Articles in Category: Ferro Alloys

The Stainless MMI fell by one point to 51 in February. Although nickel prices didn’t decline sharply in January, prices made a new 12-year low.

Free Sample Report: Our New February Metal Buying Outlook

Nickel was the worst performer among industrial metals in 2015. Interestingly, now analysts see nickel as having the greatest recovery potential. On average, analysts expect nickel prices to rise 20% this year and by almost 40% next year.

Stainless_Chart_February-2016_FNL

The main reason why analysts expect such a recovery is because nickel has fallen harder than any of its peers, being the only metal trading below the price lows of the 2008 financial crisis. However, to us, the fact that a metal has fallen in price is not reason enough to expect higher prices any time soon.

Shutdowns

Another factor making analysts turn bullish on nickel is that they believe nickel is likely to see immediate cutbacks. Brazilian miner Votorantim Metals announced in January its intentions to suspend two nickel operations, which would mark the first meaningful shutdown in the West.

Also, in Australia, Clive Palmer’s Queensland Nickel said it would lay off 240 workers near Townsville. These announcements are definitely a sign that mining companies are starting to struggle on low prices, but companies can struggle for a long time before shutdowns actually occur. The nickel market is facing the same issue as any other industrial metal: supply is doing anything it can before shutting down.

Believing that a wave of shutdowns is about to come among nickel producers seems like too much to expect from producers. Shuttering capacity remains challenging from both financial and social perspectives. In addition, non-China producers keep convincing themselves that Chinese nickel pig-iron producers will close first, partly because of the nickel ore constrains after Indonesia’s export ban and partly because of the perception that NPI makers are at the top of the global cost curve.

The issue with that prediction is that NPI producers have managed to cut costs and find a substitute to Indonesian ore — supply from the Philippines.

Compare Prices With the January 2016 MMI Report

We believe that shutdowns will probably come gradually since any individual closure will give hopes of survival to the rest of the market participants as they face less competition, encouraging those left over to keep running.

What This Means For Metal Buyers

Some people might see nickel as an attractive asset just because it looks “cheap” compared to historical levels. That could be true in the long term, but the timing could be way off. Right now, we don’t see any signs of a bottom. Nickel prices will likely turn around with the rest of the base metal complex, but that time hasn’t come yet. Stainless buyers should stay disciplined to their buying strategy.

Exact Stainless MMI and Nickel Prices, Trends

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The Raw Steels MMI held steady at 47 this month. Although international steel prices remained depressed in January, domestic prices drew a different picture.

US Mills Increase Prices

US steel mills began raising prices in December, leading to higher domestic prices in January. Domestic supply had declined significantly in 2015, with capacity utilization close to 60%.

Raw-Steels_Chart_February-2016_FNL

At the same time, with the uncertainty regarding anti-dumping actions, finished steel imports have slowed.

Free Sample Report: Our February Metal Buying Outlook

Finally, steel companies’ shipments were impacted over the past few months as service centers focused on destocking and now that inventory has finally come down, service centers will finally need to start restocking activity. This combination of factors left US mills in a sweet spot in 2016 to increase prices.

Sustainable Increase?

Domestic prices might continue to rise in the coming weeks. After the huge price slump in 2016, domestic prices deserve a bounce in Q1. However, mills won’t likely succeed in raising prices for too long.

The world remains oversupplied and demand is weak. Due to the political backlash from job losses spurred by mill closures, China wants to keep its mills running. With the ongoing Chinese yuan devaluation, Beijing has made its intention clear. China wants its exports even more competitive in global markets, especially in the steel industry as China continues to seek a home for its excess steel.

Compare With The January 2016 MMI Report

If domestic prices stayed higher, that would attract more imports, resulting in more material coming into the US and depressing prices as a result. In addition, it’s hard to imagine steel prices bucking the falling trend across the industrial metal sector. It will be hard for US mills to convince buyers to pay higher prices while commodities nearly universally fall.

Falling Raw Material Costs

Another important factor that will keep a lid on steel prices is the slump in input costs. In January, oil prices fell below $30/barrel. Falling energy prices will cause companies in the energy sector to reserve capital to keep on their balance sheets, rather than spending money on new exploration. This will continue to hurt steel demand from the energy sector. At the same time, while raw material prices keep falling, it will be difficult for US steel mills to justify their price increases for long.

