Lisa Reisman

Domestic producers AK Steel and Allegheny Technologies, Inc. are awaiting a decision by the European Commission on tariffs for grain-oriented electrical steel. According to Law 360, the provisional duties will likely be set this week and come in at 22% for the US producers.

That tariff would likely make US exports uncompetitive into European markets.

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Meanwhile, US spot M3 prices fell 8% last month on the back of continued declining domestic surcharges. GOES prices seem to have bucked the recent rise in most metals markets (exceptions include stainless steel and rare earth metals, whereas steel held steady).

No Increase

The domestic anti-dumping case has failed to provide the much- desired increase in GOES prices. Since many of the transformer and electrical power equipment manufacturers have global operations, many of them opted to modify their global supply chains to avoid potential domestic duties (which didn’t materialize anyway). Nonetheless, stacked and wound transformer core imports continue to grow:

With 24 new nuclear reactors planned in China, demand for high grade GOES continues to be high and that has led to price increases for Japanese materials. European electrical power equipment manufacturers have come into the market early to secure high-grade material regardless of the outcome of the European trade case, according to a recent TEX Report.

Demand Still Strong

This indicates to us that demand remains brisk for high-grade materials but the type of material supplied by the US domestic producers, a market in which more competition exists, may fare worse. What’s clear is that high-grade prices are on the rise but low-grade prices seem to be trading sideways.

The anti-dumping case will provide additional clues as to where domestic producers GOES’ prices will go.

What about the actual M3 GOES price this month? Click below.

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Forgive us for continuing the discussion of a bifurcated electrical steel market – with some parts of the market increasing in price (the high grade material) and others holding steady (standard grades). As 2015 rolls on, we can’t help but see this trend that we called attention to back in December of 2014 only grow stronger.

In fact, Allegheny Technologies, a producer of standard-grade materials has lowered its GOES surcharges by more than 40% since the beginning of the year. In the meantime, AK Steel has dropped its GOES surcharges by some 55%. Meanwhile, GOES average import price levels are now up 10% from January levels but only slightly higher than year-ago levels. The increases come primarily from Japanese and Canadian origin materials.

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Meanwhile, some stock analysts appear to be fairly positive about AK Steel, citing 2-3% growth in automotive builds. MetalMiner remains quite a bit more cautious on automotive growth. Our own Automotive MMI monthly index undoubtedly looks better than most of the metal indexes we track, but at 85 it has reached it’s three-year-low since we began reporting metal prices going into the automotive industry (January 2012 is the baseline reading of 100).

That same article also suggested a very positive GOES market for AK Steel since the company “produces high-efficiency PCH grades in this market that should enhance its results this fiscal year.” We’d argue the company certainly produces M1-M6 grades, but does not produce the high-grade materials supplied by the Japanese mills or South Korea's Posco, hence the price bifurcation.

Supply Alternatives

Of course since the trade case, many manufacturers have realigned their supply chains to take advantage of lower cost imported material in neighboring Canada and Mexico.

As we previously reported, the US International Trade Commission created several new HTS codes to break out laminations, stacked cores and wound cores from the more generic category these materials have historically been classified under. Based on the most recent data available from Zepol, imports appear alive and well:

Laminations for incorporation into stacked cores saw imports of nearly a million dollars; growing at 16% month-over-month (February over January) with the lion’s share of that volume coming from Mexico

Stacked cores for incorporation into transformers saw negligible quantities.

Meanwhile, wound cores for incorporation into transformers saw approximately $2 million in import totals with Mexico taking the lion’s share of volume followed by Canada.

But far and away the most interesting category to watch involves transformer parts which saw nearly $13.5 million in imported value coming mostly from Canada but also Mexico, Switzerland, China and India.

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You know you are a metal nerd when you rush home from a family dinner and force your kids and your kids’ friends to watch a 60 Minutes segment on the state of the rare earths market!

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For those of you that may have missed Leslie Stahl interviewing MetalMiner friends and colleagues Daniel McGroarty and Ed Richardson last week.

The segment does a great job of highlighting the public policy issue at the core of the rare earth metals debate – that national security relies upon a raw material supply source provided exclusively from one nation – a nation that is not exactly Washington’s best friend – China.

That creates substantial risk for US security interests.

But the private sector appears to be not only a deer in the headlights, but dead at the wheel!

Why The Inaction?

The answer is actually quite simple. The underlying supply and demand fundamentals create absolutely no business case for the private sector to behave any differently. As long as heavy rare earths continue to flow from China (we are talking about the following metals: yttrium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and tuteium and some might add europium and gadolinium) at a “not break the bank” price, the private sector remains content with the status quo.

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On Monday we reported how US cold-rolled coil producers were rightfully concerned about products that originated in China being dumped in the US. South Korea, a state that China exports large quantities to, took the number 1 spot for CRC imports to the US in January. This follow-up article deals with the situation in the hot-rolled coil market.

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The cold-rolled coil data suggests China, at least based on January numbers, has not served as a top 5 exporter to the US. However, a Wall Street Journal article mentioned, “that US steelmakers allege a similar practice, saying that China often ships steel to South Korea for processing before it gets moved to the US.”

