Anti-Dumping

EU Upholds Stainless Steel Anti-Dumping Duties on China and Taiwan. More anti-dumping duties on Chinese and Taiwanese stainless steel have been upheld, this time in Europe. A major nickel producer is also slashing output.

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A major miner announced more layoffs and steel imports were down this month, according to preliminary data.

Anglo-American Layoffs

Global mining company Anglo-American PLC said on Friday it will shed thousands of jobs in the next couple of years and might put up more assets for sale as it battles an accelerating slump in metals prices that has dragged its shares down to a 13-year low.

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The company posted a steep fall in first-half profit after a rout in prices of metals from platinum to iron ore, and said the next six months could be even worse. Anglo-American is the fifth-biggest diversified global mining group by stock market capitalization. The statement said it would cut about 6,000 of its almost 13,000 office-based and other non-production roles globally, 2,000 of which will be transferred through the sale of some assets.

Steel Imports Starting to Fall

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported recently that the US imported a total of 3,049,000 net tons (NT) of steel in June 2015, including 2,458,000 NT of finished steel (down 10.3% and 10.7%, respectively, vs. May final data). Year-to-date total and finished steel imports are 21,670,000 and 17,833,000 NT, respectively, up 3% and 14% respectively, vs. the same period in 2014.

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Second quarter results will be coming out later this month for North American producers of flat-rolled stainless steel. The burning question remains will US mills will file anti-dumping lawsuits about flat-rolled stainless steel?

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If anti-dumping lawsuits are filed, what will the impact be on manufacturers and buying organizations?

Why Are Imports Up?

Let’s remember the reason imports began increasing in mid-2014: domestic mills had four-month lead times. Service centers as well as large manufacturers had to source imported cold-rolled stainless to stay in business.

Steel Background Texture

A surplus of both domestic and imported cold-rolled stainless has led to low prices.

Manufacturers also relied on imports to make up for the loss of production at Outokumpu’s Calvert, Ala., plant caused by technical issues with its cold-rolling mills. In addition to long lead times, the strengthening US dollar kept imports flowing to the US.

Right now there is a glut of both domestic and imported cold-rolled stainless steel. Service centers still have higher than desirable inventories.

Base price or Nickel Surcharge?

Is it really the base price that is hurting the domestic stainless mills, or is it the nickel surcharge that has declined by nearly 25% since the beginning of the year devaluing inventories, domestic and import alike?

That question may be tough to answer, so, instead, we’ll look at the likely impact on buying organizations of anti-dumping suits:

  1. Bright Annealed Coil: Allegheny Ludlum is the only US producer of 48-inch-wide, bright annealed coil. AK Steel is the only producer of 36-inch wide. Outokumpu’s Mexinox facility produces 48-inch wide, but is in Mexico and could be subject to anti-dumping duties as it was in 1998. The bright-annealed demand in the US exceeds the domestic supply making imports a necessity. The bright annealed finish can vary greatly from producer to producer, so once reliable and consistent quality is established, buying organizations will want to stick with that source. Some of the best producers of bright annealed coil are in Taiwan, China and Japan as well as France and Germany.
  2. Light Gauge Coil (.030” and thinner): Once the mills get busy again, the light gauges are going to become constrained. The thinner the thickness, the longer it takes to roll on a cold-rolling mill. If anti-dumping lawsuits are filed, then light gauge from domestic mills could become more expensive, thus increasing the cost to the manufacturer.
  3. Proprietary Stainless Grades: Although the US stainless cold-rolled market is dominated by 304, 316L, 301, 201 and 430, there could be alloys strictly made on an import basis that would be part of anti-dumping cases.

The domestic mills need to look at their strengths and capitalize on them. Anti-dumping lawsuits are a crutch, not a cure for domestic producers. In the end, stainless coil anti-dumping suits hurt the manufacturer because it limits options and artificially increases prices to source stainless steel coil.

As seen in 2014, imports were a necessity for the US market and have always supplemented it. The domestic mills have already regained short lead times. They are back to delivering many products in under four weeks. The option to import cold-rolled stainless steel needs to be left open in the event that domestic mills cannot fulfill US demand.

