moved to alternative sources all the same, importing wound and stacked cores instead of purchasing GOES from domestic sources. Despite the unfavorable ruling for the U.S. domestic producers, other countries soon began filing anti-dumping cases.

GOES_Chart_August_2016_FNL

Chinese producers Wuhan Iron & Steel Co. and Baoshan Iron and Steel persuaded the Chinese government to rule against Japanese, Korean and European producers of GOES. The Republic of Korea received final duties of 37.3%. The preliminary duties on Korea, however, had been 14.5%-29.5%. The final duty rate, coming in significantly higher will likely shut down all Korean exports to China. With Japan receiving duties over 45%, both countries will no longer sell GOES into China.

According to a recent Reuters report, China imported over 120,000 metric tons of GOES of which over 95,000 mt came from Japan and Korea combined. Much of that material likely included the higher performing GOES grades. Japan had already started to withdraw from the Chinese market. Now China will need to find equivalent supply domestically which could limit GOES exports from China.

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In the meantime, here in the U.S., a word of clarity on the cold-rolled coil dumping case – grain-oriented electrical steel was “specifically excluded from the scope of this investigation”.

U.S. GOES prices inched up slightly.

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The GOES M3 spot index reading fell for the fourth month in a row to 181 from 191. Contract buyers may have already begun to see a $200-per-metric-ton increase in prices from a year ago, according to a recent TEX report due to domestic mill closures.

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The recent Brexit decision has also created complications for grain-oriented electrical steel markets both from the demand as well as the supply side. First, the supply side: Tata Steel’s precarious Port Talbot, South Wales operation in the U.K. that was destined for sale and then for a bailout remains in limbo. As previously reported by MetalMiner, the British government insists that its equity and pension support remain on the table. The Port Talbot operation produces grain-oriented electrical sheet at the Orb works in Newport, South Wales.

GOES_Chart_July_2016_FNL

An acquisition now, with Port Talbot lacking free and open access to the European single market, may have dimmed the operation’s prospects. My colleague Stuart Burns speculated that merely the prospect of higher export tariffs for the U.K .producer would make any potential bidder skittish.

Meanwhile, Baosteel and Wuhan Iron & Steel unveiled a potential mega-merger creating the largest steel producer in Mainland China. Baosteel is a leader in GOES production within China for standard grades. This merger would likely not impact GOES production in any meaningful way.

On the demand side, Siemens announced it would hold off from making any investment in wind power in the U.K. until the E.U.-U.K. trading relationship becomes clearer. That move will contribute to the U.K. failing to meet the E.U.’s 2020 15% requirement that energy consumption come from renewable sources.

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The crux of Brexit, from an energy perspective, comes down to investments. Will projects move elsewhere? Will businesses such as Siemens stall decision-making, impacting demand until the U.K. devises a clear Brexit strategy?

From a metal price perspective, it doesn’t appear as though Brexit will have much if any impact on GOES pricing. Certainly July’s price performance follows a similar price trajectory.

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One of my British colleagues forwarded me this Bloomberg article about several German automotive original equipment manufacturers — including BMW, Volkswagen, Robert Bosch, ZF Friedrichshafen and Daimler — who were apparently “raided” by a German regulator for creating a steel buying cartel.

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Funny thing is, here in the States, we call these groups “buying groups” or “group purchasing organizations.” For the life of me, I can’t figure out how a GPO extracts pricing that would somehow harm a consumer. What would they do? Pass on too much of their savings to their customers?

Volkwagen Rabbit toy with coins.

Can German automakers set prices for the steel used in a Volkswagen Cabrio any more than Hot Wheels can set the price of plastic for this tiny version of one? And why don’t they still call it the Rabbit? That was a great car name. Source: Adobe Stock/VRD.

