Ferro Alloys

Nickel has perplexed and confounded investors for the last year or more.

Prices had been expected to rise on the back of an anticipated shortfall in ore supply, only for the expect opposite to happen. Yet Norilsk Nickel, in it’s latest 2015 Strategy update, reported in a Platts blog that China’s inventories of nickel ore are down significantly, with only around two months of consumption left.

Why Manufacturers Need to Ditch Purchase Price Variance

Norilisk also believes China’s dependence on imported refined nickel is set to rise. It estimates that total nickel demand in China in 2015 will be made up of 42% imported refined nickel, 47% imported feed, and around 11% of domestic feed.

Imports Rising

In 2014, by comparison, total nickel demand in China consisted of 28% imported refined nickel, 61% imported feed, and 11% domestic feed. In its 2014 full-year results, the company forecast a 20,000 metric ton global deficit this year down from a 93,000 mt surplus in 2014. While a number of analysts are also forecasting a revised deficit between 20,000-45,000 mt this year, you have to say previous predictions have failed to materialize so why would this time be any different?

Maybe the issue here is that Norilisk is a producer and they are going to be bullish by nature, and indeed not all agree with Norilisk’s estimate of the current situation. The World Bureau of Metal Statistics reported just this week that the nickel market was in surplus From January to March 2015 with production exceeding apparent demand by 32.9 kilotons, less of a surplus than was running in 2014 but still significant.

Nor did they see it trailing off, in March nickel smelter/refinery production was 147.8 kt and consumption was 137.1 kt suggesting the surplus is continuing and may run through Q2.

The long-awaited dearth of ore supply resulting from the Indonesian export ban last year has failed to materialize. Chinese buyers have switched to a blend of Indonesian and Filipino ores for making nickel pig iron and an increase in refined nickel imports to meet demand.

Demand: Still Down

Demand is down, anyway. The Chinese economy is growing more slowly and stainless production (the source of two-thirds of nickel demand) is, at best, lackluster. In addition we are now coming towards the quieter summer period when demand falls and so it is unlikely the demand side is going to force a change in the downward trend in prices. Demand has stabilized in Europe after previous years’ weakness, but distributors are said to be well stocked and a restocking cycle is unlikely when most are anticipating further weakness in the nickel price.

As prices have fallen, stocks have risen, most obviously on the London Metal Exchange. Part of this rise can be attributed to finance stocks moving out of China and into supposedly safer LME Asian warehouses, but even so some 446,000 mt of LME stocks are going to take some working through and those speculators that have headed for the exits are not likely to pile back in again until they see a sustained downward trend in stocks.

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Autodesk, Inc. announced the release of its 2016 Design Suites at a launch event in Boston this week, offering more control over all aspects of the design-build process through a connected desktop and cloud user experience.

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For structural steel, the main difference in the 2016 suite of software products is a much tighter integration of the Advance Steel, a 2013 acquisition, and the Revit 2016 3D building information modeling platform.

“The means of production – how we think about and deliver buildings and infrastructure, both intellectually and physically, is changing,” said Amar Hanspal, senior vice president of Autodesk’s information modeling and product group. “By 2020 there will be 50 billion connected devices in use, with the number rising by 20 billion per year. Buildings are joining the digital world.”

New Rendering Engines

The 2016 version of Revit has new rendering engines that can deliver a rendered scene in minutes instead of hours under the old engine. It also has linked model cropping and better support of the open-source IFC file format.

“Customers don’t want to work in a different environment when doing design and detailing,” said Jim Lynch, vice president of Autodesk’s building group. “No longer have to use (a separate design tool) for detailing. Steel, cast-in-place concrete can all be done in Revit. The plan is to integrate (Advance Steel’s design tools) into Revit. We will keep Advance Steel as a separate product but WILL make it work seamlessly in the Revit environment.”

Better Integrated

Plant 3D, a plant design product, and Advance Steel have also been integrated so you can bring Advance Steel content into Plant 3D.

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According to a report, crude-steel output in China dropped 1.3% to 270.07 million metric tons in the first four months of 2015 as compared to the same period in 2014. The World Steel Association has forecast that China will end up using far less steel this year and maybe even the next. Which again means more supply and far less demand.

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The report quoted Alan Chirgwin, BHP Billiton iron ore marketing vice president, as saying steel supply was expected to rise by about 110 million metric tons this year, exceeding demand growth by around 40 mmt.

Yet this has not fazed Rio Tinto Group, for example, which recently announced it would continue with its plan to produce iron ore at full capacity despite the fall in prices. While BHP and Brazil’s Vale SA have, for now, stepped on the brakes vis-à-vis their medium-term plans, team Rio, on the other hand, thinks reducing production costs will help it hang on to its lead…and profits.

