Author Archives: Lisa Reisman

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.

Free Download: Compare Prices With the June 2016 MMI Report

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.

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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In a rising price steel market, every manufacturer feels the squeeze but perhaps none more than the small manufacturer sourcing semi-finished and finished components and assemblies from China.

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The Chinese have recently taken to a number of tactics with smaller manufacturers. By sharing some of these tactics, buying organizations can begin adapting their sourcing strategies. Here are some of the tactics we have recently heard of:

  1. Mills have begun demanding immediate cash payment for all open orders in which buying organizations secured lower costs previously. If the buyer does not pony up an up-front payment, the customer loses the material and must pay the inflated market price.
  2. The small manufacturer must now pay a higher trade price.
  3. Scrap prices have risen in China and, in fact, Chinese manufacturers have begun stockpiling scrap materials until further notice because scrap prices are trading at a steep discount to what they had traded for a year ago. We will explore a possible “why” momentarily.

What do each of these tactics suggest to us? I had a brief exchange with MetalMiner Co-Founder Stuart Burns who offered plenty of insight.

In terms of payment up front for open orders, Stuart suggested mills want to limit distributors and end users from taking speculative advantage of rising prices. Although it appears extreme, Stuart tells us despite the practice not occurring in recent years, it is indeed a fairly common Chinese business practice to demand advance payment for open orders.

Scrap Fetching “Only” RMB 720/mt?

This is perhaps the most significant Chinese steel news event at the moment. On the one hand, much of Chinese steel production is done via basic oxygen furnace, with fewer scrap requirements vs. electric arc furnaces, but, still, scrap is needed for all steelmaking. Furthermore, iron ore, coking coal and steel prices have all risen within China. So, why hasn’t scrap? Certainly if all factories are under strict orders to stockpile scrap materials, we can anticipate a potential glut of material during the summer months.

Our best guess would tell us that perhaps the mills had previously stocked up on scrap and are simply de-stocking.

Finally, Chinese Construction Activity

One of the most significant macro-economic factors we look to in determining price direction involves China. And the recent Chinese stimulus programs suggest that lax lending and stimulus have, indeed, spurred a new infrastructure economic boom.

Again, Stuart believes that speculative building has started again and has sucked steel into the market largely contributing to the point mentioned above: prepayment on open orders.

JP Morgan Chase & Co. believes the demand uptick from the program will taper off by the second half of this year because China doesn’t want to create an additional property bubble. But we remain skeptical. China has shown that shot-in-the-arm stimulus programs often turn into prolonged addictive habits and, therefore, this demand uptick could last longer than many anticipate.

What This Means for Small Manufacturers?

As we say in tight supply markets, all manufacturers will do better by making themselves a desirable customer to their suppliers. The negotiation dynamics have changed. Surety of supply may become a more critical issue than cost savings. Regardless, small manufacturers will want to evaluate current global sourcing strategies, particularly for steel products coming from China.

An earlier version of this story referred to increased premiums paid by small manufacturers. In actuality, they were not premiums but rather an increase in price. We regret the error.

It has become difficult to ascertain if any party that sells it, or those that buy it, have received any benefit from the spate of trade cases involving grain-oriented electrical steel.

Free Sample Report: Our April Metal Buying Outlook

The most recent case involves the Chinese producers Wuhan Iron & Steel and Baoshan Iron & Steel who brought an anti-dumping action against Japanese and Korean producers of grain-oriented electrical steel. Provisional duties of 45.7% to Nippon Steel & Sumitomo Metal, 39% to JFE Steel and 14.5% to POSCO with final duties to be determined during Q3 of this year, according to a recent TEX Report.

High-Grade Materials

The industry knows, however, that only the three mills named in that case can provide the high-grade materials needed to produce transformers that meet higher efficiency standards imposed by governments the world over, including China.

GOES_Chart_April_2016_FNL

For sure, the domestic Chinese producers will likely reap a small bump in prices but their customers, the global transformer and power equipment producers, will make adjustments as required, as well. Read more