EU-based petitioners including the Celsa and Riva groups suffered “material injury” as a result of dumped imports from China, the European Commission, the 28-nation bloc’s executive arm in Brussels, said today in its Official Journal. The duties, which will take effect on Saturday, are for six months and may be prolonged for up to five years.
Chinese exporters expanded their share of the EU market for high fatigue performance steel concrete reinforcement bars — also called HFP rebars and known for their resilience — to almost 36% in the 12 months through March 2015 from 7.9% in 2013 and zero in previous years, the commission said today.
The original anti-dumping complaint was made by European steel industry group Eurofer on behalf of producers that account for more than a quarter of the EU’s output of HFP rebars. Chinese shipments of HFP rebars to the EU go to the U.K. and Ireland, Eurofer said at the time.
The finished steel import market share was an estimated 26% in December and is estimated at 29% for the full year. If the 29% figure holds up, it will be a record for the proportion of finished steel imports coming into the US from elsewhere in one year.
How to combat steel imports? Why not just ban them all? Source: Jeff Yoders
For all of 2015, US steel production hit 86,843,000 net tons, or about 71% of capacity. That’s down 9.3% from the 95,706,000 net tons in 2014 when the industry ran at nearly 78% capacity.
It is no exaggeration to say the United Kingdown faces the end of its domestic steel industry. Last week, Tata Steel announced the elimination of 1,050 redundancies mainly at its giant Port Talbot plant in South Wales, adding to the more than 2,000 positions the company cut last year.
Can the UK steel industry survive? Source: Adobe Stock/Inzyx.
In October, SSI shut its steel plant in Redcar Teeside with 2,200 staff being made redundant, shortly after the announcement that 400 jobs were lost with the implosion of Caparo in the Midlands, the London Telegraph reported earlier.
What’s at Stake
Port Talbot is Britain’s last integrated steel works, at two-and-a-half miles long and 100 years-old it is also one of Europe’s most productive, churning out 3.5 million metric tons a year of top-quality flat-rolled steel. It has, in recent years, broken every target the company has set for efficiency, production and tonnage, yet when faced with Chinese imports priced at $34 per mt below the cost of production, according to trade body UK Steel, it is at risk of closure. Tata is losing $1 million a week and the Indian owners have been forced to write down the value of their UK steel investments by over $1.2 billion last year. Read more
US industrial output has been falling on a month-on-month basis since August and the manufacturing PMI fell below 50 in late 2015. Even with the bounce in January PMI data to 52.7, the manufacturing outlook remains uncertain after an extended period of weakness and continued currency strength.
Yet, we suggest that US mills are (right now) in a sweet spot in terms of pricing. Are we crazy?
After a dismal 2015, steel mills are finally in a position to drive prices higher. It may not be for long, but any buyers that are short of flat steel in the short term will have to pay substantially higher prices in the next few months. We suggest that prices could rally $100-150 a ton between December 2015 and April/May 2016.
Supply Finally Constrained
Import and domestic supply is curtailed. US mills operated at 60-65% capacity in December.
With continued uncertainty regarding anti-dumping actions, finished steel imports are slowing. Importers cannot start selling again until final determinations are in, meaning that June arrivals are probably the earliest.
It’s no secret that for the last four years the global steel sector has been floundering and it’s been tough for producers to find any silver lining. Now, with 2016 upon us, the one question that’s been asked by everybody, even as prices plunge and the Chinese economy shows no signs of a recovery, is, what now? The unanimous response from around the globe is India.
Can Indian steel demand buoy the sector this year? Source: Adobe Stock/Jovanning.
There’s a lot riding on India, both domestically as well as internationally. Ironic, since both China and India are the world’s top two emerging economies, and with the collapse of China, the world turns to its neighbor India, in these times of stress.
India to the Rescue?
Edwin Basson, Director-general of the World Steel Association (WSA) echoes these voices in this article in The Gulf News where he was quoted as saying that there was really only one location that had the long-term potential to pull the global steel market out of its current slump, and that was India.
The over $100 billion Indian steel industry is placing bets on rising domestic demand in 2016, even as local players try to combat cheap imports. Last year saw a deflation of global commodity prices, including steel and other industrial metals. This affected the Indian market, like all of the others, leading to severe pressure on the operating margins of steel plants.
Ravi Uppal, Managing Director and Group CEO, JSPL, believes that the Indian steel industry would be able to recover and show growth in 2016. He told the Economic Times that even if the industry could grow at 6% to 7%, that would translate into additional demand of 4 to 5 million metric tons of steel, which is good news for Indian steel. However, this will only be possible if adequate precautions are taken against reckless dumping by the foreign producers.
Can Indian Steel Demand Deliver?