Actual Raw Steel Prices

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China vowed to cut its steel production over the next five years and the Trans-Pacific Partnership is now officially signed.

TPP Signed, Legislative Fights Ahead

Trade ministers for the 12 Trans-Pacific Partnership nations formally signed the massive accord on Wednesday in New Zealand and vowed to throw their weight behind surpassing the various legislative hurdles necessary to actually put the deal into place.

Free Download: The January 2016 MMI Report

The 12 nations account for some 40% of the world’s economy. They now have two years to ratify or reject the pact.

China Vows to Cut Steel Production

China will cut crude steel capacity by 100 million to 150 million metric tons within the next five years in a bid to tackle a crippling glut that has dragged prices down to multiyear lows and saddled firms with huge debts, the nation’s cabinet said recently.

Free Sample Report: Our February Metal Buying Outlook

The State Council also said it would ban new steel projects and work to eliminate so-called stricken “zombie” mills, which have stopped producing steel but have not formally shut down.

Real gross domestic product expanded by just 0.7% (seasonally adjusted annual rate) during the fourth quarter of 2015. This follows a 2% increase during the year’s third quarter and a 3.9% increase during the second quarter. For the year, GDP expanded by just 2.4%, matching the slow rate of growth seen in 2014. Without any support from real GDP growth, our Construction MMI keeps falling.

Free Download: Compare with January 2016 MMI Report

With no GDP growth it shouldn’t come as a surprise that prices of construction materials are still falling. Low prices are always the solution to low prices… except when they’re not.

Construction_Chart_February_2016_FNL

In the fourth quarter, overall inflation came in at just 0.8% with sharp declines in both import and export prices. The Federal Reserve’s benchmark Personal Consumption Expenditures Price Index (commonly known as the PCE deflator) came in at just 0.1% with both durable and non-durable goods’ prices registering a decline.

“The economy did not end the year well,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Today’s GDP data adds weight to the argument that the US is in a corporate profits recession, an industrial recession, and was experiencing a softening of investments. With the exception of the residential building sector, business capital outlays have declined as corporations deal with a combination of sagging exports, competitive imports, declining energy-related investments, rising wage pressures and healthcare costs.”

All Construction-Sector Metals, Materials Down?

With the exception of scrap, no single product tracked in our Construction MMI showed much of an increase this month, a worrisome trend that’s carried on since the beginning of last year, except for a small increase in June.

New tariffs by the European Union on Chinese rebar might help producers there recover some market share, but won’t likely move prices on international exchanges. Globally, the deflationary environment is worse than it is for US producers.

Free Sample Report: Our January Metal Buying Outlook

Steel and aluminum markets are still not seeing anything close to a bottom and that’s being felt acutely in construction.

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Toyota Motor Corp. said on Saturday it may halt production at its domestic plants early next month due to a steel shortage, following an explosion at a steel plant operated by one of its affiliates.

Free Download: The January 2016 MMI Report

The blast at an Aichi Steel plant has curbed production of steel parts, which may impact output at the world’s best-selling automaker which produces around 40% of its global output in Japan.

“At the moment, there is enough supply inventory to keep our domestic plants running until Feb. 6,” a Toyota spokesman told Reuters, adding that overtime and weekend shifts for next week had been canceled.

“After that, we will be monitoring our supply situation on a day-by-day basis and decide accordingly.”
Free Sample Report: Our January Metal Buying Outlook

Aichi Steel said that the Jan. 8 explosion at its Chita plant in central Japan dented production of specialty steel parts. It added that it aimed to resume operations in March.

Our Automotive MMI held steady for the third month in a row at 68.

Free Sample Report: Our January Metal Buying Outlook

Considering that other metals prices are still falling, it’s quite a feat that automotive has been able to even hold steady for this long. Prices of stainless, aluminum and copper are all down in their individual MMI sub-indexes this month and our Raw Steels MMI was flat.

Automotive_Chart_February-2016_FNL

Low prices simply have not been enough to entice larger raw material purchases by automakers. U.S. auto sales fell slightly in January because of the East Coast snowstorm, but analysts say end user demand remains strong and buyers will likely head back into dealerships this month. Sales fell less than 1% to 1.1 million, according to Autodata Corp.

