Anti-Dumping

ive thanks to all of the service men and women who served our nation and defended our freedom today, let us also remember the international trade pacts and enforcement bodies created to keep wars and conflicts from ever being fought again over such things as one nation illegally exporting millions of tons of its products into another nation. Which only happened at least nine times before.

Why Manufacturers Need to Ditch Purchase Price Variance

Here at the MetalMiner week-in-review, let’s give thanks that such wars are no longer fought in anything but the World Trade Organization and look back at some of the very, very cold trade wars looming and what can be done about them now.

China Now Admitting Dumping

The Chinese have previously taken the tack of apologizing for their domestic steel industry. Highly subsidized at the state and national level, Chinese steel companies have been accused of dumping in the US and EU. Previously, officials from Beijing have thrown their hands up and essentially said “we’re trying to get the situation under control.”

That all changed this week. Ministry of Commerce spokesman Shen Danyang said the rise in steel exports is due to higher global demand and is a result of Chinese steel products having strong “export competitiveness.”

Export Competitive US GOES

What a novel concept! Maybe if our government subsidized AK Steel and Allegheny Technologies at the state and national levels US grain-oriented electrical steel (GOES) could be as “export competitive!”

The EU is already mad at us for, yes, dumping GOES there. Seriously. The European Commission has just set tariffs on imports of GOES following a complaint lodged in June 2014 by the European steel producers association, Eurofer. There are only about 16 manufacturers of GOES in the world, so, apparently everyone manufacturing it is dumping GOES in the EU.

The World’s Dumbest Trade ‘War’

Okay, so trade agreements may not have made the steel industry harmonious and happy. Surely most metals are okay, right? Hasn’t the green energy movement made the production of, say, solar panels seamless? Surely you jest.

The spat between the US and China over solar panels has been called by Slate and others the dumbest trade war in the world. And it is. A German company, SolarWorld, has secured duties against Chinese manufacturers of inexpensive silicon solar panels. And bulk silicon. The fight is threatening adoption of solar in the US and driving up the price of other silicon products.

Thanks a lot, Germany.

While we’re thankful that our trade wars aren’t real wars, anymore, our trade agreements haven’t exactly delivered on the promise of an even international playing field, either. The MetalMiner week-in-review suggests manufacturers do everything they can to stay “export competitive.”

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China has changed its tack on steel exports.

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In previous years it has sought a more conciliatory position to complaints by trade partners, a WSJ article says in the past CISA, China’s steel trade association, has sought to persuade local steel mills to curb exports and show restraint but this year, in the face of an unprecedented surge in volumes, Ministry of Commerce spokesman Shen Danyang is quoted as taking a much more defensive line saying the rise in steel exports is due to higher global demand and is a result of Chinese steel products having strong “export competitiveness.”

Chinese Now Say Exports ‘Justifiable’

Set against a backdrop of the EU’s recent investigation into dumping of cold-rolled coil from China and Russia, Shen is reported to have come out fighting, saying “Under such circumstances (demand and competitive pricing), I feel that it’s quite normal for Chinese steel exports to these countries to be rising, and it’s quite justifiable.”

Meanwhile, the WSJ adds the US, Australia and South Korea have also signaled that they are lining up support for trade action against Chinese steel exports, which rose by 50.5% last year to a record 93.8 million metric tons and have continued at a high level this year.

Chinese steel mills are on a roll according to data reported by the WSJ. Between September last year and January this year, the volume of China’s outbound steel shipments each month shattered the preceding month’s record. While in the first four months of 2015, steel exports were 32.7% higher than a year earlier.

The reason isn’t hard to find, domestic steel prices in China have been on a slide as demand has collapsed. According to a Bloomberg article Infrastructure and construction together account for about two thirds of China’s steel demand, citing HSBC research, and construction is slow as housing prices fall there.

Construction Slump Continues

New home prices slid in 69 of the 70 cities tracked by the government in April from a year earlier, according to National Bureau of Statistics data. As a result construction-related steel prices such as rebar have hit their lowest level since 2003.

What’s worse is the peak buying period for the construction sector is now in the past and demand would fall for seasonal reasons even if construction was strong. According to Reuters, prices have dropped 13% so far this year with the most-traded rebar futures contract for October settlement on the Shanghai Futures Exchange down to 2,355 yuan ($379.71) per ton, while MetalMiner’s own China tracking service has recorded a 16% fall in domestic steel prices this year from 2,810 yuan/mt at the beginning of the year to 2,340 yuan now.

What is Chinese ‘Cost?’

Such a slump in prices has aided steel mills in their drive to dump excess capacity overseas. Is it below cost? What is the cost price in China? what are a mill’s true costs for state enterprises that receive all kinds of support both at the regional and state level?

Steel mills are under pressure to close excess capacity but so far the result has been limited, excess capacity is being offered for export rather than any real attempt made to exercise market discipline and shutter plants. The trend is likely to get worse before it gets better, particularly if Beijing’s hard line continues, we can expect more trade disputes and possibly lower prices in the year ahead.