The details appear quite scant: in June, a raid occurred at six automotive OEMs and at least two Tier 1 suppliers (Tier 1 companies are direct suppliers to OEMs). According to Bloomberg, “antitrust rules may have been violated.” Read more

The MetalMiner monthly domestic GOES MMI reading continued its slide moving from 195 to 191 in its third consecutive month of declines against smaller import volumes, despite a higher domestic surcharge.

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Unlike U.S. steel pricing, the various global trade cases on grain-oriented electrical steel have had somewhat of a limited impact on global prices.

GOES_Chart_June_2016_FNL

The demand for certain types of steels has created shortages for some materials and surpluses for others and may help explain why the M3 price has drifted lower as opposed to moving higher (we’d expect to see rising U.S. prices in particular as a result of the closure of the Allegheny Technologies, Inc. GOES line).

Tex Reports suggests that prices have begun to rise in China because of the anti-dumping cases placing a squeeze on products coming from overseas mills, and, therefore, diverting them to other markets in the Middle East and India, with no price increases.

Compare Prices With The May 2016 MMI Report

The dynamics between the high-grade products and the standard/lower grade products have kept domestic spot M3 prices in check. Last month we reported that market participants thought M3 prices would flatten during the summer and then start slipping toward the end of the year. Indeed this appears to be happening but perhaps sooner than anticipated.

Datamyne_GOES_Chart_432_060816

Source: Datamyne

Meanwhile, the volume of imports of transformer parts has risen since a dip back in February of this year. This suggests to us that demand has held reasonably steady.

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Scrap companies often get a bad rap. Yet some of the more sophisticated ones clearly provide tremendous value by elevating the procurement function within manufacturers.

Unitedscrap_scrap_steel_060116

Separated scrap. Photo: United Scrap Metal.

We recently caught up with Brad Serlin, President of United Scrap Metal Inc., and toured their Cicero, Ill., operation to better understand what makes a “best in class” scrap recycling program and why most manufacturing organizations need to formally manage these types of programs. Read more

Jennifer Diggins is the director of Government Affairs at Charlotte, N.C.-based Nucor Corp., the largest steelmaker in the U.S. and North America’s largest recycler of any material (Nucor recycled 16.9 million tons of scrap steel in 2015 at its 23 electric arc furnace mills). Diggins serves as the firm’s liaison to Washington, D.C. MetalMiner’s editorial staff recently had a chance to sit down with Jennifer for a MetalMiner Q&A to discuss recent issues in steel, including Chinese overproduction, the tariffs recently passed against some imports and the role of the international scrap market.

Free Download: The May 2016 MMI Report

MetalMiner: Recently, executives from the five leading steel companies in the U.S. told the Congressional Steel Caucus that unfair foreign trade practices have caused an increase in steel imports resulting in the loss of more than 13,000 jobs in the industry this year. How was that number arrived at? Could it be even worse than the 13,000 estimated?

jennifer_diggins_headshot_300_Nucor_052116Jennifer Diggins: There is the potential for the number to be much worse when you factor in job losses in industries that support steel.

People often fail to appreciate the broad impact the steel industry has on the rest of the economy. Every one job in the steel industry supports seven other jobs in the economy. These are jobs in businesses that supply steelmakers with raw materials, contractors who do maintenance work at steel mills, truck drivers who transport our products, just to name a few. When steel production decreases like it has, workers in these supporting industries also are impacted. Read more

US Steel plant in Granite City wide

The U.S. Steel Granite City Works captured by Google Street View in September, 2014 — a year and two months before the latest idling of the mill.

See the latest multimedia version of this story here.

Dan Simmons has seen a lot during the 38 years he’s worked at U.S. Steel’s Granite City Works in Illinois, just outside St. Louis.

From starting out as a general laborer, to swinging hammers on the track gang, to “feeling like Mr. Haney from Green Acres” while trucking around the mill, Simmons took it all in. There were days “you were whistling when you came in, and whistling when you left,” he said.

But nothing compares to what he’s seeing now.

