Industry News

A new report attempts to quantify government subsidization of Chinese steel and the Fed has left interest rates alone again.

Steel Associations Release Chinese Subsidy Report

Five of the leading American steel trade associations today released a report documenting that the steel industry in China is heavily subsidized by its government, and the rapid growth in the industry there has been fueled by government subsidies and other market-distorting policies.

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The report was released by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of North America and the American Institute of Steel Construction.

The report analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis also found that these subsidies and policies have led to tremendous overcapacity and created a highly fragmented domestic steel sector in China made up of many inefficient, and heavily polluting, companies.

The full report is available from AISI.

Fed Holds Rates Steady Again

The Federal Open Market Committee of the Federal Reserve decided to maintain the target range for the its benchmark interest rate, the federal funds rate, at 1/4 to 1/2 of 1%.

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The Fed, in a statement after a two-day meeting of its policy-making committee, said that the economy had overcome wobbles this year and that job creation had increased with moderate economic growth. The central bank added that it saw fewer clouds on the horizon as the U.S. entered the eighth year of an economic expansion.

reuters_chartoftheweek_550_072716London Metal Exchange copper edged down but held above one-week lows hit in the previous session ahead of the outcome of a Federal Reserve meeting where it held rates steady, keeping costs lower for capital-intensive commodities. Source: Reuters.

Total crude steel output in the first five months of 2016 fell by 2% from the same period last year. Total crude steel production stood at 659.9 million metric tons in the first months of 2016, a slight decline from the 673.2 mmt in 2015, according to latest data from the World Steel Association.

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China also missed its goal to reduce steel production in the first half, achieving only a third of what it promised.

Baosteel and Wuhan’s Troubled Merger

Listed units of Baosteel Group, the second-largest Chinese steelmaker, and Wuhan Iron and Steel Group, the sixth-largest, said in separate stock exchange announcements on June 26 that they are planning on restructuring together.

While the two state-owned enterprises didn’t provide any details on what that entailed, industry experts say one possibility is that Baosteel may have been ordered by Beijing to take over all or a majority of Wuhan Steel amid a broader push to reduce the number of state-owned enterprises.

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The way in which the restructuring is done will be a major indication of how the government plans to transform other smoke-stack sectors of the economy where SOEs dominate. Investors will, in particular, be watching whether Baosteel is allowed to shutter much of the high-cost production at Wuhan Steel or whether profits have to be sacrificed to jobs retention as the government seeks to avoid any threat to social stability.

The Department of Commerce issued final anti-dumping and subsidy orders on Thursday, affirming and adding on to initial tariffs on cold-rolled steel flat products from Brazil, India, Korea, Russia, and the U.K. The duties are already in effect and will remain so for five years to counteract dumping and government subsidization.

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Commerce determined that imports of cold-rolled steel from Brazil, India, Korea, Russia, and the U.K. have been sold in the U.S. at dumping margins of 14.43% to 35.43%, 7.60%, 6.32% to 34.33%, 1.04% to 13.36%, and 5.40% to 25.56%, respectively. Commerce also determined that imports of cold-rolled steel from Brazil, India, Korea, and Russia have received countervailable subsidies of 11.09% to 11.31%, 10%, 3.91% to 58.36%, and 0.62% to 6.95%, respectively.

Some producers in Brazil were hit with 46.5% total duties while some producers in the U.K. will only receive 6.02% tariffs, which will continue to be collected by Customs and Border Protection upon import into the U.S. One producer in the Republic of Korea was hit with 64.62% total duties on cold-rolled imports.

Brazil Investigation

Brazil’s Usiminas Siderurgicas de Minas Gerais did not respond to all of Commerce’s requests for information and, therefore, Commerce calculated a final dumping margin based on adverse facts available of 35.43% and levied 11.09% countervailing duties on the company for a total penalty of 46.52% tariffs.

Korea Investigation

In the Korea anti-dumping investigation, Commerce found that dumping had occurred by mandatory respondents POSCO/Daewoo International Corporation and Hyundai Steel Corporation at dumping margins of 6.32% and 34.33%, respectively. Commerce calculated a final dumping margin of 20.33% for all other producers/exporters in Korea.

What’s interesting about this investigation is that while Commerce calculated a final subsidy rate of 3.91% for Hyundai Steel, the second mandatory respondent, POSCO, was unable to confirm certain key elements of its response when the Commerce team conducted verification at its headquarters in Korea. Therefore, Commerce calculated a subsidy rate based on adverse facts available of a whopping 58.3% meaning that POSCO gets a total anti-dumping/countervailing duties tariff of 64.62%. Commerce calculated a final subsidy rate of 3.91% for all other producers/exporters in Korea.

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The successful petitioners for these investigations were AK Steel Corporation, ArcelorMittal USA, Nucor Corporation, Steel Dynamics, Inc., and United States Steel Corporation.

Adobe Stock/ Björn Wylezich

Adobe Stock/ Björn Wylezich

Zinc prices, along with nickel, rallied to hit multi-month highs last week as investors hedged on continued supply disruptions.

According to a report from the Financial Times, the zinc price climbed to its highest point in 14 months to $2,275.5 per metric ton on the London Metal Exchange. Investor sentiment surrounding commodities has improved due in part to a weaker dollar and growing oil prices, in addition to government stimulus in China. That stimulus has enhanced the Far East nation’s transportation and infrastructure sectors.

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Meanwhile, nickel could reach as high as $12,000 per metric ton.

