Ferrous Metals

There was no joy in automotive metals this month as prices retreated again amid ample supply and not enough worldwide demand.

Automotive_Chart_August-2015_FNL

The monthly Automotive MMI® registered a value of 76 in August, a decrease of 7.3% from 82 in July, another all-time low for the index. June hit 86 and, before the last three months, the previous low was 87, registered in March.

Steel Prices Falling

Base metals remain in a bearish market, one that's starting to edge on historic proportions. Also, a glut of imported steel in the US market continues to drive down prices domestically while the lack of demand overseas only exacerbates the problem here.

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US steelmakers have been forced to rely on anti-dumping actions again in hopes of creating some semblance of market equilibrium.

Steel is not the only ingredient in the Automotive MMI and its fall has been helped along liberally by steep falls for aluminum, palladium, platinum and copper.

Vehicle Sales Faltering

At least in the US, sales of automobiles are still strong, too. A sales collapse in China is one of the many effects of the stock market crash and slow economic growth there.

“There’s excessive competition and automakers are building excess capacity, and to raise utilization of the plants, they will engage in excessive selling,” Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in reference to the market many are looking at to create global sales increases.

The Chinese market is generally regarded as one that provides higher sales margins to manufacturers and Volkswagen, BMW and other manufacturers are taking on a hit on sales there.

With a continuing metals surplus and only the US end-user market in decent shape, it's difficult to predict a turnaround for the Automotive MMI. The Thomson Reuters/Jefferies CRB Commodity Index is hitting new lows as well.

Actual Automotive Metals Prices

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August forecast reportThe August metal price forecast is here! MetalMiner™ is proud to announce the commercial launch of its monthly buying report, featuring 30-day price outlooks for aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate). Before we forecast August, let’s take a quick look back at July:

  • We remained “bullish” on the dollar and watched it rebound to a 6-year high
  • We watched aluminum, copper and nickel hit 6-year lows
  • China’s stock market decline impacted base metal prices in a negative way
  • Oil price declines last month stressed commodity weakness

All we can tell you about August is that any industrial buying strategy warrants a watchful eye. Want to know more? You’ll have to subscribe to our monthly outlook reports. An annual individual subscription of 12 monthly reports can be yours for $899/year.

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Despite falling raw material costs, figures posted by U.S. Steel underline the damage imports are having on the US steel industry.

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The WSJ reported U.S. Steel posted a 34% decline in revenue and a $261 million loss in the latest quarter, up from a $18 million loss for the same time last year.

Falling Prices, Rising Surpluses

Steel prices have continued to fall, just as my colleague Lisa Reisman has been predicting for the last year. As demand has suffered, cutbacks in the energy sector, particularly for drill pipe, and imports have risen with a stronger dollar and growing surplus in the global steel market. Capacity utilization in the US market is down to 72.5% according to the American Iron and Steel Institute, a sharp fall from the same period last year, with even that number looking optimistic compared to reports in Bloomberg which suggest it could now be below 70%.

Steel Coil

Expect shipments of steel into the US to stay high so long as the dollar retains its strength against other currencies.

As Bloomberg reported last week, the amount of imported steel used in the US market has swelled from 28 to 33% since last year as the economies of major producing countries like China, Russia and Brazil have slowed and producers have sought more exports. Nucor Corp., the US’s largest and most efficient producer, warned as far back as March that its first quarter profit would be as much as 71% lower due to the exceptionally high levels of imports flooding into the market.

It’s not that overall steel demand in the US is depressed, demand grew 13% in 2014 to 118 million tons, although the cutbacks in shale oil and gas drilling in 2015 will have hit those with a specialty in oil country goods this year. Steel producers gross revenues are down as much due to falling prices, HRC has fallen 25% in the last twelve months to around $476 per ton today.

They’re Coming to America, Today…

The US market is all the more vulnerable because of its standout strength in demand while other markets have waned. China is down for the first time since the ’80s and weaker currencies in Russia, Ukraine and Brazil have allowed steel producers in those locations to compete against US steel producers burdened by a stronger dollar. Even Europe, where demand has turned a corner and is picking up this year, the weak Euro has allowed steel producers there to compete in the US and take some market share.

Last Chance: July Metal Price Forecast

US Steel producers are lobbying government to mitigate the rise in imports as most observers expect the dollar to get stronger over the next 12 months as the Federal Reserve raises rates ahead of the rest of the world. Currency will remain a challenge for domestic steel producers as will the number and diversity of suppliers seeking to sell into the domestic market.

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Construction spending still isn’t taking off in the US and most companies can’t guarantee their minerals are conflict-free.

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It was no surprise last week when AK Steel Corp., ArcelorMittal USA LLC, Nucor Corp., Steel Dynamics, Inc., and U.S. Steel Corp. filed petitions with the Commerce Dept. and the US International Trade Commission against eight countries the domestic industry believes are receiving illegal government subsidies and “dumping” flat cold-rolled coil products here.

