Details of another hack are at the heart of U.S. Steel‘s section 337 complaint, including what it calls theft of lucrative automotive alloy Dual-Phase 980. Chinese commodity futures trading volumes are hitting records despite attempts by regulators there to rein in speculation.
U.S. Steel Alleges Dual-Phase 980 Stolen by China
According to filings with the International Trade Commission, U.S. Steel claims a forensic analysis into an alleged 2011 illegal hack of its systems by culprits based in China — one that used a similar method as the confirmed 2014 hack of U.S. Steel and other companies by the Chinese military — included stealing plans for the chemistry for an automotive specialty steel alloy and its coating, the necessary temperature for heating and cooling the metal and the proper layout of its production lines.
The automotive steel is one of U.S. Steel’s most popular products, Dual-Phase 980, that can withstand more than 140,000 lbs. per square inch, making it a light, strong metal coveted in the lucrative automotive market for its safety as well as its ability to meet government weight standards.
Two years after the 2011 hacking, China’s Baosteel Group, the world’s fourth-largest steelmaker, started selling a new line of products that included Dual-Phase 980. U.S. Steel says it can prove to the ITC that the product was stolen in the 2011 hack.
Chinese Commodity Futures Hitting Records
Commodity futures linked to China’s vast steel sector rebounded sharply on Friday, Reuters reported, led by iron ore and rebar, as robust construction demand spurred buying even as the country’s regulator ordered exchanges to rein in speculative trading.
Big bets on Chinese commodities futures this year from hedge funds, retail investors and others have driven up contracts on everything from iron ore to cotton, prompting many analysts to warn of parallels with a boom in China’s stock markets that ended in a sharp crash last summer.
Steelmaking raw materials iron ore, coking coal and coke ended April with their biggest monthly gain on record.
Rebar, a construction steel product, also posted its biggest monthly rise ever, with volumes in the most-traded contract in Shanghai hitting a record 1.4 billion metric tons, enough to build San Francisco’s Golden Gate Bridge more than 15,000 times over.
The Steel Authority of India Ltd. and JSW Steel & Essar Steel India filed a complaint with India’s Directorate General of Anti-Dumping and Allied Duties, seeking an anti-dumping investigation as well as the imposition of tariffs on steel imports from six countries. Soon thereafter, the DGAD said it had prima facie evidence of dumping of steel originating from China, Japan, Russia, Korea, Brazil and Indonesia.
Chinese Production vs. Indian Production
China is the world’s biggest steel producer, accounting for around 822 million tons a year. Driven largely by a fast track economy in the past quarter century, China’s steel output has grown by more than 12 times it’s size in the ’80s. By comparison, the EU’s output fell by 12% while U.S. output has remained flat. Of late, China has found itself in the midst of dumping controversies involving many countries it sends exports to, including the U.S., the European Union and Australia.
Chinese steel production is the target of India’s anti-dumping probe. Source: Adobe Stock/zjk.
The Indian probe’s purpose is to establish the “existence, degree and effect of dumping” by the six nations. If found to be true, it will then recommend a minimum amount of anti-dumping duties. The probe covers hot-rolled flat products of alloy or non-alloy steel in coils, as well as hot-rolled flat products of alloy or non-alloy steel not in coils. Most of these products are used in the the automotive, oil and gas line pipes/exploration, cold-rolling, pipe and tube manufacturing industries.
Trade between China and India has been growing but individually, the two are polar opposites so far as global exports are concerned. India’s exports account for just 1.7% of world trade, compared with nearly 12% for China’s. China exported 112 million metric tons of steel in 2015, which was 25% more than India’s total production of steel. India produced 92 mmt of steel in its 2014-15 fiscal year, while it imported over 9.32 mmt of steel, of which, an estimated 30% came from China.
Meanwhile, on the other side of the globe in Belgium, international steel producing countries, too, called for urgent action to curb overproduction.
A joint statement from the U.S., Canada, the E.U., Japan, Mexico, South Korea, Switzerland and Turkey, called calls for “ongoing international dialogue” to remove “market-distorting policies.”
But China rejected suggestions that it subsidized its loss-making steel companies.
