Here’s a Good One: the US is ‘Dumping Steel’ in Europe… Seriously

by Stuart Burns May 20, 2015 Anti-Dumping
Here’s a Good One: the US is ‘Dumping Steel’ in Europe… Seriously

OK, got over laughing yet?

Why Manufacturers Need to Ditch Purchase Price Variance

Yes, the European Union will impose anti-dumping duties of up to 35.9% on imports of a grade of electrical steel from China, Japan, Russia, South Korea and, yes, the United States, which those countries are allegedly selling at below cost.

European Commission Acts

According to Reuters it is the EU’s second set of measures this year to protect European steel producers such as ArcelorMittal, Stalproduckt STP, ThyssenKrupp and Tata Steel UK. Apparently the European Commission has just set tariffs on imports of grain-oriented, flat-rolled electrical steel (GOES, for those of you that regularly read our MMI coverage) following a complaint lodged in June 2014 by the European steel producers association, Eurofer.

The duties are provisional, pending the outcome of an investigation due to end in November, but as we all know the moment a duty looks like a real possibility importers stop importing in case they get caught retroactively. Normally, such duties would then continue for five years, the paper reports.

More specifically duties of 28.7% will cover imports from Chinese companies, including Baosteel and Wuhan Iron and Steel Corp. and of 22.8% from South Korean producers such as POSCO. The rate for US producers including AK Steel is 22% and for Russian firms such as NLMK 21.6%.

Meanwhile, Japan’s JFE Steel Corp. will face duties of 34.2% and Nippon Steel and Sumitomo Metal Corp., among others, 35.9%. Eurofer is quoted as saying the dumped imports have damaged the EU industry by driving prices to below the costs of production, causing substantial losses. It said the market share of dumped imports into the EU rose to 47% in 2012, with most from Japan and Russia.

2nd Anti-Dumping Action This Year

This action follows anti-dumping duties being applied in March to flat-rolled stainless steel from China and Taiwan, a new investigation into specific grades of steel rebar and attempts to prolong the existing duties on Chinese wire rod.

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Tier-1 Manufacturers and Direct Procurement Execution: Collaboration, Integration, Visibility

by Kyle Fitzsimmons May 20, 2015 Manufacturing

Managing indirect spend is crucial for controlling costs. It is also a proven tactic. But direct connectivity still has a ways to go in aligning with indirect procurement. In a relevant piece of new research from our sister site Spend Matters, the team lays out just why direct procurement execution systems need to integrate visibly between tier-1 manufacturers, logistics providers, banking partners, MSPs, BPO firms, raw materials suppliers and more.

Direct Procurement Execution: What’s Changing? That’s the question answered in this FREE research download that encourages supply chain collaboration and Procure-to-Pay (P2P) integration in even the most complex ecosystems.

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Tata Steel Reports $888 Million Loss, ABI Slips in April

by Jeff Yoders May 20, 2015 Commodities

An Indian steel major reports a loss and architecture billings slip in April.

ABI Down

The Architecture Billings Index (ABI) dropped in April for the second month this year. As an economic indicator of construction activity, the ABI reflects a nine to 12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the April ABI score was 48.8, down sharply from a mark of 51.7 in March. This score reflects a decrease in design services (any score above 50 indicates an increase in billings).

Tata Reports a Loss

Tata Steel Ltd. reported on Wednesday a consolidated quarterly loss of $888.8 million (56.74 billion rupees) for its fiscal fourth quarter ended March 31.

Consolidated net sales for the quarter fell about 21% from a year earlier to 333.4 billion rupees, hit by weak steel prices and international demand.

The results follow the company’s announcement last week of about $785 million non-cash charge in the fourth quarter, mainly related to its loss-making long products unit in the UK.

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Anti-Dumping Action Against Chinese Coil Could Raise Short-Term Steel Prices

by James May May 19, 2015 Anti-Dumping

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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Zinc: Industrial Metals’ MVP Just Keeps Rising

by Raul de Frutos May 19, 2015 Commodities
Zinc: Industrial Metals’ MVP Just Keeps Rising

If there is a rock star among industrial metals, it’s zinc.

Why Manufacturers Need to Ditch Purchase Price Variance

The metal just rose 15% in only one month and it’s now hanging near a 4-year high. Zinc has been the only base metal able to fight this bearish commodity market that we have been in since 2011. While most metals in the group kept falling like dominoes, zinc has managed to hold its value well. We noticed this divergence just a year ago.

The metal’s fundamentals are mixed. Zinc is supposed to move in to deficit but most analysts say that it will take some time until that deficit materializes. Demand is expected to remain robust and the impeding closure of of the world’s two biggest mines (Brunswick and Century) could create supply constraints.

The technical picture tells a more positive story. The market is not letting prices fall and it seems like zinc takes every chance it gets to move up. Recent weakness in the dollar drove zinc prices up (and most base metals), but the metal will soon meet resistance near $2,400 per metric ton.

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Global Slow Growth: The New Normal?

by Stuart Burns May 19, 2015 Commodities

An interesting post in the FT by a leading economist examines the growing concern that seven years after the financial crisis and the use of unprecedented stimulus measures and extended near-zero interest rates,the world may be stuck in a long-term trend of low growth.

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The author, Gavin Davis, is not to be dismissed as just another academic, he was head of the global economics department at Goldman Sachs from 1987-2001, and served as an economic policy adviser to the British government in addition to being an external adviser to the British Treasury.

Chinese, Japanese Growth Down

Global growth is unquestionably slowing.