And lo and behold Korean takes the number 1 spot for CRC imports. It might be worth examining Korean CRC prices to conduct a similar analysis.

The data on the HRC side certainly appears compelling in terms of import values. In other words, based on the arbitrage dollar amounts (or percentage of the domestic price), we’d expect to see significant Chinese imports – and we did!

And lo and behold Korean takes the number 1 spot for CRC imports. It might be worth examining Korean CRC prices to conduct a similar analysis.

The data on the HRC side certainly appears compelling in terms of import values. In other words, based on the arbitrage dollar amounts (or percentage of the domestic price), we’d expect to see significant Chinese imports – and we did!

Price Trends Don’t Show Dumping (Yet)

What the data doesn’t tell us is whether products have been dumped – only that the conditions appear ripe for more Chinese exports to come to the US.
Conditions 1 and 2 of the definition of dumping (home-country demand vs. the amount of domestic capacity and price trends in the home market vs. price trends in overseas markets) suggest the massive Chinese over-supply situation combined with the price arbitrage between the two countries means we would expect to see growing import levels.

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Invariably whenever prices for commodities fall, domestic producers begin sounding the alarm bells. And those bells are ringing loud and clear when it comes to steel imports from China, according to a recent Wall Street Journal article.

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The comments on that story, on the other hand, tend to center on free trade, fair markets and protectionism. They tend to support the point of view of the buying organization and not the domestic producer.

But most commentators don’t spend the time poring through steel data to engage in an informed debate. From our vantage point, several factors should be part of any trade analysis.

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Three months ago we wrote of a bifurcated grain-oriented electrical steel (GOES) market.

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The premise of that report involved two trends – the US producers struggling to negotiate price increases for standard grades of GOES while Asian producers, seeing plenty of increased demand by countries such as China and India for higher grades of GOES, would seek higher prices.

At the time of that report (December 2014) we said, “It appears the Asian suppliers feel confident that they can win big price increases in the US market…We tend to disagree – particularly because the larger buying organizations have used their tonnage as a strategic advantage to hold the domestic producers to minimal, if any, price increases.”

Indeed, import prices notched up slightly this past month, led by imports from Japan that made up over 21% of all imports in February, but those price increases were muted against the backdrop of lower domestic prices:

According to a recent TEX Report, China’s push to construct power plants and improve its electrical grid have led to greater demand for high-grade GOES. With only two Chinese domestic mills capable of supplying product (Baosteel and WISCO), the market has experienced a supply shortfall and the Japanese mills have stepped in to fill some of the demand. Nevertheless, this one market – high-grade GOES – appears to have bucked the sinking steel price trend for nearly all other steel products.

As most GOES buyers know, the spot market purchase equation extends beyond the simple price-per-ton calculation. With certain production parameters requiring minimum core loss and others that don’t, transformer manufacturers can adjust the purchase scenario to take advantage of different grades and prices.

In short, the market may remain bifurcated. The dueling forces and price trends for grades of material mean that prices may tend to trade flat at least for the near-term foreseeable future.

In the meantime, MetalMiner will begin reporting import volumes and average price levels for laminations, stacked cores and wound cores used to make transformers as soon as data becomes available. These new HTS codes went into effect in January.

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A rather significant legal case involving a major US bank (Citi), a metals trading company, and phony warehouse receipts could alter the way that goods move throughout the world via the repo market. The case could be decided any day.

The potential cost to banks, both in China and elsewhere: over $4 billion.

The dispute is about a deal involving metal-backed loans – $270 million worth – that Citi lent to Mercuria against metal held in Qingdao and Penglai ports in China. The implications seem clear, according to industry sources as reported by Global Trade Review, banks could tighten lending requirements and criteria and that means it will take longer to get deals done.

Click to see how iron ore shippers cut international trade working capital.

My colleague, Stuart Burns, penned a comprehensive analysis of the case back in December.

“Banks have already tightened up loan arrangements around metal financing and if [the case] goes against Citi, another round of reviews could tighten commodity trade finance even more,” according to Burns.

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We at MetalMiner pride ourselves on our extensive international trade coverage both from a content and events perspective. Now we have an opportunity to explore how big metals and mining firms with an international trade presence can streamline their trading processes to create real cost savings. From my own personal trade horror stories (which you […]

Grain-oriented electrical steel prices fell slightly last month dropping from 199 to 193 according to the M3 MMI monthly index reading.

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As we reported last month, the US International Trade Commission created several new HTS codes to break out laminations, stacked cores and wound cores from the more generic category these materials have historically been reported in. For the details on that, as well as the exact GOES coil per-ton price, read the full story – join as a MetalMiner Member!

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“Hot and sexy” – 2 words used to describe the debut of the Ford GT at the North American International Auto Show in Detroit that ended Jan. 25.
According to a recent NPR story, Michelle Krebs from Autotrader.com had this to say about the auto show: “The mood is upbeat, there is a lot of optimism, the automotive industry has come off a big year and there is lots of great product.”

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Innovation, whether by government mandate – CAFE standards and fuel requirements (Ford’s F-150 pick-up truck) – or simply the need to build compelling and distinctive cars such as the Buick Avenir or the self-driving Mercedes (which feels like a limo), might beg the question: was any of this innovation derived from supplier collaboration?

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