Betting on a Comeback

Rio Tinto sees China coming back with renewed vigor and driving global iron ore demand through 2030.

Where does that leave India? So far as iron ore or even steel consumption is concerned, China is miles ahead of India, even in the fatigued condition it finds itself today. India, as reported by MetalMiner, drew a blank for about two years due to a court-imposed ban on ore mining, which left its steel companies at the mercy of imports, something that they continue to rely on even today.

That had also affected its iron ore exports, especially from the ore-rich provinces of Goa and Odisha. India’s iron ore imports went up dramatically to a record 6.76 million tons in the first 7 months of the 2014-15 fiscal year. Once, the country was the third-largest supplier of iron ore to the world, but, because of the export duty and a national mining ban, it had turned into an importer.

Analysts predict India was likely to remain a net importer of iron ore in 2015-16 as well, no thanks to the continued drop in falling international rates. The only silver lining, claimed analysts, could be that due to the resumption in the domestic production of iron ore, the quantity of imports may not be as high as the last fiscal year.

Captive Market

India’s steel companies do not have captive mines, so they have to get their average 95 mmt a year of iron ore from elsewhere. With international price of ore hovering today at about $50 per mt for high-grade ore, it is too attractive a deal for Indian steel mills to be passed on. As reference points, last year, iron ore imports happened when rates had touched $90 per mt.

In all this, Australia, a country that sells about 80% of its ore to China, sits in a happy position. While it hopes that the recent cuts in interest rates will revive the Chinese economy, and thus its demand for iron ore and coking coke, it is also looking increasingly to India to pick up its stock. Last year, for example, as reported by MetalMiner Australia had approved Adani Group’s approximate $15.5-billion (AUS $16.5 billion) Carmichael coal project in Queensland that could yield up to 60 million mt of coal per year. That was just the beginning. For the Aussies, if the dragon’s appetite for iron ore and coking coal is satiated, the hungry tiger is always lurking in the background.

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When the Tiger and the Dragon dine together the world sits up and takes note.

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Signing business agreements worth $22 billion is a big deal so Indian Prime Minister Narendra Modi’s recent visit to China made big, bold headlines here. Some of India’s old, and some not so old (Adani, Bhusan Power and Steel), players in the steel and power sectors, were signatories to the 26 deals.

Steel and Energy Deals

The notable contracts included the one between India’s IL&FS Energy Development Co. and China Huaneng Group for a 4,000-megawatt thermal power project, and India’s Bhushan Power and Steel sealing a pact with China National Technical Import and Export Corporation for an integrated steel project in Indian province of Gujarat.

So here were two Asian, nee global, giants, breaking bread and talking business at the same table, sending analysts scurrying to their laptops to chalk out spreadsheets and draw pie charts in an effort to understand the impact of all this in the long term.

While business leaders of both nations, including Alibaba Group Chairman Jack Ma, spoke of long-term interests, such talk brought the arclight swinging back to the present and short-term situation currently prevailing in the Asian region, especially in iron ore and coking coke, two crucial ingredients in making steel.

There’s no doubt in anyone’s mind that steel is the mainstay of Asia’s infrastructure, a fact that has had iron ore and coal miners — and even steel majors in China, India and as so far as Australia — jockeying for a major piece of new market share. With demand from Europe and the US lacking, suppliers in all three countries are walking a thinly veiled tight rope to ensure their survival.

Wither Demand

Once a destination of hope, the Chinese dragon, for now, has lost some of its hunger. Some say next-door neighbor India is where one can find fresh action. The jury’s honestly still out on that one, though. But the slowdown in China’s economy means less need for steel, in turn, lowering the demand for ore and coking coal. Leaving miners re-tweaking their business plans.

Last year, for example, the Rio Tinto Group, BHP Billiton Ltd. in Australia, and Vale SA of Brazil, to stem the tide, had stepped up low-cost output to pump up volumes, leading to a glut. Now, everybody’s mantra seems to be – cut production costs faster than the falling prices.

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The transportation funding can got kicked down the road in Washington and a major steel company agreed to pay for a predecessor’s Michigan environmental infractions.

House Passes Short-Term Highway Bill

The House voted Tuesday to extend federal transportation funding for two months, in an attempt to prevent an interruption in the nation’s infrastructure funding at month’s end, the Hill reported.

Why Manufacturers Need to Ditch Purchase Price Variance

The decision to punt a long-term funding extension to the summer was approved by a 387-35 vote, over the objection of Democrats, who argued Congress should have found a way to pay for a longer-term extension.

Twelve Republicans and 23 Democrats voted against the bill. Rep. Mark Amodei (R-Nev.) voted “present.”

Ahead of Tuesday’s vote, White House officials said President Obama is willing to sign the temporary transportation funding extension if it is passes the Senate later this week, even though he would prefer a longer-term solution.

