The fallout from the U.K.’s vote to leave the European Union is still being felt as lawyers and politicians begin to try to untangle the regulatory mess the eventual move will make and steel imports into the U.S. are up.
Brexit Creates Legal Chaos
Lawyers and lawmakers braced on Friday for uncertainty following the U.K.’s vote to exit the European Union, leaving London to redefine and rewrite its trade and legal ties with the EU, with the U.S. and the rest of the world.
Steel Imports Up in May
Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the U.S. imported a total of 2,786,000 net tons of steel in May 2016, including 2,077,000 nt of finished steel (up 12.2% and 1.8%, respectively, vs. April final data).
On the year-to-date through five months of 2016 total and finished steel imports are 12,795,000 and 10,544,000 nt, both down 31% vs. the same period in 2015.
Annualized total and finished steel imports in 2016 are 30.7 and 25.3 million nt, down 21% and 20% respectively vs. 2015. Finished steel import market share was an estimated 23% in May and is estimated at 24% on the year-to-date.
Recently it issued quality control rules that required registration for the manufacture, import and sale of 16 steel products. One of the outcomes of this order was that it would weed out defective and substandard stainless steel used in utensils and kitchen appliances.
The quality control order was issued by the steel ministry in consultation with the Bureau of Indian Standards (BIS), making it compulsory to hold a BIS certificate. The certificates apply to low-grade stainless steel plates, sheets and strips, especially those used for utensils as well as for low nickel austenitic stainless steel sheet and strips used in kitchen appliances and utensils.
The latest Quality Control Order is applicable to some 25 grades of stainless steel. Incidentally, the QCO mainly covers three Indian Standards including IS 5522, IS 15997 and IS 6911. Grades covered by these three standards are: IS 5522 – 304, 302 & 430; IS 15997 – N1 (Min 1% Nickel), N2 (Min 1.5% Nickel) & N3 (Min 4% Nickel); IS 6911 – 405, 430, 410, 420S1, 420S2, 420S3, 431, 440, 201, 201A, 202, 301, 302, 304S1, 304S2, 309, 310, 316, 316L, 316Ti, 321 & 347.
The order was to be implemented by the producer, domestic or foreign, and not the end user.
The order placated a section of domestic steelmakers who were clamoring for a stop to cheap imports. In March, after some intense lobbying by steel players, the Indian government extended safeguard duties on a range of steel products by another two years to protect local steelmakers from cheap imports.
The move was welcomed by the Indian Stainless Steel Development Association (ISSDA), a trade body representing the stainless steel industry. ISSDA also pointed out that the order will have a minimum impact on the stainless steel utensils market since it does not cover stainless steel containing less than 1% nickel.
ISSDA President N.C. Mathur said the order would ensure competitiveness and growth of India’s manufacturing sector.
BHP Billiton is the world’s top exporter of coking coal used in steelmaking and also a producer of energy coal. The Australian miner is in the enviable position of running profitable coal mines at a time when more than half the world’s coal mines are losing money.
Andy Home: No Agreement on Chinese Aluminum
“China has committed to ensure that its central government policies and support do not target the net expansion of steel capacity; and to actively and appropriately wind down ‘zombie enterprises’ through a range of efforts, including restructuring and bankruptcy.”
This statement was made by U.S. Treasury Secretary Jack Lew earlier this month after high-level talks with Chinese officials in Beijing. Reuters’ Andy Home, however, writes that while there has, at least, been a meeting of the minds in regards to Chinese steel capacity, the two sides failed to reach any sort of agreement regarding aluminum other than to hold more talks, according to Lew.
Recently, the Department of Commerce announced affirmative preliminary determinations in the anti-dumping duty investigations of imports of circular welded carbon-quality steel pipe from Oman, Pakistan, United Arab Emirates, and Vietnam.
Pakistan got hit with 11.8% initial anti-dumping duties, Oman’s Al Jazeera Steel Products (and all other producers) received 7.86% duties from U.S. Customs and Border Protection when attempting to import its products, producers in the UAE received dumping rates from 6.10% to 9.25%, Pakistan was judged to deserve dumping margins of 11.8% and Vietnam received a whopping nationwide dumping rate of 113.18%.