Low gas prices and even lower interest rates are continuing to fuel sales and most automakers are optimistic that they can break last year’s sales record by the end of the year. The problem facing metal producers is that there is still so much oversupply out there that even the market hunger for new cars, trucks and SUVs can be sated several times over by the stockpiles that currently exist.

Producers Targeting Automotive

Automotive is still a coveted market for most producers. Nucor Corp. recently opened an office in Detroit as part of a push to increase its sales to the auto industry by 40% to 50% over the next two years. Charlotte-based Nucor saw its sales to the automotive industry increase 20% last year — 1.4 million tons of steel products — over 2014’s numbers.

Alcoa, Inc. is even coming closer to realizing its previously announced split by naming new directors for its new automotive and aerospace company, all of them with experience in the fields.

Free Download: The January 2016 MMI Report

The fundamental strength of the sector will likely still be there when stockpiles finally dwindle and we see prices rise. Many are predicting that rebound for later this year, but there’s very good reason to believe 2016 could be another low-price year as there is still no definitive deal to reduce oil production and many miners and metal producers are not curtailing production.

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For the foreseeable future, Allegheny Technologies, Inc. (ATI) is out of the flat-rolled stainless commodity business as well as the grain-oriented electrical steel (GOES) market.

Free Download: The January 2016 MMI Report

ATI will be focusing on global markets with high barriers to entry. As we reported last month, ATI is reducing its exposure in commodity products by idling its Midland, Pa., plant, a commodity stainless facility, and its Bagdad GOES production facility in Gilpin Township, Pa.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI’s Brackenridge facility is the future and commodity stainless is its past. Source: ATI

Earlier this week, ATI reported in its earnings call a net loss of $378 million for 2015 as compared to a net loss of $2.6 million in 2014. ATI’s flat-rolled products business segment is to blame for the staggering losses. Operating losses for flat-rolled products were $242 million for 2015. For this reason, Rich Harshman — ATI’s chairman, president, and CEO — stated that ATI is taking “rightsizing actions” to return the segment to profitability as quickly as possible and “execute our strategy for sustainable long-term profitable growth.”

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A major steel merger happened in Japan over the weekend and, despite assurances from Russia’s oil minister, details on a global oil production slowdown are still not forthcoming.

Nippon Steel Acquires Nisshin Steel

Japan’s top steelmaker, Nippon Steel & Sumitomo Metal Corp., unveiled a plan on Monday to take control of fourth-ranked rival Nisshin Steel and trim some of their combined steel output in the face of a global supply glut. A deal would be the latest in a series of consolidations and plant closures as producers ace a slump in prices due to falling demand and competition from export of overproduced Chinese steel.

Free Download: The January 2016 MMI Report

Nippon Steel, which already holds 8.3% of Nisshin, said the two firms struck a memorandum of understanding on Monday to turn Nisshin into a subsidiary. Nippon Steel said it is considering extending its stake to 51% to 66%.

No Details on Oil Production Cutbacks

Talk of a deal among major oil exporters to cut production has lifted oil prices back to around $35 a barrel in recent days. Still, it remains far from clear whether a deal between OPEC and non-OPEC producers, mentioned by Russia’s energy minister, is possible.

Free Sample Report: Our January Metal Buying Outlook

With Iran and Iraq determined to boost output, the pressure to cut production has only intensified.

The European Union imposed tariffs as high as 13% on steel reinforcing bar (rebar) from China, the latest in a series of sanctions against Chinese overproduction.

Free Sample Report: Our January Metal Buying Outlook

The duties punish Chinese exporters of high-fatigue performance steel concrete rebar for allegedly selling them in the EU below cost, what’s known as dumping in international law.

rebarforconcretepour_550

Steel reinforcement bar (rebar) being prepared before a concrete foundation pour. Source: Jeff Yoders

The targeted companies include Jiangyin Xicheng Steel Co., Jiangsu Yonggang Group Co. and Zhangjiagang Shatai Steel Co.

Free Download: The January 2016 MMI Report

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 provisional duties range from 9.2% to 13%..

This week in metals, the US Census Bureau reported initial numbers for steel imports into the US last year.

Free Download: The January 2016 MMI Report

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?

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.

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