The three largest independent economies are all struggling to achieve strong growth. Chinese activity dipped sharply last month, and the estimated rate of growth is now 5.3%, well below the government’s 7% target for the 2015 calendar year leading many to hope yet another stimulus is on the way, but so far we have not seen much more than a relaxation in lending and reductions in interest rates.

Japanese growth remains weak in spite of Abenomics. Remarkably, after recessions in parts of the Eurozone the only major economy showing some resilience is the EU where overall growth could be approaching 1.8% in spite of excessive austerity measures.

Davis cites a colleague’s research that tracks two measures of US activity used to summarize the “state of the economic cycle.”

The Slow Normal

According to his models, the probability that the economy is now in a state of strong expansion has dropped from 70% in December 2014 to under 40% now. Over the same period, the probability that the economy is in recession has risen from zero to 14% – still low he admits, but not entirely negligible.

The expectation is that US growth will rebound in Q2 but will not be enough to raise 2015 growth as a whole and could well result in a downgrade for the year as a whole. It’s hard to see China, the engine of growth for the last ten years or more, suddenly creating the level of demand that will significantly lift global GDP in the next few years.

US Growth Nearly Halted

In the US, the official GDP growth rate in Q1 was only 0.2%, while Davis’ model of underlying activity is showing 1.8%. This may, as in some previous years, be more down to a weak first quarter due to weather but the real worry is that the rate of productivity growth is slowing and with it the potential for a long-term rise in living standards and, hence, growth. The long-term growth rate of the US economy has fallen from 3.3% in 2003 to 2.3% now.

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Tata Steel Says Talk of UK Long Products Sale is False, Rio Denies Pacific Aluminium Sale

by Jeff Yoders May 19, 2015 Commodities
Tata Steel Says Talk of UK Long Products Sale is False, Rio Denies Pacific Aluminium Sale

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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Manufacturers: Learn About Supply Chain Risk Management from the Best

by Kyle Fitzsimmons May 18, 2015 Global Trade

ATTN: manufacturers, if you haven’t factored supply chain risk management into your global procurement strategy then now is the time to take a long, hard look at what AGCO is doing with the help of riskmethods.

The world’s largest manufacturer of agricultural machinery, AGCO won the “Excellence in eSolutions” award for its “Procurement transformation” achievements. Find out their secret to success by joining us for the webinar, Award-Winning Supply Chain Risk Management at AGCO with Thomas Kase, VP at Spend Matters, and Jan Theissen, director, Strategy & Methods, Global Purchasing & Materials Management at AGCO.

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Steel Sheet Prices: Going Up, Down or Nowhere Fast?

by James May May 18, 2015 Commodities
Steel Sheet Prices: Going Up, Down or Nowhere Fast?

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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OECD Confirms What We Already Knew: The Global Steel Market is Barely Growing

by Stuart Burns May 18, 2015 Ferrous Metals

Like most governmental, or worse intergovernmental, bodies the Organisation for Economic Co‑operation and Development is more dedicated to talking shop than legislating, and a report following the recent meeting of the OECD Steel Committee is no exception. Long on talk and short on hard recommendations.

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As a snapshot of the current, global steel market it deserves a pause and review even if its recommendations are likely to be largely ignored by those governments that can most have any beneficial impact on the market.

Their first finding, and this will come as no surprise to anyone in the industry, is global apparent steel use has nearly ground to a halt in 2015. According to the OECD’s March 2015 “Interim Economic Assessment,” the effects of lower oil prices and monetary policy easing have led to a slight improvement in economic growth prospects in the major economies, but the near-term outlook is still one of reduced world GDP growth.

Miniscule Growth

Global crude steel production grew by only 1% in 2014, driven by China’s slowdown and modest growth in developed economies. In the first quarter of 2015, global crude steel production decreased by 1.8%, while Chinese crude steel production in the first quarter of 2015 fell by 1.7%, reaching 811.5 million metric tons in annualized terms.

In the rest of the world, crude steel production was 810.8 million mt in the first quarter of 2015, in annualized terms, down 1.9% compared to the previous year. Looking forward, global apparent steel use (of finished steel products) is expected to grow by only 0.5% in 2015 and by 1.4% in 2016, after 2014 when it grew by an equally anaemic 0.6%.

Anyone active in the North American market will not be surprised to hear that OECD expects demand here to decline by 0.9% in 2015 and remain weak in Central and South America. Only the Middle East and Asia, outside of China, are expecting to show decent growth with India probably leading the way.

In light of the poor growth prospects, and discussion went so far as to suggest we may be in a permanently low steel growth environment from here on as population growth slows and populations age, overcapacity and the consequences thereof featured highly in the committee’s attentions.

Too Much Investment

Too much new steel investment continues to be made, often aided and abetted by governments even though overcapacity is chronic globally and severe in markets where normal market forces do not provide counterbalancing controls. As a result, steel-related trade actions are on the rise, with complaints accounting for as much as 25% of the total number of complaints brought to the WTO in recent years.

This isn’t going to get any better in 2015-16 and will create distortions in markets as producers switch their sales focus in response to legislation.

Mandatory Climate Change Comment

No intergovernmental meeting would be complete without reference to climate change or environmental factors and, not to disappoint, the OECD wraps up with the observation that progress on low-carbon industrial innovation over the next decade is crucial. The iron and steel sector accounts for about 22% of total industrial energy use and 31% of industrial, direct CO2 emissions. So, like it or not, changes in environmental legislation are going to have a major impact on the industry in coming years, particularly in those countries where these standards are actually enforced.

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