AK Steel Dearborn Pays Severstal’s Fines

AK Steel will pay $1.35 million to settle alleged air pollution violations at a Dearborn plant previously owned by the American subsidiary of Russia-based Severstal.

The Justice Department announced the agreement among the steelmaker, the federal government and the State of Michigan Wednesday, saying it settles 42 violations alleged by the state Department of Environmental Quality and two notices issued by the Environmental Protection Agency against Severstal North America.

AK Steel, based in Ohio, announced last summer its intention to purchase Severstal’s Dearborn coke-making facility and other assets for $700 million. Following the sale, completed in September of last year, AK Steel took responsibility for past violations.

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ast week UGI Energy Services announced plans to build a liquefied natural gas production facility in Wyoming County, Pennsylvania.

Why Manufacturers Need to Ditch Purchase Price Variance

The facility will draw Marcellus Shale gas from UGI’s Auburn gathering system, then chill it to produce up to 120,000 gallons per day in liquid form. While we have regularly reported the slowdown in both new shale oil and LNG projects in the US this year — and the subsequent cutbacks in oil country tubular goods production — investments are still being made, in the US and overseas, in drilling.

Plants, Projects Planned

Bloomberg Business reported this week that Anadarko Petroleum Corp. selected a group of developers including Chicago Bridge & Iron Co. for a potential $15 billion LNG project in Mozambique.

CBI’s joint venture with Japan-based Chiyoda Corp. and Saipem SpA, based in Italy, will work on the onshore project that includes two LNG units with 6 million metric tons of capacity each, Anadarko said Monday. Construction plans also include two LNG storage tanks, each with a capacity of 180,000 cubic meters, condensate storage, a multi-berth marine jetty and associated utilities and infrastructure, according to Texas-based Anadarko, which says it will make a final investment decision by the end of the year.

Last week, the Department of Energy gave Cheniere Energy Inc. final approval for the nation’s fifth major export terminal at Corpus Christi in Texas, which will ship the fuel from 2018.

What’s Driving Infrastructure Investment?

While oil prices have bounced back from lows seen earlier this year, it’s certainly not the market that’s driving these investments. While high-cost projects, such as those in Canada’s oil sands, have been canceled by oil exploration companies, relatively inexpensive projects with a quicker path to payback, such as these LNG projects, are still being funded.

The payback is diverse and not confined to domestic home heating. LNG has been priced at a fraction of diesel prices for the last four years. Domestic trucking (18-wheelers and other heavy consumers of diesel) have yet to make a large-scale commitment to LNG, and most places where fuel is dispensed have yet to put in expensive infrastructure to handle the product, but there has been enough success for UGI to justify committing resources to its adoption.

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As coil import arrivals drop off (the arbitrage for speculative tonnage disappeared in 2015, but it takes 3-4 months for physical arrivals to catch up), we expect that metal service centers will be back in the purchasing game over the next quarter.

Why Manufacturers Need to Ditch Purchase Price Variance

Crucially however, they do not need to buy in big volume, but expect to see steadier business filling in holes in certain products rather than big blanket buys. That trend would be supported by a stronger economic environment than in Q1.

That will mean the initial going for a price increase in hot-rolled or cold-rolled coil will be tough sledding, but we expect prices in the short-term to hit the $470 per ton target by the end of this month.

Despite probable attempts by mills to increase the price again, we believe that coil will fluctuate around this price through the second quarter, as distributors have plentiful inventory and are well-stocked with lower-priced (import) coil that is competitive. Moreover, too aggressive a price move will bring imports back in as there is plenty of cheap coil around.

Once that inventory is cleared, however, thanks to lower imports and cuts in domestic production, we expect a moderate gain in pricing in the second half of the year – back over $500/ton.

One wild card that we would consider a trigger for further price gains is an anti-dumping filing against Chinese, Indian and potentially other sources on CRC and HDG. Chinese supply of CRC was 6% of the US market in 2014 while Chinese and Indian supply of HDG was a combined 8%.

This is not insignificant, but highlights that this will not be a cure-all for the sector, although we suspect that if the US mills do go for a filing, they will blanket the market and try to pick up other suppliers in their net, such as Korea, Taiwan, Brazil and Russia that will account for a few more percentage points.

Our view remains that anti-dumping action is “whack-a-mole” to some extent with other non-named suppliers popping up as alternatives. Nevertheless, the removal of China, in particular, would result in some of the really low-priced coil exiting the market and the Chinese are looking to some extent to develop a long-term customer base of end-users that would be detrimental to US mills.

As such, we believe that a filing would help US mill volumes (at least initially), although we believe that the pricing impact would be short-term at best.

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Denied deals abound today in MetalCrawler. An Indian steel major says not so fast on a sale of its long products division and Rio Tinto Group might be close to moving an aluminum division but is refusing to comment so far.

