Anti-Dumping

This week, our metals markets fell lower as they were buffeted by seemingly ever-increasing exports of steel, aluminum and other products from China.

Why Manufacturers Need to Ditch Purchase Price Variance

Even though China’s economic growth has been falling, its government still gives producers strong incentives to produce steel and aluminum that eventually ends up exported elsewhere. My colleague Stuart Burns rightfully points out that if Chinese mills are “supported by plunging raw material costs and extensive local state support, gifting them a break-even price around the lowest in the world, then the intent to simply ‘dump’ metal into export markets has few barriers.”

Can Debt Fuel Long-Term Growth?

But what’s the eventual result of state support? In China or anywhere else? Can government debt actually lift these economies back into growth mode? Stuart was there again, with an assist from the Daily Telegraph, postulating that sluggish growth and low inflation is the new normal and “advanced economies — and perhaps emerging ones, too — seem to have run out of productivity-enhancing growth and, therefore, need constant infusions of financially destabilizing debt to keep them going.”

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When domestic markets weaken, most producers turn to export markets to sell excess capacity, but you don’t just break into export markets overnight. It’s not that easy. Sort of like one does not simply walk into Mordor.

Why Manufacturers Need to Ditch Purchase Price Variance

The tried and trusted short-term approach is to sell cheap, making it hard for buyers to refuse the low-priced product being offered.

Sell Low, Buy Even Lower

If those mills are supported by plunging raw material costs and extensive local state support gifting them a break-even price around the lowest in the world, then the intent to simply “dump” metal into export markets has few barriers.

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In a surprise move, the Chinese Ministry of Finance announced this week that, effective May 1, they are scrapping export tariffs on alloyed and unalloyed aluminum bars and rods, according to Reuters.

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Along with similar changes to a host of other metals including molybdenum, tungsten and rare earth metals, Beijing has moved to support domestic aluminum producers by opening the flood gates to export markets. This will have the effect of reducing the domestic glut of metal, supporting domestic prices and depressing prices in overseas markets.

China Increases Exports

Even with tariffs in place, China has been rapidly ramping up exports, Reuters said. China’s exports of semi-finished aluminum products rose 49% year-on-year to 1.07 million metric tons in the first quarter, of which 182,257 mt were bars, rods and profiles.

With a domestic primary production capacity of 36 million metric tons and actual production last year of about 27.5 mmt Chinese producers have the ability to easily increase production without creating any shortages in their domestic market. Recent power tariff reductions by the national grid will aid smelters in controlling costs even if prices in export markets fall further.

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Today’s MetalCrawler brings you all the steel news fit to digitally print.

How Big Chinese Mills are Making Money

Plunging iron ore prices are providing a lifeline to some of China’s biggest steel mills and are raising the prospect of a rising tide of exports and increased friction with the European Union, US, India and other export destinations.

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Even as China’s domestic steel demand shrinks and the industry battles chronic overcapacity, lower iron ore prices have helped many large mills post better earnings in 2014 than a year earlier, supported by record exports. Reuters reports that the latest batch of Chinese steel earnings shows just three of 18 big Chinese mills to report so far suffered losses in 2014, down from five the year before. Six of the 13 profit-making mills in 2013 increased profits last year.

Big Chinese mills are able to ship in cheaper seaborne ore direct to their coastal steelmaking operations, selling to customers nearby or shipping steel overseas.

Steel Dynamics Misses

Steel Dynamics Inc. recently reported first-quarter net earnings of $30.8 million or $0.13 per share compared with $38.6 million or $0.17 per share last year.

Excluding items, adjusted earnings for the quarter were $0.17 per share . Revenues for the quarter were $2.05 billion compared with $1.83 billion in the prior year. Analysts polled by Thomson Reuters estimated earnings of $0.15 per share on revenues of $2.15 billion for the quarter.

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The big news in metals this week was China’s economy growing at the slowest rate since 2009. If our bearish markets are to turn around this year, it would appear they’re going to have to do it without help from the world’s second-largest economy.

Free Webinar: MetalMiner’s Q2 and Q3 2015 Forecasts

But that’s not all that we learned from China this week. In many ways, China doesn’t really look like an economy growing at even 7%, with exports plunging in March, power generation dropping 3.7%, and a host of other indicators pointing to sluggish growth. This is bad because the most of the demand for our metals is based on China at least maintaining 7.5% economic growth. In today’s world economy, if you’re not growing, you’re dying.

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Oil prices went up today. Tariffs were also placed on durable steel containers in today’s MetalCrawler.

Crude Oil Rising

Crude oil rose today after a forecast that US shale oil output would record its first monthly decline in more than four years and also on tensions in Yemen, where top oil exporter Saudi Arabia is embroiled in a civil war.

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Brent crude was up 32 cents at $58.25 a barrel this morning, while US crude was up 57 cents at $52.48.