“You could easily be forgiven for thinking the market has now become the London Nickel Exchange as … that is where most of the volume is trading and suggests that for the moment it has become the favoured metal of the speculators,” Malcolm Freeman, director at Kingdom Futures, told the news source.

Back to zinc, which has seen its price more than 40% higher in 2016 following a number of mine shutdowns. Citing data from the International Lead and Zinc Study Group, the global zinc market deficit hit 68,700 metric tons in the first five months of 2016, compared to the supply surplus of 177,000 metric tons over the same time in 2015.

Global stocks rally, metals see gains

In his week-in-review, our own Jeff Yoders wrote that global stocks rallied, and metals along with them last week, with precious metals helped by Brexit and sustained despite neutral fundamentals.

“Yet skulking under this prosperity lies a specter that threatens to erode prices and even affect the positive performance of those stock markets: Chinese overproduction,” Yoders wrote.

You can find a more in-depth zinc price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

The London Metal Exchange is seeing volumes fall while Japan and China spar over anti-dumping duties the latter slapped on the former for electrical steel imports.

LME Capacity, Official Storage Both Fall

The number of London Metal Exchange physical storage units continues to decline in tandem with falling registered stocks. As of July 8 there were 608 registered warehouses for the storage of base metals, down from 621 a year ago and from almost 700 in 2012 and 2013. Reuters’ Andy Home has more.

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Total exchange-registered stocks have fallen to 3.6 million metric tons from over 7.5 million over the same time frame, largely due to the LME’s forced attrition of load-out queues at locations such as Detroit and the Dutch port of Vlissingen.

Japan Condemns Chinese Electrical Steel Tariffs

China’s decision to levy anti-dumping duties on electrical steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday.

China’s decision to levy anti-dumping duties on electric steel products from Japan was unjust and regrettable, the chairman of the Japan Iron and Steel Federation said on Monday. “Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the Japan Iron and Steel Federation, told a news conference.

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“Japan has been explaining that exports of the electric steel products from Japan had caused no injury to local industry, but China has rejected our claims,” Kosei Shindo, the chairman of the federation told a news conference.

Source: Reuters/Energy Information Administration.

Source: Reuters/JKempEnergy/U.S. Energy Information Administration.

Consumption of natural gas by U.S. energy providers/utilities has steadily increased for the last decade.

Russia won’t cooperate with OPEC on oil production cuts and U.S. architecture billings are still up in June, but just not as much as they were in May.

Russia Won’t Coordinate Oil Production Cuts

Russian Energy Minister Alexander Novak said in an interview he has ruled out possible coordination with the Organization of Petroleum Exporting Countries on oil output after a failed attempt to jointly maintain production levels earlier this year.

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“We do not discuss the issues of coordination of actions between Russia and OPEC… We can’t agree on production cuts as we don’t have such tools and mechanisms,” Novak told Reuters in interview cleared for publication on Wednesday.

Architecture Billings Down But Still Up

The Architecture Billings Index was positive in June for the fifth consecutive month. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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The American Institute of Architects reported the June ABI score was 52.6, down from the mark of 53.1 in May, but this score still reflects an increase in design services (any score above 50 indicates an increase in billings).

Gold and most precious metals are still gaining from the bounce they received after the U.K. voted to leave the European Union and most bankers and analysts expect that to continue. In contrast, European aluminum premiums are falling.

Poll: Gold’s Brexit Bounce Has Legs

Britain’s vote to leave the European Union has led analysts to raise their gold price forecasts again this year, after the decision shook up financial markets and sparked a rally in the precious metal to two-year highs.

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A poll of 25 analysts and traders over the last two weeks returned an average price forecast for this year of $1,280 an ounce, up from $1,209 in a similar survey in April, and nearly 15% higher than a poll at the start of the year.

European Aluminum Surcharges Keep Falling

Surcharges for physical aluminum in Europe are expected to gradually extend their recent decline due to sluggish demand as metal is released from warehouses when finance deals become less lucrative.

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The premiums, which consumers pay on top of the London Metal Exchange cash price for immediate delivery, were quoted at $115-$120 a metric ton for duty-paid metal in Rotterdam, down some $10-$15 in recent months and from $140-$150 in early February.

Rare earths are hitting new price lows as major manufacturers continue to invest in new technologies to substitute them out due to price volatility. Iron ore is still oversupplied, but stockpiles are falling faster than expected.

Substitution is Hindering Rare Earths Demand

Reuters’ Andy Home recently wrote about how large manufacturers are finding substitutions for heavy rare earths in a gambit to avoid the boom and bust price cycles of the magnet and battery metals that previously disrupted their supply chains.

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Japanese automotive giant Honda and its technology partner Daido Steel recently announced a materials breakthrough in the electric motors used in hybrid vehicles. Starting with the next generation of “FREED” minivan due to go on sale later this year, Honda will be using a motor that doesn’t need heavy rare earth metals.

Specifically, it will be the world’s first hybrid engine, a gasoline and electric motor, to dispense with terbium and dysprosium.

“Major deposits of heavy rare earth elements are unevenly (distributed) around the world (…) thus, the use of heavy rare earth carries risks from the perspectives of stable procurement and material costs,” Honda said in a statement.

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A fairly innocuous sounding statement but one that cuts to the heart of the roller coaster history of the rare earths market.

Iron Ore Stockpiles Falling Fast

Iron ore’s wild price gyrations this year may be masking a small, but significant, shift in the underlying fundamentals for the steel-making ingredient. While seaborne iron ore remains a well-supplied market, it appears the level of over-supply has been diminishing faster than many expected, leading to an improvement in the supply-demand balance, Reuters’ Clyde Russell writes.