Spoiler alert! Even if there’s unanimity on India being in the sweet spot this year, one big question remains: When will the world’s largest democracy deliver? Yes, it has a huge unfilled demand and an even bigger economy, but when will the benefits start accruing? We have long heard of the potential of mass industrialization in India.
In 2015, India became the third-largest steel producer globally, bypassing the US, with demand between April and November going up by 5.3%, and production by 2.4% in the same period. India is now positioned just after China and Japan as a steel producer.
Yet, prices of some steel products in India hit a 10-year low in 2015, no thanks to the cheap exports from China, Japan and South Korea.
Financial Pressure Via Dumping
This has also jeopardized billions of dollars in loans raised by domestic steel producers for capacity expansion. Already, the steel sector is a leading contributor to the bad loan woes of Indian banks, and some sector experts fear that this would come in the way of capacity addition.
Global ratings agency Moody’s expects profitability of Indian steel firms to be lower this year as compared to the previous years, but the country would be better placed than its peers in Asia.
The government still seems confident that India will, indeed, overcome many of these hurdles. Recently, Steel Minister Narendra Singh Tomar told news agency Press Trust of India that the steel industry was “tense” not just in India, but in the world over. In his opinion, India is better placed this year compared to other countries since both production and demand are likely to go up.
Increased Production… and Increased Tariffs
India’s top three steel producers — state-run Steel Authority of India Ltd. (SAIL), and private players Tata Steel and JSW Steel — are expected to ramp up production capacity in the next two years to capture domestic demand growth propelled by demand in the automotive, consumer durable goods and construction sectors.
Of late, the Indian government has taken steps to protect the domestic steel industry, including raising import duties on long and flat products.
Continued market tightness for non-commodity grades such as MOH or HI-B materials: These materials, not currently produced in the US remain in high demand both in Europe as well as the US due to more stringent transformer efficiency standards. With no domestic production of such materials, global transformer and power equipment producers will continue with their strategies of working and securing long-term agreements (LTA’s) with key overseas suppliers, particularly in Japan. In addition, they will continue to evaluate near-country sourcing options (Canada and Mexico) to bring in stacked cores where NAFTA sources can also easily access the non-commodity grades. In addition, because the [primarily] Japanese mills need to run thinner gauges to meet customer demand, their annual production quantities will necessarily decline, creating additional tightness.
Standard grades,on the other hand, will see flat to falling prices until “fundamentals” take over. In other words, until/unless the Chinese, as did ATI, reduce capacity — too much supply is chasing too little demand. More capacity will need to come offline to better match demand. The impact of ATI’s recent announcement that it has idled production of GOES, may help set a floor for US domestic pricing.
We expect to see continued industry consolidation among power transformer equipment manufacturers. The acquisition this past month of Kentucky Association by ERMCO will continue to help shore up buying power. In Europe we expect the Alstom/GE tie-up to provide substantial “leveraged” purchasing power.
International trade issues will continue to dominate the global GOES marketplace. Not only will this market continue to see the ramifications of anti-dumping initiatives and decisions around the globe, but China’s ascendancy to the World Trade Organization as a full-fledged market economy participant (if approved by WTO member countries) will have profound ramifications on GOES cases, in particular, and many other metals including: steel (flat-rolled and pipe and tube), aluminum, and copper. In short, China perceives it will obtain full-fledged market economy status beginning in December of this year. By obtaining that status, countries arguing anti-dumping against China will not be able to compare China’s price with a similar or like country’s export price, but instead will have to determine if the export price of a product is below the domestic price. And as we can attest, based on our careful watch of Chinese metal prices, the domestic price is nearly always lower than the export price. In other words, it will be difficult for countries bringing anti-dumping claims against China to prove anti-dumping against this standard. One additional point on this issue: each trading block (and/or country) needs to decide the question of China being a full-fledged market economy independently. We could see some very divergent responses to the question of China’s ascendancy by country.
Health of the global economy: Though GOES markets appear somewhat protected from the booms and busts of the economic cycle, energy initiatives are subject to federal projects and expenditures, new home and commercial construction etc. China’s slowdown and the health of the overall global economy will continue to impact all metals markets though to a lesser extent, GOES markets.
The Department of Commerce announced affirmative preliminary determinations in the countervailing duty (CVD) investigation of imports of hot-rolled steel flat products from Brazil yesterday. It also announced negative preliminary determinations in the investigations of imports of hot-rolled steel flat products from the South Korea, and Turkey.
Countervailable subsidies are financial assistance from foreign governments that benefit the production of goods from foreign companies.
In the Brazil investigation, Commerce preliminarily determined that mandatory respondents Companhia Nacional Siderurgica (CSN) and Usinas Siderurgicas de Minas Gerais SA (Usiminas) both received a subsidy rate of 7.42%. All other producers/exporters in Brazil were assigned a preliminary subsidy rate of 7.42%.