The US Energy Information Administration (EIA) said on Monday it expected US shale production to fall by 45,000 barrels per day to 4.98 million bpd in May.

Shale production has helped boost US oil output by more than 4 million bpd since 2010 and has been a key factor behind the collapse in world oil prices over the last year. A collapse in oil prices from above $115 a barrel last June has now begun to hit exploration.

Commerce Places Tariffs on Shipping Containers

The Dept. of Commerce determined that imports of steel shipping containers from China have been sold in the US at dumping margins ranging from 107.19% to 111.22%. Commerce also determined that imports of containers from China have received countervailable subsidies ranging from 17.13% to 28%. The products covered by these investigations are 53-foot domestic dry containers, which are durable, reusable, weatherproof, closed van containers approximately 53 feet in exterior length, designed for the intermodal transportation via container ship, rail or trucking. Wisconsin-based petitioner Stoughton Trailers LLC filed the initial complaint against the Chinese manufacturers.

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It was supposed to be a test case for the stainless steel industry of India.

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One of the country’s leading steel makers, Jindal Stainless Ltd. (JSL), had applied to the government for the imposition of a safeguard duty on foreign stainless steel, but the Directorate General of Safeguards (DGS) rejected the application, much to the consternation of JSL and the rest of India’s stainless steel industry.

The DGS falls under the Finance Ministry’s Department of Revenue. In its order, the DGS ruled JSL had failed to prove that there was “injury to the domestic industry as a result of the cheap imports.”

A JSL spokesperson told The Economic Times that the company was disappointed with the ruling.

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Here at MetalCrawler the steel and iron ore layoffs keep on coming, unfortunately.

More Minnesota Iron Ore Layoffs

U.S. Steel Corp. said Tuesday it plans to idle part of its Minntac plant at Minnesota’s biggest taconite iron ore mine and processing plant, resulting in about 680 layoffs due to low steel prices and foreign competition.

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U.S. Steel spokeswoman Courtney Boone said the layoffs are temporary at the Mountain Iron facility, which employs about 1,500 workers, but that the company can’t speculate how long they’ll last. She said that will depend on market conditions and customer demand. Three of the plant’s five iron ore processing lines will be shut down, she said.

Pittsburgh-based U.S. Steel already announced it would idle its Keetac plant in nearby Keewatin effective May 13, resulting in 412 workers laid off. And Magnetation LLC announced in February that it was shutting down its Keewatin plant, resulting in about 20 job losses. The mining region is about 200 miles north of Minneapolis.

China’s Metals Financing Industry Weakens

Incentives that for years drove Chinese imports of copper to obtain short-term loans are starting to become less attractive, slowing demand in the world’s largest consumer of the metal, according to the Financial Times.

Stocks of copper held in Chinese bonded warehouses fell in the first quarter, even though it is traditionally a period of oversupply, according to figures released by consultancy CRU, suggesting weaker demand for financing.

Chinese copper consumption in the quarter rose 0.7%, the weakest rate since 2008, according to their data.

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This week, the 3-month LME nickel price fell to its lowest level since 2009. It’s certainly not the first industrial metal to hit a 6-year low this year.

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There has been a lot of talk about Nickel’s supply side. Indonesian authorities have not changed their minds about refusing to export raw ore and the ensuing ban on exports of nickel ore to China continues. There is no flow of material between the two countries.

NPI Demand Drops

However, it’s important to remember that China’s nickel pig-iron producers had built up significant quantities of stocks prior to the January 2014 ban, compensating for the supply decrease. At 2 million metric tons, imports of Philippine ore this year are slightly higher than last year but are still nowhere near enough to offset the loss of Indonesian supply.

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We may all think we are headed into the sunny uplands of growth and prosperity, but this year could see more volatility than we bargained for.

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One area of concern is governments’ monetary policies and the impact they have on foreign exchange rates. Low energy costs, low inflation and cheap imports on the back of slowing emerging market growth and the strong dollar have made us feel as if things are finally going our way. Not to pour cold water on a number of encouraging trends, but that strong dollar is already causing problems and those problems will get worse.

It’s not just exporters such as Caterpillar and Boeing that can be hurt by a stronger dollar, domestic firms also face increased competition from overseas suppliers buoyed by a lower currency. The steel industry is a case in point. Broadly speaking, for the economy as a whole there is likely to be more winners than losers but it will be highly selective and firms exposed to foreign exchange affected costs will face the biggest challenges.

Most economies will face gradual monetary tightening before the end of the decade, but the US could lead the rest of the world by at least a year. Many economists predict that as the Federal Reserve starts to raise rates in the second half of this year. Even other strongly growing economies such as the UK are not likely to join in raising central bank rates for at least a further 12 months. That will exacerbate the US dollar’s strength, particularly against economic regions like the European Union, which is embarking on quantitative easing to the tune of €60 billion per month up to a current limit of €1 trillion, but some are already predicting could reach twice that amount.

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