Seven EU nations asked the European Commission to intervene to stop cheap imports of steel, particularly from China and Russia and the London Metal Exchange is giving its warehouses the chance to cut rent prices.
Help From Cheap Steel Imports
Seven countries including France, the UK and Germany, in a letter, urged the European Union to step up action to relieve an ailing steel industry suffering from tumbling prices and cheap imports from China and Russia.
Ministers from the three countries, along with Italy, Poland, Belgium and Luxembourg, sent the joint letter on Friday to the European Commission.
The letter also argued that in order to safeguard the competitiveness of sectors such as steel, the most efficient plants should not be subject to what it called undue carbon costs.
LME Gives Warehouses Option to Cut Rent
The London Metal Exchange is giving its approved warehouses the chance to cut rent and free-on-truck levels for the year starting April 1, after saying last year it would look at capping charges due to plans for large increases.
As sanctions against Iran came down this week, a flurry of business deals were announced by the Islamic Republic and steel production was a major beneficiary of Iran being welcomed into the world community.
Iran is the largest steel producer in the Middle East and Northern Africa and is among the 15 largest producers in the world. Even with significant domestic production capacity, Iran remains a net steel importer. Over 50% of downstream industries are currently non-operational or unable to operate at optimal capacity. This has led to a high demand, low supply situation. It is estimated that the country imports around 8 million metric tons of steel every year, mainly from China and Turkey.
That all could change, though, as Iran is in the mood to make a deal and South Korea’s Pohang Iron & Steel Co. (POSCO) and Italy’s Danieli both made announcements that they will go into business with Iran this week.
Steelmakers are eager to make deals with Iran but can new demand outstrip new supply? Source: AdobeStock/icarmen3.
POSCO plans to sign a preliminary agreement with Iranian steelmaker PKP in March to buy a stake in a $1.6 billion steel mill project in the Middle Eastern country. Read more
Reuters reported that China’s state-run oil refiner Sinopec Corp. has purchased its first ever batch of US crude oil for export, a landmark transaction after the ending of a four-decade ban on domestic exports.
The cargo, due to be loaded from a Gulf Coast port in March, may mark the start of a sustained flow of US oil to China, the world’s second-largest buyer, which is eager to diversify its energy sources. As the world’s second-biggest oil refiner, Sinopec buys more crude oil than almost any other company, and has worked to improve its supply security by seeking out diverse sources.
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.
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.
Bauxite may stop flowing from Malaysia to China and a major platinum producer lost one of its biggest shareholders.
A Malaysian Bauxite Production Ban?
A potential suspension of bauxite mining in Malaysia, the world’s top exporter of the aluminum-making ore, could dent stockpiles in China but is unlikely to curb breakneck output in the aluminum sector there, industry analysts told Reuters on Monday.
The Southeast Asian nation is pushing to suspend bauxite output due to concerns over its impact on the environment, threatening to interrupt supply to top aluminum producer China, a cabinet source said over the weekend. The largely unregulated industry has grown massively in Malaysia over the last two years to meet Chinese construction demand.
Lonmin Loses a Shareholder
Platinum miner Lonmin PLCsaid in a regulatory filing that Kagiso Asset Management sold nearly 33 million shares in the company in December, fully divesting its stake.
The major trends that drove the winter — and spring, summer and fall — of low prices and producer discontent were nothing new: the slowing Chinese economy and its subsequent lack of construction demand, a race to the bottom between OPEC and US shale oil drillers eroding the price of crude and global economic sluggishness outside of the US. The domestic economy, while showing positive growth (2% in the third quarter), wasn’t exactly operating full-bore, either, as inventories remained high and inflation cut into buying power.
So, without dwelling too much on the past, we offer MetalMiner’s Year-in-Review, a look at the issues, news and trends that affected metal prices.
3D Printing: Now in Manufacturing
Additive manufacturing continued to transform aviation and other sectors. We saw the largest 3D-printed part ever made for commercial us by Airbus and Autodesk for use in the new A380. The interior partition is made up of 122 components and reduces the weight of the partition by 30%.
This partition cover can be customized for the individual airline and its branding. Strong but able to be used by anyone. Source: Airbus
In other materials science news this year:
Tin could possibly be used as a catalyst to enable clean carbon capture for electrical power generation.
A flexible aluminum-ion battery could one day replace the lithium-ion battery.
The Year in Dumping
It was a big year for dumping, dumpling. China continued to be the main nemesis of the US when it comes to illegally subsidizing and exporting steel, aluminum and several other metal products. China was also the culprit of choice for India, Russia, the European Union and, well, most of the world.
Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported last week that the US imported a total of 2,351,000 net tons (NT) of steel in November 2015, including 1,921,000 nt of finished steel (down 22.7% and 15.6%, respectively, vs. October final data).
The price of hot-rolled coil, used in everything from refrigerators to freight containers, may decline about 13% next year, Colin Hamilton, Macquarie Group‘s head of commodities research, recently said.
“We’re past peak steel demand,” Hamilton told Bloomberg News earlier this month. “I think, provided there is overcapacity in the Chinese system and given where demand is, it’s going to be like this for some time.”
Anti-dumping duties could curtail the flow of Chinese imports. Source: Adobe Stock/nattanan726.
Macquarie forecasts that the average price for a ton of steel will drop to about $267 in 2016, from $309 this year. Last week, the Commerce Department, after a preliminary injury determination, announced a 255.8% anti-dumping duty on China, over corrosion-resistant steel products imports.
Imports From Elsewhere
Merrill Lynch analysts believe the imposition of the duties reflects real concern, and a willingness to get tough with China, over the steel imports. However, they also mentioned that despite a 200% plus import duty on Chinese producers, the threat from the other four countries in the anti-dumping duties case remains. Italy, India South Korea and Taiwan all received much lighter import duties, all below 7%. During the 12 months before the case was filed, these five countries jointly imported 61% of all US steel. The imposition of a 4-6.92% tariff on India, Italy and Korea will not stop them from filling the US Market with steel in the future. Taiwan escaped import duties entirely.
China will likely continue to cut prices even as they curtail production next year. While the recent tariffs will likely help North American producers compete, it’s hard to imagine metal buyers facing increasing base prices next year. This is the beginning, not the end, of the steel trade war.
The Indian government recently imposed import duties, for a term of five years, on stainless steel from China, the US and the European Union. The move has evoked mixed reactions from industry and analysts.
The anti-dumping duties are an attempt to protect local companies from “unfair competition.”
Anti-dumping duties, on cold-rolled flat stainless steel products, ranged from 4.6 to as high as 57.4%. Along with the above-named countries, imports from South Korea, South Africa, Taiwan and Thailand will also be taxed.
India has taken steps to protect its domestic stainless industry from cheap imports. Source: Adobe Stock/Jovanning.
While a large section of India’s domestic steel industry welcomed the move, some experts opined that the duty did not make much sense, except, of course, for protecting local steelmakers.
In an interview with the Economic Times, N.C. Mathur, director of corporate affairs at JSL Steel and the president of the Indian Stainless Steel Development Association, said that the anti-dumping duties on cold-rolled stainless steel products were “not likely to help the domestic industry in any way.”
That was because they were imposed after the review of an earlier, similar, notification, and all the conditions remained the same in the new tariff structure.
Do These New Dumping Duties Even Matter?
According to Mathur, the duties are restricted in terms of cold-rolled width — from 600 mm to 1250 mm. The same terms and conditions were already in place under the earlier anti-dumping law, yet, importers had been easily circumventing it over the last five years.
How? They would simply import products measuring above 1,250 mm.