India has often used anti-dumping duties and also imposed safeguard duties due to such import surges.
A few days ago, the Indian government extended the safeguard duty on steel imports until March 2018, after having first imposed them in September 2015. There will be no safeguard duties on steel imported at or above the minimum import price (MIP) stipulated by the government.
Anti-Dumping or Countervailing Duties?
Both, anti-dumping and countervailing duties try to rectify the same issue: low-priced imports. But the difference between the two is the real cause of the low price.
Anti-dumping duties are used to tackle “dumping,” a legal definition for imports whose price is lower than their production cost. An exporter sets steel prices lower than production costs and floods other markets with such steel products. If a Chinese producer spends $120 per mt to make cold-rolled steel, and then sells it in the Indian market for $90 mt, while his Indian counterparts are selling their produce for $110, then these imports are based on a predatory pricing model that is either indirectly subsidized in the originating country, or takes advantage of a lower-valued currency and production costs back home.
On the other hand, countervailing duties seek to counter low prices that are an outcome of direct subsidies. The Chinese government, like some others, offers subsidies on exports in the form of tax breaks. As a result, exporters can offer lower prices than domestic producers. Countervailing duties level the playing field by negating the advantage of direct government sponsorship by increasing import tariffs to level the playing field.
Such duties are allowed by the World Trade Organization under the General Agreement on Trade and Tariffs (GATT) but only if dumping is established. Anti-dumping duties have to be removed if the margin between the domestic price and imported price goes below 2%, or when the imports of product from a country account for less than 3% of total imports of the product.
Also, the WTO says safeguard and anti-dumping duties cannot be country specific. So, if India or the U.S. imposes duties on imports from China, the latter can also impose duties on imports from those two nations.
This is what China is now pointing out to India. A few days ago, the world’s top steel maker asked India not to resort to “trade protection measures” and to “strictly follow” WTO rules while investigating cases of dumping by Chinese iron and steel exporters. Steel overcapacity is a worldwide problem which requires a joint effort from all countries, an unnamed Chinese official was quoted as saying by the official Xinhua news agency.
The main engine of global demand growth for the past several years, Asian demand, starts to sputter amid signs of a gasoline glut in both Japan and China.
Steel Imports Into the U.S. Up in March
Based on preliminary Census Bureau data, the American Iron and Steel Institute reported recently that the U.S. imported a total of 2.5 million net tons (nt) of steel in March 2016, including 2.097 million nt of finished steel (up 12.9% and down 0.1%, respectively, vs. February final data).
On the year-to-date, through three months of 2016 total and finished steel imports are 7.49 million and 6.424 million nt, down 36% and 34% respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 30 and 25.7 million nt, down 23% and 18% respectively vs. 2015. Finished steel import market share was an estimated 24% in March and is estimated at 25% YTD.
Even as world steel powers gathered in Brussels this week to discuss the massive overcapacity problem and exchange accusations, particularly between the U.S. and China, steel prices continued to rise globally.
In China, that means zombie steel mills are rising from the dead. While Beijing has engineered some steel capacity cuts, its efforts are being undermined by a rise in domestic steel prices that has seen mills ramp up output. Even those zombies, which had stopped production but were never officially closed down. They have clawed their way back from the grave and are producing steel again. Such is life in the people’s republic.
The zombie steel mills are back from the grave! Source: Adobe Stock/James Thew.
Steel wasn’t the only metal threatened by imports, though, this week. The United Steelworkersfiled a safeguard action against imports of aluminum, mostly from China. If found to be in violation of section 201 of U.S. trade law and impose tariffs of up to 50% on primary unwrought aluminum (read, ingots welded together to form “semi-finished products”).
Hey, maybe the zombie mills are just “semi-finished,” too! That is, shut down but never really out of business. Here in the U.S., when a company is in trouble it files for bankruptcy protection. That’s exactly what once high-flying renewable energy company SunEdison, a major supplier of solar power, did this week.
There’s simply no mechanisms to deal with losses that way for these Chinese zombie mills. Yet, China claims to be committed to changing to a market-based economy. That’s why it’s so ridiculous that the World Trade Organization and other international trade authorities are even considering market-based economy status for the evolving Chinese economy.