Tata Says No Long Products Deal Done

Reports that Tata Steel is about to sell its long products division to Klesch Group are “speculative” and do not reflect the views of the company, the steelmaker told India’s National Stock Exchange on Tuesday.

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Geneva-based Klesch Group, a global commodities business involved in chemicals, metals and oil production and trading, declined to comment.

Tata Steel, Europe’s second-largest steelmaker, said in October it is in talks to sell its loss-making long products division, which employs 6,500 people mostly in the UK, to Klesch.

Same With Pacific Aluminium

Rio Tinto Group plans to sell some of its aluminum assets in a potential $1 billion deal, the Financial Times reported, reviving a sale plan for its Pacific Aluminium unit two years after it was canceled.

The FT, citing “people aware of Rio’s plans”, said on Sunday that Rio had hired Credit Suisse to find a buyer for Pacific Aluminium, known as PacAl, which comprises a group of smelters in Australia and New Zealand.

A spokesman for Rio Tinto said the company “doesn’t comment on market speculation.”

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With HR coil prices at $450 per ton in mid-April (although big buyers could get $420/ton), HR coil prices had dropped $250/ton since late summer. US mills blamed imports – which is true – but forgot to mention that they had kept steel prices at elevated levels for 9-12 months while prices in the rest of the world were tanking. What did they expect?

Why Manufacturers Need to Ditch Purchase Price Variance

It is our view that we are now at the bottom and in late April, ArcelorMittal led the industry with a $20/ton increase for June deliveries. Since then, transaction prices have edged up to $460/ton and slightly above. So where do we go from here?

Lead times across the industry vary from around 3-5 weeks for hot-rolled coil. The aim of the price increase was to extend those order books and lead times and therefore create momentum for further price gains. It certainly brought some buyers back in with any remaining May tonnage sold out quickly at the lower price.

Inventory Surplus

At this point in the cycle, the inventory situation is critical. Inventories remain elevated, but total flat-rolled stocks appear to have stabilized at just over 6 million tons (around 10-11 weeks of demand) and we expect them to begin to fall steadily over the next few months as service center order levels have been slack for much of 2015 as they received earlier orders – both domestic and import.

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409 is often considered “the barely stainless steel,” or affectionately the most humble of the stainless steels. Stainless steel must have a minimum of 10.5% chromium to be stainless steel. 409 Contains a minimum of 10.5% chromium, thus the moniker barely stainless steel.

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In addition to minimal chromium content, 409 stainless has three additional properties that make it an attractive product for substitution: it is the lowest cost stainless, it has good oxidation resistance and excellent formability.

Middleweight Corrosion Fighter

According to AK Steel, 409 gets specified where oxidation and corrosion requirements go beyond carbon steel and some coated steels. North American Stainless suggests, “it is not as resistant to corrosion or high-temperature oxidation as the higher-alloyed stainless steels (430 or 304), but it is still far superior to mild steel and low alloy corrosion resisting steels and most coated mild steels.”

And not to ignore the other main US producer of 409, Allegheny Technologies explained its usage in automotive mufflers, “The good fabricability of this alloy, combined with its basic corrosion resistance and economy have significantly broadened the utility of ATI 409HPtm stainless.”

As most MetalMiner readers know, alloy substitutions in stainless steel have typically occurred when an alloying element such as nickel has increased in price. When nickel becomes volatile, manufacturers have sought options with less nickel or no nickel that have sufficient properties to make the final product without compromising quality. Both 304 and 316L are readily available and could be considered the path of least resistance in terms of specifying stainless steel; however, in some cases, these alloys may exceed the necessary properties for the final application.

Most consider 304 or 316L the “old standby” grades, but that thinking contains a few misconceptions. For example, stainless is stainless because it has at least 10.5% chromium (some would say 11% chromium), not because it contains nickel. Stainless can be both magnetic and non-magnetic. In commercial food service equipment — NSF specifies, for food zones, stainless needs to have a minimum chromium content of 16% and has nothing to do with whether or not it is magnetic.

Compliance Alloy

In the early 2000s, product substitution meant a new push to inform the manufacturer that type 430 has 16% chromium and is, thus, NSF 51-compliant. In many cases, a transition occurred in which buying organizations switched from 304 to lower nickel-bearing grades such as 301 or 201 before the switch to 430 occurred. In cases in which 430 could not be substituted for 301 or 201, the next wave of substitution came from higher-chromium ferritic grades such as 439 or 441. Both alloys were developed for the automotive market in which weldability and formability were necessary along with added corrosion resistance from the basic 409 automotive grade.

In residential appliances, the major manufacturers became reticent to move to magnetic stainless grades due to a perception that magnetic equated to not “real” stainless steel.

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