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As always, ThomsonReuters’ Andy Home turns out some excellent commentary backed by solid statistics.

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In a recent article, he reviews comments made by Alcoa Inc.’s Klaus Kleinfeld about China’s primary aluminum production leaking out of the country under the cover of the burgeoning export trade in semi-finished products. As the article explains, China exported 2.5 million metric tons of unwrought aluminum and aluminum products in the first half of the year. That was 35% or a 650,000-mt increase over the same period last year.

Untaxed Semis, Taxed Ingots

The temptation for Chinese producers to ship primary metal for export is significant in a domestic market oversupplied with unwrought primary metal, but producers are dissuaded from exporting ingot by a 15% export tax and a negative treatment on the value-added tax which is set at 13%.

Rightly in a country with high power costs, China sees exports of low-value primary aluminum as a wasteful export of energy-intensive material. Producers, though, are desperate to shift metal and the article suggests (and to Klaus Kleinfeld’s point) that a large part of this tidal wave of “semis” exports is not really semi-finished product at all, but simply primary metal either misrepresented on export paperwork or marginally re-worked to qualify it as a semi-finished product.

Many point to the fall in aluminum physical delivery premiums as support for the argument that Chinese exports of this primary-masquerading-as-semi-finished metal are a significant contributory factor to greater primary metal availability outside China.

What Does This Mean for Metal Buyers?

We have our doubts that the export of Chinese semis is causing a massive disruption in the marketplace. Chinese semi-finished product is being offered aggressively all over Asia and Europe. Chinese producers – aided by changes in export taxes and a falling Shanghai Futures Exchange base price relative to the London Metal Exchange – are able to compete in the semis market now to an extent they were not able to 12-18 months ago.

We are seeing increased market penetration and volumes hitting the European distributor and end-user markets this year. We are seeing European and Asian manufacturers lead times come down, in some cases to days, for extruded products, suggesting order books are weak.

Under such circumstances converters outside of China will not be buying as much primary metal and billet. Couple that with new Middle East smelter start-ups and metal coming off long-term financing deals earlier this year and there is enough to justify the fall in physical delivery premiums without some vast confidence trick going on in misrepresented metal exports from China. We are not saying Alcoa is wrong in making their assertions regarding this trade, no doubt there are situations in which it has happened, we just doubt it is as significant or is having as much impact as they suggest.

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The statistics illustrate the dire state of the Chinese steel market only too clearly.

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Excess Chinese steel capacity has nowhere to go but export markets.

Crude steel output dropped in June by 0.8% from a year earlier while apparent consumption of steel for the first five months declined by 5.1%, according to Reuters. Meanwhile, steel prices are at their lowest in more than 20 years. In spite of weaker iron ore prices, large steelmakers’ losses on their core business more than doubled for the January-May period from a year earlier.

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Steel prices have been sliding as construction activity has remained weak, rebar futures on the Shanghai Futures Exchange have lost about 25% so far this year, on top of losing 28% across the whole of 2014.

Market Share at Risk

Steel mills have talked about bringing forward maintenance and refurbishment work this summer in an effort to curb the over-production and stabilize prices, but, so far, there has been little sign anyone wants to be the first to risk losing market share.

Rather, exports of steel products surged 28% to 52.4 million metric tons in the first six months of the year as mills dump excess production overseas. According to Reuters, CISA members (who comprise the top 100 mills) posted a loss of 16.48 billion CNY ($2.65 billion) for their steelmaking businesses in the June-May period, up from a loss of “just” 6.12 billion CNY ($984 million) for the same period last year.

The Chinese economy, in broad GDP terms, has been slowing. Depending on which numbers you look at (nominal or inflation adjusted) it is 5.8% or 7%. The inflation adjustment is a Beijing black box fudge factor and you can take it or leave it, but the underlying trend has been down earlier this year and is, at best, steady today.

Manufacturing, Construction Worse Off

Within that, though, manufacturing is suffering more than the wider economy. According to CNBC, Chinese industrial output for June rose a nominal 6.8% year-on-year, while last month’s retail sales climbed 10.6%.

The booming stock market in the first six months of the year will have contributed to that service sector GDP number and doubts must be raised over the near-term prospects for a stock market that was being propped up only by government intervention. Chinese stocks are still suffering from last week’s market shock.