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OK, got over laughing yet?

Why Manufacturers Need to Ditch Purchase Price Variance

Yes, the European Union will impose anti-dumping duties of up to 35.9% on imports of a grade of electrical steel from China, Japan, Russia, South Korea and, yes, the United States, which those countries are allegedly selling at below cost.

European Commission Acts

According to Reuters it is the EU’s second set of measures this year to protect European steel producers such as ArcelorMittal, Stalproduckt STP, ThyssenKrupp and Tata Steel UK. Apparently the European Commission has just set tariffs on imports of grain-oriented, flat-rolled electrical steel (GOES, for those of you that regularly read our MMI coverage) following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

The duties are provisional, pending the outcome of an investigation due to end in November, but as we all know the moment a duty looks like a real possibility importers stop importing in case they get caught retroactively. Normally, such duties would then continue for five years, the paper reports.

More specifically duties of 28.7% will cover imports from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp. and of 22.8% from South Korean producers such as POSCO. The rate for US producers including AK Steel is 22% and for Russian firms such as NLMK 21.6%.

Meanwhile, Japan’s JFE Steel Corp. will face duties of 34.2% and Nippon Steel and Sumitomo Metal Corp., among others, 35.9%. Eurofer is quoted as saying the dumped imports have damaged the EU industry by driving prices to below the costs of production, causing substantial losses. It said the market share of dumped imports into the EU rose to 47% in 2012, with most from Japan and Russia.

2nd Anti-Dumping Action This Year

This action follows anti-dumping duties being applied in March to flat-rolled stainless steel from China and Taiwan, a new investigation into specific grades of steel rebar and attempts to prolong the existing duties on Chinese wire rod.

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As coil import arrivals drop off (the arbitrage for speculative tonnage disappeared in 2015, but it takes 3-4 months for physical arrivals to catch up), we expect that metal service centers will be back in the purchasing game over the next quarter.

Why Manufacturers Need to Ditch Purchase Price Variance

Crucially however, they do not need to buy in big volume, but expect to see steadier business filling in holes in certain products rather than big blanket buys. That trend would be supported by a stronger economic environment than in Q1.

That will mean the initial going for a price increase in hot-rolled or cold-rolled coil will be tough sledding, but we expect prices in the short-term to hit the $470 per ton target by the end of this month.

Despite probable attempts by mills to increase the price again, we believe that coil will fluctuate around this price through the second quarter, as distributors have plentiful inventory and are well-stocked with lower-priced (import) coil that is competitive. Moreover, too aggressive a price move will bring imports back in as there is plenty of cheap coil around.

Once that inventory is cleared, however, thanks to lower imports and cuts in domestic production, we expect a moderate gain in pricing in the second half of the year – back over $500/ton.

One wild card that we would consider a trigger for further price gains is an anti-dumping filing against Chinese, Indian and potentially other sources on CRC and HDG. Chinese supply of CRC was 6% of the US market in 2014 while Chinese and Indian supply of HDG was a combined 8%.

This is not insignificant, but highlights that this will not be a cure-all for the sector, although we suspect that if the US mills do go for a filing, they will blanket the market and try to pick up other suppliers in their net, such as Korea, Taiwan, Brazil and Russia that will account for a few more percentage points.

Our view remains that anti-dumping action is “whack-a-mole” to some extent with other non-named suppliers popping up as alternatives. Nevertheless, the removal of China, in particular, would result in some of the really low-priced coil exiting the market and the Chinese are looking to some extent to develop a long-term customer base of end-users that would be detrimental to US mills.

As such, we believe that a filing would help US mill volumes (at least initially), although we believe that the pricing impact would be short-term at best.

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The Commerce Department determined that imports of steel nails from South Korea, Malaysia, Oman, Taiwan, and Vietnam have been sold in the US at dumping margins ranging from up to 11.80% for South Korea, 2.61% to 39.35% for Malaysia 9.10% for Oman, up to 2.24% for Taiwan, and a whopping 323.99% in Vietnam.

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The imports of steel nails from Korea, Malaysia, Oman, and Taiwan received “de minimis” countervailable subsidies resulting in final negative determinations that apply to those countries, respectively. Commerce determined that imports of steel nails from Vietnam received countervailable subsidies ranging from 288.56% to 313.97%.

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Another domestic steel plant closing has been blamed on cheap imports and a major steelmaker in India took a big write-down for similar reasons.

ArcelorMittal Shut Down

ArcelorMittal is permanently closing its money-losing Georgetown, S.C., mill, delivering a blow to the local economy, the Charleston Post and Courier reported.

