Industry News

The monthly Raw Steels MMI® registered a value of 52 in September, a decrease of 5.4% from 55 in August.

Raw-Steels__September-2015In July, it seemed like steel prices were stabilizing for awhile, but prices fell again last month. The decline wasn’t as bad as it could have been, considering that last month China’s stock market sell-off continued and some industrial metals took serious hits.

The bearish commodity environment makes it hard to pick a bottom, proving once again that buying on weakness hasn’t been the best strategy for metal buyers during this market cycle.

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The Real Steel Story

Fundamentally, the steel story is similar to other base metals and can be summarized as: a glut of raw materials everywhere and weak demand unable to keep the market in balance, with China being the main driver on both sides of the equation.

With imports into the US still high, it’s no wonder that US steelmakers keep fighting against the flood of imports. In August, new anti-dumping petitions were filled for HRC and CRC products. The petitioners are the usual group of US producers that have long said that foreign steel imports are subsidized by overseas governments in complete violation of US anti-dumping law. When it comes to price direction, we don’t see these anti-dumping petitions having that much impact.

Demand Side Drivers… Of Cars

The demand picture is mixed and not encouraging:

The car industry seems strong in the US with August numbers showing that it is on track to record one of its best sales years since 2000. On the other hand, the latest Chinese automotive numbers turned out to be even weaker than expected. Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013.

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While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Crude oil fell again in August, with prices sliding as low as $38/barrel. Low energy prices will continue to hurt the energy industry, therefore lowering demand for steel.

What This Means For Metal Buyers

Prices remain weak and it seems clear that there is little going on in the market that could push steel prices up this year. Placing long-term purchases while markets keep falling is not a good strategy. With prices declining at a fast pace, it’s very important for steel buyers to keep an eye on the market and be ready when market sentiment shifts.

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US auto sales remain the bright spot in the drivers of the monthly Automotive MMI®.

The Real Steel Story

Seasonally adjusted annual rate of sales for light vehicles rose to 17.8 million compared with 17.3 million a year earlier and was the highest since July 2005, according to researcher Autodata Corp. August was the fourth consecutive month that adjusted sales remained above the 17 million mark.

Automotive August-2015The Automotive MMI® still registered only a value of 73 in September, a decrease of 3.9% from 76 in August. Weak prices for most of the base metals that make up the index (HDG, copper, aluminum and lead) abound despite strong end user sales in the US. In China, auto sales are falling with the rest of the domestic economy there.

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China Again

Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013 and such a large economy’s fall is dragging down the prices of automotive metals just as it is dragging down the prices of oil and other commodities.

Major iron ore producers, Rio Tinto PLC, BHP Billiton, Vale SA and Fortescue Metals Group Limited have ramped up production again despite massive iron ore and steel oversupply. Zacks.com believes they intend to continue exploring for iron ore in Australia despite lower growth forecasts from China and weaker iron ore prices, betting on continued strength in iron ore demand over the long term.

What This Means For Metal Buyers

This is normal behavior from major miners such as the Big Three (Rio, BHP and Vale) and almost-there cousin Fortescue. They can make a profit by squeezing volume out of their mines at low prices based on scale, alone, but iron ore investment is coming from non-traditional miners, as well.

India’s Essar Steel is making a $1.9 billion investment in the steelmaking ingredient in Minnesota, of all places. It’s difficult to imagine how such an investment makes long-term sense for Essar without a turnaround in both iron ore and steel prices. Since high-strength automotive steel alloys are one of the best-performing steel products on today’s market, it’s even more difficult to imagine those prices turning around without continued strong auto sales in the US and Europe and a turnaround in China and other emerging markets.

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This Month’s Prices and Trends

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Based on the most recent Commerce Department Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported today that steel import permit applications for the month of August total 3,009,000 net tons.

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This was a 9% decrease from the 3,315,000 permit tons recorded in July and a 7% decrease from the July Preliminary imports total of 3,243,000 nt. Import permit tonnage for finished steel in August was 2,339,000 nt down 9% from the preliminary imports total of 2,578,000 in July. For the first eight months of 2015 (including August SIMA and the July preliminary number) total and finished steel imports were 27,972,000 nt and 22,779,000 nt, respectively, down 2% and up 6% from the same period in 2014.