Cold-rolled coil is a good example. Prices last week climbed above $600 per standard ton, the metal’s highest price level since April 2015.
U.S. Cold-rolled coal hits one-year high. Source: MetalMiner index.
Why, in an Oversupplied Market, Did Steel Prices Get a Boost?
The duties imposed on steel products caused steel imports to taper down in a big way over the last three of months and U.S. steel mills now have the power to raise their base selling prices. U.S. aluminum markets didn’t enjoy this kind of protection. However, even if they did, which they might, aluminum prices wouldn’t get the same boost.
The reason is that aluminum (like the rest of base metals) is more global in nature than steel. U.S. steel prices can be much higher than in the rest of the world because prices are not decided on exchange-based trading unlike aluminum which is linked to London Metal Exchange reference prices. So, even if duties were imposed on aluminum products, aluminum producers couldn’t arbitrarily hike their selling prices.
Is This Rally Backed Up by Fundamentals?
In the short-to-medium term it is, whereas long-term it really isn’t since steel demand in China keeps contracting. The recent positive sentiment might help U.S. steel mills increase their spot offers even further, but we could see a revision later this year. Although there seems to be short-term scarcity of steel in U.S. markets, there is still plenty of steel overhanging in global markets. We’ll have to wait to see how much further mills can raise steel prices in Q2 before buyers turn to international suppliers for cheaper prices.
Chinese Exports Rise Sharply in March
Another factor driving global steel prices this year has been expectations of a decline in Chinese steel exports as earlier this year China committed to curtail its excess steel capacity. However, the latest data doesn’t seem to suggest that. In March, Chinese steel exports surged 30% compared to the same period last year. In Q1, Chinese steel exports are up 8% compared to the same quarter last year. That seems to suggest that rising steel prices have only ensured that Chinese steel mills produce more of the metal.
What This Means For Metal Buyers
Market dynamics are quite different for steel markets than to the rest of base metals. U.S. mills now have the power to increase their spot prices. Buyers should have, by now, locked in prices for the next one or two quarters.
Longer-term, there are still plenty of events that could change market sentiment later this year, limiting domestic mills’ ability to raise prices. We’ll have to keep monitoring markets to watch for more clues.
China’s crude steel output hit a record high of 70.65 million metric tons in March, data showed on Friday, as a rally in steel prices and a seasonal pick-up in demand encouraged steel mills in the world’s top producer to boost production.
Steel output rose 2.9% from a year ago, beating market expectations, although total output in the first quarter was down 3.2% at 192.01 mmt, according to data from China’s National Bureau of Statistics.
The effect of illegally subsidized foreign steel, particularly from China, continued to be debated in Washington, D.C. today with domestic steel producers and scrap recyclers both testifying that more anti-dumping measures are needed to protect industries.
Steel Executives Detail Dumping Pains
Chief executives from five of the leading steel companies in the U.S. told members of the Congressional Steel Caucus today that unfair foreign trade practices have caused an increase in steel imports resulting in the loss of more than 13,000 jobs in the industry this year, and the government needs to dramatically improve policies on trade. The Steel Caucus is chaired by Tim Murphy (R-PA) and vice-chaired by Rep. Pete Visclosky (D-IN).
As members of the American Iron and Steel Institute, Mario Longhi, President and CEO of U.S. Steel Corporation; Chad Utermark, Executive Vice President of Nucor Corporation; Jim Baske, CEO of ArcelorMittal North America; Chuck Schmitt, President, of SSAB Americas and Chairman of AISI; and, Roger Newport, CEO of AK Steel Corporation, testified before the more than two dozen members of Congress. The target of much of their discussion was China, its steel overproduction and its attempt to have market economy status granted to it by the World Trade Organization.
“From outright government ownership to a vast array of illegal subsidies, many foreign steel companies are shielded from the realities of the market,” Utermark said. “China is the prime example. Basically, the Chinese government is a company disguised as a country engaged in economic warfare. It is the major contributor to the capacity glut. China’s economic slowdown, coupled with its estimated 425 million tons of excess capacity, has resulted in China flooding the global market with steel exports. This market-distorting behavior is creating real harm for American steelworkers.”
