Author Archives: Lisa Reisman

The GOES M3 MMI took another jump this past month moving from 192 to 200 for a 4+% increase. Last month the index made a 5% gain.

Last month, MetalMiner examined the Trump administration’s stance on trade policy and likely impact on GOES markets (and concluded that GOES prices would not see too much of an impact since most of the imported GOES material comes from Japan, Russia and the U.K.) In other words, even in a trade war with China, we don’t expect that to drive GOES price momentum.

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However, and as one of our readers pointed out, our story failed to address “Buy America” requirements which, indeed, could impact GOES markets.

We know President Trump implemented Buy America requirements for the Keystone XL and Dakota Access pipelines including all new pipelines and retrofits (even slab imports are disqualified for domestic producers with only rolling operations here in the U.S.) Could Trump implement Buy America requirements for transformers? The answer to that question: absolutely! It’s clear that Trump will act aggressively to promote Buy America requirements. These requirements will serve as a bullish indicator for GOES prices.

In the aftermath of the GOES domestic anti-dumping case, many large equipment manufacturers moved production of stacked and wound cores as well as laminations to suppliers in Mexico and Canada in anticipation of significant duties being placed on GOES imports here in the U.S. Those duties did not materialize. Nevertheless, production moved to NAFTA countries anyway.

Which brings us to NAFTA. President Trump has promised to renegotiate NAFTA. But in truth, NAFTA has not been bad for the domestic steel industry. It remains unclear what specific changes the President will attempt to renegotiate. Furthermore, AK Steel could find itself in a bit of a pickle. On the one hand, from an overall perspective, AK Steel has probably benefited from NAFTA as the agreement currently stands, though its GOES business, in particular, may have suffered as AK customers moved operations to Canada and Mexico. As the sole remaining domestic GOES producer, AK Steel may need to walk a fine line between what it lobbies for in terms of Buy America and what it has gained with NAFTA.

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Meanwhile, the industry should pay close attention to Big River Steel which reported record first-month production for a flat-rolled mini mill. BRS has publicly stated that they will add GOES capacity at a later stage. Aperam South America has started a GOES line out of Brazil. Imports from South America could increase just as BRS is starting its GOES line.

Meanwhile, what’s driving GOES price momentum right now?

According to a recent TEX report, orders that are typically placed during the summer months did not get placed which created a surplus. Since January, buying organizations have come back into the market including: Chinese, Korean and U.S. customers. In addition, a large tender for the Middle East will soak up some extra capacity which has caused market entrants to secure material before that tender is released. This has likely caused some price momentum as Baosteel raised prices for February shipments.

U.S. import levels have also increased during January supporting the notion that demand has increased.

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Average grain-oriented electrical steel surcharges fell for the third year in a row. 2016 average surcharges took the biggest hit because Allegheny Technologies stopped production of GOES. AK Steel did not implement a surcharge until July 2016.

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Our own GOES M3 MMI showed only small price movements from month to month. The index hit a low of 181 back in July and today shows a modest recovery to 192, a 5% gain.

GOES follows its own fundamentals (e.g. supply and demand) and does not always follow the price arc of other more common forms of steel such as cold-rolled coil or hot-rolled coil. In fact, some of the wider trade dynamics for those forms of steel had little to no impact on GOES.

Which brings us to a larger issue. Will President-elect Trump, who is arguably pro-steel and who has gone on record against China’s trade practices, implement any policies that will likely impact GOES markets?

To begin, the nature of trade between the two countries, the U.S. and China, appears more complicated than what can be seen by the naked eye. Raw material/commodity-like supply chains lack the complexities of supply chains found in industries such as electronics. Blanket tariffs are easy to issue and calculate for commodities that move from point A to point B. But electronics industry supply chains involve components, parts, sub-assemblies, final assembly, etc. across multiple countries and locations. A blanket tariff on electronics will harm China much more than other countries as the tariff would apply to the “final point of assembly.” This could create all sorts of electronics shortages and problems here in the U.S.

Why Are We Discussing Electronics Supply Chains?

Because it would be easier to get tougher on China for commodities such as steel. And though China has curbed excess capacity in recent years, we could see a scenario in which tough trade policies such as a tariffs could significantly limit Chinese imports, which currently make up about 10% of domestic steel demand according to a recent analysis by Stratfor.

China will retaliate but a scenario exists that China could account for far less steel imports into the U.S. than it currently does (China has cut excess capacity already). In terms of grain oriented electrical steel, however, China does not represent the bulk of GOES imports into the U.S., in fact, Japan, Russia and the U.K. are far bigger GOES exporters to the U.S.

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Therefore, any President Trump trade policy that goes into effect (no pun intended) will likely have a bigger impact on the broader steel markets and a far less significant impact on the U.S. GOES market.

Next month, we will examine the potential impact of NAFTA changes on GOES markets.

Grain-Oriented Electrical Steel M3 retook last month’s loss rising by more than 3%.

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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.