“I have grown men coming into my office, crying,” said Simmons. “You see the pain, the ‘what ifs,’ the blank stares…”

Simmons, who just turned 56, is now the president of the United Steelworkers Local 1899, and some of the grown men coming to him are pipefitters just like he had become during his long tenure, which began in 1978.

However, those men and women aren’t coming to him because they’ve been hurt on the job. They are coming to plead for help, because they have lost their jobs, and in many cases still don’t know when they’ll land their next one.

Cyclicality in steel production is nothing new, but it wasn’t until 2008 — when the global markets began crashing — that USS Granite City Works endured its first indefinite idling in its history.

“We had the unemployment office cycling 400 people through at a time,” Simmons told MetalMiner. “The biggest fear is not knowing. If I could have given them a definitive timeframe, they would’ve said, ‘OK, I can handle that.’ But after two to three months, people come to me and don’t know what to do with themselves.”

And now, after the mill went idle a second time in December 2015, some of those workers have been without a job for nearly half a year. Last December, 1,500 people were laid off — 75% of the mill’s total workforce. Across the country, a total of 13,500 steel workers have been laid off over the past year.

Simmons knows what it’s like to feel that fear firsthand. “I got a brother that works here, a brother-in-law that works here, so it’s personal. You worry about where your whole family will be.”

So what’s different today, compared to 2008?

For Simmons and scores of others in the country’s steel sector and other manufacturing industries, much of the pain can be traced back to one main source: China.

A History of Unfair Trade?

The world may have never encountered a more crucial Year of the Monkey than 2016.

That is, at least as far as global trade between China and the Western world is concerned. At the end of this year, China believes it ought to receive Market Economy Status (MES). This would allow China to enjoy the same market status as the U.S. and European Union when it comes to anti-dumping investigations before the World Trade Organization.

In its quest to grow its economy over the past two decades, China has become the leading producer — by far — of steel, aluminum, cement and other industrial materials. Read more

My colleagues over on Spend Matters recently penned a pair of articles on 5 Critical Supply Risk Mitigation Principles And Practices for Your Supply Chain Sourcing Process and How to Make Category Management Do Supply Chain Risk Management.

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Given today’s metals markets, we thought we’d “make it real” by providing some examples and specific strategies and tactics buying organizations may wish to consider in this quickly evolving commodities market.

Supply_risk_chart

Source: Hackett Group Key Issues Study: 2016.

By way of background, we refer to the Krajlic Matrix which plots categories against supply impact and supply complexity. So let’s take a look at a couple of metals — specifically stainless steel and steel. Read more

The MetalMiner monthly GOES MMI reading dipped slightly from 202 to 195 against smaller import volumes. Market participants report to MetalMiner that grain-oriented electrical steel prices have fallen a bit in China, as well, though non-grain-oriented electrical steels have increased.

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However, AK Steel did add a surcharge of $65 per metric ton effective with June orders, the first higher surcharge since January.

GOES_Chart_May_2016_FNL

According to recent comments made by Roger Newport, CEO of AK Steel, demand appears solid for high-efficiency electrical steel. He also pointed to stronger housing starts, though they remain below historical norms. In addition, Newport indicated the new transformer efficiency standards would help with overall demand. AK Steel also received a boost when ATI closed its Bagdad facility in Gilpin, Pa., driving approximately 35,000 tons of new business to AK Steel.

Steel Rising

In the meantime, the steel market price rise, in general, appears more supply-driven as opposed to demand-driven. Many have questioned whether any more new demand will appear during the second half of the year which means that for prices to stay supported, producers will need to remain vigilant about managing capacity. Some believe prices will flatten during the summer and then start slipping toward the end of the year.

Although GOES markets don’t closely correlate with underlying steel markets, some of the drivers of steel prices also apply to electrical steel. These drivers include: China’s ability to hold prices higher (we have started to see some cracks in that foundation). Unlike in the U.S., Chinese producers work together to set market prices, a recovery in products and materials used in the oil and gas industry on the basis of a rising oil price and, finally, the overall health of commodities markets and base metal prices.

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