If prices return to falling, as they surely would without Beijing’s life support, then both financial sector activity and consumer sentiment could suffer in the second half. Under such circumstances, an increase in steel demand seems even more remote and steel mill closures more likely. In the meantime, expect export markets to continue to be the destination of choice for unwanted production. If mills don’t mothball production and demand doesn’t pick up, it’s the only game in town.

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jeff yoders chicago cubs 1060 project

Ahoy from the corner of Waveland and Sheffield.

After covering ‘Steel Dumping 101′ in Part 1 and how the grain-oriented electrical steel market is different in Part 2 of our inaugural podcast episode, we turn to a more random endeavor – checking out the Chicago Cubs’ 1060 Project at Wrigley Field to get our structural steel fix.

With Pepper Construction as the general contractor on the project, Jeff and I wanted to get some eyes on the latest phase of development. So how many tons of structural steel are likely involved here? What are some of the sourcing considerations for an undertaking such as the 1060 Project? And most important, what do the fans have to say about steel sourcing? Listen below!

Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)

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How is the Grain-Oriented Electrical Steel Market Different?

Screen Shot 2015-07-09 at 3.25.29 PMIn Part One of this inaugural episode, we ran down the super-basics of what steel dumping is all about…which got us wondering about all the recent anti-dumping hullabaloo surrounding GOES (grain-oriented electrical steel). Luckily, our in-house expert on the GOES market, esteemed executive editor and our first guest Lisa Reisman was on hand to edify us all. Listen below!

Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)

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Chinese steel output slowing and Mexico is imposing tariffs on steel tube imports from the US and others.

Steel Production Slowing in China

China’s crude steel output dropped 0.8% in June from a year earlier, government data showed on Wednesday, with demand hit by crawling economic growth there and a property sales slowdown in the world’s top producer.

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Average daily output reached 2.298 million metric tons last month, the highest since June last year, according to data from China’s National Bureau of Statistics.

Mexico Places Tariffs on Steel Tubes

Mexico imposed provisional import duties on carbon steel tubing with seams from the US, Spain and India, on Tuesday as it investigates possible dumping. The new measures, announced by the economy ministry, come as Mexico steps up efforts to protect its struggling steel industry.

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Our very first episode of our very first podcast! We’re on DumpWatch for steel dumping: Listen below – and crank up the volume to 11!

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The Reserve Bank of India‘s 5/25 plan allows banks to extend loan repayment periods up to 25 years, with an option of refinancing the loan every five years.

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India’s most indebted steel company Tata Steel Ltd., according to a Business Standard news report, also announced plans to sell its long products division in Europe, but it had not been able to close that deal because international steel prices had weakened, reducing the unit’s valuation. The company had initiated talks with lenders to reduce its interest cost by 0.9 percentage points on a $1.5 billion loan taken out last year. Tata Steel signed $1.5 billion term loan as part of a $3.1 billion refinancing plan last year.

In its financial stability report last week, the RBI warned that steel companies would not be able to service their debt as the infrastructure sector in India struggled with stalled/delayed projects.

Another report by Credit Suisse had estimated the total debt of stressed steel companies in India was about $31 billion, which was 75% of the banking system’s gross non-performing assets.

Many bankers and analysts have also pointed out that some steelmakers which had set up plants between 2008 and 2010, when land acquisition and material costs were high, had even bigger problems at hand.

At today’s price levels of $360 per ton of steel, most of their revenue was going to the servicing of their debt. Not many expected a spectacular rise in steel prices in the coming months. That coupled with the Greece and the looming Chinese stock market crisis meant that Indian steel companies were left with very few options. They had to either sell off some of their assets or infuse more cash, which means more borrowing.

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Steel and banking experts are of the view that if this situation is allowed to continue, India’s banking sector may end up with a crisis of its own. As such, borrowing could turn into bad debt. To avoid that, they suggested that the government, banking and steel sector leaders sit together and hammer out a solution to give both sectors a fresh start. The RBI’s 5/25 scheme was essentially just an offering of liquid cash to keep steelmakers afloat, It’s not a permanent solution.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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