The estimated finished steel import market share in August was 26% and is 30% on the year-to-date.

Finished steel imports with large increases in August permits vs. the July Preliminary included wire rods (up 36%), tin plate (up 21%) and oil country tubular goods (up 11%). Products with significant year-to-date increases vs. the same period in 2014 include rebar (up 46%), line pipe (up 43%), standard pipe (up 30%), tin plate (up 20%), sheets and strip hot-dipped galvanized (up 18%), wire drawn (up 11%) and cold-rolled sheets (up 10%).

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In August, the largest finished steel import permit applications for offshore countries were for South Korea (317,000 NT, up 3% from July Preliminary), Japan (220,000 NT up 23%), Brazil (181,000 NT, up 92%), China (172,000, down 39%) and Turkey (141,000 NT, down 38%).  Through the first eight months of 2015, the largest offshore suppliers were South Korea (3,683,000 NT, up 2% from the same period in 2014), Turkey (1,978,000 NT, up 51%) and China (1,977,000, down 2%).

Aluminum premiums may be increasing in Japan and Indonesian officials assured industry leaders that the nation’s unrefined ore ban is here to stay.

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Japanese Aluminum Premiums To Rise

Some aluminum producers have offered Japanese buyers a premium of $110 per metric ton for October-December primary metal shipments, up 10% from the previous quarter, four sources involved in quarterly pricing talks told Reuters on Tuesday.

Ban Will Stay

Indonesia will keep its export ban on nickel ore, contrary to recent media reports suggesting the country may relax curbs to prop up its slowing economy, senior government officials said.

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US stocks fell again yesterday as the Chinese economy again failed to impress investors. Mexico also announced it would pursue new steel anti-dumping duties.

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US stocks plunged Tuesday, extending a tumultuous period for markets into another week amid new evidence that China’s stubborn economic slowdown is damaging global commerce.

The trouble started with a weak reading on China’s manufacturing sector and was amplified by a 14.7% drop in South Korean exports for August, the first evidence of a decline in regional trade since China devalued its currency Aug. 11.

The Dow Jones Industrial Average tumbled 469.68 points, or 2.8%, to 16,058.35, its biggest one-day percentage loss since Aug. 24, when the blue-chip index plummeted nearly 600 points, or 3.6%.

Mexico Pursuing Anti-Dumping Duties Against China

Mexico will conduct an anti-dumping probe into steel wire rod from China, the economy ministry said on Wednesday.

Three companies operating in Mexico had asked the government to investigate, claiming that fast-rising imports, sold at lower prices than domestic-made steel, was hurting the local industry, according to a notice in the official gazette.

Last Week: Latest Metal Price Trends in the August MMI Report

The companies that asked the government to examine possibly anti-competitive trade practices are ArcelorMittal Las Truchas, Deacero, and Ternium Mexico, the gazette said.

conflict minerals filings 2013-14 chart

What will the number of IPSAs look like for 2015? Source: Deloitte

Recently, Deloitte put out a story in their Heads Up newsletter on what companies should be thinking about for their next Section 1502 (“Conflict Minerals Rule”) compliance reports, including how to best prepare for independent private sector audits (IPSA). Below are some nuggets for US manufacturing organizations to keep in mind. For an excellent rundown of the latest legal challenge to SEC’s Conflict Minerals Rule from the US Court of Appeals, read my colleague Jeff’s recent article.

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Currently, there is uncertainty as to whether SEC will require IPSAs for all companies filing conflict minerals reports (CMR) for calendar-year 2015. More on that below, but first, a quick refresher: Read more

New EPA water rules were blocked by a federal judge and two Chinese, state-owned aluminum giants could combine forces.

Water Rules Blocked

New water rules from the Environmental Protection Agency aimed at protecting small bodies of water were set to go into effect Thursday, but a federal judge blocked them from being implemented in 13 states.

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Those states have sued the federal government over the rules, arguing that they are an overreach, “overly broad and infringe on [state] sovereignty.” Congress has proposed a bill that would force the EPA to rescind or rewrite the rules.