Why is Al Jazeera Steel fighting dumping margins of just 11.8%? Source: Adobe Stock
This isn’t the first time circular welded carbon-quality steel pipe has come up in the dumping wars. It’s not even Pakistan’s first turn at the welded carbon steel pipe dumping merry go round. Read more
According to a recent report by credit rating agency ICRA, India’s iron ore prices are not likely to recover in the near future. On the other hand, steel companies would benefit from this development in the short term. They were likely to enjoy “better profitability” due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government.
Production Up, Prices Down
India’s iron ore production in 2015-16 was at 155 million metric tons, registering an annual growth rate of 23%, ICRA said in a statement. Much of the incremental production in iron ore was because of stepped up mining in the Indian state of Odisha. In the current fiscal, ICRA said, India’s iron ore output could be somewhere in the range of 170-175 mmt.
The Federation of Indian Mineral Industries (FIMI), on the other hand, was of the view though that the Indian iron ore export mining industry needed tax relief to compete internationally after an absence of approximately four years when mining was largely banned in many Indian states.
Speaking at an iron ore conference in Singapore recently, R.K. Sharma, Secretary-general of FIMI said it would “challenging” to restart some of the mines after they have been shuttered for four years.
According to ICRA Corporate Sector Ratings Senior VP Jayanta Roy, because of the substantial iron ore inventory levels at existing mines and the fact that India’s iron ore production was slated to increase further, domestic iron ore prices are unlikely to recover meaningfully in the near term, which benefits local steel mills.
Post minimum-import-price, Indian hot-rolled coil (HRC) prices have seen a sharp increase of about 25% from the lows reached in February 2016, according to ICRA’s quarterly research report on the steel industry. Industry players saw additional gains due to an increase in sales volumes, as imports were likely to reduce in the current year.
The MIP is scheduled to expire in the second quarter of the India’s fiscal year (April 1 to March 31), but according to analysts, the present level of international prices and the extension of a safeguard duty by the Indian Government to March 2018, could continue to boost prices and prospects for Indian steel producers.
In percentage terms, those are big moves in a short period of time, but frankly at Steel-Insight, we find this irrelevant. In context, the recent moves don’t hold a candle to the fundamental shift in the product’s shift from $200/mt in 2011 to the current level. Now that was a generational change.
Iron Ore Monthly Average Prices ($/Metric Ton cfr China 62% Fe fines)
In terms of the monthly average price, which is what many steelmakers’ costs outside of China are linked to, the moves have been relatively small from around the low $40s to the high $50s. For steelmakers, even that $20/mt change in iron ore costs actually only add $30/mt to their total cost structure (around 1.5 mt of iron ore is required to make a tonne of steel).
Meanwhile, North American steelmakers have seen steel prices rise from $360/short ton for HR coil at the beginning of the year to current levels of $620/short ton. The fact that ore costs may have gone up $30/mt in that period is pocket change.
Not a Long-Term Concern
Moreover, the rapid change in prices has clearly been a short-term event. It was driven by a modest improvement in steel market demand in China. However, this was compounded by the massive liquidity boost to the Chinese market that was seen in Q1 this year that the Chinese government injected in order to stave off an excessive slowdown. That allowed steelmakers, which had been forced to idle in late 2015 due to lack of credit, to secure iron ore and return to steelmaking. Their buying drove modest gains in iron ore pricing.
However, the market was turbo-charged by retail Chinese investors. Responding to the rising price and also public statements from Chinese political leadership, vast amounts of speculative finance surged into iron ore futures in China. In one day in April, the turnover in volume on the Dalian iron ore contract exceeded the combined turnover of all equities trading in China with pricing up 19%. Upon tightening access to trading, this liquidity ebbed as did the price. The most volatile pricing moves were not, therefore, an indication of fundamental demand.
Fundamentally, iron ore is going to be boring for the next five-plus years. There is simply too much supply available to a steel industry where global demand is not growing. We expect iron ore prices to hit the $30s/mt for a period in the second half of this year and stay there for an extended period, with pricing moving in the $30-60/mt range for the next five years, i.e. exactly the trading range that they have been in the for the last year.
That will mean more pain for global iron ore miners. For steelmakers and steel buyers, however? A long period of low prices will be welcome….and boring.
Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.
The U.S. International Trade Commission has officially started an inquiry into the hacking and theft of trade secrets from U.S. Steel Corp., allegedly by Chinese hackers. China’s largest steel-producing province has ordered production cuts due to air pollution.