Scrap Recyclers Want Protection, Too
Institute of Scrap Recycling Industries Chief Economist Joe Pickard also testified recently at a U.S. Trade Representative/U.S. Department of Commerce hearing.
“Recycled iron and steel products, also known as ferrous scrap, is by far the largest recycled commodity group processed by our industry, with scrap recyclers — who are located in every congressional district – typically processing between 70-75 million tons of ferrous scrap annually,” Pickard said.
“According to U.S. Geological Survey estimates, the total value of ferrous scrap processed in the U.S. in 2014 was $26.1 billion, but for 2015 USGS reports that figure declined to $18.3 billion as scrap prices and volumes declined due to a range of domestic and global market factors,” Pickard testified. “Many factors, including the surge in Chinese steel production to more than 800 million tons annually has resulted in some of the most difficult market conditions faced by scrap recyclers and the steel industry in a decade.”
Today, at the American Institute of Steel Construction‘s North American Steel Construction Conference in Orlando, engineering software provider Autodesk announced new capabilities for its Advance Steel steel detailing software.
The new additions include an automatic parametric tool for inserting cold-rolled steel sections, such as purlins and side rails, and their corresponding steel connections.
The new cold-rolled cold-rolled sections tool in Advance Steel 2017. Source: Autodesk.
Components can be selected from default vendors available in the application or other vendors can be added by users. The default cold-rolled section vendors are Lysaght, Strammit, Dimond (fastBrace and channel) and MetalCraft (standard and camlock).
The Advance Steel 2017 Extension for Autodesk’s parametric building information modeling program, Revit can now be downloaded and installed from Autodesk’s App Store website. The 2017 extension comes with a set of enhancements that offer a higher level of building model information exchange, especially with synchronization for Revit models containing steel connections back and forth with Advance Steel.
In the 2017 version, Revit will now support the level of development (LOD) 300 and 400 specifications directly in the program. The LOD spec is a reference standard that enables practitioners in the AEC industry to specify and articulate with a high level of clarity the content and reliability of BIM data at various stages in the design and construction process. Here is a rundown of what the different levels (100, 200, 300, 400) mean.
Steel takes center stage in MetalCrawler today with domestic steel shipments down from February in and a hearing on trade in Washington.
February Steel Shipments Down
The American Iron and Steel Institute recently reported that U.S. steel mills shipped 6,939,442 net tons in February, a 1.3% decrease from the 7,031,307 nt shipped in January, and a 0.2% increase from the 6,925,596 net tons shipped in February 2015.
Shipments on the year-to-date in 2016 are 13,970,749 nt, a 4.9% decrease vs. 2015 shipments of 14,688,338 nt for two months.
Dumping Has Cost 13,500 Steel Jobs
In the second day of hearings of the Office of the U.S. Trade Representative and the Department of Commerce on the steel crisis in America, Thomas J. Gibson, president and CEO of the AISI, told Commerce Secretary Penny Pritzker that the crisis is fueled by global overcapacity and has caused the loss of 13,500 jobs.
Gibson said the government must “vigorously enforce U.S. trade laws; not give in to Chinese demands that it be automatically graduated to market economy status; and, press for binding commitments from steelmaking nations to eliminate excess capacity and subsidies resulting from government market-distorting policies and practices.”
The most recent case involves the Chinese producers Wuhan Iron & Steel and Baoshan Iron & Steel who brought an anti-dumping action against Japanese and Korean producers of grain-oriented electrical steel. Provisional duties of 45.7% to Nippon Steel & Sumitomo Metal, 39% to JFE Steel and 14.5% to POSCO with final duties to be determined during Q3 of this year, according to a recent TEX Report.
The industry knows, however, that only the three mills named in that case can provide the high-grade materials needed to produce transformers that meet higher efficiency standards imposed by governments the world over, including China.
For sure, the domestic Chinese producers will likely reap a small bump in prices but their customers, the global transformer and power equipment producers, will make adjustments as required, as well. Read more