Chinese Aluminum Giant

China is trying to push its two biggest aluminum businesses together as part of a planned shake-up of state-owned enterprises, industry sources said, a move that would create the world’s largest aluminum maker. Power company State Power Investment Corp. is in talks to surrender its aluminum assets to Aluminum Corp. of China, allowing SPI to focus on power construction and generation, three industry sources told Reuters.

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Construction costs fell further in August, according to IHS Inc. and the Procurement Executives Group (PEG).

IHSPegAugust550

The current IHS PEG Engineering and Construction Cost Index (ECCI) registered 45.7 this month, down from 48.8 in July and well below the neutral mark of 50. The headline index has not indicated rising costs since December.

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The pricing environment appears to be deteriorating with the current materials/equipment index registering its lowest reading since. The underlying detail shows falling prices for nine of the 12 individual components tracked by the survey.

Prices for steel products continued to fall and showed particular weakness with the indexes for fabricated structural steel, carbon steel pipe, and shell and tube heat exchangers all indicating that prices are falling and that price declines have become more widespread.

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“Steel is a buyers’ market and will remain so,” said John Anton, principal economist, IHS Pricing and Purchasing, “Current import prices are far cheaper – up to 40% – than domestic prices, but if you are doing public projects with Buy America requirements, you cannot use them. However, imports can drag down prices your rivals pay, putting pressure on mills to give you similar deals.”

Access the original IHS research here.

Two major materials handling companies merged as equals and the last US rare earths mine has shut down.

Konecranes, Terex Agree To Merge

Konecranes and Terex Corp. have announced a merger of equals.

The combined company, to be called Konecranes Terex Plc. Both companies are global lifting and material handling solutions companies. They have estimated combined 2014 revenues $10.0 billion and EBITDA of $845 million. The combined company will maintain headquarters in Hyvinkää, Finland as well as Westport, Conn.

Molycorp Shuts Down Mountain Pass

Molycorp, Inc. announced today that it will transition its Mountain Pass Rare Earth Facility to a “care and maintenance” mode while it plans to continue serving its rare earth oxide customers via its production facilities in Estonia and China. Customers of the company’s rare earth magnetic materials, as well as its rare earth-based water treatment products, will not be impacted.

Rare earth production at the Mountain Pass facility will be suspended no later than October 20, 2015, and the site, including idled machinery and equipment, will be maintained to ensure it remains in safe and stable condition, and that government regulatory commitments can be met.

Rare earth pricing, which has declined dramatically over the past four years, was a key factor in the decision to suspend rare earth production at Mountain Pass, company officials said.

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the US imported a total of 3,243,000 net tons of steel in July.

Free Download: Latest Metal Price Trends in the August MMI Report

This includes 2,578,000 nt of finished steel (up 4.6% and 3.7%, respectively, vs. June final data).

On the year-to-date, through seven months of 2015, total and finished steel imports are 24,964,000 and 20,440,000 nt, respectively, no change and up 10% vs. the same period in 2014. Annualized total and finished steel imports in 2015 would be 42.8 and 35.0 million nt, down 4% and up 4% respectively vs. 2014 if they continue at this pace. The finished steel import market share was an estimated 27% in July and is estimated at 31% year-to-date.

Individual Steel Product Import Increases

Key finished steel products with a significant import increase in July compared to June are reinforcing bars (rebar).  up 57%; plates in coils, up 29%; sheets and strip hot-dipped galvanized, up 26%; cold-rolled sheet, up 25%; heavy structural shapes, up 12%; sheets, strip  and all other metallic coatings are up 12%; and cut-length plates are up 11%.

Free Download: Latest Metal Price Trends in the August MMI Report

Major products with significant year-to-date import increases vs. the same period last year include line pipe, up 55%; rebar, up 51%; standard pipe, up 33%: sheets and strip hot-dipped galvanized, up 22%: tin plate, up 17%; plates in coils, up 16%; cold-rolled sheets, up 14%; heavy structural shapes, up 13%; and cut-length plates, up 12%.