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The eight countries included in the anti-dumping petitions and the dumping margins alleged by AK Steel and the domestic industry are:

  • Brazil, 50 to 59.74% subsidy rate
  • China, 265.98%
  • India, 42.28%
  • Japan, 82.58%
  • South Korea, 93.32 to 176.13%
  • Netherlands, 47.36 to 136.46%
  • Russia, 69.12 to 320.45%
  • The United Kingdom 47.64 to 84.34%

The petitions also allege that the foreign producers benefit from numerous countervailable subsidies.

Coiledsteel_585

Could the cold-rolled coil anti-dumping cases set a new precedent for dumping steel in the US?

Again, this was no surprise as the case with China, in particular, has been well-documented and this isn’t the first go around with anti-dumping duties with most of these countries. What will be interesting to see, however, is how new trade remedy measures adopted by the federal government as part of two trade bills signed by President Obama in June, will affect enforcement of anti-dumping or countervailable duties that come out of these petitions.

At the time American Iron and Steel Institute President and CEO Thomas Gibson said, “We thank the Administration for recognizing the critical role of the steel industry by supporting these initiatives to improve the effectiveness of our anti-dumping and countervailing duty laws.”

Part of the remedies in the trade package was language that would force US Customs Enforcement and Border Protection to tariff imports more stringently, eliminating loopholes that allowed countries to essentially created stops in other ports to disguise the origin of shipments.

“AK Steel and the domestic industry have been facing a surge of what we believe are unfairly dumped and subsidized imports of cold-rolled steel coming into this country,” James L. Wainscott, chairman, president and CEO of AK Steel said in a statement. “The negative impact to our company and to other U.S. producers has been significant in terms of pricing, production, sales and earnings.”

Free Download: July Metal Price Forecast

If the new measures deliver high margin tariffs and enforceable import protections it will be the culmination of decades of legislative of enforcement work by the US steel industry. Work that began as far back as the North American Free Trade Agreement.

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Domestic steel producers have filed new anti-dumping petitions against eight countries, charging them with unfairly subsidizing steel exports into the US. Also, the Senate Energy Committee has advanced a bill that would lift the 40-year US oil export ban but it faces a tough road with the full Senate.

Domestic Producers File New Steel Anti-Dumping Cases

AK Steel Corp., ArcelorMittal USA LLC, Nucor Corp., Steel Dynamics, Inc., and U.S. Steel Corp. – filed petitions recently with the Department of Commerce and the US International Trade Commission charging that unfairly-traded imports of cold-rolled steel flat products from Brazil, China, India, Japan, South Korea, Netherlands, Russia and the United Kingdom are causing material injury to the domestic industry.

Free Download: July Metal Price Forecast

The petitions allege that producers in each of the eight countries are dumping cold-rolled steel in the US market at substantial margins, all above 42% government subsidy.

Bill to Lift US Oil Export Ban Advances

The US Senate Energy Committee on Thursday narrowly passed a bill to lift a 40-year-old ban on the export of crude oil, but the measure faces an uphill battle in getting passed by the full Senate, Reuters reported. The bill would allow the US to export oil and boost state revenue-sharing for offshore oil and gas drilling. It passed along party lines by a vote of 12-10.

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The American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of several construction forecasters, is projecting that nonresidential spending will see a nearly 9% increase in 2015, with next year’s projection being 8.2%.

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Vale SA returned to profitability for the first time in a year today and low prices have led to a copper scrap and concentrate shortage in China.

Vale Posts Profit

Brazil’s Vale SA, the world’s largest iron ore producer, returned to profit in the second quarter, bolstered by higher output and cost cuts as it kept up pressure on Australian rivals in the fight for market share.

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The miner overcame a slump in iron ore prices to report a net profit of $1.68 billion on Thursday, moving into the black for the first time in a year. That was a leap of 17.3%from the same quarter a year ago, and more than four times the average forecast of $408 million of six analysts in a Reuters poll.

Copper Scrap Shortage in China

Chinese copper smelters may not get enough raw material after domestic mines and scrap providers scaled down sales because of low prices, which may force some smelters to trim production in the third quarter, industry players said told ThomsonReuters on Wednesday.

Last Chance for the July Metal Price Forecast

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One may think that China’s steel industry could hardly be in a worse place.

Half the industry is losing money in spite of falling iron ore and coking coal costs and a reduction in domestic power costs all aiding steel producers on the supply side. Even among those that did not lose money in the first half, margins are said to be razor thin and banks are reported to be cutting credit lines and presenting difficulties in rolling over loans according to China Iron and Steel Association (CISA) comments posted by Reuters.

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EU Upholds Stainless Steel Anti-Dumping Duties on China and Taiwan. More anti-dumping duties on Chinese and Taiwanese stainless steel have been upheld, this time in Europe. A major nickel producer is also slashing output.

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