The subsidy rates in the South Korea and Turkey investigations were all found to be less 1% or “de minimis” meaning that no import duties will be due and no cash deposits will be necessary.
As a result of the preliminary affirmative determination for Brazil, Commerce will instruct US Customs and Border Protection to require cash deposits based on the preliminary rates, 7.42%, established for producers and exporters of hot-rolled steel flat products from Brazil.
While it’s certainly progress after a year of falling prices, it’s still important to temper your expectations when it comes to steel.
In December, we had big anti-dumping news. The Department of Commerce announced its preliminary determinations in the investigations of imports of corrosion-resistant steel products from China, India, Italy, and Korea, and Taiwan.
China received a preliminary dumping margin of 255.8%. Which could considerably reduce the amount of corrosion-resistant steel imported from China. The size of the duty will likely make these exports unattractive to Chinese producers. Meanwhile, the imports from South Korea, India, Italy and Taiwan all were levied less than 7% duties, which doesn’t seem as if it will be enough to stop these countries from shipping metric tons of automotive and appliance steel to the US going forward.
Finally, Taiwan escaped import duties with preliminary dumping margins of 0%. The effect in corrosion-resistant steels like hot-dipped galvanized is yet unknown and, therefore, something worth monitoring.
Micro Aggressions, Macro Problems
But imports are not the only problem that US mills are facing. Macro factors keep putting pressure on steel prices. In December, oil prices fell to fresh lows, trading near $35 per barrel. Falling oil prices bring down metal production costs and also adds to the bearish sentiment in commodity markets.
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Low oil prices have led to an energy sector collapse and domestic steel demand from this sector has fallen significantly. This helps explain the decline in US steel production and capacity utilization. Domestic mills have idled the most capacity since the financial crisis, operating at just 61% in December. Another important consequence of the energy collapse is that inventories held by steel companies are taking a long time to deplete in the face of falling demand, exacerbating the slump in consumption.
Months on hand (MOH) inventories increased to three in December because of the slow shipping rate. Still, many mills are optimistic that they will finish restocking this quarter.
What This Means For Metal Buyers
Although steel prices took a break from their year-long fall in December, there are still many factors weighing down prices. It seems too early to bet on a recovery in prices. For corrosion-resistant steel buyers, the effects of the new import duties is certainly something to watch.
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Today in MetalCrawler, the Chinese stock market has ignited a second worldwide selloff in less than a week and the Commerce Department is investigating allegedly dumped imports of steel washing machines from China.
Chinese Stock Market Selloff
Market turmoil in China spread around the world again this morning, as global investors grew more anxious about the country’s currency and the health of its economy.
Chinese stocks plunged on Thursday, by more than 7%, forcing officials for the second time this week to halt trading for the day — in this case, after just 29 minutes of trading.
The carnage extended to the US. Coming off a sell-off on Wednesday, the Standard & Poor’s 500 stock index fell 1% in early trading, and the Dow Jones Industrial Average was off 0.9%. The Nasdaq Composite dropped 1.4%.
Commerce Investigating Washing Machine Shipments
The Commerce Department initiated an anti-dumping investigation of large residential washing machines from China yesterday.
The investigation, asked for by Whirlpool, covers both washing machines and their mostly metal parts, so long as they are not commercial (coin-op) or stacked washing machine/dryer combinations, which are exempt from the investigation.
Automakers sold 17.5 million cars and light trucks in the US last year, a 5.7% increase, and, on average, they paid more for each one. Americans overall spent about $570 billion on new vehicles, fueling an industry revival putting more money in the pockets of auto workers, dealers and executives.
The gains couldn’t help our Automotive MMI do any more than hold its value from last month, as the index began the year 68, exactly where it ended 2015.
Low steel, copper and aluminum prices are another driver of discounts on automobile prices as automakers have seen their material costs plummet in 2015. Many dealers have been authorized to discount the already low prices of new cars, accordingly. Global surpluses of steel, aluminum and copper have not yet seen a significant dent despite a recent rally in aluminum.
It will take a sustained recovery in its component metal prices for the Automotive MMI to start seeing significant gains. The Justice Department also filed a civil suit against Volkswagen AG this week, signaling that the ongoing emissions scandal there will continue to affect platinum and palladium prices. Justice is pursuing $48 billion in fines against VW and any settlement for the embattled automaker would be in the billions.
Steady as she goes is not all bad news for automotive metals. The Commerce Department recently slapped tariffs of 255% on Chinese anti-corrosive steel, meaning that hot-dipped galvanized and other US automotive metals will be competing on a more even playing field with subsidized Chinese imports.