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The company said the shutdown will be completed by Sept. 30 and 226 workers there will lose their jobs.
Luxembourg-based ArcelorMittal blamed “challenging market conditions facing the USA business,” which uses electric arc furnaces to make wire rod used in the automotive and construction industries.
In the press release announcing the closure, ArcelorMittal also said the mill “has been severely impacted by waves of unfairly traded steel imports from China and other countries.”
ArcelorMittal previously shut down the Georgetown operation in 2009. It reopened in early 2011 after negotiating pay cuts and other cost-saving measures with employees.
“Despite our joint efforts and a highly productive workforce, the facility has incurred significant losses since the restart due to high input costs and imports,” P.S. Venkat, CEO of ArcelorMittal Long Carbon North America, told the Post and Courier.

Tata Steel Has Long Product Woes, Too

Tata Steel Ltd. slumped in Mumbai after India’s largest producer of the alloy wrote off its long-products business in the UK.

The shares fell as much as 3.1% to 355.10 rupees and traded at 359 rupees as of 9:37 a.m. local time, Bloomberg reported. The stock has declined 10 percent this year, compared with a 0.7% drop in the benchmark S&P BSE Sensitive Index.

The Mumbai-based company expects to take a non-cash impairment of 50 billion rupees ($787 million) for the quarter ended March 31, according to a statement Thursday. That would completely write off the value of the UK long-products business, which Tata Steel is trying to sell to Geneva-based Klesch Group.

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Iron ore has now gained more than 29% since early April when it was trading as low as $47.08 a metric ton.

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The dramatic turnaround has been fueled in recent weeks by BHP Billiton‘s decision to slow its rate of production growth. The market has taken this as the start of greater market discipline by producers. A rebound in iron ore shipments following the end of the Chinese New Year has added to a sense that the worst is over and the bounce back has begun.

Over the past month, three of the world’s four largest seaborne iron ore producers have suggested they will make adjustments to production volumes, Rio Tinto Group being the only dissenter but Chairman Jan Du Plessis told shareholders at an annual general meeting in Perth that our share of the seaborne trade today is 20% and a decade ago it was 20%., suggesting the firm is not trying to drive competitors out of the market simply to maintain market share. That may be the case but Rio’s 20% is of a much larger pie today. The company plans to ship about 350 mt of iron ore in 2015.

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Long seen by successive administrations as a fair and independent arbiter of global exchange rates the International Monetary Fund is about to upset some in Congress if, as expected, it announces that China’s yuan (or renminbi) fairly valued for the first time in more than a decade, a Wall Street Journal article reports.

What the EPA’s Clean Power Plan Means For You

Few outside of China argued back in the last decade that China gave its companies an unfair competitive advantage by keeping the currency below a level that normal market forces would have achieved. Now, after a decade in which the yuan has been allowed to appreciate by more than 30% against a basket of currencies, senior IMF officials say the exchange-rate value is roughly appropriate the WSJ reports.

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The American Iron and Steel Institute (AISI) 2015 General Meeting closed just yesterday here in Chicago, where steel industry folks on the producer and service center sides (to name a couple) came together to discuss key issues surrounding the US steel market landscape, while leaving a crucial issue explicitly unmentioned – but we’ll get to that in […]

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It may be the world’s largest steel producer, but Lakshmi Mittal-led ArcelorMittal saw a decline in its businesses in India in 2014 for two main reasons: weak demand and cheap imports.

Why Manufacturers Need to Ditch Purchase Price Variance

The firm’s recently released annual report said ArcelorMittal and its subsidiaries rang in sales of $225 million from India. Once upon a time, in fact in 2010, ArcelorMittal’s Indian operations had netted $873 million, so that will give readers some perspective of the depth to which sales have plummeted.

It would not be an exaggeration to state that almost all of India’s major steel companies have stories similar to that of ArcelorMittal. Even the government-owned Steel Authority of India Ltd. (SAIL), which had posted a net profit for the October-December quarter 8.6% higher than the same period last year, had a similar lament.

In its Q2 results statement, the company said the turnover was impacted due to “challenging market conditions” and high imports, among other reasons.

Rough SAILing

SAIL chairman C.S. Verma told the media here that the only way his company had circumvented these challenges was by bringing in initiatives to reduce energy consumption and optimize raw material utilization, as well as adopt state-of-the-art technologies.

It looks like these measures were not enough to save SAIL from Fitch Ratings. Fitch recently lowered the outlook for SAIL’s long-term foreign currency issuer default rating to negative. The crux of the matter lay in its commentary, where Fitch said continued weak steel demand growth in India, high steel imports or a further softening in global steel prices could derail SAIL’s efforts to modernize.

Same Story at Tata Steel

Another Indian steel behemoth, Tata Steel Ltd.’s Indian steel operations had a rough quarter again for almost the same reasons — sluggish demand, cheaper imports and higher raw material costs on account of mining stoppages. In the December quarter, Tata Steel’s consolidated sales declined over the preceding quarter by 6.1% on the back of a 3.1% decline in steel volume and weak steel price realizations. The only redeeming factor here was Tata’s European operations which turned in a substantial jump in profitability.

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