This is our final top-rated post of 2016. Chinese market economy status was a huge issue for the entire year and this interactive package, originally published in May, put all facets of the problem into one package. How China will change its economy to compete with the rest of the world without overproduction for export is still an open question and a major threat to market stability. — Jeff Yoders, editor

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

China took action yesterday and filed a complaint with the World Trade Organization against the U.S. and Europe for not automatically granting China Market Economy Status.

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In fact, Commerce Secretary Penny Pritzker went on record specifically stating that the U.S. would not be granting China such status.

The granting of market economy status, of course, would make it harder for domestic companies to prove dumping against China. It all comes down to how price comparison data is calculated.

GOES_Chart_December_2016_FNL

According to Tim Brightbill, an attorney at Wiley Rein LLP, “essentially the only thing that would force the Commerce Department to formally confront the China/MES question is a trade lawsuit filed by China, or implicating China, in which the latter would be explicitly able to make that type of request.”

Alhough Europe appeared to be teetering with its decision not to provide MES, Japan also sided with the U.S. and denied China MES.

Why This Matters to GOES Markets

GOES has been the subject of international trade dumping cases for the past several years. The real challenge to MES will be the first trade case filed by any domestic industry against China. GOES will unlikely serve as that test case.

For readers interested in how China sees this issue (and uses the word protectionism to make its case), this post provides a good example.

We remind readers that MetalMiner is a banned publication within China because of all of our subversive anti-China rhetoric.

On that note, GOES industry observers should take note of a steel mega-merger within China. China’s Baoshan Iron & Steel (Baosteel) and Wuhan Iron and Steel Corp. (WISCO) have formed China Baowu Steel Group with a whopping 60 million metric tons of capacity (that is more than half of the entire U.S. steel-making capacity).

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The combined firm has publicly stated it would cut 16.6 million mt of capacity by 2018 to address the country’s over capacity concerns.

Baosteel is also major producer of GOES within China.

Grain-Oriented Electrical Steel M3 prices lost nearly all of last month’s gains dropping by nearly 3%.

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Grain-oriented electrical steel M3 prices rose by about 3% this past month.

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Coincidentally, Allegheny Technologies, Inc. announced that it would now permanently idle its Midland, Pa. and Bagdad in Gilpin, Pa. facilities, thus exiting some commodity stainless steel markets as well as the GOES market entirely.

The closures — combined with new labor agreements, rightsizing plans and defined benefit retirement plans closed off to new employees — will help ATI improve its cost structure. ATI’s flat-rolled products division is expected to return to profitability in 2017 according to the most recent earnings announcement.

GOES_Chart_November_2016_FNL

And though these ATI plants have been idled since the Spring of this year, it now appears certain that the U.S. will have only one remaining GOES producer: AK Steel.

Similar cost reduction themes played out at the most recent AK Steel earnings call on October 25, “The improved product mix, higher average selling price per ton, improved carbon steel market prices, focus on cost reductions and lower raw material costs contributed to the 31% increase in adjusted EBITDA.”

In terms of the improved carbon steel market, we noted that non-ferrous metal prices continued to rise throughout October, confirming a bull market. Steel price declines have started to slow and, in fact, cold-rolled coil prices notched up $1/st this week. Though this appears insignificant, it demonstrates that steel prices may have found a price floor. In addition, the gap between domestic and international CRC prices has narrowed.

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Although GOES prices tend to move somewhat independently from other non-ferrous and ferrous metals, the fact that non-ferrous metals have moved in a bullish direction and steel prices also appear to be finding a floor means that, in the near term, we would not expect to see any dramatic GOES M3 price declines.

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While domestic grain-oriented electrical steel prices fell slightly this past month here in the U.S., the outlook for GOES globally looks bright.

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According to a recently released study from Future Market Insights, the GOES segment of the market 6 should grow by 7.5% in value in 2016 and 7.3% to 2026 due to increased demand from the energy and power generation industries.

GOES_Chart_October_2016_FNL

From a geographical perspective, North America, Europe and Japan all contribute to a strong market, however, the Asia Pacific region serves as the largest market by volume with China leading the charge.

Trade Cases

Despite the projected growth of GOES, many flat-rolled steel products have become subject to one form of trade case or another. Despite the anti-dumping duties imposed on China in the case of cold-rolled coil and other countries for hot-dipped galvanized, hot-rolled coil and others, when an exporting country receives a punitive duty, the flow of material merely moves to other exporting nations not identified in the specific trade case.

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Steel prices have been in a steady decline since the beginning of August. At best, trade cases provide a few months of pricing power for domestic producers.

Two years have passed since AK Steel and Allegheny Technologies, Inc. brought their GOES trade petitions to the International Trade Commission. The ITC found the domestic producers “unharmed” by imports. The trade cases resulted in absolutely nothing for the domestic producers — ATI even shut down its GOES line. MetalMiner’s M3 MMI index and actual spot market coil prices have declined since 2014.

The GOES MMI® collects and weights 1 global grain-oriented electrical steel price point to provide a unique view into price trends over a 30-day period. For more information on the GOES MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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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