ITC Launches Hacking Probe
U.S. regulators on Thursday officially launched an investigation into complaints by United States Steel Corp. that Chinese competitors stole its secrets and fixed prices, in the latest trade spat between the two countries. The International Trade Commission said in a statement that it has not made any decisions on the merits of the case.
The commission identified 40 Chinese steel makers and distribution subsidiaries as respondents, including Baosteel Group, Hebei Iron and Steel Group, Wuhan Iron and Steel Co Ltd., Maanshan Iron and Steel Group, Anshan Iron and Steel Group and Jiangsu Shagang Group.
U.S. Steel has accused Chinese hackers of stealing proprietary data to manufacture and sell dual-phase 980, a high-strength automotive steel alloy.
Tangshan Orders Steel Cuts
China’s top steelmaking city of Tangshan has ordered mills in and near the area to cut production for five days from Friday to ease air pollution, according to a notice from the local government.
The Commerce Department has delivered a final determination that imports of corrosion-resistant steel from China, India, Italy, South Korea, and Taiwan were illegally dumped in the U.S. The investigation found that countervailable subsidization of imports of corrosion-resistant steel products from China, India, Italy and South Korea occurred and that there were actually no countervailable subsidies of imports of corrosion-resistant steel from Taiwan.
12 Global steel trade associations today released a statement urging the leaders of the G7 nations to take steps to address the current global steel overcapacity situation which is negatively affecting economies, industries and workers around the world.
The American Iron and Steel Institute, the Japan Iron and Steel Federation, Eurofer (the European Steel Association), Canadian Steel Producers Association, UK Steel, the German Steel Federation (WV-Stahl), Alliance des Minerais, Minéraux et Métaux (A3M), Federacciai (the Federation of the Italian Steel Companies), the Steel Manufacturers Association (SMA), the Committee on Pipe and Tube Imports (CPTI), the Specialty Steel Industry of North America (SSINA), and the European Steel Tube Association said:
“Government support measures and other policies have contributed to significant global excess capacity in steel, unfair trade and distortions in steel trade flows around the world. Among other things, these market-distorting government policies have prevented adequate industry adjustment in some markets in response to changes in global demand. This is an issue of concern in countries where government policies encourage steel capacity growth without regard to market signals, or where government actions sustain uneconomic or consistently loss-making steel plants that otherwise would exit the market.
“Steel producers in the G7 nations, and elsewhere around the world, highly appreciate intergovernmental attempts so far to cope with the global overcapacity issue, and urge their governments to take urgent action to address this global problem, building upon the work program outlined by high-level government representatives in Brussels in mid-April to address the overcapacity and adjustment challenges facing the steel industry,” the statement, in part, read.
“It is critical that all major steel-producing nations participate in efforts to eliminate trade-distorting policies that are contributing to the current steel crisis,” it continued. “Otherwise, as was noted at the OECD Steel Committee meeting in May 2015, ‘a failure to address or halt market distortions will result in subsidized and state-supported enterprises surviving at the expense of efficient companies operating in environments with minimal government support.’
“In this regard, we urge the G7 summit in Japan to discuss the need to maintain effective remedial measures, consistent with their WTO rights and obligations, against exports from countries in which market economy conditions do not prevail.”
Jennifer Diggins is the director of Government Affairs at Charlotte, N.C.-based Nucor Corp., the largest steelmaker in the U.S. and North America’s largest recycler of any material (Nucor recycled 16.9 million tons of scrap steel in 2015 at its 23 electric arc furnace mills). Diggins serves as the firm’s liaison to Washington, D.C. MetalMiner’s editorial staff recently had a chance to sit down with Jennifer for a MetalMiner Q&A to discuss recent issues in steel, including Chinese overproduction, the tariffs recently passed against some imports and the role of the international scrap market.
MetalMiner: Recently, executives from the five leading steel companies in the U.S. told the Congressional Steel Caucus 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. How was that number arrived at? Could it be even worse than the 13,000 estimated?
Jennifer Diggins: There is the potential for the number to be much worse when you factor in job losses in industries that support steel.
People often fail to appreciate the broad impact the steel industry has on the rest of the economy. Every one job in the steel industry supports seven other jobs in the economy. These are jobs in businesses that supply steelmakers with raw materials, contractors who do maintenance work at steel mills, truck drivers who transport our products, just to name a few. When steel production decreases like it has, workers in these supporting industries also are impacted. Read more